An internal BC Hydro Rates Working Group document leaked to the press suggests that residential, small business and industrial electricity users may face a 26.4% increase in their rates from 2014-2016. The document, dated August 23, 2013, attributes the required rate increase to a rise in BC Hydro’s revenue requirement from an estimated $3.8 billion in 2014 to $4.8 billion in 2016. According to the document, this increased revenue requirement is driven by the following costs:
- capital additions – $515 million, accounting for 13.4% or roughly half of the 26.4% rate increase
- rate smoothing – $160 million (4.2%)
- contracts with independent power producers – $135 million (3.5%)
- cost of amortizing accumulated deferrals – $130 million (3.4%)
- interest rates – $40 million (1.1%)
- operating costs – $15 million (0.5%)
- other items – $10 million (0.3%)
After the initial 26.4% increase from 2014-2016, the Rates Working Group forecasts an additional 8.4 percent increase in 2017. According to the document, rate increases stabilize from 2018 until 2022 but then increase by 7.7 percent in 2023. In total, the Rates Working Group forecasts rates to increase 41.5 percent from 2014 levels by 2020 and 57.3 percent by 2024.
The Rates Working Group document suggests that the options to mitigate against the forecasted rate increases in 2014-2016 are limited by the large amounts of capital required for the projects already underway, IPP contracts BC Hydro has already committed to, recovery of 2012-2014 rate smoothing and government commitments in its fiscal plan.
The document does not outline how rate increases should be allocated amongst customer classes (residential, small commercial, and industrial) but does estimate the impact of a 10% rate increase on each class of customer’s average annual bill as follows: residential by $105/year, small commercial by $240/year, and top 5 industrial users by $30 million/year.
Facing questions from media regarding the leaked document, B.C. Premier Christy Clark stated that rate increases of 26% over the next two years would not be approved but warned that some rate increase would be required in view of the need to renew the province’s power infrastructure.
Formed in 2007, the Rates Working Group is composed of representatives of First Nations, non-governmental organizations, utilities, businesses and academics, as well BC Hydro staff members, and provides recommendations regarding electricity rates and rate structures to BC Hydro through its Electricity Conservation & Efficiency Advisory Committee.