Letter from the Chair to the Minister

The 2005 BC Hydro Annual Report was prepared under my direction in accordance with the Budget Transparency and Accountability Act and in accordance with the Global Reporting Initiatives 2002 Guidelines. I am accountable for the contents of this report, including the selection of performance measures and targets and how the results have been reported. The information presented reflects the actual performance of BC Hydro for the 12 months ended March 31, 2005. All significant decisions, events and identified risks have been considered in preparing this report.

The information presented is prepared in accordance with the B.C. Reporting Principles and represents a comprehensive picture of our actual performance in relation to our Service Plan.

Overall, the 2005 fiscal year was another excellent one for BC Hydro. Looking back on the expectations set out in our 2004 Service Plan, I am proud to say that we met (3) or exceeded (4) seven of our nine corporate performance measure targets. Of particular note in this area was the outstanding result – 90 per cent – for customer satisfaction (exceeding the target of 84 per cent), our financial accomplishment of $402 million in net income (even in the face of lower than average water levels) and a continued significant improvement in overall employee safety. The latter achievement was tempered, however, by the tragic employee fatality that occurred on Vancouver Island. This incident further renewed our commitment to both employee and public safety.

We had a number of key accomplishments and challenges throughout the year. Key accomplishments include successfully completing our first revenue requirements process in over 10 years before the British Columbia Utilities Commission. The result – a 4.85 per cent rate increase – provided the funds necessary to continue operating our business in the most efficient way for our customers, while still keeping their electricity rates among the lowest in North America. Our private sector power acquisition program also continued to grow, with four new green independent power producers projects coming on line and the announcement of 1,000 gigawatt hour “all resource” calls for both 2005 and 2006. We began the 2005 Integrated Electricity Planning process, with an expanded stakeholder engagement process across the province. We also developed a new corporate purpose and 15 new long-term goals to help guide our company into the future.

In terms of challenges, identifying future resources options continued to lead the way. We launched our 2005 Integrated Electricity Plan with a comprehensive stakeholder engagement process across the province. Early in the fiscal year, we also undertook a process to investigate the potential of acquiring interest in the generating assets of CBT Energy Inc and the Columbia Power Corporation (CPC), something that was later abandoned when CBT Energy’s parent company, The Columbia Basin Trust, withdrew its support for the initiative.

As always, external industry and market developments continued to impact our business last year. Leading the way was a continued low water situation in the Pacific Northwest, which significantly limited the amount of energy available in the region. At the same time, rising oil and gas prices impacted thermal resources throughout North America. And uncertainty, related to how all parties were going to respond to the Kyoto Protocol, continued to raise questions about the potential costs of greenhouse gas emissions. The impact of rising oil and gas prices and Kyoto was naturally mitigated somewhat by the fact that we are primarily a hydroelectric utility, while the low water situation was partially offset by the fact that the water situation in the province was in much better shape than other parts of the Pacific Northwest.

We also faced – and worked to manage – our share of risks and uncertainties this past year. I previously mentioned those related to safety, both in terms of the success and the challenge. We dealt with the annual risks related to reliability of supply: making sure we have enough electricity, and getting it to our customers. On the reliability of supply, we completed a second straight year of significant electricity imports to help offset previous low water conditions in the province, thus assuring we had enough to meet customers’ needs. And while our overall reliability numbers did not meet our admittedly optimistic goal, the specific customer-based reliability project we initiated did result in key improvements in the most problematic feeders.

On the financial side, we were able to overcome rising energy costs and high energy imports to still have a strong year, mostly due to the continued success of our power marketing subsidiary, Powerex. And, on the environmental and social side, we continued to mitigate potential risks and meet our responsibilities by focusing efforts on our relationships with First Nations, finalizing Water Use Plans with interested parties across the province and exploring the different options and implications for dealing with the Kyoto Protocol.

Throughout all of our work this year, we kept in mind the implementation of the provincial government’s Energy Plan. I am proud to say that we have now successfully completed 19 of the 21 policy elements related to BC Hydro, with the remaining two fully underway. Leading the way here was the work that allowed the British Columbia Transmission Corporation to become a fully independent and separate Crown corporation by the April 1, 2005 deadline.

This year, as has been the case in the past, BC Hydro continued to face its challenges and opportunities from a triple bottom line perspective. This concept of sustainability is captured in our new purpose – reliable power, at low cost, for generations – and it plays the lead role in the decisions we make every day. By continuing with this long-term focus, I believe BC Hydro will remain not only a leading Crown corporation in the province, but will help us become a world leader as well.