Wednesday, March 16, 2016

Appearance of profit, when there is none

BC Hydro has been announcing profits each year and that enables it to pay a dividend to the province, although it has to borrow the money to make the transfer. I argue here that the profits are questionable. In 2006, the company had $834 million in net deferred costs and intangible assets; the balance at December 2015 was $6.1 billion. These are not assets in the usual sense; they are largely expenses that have been paid but not recorded. Again, the strategy is to create appearance of profits, even when there are none.

I added the following as a comment to the previous article but this item adds graphs to further illustrate the points.
I want to add to Mr. Andersen's comments about the billions in deferred debt that BC Hydro has been adding during recent years. My analysis of two decades of financial statements reveals they are doing something else to conceal costs of operations and create phony profits that are transferred to the province as dividends, even though the utility's need for cash is so desperate that each year's borrowings take 10 digits to describe.

The amounts of operating expenses capitalized each year recently is without precedent in earlier BC Hydro operations. That means they transfer certain costs from operating expense accounts to property, plant and equipment. Those assets are depreciated at varying rates but most BCH assets are written off over periods that last from 15 to 100 years.

Companies that want to show higher short term profits may capitalize expenses aggressively, particularly if there are no tax consequences. Private companies aiming to reduce current income tax payments, try to expense as much as possible for immediate write-offs and capitalize minimum amounts.

From the financial statements, it appears BC Hydro has decided to capitalize as much as possible and thereby minimize expenses. As I indicated, what they've been doing lately is out line with years before Christy Clark was Premier.

Consider that domestic power consumption has not changed in the past decade but the undepreciated balance of BC Hydro's property, plant and equipment has doubled from $10 billion to $20 billion. And, with planned projects, it may double again in the next decade, even though BC electricity consumers will continue consuming quantities of electricity similar to the amounts in 2006.





Recommend this post

1 comment:

  1. A fun quote from a Bill Maher piece about Donald Trump, which happens to be very appropriate for the current situation in BC:

    "We're number one in thinking we're number one! And when the numbers don't validate that confidence? Well… you know who the REAL culprit is: those stupid numbers!"

    Beware of the spin.

    https://www.youtube.com/watch?v=d8OI0iWyc_A

    ReplyDelete

COMMENTING

This is an archive only of items published before April 22, 2016. These and newer articles are available at:

https://in-sights.ca/

If you read an article at this blogger site, you can comment on it at the new site.

Note: Only a member of this blog may post a comment.