contd. Understanding the manipulation of accounting practices Where the divide in accounting happens is the separation of what happens in the current fiscal year and when matters get brought into the construction of the balance sheet. Pre-2005, BCH (BC Hydro) typically closed out all "regulatory asset" accounts. These accounts were and are Erik Andersen supposed to carry amounts of investments made that have been added to the amount to be collected from customers. Typically BCUC (BC Utilities Commission) would adjudicate on the needed rate increases that would cause the "regulatory assets" account to end the current fiscal at zero. Because BCH is a utility that is "supervised" by a utility commission, changes in accounting rules in North America allowed investments to be carried forward as "accounts receivable" when more than one year was needed to make these investments. Because of this removal of an arbitrary date (end of a fiscal year) supervised utilities were permitted to carry over investment amounts into the next fiscal year. This multiyear expensing is normal when buying new aircraft and ships. Progress payments need to be sent so there needs to be a way of expensing and entering for multi-year contracts. The difference for BCH is that its IPP contracts do not give BCH ownership of an asset so none of these contracts ever get into a balance sheet entry, all IPP payments are expenses in the current year as operating costs. If BCH had fully expensed the IPP payments in the past few years there would have to have been a huge increase in rates. Because there are other operating costs that have to be paid, like salaries, repairs and a gasping provincial government it must have been decided to exploit the "regulatory asset" accounts option beyond what is prudent. The former AG, John Doyle, was not happy with this practice and delivered a somewhat critical report about 4 years ago or so. Nobody I know took much notice, even when I made representations to the Finance Committee that went around the province getting prebudget suggestions from the public. Some while ago I asked John Doyle why the IPP contracts did not show up in the BCH annual reports as liabilities. His reply was to point out that in pure accounting terms these contracts cannot be called debt. After that I dropped the use of debt replacing it with liabilities. 30 dialogue
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So, for example, an IPP contract has a short-term cost and is also a long-term liability. The short-term is where the stubble in accounting happens because taken together IPP contracts must be very expensive in each year, particularly when there is no offsetting asset entry other than to park "receivables" in the regulatory asset accounts. There is a gross irony here. BCH counts these amounts as "receivables" as assets but at the same time they are liabilities for its customers. For the first time fiscal 2016 was not termed an annual report. Even though the "Accountants" did have a very brief participation I was left with the impression they were unwilling to endorse this as an annual report. In the accounting world folks still remember Enron and the fate of its accounting firm. To help bring into focus where BCH has been transformed consider the following. Prior to 2006 total revenues from BC customers (other than in the period when BCH was gaming with Enron) was about 22% of total Liabilities. I am not sure how much IPP was around then but I am assuming so little to be negligible. If you do the same calculation today total revenues from BC customers is 5% of total liabilities. The total liabilities includes what the 2016 statement shows, plus the about $6 billion of "regulatory assets" we customers have still to pay plus the $50 billion former BCH executives admit is the amount owing on IPP contracts. Nothing is added for Site C. This kind of measure is how the credit rating services look at country ratings. Today I noticed for the first time a departure from using GDP as the revenue value and relaxing it with total tax receipts. This new to me development suggests credit rating services are feeling uncomfortable with revenue being the GDP number and I think it is understandable why. Cash flow is always the bottom line when it comes to issues of solvency. The absence of adequate cash flow for the BC Government and very particularly BCH is where things stand today. If BCH were to go after rate increase that would mean a change in the ratio above it would mean residential customers would be looking at paying 50 cent a KWhr rather than our now 12 cents. I suspect this could be reason Minster Bennett is leaving his job at the next election. One last thing to leave you with. It was evident by 2008/9 that people running BCH were either financial/economic illiterates or something more sinister was happening. I as well as others spotted this and wrote about it just like the former Auditor General. I am not sure what can be done now but I sure know more of the same is like Reagan said, "a definition of insanity." I hope this helps a little and I would love to read of …/ www.dialogue.ca
Published on Sep 15, 2016
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