B.C. Hydro spins a yarn on infrastructure projects
There were likely more people on the floor of the legislature listening to it than watching it live on television, but there was an interesting exchange at the legislature last week.
Energy Minister Michelle Mungall was being grilled by her opposition critic, B.C. Liberal MLA Tracy Redies.
First off, it was civil, which in and of itself is noteworthy. Redies posed questions and Mungall – by and large – provided answers.
But a few of those answers lacked – how would you put it – substance, detail.
You can’t necessarily fault Mungall for her answers – some could have just as easily come out of the mouth of her predecessor in the portfolio, former Energy minister Bill Bennett.
And that’s where the fault lies. Not with Bennett per se, but with B.C. Hydro officials trying to be too clever by half.
Mungall agreed with Redies that most capital projects at the utility come in “under budget.”
Huh? What projects? Which budgets, the original or the one made available at the ribbon cutting ceremony?
Here’s what Hydro’s former president and CEO, Jessica McDonald, had to say on the subject in November 2015: “BC Hydro has completed more than 550 infrastructure projects between fiscal 2011 and fiscal 2015, and collectively, these projects were delivered more than $71 million under budget.”
Wow. That’s more than two infrastructure projects a week for five years.
Can you imagine the number of environmental assessments, applications to the B.C. Utilities Commission, calls for proposals, tenders that would have been required?
Suspect the word smiths at the utility may have been playing around a bit with the definition of infrastructure and project.
So off in search of the Holy Grail.
Flipping through the pages of past provincial budgets, it turns out 43 projects at the utility – valued at more than $50 million in capital expenditures – were approved by the Liberals while in power.
They run the gamut from a generator stator replacement at the Mica Dam first estimated at $52 million to Site C, estimated at $7.9 billion less than three years ago.
The new stator ended up costing $89 million, according to the government’s three-year fiscal plans, and Site C is currently at $9.4 billion, a jump of 19 per cent since 2014 or nearly five times the rate of inflation.
Don’t get me wrong, the utility is good at bringing certain projects in on budget.
Projects that might be defined as a utility’s equivalent to changing a light bulb: switchgear replacements, spillway gate reliability upgrades and the like.
But when the first estimate for a project exceeds $100 million, not so much, and particularly when there may be far more reliance on outside contractors than there might be with a control system upgrade.
When McDonald was bragging about those 550 infrastructure projects, she was also announcing the completion of the Interior to Lower Mainland Transmission Line.
In keeping with the bragging rights theme, McDonald announced that “the final cost of the line is expected to be $743 million – about $18 million higher than BC Hydro’s original budget of $725 million.”
One problem: the original budget was first announced at $602 million and the $743 million price tag may not be final, pending an arbitration with the contractor.
Something else of note from the exchange between Mungall and Redies was the minister’s agreement that if everything stays on course Hydro’s deferral accounts will peak at $5.9 billion in 2019.
One could be forgiven for thinking the Liberals felt the minister should send celebratory cake to the utility.
The former government was routinely chastised for the accounting practice and this September auditor general Carol Bellringer issued a qualified opinion over the government’s financial statements for 2016 and 2017 as a result.
Bellringer wrote: “The overall impact of government directions has been to increase the balance in BC Hydro’s net regulatory asset accounts, thereby overstating the net earnings… I am not able to determine what the impact would have been had these directions not been issued…”
There’s a lesson for Mungall from the exchange: don’t accept everything Hydro says as gospel and for Redies: there’s nothing to celebrate when it comes to the utility’s accounting practices.
Dermod Travis is the executive director of IntegrityBC.