The December 2012 Corporate Disaster Preparedness Planning report conducted by PricewaterhouseCooper was obtained by The Tyee news website through an access to information request.
It found the Crown corporation "isn't adequately prepared to react, respond, and recover from a widespread catastrophic event such as an earthquake."
It also concluded "An effective governance structure to oversee, coordinate and report on disaster preparedness activities is not in place," and said Hydro's insurance wasn't enough to cover potential losses if the worst did happen.
Overall the audit gave the utility a poor rating for its current emergency and disaster preparations.
NDP slams Liberal oversight
NDP opposition energy critic John Horgan says it's more bad news for the troubled Crown corporation.
"Over the past number of years we've been highlighting the financial disasters at BC Hydro but little did we know that BC Hydro wasn't prepared for a natural disaster."
Horgan wasted no time pressing the point during question period in the legislature on Thursday.
"Will someone on the B.C. Liberal side take responsibility for the past 12 years, take responsibility for cost overruns, escalating rates, deferral accounts, unfunded liabilities for independent power production and now an inability to respond to a natural disaster?" he asked the government.
B.C.'s Energy Minister Bill Bennett said he was not happy with the news from the audit either.
"I'm surprised that they're not further along with disaster preparedness," said Bennett, but he insisted the Crown corporation is addressing the concerns identified in the internal audit.
"They've identified deficiencies and certainly they are advising me that they are addressing those deficiencies and they are addressing those deficiencies as fast as they possibly can."
In a statement posted on the utility's website, BC Hydro also said it was addressing the concerns with upgrades to several dams, replacing underground transmission cables in Vancouver and building new central and regional operations centres.
Rate increased inevitable
But Bennett also warned rate increases will be necessary to pay for the upgrading and rebuilding of the Crown corporation's aging infrastructure.
"You look at what BC Hydro is investing, you look at the fact that rates haven't gone up much for a very long time. We do have relatively cheap electricity rates in this province. I think we're number four in North America," said Bennett.
"There is going to have to be some kind of rate increase, and my job is to make sure the increase is as small as possible."
But the NDP opposition also pointed to the $150 million cost overruns at BC Hydro's Northwest Transmission Line project as another likely cause of any upcoming rate increases.
- Read more about past rate increases
- Read more about the transmission line cost increase
Two years ago, the government rejected Hydro's proposal to increase rates by up to 30 per cent over a three-year period, and ordered the Crown corporation to limit the increases to 17 per cent over a three-year period.