blog2006: Electricity rates in B.C. likely to surge

Electricity rates in B.C. likely to surge

By Scott Simpson
Vancouver Sun
29-Mar-2006

The cost of electricity in B.C. could soon rise seven per cent or more as BC Hydro scrambles for cash to make up a huge revenue shortfall in the upcoming fiscal year.

Hydro expects net income to plunge more than 80 per cent in the fiscal year that begins April 1, and seeks to "amend" its current electricity rates to compensate for the shortfall, documents filed with the B.C Utilities Commission suggest.

An increase of seven per cent would boost an average homeowner's monthly electricity bill by about $4.50.

Hydro spokeswoman Elisha Moreno said in an interview Tuesday the Crown corporation has not explicitly stated it will seek a rate increase to cover the drop. But she said Hydro is projecting net revenue of $50 million in the 2007 fiscal year -- compared to $294 million in the 2006 fiscal year that ends Friday.

Hydro is required by law to make a 13.5-per- cent return on equity on the premise that Hydro should deliver to the provincial treasury as much money as a similarly-sized utility company would earn for its shareholders.

Hydro's current projections for water supply, import power prices, borrowing costs and debt suggest that obligation cannot be met in 2007 without an adjustment to rates.

Dan Potts, a spokesman for the Joint Industry Electricity Steering Committee, said the committee has been advised by Hydro that the Crown corporation will file for a rate increase to take effect June 1.

However, the committee, which represents B.C.'s industrial sector, notes that Hydro is wording its rate application in a fashion that would allow it go to back later and make the increase retroactive to April 1.

The committee speaks for Hydro's largest customers, including pulp mills, forest and mining companies.

Potts was advised late last year that Hydro would seek an increase close to the rate of inflation, "something between two and four per cent."

"We have since been advised that that is no longer the case and there is likely to be a much higher increase," Potts said in an interview.

He agreed an increase of around seven per cent was likely.

Last week the joint industry committee sent a letter to the B.C. Utilities Commission portraying Hydro's strategy as 'unnecessary, inappropriate, and detrimental to customers.'

"This issue of what electric power will cost is an item of almost constant discussion between BC Hydro and major industrial consumers, as you can imagine," Potts said.

"We are somewhat perturbed that we are quite late into the year with no real indication of what their application might be. It creates cost uncertainty for people dependent on electric power, but that's the way it is at this point in time."

Potts said Hydro told him that B.C.'s growing dependence on imported electricity is the primary reason for the increase.

About 14 per cent of B.C.'s annual electricity supply is purchased in the U.S. -- largely because B.C. has not added a major new power source since the Revelstoke Dam came onstream in 1984.

From July 2005 to January 2006 spot electricity prices in the Pacific Northwest, a primary trading point for B.C., were at their most sustained high since the California electricity crisis of 2001, averaging more than $78 Cdn per megawatt -- the equivalent one million watts.

Prices have since fallen back to about $49.50 per megawatt -- but that's still significantly higher than Hydro's domestic costs, and continue to take a deep bite out of Hydro's revenue projections.

"We need to reduce our dependence on these volatile sources of electric power," Potts said.

Hydro last received a rate increase -- 4.85-per-cent -- in 2004.

Hydro critic David Austin said Hydro is going back on its commitment to hold rate increases to the rate of inflation.

However, he added, it was immediately obvious that Hydro was going to need bigger increases in order to pay for development of new electricity sources -- as well as more than $2 billion in system upgrades announced in February by Finance Minister Carole Taylor during her provincial budget address.

"New electricity will cost more than electricity generated at a facility where the mortgage was paid off decades ago," Austin said.

Meanwhile, Hydro is expected to unveil today its long-term vision for the development of new electricity sources for the province.

Pending approval by Hydro's board of directors, the Integrated Energy Plan is expected to move B.C. away from dependence on electricity imports in favour of expanding the domestic system.

import power prices, borrowing costs and debt suggest that obligation cannot be met in 2007 without an adjustment to rates.