“The autocratic style of B.C.’s premier has reduced transparency and independence, and increased financial risk.” —Richard Mason
B.C.’s premier confirmed this week the North Coast Transmission Line will be exempt from the BC Utilities Commission approval process, because holding months of hearings to determine if the “nation-building” project is in the public interest is unnecessary.
“We are making the decision as a government that this is in the public interest. We will be held accountable for that decision by voters. But to my mind, there is no debate about this… the case really makes itself,” David Eby said.
This is part of a disturbing direction taken by the B.C. government.
Two years ago, Eby’s government fired the chair of the BC Utilities Commission (BCUC). Since then, the agency’s independence has been lost, along with much of its powers to regulate the provincially owned BC Hydro.
We’ve been hearing about a well-known political leader to the south, trampling over process rights, installing friendly faces in supposedly independent agencies and ruling by executive order. All rather shocking, and of course it could never happen here, right?
The last two years at the BCUC might make you wonder.
The BCUC’s role is to set public utilities’ rates and approve investments according to regulatory principles, using a fair and transparent process to assess the evidence. Decisions are made by independent commissioners, appointed by the government, who usually serve out their full terms.
But in September 2023, Premier Eby fired the BCUC chair before the end of his term. In doing this, he signalled that the appointments of commissioners could be at risk if their decisions displease the government.
This act seriously undermined the agency’s perceived independence. The particular worry was that when BC Hydro, the provincially owned electric utility, asked for something, the BCUC would dutifully deliver it, regardless of the public interest.
This worry was justified. But it was just the beginning.
By October 2024, barely a year after the arrival of the new BCUC chair, BC Hydro asked for and was granted a reversal of four previous orders to BC Hydro, an unprecedented number. The most egregious reversal was to backtrack on a scheme to encourage BC Hydro to manage its cost increases.
None of the four reconsideration requests claimed that the BCUC had made an error, which if true would have been a solid reason for a reversal. Instead, BC Hydro raised issues such as the uncertainty surrounding the energy transition, all of which were known when the original decisions were made. BC Hydro was simply asking for another “kick at the can”, something the BCUC and the Supreme Court of Canada discourage. Regulatory stability is important for utilities, customers, investors and the economy as a whole.
It’s hard to believe the BCUC would have reversed these four decisions if the previous chair hadn’t recently been fired. BC Hydro presented the BCUC with an opportunity to change its mind, after a very loud warning shot had been fired.
The law giveth, the law taketh away
But there’s more to this than just the unravelling of efforts to regulate BC Hydro.
The BC Utilities Commission’s independence only goes as far as the law allows, and the provincial government has been busy in the last two years taking powers away from the regulator.
The most glaring example is that the government is once again setting BC Hydro’s rates. No longer is the BCUC using regulatory principles to set a “just and reasonable” rate sufficient for BC Hydro to provide its service, a power the commission had only regained in 2019 after a long hiatus.
Last July the government ordered that BC Hydro should be allowed to continue collecting $712 million a year in profit from ratepayers. Other utilities must justify their return, based on what they need to offer shareholders to attract investment capital. The BCUC had been expecting to regain the power to decide BC Hydro’s rate of return independently after many years of government control; this power was once again withdrawn.
Utilities are not guaranteed to earn their full BCUC-approved return – they are only given the opportunity to do so. For most utilities, if they don’t control their spending, the profit they end up with is reduced. Not BC Hydro, though.
To make sure it earned as much of that profit as possible, government directed BCUC to allow BC Hydro to create an “inflationary pressures” regulatory account. That way, any overspending in certain cost categories (labour, vegetation management and fuel) won’t reduce its profit.
This is just one example of a regulatory account that has been directed by the government without independent BCUC oversight. I’ve estimated that in the next three years, BC Hydro will put over a billion dollars of spending, not independently approved by the BCUC, into regulatory accounts.
And there’s more
The Utilities Commission Act requires energy utilities to have approval from the BCUC before investing in new equipment. This enables the BCUC to look not only at the cost but also at other matters of public interest. The exception now, it seems, is if the equipment is needed by the provincially owned BC Hydro.
The 10 power projects arising from BC Hydro’s 2024 call for power were also exempt from BCUC review thanks to a much earlier 2002 ministerial order, despite B.C.’s minister of energy last year promising in the legislature the agency would have “oversight” of them.
