• BC Ferries' net assets in BC Ferry Services will be exchanged at net book value (approximately $500 million) for a combination of preferred shares and a bond issued to the province by the new corporation.
• Provincial fuel tax of $75 million will no longer be paid to BC Ferries. Instead, the government will enter into a services contract with the new corporation for an annual fee of $106 million.
• Annual dividend and interest earnings of $30 to $37 million from the preferred shares and the bond will offset the loss of projected BC Ferries net income.
• The government will incur a $77 million one­time negative accounting adjustment in 2002/03 for previous capital grants to BC Ferries.
• BC Ferries net income, capital spending, assets, liabilities and debt will not be recorded on government financial statements after 2002/03.

As part of its restructuring, BC Ferry Corporation is concluding an auction of the PacifiCats on March 24, 2003.

British Columbia Hydro and Power Authority:

In November 2002, a new energy policy entitled "Energy for Our Future: A Plan for BC" included a number of structural changes for BC Hydro. Government will legislate a "heritage contract" to lock in for an extended period the low-cost benefit to British Columbians from the corporation's publicly-owned hydro and other generation assets. New power requirements will be competitively sourced from the private sector.

In keeping with the Energy Plan's direction to focus on core services, BC Hydro will be outsourcing its customer service, IT and other administrative functions to a joint venture with Accenture. Approximately one-third of BC Hydro's workforce (1,700 employees) will move to the new organization. Transition costs will be offset by cost savings of $250 million over 10 years. Additional revenues may accrue to BC Hydro through marketing similar services to other utilities in North America.

A key Energy Plan initiative is the establishment of a new BC Transmission Corporation to manage, operate and maintain BC Hydro's transmission system based on open access principles. This new publicly owned corporation is expected to be operational by mid-2003, and will position the Province as a continuing active participant in west coast energy markets.

After no general rate increase in 10 years, BC Hydro will return to full BC Utilities Commission oversight in April 2003. Future rate setting will factor in the cost of new power supplies, the maintenance associated with ageing assets and the requirement to earn a positive rate of return on equity. Any rate increases are subject to regulatory approval. No rate increase has been incorporated into Budget 2003 or BC Hydro's Service Plan.

BC Rail Group:

The Core Services Review of BC Rail resulted in a focus on its rail freight business, and divestment of non-core assets and unprofitable businesses. Key restructuring initiatives include:

• discontinuation of intermodal and uneconomic passenger rail services;
• divestiture of the BCR Marine division (Vancouver Wharves, Canadian Stevedoring, and Casco Terminals); and
• divestiture of non-rail subsidiary transportation businesses (Finlay Navigation).

As a result of these initiatives, BC Rail reported asset re-valuation and other restructuring costs in January 2002 totalling $100 million. These costs were reflected in the government's 2001/02 financial statements as part of the adjustment to BC Rails' reported results to match them to government's fiscal year.

In January 2003, the sale of Casco Terminals and Canadian Stevedoring to P&O Ports for $105 million was announced. This transaction is expected to close in February 2003, and proceeds will be used to defease long-term debt and reduce short-term debt requirements. Gains of approximately $30 million on this sale will be offset by further asset re-valuations. These transactions will be reported by government in its 2002/03 financial statements.

The restructuring is expected to result in improved operating results for BC Rail as it sheds the annual losses from these discontinued operations and reduces its debt servicing costs.

Insurance Corporation of British Columbia:

ICBC restructuring has focused on regulation to improve the competitive environment, aggressive cost control, and the return of certain functions to government.

In November 2002, government announced that ICBC will continue to be the sole provider of basic auto insurance, but will be overseen by an arms-length regulator. The regulator will:

• replace Cabinet as the body responsible for setting basic insurance rates;
• ensure an open and transparent process for basic insurance rate-setting, including greater public input to rate reviews on basic insurance;
• ensure basic insurance does not subsidize optional products, and that ICBC does not use its dominant position to compete unfairly in the optional insurance market;
• permit optional insurance rates to be governed on a business basis.

As part of its move to private-sector competitive status, ICBC will be expected to provide a return on equity to government, commensurate with what a private insurance company would have to provide its shareholders. ICBC will also be expected to increase its capitalization to match industry requirements. The regulator will incorporate these requirements into its review of ICBC's operations when setting future insurance rates.

ICBC has been able to mitigate the effects of increasing claim costs and reduced returns on its investment portfolio through reducing its costs. The workforce has been cut by 20 per cent (just over 1,300 employees) since its peak in April 2001, the number of claims centres has been reduced, and processes and programs have been streamlined. Overall, the controllable costs of the company have been reduced by more than 24 per cent in the last two years. Combined with average rate increases of 7.4 per cent in January 2002 and 4.8 per cent in January 2003, the net effect is improved net income for 2002 and 2003, compared to the Budget 2002 fiscal plan.

Commercial vehicle compliance and motor carrier functions will be transferred back to the Ministry of Public Safety and Solicitor General and the Ministry of Transportation, respectively. ICBC and the provincial government will formalize the provision of other non-core services by ICBC on behalf of government in a services contract.