Public E-Mail to Attorney General David Eby and Environment Minister George Heyman

From: Rob Botterell <rbotterell@telus.net>

Subject: Public E-Mail to Attorney General David Eby and Environment
Minister George Heyman

Date: December 12, 2017 8:00:44 AM PST

Attorney General Eby and Environment Minister Heyman:

Given the urgency of this matter I am corresponding by e-mail.

Your collective Cabinet decision to complete Site C yesterday was justified
primarily on the basis, “that if we abandoned the Site C project, we
would incur an immediate $3-4bn public charge on either hydro ratepayers or
BC taxpayers.”

This statement is not true.

Please refer to attached memorandum from Robert McCullough.

Our independent energy expert, Robert McCullough also addressed this matter
in his presentation to you at Cabinet on November 30th, 2017.

You apparently received other technical analysis and/or legal advice (which
we have never seen) that contradicts Mr. McCullough's expert advice to you.

Your Cabinet then proceeded to rely on this pivotal advice as the basis to
complete Site C without first contacting Mr. McCullough to resolve this key
difference.

Please note that Mr. McCullough offered after the cabinet meeting to meet
with your officials to review any questions they may have had regarding his
presentation. They never did. 

Accordingly, your collective Cabinet decision to complete Site C is without
legitimacy and without justification.

We call on you and your colleagues in Cabinet and Caucus to publicly
release the detailed, un-redacted, information and advice and analysis on
which you based this finding regarding a $3-4bn public charge on either
hydro ratepayers or BC taxpayers from the cancellation of Site C. 

Further, we call on you and your colleagues in Cabinet and Caucus to
provide Robert McCullough a full, fair, open and transparent opportunity to
meet with you and your colleagues to respond to this asserted, and
unproven, reason for continuing Site C.

We request a response to the above forthwith and further that
remobilization of Site C construction be placed on hold pending the
requested meeting and further consideration by Cabinet and Caucus of this
issue. 

Regards

Rob Botterell

Legal Counsel to PVLA and PVEA

_______________________________________________________________________

MCCULLOUGH RESEARCH

ROBERT F. MCCULLOUGH, JR. PRINCIPAL

Date: December 11, 2017

To: Ken Boon, Rob Botterell

From: Robert McCullough

Subject: Comments on the Materials from Mr. Eby 

Mr. Eby stated that “that if we abandoned the Site C project, we would
incur an immediate $3-4bn public charge on either hydro ratepayers or BC
taxpayers.” It is unfortunate that Mr. Eby received incorrect
information, but Mr. Eby's best path would have been to check with the BCUC
for guidance on standard regulatory practice. 

I gather that Mr. Eby was unaware that the BCUC calculations had set
amortization periods for the sunk costs and the reclamation expenses. The
analysis assumed a seventy-year amortization period for the sunk costs of
$2.1 billion. They also assumed a thirty-year amortization period for the
reclamation costs. In passing, their estimate of the reclamation costs was
quite a bit higher than the evidence. Both BC Hydro and Deloitte forecasted
costs in the $1 to $1.2 billion range. 

Regulatory practice puts the amortization of prudently undertaken utility
investments as an issue in the purview of the regulatory commission. An
Order in Council can direct the BCUC to choose different amortization
periods, but this would simply be an exercise in self-inflicted pain. 

If an asset is recognized by regulators as an earning asset, the usual
policy would be to write it down on the same schedule as that set by the
regulatory commission. Again, the Cabinet can choose to accelerate the
depreciation of an earning asset, but this would be a second way to cause
their constituents injury.

It appears from Mr. Eby's letter that he believes that the financing of the
$2.1 billion sunk costs has been held in abeyance. This is a curious
belief. British Columbia has a continuous financing program designed to
balance cash requirements and cash inflows. These needs drive the
province's issuance of bonds. The province has already spent the $2.1
billion dollars and the cash has been disbursed. The cash is found through
taxes and the sale of bonds. For a long-term capital asset like Site C, the
province would nor­mally issue thirty-year bonds which, indeed, is what
the province has done.

Mr. Eby has also raised a concern that Moody's (the only bond rating firm
that has ex­pressed concerns about BC Hydro's unusual finances) would
react negatively to the re­covery of the $2.1 billion. Regulatory recovery
of the costs of termination is a very common practice in the utility
business and is addressed in every utility's annual report. However, the
proposed solution is to propose spending $8 billion more an asset that
could be replaced for only $4 billion. This, indeed, may concern the bond
raters and has been a factor in the downrating of the two provinces -
Manitoba and Newfoundland - who have followed the proposed path. 

As I concluded recently: 

BC's triple A rating was just confirmed and will not be downgraded by
cancelling Site C. BC is already financing the $2.1 billion in sunk costs
with 30-year bonds at a cost of $ 57 million per year, not $300-400 million
per year. Even if the inflated $1.8 billion in termi­nation costs are
added, cancelling Site C will save ratepayers at least $266 million/year or
$123/household in 2024. 

If Mr. Eby and his colleagues wish amplification, I am a willing volunteer.

_______________________________________________________________________

Short bio of Mr. McCullough here
https://www.mresearch.com/robert-mccullough-short-bio/ (note his role in
initiating the Enron investigations.)

-end-