Financial

BC Hydro has two financial long-term goals:

• Maintain our existing North American competitive position of average electricity unit costs.
• Deliver 100 per cent forecast net income on an annual basis (after adjustments to water volatility, etc.).

Achieving these financial goals will be challenging, considering variables such as the success of our long-term outsourcing contracts, Powerex’s trading activities, load growth, market prices for energy and executing cost-effective plans for maintenance of aging assets. We will be prudent in planning and invest wisely to ensure that we continue to be a low-cost, reliable energy provider over the long term and are able to meet our financial targets. Highlights of our performance in support of these goals are listed below.

Net Income Before Regulatory Account Transfers

Dollars (in millions)

Definition

Net Income is the total revenue less total expenses before transfers to regulatory accounts. The targets are based on current cost and revenue drivers and the impact that cost reduction and/or revenue enhancement initiatives will have on these drivers.

Variance Explanation

Net Income is worse than target due to:

• Lower revenues than plan due to lower final rate set by B.C. Utilities Commission than had been approved on an interim basis and significantly lower trade sales volume, partially offset by greater activity in the commercial sector;
• Higher costs of energy due to lower hydro generation and overall net increase in purchases to service domestic load at a higher cost than plan;
• Higher overall operating costs and finance charges; and
• Results positively impacted by receipt of $137 million from Alcan Inc.

Benchmark Comparisons

No benchmark data available.

Comparison of Average Rates

Canadian Cents per Kilowatt Hour

Note: The source for all data, except for Vancouver, is “Hydro-Quebec: Comparison of Electricity Prices in Major North American Cities.” (April 1, 2004). The rates for Vancouver have been recalculated based on the BCUC November 2004 BC Hydro Revenue Requirement Decision, which granted a 4.85% rate increase effective April 1, 2004.

Cost of Heritage Electricity to Distribution

Dollars per Megawatt Hour

Definition

Subsequent to publishing BC Hydro’s February 2004 Service Plan, the measures related to the Generation Line of Business (LOB) net income and cost per megawatt hour have been modified to reflect the Heritage Contract. As well, the methodology for allocating finance charges to the LOBs (including Generation) has changed since the publishing of the 2004 Annual Report where $25.93/MWh for 2003/2004 was quoted. Generation currently uses two related measures: Unit Cost of Heritage Electricity to Distribution expressed in dollars per MWh; and the Adjusted Cost of Heritage Electricity to Distribution.

The actual cost of Heritage Electricity to Distribution is computed by dividing total Generation net costs (all costs less Skagit and miscellaneous revenues plus return on equity) by the volume of electricity supplied to Distribution. The second measure removes cost of energy variances related to changes in load from plan and costs eligible for transfer to regulatory deferral accounts.

Variance Explanation

Actual costs are over plan, due to increased deliveries to Distribution, that resulted in increased electricity purchases at higher unit costs than plan, offset by below plan depreciation, finance charges and taxes. The adjusted cost of heritage electricity variances are a result of below plan depreciation, finance charges and taxes.

Benchmark Comparisons

No benchmark data available.

Billed Sales by Region

Percentage of Total Sales

	04/05	03/04	02/03	01/02	00/01	99/00	98/99	97/98
Lower Mainland	47.10	47.50	47.50	47.60	46.60	47.00	46.70	48.50
Northern Region	19.20	18.70	18.50	18.70	19.40	20.00	20.10	20.20
Southern Interior	12.30	12.50	12.50	12.60	12.30	10.90	11.60	11.80
Vancouver Island	21.40	21.30	21.50	21.10	21.70	22.10	21.60	19.50
Total	100.00	100.00	100.00	100.00	100.00	100.00	100.00	100.00

Billed sales are not weather adjusted and include sales to other utilities. BC Hydro's total billed sales increased by about 1.6% between 2003/2004 and 2004/2005 and since 1997/1998 total billed sales have increased by about 17%. The increase in sales this year over last fiscal reflects a recovery in B.C.'s economy and strong growth in sales to BC Hydro's industrial customers.

The Lower Mainland has the largest share of total billed sales, as most of BC Hydro's customers reside in the Lower Mainland. Changes in billed sales in the northern and southern regions are influenced by changes in B.C.'s economy and changes in commodity exports prices. Of the major four regions, the largest increase in billed sales between 2003/2004 and 2004/2005 occured in the northern region. As a result, the share of total sales in the northern region increased compared to its share last fiscal year. This reflects stronger growth in sales to the metal mining and wood sector as prices for these commodities were relatively strong in 2004/2005. Sales to Vancouver Island increased by 1.8% over the previous fiscal due to an increase in sales to the pulp and paper sector. Sales to the other regions grew modestly and their share of the total billed sales declined slightly compared to last fiscal.

Total Payroll and Total Benefits, by Region

Number of Employees

By Region	04/05	03/04	02/03	01/02	00/01	99/00
Lower Mainland	2,898	3,210	4,507	4,603	4,410	4,057
Vancouver Island	393	410	559	562	550	539
Northern Region	401	402	467	472	470	469
South Interior	534	546	657	666	643	645
Total	4,226	4,568	6,189	6,303	6,073	5,710
% increase/decrease	-7.49%	-26.19%	-1.81%	3.79%	6.36%

Labour Costs, by Region (excluding benefits)

Dollars (in millions)	04/05	03/04	02/03	01/02	00/01	99/00
Lower Mainland	256	260	318	311	281	261
Vancouver Island	31	31	36	36	34	35
Northern Region	32	33	35	33	31	31
South Interior	43	43	46	43	40	41
Total	362	367	435	423	386	368
% increase/decrease	-1.36%	-15.63%	2.84%	9.59%	4.89%

Estimated Benefits Costs, by Region

Based on Labour Percentages	34.8%	32.4%	28.3%	25.5%	24.9%	24.7%
Dollars (in millions)	04/05	03/04	02/03	01/02	00/01	99/00
Lower Mainland	89	84	89	79	69	64
Vancouver Island	11	10	11	9	9	9
Northern Region	11	11	10	9	8	8
South Interior	15	14	13	11	10	10
Total	126	119	123	108	96	91

Figures do not include BC Transmission Corporation or Accenture Business Services for Utilities. Labour costs shown are as per the Financial Information Act.