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New Government Should End BC Hydro, ICBC Shell Games

Liberals manipulated Crowns for political gain. It’s time for an approach based on policy, not politics.

By Richard McCandless 18 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.

The Green Party, holding the balance of power, now must make the transformation from critic to helping a new government deal with the issues facing the province.

Even if the NDP’s nine-vote margin of victory in Courtenay-Comox is reversed after a recount and there is a Liberal majority, the three Green MLAs could steer the Liberals toward good public policy.

The BC Liberals clearly lost the election. Despite a relatively strong economy and the usual fear campaign about the NDP, the Liberal vote dropped from 44.1 per cent in 2013 to 40.9 per cent in 2017. The NDP support held at close to 40 per cent (higher in the Lower Mainland), while the Green party support rose from 8.2 per cent in 2013 to 16.7 per cent.

Kevin Falcon, a former Liberal finance minister, laid part of the blame on the government’s focus on politics instead of sound public policy.

Martyn Brown, the former chief of staff to Premier Gordon Campbell, wrote that the Liberal government had lost its moral compass.

The 2017 election may mark a new stage in the re-alignment of the political parties in this province. Much depends on whether the Green leadership decides that the Liberal party should stay in power, or whether it is time for a truly new approach.

Power corrupts

All governments eventually lose touch with the electorate, and are replaced with new people with new ideas. These changes are generally positive, as the new perspective tends to refresh the machinery of government.

The election provides an opportunity for the NDP, supported by the Green MLAs, to effect some fundamental reforms. It is an opportunity to demonstrate that bringing forward good public policy can be more than an election promise.

As potential king (or queen) makers, the Green leadership is acutely aware that their platform aligns more closely with the NDP’s ideals, particularly on fundamental matters like reforming party finances and promoting a fairer distribution of economic benefits.

Federal Green party leader Elizabeth May has said the election was a vote for change, implying that the Green party should support an NDP government.

Taking politics out of BC Hydro, ICBC a good start

In 2001, the newly elected BC Liberal government vowed to take politics out of the management of BC Hydro and ICBC. The BC Utilities Commission’s authority to set BC Hydro’s rates was restored, and it was also given the authority to set rates for ICBC’s compulsory basic insurance.

Following the 2009 recession, the government became more active in the financial affairs of both major public corporations. Their profits helped bolster the government’s revenues, and their cash transfers reduced the government’s direct borrowing requirements.

From 2010, when the government began to appropriate ICBC’s funding reserves for claims under optional insurance policies, to 2012, when the government took direct control of setting BC Hydro’s rates, the priority was to use the two Crowns to help the government’s finances. This pattern of control was strengthened in the following years.

In 2013, cabinet imposed limits on the annual change in basic insurance rates, and announced a 10-year financing plan for BC Hydro.

Again, BC Hydro’s rate increases would be kept artificially low and its profits inflated by pushing expenses into future years and claiming future revenues in the current year.

Cabinet orders in March 2014 included the requirement that the BC Utilities Commission approve a highly dubious “rate smoothing” deferral account, allowing BC Hydro to claim revenues expected in the future. This let BC Hydro continue to suppress electricity rates while reporting higher paper profits and paying a dividend to the government.

The government’s politicization of the finances of BC Hydro and ICBC has come at the expense of future customers in a classic pretend-and-extend gambit.

BC Hydro customers now face a much higher debt liability, due in part to a $3.2-billion increase in the net deferral balance — the expenses pushed into the future, and the projected revenues claimed today — between 2011/12 and 2015/16. The debt, also increased by BC Hydro’s recent massive capital expenditure program and the premature Site C project, may result in a downgrade to the province’s credit rating.

At ICBC, the failure to curb the growth in basic claims costs and the government’s orders to keep rate increases small has reduced the corporation’s once healthy capital reserves to below the regulatory minimum levels for 2016/17. A major rate shock in November, when the next rate increases are scheduled, seems unavoidable.

The government has been loath to disclose the true state of the financial deterioration at these two vital public corporations. The cabinet has ordered BC Hydro rate increases to be capped at 3.5 per cent for this year, and three per cent for 2018, when my analysis indicates increases in the range of 10 to 12 per cent are required to meet the corporation’s needs. With ICBC, the government has been using funding from the highly profitable optional program to subsidize the rates of the compulsory basic program. In December the government ordered the utilities commission to approve a 4.9 per cent increase for the 2016 year (which began on Nov. 1), effectively ending the review of the finances of the basic program. ICBC estimated that a 15 per cent increase would have been required without a cabinet-ordered $470 million transfer from the optional program’s reserves.

The government’s manipulation of the finances of the two public corporations has been incremental, and therefore has generally occurred out of the glare of the media spotlight.

Late in the election campaign, however, the BC Liberals claimed that a four-year rate freeze could cost BC Hydro some $1.2 billion in foregone revenue, or the equivalent of a 28 per cent rate increase. A freeze on basic insurance rates would result in a loss of some $2 billion, or the equivalent of a 75 per cent rate increase, the Liberals said.

This disclosure, meant to damage the NDP, provided the public with a glimpse of what the years of rate suppression have really meant.

The election result provides an opportunity for a new NDP government to order an independent examination of the books of both BC Hydro and ICBC and to begin restoring both corporations to a healthier financial condition.

This important project will take time and involve some painful public policy trade-offs on sharing the financial burden between the taxpayers and the corporation’s customers — drivers and anyone who uses electricity.

It will also require the government to review past policy choices affecting the future cost of electricity. On auto insurance, more money might be needed for traffic safety education and enforcement, and coverage limits considered to address the soaring cost of injury claims

But maintaining the status quo, even with a green tinge, will not lead to good public policy or improved public trust in government.  [Tyee]

Read more: BC Politics

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