Friday, October 31, 2014

Don't follow the law, change the law

British Columbia's Auditor General reported to the BC Legislature and there is interesting commentary throughout. Carol Bellringer qualified her opinion as to the fairness of the province's financial statements and professional accountants regard that as not-good.
  • "This year, our audit opinion on the Summary Financial Statements contains two
    qualifications, or areas for concern. One involves the way that government records
    certain revenues in future years, rather than when received and used. The other
    qualification relates to prior years for how a Crown Corporation was classified."
These issues are technical but generally accepted accounting principles (GAAP) allow a consistent way of presenting financial positions of organizations at particular times, as well as the results of operations for the periods reported. Without this framework, stakeholders are less able to determine how money is managed. The Wall Street Journal referred to GAAP as an idea that is "so simple yet so radical."

Governments, because they make rules, don't feel compelled always to follow rules. This was noted by Alana James, a BC health ministry lawyer who wrote about the attitude she perceived among colleagues,
"'s unfortunate that we don't follow the law but that we plan on changing the
legislation at some point so that we will."
The Auditor General draws attention to information already known by Northern Insight readers. She reports that, in fiscal year 2014, oil and gas companies deducted $568 million from royalties that would otherwise have been payable and that a further $1.25 billion in credits remain available for deductions in the future. That unrecorded liability increased by $316 million from 2013 so, in one year, oil and gas extractors gained the current and future benefit of $903 million of incentives, a subsidy that touches $1.3 billion if ministry expenditures are included.

Ms. Bellringer takes a direct shot at public-private partnerships that Liberals claimed would save taxpayer money,
  • "it is interesting to note that while government’s weighted average cost of
    borrowing is approximately 4%, on the $2.3 billion that government borrowed through
    public private partnerships this is 7.5%.
Goodbye $80,500,000 a year.

BC Ferries, while not paying interest as high as P3 operations, paid an average of 5.5% on its $1.346 billion in term debt. The premium over government borrowing rates burdened the ferry company with an extra $20.2 million interest in FY 2014. Multiply that over the 11-year life of the "private" ferry corporation and you're talking significant money drawn from the pockets of coastal commuters.

The Auditor-General draws attention to gilding that made 2014 financials deceptively attractive,
  • When assessing financial performance, it is important to look for, and understand,
    the impact of one-off events, such as the sale of government owned land or buildings.
    Last year, government earned $601 million from the sale of assets: $311 million from
    government’s program to release surplus assets, such as two former gravel pits in
    Surrey and a surplus parcel of land in Kamloops; and, close to $290 million from the
    Little Mountain property in Vancouver. ...Although only a small percentage of total
    revenues, the gain is a significant part of the bottom line for the year, which was
    reported as a $353 million surplus in the 2013/14 Summary Financial Statements.
There are numerous other items worthy of comment in the auditor's report, including BC Hydro's use of expense deferrals. These inflated the utility's equity and allowed government to scoop extra funds and enjoy more attractive headlines when deficits or surpluses are reported. I will be writing about this separately but will note a comparison of deferrals with an eastern utility that owns assets three times the value of the power company in this province:
  • BC Hydro   $4.7 billion       Hydro-Québec   $8 million
By the way, I will be on CFAX1070 Monday at 2pm to talk with Ian Jessop about the Auditor-General's report.

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Wednesday, October 29, 2014

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Tuesday, October 28, 2014

One value Premier failed to learn: truthfulness

This item from April 2013 is updated with current numbers.

In a 30-minute TV commercial two years after assuming the office of Premier, Christy Clark said that leadership involves,
"holding true to the values you were raised with..."
If I were one of the people that parented her, I would feel a sense of failure, values wise, since she has little commitment to truthfulness. For example, she claimed Sunday her goal was to leave a debt free province.
"You don't leave your kids with debt. It's just the wrong thing to do."
That statement is fatuous. Worse than fatuous, it is a lie. So too was the 2013 election promise that LNG would eliminate debt and leave the province with a 12-figure Prosperity Fund

The BC Liberal government has added more provincial debt than any in history.  No other administration compares when it comes to plunging citizens, both adults and children, more deeply into debt. Additionally, the Liberals rolled up more than $100 billion in debts that don't actually get counted as debt; they are "Contractual Commitments."

