Financial Information Act Return - BC Hydro

Notes to Consolidated Financial Statements
For the Years Ended March 31, 2003 and 2002
Resources by various suppliers, including Powerex.
Due to the instability in the California market and ongoing developments in regulatory and legal
proceedings, management cannot predict the outcome, and the amount ultimately collected may differ
materially from management’s current estimate. As a result of defaults by the California utilities and
certain related government action, management has not disclosed the provision amounts or ranges of
expected outcomes due to the potentially adverse effect on the collection process.
(b) Powerex has been named, along with other energy providers, as a defendant in a number of lawsuits
and regulatory proceedings which allege that, during part of 2000 and 2001, the California wholesale
electricity markets were unlawfully manipulated and that the energy prices were not just and
reasonable. BC Hydro was also directly joined as a defendant in one lawsuit. Estimates of claims
against all of the market participants arising from alleged market manipulations range from hundreds
of millions of US dollars to several billion US dollars. Several investigations and regulatory
proceedings at the state and federal levels are also looking into the causes of the high wholesale
electricity prices in the western United States during the period in question. Powerex believes that the
terms of its sales were just and reasonable, and both Powerex and BC Hydro believe that they
conducted themselves properly at all times. Powerex is vigorously defending itself against these
claims and is pursuing its claims for unpaid accounts for power sales. In response to an application
by BC Hydro to be dismissed from the lawsuit in which it has been named, a US federal court judge
has ruled that BC Hydro is immune from these claims in the US, but that ruling is under appeal.
Management cannot predict the outcome of the claims against Powerex and BC Hydro at this time.
(c) On December 2, 2001 Enron Corp. (“Enron”) and certain of its subsidiaries filed for bankruptcy
protection. As a result, the long-term Power Purchase Agreement between Powerex and Enron
terminated. Under a 1997 agreement between Alcan, Enron Power Marketing Inc. (“EPMI”), Powerex
and BC Hydro, Alcan agreed to remain liable to Powerex for the payment obligations of EPMI, for
which Alcan was originally responsible. Alcan did not pay this obligation so Powerex took the
matter to arbitration. An arbitration award was issued on January 17, 2003 which required Alcan to
pay Powerex US$100 million within 30 days, with interest accruing thereafter. This payment
remains outstanding while Powerex has commenced enforcement proceedings and Alcan has applied
to have the award set-aside. At this time, the outcome of this claim is not determinable.
Accordingly, no recovery in respect of the arbitration award will be recorded in the financial
statements until collection is assured.
(d) Due to the size, complexity and nature of BC Hydro’s operations, various other legal matters are
pending. It is not possible at this time to predict with any certainty the outcome of such litigation.
Management believes that any settlements related to these matters will not have a material effect on
BC Hydro’s consolidated financial position or results of operations.