BLAST FROM THE PAST: Not power smart: a Hydrogate lawsuit embarrasses Clark and reveals the crown’s politicization – By Derek DeCloet

Report Newsmagazine
January 11, 1999

When the B.C. Liberals unveiled the Hydrogate scandal the day before Glen Clark became premier, it looked as if his residency in the office would be short. Coming just months after the Nanaimo bingo scandal had forced out Mike Harcourt, Hydrogate-in which NDP insiders were given an exclusive chance to invest in a B.C. Hydro project in Pakistan-further besmirched the NDP’s reputation. But Mr. Clark turned the situation to his advantage by immediately sacking two top Hydro officials and ordering an investigation. That made him appear a decisive leader-in sharp contrast to his ponderous predecessor.

Since his narrow victory in the 1996 election, however, the Hydro affair has produced nothing but bad news for the premier. Last spring the Pakistani government began investigating B.C. Hydro’s Raiwind power project for evidence of bribery, kickbacks or illegal commissions. That put Hydro’s $10-million investment-which Mr. Clark once claimed would bring a 24% return-at risk. Even more embarrassing, former Hydro chairman John Laxton testified under oath last month that the premier knew about the plan to quietly offer shares to well-connected New Democrats and friends and relatives of B.C. Hydro executives.

Mr. Laxton was testifying in the wrongful dismissal suit of former Hydro president John Sheehan, who was fired after the scandal became public. Mr. Laxton, who was forced to resign, testified that Adrian Dix, Mr. Clark’s chief political aide, was present at nearly all Hydro board meetings where the project was discussed. Mr. Clark was also present at a Hydro Christmas party where the investment scheme was discussed, Mr. Laxton said. (The premier was then minister responsible for the crown corporation.) “Mr. Clark was involved in those discussions,” he told the court. “He didn’t show any signs that he disagreed with what everybody thought was a good idea.”

Taking the stand three days later, Premier Clark insisted he gave clear instructions that Hydro officials would not be permitted to buy shares, and added he had not known his order was being ignored. “This was a complete betrayal,” he told the court; he called Mr. Laxton’s assertions “preposterous.” He has, however, been unable to provide any written proof of his purported order.

Even if Mr. Clark is right and Mr. Laxton is wrong, the government has been embarrassed by court testimony. First, B.C. Hydro has been deliberately charging its biggest customers higher-than-necessary rates to fatten its profits. Second, industrial customers in B.C. are paying 30% more than an aluminum smelter in Washington State that buys power from B.C. Hydro. “The bottom line is crucial. The worse our bottom line will be, the greater will be the demands for the breakup and privatization of B.C. Hydro,” Mr. Sheehan told a meeting of senior managers three years ago. He urged these policies be kept secret: “You don’t go out and tell your industrial customers you’re trying to keep prices high as long as possible. But in effect, that’s what we’ve been doing without talking about it or publicizing it.”

The Sheehan trial confirms what corporate customers have been saying for years-that B.C. Hydro can afford lower rates but keeps them high because its decisions are primarily political, not economic. The NDP government relies on the crown to pay it a healthy “dividend” to improve the government’s balance sheet. Public policy consultant Don Scott has calculated that between 1992 and 1997, Hydro took on $1.26 billion in new debt mainly because NDP finance ministers have taken more than $1.08 billion in Hydro “profits.”

To keep the money flowing the NDP passed legislation last year that freezes Hydro rates-although figures suggested they could reasonably fall by 7.5%. The costs to power-hungry industrial users are huge. For example, Highland Valley Copper, which is struggling because copper prices have fallen more than 30% in the past year, has a monthly power bill of $3 million. The mine would save $225,000 a month if rates were reduced.

Despite hard times in the resource sector, Public Service Minister Moe Sihota says the government has not yet discussed cutting Hydro rates. But if companies are willing to generate a little good news for the premier by signing on to his “Power for Jobs” initiative, they might be eligible for a price break. Mr. Sihota admits, “The Power for Jobs Accord does give us the ability to make some adjustments.”