That same minister issued her own order to also exempt a series of six new substation projects from BCUC review.
BC Hydro’s latest annual report to the BCUC includes some projects it intends to put forward to the BCUC for approval, such as improvements to the La Joie dam. But the two projects that will provide increased transmission from Prince George to Terrace will be exempt from review, so the trend continues.
BC Hydro transparency takes a hit
The Utilities Commission Act allows the government to order the BCUC what to do in advance, but expressly prevents the government from changing an existing decision. That didn’t seem to bother the government, who in a disturbing example of executive overreach undid a BCUC decision to make BC Hydro bills more transparent.
If someone thinks a BCUC decision contravenes the law, they can ask for it to be reconsidered, or take it to the BC Court of Appeal. The bar for overturning a government order is apparently very high, which means this one will likely stand.
It sets a worrying precedent.
BCUC is no longer independently regulating BC Hydro
After Premier Eby fired the BCUC chair in 2023, Vancouver Sun political commentator Vaughn Palmer was quick to observe that the new chair faced “a huge challenge in demonstrating the commission’s independence, given the circumstances surrounding his appointment.”
This was undoubtedly true, but the issue is now much broader.
The utilities commission has been stripped of so many powers to regulate BC Hydro that the independence of its chair and commissioners is no longer relevant.
The BCUC’s web site claims it is an “independent agency.” With the government telling the commission what BC Hydro’s rates and profits will be, what investments the utility will make, and what amounts to put into its regulatory deferral accounts, it can no longer be said the BCUC is independently regulating BC Hydro.
Political expediency trumps public interest
There are several problems with the government’s current approach to regulating BC Hydro.
First, it’s hard to have faith the government is acting in the public interest.
Cabinet decisions are taken in secret, and any advice to cabinet is protected from freedom of information requests. Since we don’t know what evidence they considered, or who they listened to, government is open to accusations of favouritism and political expediency. This risk is particularly acute given the government has expressly and deliberately chosen to bypass the existing regulator.
Second, decisions made for political expediency rather than based on sound principles and economics often don’t end well. Consider BC Hydro’s rates, which the government has fixed until March 2027.
The previous administration’s ten year rates plan ended in tears in 2019 when the incoming government wrote off $1.1 billion that BC Hydro had not collected because its rates were too low. The new Premier, John Horgan, then gave rate-setting responsibility for BC Hydro back to the BCUC so that rates would be set properly in future.
It is likely that BC Hydro’s new government-set rates are again too low – why else would the government have intervened? If the rates the government chose were sufficient to cover BC Hydro’s costs, the BCUC would have approved them.
The government is almost certainly counting on BC Hydro’s energy trading subsidiary to come to the rescue. Fortunately, this year Powerex’s profits were considerably higher than forecast ($627.8 million versus $224.2 million), so the province has gotten away with it, for now. Just as well, because with an annual deficit now reaching $11.6 billion, the BC government no longer has the cash to bail out BC Hydro as it did last time.
The biggest risk may be the accounting standards. BC Hydro’s accounting standards stipulate that any amounts put into regulatory deferral accounts require the approval of the BCUC — it’s not good enough for the government to direct the BCUC to make the decisions. Without independent approval, the amounts should be recorded like any other costs, which reduces profit and increases the provincial deficit.
The previous auditor general criticized the government’s use of a BC Hydro deferral account to provide a $100 bill credit for customers, causing $340 million to be returned to the utility. His predecessor was even more forthright, qualifying the provincial accounts for two years in a row because of the lack of independent BCUC supervision of BC Hydro.
The current acting auditor general showed no interest in the government’s shenanigans with BC Hydro’s deferral accounts in her most recent annual report. This is a pity, but that’s not necessarily the end of the story. Bond rating agencies have already criticized B.C.’s ballooning provincial debt, including Moody’s, which downgraded our debt rating in April.
Premier Eby may not be the most autocratic leader in the northern hemisphere, but that’s no great comfort.
The Eby government has neutered the BCUC’s powers over BC Hydro, increasing government control over the utility while maintaining the outward appearance that it is independently regulated. We have lost transparency and public participation in energy decisions that affect everyone in the province.
Moody’s maintains its “negative outlook” on B.C. I share that sentiment.
For more news and analysis from Richard Mason on B.C.’s energy sector, read Just and Reasonable.