Hydro rate-rise bid brings concerns

Scott Simpson
Vancouver Sun
March 9, 2005

Proposed increases would apply to industrial users

In a move that's raising "clear concerns" among the province's top industries, BC Hydro is preparing to charge prime-time rates 50 per cent higher than the standard electricity rates it charges its biggest customers.

The rates will apply against "the last 10 per cent of energy" consumed by mines, pulp mills and chemical producers, based on their historical patterns of consumption, and will have an uncertain impact upon about $500 million of Hydro's annual business, Joint Industry Electricity Steering Committee executive director Dan Potts said.

Hydro will propose the new rate schedule, unprecedented after 40 years of fixed rates, in an application it expects to file today to the B.C. Utilities Commission.

It's making the application in response to the B.C. government's 2002 energy plan, which called on Hydro to provide "market signals" to industry as a means of ensuring efficient use of the province's exceptional and low-cost hydroelectric resource.

Large industries account for only 0.1 per cent of Hydro's customer base, but consume 38 per cent of British Columbia's total electricity demand.

At this time, those industries pay about $36 per megawatt hour for electricity -- one of the cheapest rates in North America.

But under a new "stepped rate" scheme proposed by Hydro, the industrial rate will climb to $54 per megawatt hour for the final 10 per cent of historical use -- and stay there for any additional hours consumed.

The scheme also provides a small discount of about six per cent on the first 90 per cent historical use, with the hope that companies will consider it an incentive to implement energy savings projects and stay under the 90-per-cent level.

Hydro calls the standard rate Tier One and the stepped rate Tier Two.

Companies will also have the option of accepting a "time of use" rate whereby they can cut their electricity costs by shifting operations to non-peak times, such as nights and weekends, or shutting operations down during peak residential demand times -- such as December-January.

The province's energy plan called on Hydro to implement the changes on the premise that it would promote electricity conservation, send better price signals to industry, and support an enhanced role for private-sector power generators.

The $54 megawatt hour rate is comparable to the rate on the open market in western North America that Hydro relies on to meet about 12 per cent of B.C.'s annual electricity needs.

Hydro has been discussing the new regime with the Joint Industry Electricity Steering Committee (JIESC) for about 20 months.

If approved by the BCUC, the new rate structure would be in place by April of 2006.

JIESC executive director Dan Potts described the $54 Tier Two rate as a "major economic item" for industry.

He said members have expressed "various views" on the new system.

"My personal view is that it is going to be one heck of an administrative problem to put in place," Potts said. "I think there's 60 different companies that would fall under this rate. It's not a small issue. I think something in the range of $500 million in annual sales would fall under this."

Some companies are worried that the rates could serve as a disincentive to growth because of the risk that expanded activity will be penalized by higher energy costs.

The system is supposed to provide opportunities for individual companies to consult with Hydro so that they are not penalized when they increase production.

But Potts said his members are worried about the amount of paperwork and bureaucracy that may confront them in order to have their average consumption recalculated.

© The Vancouver Sun 2005