LETTER FROM THE CHAIR AND PRESIDENT AND CEO TO THE MINISTER POWERING OUR PROVINCE With the province’s demand for electricity expected to grow by 20 to 40 per cent over the next 20 years, BC Hydro continued to work to secure a reliable supply of clean power in fiscal 2010 through our conserve more, build more, and buy more strategy. (L) Dan Doyle, Chair (R) David Cobb, President and Chief Executive Officer In fiscal 2010, we continued to make progress towards our goal of meeting 50 per cent of our incremental resource needs through demand side management by 2020—a goal that was increased to 66 per cent by the Clean Energy Act. BC Hydro is also preparing to automate and upgrade its metering systems and electrical grid. This modernization will support our conservation goals by enabling customers to actively manage their energy choices, and adopt new energy and conservation solutions. BC Hydro’s 2010 Annual Report was prepared under the Board’s direction in accordance with the Budget Transparency and Accountability Act, and in accordance with the Global Reporting Initiative G3 Guidelines. This report represents a balanced presentation of BC Hydro’s economic, environmental and social performance for the fiscal year ended March 31, 2010. All significant decisions, events and identified risks as of May 31, 2010, have been considered in preparing this report. The information was prepared in accordance with the B.C. Reporting Principles and represents a comprehensive picture of our performance in relation to the August 2009 update to our 2009/10 to 2011/2012 Service Plan. The measures focus on aspects important to the company and are consistent with BC Hydro’s values, purpose, goals and objectives. The Board is responsible for ensuring internal controls are in place to measure and report on performance of the company in a timely fashion. This report contains estimates and interpretive information that represent the best judgment of management. Any significant limitations in the reliability of data are identified in the report. Over the next five years and beyond, BC Hydro is focusing on improving the health of our generation assets. In fiscal 2010, BC Hydro made some of its most significant capital investments in decades, totalling $2.4 billion. One example of the many upgrades to our facilities across the province is our Revelstoke Unit 5 Expansion Project, which will add 500 MW of capacity to our system. Plans to install the fifth and sixth units at Mica will also increase our capacity by a further 500 MW per unit. Another major piece of B.C.’s clean energy strategy was announced at the end of the fiscal year when the Province gave the go-ahead to Stage 3 of the Site C Clean Energy Project. The project will be the third dam and generating station on the Peace River in northeastern B.C. and a source of clean and renewable energy, producing enough electricity to power approximately 410,000 homes per year. Along with conserving more and building more, BC Hydro has a target of acquiring up to 5,000 GWh/year of clean, reliable electricity generated in British Columbia. To get there, we announced a number of initiatives in fiscal 2010. Examples are the Integrated Power Offer to support pulp and paper customers who also generate electricity from biomass, and the Community-Based Biomass Power Call for smaller biomass projects. In addition, BC Hydro recently awarded 25 Electricity Purchase Agreements under the 2008 Clean Power Call, with possibly more agreements to be signed in early fiscal 2011. Another significant acquisition occurred in February 2010 when the British Columbia Utilities Commission approved BC Hydro’s plan to purchase a one-third ownership interest in Teck’s Waneta dam and generating facility near Trail. The agreement secured 1,000 GWh/year of clean electricity. A YEAR OF ACHIEVEMENT The last fiscal year was an exciting and busy time for BC Hydro, highlighted by our support for the Vancouver 2010 Olympic and Paralympic Games, ongoing improvements to our aging infrastructure, new energy agreements signed through our calls for clean power, important changes in our organizational structure, and of course the introduction of the Province’s Clean Energy Act. BC Hydro’s 2010 Annual Report outlines these activities, accomplishments and more. On behalf of the Board, we’d like to congratulate all BC Hydro employees for their dedicated service in meeting the needs of our customers and for achieving the vast majority of our performance targets. In fiscal 2010, we met or exceeded the majority of our financial and non-financial targets. Once