Financial

BC Hydro's financial results are affected by the success of our trading activities, the maintenance of our aging assets, the growth of electricity use across the province and the price of purchased energy from the market or independent power producers required to meet it. We are planning and investing wisely to ensure that we can continue to provide a reliable source of electricity at low cost, for future generations, as well as meet our financial targets.

Net Income

Dollars (in milions)

Net income is defined as total revenue less total expenses after regulatory account transfers, and represents the net impact of key economic and business factors that affect BC Hydro's performance. Regulatory account transfers reflect the financial impact of the factors beyond BC Hydro's control (such as water volatility, market prices, etc.).

For fiscal 2007, BC Hydro's results benefited from higher customer rates, increased consumption, higher energy trading income, lower energy costs, and lower amortization expense. Water inflows were 10 per cent lower than the prior year (and 12 per cent lower than average) resulting in lower hydro generation than in the prior year, however required energy purchases were made at a lower unit cost per megawatt hour (MWh) resulting in a reduction in the total cost of energy compared to the prior year.

BC Hydro's allowed rate of return for fiscal 2007 was 13.10 per cent, as approved by the BC Utilities Commission in its rate decision of November 20, 2006, which translates to net income of $395. The allowed return on equity has been calculated to equal, on a pre-income tax basis, that of the most comparable investor-owned utility.

Price Competitiveness

Canadian Cents per Kilowatt Hour

Note: The source for all data is Hydro Quebec's "Comparison of Electricity Prices in Major North American Cities". The rates in this publication are those that were effective on April 1, 2006, but BC Hydro rates have been adjusted to reflect net rate increase of 3.64 per cent (including a two per cent rate rider) effective February 1, 2007 as approved by the BCUC. BC Hydro's rates are among the three lowest in North America. Comparator utility data have been adjusted to September 30, 2006 for known rate changes (based on BC Hydro's best estimates) and for movements in exchange rates.

Selection of peer comparison set based on the jurisdictions used by the BC Progress Board to assess the competitiveness of British Columbia.

Energy Trading Activities

Trade revenues were $1,406 million, a decrease of $178 million over last year's revenues of $1,584 million. This decrease was due in large part to a 19 per cent reduction in the average electricity sales price of $64/MWh in fiscal 2007, compared to $79/MWh in fiscal 2006, offset by a 12 per cent increase in electricity volumes totalling 33,372 GWh. In addition, gas trade revenues marginally decreased as a result of a 19.9 per cent increase in gas sales volumes which totalled 7,924 GW, offset by a 17.6 per cent decrease in the average gross sales prices for gas. The decrease in energy market prices was largely the result of low natural gas prices resulting from lower demand for natural gas due to mild weather in the early months of 2006 and no large supply interruptions such as the hurricanes of the prior year. Trade energy costs of $1,080 million decreased 20 per cent primarily as a result of lower electricity and gas unit costs. This was offset by a 13 per cent increase in volumes purchased.