(March 18, 2016) Political meddling in the affairs of BC Hydro continues to harm the utility’s finances and the environment.
By Brady Yauch
Political meddling in the affairs of BC Hydro continues to harm the utility’s finances and the environment.
BC Hydro recently asked the province’s utilities commission for a 4% rate increase – the highest level rate increase it is legislatively allowed – even though the company admits that its recent “load and revenue forecasts and financial projects” show that it needs a rate increase of 9.7 percent to recover its 2017 “revenue requirements.” To make up the difference between what the utility needs to manage its affairs and what it is allowed to charge its customers, the company will continue to rely on regulatory deferral accounts. These accounts see the company record as revenue today what it plans to charge future ratepayers – essentially kicking the rate-increase-can down the road.
BC Hydro also admitted in its rate application that demand from some of its largest customers – commodity producers – may be negatively impacted by the recent rout in the price of commodities. Recently, an LNG plant – and the subsequent electricity it would require – was delayed. If the downturn in demand continues and its previous demand and revenue forecasts prove optimistic (as has happened countless times in the past), the company will need even higher rates to cover its expenses and capital projects.
Yet, the province’s decision to set a cap on rate increases for the next three years – 4%, 3.5% and 3%, respectively – means the utility will continue to under charge its customers and defer rate increases to the future.
BC Hydro is also unsure on how the province intends to implement its promise to allow mining companies to defer a portion of their electricity payments in an effort to prevent them from shutting down operations. That policy could further undermine the utility’s balance sheet.
Ultimately, the artificially low rates imposed by the province work against natural conservation efforts by customers and encourages them to use more electricity than they otherwise would. This imposes higher costs on future electricity customers by encouraging an unnecessary build-out of the hydro system.
Giving mining customers a break on their hydro bills, allowing them to continue to produce even though demand for their goods is falling, is clearly not good for the environment.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236
This pushing of price increases down the road is sometimes called “snowploughing”, just as the pile of snow in front of the plough just gets bigger. In economic terms it is unjust ratemaking because it violates the principle of inter-generational equity. The children and grandchildren of the current generation of electricity consumers will be forced to pay for their parents’ and grandparents’ electricity consumption.
Unlike the snow in front of the plough, the debt being used to finance the rates deficit will not melt in spring. It will grow over time with compounding interest.
The question the voters in BC might well ask their politicians who legislate this injustice is “What do you have against my children and grandchildren?”