again, energy saved through our Power Smart programs surpassed expectations and continued to deliver cost-effective energy over the last fiscal year, producing cumulative energy savings of 1,778 GWh/yr, an increase of 795 GWh/yr over fiscal 2009. We are particularly pleased with our safety results, having met all our performance targets. In fact, our all-injury frequency rate for fiscal 2010 is a performance record, which we accomplished through improved job planning in the field, the systematic identification of hazards, the introduction of barriers where hazards were identified and most importantly, the commitment of our entire workforce to work safely. Our severity target was also met, with results that were a significant improvement over last year. We also met our targets in the areas of energy security, customer satisfaction, greenhouse gas emissions and clean energy. Financially, BC Hydro’s net income for fiscal 2010 was $447 million, which exceeds last year’s net income of $365 million. We also provided a return on equity of 12.49 per cent to our shareholder. OUR PEOPLE, BUILDING RELATIONSHIPS With our long and distinguished history in this province, BC Hydro knows that building a sustainable energy future also includes building positive relationships with our communities and stakeholders. A prime example occurred in June 2009 when the Tsay Keh Dene First Nation accepted a final agreement with the Province and BC Hydro. The agreement addressed historic grievances associated with the construction of the W.A.C. Bennett Dam and creation of the Williston Reservoir in the late 1960s and today exemplifies our ongoing commitment to improving and building relationships with First Nations within BC Hydro’s service territory. Another example is the relationship BC Hydro made with the world during the 2010 Games. Our employees powered the Games reliably and safely, making 2010 the greenest Games in modern history. Employees from across the organization went above and beyond the call of duty, showing the world what we’re capable of as a company and acting as ambassadors to this province. We are proud that BC Hydro is one of the most respected companies in the province. Our talented and dedicated workforce, with its diversity of backgrounds, skills, and expertise, is something we take great pride in and which we are focussed on developing through ongoing training and leadership programs. On behalf of the Board, we thank all employees for their important contributions to our company and our province. 4 BC HYDRO ANNUAL REPORT 2010 5 BC HYDRO ANNUAL REPORT 2010 ORGANIZATION OVERVIEW STRUCTURED DECISION MAKING To achieve our purpose and Guiding Principles, BC Hydro continues to integrate financial, environmental, and social considerations (triple bottom line) into how we plan and manage our business. This is included in our decision-making processes across the company and at the Board level. The Clean Energy Act sets a goal for BC Hydro to acquire 66 per cent of incremental resource needs through energy conservation and efficiency by 2020, while at the same time requiring that: OUR ORGANIZATIONAL STRUCTURE placing B.C. among the top green jurisdictions in the world; and See Corporate Governance (p. 11) for information on BC Hydro’s organizational structure. 500 KV TRANSMISSION SYSTEM AND MAJOR GENERATING STATIONS SHAREHOLDER’S LETTER OF EXPECTATIONS This letter describes the relationships between BC Hydro and the Province, and sets out objectives that the Shareholder wishes BC Hydro to achieve. The Province and BC Hydro review the letter annually and update it as required. Directions outlined in the February 2009 letter focus on accountability, energy conservation, climate change, stakeholders and First Nations. For more information on this legislation and the policy direction from the provincial government, see the Appendices section of this report. OUR SYSTEM BC Hydro is the largest electric utility in British Columbia, operating 31 hydroelectric facilities and three thermal generating plants. Most of BC Hydro’s 11,300 megawatts (MW) of installed generating capacity is located away from the province’s major population centres. Our hydroelectric facilities provide 90 per cent of the total electricity we generate—between 42,000 and 52,000 gigawatt hours (GWh) per year over the past five years—and are located throughout the Peace, Columbia and Coastal regions of B.C. Our three thermal generating plants provide the remaining electricity generation. BC Hydro has corporate centres in Vancouver and Burnaby, and has a presence in more than 50 