A little history on the gold standard of ‘being the best’ at BC Hydro

sitec graphic

The news that BC Hydro would not release the amounts of the other bids for recent Site C contracts, is not surprising – at least not to me. Having written extensively on many of the biggest transportation projects in BC, accountability is still sorely lacking in most ministries when it comes to opposing bid amounts.

When it comes to bids and contracts with BC Hydro however, transparency and accountability have long been two features that are far and few between – and it hasn’t gone unnoticed.

BC Hydro’s near crippling debt is by far not the only concern BC residents should be paying attention to – Norm Farrell has been posting regularly on  BC Hydro and continues to do excellent work on this file. But when it comes to the most expensive infrastructure project this province has ever seen, there is no room for secrecy and every reason to examine and question the process from beginning to end. With a premier well into desperation mode  trying to get a multi billion dollar dam built with seemingly no justification left to do so, if government won’t ensure accountability, others must.

In 2011 when BC Hydro applied for what amounted to a 32% increase over three years, government reacted with a review in light of the impact that increase would have on ratepayers like you and I. And while there was a lot of fluff and back patting in that report, it did give light to some disturbing aspects of how Hydro operates.

For example, the panel found that ” due to the regulatory environment and the corresponding corporate culture in BC Hydro, “being the best” and the resulting desire to have the gold standard is not necessarily for lowest cost or greatest value for money.” (pg.2)

The panel also “observed many examples of excessive planning, over engineering of 2 y Review of BC Hydro projects and the use of multiple layers of contingencies and reserves in order to satisfy various stakeholders and regulatory agencies. BC Hydro’s strong focus on service, safety and being the best are very good objectives, however, they need to be pursued in the context of balancing need and costs. ” ( pg 2/3)

The panel also found that “BC Hydro acknowledges that they over manage their capital projects to ensure quality workmanship of contractors. BC Hydro’s approach to procurement and risk allocation has resulted in multiple change orders for their projects of up to 114% of the original individual contract value and 13% of the total project value. ” (pg 8/9

“BC Hydro also needs to improve their contingency budgeting for capital projects and to consider the reasonableness of their funding requests when identifying strategies to mitigate risks. An insufficient focus on costs creates an incentive to build excessive contingencies on project budgets which allows for poor cost containment in their risk oversight. For example, BC Hydro encountered a large number of change orders on some capital projects. Specifically, BC Hydro encountered several large design revisions during the construction period of the Aberfeldie Redevelopment Design Bid Build project at a cost of $12M for additional general contractor, engineering and mechanical fees (26% of the original contract values). The high number of change orders noted on files is an indicator of ineffective risk allocation.” ( pg 36)

~snip~

” BC Hydro operates within business group silos. This business model increases the risk of inconsistent practices which would, if realized, impact negatively on transparency and vendor relationships. 60 y Review of BC Hydro BC Hydro’s standard procurement templates and policy guidance documents have recently been updated to support improved alignment with government procurement principles; however, these policy changes have not been adopted consistently across the organization.

For example, within the different business groups, there are inconsistent competitive bid disclosures. Some business groups disclose weighted evaluation criteria while others only disclose the ranking of the evaluation criterion. The result of these variable practices is inconsistent transparency within the organization which has negative impacts on BC Hydro’s supplier relationships. Adopting the best practice of disclosing the weight of each evaluation criteria outlined within competitive bid documents will increase transparency to both the supplier community and the general public. ”

~snip~

” In the project files, the risks and general mitigation strategies were identified in a risk register; however, the register did not adequately identify which party was assuming the risk or the associated costs. Therefore, BC Hydro could not demonstrate whether they were receiving good value for money and they could not demonstrate an informed understanding of risk or effective risk management”

And on. And more. Excessive expenditures,lack of accountability,etc. etc.  BC Hydro has made some changes since and states they have found substantial savings. But even those statements are more than a little misleading when looking at the bigger picture and their financial statements. It’s even more compelling that while the BC government ordered Hydro to find savings, and speak to the BC Utilities Commission as being the oversight tool to ensure Hydro is on track with rates etc, government did not see fit to stop taking a dividend entirely even though BC Hydro is seriously in debt – and often forced to borrow to pay that dividend government takes every year.   ( no money to be found to pay that dividend to the BC government again this year, as Norm pointed out recently in this post)

Nor did the government consider the impact forging ahead without BCUC oversight on Site C, would have on rates.

Let’s not forget that BC Hydro CEO Jessica McDonald recently had to apologize for Hydro’s misleading statements to the BC Utilities Commission ,statements others simply referred to as lies.  And now, with billions of dollars on the line, questions are being raised on the Site C contracts and BC Hydro doesn’t care to show taxpayers the other bids.

