Canada: BC Government Releases 10 Year Plan For BC Hydro; New Rates To Fund Reinvestment And Debt Reductio

The BC government has announced a 10 Year Plan for BC Hydro in which the province aims to minimize rate increases while allowing BC Hydro to reinvest in its aging assets and infrastructure.  As we noted in a prior blog post, Bill Bennett, Minister of Energy and Mines and Minister Responsible for Core Review, previously indicated that BC Hydro rate increases were imminent in view of the ongoing refurbishment of BC Hydro's heritage generation facilities.

Among other things, the new 10 Year Plan for BC Hydro provides:

  • The BC government will direct the British Columbia Utilities Commission (BCUC) to set rate increases for the initial two years of the plan at 9% and 6%, respectively.  The impact of the 9% rate increase is estimated to be about $8 per month for residential customers, $20 per month for small commercial customers, and $139,000 per month for average industrial customers.
  • The BCUC will set increases for the subsequent three years within caps of 4%, 3.4% and 3% for such years.
  • The BCUC will set rate increases independently for the final five years of the 10 Year Plan.  Actions to be taken by BC Hydro and the BC government pursuant to the 10 Year Plan are intended to keep these rate increases to a minimum.
  • BC Hydro will keep its existing 5% rate rider in place.  BC Hydro applies the rate rider to all billed electricity charges before taxes in order to recover additional and unpredictable costs in its regulatory accounts.
  • BC Hydro will invest $1.6 billion in Power Smart programs over the term of the 10 Year Plan in an effort to reduce electricity consumption and mitigate the impact of rate increases.
  • The BC government will initiate a review of the BCUC through the Core Review process.  The province intends to increase the BCUC's effectiveness and, as such, the commission will not begin setting rates until the third year of the 10 Year Plan to allow the review and any recommendations to be carried out.
  • Currently, 80% of the balance of BC Hydro's regulatory accounts are being recovered under amortization schedules approved by the BCUC.  Under the 10 Year Plan, BC Hydro will begin paying down the remaining accounts in Fiscal Year (FY) 2015.  Also, a new regulatory account will be created in order to amortize costs that occur in earlier years of the 10 Year Plan over the entire term of the plan.
  • The BC government will reduce the dividend that it collects from BC Hydro over a five-year period beginning in FY2017.  After FY2021, the dividend will be suspended until the utility's debt to equity ratio reaches 60/40.  BC Hydro's debt to equity ratio is currently 80/20.
  • Tier 3 water rentals will be eliminated in FY2018.  OIC No. 787 (approved November 22, 2007, effective January 1, 2008) created a third tier of water rental rates for energy production above 3000 GWh/year.  The third tier of water rental rates are about 20% higher than the water rental rates applicable to the second tier.  With the elimination of the more expensive third tier, BC Hydro will pay reduced water rental charges to the BC government and, correspondingly, BC Hydro will no longer need to pass the increased costs associated with tier 3 water rentals charges onto its ratepayers.
  • It is estimated that by the end of the 10 Year Plan, BC Hydro's contributions to government revenue will be $512 million less per year than under the current structure.  Also, the government estimates that it will reduce its revenue from BC Hydro over the 10 Year Plan by $2 billion.
  • The Burrard Thermal Generating Station will be shut down for generation purposes in 2016 in order to save an estimated $14 million per year.  The BC government previously directed that the Burrard Thermal facility was to be relied on for emergency purposes only, but the 10 Year Plan calls for its complete closure.

BC Hydro recently completed another round of consultation on its Integrated Resource Plan (IRP) and re-submitted it to cabinet for consideration.  The IRP was approved by the BC government on November 26, 2013.  Most notably, the IRP includes a new chapter on BC Hydro's Clean Energy Strategy.  We will follow up shortly with another blog post discussing the implications of the approved IRP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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