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Big Rate Increases Coming for BC Hydro, ICBC, Liberals’ Projections Reveal

In attacking NDP platform, Liberals pulled back curtain on coming price jumps for consumers.

By Richard McCandless 1 May 2017 |

Richard McCandless, a retired B.C. government senior manager, is a private intervener in the BC Utilities Commission’s current reviews of the rate increase requests for both the Insurance Corporation of BC and BC Hydro. More information is available on his website.

You may have heard the BC Liberal Party’s attack ads on the cost of the NDP’s election promises. The ones that claim the NDP plan will cost $6 billion over the next four years, and imperil the province’s credit rating.

Almost half of the $6 billion, according to the Liberal’s calculations, results from a freeze on the planned rate increases for BC Hydro and ICBC.

One might have thought the Liberals would have re-worked the numbers after Mike Smyth of the Province newspaper embarrassed finance minister Mike de Jong at the press conference unveiling the claimed $6 billion shortfall. Smyth pointed out that the Liberals claim that halting BC Hydro and ICBC rate increases would cost $3.2 billion was based on a four-year freeze, when the NDP platform only mentioned a one-year freeze.

Undeterred by the facts, Christy Clark used the $6 billion estimate during the televised leaders debate, and the party’s radio ads continue the misinformation campaign.

Catching the Liberals in an obvious distortion of the facts is to be applauded.

But the real story is what the Liberal costing says about the scandalous financial state of these two vital public corporations after years of the Liberal government’s politicization and mismanagement.

What the BC Liberal costing reveals

The Liberals’ analysis says a four-year freeze on BC Hydro rates will result in $1.21 billion in foregone revenue. Based on BC Hydro’s 2016 filing with the BC Utilities Commission, a one per cent rate increase generates $43 million in revenue.

That means — based on the BC Liberals’ numbers — that they are projecting a 28 per cent increase in BC Hydro rates over the next four years — seven per cent a year.

The BC Liberals’ projections for rate increases for ICBC’s basic insurance are even worse for customers. ICBC doesn’t provide a breakdown of its revenue forecasts from basic compulsory insurance and optional insurance. But my analysis of its 2016 rate review filing established that in the 2016/17 fiscal year, a one per cent increase would generate approximately $28 million in additional basic revenue.

The Liberals estimate that a rate freeze would result in some $2 billion in foregone revenue over four years. That means they are projecting 71 per cent increases in basic ICBC rates — or almost 18 per cent per year!

How did this happen?

In their haste to discredit the NDP platform, the BC Liberal brain trust have inadvertently revealed what years of mismanagement have wrought on the finances of these two vital public corporations.

Since 2012, when the government stripped the BC Utilities Commission of its rate-setting authority, cabinet has been setting BC Hydro’s annual rate increases well below the actual cost of acquiring and distributing electricity. By the enthusiastic use of deferral (or regulatory) accounting — claiming hoped-for future revenue now, and pushing expenses into the future — the resulting operating deficits have been transformed into paper profits, paid for by adding to BC Hydro’s rapidly growing debt.

To add insult to injury, the paper profits allowed the government to force BC Hydro to add more debt to pay $1.3 billion in dividends to the government from 2012 to 2016. These borrowed monies helped let de Jong proudly announce a decline in the government’s direct operating debt.

The story at ICBC follows a similar pattern. The government has deliberately suppressed the true cost of the compulsory basic insurance to keep rates “affordable.” But unlike BC Hydro, ICBC cannot hide the annual deficits by increasing debt. Instead, the government has cannibalized ICBC’s once-healthy capital reserve funds, which are there to ensure claimants get paid, to subsidize the basic insurance rates. By March, it was probable that the basic and optional reserves were below the minimum levels set by the government itself.

In other words, the government’s game of using the highly profitable optional program to cover the losses in basic insurance is coming to its inevitable end as the capital reserves are depleted. The end could have been postponed by a year or so if the government had not appropriated some $500 million of the capital from 2012 to 2015 to reduce the government’s operating debt.

The coming rate shock for customers

In their attack on the NDP promise to freeze rates at BC Hydro and ICBC, the BC Liberals have allowed a peek behind the curtain and revealed the true deterioration in the financial condition of the two public corporations.

BC Hydro has advised the utilities commission that it only requires rate increases of 3.5 per cent for 2017, three per cent for 2018 and an average of 2.6 per cent for 2019 to 2023. Those increases would produce about $500 million in revenue over four years, not the $1.2 billion in rate increases in the BC Liberals used in their attack on the NDP platform.

After the utilities commission forced ICBC to disclose in November that the basic program required $2.4 billion in new revenue from 2017 to 2020 (or the equivalent of a 117 per cent cumulative increase), the government stepped in and ordered the commission to approve a 4.9 per cent increase for 2016. This effectively ended any further embarrassment about ICBC’s deteriorating finances prior to the election. My December submission to the BC Utilities Commission provides much more background on the destruction of ICBC’s finances.

The BC Liberals’ projections confirm that the truth cannot be hidden indefinitely. BC Hydro customers, and especially ICBC policyholders, will be facing major rate increases to repair the financial damage caused by the government’s misguided rate suppression policy.

Little wonder then that the NDP’s plan for a financial review of both Crowns is a frightening prospect for the Liberals.  [Tyee]

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