It’s time now, more than ever, for examination into everything associated with Site C, and that’s what I’ve been doing for the last week. But for every bit of research I’ve done and the few answers I’ve found, the number of questions is only growing. It’s my opinion BC Hydro needs to be brought back into government as a ministry and full inquiry type of reveal be done. Because some of what is going on, just doesn’t even make sense. And I can’t help wonder if what’s going on is contributing to Bill Bennetts short temper, becoming even shorter.

That and more, next week. But for now, review this for some historical context.

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32 thoughts on “A little history on the gold standard of ‘being the best’ at BC Hydro

  1. Hard to reconcile the phrases over-managing and over-planning with change orders amounting to 114% in some contracts and 13% on overall budgets. Is all that over-managing and over-planning being done by stupid people? It sounds like they have the 80/20 rule backwards?

    Liked by 1 person

  2. erik

    Dear Editor/Laila;

    During the last fiscal year BC Hydro was only able to sell 51,213 GWhrs to BC only customers. This is almost precisely the same they sold in 2005 but along the way from then to now BC Hydro more than doubled its so called debt and when one includes the IPP contracts, financial obligations increased by almost 400%.

    For those of us who think that new investments should produce increased productivity the above condition is about as understandable as Alice’s rabbit hole.

    In Fiscal 2015 residential customers bought 17,047 GWhrs. This amount is starting to decrease more aggressively as beleaguered BC Hydro customers try finding ways to conserve and even self-generate from self-owned solar panels.

    If BC Hydro and the Government of BC were to turn their attention to helping only residential customers achieve electricity saving of 25% that would result in reducing annual residential consumption in BC by about 4,300 GWhrs or the same amount Site C is supposed to deliver.
    This saving could be realised in 5 years and we would not have to wait 10 years for Site C production and the borrowing and spending of $9 billion could be forgone.

    As to new employment in BC, getting solar panels installed would likely mean a doubling of the work force to that expected with Site C.

    Liked by 1 person

  3. John's Aghast

    I didn’t have the wherewithal to read all 132 pages, but surely somewhere within Dyble et all must have touched on the importance of transparency to avoid the optics of corruption.
    In the good old days the eyes of the industry helped keep the Corruptocrats on the straight and narrow. How easy it is to manipulate the results to fit your agenda without any oversight! For example, CEO Jessie McDonald asserts of the +/- $1.75 Billion contract awarded to international contractors (no BC contractors need apply?) “we’re going to get great value for this money”. How the hell does she know? And “…the Project will come in on time and on budget.” Only if the budget and schedule are flexible!! How the hell does she know what’s going to transpire over the next year or so! Of course, not knowing the contract parameters, who are we to judge if it HAS come in on time and on budget? How do we know that competing bids would not have come in under budget and ahead of time? We don’t, and I’m not prepared to admit that Hydro is capable of making that assessment either! Perhaps Mr. Dyble does?

    Like

  4. Robert

    What can you find out about the John Hart Dam project in Campbell River. Its another project by the Lieberals pet corporation, SNC Lavalin. Its apparently a P3 project that has stalled for some reason and why a P3 for Hydro? I have talked to a guy who is on the project as a major supplier and he says he has never seen such a cluster#%*! in all his life. Another billion dollar project with no accountability.

    Like

      1. nonconfidencevote

        My personal experience with SNC Lavalin is …..
        .There is no minor detail which cant be questioned in triplicate and still left unanswered. Suppliers can (and do) wait up to 6 months after invoicing to be paid and usually only after they threaten to cut off services.
        Rarely, if ever does an SNC Lavalin contract get renewed in the private sector. The BC Govt is another story. SNC Lavalin has been hauled before various legal jurisdictions for bribery( banned for 10 years on bidding on any International Monetary Fund contract due to convictions for bribery of govt officials in foreign countries) and has a case in Quebec pending.
        SNC Lavalin usually buys smaller companies to continue bidding on contracts when their name becomes synonymous with beaurocratic incompetance and possible bribery allegations.
        My best suggestion to anyone dealing with SNC’s accounts payable….. Phone early, Phone often. Phone daily.

        Like

  5. BC Hydro is an utter mess and not being part of the BC Budget process, doesn’t have to answer to the Legislature during the debate on Estimates.

    Their only restraint comes from the government and I had a hell of a time to stop laughing when I wrote that.

    Starting nearly a decade ago, a rancher, Tom Rankin started Save Our Rivers Foundation for which I was privileged to be spokesman.. Joe Foy of the Wilderness Committee, Damien Gillis, Tom and I spoke about Gordon Campbell’s disgraceful decision to take producing new power away from BCH and gave it to pals in the private sector called Independent Power Producers (IPPs) at sweethesrt prices about 2x market with BCH forced to take the private power whether they needed it or not.