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Monday, October 27, 2014

Hedonists of power

Chris Hedges wrote many words for the New York Times; some of them wrong. He participated in false reporting that helped orchestrate invasion of Iraq by the coalition of the dragged kicking and screaming. He recognized error though and became an articulate critic of his nation's aggression. The NYT, which preferred the Bush administration's version of truth, condemned Hedges and encouraged his departure.

He is sometimes controversial but always thought provoking. His latest column at Truthdig is a good one that should be read completely: The Myth of the Free Press. An excerpt:
"The mass media blindly support the ideology of corporate capitalism. They laud and promote the myth of American democracy—even as we are stripped of civil liberties and money replaces the vote. They pay deference to the leaders on Wall Street and in Washington, no matter how perfidious their crimes. They slavishly venerate the military and law enforcement in the name of patriotism. They select the specialists and experts, almost always drawn from the centers of power, to interpret reality and explain policy.

"They usually rely on press releases, written by corporations, for their news. And they fill most of their news holes with celebrity gossip, lifestyle stories, sports and trivia. The role of the mass media is to entertain or to parrot official propaganda to the masses. The corporations, which own the press, hire journalists willing to be courtiers to the elites, and they promote them as celebrities. These journalistic courtiers, who can earn millions of dollars, are invited into the inner circles of power. They are, as John Ralston Saul writes, hedonists of power."
To me, Saul's words were prominent. He is a prolific Canadian writer and thinker but also known for six years he spent at Rideau Hall with his wife, Governor-General Adrienne Clarkson. The quote is from Voltaire's Bastards: The Dictatorship of Reason in the Westand when Saul refers to hedonists of power, he includes more than corporate media fellow travelers. This is an abstract:
Trending toward the end of egalitarianism. Source
"…Modern men of power come in many apparently different forms. But certain characteristics link them. First, a great difficulty in coming to terms with the democratic process. The talents of the technocrat do not suit public debate or an open relationship with the people. …They set enormous value upon secrecy. Intentionally or otherwise, their methods induce fear among those who must deal regularly with them. Almost without exception they are bullies.

"…The technocrats suffer from character defects which have to do with their inability to maintain any links between reason, common sense and morality. They believe themselves to be the inheritors of the Age of Reason and therefore do not understand why their talents fail to produce the intended results.

"Their abstract view of the machinery of human society prevents them from understanding the natural flow of events and from remembering when they themselves have erred and why. That is to say they don't seem to understand the historical process. Instead they seem actually to believe that their definitions of the world will become both real and permanent simply because they are the result of applied logic. When these formulae refuse to stick, the technocratic mind, rather than deal with failure, simply wipes the slate clean and writes a new definition. They are, in that sense, slaves of dogma.

"…Their talents have become the modern definition of intelligence. It is an extremely narrow definition and it eliminates a large part of both the human experience and the human character. Suffice it to say that under the current definition of intelligence, Socrates, Byron, Jefferson, Washington, Churchill, Dickens, Joseph Conrad, John A. Macdonald and Georges Clemenceau would have been unintelligent or eccentric or romantic or unreliable.

"The technocrats are hedonists of power. Their obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force — a force that works, more often than not, at cross-purposes to the real needs of a painfully real world.
Merging the comments of Hedges and Saul provides a timely warning to Canadians. Bullies in the halls of power provide or withhold access and information, the stock in trade of journalists. With a natural preference for reward over punishment, most reporters become courtiers and push colleagues to adopt the same role. Those who choose the more difficult course and dare to shame the comfortable sycophants may become journalistic lepers. Chris Hedges provides American examples but we may have Canadian ones in present days. One is Andrew Mitrovia, another might be Michael Harris, author of Party of One. Here in the west coast minor leagues, it is bloggers who draw the ire of media lickspittles.

