BC Hydro has used regulatory accounts since the early 1990s. They are normally used to match costs with benefits to customers, capture differences between forecast and actual costs typically related to uncontrollable factors (e.g., variation in water inflows, storm restoration costs) and manage the impacts of accounting changes.
While regulatory accounts are a longstanding and accepted accounting practice for regulated utilities and used by Canadian and U.S. utilities, the number of BC Hydro’s regulatory accounts and their balances have grown significantly.
- 2001: there were two regulatory accounts, with a net balance of $116 million.
- 2011: the total number of regulatory accounts grew to 26, with a net balance of $2.2 billion.
- 2018: total number of regulatory accounts grew to 29, with a net balance of $5.45 billion.
In many cases, the B.C. Utilities Commission (BCUC) approves BC Hydro’s regulatory accounts, and how the balances in these accounts will be recovered in rates. For example, BCUC recently approved many of BC Hydro’s regulatory accounts in its Fiscal 2017 – Fiscal 2019 Revenue Requirements Application, including allowing BC Hydro to continue to defer the difference between planned and actual storm restoration costs to ensure that ratepayers pay the actual costs, since these are uncontrollable. However, government has the authority to direct the BCUC to allow certain costs to be recovered in regulatory accounts and to allow BC Hydro to create new accounts – something that was done repeatedly under the previous government. These are costs that must be recovered by future ratepayers and therefore contribute to future upward pressure on BC Hydro rates.
Of the 29 regulatory accounts that are now in place, about half were originally created with BCUC independent approval, but 15 of the 29 are still affected by directions issued by the previous government.
On Aug. 22, 2017, in her audit of the government’s Public Accounts, British Columbia’s auditor general, Carol Bellringer, issued a qualification related to how government reports on regulatory accounts when it consolidates the financial results of BC Hydro into its own Public Accounts. The auditor general expressed concern that previous government directions to the BCUC relating to the rate-setting process have prevented the commission from providing proper independent oversight over the creation and maintenance of BC Hydro’s regulatory accounts, which is required for rate regulated accounting to be used under accepted Canadian public sector accounting standards.
This followed concerns raised by the former auditor general in 2009 in a Report on the Public Accounts and in a 2011 report titled BC Hydro: The Effects of Rate-Regulated Accounting.
The auditor-general is currently conducting a review of rate-regulated accounting at BC Hydro. The purpose of this engagement is to explain rate-regulated accounting and BC Hydro’s use of regulatory accounts.
In June 2018, government announced a comprehensive, two-phased review of BC Hydro focused on affordability and ensuring sound financial and regulatory oversight of BC Hydro.
The Ministry of Energy, Mines and Petroleum Resources, the Ministry of Finance and BC Hydro are examining all aspects of the utility’s costs, including regulatory accounts, under terms of reference that are public: https://www2.gov.bc.ca/gov/content/industry/electricity-alternative-energy/electricity/bc-hydro-review
As a result of the auditor general’s qualification of the 2016-17 Public Accounts, the government has made a $950-million adjustment to reduce the value of BC Hydro’s regulatory accounts included in the government’s Public Accounts. This reflects an estimate by the provincial comptroller general of the amount accumulated in BC Hydro’s regulatory accounts as a result of government directions to BC Hydro and the BCUC under the previous government.
The comprehensive review of BC Hydro is ongoing and government expects to release a public report on the review in late fall to inform BC Hydro’s next Revenue Requirements Application, which is expected to be filed with the BCUC in February 2019.