Apologies to you all, for I misled you before. I used to report that hydro rates would be going up 27 per cent over three years. They will, in fact, be going up 32 per cent over three years, as per an application filed with the B.C. Utilities Commission.
I’ll continue to report on this as the weeks go by but for now I figured this would interest people. A big warning, the language in this story is very dense and I tried very hard to make it understandable. Feedback is welcome if I didn’t go far enough.
Energy costs to form biggest expense in same period
By Jesse Ferreras, Pique Newsmagazine
March 18, 2011
BC Hydro rates will be going up more than previously reported and there’s very little anyone can do to stop it.
In a Revenue Requirements Application filed with the B.C. Utilities Commission, the Crown corporation is seeking a 9.73 per cent increase in each of the 2012, 2013 and 2014 fiscal years – a period referred to as the “test period” in the application.
Compounded cumulatively, that adds up to 32 per cent in revenue requirements over three years – not 27 per cent as Pique previously reported.
“BC Hydro’s generation, transmission and distribution infrastructure was built mostly in the 1960’s, 1970’s and 1980’s,” the power authority said in its application. “Many of these assets are reaching end of life and their condition is no longer sustainable without significant investment.
“Accordingly, capital expenditures on BC Hydro’s generation, transmission and distribution assets have grown significantly over the last few years. BC Hydro plans to invest approximately $6 billion over the next three years to renew, upgrade and expand capital infrastructure across the province.”
(Reporter’s note: the details of this story are thick with regulatory and accounting language so for the sake of brevity and comprehension, the 32 per cent rate increase will be referenced as the “revenue requirement” and the period of 2012 through 2014 as the “test period.”)
Chapter 1 of the application lays out the expenditures that BC Hydro expects to face during the test period, including information that energy costs will make up 29 per cent of BC Hydro’s expenditures over the test period.
Energy costs include numerous expenses such as purchases of market electricity, natural gas costs and purchases of electricity from independent power producers (IPP’s) such as the Fitzsimmons Creek and Rutherford Creek run-of-river projects.
Operating costs form the second biggest composite of BC Hydro’s expenditures at 22 per cent. That includes day-to-day operations and maintenance of the electrical system.
The document breaks down the revenue requirement, showing how the 32 per cent will be divvied out to various expenses.
Nine per cent of the revenue requirement is to go to finance charges, which are expected to increase from $362 million in 2011 to $686 million in 2014.
Operating costs will take 5.9 per cent and that is expected to rise from $766 million in 2011 to $980 million in 2014.
This increase in operational costs is due to a number of factors including BC Hydro’s move to a “nature view” presentation of costs, which requires that the Crown corporation classify costs by their nature, such as labour, materials and energy purchases, rather than by their function. The increase is also being impacted by accounting changes that add $36 million in operating costs.
Energy costs will use 4.1 per cent of the revenue requirement and that is expected to climb from $1.139 billion in 2011 to $1.287 billion in 2014. Factors driving an increase in energy costs include an increase in the cost of purchases from IPP’s of $196 million. About $156 million of that is due to the higher cost of electricity from private producers.
Energy costs, however, are offset by factors such as a reduction in market purchases of $120 million and an accounting change that reduces the cost of private power by about $102 million.
The revenue requirement application comes as BC Hydro is forecasting a heavy increase in demand over the next two decades. The corporation forecasts about a 36 per cent increase in gross requirements, from 56,913 GWh of electricity in 2011 to 80,399 GWh in 2029, according to a presentation filed as part of its Integrated Resource Plan.
It’s in the hands of the B.C. Utilities Commission to decide whether to let BC Hydro ratepayers satisfy the revenue requirement, but some critics say the rate increase may be a done deal already.
John Horgan, former energy critic for the opposition New Democratic Party and now a candidate for its leadership, pointed to section 8 of the B.C. Liberals’ Clean Energy Act to suggest that the commission’s hands are tied when it comes to setting rates for hydro.
Section 8 of the Act states that in setting rates for BC Hydro, the B.C. Utilities Commission “must ensure” that the rates allow it to collect enough revenue in a fiscal year to recover its costs.
“I was on CKNW a couple of weeks ago with (BC Hydro) CEO Dave Cobb,” Horgan said. “He wasn’t misleading when he said, the commission has to approve the rates… They have to go and make a case for the increase, that’s true, but the B.C. Utilities Commission is not able to say no to a host of things.”
The revenue requirement is likely to be approved some time later this year. The commission will continue to collect more information from BC Hydro and commence oral hearings on October 20.