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Thursday, October 23, 2014

Different ways, different results

Note 11 from a study by John Calvert and Marjorie Griffin Cohen of Simon Fraser University, Climate Change and the Canadian Energy Sector:
"In this regard it is interesting to compare the approach of Alberta with Norway. While the timing of their respective production rates varies, both jurisdictions have produced about the same volume of oil over the past four decades.

"According to the Sovereign Wealth Fund Institute, as of December, 2010 Norway has over US$512 billion in its ‘rainy day’ pension fund for future generations — a fund built up principally from its oil and gas revenues." (By June 2014, the Norway's public fund was valued at US$893 billion,) which is $1 trillion Canadian.

"In comparison, Alberta’s Heritage Savings Trust Fund, which was started in 1976, had accumulated assets of $14.8 billion as of September 30, 2010." (By June 2014, Alberta's public fund was valued at CAN$17.5 billion.)
In British Columbia, nothing has been set aside from the extraction of natural resources worth hundreds of billions of dollars. All the province has is Christy Clark's now empty promise of a $100 billion "Prosperity Fund" from natural gas extraction.

What Norway did with its oil and we didn’t, Esther Hsieh, Globe and Mail, May 2013
"When oil was discovered in the Norwegian continental shelf in 1969, Norway was very aware of the finite nature of petroleum, and didn’t waste any time legislating policies to manage the new-found resource in a way that would give Norwegians long-term wealth, benefit their entire society and make them competitive beyond just a commodities exporter.

"'Norway got the basics right quite early on,' says John Calvert, a political science professor at Simon Fraser University. 'They understood what this was about and they put in place public policy that they have benefited so much from.'

"This is in contrast to Canada’s free-market approach, he contends, where our government is discouraged from long-term public planning, in favour of allowing the market to determine the pace and scope of development.

"'I would argue quite strongly that the Norwegians have done a much better job of managing their [petroleum] resource,' Prof. Calvert says.

"...While there’s no question that Norway has done well from its oil and gas, unlike many resource-based nations, Norway has invested its petro dollars in such a way as to create and sustain other industries where it is also globally competitive..."

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"...A lot more electricity being needed."

British Columbians are fortunate to be guided by wise and experienced leaders, people able to analyze events and foresee the future in ways that more practised experts cannot. One of my favourites is Bill Bennett, a man particularly qualified to make decisions on how the public ought to spend tens of billions of dollars.

Bennett gained expertise and honed business acumen as an entrepreneur involved in fishing camps and a goose-hunting lodge on Hudson Bay. Despite potential conflicts, he maintained a financial connection to wilderness tourism even after beginning a career in politics. Reporter Larry Pynn provided detail in Bill Bennett is still trying to put his past behind him, a 2013 article in the Vancouver Sun.

With keen perception of a man certain of the road he follows, Bennett recognizes uses that might overwhelm present generating capacity if a ten or fifteen billion dollar commitment to Site C is not made.
"There are new and increasing uses for electricity: electric cars, the things that we tape our favourite television shows with, our phones, our iPads, our laptops, etc.; a lot more electricity being needed."

Admitedly, I missed the impact of those items. I assumed that fewer than 1,000 electrical vehicles (0.029% of registrations) placed little burden on BC Hydro because they are typically recharged at night. As well, I was lulled into a sense of comfort by Forbes Magazine reporting that I can power all my electronic devices and use less electricity simply by changing one 60 watt incandescent bulb to a compact fluorescent. I had also assumed that taping television programs was done only by the few people still playing 8-tracks as they roll on down the highway. Additionally, my information had suggested that modern flat screen TVs use about 75% less power than the old cathode ray tube sets that are disappearing.

