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The Regulator Fights Back

British Columbia’s energy regulator is striking back against a move by the province to further kick the can of energy costs to future customers.

In its decision on BC Hydro’s 2017 to 2019 rate application, the British Columbia Utilities Commission (BCUC) ruled against a request by the utility — that came solely as a result of a letter from the province mandating it — to freeze electricity rates in the upcoming year. The regulator ruled there was “insufficient regulatory justification” for such a rate freeze.

Better still, the regulator put the ball back in the province’s court. In its decision, it pointed out that if utility’s shareholder — the province — still wants a rate freeze, it could “forego some or all of their return on investment” in order to do so. In short, if the province wants a rate freeze, the BCUC says it’s more than capable of paying for that freeze itself rather than asking the regulator to charge future customers for that privilege.

The request from BC Hydro for a rate freeze went against the utility’s own evidence.

The BC Hydro application had been before the BCUC for nearly two years and contained thousands of pages of evidence from the utility — all of which supported its original argument that, at the minimum, it needed a three percent rate increase this year. The utility’s initial (340 page) argument to the BCUC — submitted prior to the province telling it to freeze rates — concluded that its evidence made a “compelling case” for a rate increase. In December, after receiving a letter from the province telling it to freeze rates in the upcoming year, the utility submitted a (17 page) argument on why it no longer needed higher rates.

Worse still, is that even the three percent rate increase that the utility initially requested — and the BCUC has now approved — is below the actual cost of generating and delivering power to customers across the province. The difference between the utility’s costs and the rates it is proposing to charge customers is made up in “deferral accounts” and will be paid by future customers.

The reason that BC Hydro isn’t charging rates that align with its costs is because the previous government used the legislature to keep rates artificially low for political reasons. The “rate smoothing” deferral account that tracks the difference between rates and costs was initially forecasted to peak at $1.08 billion in 2020, but the utility now expects it be more than 50% higher in 2021 at nearly $1.6 billion. The BCUC determined that a rate freeze in the upcoming year would “pose an additional material risk” to eventually paying down those deferred costs.

But “rate smoothing” costs are just the tip of the iceberg. BC Hydro is deferring billions more dollars of today’s costs to future customers — a practice the province’s auditor general warned was “unsustainable.” In 2011, when the AG came to that conclusion, the utility had stuffed a little more than $2 billion in deferral accounts. BC Hydro now forecasts that figure to hit more than $6 billion before the utility starts to paying off those deferred costs. Rate smoothing is just one of BC Hydro’s dozens of deferral accounts.

The BCUC said that adding a zero percent rate increase to the billions of dollars BC Hydro is already deferring poses a risk to the health of the utility and “may have an impact on the credit worthiness of a utility” and that “continuing to defer revenue collection may ultimately impact the sustainability of a utility.”

Luckily for BC Hydro’s (future and current) customers, the regulator is doing its best to ward off that risk. Hopefully the province plays along.

Republished with permission from the Consumer Policy Institute.

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