    We spoke at meetings all around the province telling people how this would inevitably bankrupt BC Hydro and, frankly, we couldn’t gain traction because people wouldn’t believe that any government would do that!

    This has continued under Clark and now the chickens have come home to roost, big time, as we predicted. One look at the books demonstrates, sadly, how right we were.

    Out of this policy came Site C, an utter catastrophe which Laila is, thank God, investigating. She will find that the rich international corporations got richer, rivers ruined, spawning salmon destroyed, BCH ruined with the cost borne and to be borne by the BC public.

    This entire policy, IPPs and Site C was brought in by Gordon Campbell and continued by Christy Clark,who have not been held exclusively responsible for what they’ve done.
    They will be!

    Liked by 1 person

    1. Held accountable eventually? Well, if there is a God in heaven, maybe. But how many politicians are EVER held accountable? Gordon is free and clear. And Christy floats above it all like the teflon airhead she is. The NDP are worse than neutered, they are enabling. The media ain’t bringing it. Nobody is. You called for civil disobedience…….. BCH got the injunction to stop that. IPPs still bleed the beast like leeches. Face it, RM, we’re losing. And the first casualty of this war was truth and accountability. They are dead Polly’s.

      Liked by 1 person

    1. Laila

      Right? Only they aren’t even managing it like a private sector company. A private sector company would be accountable to its shareholders – no company would borrow funds to pay a dividend like Hydro is to pay the government. But remember… Bennett promised to fix all that AFTER the next election…. https://lailayuile.com/2016/01/14/deception-and-privileged-secrets-are-common-facets-of-politics-transparency-accountability-on-site-c-lost-at-both-provincial-federal-levels/

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  6. Hugh

    From p. 91 of the BCH Review:

    “3.1.1 Self-sufficiency

    The Clean Energy Act and the 2007 BC Energy Plan require that BC Hydro be energy self-sufficient by 2016 at critical water levels (the lowest historical inflow into B.C. Hydro’s reservoirs occurring in the early 1940’s) and further require that BC Hydro acquire a surplus of 3,000 GWh of insurance energy, at critical water levels, by 2020. This surplus energy, which would range from 3,000 GWh in critical water years, 7,000-8,000 GWh in average water years, to 14,000 GWh in favourable water years, must then be sold on the export market. This could result in losses should the export market return less than the cost of generating or purchasing that energy. The policy of self-sufficiency, as presently defined, amounts to a significant planning constraint affecting BC Hydro’s ability to offer cost effective energy solutions. The financial burden of meeting this government direction will be passed on to current and future ratepayers, in the form of rate increases.”

    Note the 14,000 gwh potential surplus coming from the “self-sufficiency and surplus policy”. That huge amount of power is a direct gift to the IPPs. This blatant massive rip-off was later moderated due to criticism, but it shows where the mindset was/is: Rip off publicly-owned BC Hydro and give to the IPPs.

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  7. erik

    Well JDC, try off-shore. A study done by RiskMetrics of New York disclosed the money trail to some degree. You could use the imagination for the rest.
    The MSM in Australia took singular notice of this report, mainly because it spot-lighted Macquarie International as principle culprit.
    No one else, then or since , has much bothered about the corrupt nature of the P3 and IPP models.
    When a couple of Calgary lawyers tried to build a natural gas generation facility at Duke Point on Vancouver Island, the application ( supported by BC Hydro) was tested at the BC Utilities Commission. THe BCUC gave them the go-ahead as well but because those of us opposing sought and got a hearing in a real court of law BC Hydro and the developer ran away from the project. It was after that experience Premier Campbell made all IPP contracts secret.
    I think the fact that the net present value of the contract was $500 million and the developer gave evidence that to do the project would cost only $300 million had something to do with those folks not wanting a real court experience.
    As with all these contracts , they are transferable, which means the the developers above wanted to monetize all or part of the $200 million and they could best do so off-shore, as RiskMetrics disclosed the pattern for P3s.
    One recent BC contract that was monetized by Macquarie was the Sea-to-Sky “shadow toll contract” which Laila has a lot of direct knowledge of.

    Like

      1. Hawgwash

        What was it Yogi Berra said about didja view?
        People are still in the dark 3-4 years later and mostly because they are to lazy to look for the light switch. Huh? Who’s Yogi Berra…

        Keep it up Laila.