Seriously, I wonder if we could convince Bill Bennett's colleagues that he has been speaking nonsense, would they send plans for Site C back to the archives?

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Tuesday, October 21, 2014

Restraint, BC Government style

Nearly half a million children are missing school days this year because government believes that spending restraint is imperative. Restraint in collecting taxes, at least from ordinary citizens, is not as vital.

The Transportation Investment Corporation (TIC) annual report provides a view of what lies ahead for commuters crossing the Fraser River on the new Port Mann bridge. When Gordon Campbell announced the structure and associated roadworks, they were to cost $1.5 billion and the bridge toll was to be $2.50. The final tab, at $3.319 billion, is 121% higher but, at $3.00, the small vehicle toll is up only 20%.

Before long, the present toll will look like a bargain. TIC's revenue forecast in fiscal year 2014 was 29% higher than actual receipts but the agency counts on raising those amounts by 85% in three years. Since traffic levels are below expectations, most of TIC's additional income will result from higher prices. That suggests we're headed toward a single small vehicle crossing fee of $6.00 and a monthly pass cost of $300 or more.

Non-commercial tolls might rise even more if government moderates increases for businesses or if higher prices result in still lower traffic levels.

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Liberal estimates and guesstimates

BC's Minister of Energy and Mines says the $7.9 billion budget for Site C is "reliable" and the estimate of "direct construction costs" of $3.8 billion has "an 18% contingency." Bill Bennett's words are imprecise but if $3.8 billion includes the contingency, the allowance for known unknowns and unknown unknowns would be $580 million, 8% of the entire project cost. Compare that to two much smaller Liberal projects that are $2¼ billion, or 98% over budget.

In 2006, Vancouver Sun's Miro Cernetig wrote $3-billion plan to end gridlock:
"VICTORIA -- A $3-billion plan aimed at staving off gridlock in the Lower Mainland will be revealed today, with plans for more and bigger bridges, wider and longer highways and more green-friendly bicycle lanes for the next decade and beyond..."
The plan included $1.5 billion for a new Port Mann Bridge and two additional lanes on Highway 1 as well as $800 million for the South Fraser River Perimeter road. According to the Transportation Investment Corporation Annual Report 2014, the final cost of the first project is $3.319 billion. The truck highway from Roberts Bank to Port Mann cost $1.235 billion. The cost overrun for the two recent capital works is 98% of original estimates.

In his public statement last week, Bennett assured listeners that cost estimates for the Peace River project were accurate because they were reviewed by external engineers, including SNC-Lavalin, a company that Liberals enjoy working with but one that has admitted winning contracts through corruption. Even when the participants are not ethically challenged and/or incompetent, processes to establish budgets for large capital projects are problematic.

Scientists associated with Oxford University conducted a study of 245 dam construction projects across five continents. From the abstract of their paper:¹
"A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. ...We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams — excluding inflation, substantial debt servicing, environmental, and social costs. ...The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.
Commenting about the paper in The Guardian, two of the paper's authors said,
"With an average cost overrun of over 90%, large dams have one of the highest cost overruns among all infrastructure asset classes. This result is before accounting for negative impacts on human society and environment, and without including the effects of inflation and debt servicing.

"What's worse, planners do not seem to learn. Forecasts are likely to be as wrong as they were between 1934-2007. Dam budgets today are as wrong as at any time during the 70 years for which data exist."
Another paper worth noting is Cost Underestimation in Public Works Projects: Error or Lie? It,
"found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts."


¹Full reference: Ansar, Atif, Bent Flyvbjerg, Alexander Budzier, and Daniel
Lunn, 2014, "Should We Build More Large Dams? The Actual Costs of Hydropower
Megaproject Development," Energy Policy, March, pp. 1-14,
DOI: 10.1016/j.enpol.2013.10.069, URL:
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