Columnist Les Leyne examines B.C. Hydro’s creative accounting,
As more than one reader has noted, B.C. Hydro sets a compelling example with its avid and creative use of deferral accounts.
To follow the example, customers could simply defer paying a big chunk of their Hydro bills for several years. Call all the money you’ve saved an earned bonus.
Then go and ski Whistler all winter. Or buy a new convertible. Whatever you like. It’s your money. You’ve earned it by not paying your bills.
The trick is accomplished through the miracle of deferral accounts. It’s a dreadfully dry topic that involves amortizing regulatory accounts and revenue requirements and a lot more boring jargon that make people’s eyes roll.
But what brings the issue home is the magical effect on executive bonuses. As colleague Rob Shaw reported, B.C. Hydro executives’ annual bonuses are tied partly to profit. If the corporation defers enough costs into the far-off future, it can create a profit where one previously didn’t exist.
So top executives took home a halfmillion dollars in bonuses last year based mostly on a profit that Auditor General John Doyle implied was a figment of their imagination.
Doyle said Hydro pushed almost $700 million in costs off into the future last year.
Abracadabra! What would have been a $249-million loss turned into a $447-million profit, which kept the bonus cheques coming for another year.
The government is taking the heat for this fancy footwork, and it was striking Tuesday to see how uncomfortable the Liberals are getting with the way Hydro manufactured these bonuses, and with public sector bonuses in general.
To their credit, the Liberals started the pot boiling by ordering disclosure of all top executive salaries and bonuses a few years ago. There’s been a cascading series of eye-openers since then. The absurdly high salaries earned by the bosses running the scant remnants of B.C. Rail drew fire early on, and the government eventually wound down the outfit.
High B.C. Ferries salaries came to light through other regulatory filings, and the government moved to cap them, at least in the future.
Bonuses to Community Living B.C. bosses were highlighted in the media recently, and the minister promptly banned them.
And while Energy Minister Rich Coleman dutifully defended B.C. Hydro Tuesday, he left himself some room to move against bonuses.
He’s in a bind. A watchdog has declared B.C. Hydro lost money last year, then turned the loss into a profit by putting off some bills. Then the bosses collected bonuses, based on the supposed “profit.”
They’re not the only ones enjoying the benefits of putting off the days of reckoning.
Hydro paid a dividend to the gov- ernment based on that “profit,” as well.
Although there is a place for deferral accounts, a good chunk of last year’s bonuses are indefensible and Coleman knows it. “This is all under review,” he said. “We’re taking a look at the whole thing to see how we can do it differently.”
It looks like the senior brass may eventually start sharing the pain the Liberal cabinet now routinely inflicts on itself. Ministers have essentially docked their own pay five per cent for the duration of the deficit cycle. They get little credit for that, and take nothing but heat when senior bosses continue to enjoy executive perks.
With the Occupy movement at its peak, it’s not a good time to be in the “one per cent” protesters have defined as the greedy few.
Apart from bonuses, the bigger problem with deferral accounts is the day of reckoning that will inevitably come.
They are justified and even mandated by the utilities commission in some cases, to smooth out peaks and valleys in Hydro’s performance.
But Doyle’s report is the second in four months to raise alarms about how big the postponements are getting.
The utility has $2 billion in costs deferred now and that will rise to $5 billion under the current plan.
The deputy ministers’ review of B.C. Hydro last summer noted increasing concern about their use, which essentially benefits current customers at the expense of those in the future.
Deferral accounts benefit users up to a point. But two independent reports now suggest B.C. Hydro brass have taken a good idea and ridden it to the point of exhaustion.