BC Hydro Rates: End of an Era

Hydro rates are going up in B.C. – the only question is 
by how much.

His tone was contrite, bordering on apologetic, when BC Hydro president and CEO Dave Cobb announced 
this March that hydro rates had to go up, effectively declaring an end to W.A.C. Bennett’s era of cheap electricity. Raising rates a cumulative 32 per cent over three years 
was a “difficult decision,” one that would be “financially challenging” to some B.C. families and a burden the utility does not “take lightly,” he said in a public announcement. But the BC Hydro leader, then just 10 months on the job, said his hands were tied: B.C.’s dams, generating stations and transmission lines were built primarily between 1950 and 1980, and many of these assets are nearing the end of their projected life span.


The news was worse than Cobb let on in the press release: beyond the 32 per cent rate hike over three years, BC Hydro projected annual increases right to 2020 in its application with the B.C. Utilities Commission (BCUC), averaging about five per cent a year from 2016 to 2020.


Word of the dramatic increases evoked immediate public outrage. Cheap hydro power has been a birthright in B.C. for a generation – in an expensive place to live, turning the lights on is the one thing most of us could afford to take for granted. It has been industry’s great natural advantage, too, blessed as we are to live amid great rivers, abundant rain and mountainous topography. 

 

Emerging details did not strengthen public support for the hikes: a $930-million plan to install nearly two million “smart meters” is barrelling ahead, exempt from the scrutiny of the BCUC, and the Ruskin Dam, singled out by Cobb as an example of aging infrastructure in dire need of investment, will only power about 33,000 homes when an estimated six-year, $850-million upgrade is complete. 


The rate hike has quickly become a political liability too, prompting B.C. Minister of Energy and Mines Rich Coleman to order an investigation that is scheduled to be completed by the end of June. But regardless of how Coleman or the BCUC tinker with specifics, we’re all going to be paying significantly more for electricity over the next decade. And if there’s an upside, it is that conservation will soon be much more achievable, and with it, BC Hydro’s goal of meeting a lot of our projected future power needs by cutting back demand.


About 80 per cent of the power British Columbians consume is generated by large hydroelectric stations in the Columbia and Peace River basins, then distributed across B.C. via a spiderweb of transmission lines. The 15 per cent of our supply provided by independent power producers (IPPs) – including run-of-river and wind projects developed by private companies – accounts for most of the balance.


To keep this system up and running – and prepare to meet the 40 per cent increase in demand the corporation predicts we’ll see by 2020 – Hydro has estimated it needs $6 billion over the next three fiscal years. BC Hydro’s March 3 Revenue Requirements Application says the expenditures will support heritage-asset upgrades, four new transmission projects (including the Northwest Transmission Line), the smart-metering initiative and work toward building the proposed Site C dam. Included too is the maintenance of infrastructure – everything from nearly one million aging utility poles to kilometres of degraded underground and submarine cable. Significant expenditures will also be needed to fund BC Hydro’s Power Smart conservation and efficiency programs.


Implicit in BC Hydro’s communications around rate hikes is the idea that managers of the past have put off these expenditures, postponing the pain until today. To drive the point home, Cobb provided ratepayers with a graph in his March 1 announcement, demonstrating how capital expenditures roughly flatlined between 1985 and 2007. So are we paying the price for mismanagement of the system?


“I think there is some of that, but it was from the last decade, not the ’90s,” says Mark Jaccard, SFU professor of sustainable energy and former BCUC chair. He notes that “saying not enough was done in the past is a universal strategy in the utility world,” used to justify rate increases. Not only has there been a “lull in investment” in utilities across most industrialized countries over the last 20 years, says Jaccard, but the cracks are appearing at a time when virtually everything costs much more: “We’re more stringent with regulatory aspects, social impacts and compensating people, and total costs to the projects are going to be higher.” 


Experts across a broad political spectrum agree that rates must go up to reflect higher costs and upgrades to aging facilities, but a growing chorus of critics say B.C. ratepayers are being forced to pay more than necessary. SFU economist and public policy professor Marvin Shaffer, for one, says the province’s habit of interfering with the efficient operation of BC Hydro is costing all of us money.


“You cannot understand this 10-per-cent-per-year increase, and the forecasted increases over 10 years, without understanding the really extraordinary restrictions that the government has placed on BC Hydro,” he says. Shaffer cites a series of government orders that force the utility to buy more electricity than it needs – mostly to meet legislated “self-sufficiency” requirements – at prices much higher than market value.


Shaffer says government strictures mean that BC Hydro must meet these standards without depending on some obvious alternatives to its own hydroelectricity supply. It cannot rely on the natural-gas-powered Burrard Generating Station to help restore reservoir levels in very dry years, nor can it count on any of the power the province is entitled to each year under the Columbia River Treaty. 

