BC Hydro considers ending two-tiered rate system

BC Hydro rates will go up 1.8% April 1, if the BC Utilities Commission (BCUC) approves the utility’s rate increase application.

But rates could decrease by 1% in 2021 – happy timing for an NDP government seeking re-election – and then rise by 2.7% in 2022.

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This is according to interim reports from the comprehensive review of BC Hydro ordered by the NDP government to address electricity rates, which were projected to soar 13.7% over the next five years under its previous 10-year plan.

BC Hydro now says it can keep that rate increase to 6.2% over five years, as follows:

• 1.8% increase, 2020

• 1% decrease, 2021

• 2.7% increase, 2022

• 0.3% decrease, 2023

• 3% increase, 2024

The first interim report, which came out last year, said the reduction in required increases was accomplished mainly from a $1.1 billion write-off of BC Hydro debt by the NDP government, and the cancellation of power purchase agreements with independent power producers for power it doesn’t need.

The second interim report, which came out last week, contemplates a number of changes to the way BC Hydro does business, in part to help facilitate the aims of the CleanBC plan.

For example, BC Hydro appears to be contemplating the elimination of the two-tiered rate plan that essentially penalizes users for using more power.

It also notes a potential for increased trade in clean power between B.C. and those U.S. states that have increased the build-out of wind and solar power.

The two-tiered system that BC Hydro has was intended to encourage conservation. Beyond a certain threshold, customers get bumped into a higher tier and pay higher rates for power.

But in an era when the government wants to discourage the use of natural gas for home heating and industrial uses, and encourage more use of electricity, a two-tiered system that actually discourages greater use of electricity use may be at odds with that aim.

BC Hydro is now contemplating replacing the two-tiered system with an optional rate design, in which customers could chose different rate plans, such as a “time-of-use” option.

The report – which is now open for public feedback – cites the example of a homeowner who owns an electric vehicle opting for a rate designed for nighttime power use for vehicle charging.

The report also suggests smart metering could be harnessed in such a way that BC Hydro customers could chose plans that allows BC Hydro to control things like water heaters.

A customer could, for example, opt into a plan that would allow BC Hydro to remotely turn the heat down on hot water tanks and baseboards during the day when people are at work.

“That was the promise of the smart meter investment and I don’t think it’s been fully realized,” Bruce Ralston, B.C.’s new minister of Energy, Mines and Petroleum Resources, told Business in Vancouver.

BC Hydro has been criticized for over-estimating B.C.’s future demand for power. When the new Site C dam begins producing power in 2025, for example, it is expected to produce a surplus of power for years to come.

There are some wild cards at play, however, that could see an increased need for power in B.C.

One is electric vehicle adoption, which last year exceeded all expectations, with EVs reaching 10% of all new car sales in B.C.

If EV adoption were continue at the current pace, it could soak up some of the Site C surplus, although it would also require additional investments in power infrastructure. Whether EV adoption continues at the 2019 rate will depend to a great extent on the continuation of government rebates.

Another wild card is just how much power BC Hydro may need to generate for industry. That sector’s draw is difficult to project long-term with great certainty.

There could be significant new draws through the electrification of northeastern B.C., where the plan is to electrify the natural gas sector. But all it takes is for one large mine or pulp mill to shut down to blow forecasts out of the water.

“Significant decreases in load would mean that more of BC Hydro’s existing system costs would need to be recovered by other customers, which could have rate impacts,” the interim report warns.

As for energy trading, the report suggests the increased build-out of wind and solar power in the Pacific Northwest – notably California – may present increased opportunities for clean power trading.

The idea would be that B.C. could buy more clean power at low prices when it is being produced at surplus in the U.S., and sell back hydro power when the demand and prices are high.

“Given that Washington, Oregon and California are very progressive jurisdictions when it comes to electrification of their economy, there are opportunities for electricity trading,” Ralston said. “There are synergies down the west coast with the electricity regimes of Washington, Oregon and California.”

David Austin, a lawyer specializing in energy for Stirling LLP, said that would result in British Columbia using its hydro power resources to support the independent power industry in the U.S., to the detriment of local independent power producers.

“There’s far too much emphasis on importing electricity, which would be to the overall detriment of investing in generation in British Columbia, with the resulting taxes, jobs and other economic domestic benefits,” he said.

“There’s no evidence that there’s going to be an overall economic benefit to British Columbia by importing electricity. The jobs and investment and taxes end up in the United States, not British Columbia.

“We need our existing system to back generation in British Columbia to meet our greenhouse gas reduction objectives.”

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