communities across the province through its regional offices. OUR PURPOSE AND VALUES BC Hydro’s purpose is to provide “Reliable Power, at Low Cost, for Generations.” Our purpose, together with our vision outlined in our Guiding Principles, provides us with an enduring foundation for managing our business and allows us to develop and drive our core strategy of conserving, building and buying the electricity British Columbians need. At all times, our values of safety, accountability, integrity, service and teamwork guide our actions. OUR SHORT TERM PRIORITIES AND GUIDING PRINCIPLES BC Hydro has 15 Guiding Principles that were developed and adopted by the Board in 2004. These principles provide an enduring framework for how we manage our business. Several of these principles have been selected as priorities to focus on in the short-term. Two changes were made to our short-term priorities in the 2009/10 to 2011/12 Service Plan to better reflect our evolving focus and government directions. For fiscal 2010, Reliability (Supply) was renamed Electricity Security (Supply) and Climate Change and Environmental Impact was established as a separate short-term priority from Energy Conservation and Efficiency. We deliver electricity to our customers through a network of over 18,000 kilometres of transmission lines and 57,278 kilometres of distribution lines. This network also includes 892,633 utility poles and 272,572 individual transformers. BC Hydro also serves 18 communities that are not connected to our integrated system. These non-integrated areas are typically small, remote communities, served by local generating stations (10 diesel stations and one hydro station) owned by BC Hydro, Independent Power Producers (IPPs) or the communities themselves. To meet the growing demand for electricity, BC Hydro also contracts with IPPs to buy electricity on a long-term basis, and buys power externally in the wholesale electricity markets through Powerex, our energy marketing and trading subsidiary. CANADIAN ENTITLEMENT The Columbia River Treaty between Canada and the United States was ratified in 1964. The Treaty resulted in the construction of three dams in British Columbia—the Duncan, Keenleyside and Mica dams —for flood control and to increase hydroelectric generating potential in both countries. The Treaty also gave the U.S. the right to build Libby Dam. Canada’s share (one-half) of the extra power produced in the U.S. as a result of the Canadian projects is called the Canadian Entitlement to Downstream Benefits and is owned by the Province of B.C. and administered by BC Hydro. The Canadian Entitlement varies from year to year, but is generally in the range of 4,400 GWh per year and about 1,250 MW of capacity. The earliest termination date for the Columbia River Treaty is September 2024, subject to either country giving a minimum 10 years notice of its intent to terminate. OUR CORE STRATEGY BC Hydro’s core strategy is to conserve, build and buy to provide the electricity British Columbians need. We are focused on these three strategic and operational priorities and in taking action on the initiatives that will make these goals a reality. Conserving is the first and best choice for us to meet B.C.’s forecasted electricity needs. By helping customers be more efficient, use their power wisely, and ultimately use less, we can collectively lower the new supply that will be needed. The second way for us to meet B.C.’s needs is to build by making important reinvestments in our heritage hydroelectric assets and by exploring new large-scale investments, such as Site C, a third hydroelectric facility on the Peace River. The third part of our strategy is to buy more. Even though conservation is anticipated to meet more than half of our future electricity needs, BC Hydro will still consider other cost-effective, made-in-B.C. resource options to meet the balance of our requirements. For more information on our strategy, see our 2010/11 to 2012/13 Service Plan. CUSTOMERS BC Hydro serves 95 per cent of B.C.’s population, delivering electricity safely and reliably at competitive rates to approximately 1.8 million customers. Eighty-nine per cent of our customer accounts are residential, with the remainder either commercial or industrial. Each of these three groups consumes roughly one third of the total electricity we supply. HOW WE MEASURE OUR PERFORMANCE BC Hydro uses a series of measures to guide business performance and progress. Some of these measures are tracked monthly, while others are tracked quarterly, semi-annually and annually. BC Hydro continues to develop