        Like

  8. Scotty on Denman

    The BC Liberals are far, far beyond even a pretence of accountability—they know it and have adopted a contingency policy: blatant perversion of accountability, frequently by way of absurdity: the notions that “Site-C is essential to reap astronomical profits from LNG” and “BC can sell excess power to Alberta!” are two such absurdities. It’s not like absurdity is a sure-win strategy; it’s really a desperate tactic cuz the BC Liberals ain’t got nuthin’ except a record of perfidy which they’ll go to any length to distract voters’ attention from.

    To wit: Every electron generated at Site-C will be excess because there is no LNG, but Christy is cheerful that it might “take just a little bit longer” for the market to become un-glutted. It’s so thin’s to be absurd, especially now the world looks to be headed for a prolonged period of low economic growth; but it makes sense only because the BC Liberals must distract from their tawdry record in office to have any chance of re-election.

    It’d be absurd to make absurdity a major election debate but that’s exactly what The BC Liberals hope will supply the distraction from their perfidious record. That’s how bad it is.

    Alberta Premier Notley responded to Christy’s presumptuousness as if she was surprised our Prancing Majorette didn’t bring it up at their recent First Ministers’ meet where energy was the major topic. Notley also said unless Alberta can sell it’s product (dilbit), it won’t have the money to buy Site-C’s “excess power”—a thinly veiled reference to BC’s ostensible, official and conditional prohibition against dilbit pipelines feeding suprer-tankers bound for Asian consumption.

    Everybody knows how disingenuous BC’s official stand against pipelines is: the BC Liberals would approve every one them in a heart-beat if multi-partisan unpopularity in BC weren’t as high as it’s been convincingly measured—in other words, the official stand is politic, not genuine. Alberta knows this, too.

    Christy must be gleeful that the affiliated NDP parties of BC’s Opposition and Alberta’s government look like they’re on opposite sides of the fence on the pipeline issue. She seemed conspicuously super-pumped announcing BC’s new revenue source from Alberta. Yes, she needs an out from the failed LNG rationale for Site-C, but she also must be relishing what she perceives as an exploitable partisan split in the NDP (BC Liberals are so ideologically fixated on hating the NDP they barely recognize the jurisdictional distinction between the two parties).

    Meanwhile, Notley properly attends to her province’s best interests (and we should recognize her government is also placing conditions of its own on tar sand development); she appears resigned to the fact that in developing a relationship with Alberta’s western neighbour she’s dealing with a twit; Notley’s rejoinder to Christy’s absurd “excess power” rhetoric seems to have handily shut the Prancing Majorette’s gob—or maybe Christy’s handlers are worried BC voters might twig to the obvious contradiction in Site-C’s fundamental rationalization: if the power’s so essential to LNG, how can there be any appreciable excess?

    Christy’s presumption that Alberta will rescue Site-C from it’s initial, now-collapsed rationale appears to have been tit-for-tatted. Now who’s got whom? The BC Liberals have either misplayed their hand with Alberta or are consciously gambling the table won’t be turned against them on a very risky bet. Again it shows they got nuthin’ else to distract attention away from their indefensible record.

    Like

    1. nonconfidencevote

      good idea. We can store the power in recycled lithium batteries from old hoverboards and send them in containers strapped to the decks of LNG tankers….A two for one deal they cant resist.

      Like

  9. Hawgwash

    Good idea r.
    Maybe Christy Coleman has the knowledge and expertise to get site C watts into an LNG tanker.
    After all she does know how to put farts in a jar.

    Like

  10. 77 Conditions that BC Hydro had to meet to start Site C

    ftp://ftp.geobc.gov.bc.ca/publish/Regional/FortSt.John/Site_C_Referral/Water%20Licence%20for%20Diversion%20and%20Storage/2.%20EAC_ScheduleB_TableOfConditions.pdf

    In this Schedule:
    (a) The phrase “to the satisfaction of” means, where it is used in relation to a document, the Environmental Assessment Certificate Holder (EAC Holder) must provide a document, or any amendment to the document, to the reviewing entity referenced in the condition. That entity may: reject the document, or amendment, and require the EAC Holder to re-submit it; or require the EAC Holder to make changes to the document, or the amendment. If no such requirement is communicated to the EAC Holder by the entity, the EAC Holder need not obtain further approval of the document although future revisions may be required by the entity to address potential adverse effects.

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  11. Pingback: BC Hydro responses to BC Utilities Commission raises new questions over WAC Bennett Dam repairs – No Strings Attached : Laila Yuile on politics and life in B.C.

  12. Pingback: “He did not care in which direction the car was travelling, so long as he remained in the driver’s seat.” – Lord Beaverbrook – Laila Yuile on people, politics and life in B.C.

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