hydro system costs

B.C. affirms uneven split of hydro system costs

Commercial electricity customers will continue to pay disproportionate share
Thursday, February 21, 2019

Commercial electricity customers in British Columbia will continue to pay disproportionately for the power they use. The B.C. government confirmed it will entrench an uneven split of hydro system costs among the residential, commercial and industrial consumer classes — which currently redistributes about 9 per cent of the residential burden to commercial ratepayers — when it unveiled a slate of new directions for BC Hydro and the British Columbia Utilities Commission (BCUC) late last week.

“A near-term rebalancing of BC Hydro’s rates could conflict with the government’s commitment to keep life affordable for British Columbians. The decision to prohibit rate rebalancing is a matter of public policy,” reiterates a report released Feb. 14 to wrap up the first phase of a planned two-part review of BC Hydro.

Many of the points highlighted in the government’s associated communications relate to independent reviewer Ken Davidson’s critique of existing provincial contracts with third-party electricity producers, issued one day earlier on Feb. 13. However, it’s the latter document that outlines pending policies and actions.

Those include: a cumulative 8.1 per cent increase to electricity bills over the next five years; cancellation of BC Hydro’s standing offer program, which contracted with independent producers for biomass or clean energy generation; and returning some authority to the BCUC that the previous government had assumed for itself.

“Following this review, it’s our government’s job to fix what’s broken, put BC Hydro onto a sustainable path and make sure rates stay as affordable as possible for customers,” asserts Michelle Mungall, B.C.’s Minister of Energy, Mines and Petroleum Resources.

Touting Davidson’s conclusions that the previous government overpaid for much of the power contracted from independent producers and purchased too much of it, Mungall links rising electricity prices to those decisions. Even so, she notes that the 8.1 per cent increase, proposed to begin with a 1.8 per cent escalation this spring, is nearly 40 per cent lower than the 13.7 per cent increase the previous government had projected for the same five-year period.

Commercial electricity customers will experience climbing costs more keenly. As the report reveals, their allocation of overall costs is roughly 23.5 per cent greater than the cost of providing services to them, while 1.8 million residential accounts collectively contribute about 91 per cent of the cost of their service. Industrial customers pay a share that’s largely equivalent to their actual cost of service.

Prohibition on rate rebalancing and retail contracts

Thus far, the B.C. government has enacted regulations to prevent the BCUC from more evenly reapportioning the burden for the fiscal years of 2017, 2018 and 2019. It has now promised similar regulatory intervention for 2020 and 2021 and an amendment to the provincial Utilities Commission Act “to permanently prevent the BCUC from rebalancing rates unless otherwise requested to do so by a public utility.”

It’s estimated that equitable apportionment could push residential rates 2.2 per cent higher than the proposed 1.8 per cent increase for fiscal year 2020, stretching from April 1, 2019 to March 31, 2020. “At the same time, rates for commercial customers would decrease and industrial rates would remain approximately the same,” the report advises.

Nor will there be an opportunity to look for better deals elsewhere since a prohibition on retail contracts with third-party electricity distributors will remain in place. That decision is linked to BC Hydro’s surplus energy supply, which is projected to continue into the 2030s, and which the current government attributes largely to the previous government’s procurement from independent power producers.

“In a surplus situation, allowing retail access increases the amount of surplus that BC Hydro must export, possibly at a loss, increasing costs borne by ratepayers who do not or cannot opt for retail access,” the report maintains. “The prohibition will continue until or unless a public utility, in this case BC Hydro, requests otherwise.”

In contrast, industrial customers may get an opportunity to purchase discounted power — aligned with a priority to increase domestic demand that could take up some of the surplus generation typically sold for export. “BC Hydro is exploring the option to offer current industrial customers year-round access to real-time, market-based pricing for incremental energy purchases,” the report states.

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