leading measures where practical to determine if progress on meeting our goals is on track and to identify where adjustments need to be made. Measures are results-based to provide a more accurate evaluation on our performance. Where possible, we also participate in benchmarking studies to determine where improvement may be required. A LOOK BACK ON PERFORMANCE FOR FISCAL 2010 continued Guiding Principles FINANCIAL Performance Measure FINANCIAL EFFICIENCY Net Income (After Regulatory Accounts) ($ in millions) F2008 Actual 39 F2009 Actual 32 F2010 Target 23 F2010 Actual 18.8 F2011 Target 20 F2012 Target 17 F2013 Target 15 Return on Assets7 (%) Return on Regulatory Equity (%) EBIT Interest Coverage7 Debt to GAAP Equity (%) 2.8 1.4 2.3 1.2 1.3 1.3 1.2 OPERATIONAL EFFICIENCY Operating Costs8 (non-fuel)/MWh 2.24 1.52 8.56 2.47 1.67 11.57 2.15 1.27 8.50 2.28 1.52 13.09 2.15 (+/-10%) 8 BC HYDRO ANNUAL REPORT 2010 9 BC HYDRO ANNUAL REPORT 2010 F2008 Actual F2009 Actual F2010 Target F2010 Actual F2011 Target F2012 Target F2013 Target 369 365 452 447 609 660 640 A LOOK BACK ON PERFORMANCE FOR FISCAL 2010 Guiding Principles SAFETY Performance Measure Severity (Number of calendar days lost due to injury per 200,000 hours worked) All Injury Frequency (Number of employee injury incidents per 200,000 hours worked) RELIABILITY (CUSTOMER) CAIDI (hours) SAIFI (frequency) CEMI-4 (%) 6.5 11.33 1.85 80 5.8 11.75 1.72 81 5.2 12.54 1.85 80 5.2 12.49 1.96 80 6.2 14.37 2.08 80 6.3 14.37 2.00 80 6.2 12.74 1.80 80 11.14 13.27 15.43 15.00 N/A N/A N/A 2.15 (+/-10%) 2.15 (+/-10%) Delivered ($) Operating Costs8 (non-fuel)/ Transmission and Distribution Line km ($) Operating Costs8 (non-fuel)/ Customer ($) Operating Cash Flow Post Dividend to Net Capital Expenditure (%) Transmission and Distribution Capital Expenditure/ Transmission and Distribution Line km ($) 1 2 1.22 (+/-10%) 1.22 (+/-10%) 1.22 (+/-10%) 8,057 9,251 10,375 9,933 N/A N/A N/A 8.00 (+/-10%) 8.00 (+/-10%) 8.00 (+/-10%) 344 387 432 415 N/A N/A N/A ELECTRICITY SECURITY (SUPPLY) CLIMATE CHANGE & ENVIRONMENTAL IMPACT Winter Generation Availability Factor (%) Clean Energy (%) Greenhouse Gas Emissions (million tonnes CO2e) Carbon Neutral Program Emissions (million tonnes) 94.9 96.4 96.3 97.6 96.4 96.4 96.4 47 44 27 57 N/A N/A N/A 94 1.50 94 1.46 90 1.55 93 1.31 931 1.50 93 1.45 93 1.40 8,597 12,317 12,608 11,863 N/A N/A N/A 0.0242 0.0273 0.02652 0.0299 0.02602 0.02512 0.0237 Reflects the new target ordered in the Clean Energy Act, passed in June 2010. Carbon Neutral Program Emission targets have been recalibrated from the F2010 – F2012 Service Plan to reflect additional data on building emissions. BC Hydro has been proactively developing programs and initiatives to reduce carbon neutral emissions, including fleet greening, facility improvements and employee engagement. Demand-side management annual cumulative targets align with the B.C. Energy Plan’s 66 per cent energy conservation and efficiency target and the Utility Commission Act amendments, which required BC Hydro to pursue all cost-effective demand-side measures. The targets provided here are based on the 2008 LTAP Evidentiary Update and actual annual results may vary significantly based on the timing and form of new rate structures approved by the BCUC, customer response to price signals and the timing of adoption of codes and standards regulations. By fiscal 2013, approximately 29 per cent of the cumulative savings will relate to rate structure changes and 22 per cent to codes and standards. The Vacancy Rate performance measure, which has been used in past Service Plans to measure the number of positions to fill as a proportion of our total workforce, will no longer be reported as BC Hydro nears its optimal staffing levels, making the metric less important at this time. Employee Engagement was formerly expressed as an overall mean on a five point scale on an Employee Engagement Survey from “strongly agree” to “strongly disagree”. Effective F2009, Employee Engagement is expressed by overall “percent favourable” defined as the percentage of respondents who “strongly agree” or “agree” with survey statements. The fiscal 2008 and fiscal 2009 actual scores for Employee Engagement using the previous format were 3.28 and 3.61, respectively. As of fiscal 2010, the Employee Engagement Survey is performed every two years. The calculation for EBIT has been revised to use Net Income to properly reflect BC Hydro’s income performance and to make the measure comparable to other companies. Previously BC Hydro used Net Income before regulatory transfers in its EBIT calculation. Prior years Return on Assets and EBIT Interest Coverage have been restated to conform with the current methodology. Operating costs exclude demand-side mangement, Site C and other regulatory expenditures as these are not related to efficiency, and exclude any fuel associated with the cost of energy. 