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Under that 1964 agreement, B.C. is currently entitled to about 1,300 megawatts of “downstream benefits” generated in the U.S. in exchange for storing water north of the border. Critics such as recently crowned NDP leader Adrian Dix say the B.C. government could accept a huge amount of U.S.-generated electricity and put that toward its goal of self-sufficiency, but chooses instead to sell that power back to the U.S. and buy expensive independently produced power instead.


Jim Quail, executive director of the B.C. Public Interest Advocacy Centre, says the provincial government’s requirement that BC Hydro buy a surplus of independently produced power forces it to overbuild its system to provide storage and backup for the “unfirm,” intermittent electricity supplied by run-of-river and wind projects. He says much of that independently produced surplus must then be sold on the spot energy market at a loss to ratepayers. “The rate increases are not only much greater than necessary,” says Quail, “but they are squandering the benefits of the investments made in the past, which is the basis of the inexpensive electricity that we enjoy.”


The major upside to higher prices is that it will provide ever-greater incentives for conservation, which is vital, given that BC Hydro is counting on its conservation and efficiency programs to reduce the forecast growth in demand by 79 per cent by 2020. “Higher rates have always been part of the plan” to reach the conservation target in 2020, says Cam Matheson, BC Hydro’s executive director of integrated resource planning. “Just as people at the gas pump respond differently to oil prices going up and how much it costs to fill up with gas, we know people over time will be more sensitive to higher prices.” 


 

Conservation in this context is much more than a feel-good sustainability exercise. The cheapest unit of electricity is the one you never consume, so the more BC Hydro can save through its conservation and efficiency programs, the less money it has to spend on new supply. But conservation still costs money: Hydro spent over $100 million on its demand-side management (DSM) programs last year, known to the public under the umbrella term “Power Smart,” including about $30 million focused on residential customers. 


Hydro’s Matheson says the most important Power Smart “pillar” involves changing the behaviour of ratepayers. This includes social marketing and incentives to get us all to switch off lights, buy efficient appliances and replace light bulbs. (There are Power Smart programs for industrial and commercial ratepayers as well.)


Such incentive programs are popular with politicians and BC Hydro leadership because they make us all feel good about conservation, but not everyone is convinced they are effective. Mark Jaccard, who has recently investigated the effectiveness of what he calls “subsidies” offered by Canadian utilities – like a Power Smart rebate for an Energy Star fridge or new light bulbs – concluded that such spending has only a “marginal effect on electricity sales.” And benefits of such programs are difficult to measure; usually they can only be inferred. 


If Jaccard had his way, he’d cut the Power Smart budget to zero and focus instead on demand-side measures that he believes are more effective: regulation and “rate design” (essentially, changing how we pay for electricity). Regulation measures include the provincial government’s latest lighting efficiency standards, which will see the eventual phase-out of incandescent light bulbs. Instead of BC Hydro spending money to encourage consumers to buy an efficient home appliance, for example, regulations can ensure that only efficient appliances are for sale in the showroom.


Rate design remains an unexploited opportunity, although Jaccard credits BC Hydro for starting down that road. October 2008 saw the introduction of a “stepped” rate, whereby Hydro’s residential customers, over a two-month billing period, pay about six cents per kilowatt hour (kWh) for the first 1,350 kWh they use, then about nine cents for every kWh thereafter. Such approaches theoretically give ratepayers an incentive to avoid consuming at the higher-priced second rate.


Higher rates could be applied aggressively to the existing stepped rate design. Jaccard says BC Hydro needs to be truly bold and raise that second step to reflect the full costs of new supply; this could see the highest rate moving into the range of 12 to 15 cents per kWh.


George Hoberg, a forestry professor and energy policy analyst at UBC, agrees that it is necessary for our electricity rates to more closely reflect the real cost of consumption. And here lies a great opportunity: our current transportation infrastructure imposes significant costs to the planet in terms of greenhouse gases, says Hoberg, so why not invest all that revenue from higher BC Hydro rates into shifting our transportation system away from fossil fuels toward clean hydro, including electric cars? “There’s a climate emergency to be addressed,” he says, “and if we sit around complaining about minor increases in electricity prices, then it’s a disaster.”


Regardless of the future actions taken, Hoberg is certain that B.C.’s era of cheap power is gone for good. But with that comes another certainty too: British Columbians will continue to enjoy relatively low electricity prices compared to our counterparts in New York, Massachusetts and California. And this is not because Christy Clark is going to suddenly slam her fist on Dave Cobb’s desk and make things right for cash-strapped families. It’s because W.A.C. Bennett’s gift to B.C. – increasingly decrepit with age and diminished as it is – will remain the gift that keeps on giving.