Liberals about to roll out the Trojan Horse of Hydro borrowing

Vaughn Palmer
Vancouver Sun
February 27, 2007

VICTORIA - The B.C. Liberals are preparing to lift a two-decades-old limit on borrowing at BC Hydro, freeing the giant utility to undertake hundreds of millions of dollars worth of new projects.

"Government and BC Hydro are currently reviewing the corporation's debt management policies," according to last Tuesday's budget documents.

The goal being to "optimize fiscal efficiency while providing flexibility to refurbish aging infrastructure and expanding capacity to support the province's economic growth."

The review focuses on two written-into-law limitations on Hydro borrowing, one a cap on total net debt, the second a mandated ratio between debt and equity.

The Liberals have yet to announce specifics, but there's little doubt where they are headed.

Asked about the aforementioned passage in the budget, Finance Minister Carole Taylor said it was tied to the goal of making B.C. self-sufficient in energy production within a decade.

Hydro needs to rebuild the existing network of dams and generating stations, then build or acquire new capacity, Taylor said in an interview.

Such as the long-discussed Site C Hydro electric dam on the Peace River? "That and anything else," Taylor replied.

There'll likely be more about Liberal intentions in the revised B.C. energy plan, scheduled for release today.

But the budget documents provided a few more details about Hydro's ambitions.

The company forecasts $1 billion in capital spending in the year ahead, rising to $1.4 billion after 2008 "to increase and sustain our assets."

Upkeep is a growing concern. "Half of BC Hydro's generation capacity is over 30 years old. BC Hydro is therefore exposed to increased risk of equipment failure and reduced service reliability to our customers."

There are already a half a billion dollars worth of makeovers in the works, including the Mica, Peace Canyon and Shrum facilities. Plus replacement of the Coquitlam dam, rated as "unsafe under a moderate to large earthquake."

Another $2 billion worth of projects are in the planning stage. Hydro is looking at adding two more generating units to the Revelstoke dam over four years. The Strathcona, John Hart and Ruskin facilities are slated for major reworking or outright replacement.

The corporation is also evaluating a pricey ($500 million) network of so-called "smart meters." It could support conservation, sale of off-peak power, management of loads and other (attention, grow ops!) forms of monitoring.

Hydro's offshoot, the B.C. Transmission Corp., has its own plan -- a 10-year, $3.2-billion upgrade to the power grid, most of it for increased carrying capacity.

Some of this would be covered through cash flow, but it would also involve a hefty amount of borrowing.

The budget documents show the Hydro debt, less than $7 billion when the B.C. Liberals took office, soaring well past $9 billion over the next three years. And that's where the provincial legislature enters into the picture.

Hydro is currently limited to a maximum net debt of $8.8 billion, under a law passed in 1984 when Bill Bennett was still premier.

Up to that point, it had been an almost-annual exercise in the B.C. legislature to increase the Hydro debt limit.

Successive governments expanded the Crown corporation's borrowing room from the-thought-to-be-enormous limit of $500 million at its creation in 1964, through multiple stages as each new power project was debt-financed.

But even as the Bennett government put through that final increment 23 years ago, it was acknowledging the end of the era.

The Revelstoke dam, last in the series of major projects on the Columbia and Peace river systems, was coming on stream. Hydro was already shutting down its construction arm and laying off a generation of dam builders.

And there'll be no returning to that earlier scale of activity, even if the Liberals approve everything in the BC Hydro and B.C. Transmission plans.

The 1984 debt limit was a disproportionate sum, amounting to more than half the total provincial debt of the day. Even if the limit were boosted to, say, $10 billion today, it would account for less than a third of the current provincial debt.

Hydro's borrow-and-spend approach will have consequences for ratepayers, however.

Governments have turned the giant utility into a cash cow, through cabinet directives, policies and regulations aimed at ensuring a steady flow of dollars into central government.

In 2006, Hydro contributed more than a half a billion dollars to central government in dividends, tax offsets and water fees.

Unless the Liberals propose to waive any of those, the heavier debt load will surely necessitate rate increases, part of the price tag of making the province greener and self-sufficient in energy.