17 BC HYDRO ANNUAL REPORT 2010 ENERGY CONSERVATION & EFFICIENCY CUSTOMER SATISFACTION Demand-Side Management (GWh/year, cumulative since F2008) CSAT Index (% of customers satisfied or very satisfied) Billing Accuracy (% of accurate bills) First Call Resolution (% of customer calls resolved first time) 326 983 1,700 1,778 2,3003 3,4003 4,2003 3 90 90 80 90 83 83 83 4 98.5 98.5 98.2 98.5 98.2 98.2 98.2 5 71 75 71 74 71 71 71 6 PEOPLE Vacancy Rate (%) Employee Engagement5 (%) 8.7 51 6.9 62 8.0 N/A 5.5 N/A5 N/A4 62 N/A4 N/A6 N/A4 64 7 8 16 BC HYDRO ANNUAL REPORT 2010 NEW SERVICE PLAN MEASURES FOR FISCAL 2010 BC Hydro uses a variety of measures to guide business performance and progress and to evaluate whether a particular short-term priority is on track. We review our reporting framework regularly to ensure we maintain a comprehensive overview of our performance. For fiscal 2011, we have made a few changes which are noted below. ELECTRICITY SECURITY SUPPLY F2010 F2011 F2012 TARGET TARGET TARGET Forecast Supply-Demand Balance (MW) 0 0 0 SAFETY GUIDING PRINCIPLE: To provide the safest work environment compared with the best performers in any industry, where not one of our employees experience a serious work-related injury. Forecast Supply-Demand Balance provides a distribution of probable net system surplus or deficit under peak annual loads. BC Hydro plans to be able to meet the peak load using firm resources with 90 per cent probability of exceedance. In other words, we should have enough firm resources to meet the peak load nine years out of 10. In other years, we will rely on non-firm sources to meet capacity constraints. FINANCIAL TARGETS F2010 F2011 F2012 TARGET TARGET TARGET Financial Efficiency Total Operating Costs (After Regulatory Accounts) ($ millions) 720 692 704 Walt Greeley (3rd from right), Abbotsford underground crew leader, recipient of this year’s Don McEwen Award of Distinction in Safety, with his team members at the award reception in February 2010. DISCONTINUED MEASURES FOR FISCAL 2011 FINANCIAL TARGETS Following a review of our financial target measures, we have rationalized the number of financially-focused measures and replaced those noted below with a single metric: Total Operating Costs (After Regulatory Accounts), outlined in the New Measures for the fiscal 2011 section above. OPERATIONAL EFFICIENCY Operating Costs (non-fuel)/MWh Delivered ($) Operating Costs (non-fuel)/Transmission and Distribution Line km ($) Operating Costs (non-fuel)/Customer ($) Operating Cash Flow Post Dividend to Net Capital Expenditure (%) Transmission and Distribution Capital Expenditure/Transmission and Distribution Line km ($) PEOPLE BC Hydro has removed the Vacancy Rate performance measure, which has been used in past Service Plans to measure the number of positions to fill as a proportion of our total workforce. This measure is largely influenced by the degree of organizational growth and attrition, and with BC Hydro now nearing its optimal staffing levels, and currently experiencing a low rate of attrition, this metric is less important at this time. are in place; and BC Hydro recognizes that the operation of the electrical power system can be hazardous, and we have worked diligently over fiscal 2010 to mitigate the impact of these hazards by identifying them, implementing safe design and barriers, and using construction, maintenance and education programs to protect against these incidents. Producing and delivering electricity safely involves keeping a well-maintained electrical system that is safe for workers and the public. This includes preventing incidents such as vandalism and theft, and anticipating and responding to the impacts of natural disasters such as storms, floods and forest fires. STRATEGIES IN THE 2009/10 2011/12 SERVICE PLAN: CHANGES TO MEASURES FOR FISCAL 2011 PEOPLE As of fiscal 2009, the Employee Engagement Survey is performed every two years, and will be expressed by overall “percentage favourable” as defined as a percentage of respondents who strongly agree or disagree with survey statements. Employee engagement was formerly expressed as a mean score out of five on an employee engagement survey. 18 BC HYDRO ANNUAL REPORT 2010 19 BC HYDRO ANNUAL REPORT 2010 www.blacksunplc.com © Black Sun Plc 2011 31
