It's been a tough year for BC Hydro, but the Crown Corporation is lost in an electrical storm of its own making. Scathing reports, rate hikes, smart meters, layoffs and a CEO resignation have left the company reeling. Now it's time to realign BC Hydro's 'gold standard' with what ratepayers want: good value and low rates. They can start by fixing the 'gold standard' bonus structure for BC Hydro employees.
According to a memo obtained by the Canadian Taxpayers Federation under the Freedom of Information Act, BC Hydro met their financial targets for fiscal year 2011, reporting a net income of $589 million and operating costs of $706 million.
The May 13, 2011, memo, approved by CEO Dave Cobb May 24, confirmed a bonus to virtually all employees, regardless of how they individually performed. If staffers met their personal and division goals, they could collect even more money.
This corporate bonus structure explains how 99 per cent of BC Hydro employees collected a bonus last year.
In a general sense, rewarding government employees, financially, for finding efficiencies and improving the bottom line is not a bad idea. However, it must be done the right way.
BC Hydro sweetened their net income numbers, and thereby employee bonuses, in two ways. First, the corporation increased Hydro rates 4.67 per cent. Their own 2011 annual report says that the revenue increase "was due to higher average customer rates in all rate classes." In essence, staff bonuses came on the back of ratepayers shelling out more money for power.
Second, B.C. Auditor General John Doyle reported last week that without deferrals, BC Hydro would not have hit their net income target. In fact, $696 million of debt was put into deferral accounts last year to be paid back in future years. The utility's net income goal was accomplished only by deferring debt to future ratepayers. But staffers still cashed their bonus cheques. The hockey equivalent is a 15-goal scorer claiming a bonus for scoring 40 goals by telling management they will score 65 next year.
This all comes back to the provincial government's August review of BC Hydro, and the 'gold standard' corporate culture the board and senior staff have developed there. "The challenge to reduce costs can also be complicated by a culture in BC Hydro where the company strives for [the] gold standard," said the report. "The regulatory environment and historical management culture supports managing cost pressures through rate increases."
Bonus programs that reward individuals for corporate goals, whether they contributed substantially or not, are flawed. They are also open to problems, as debt is pushed down the road in order to make net income targets today.
The August review showed that nine per cent of BC Hydro employees were deemed to be less than "fully performing." Only the one per cent of employees "needing improvement" didn't get the bonus. In 2010, management and professional staff collected $31 million in bonuses, union staff another $10.5 million, and executive staff $840,000. This while deferring more in debt than they made in net income.
Energy Minister Rich Coleman has promised a review and revamp of the BC Hydro bonus structure. This work should be accelerated. At the very least, bonuses should be suspended in years when BC Hydro has to increase rates for its customers.
Follow Jordan Bateman on Twitter: www.twitter.com/@jordanbateman