Canada: Bill 34 - Less Transparency In The Rate-Setting Process For Electricity

Energy Bulletin
Last Updated: July 31 2019
Article by André Turmel, Pierre-Olivier Charlebois and Émilie Gaumont

On June 12, 2019, the Québec government introduced Bill 34: An Act to simplify the process for establishing electricity distribution rates.

Amendments to the Hydro-Québec Act

Under the Bill, the Hydro-Québec Act (CQLR c H-5) will be amended so that, as of April 1, 2020, electricity distribution rates will be those provided in Schedule I of that act.[1] It also provides that such rates will be adjusted for inflation for the following four years, i.e., from 2021 to 2024.

The Régie de l'énergie will be required to publish in the Gazette officielle du Québec any subsequent amendments to Schedule I as a result of any indexation, and Hydro-Québec will have to publish current electricity distribution rates on its website.

Amendments to the Act respecting the Régie de l'énergie

The Bill also amends the Act respecting the Régie de l'énergie (CQLR c R-6.01) so that as part of Hydro-Québec's electricity distribution activities (the Distributor),[2] it will have to request that the Régie de l'énergie set new electricity distribution rates or modify existing rates (provided in Schedule I of the Hydro-Québec Act) on April 1, 2025 and every five years thereafter. As a result of this new process, the Distributor's rate of return will no longer be determined on a yearly basis by the Régie.

In sum, the Régie will determine new rates following the filing of a rate application in 2025, and from 2026 and thereafter, the rates will be adjusted for inflation over a new four-year cycle. And this process will be continue to be repeated.

The Distributor may nevertheless apply to the Régie to request that it set a new rate or modify an existing rate if the following conditions are met:

1) if the Distributor presents a report to the government showing the need to set a new rate or presents a report showing that due to special circumstances it will no longer be able to fulfill its obligation under section 24 of the Hydro-Québec Act;[3] and

2) after reviewing this report, the government issues an order indicating to the Régie its economic, social and environmental concerns regarding the Distributor's application.[4]

Moreover, under the Bill, the Régie is no longer required to establish a performance-based regulatory mechanism to ensure efficiency gains by Hydro-Québec in its activities as an electricity power distributor and carrier (currently provided in section 48.1 of the Act respecting the Régie de l'énergie).

Under the Bill, the Distributor is also no longer required to obtain the Régie's authorization for its infrastructure investment projects and other initiatives to reorganize the electricity distribution network or to submit its commercial programs to the Régie for approval (currently provided in sections 73 and 74 of the Act respecting the Régie de l'énergie).

The Distributor will also be required to send the Régie, annually, the information required under the new Schedule II of the Act respecting the Régie de l'énergie,[5] such as:

  • developments in the competitiveness of electricity rates in large North American cities;
  • a record of customer complaints;
  • an update on investments;
  • capitalization rate, cost and description of the Distributor's debt;
  • an update on supply contracts;
  • a list of and update on energy efficiency actions taken and costs relating to Transition énergétique Québec; and
  • a history of sales, sales revenue, customer accounts and consumption.

Lastly, the Bill contains consequential, penal and transitional provisions, including a provision requiring the Distributor to grant a rebate on electricity distribution rates before April 1, 2020.

These different measures reflect, among others, the government's intention to reimburse Hydro-Québec customers for part of the overpayments that were collected over the last few years. The government's proposal for 2020 provides for a rate freeze that should generate savings of nearly $1 billion for Hydro-Québec customers (based on inflation forecasts of 1.7%) and a reimbursement of about $500 million to customers (related to accounting mechanisms that will no longer apply under the new framework).[6]

Bill 34 was well received by Hydro-Québec whereas other actors, such as the Canadian Federation of Independent Business (CFIB)[7] and the Association québécoise des consommateurs industriels d'électricité (AQCIE), raised some concerns. For example, according to the CFIB, deferring rate cases to every five years may not necessarily be advantageous for consumers should the Distributor make significant profits.[8] The proposed indexation of rates (for a term of four years) is also criticized, because since 2016, the Régie has granted rate increases well below inflation.[9]

We are closely following the progress of the Bill and will keep you informed of the latest developments.


 

[1] For more information regarding the proposed rates, see section 4 of the Bill.

[2] Act respecting the Régie de l'énergie, CQLR c R-6.01, s. 2.

[3] Under section 24 of the Hydro-Québec Act, Hydro-Québec must maintain its power rates at a sufficient level to defray, at least, all operating expenditures, the interest on its debt and the amortization of its fixed assets over a maximum period of fifty years.

[4] For more information, see section 8 of the Bill.

[5] For a complete list of the information to be reported, see section 17 of the Bill.

[6] Hydro-Québec, Press Release, « Tarifs d'électricité : une approche simplifiée qui garantira de bas tarifs », June 12, 2019, online: http://news.hydroquebec.com/en/press-releases/1510/electricity-rates-adoption-of-a-simplified-approach-that-will-guarantee-low-rates/.

[7] The CFIB is Canada's largest association of SMEs in Canada with 110,000 members operating in every industry and region.

[8] CFIB, « Projet de loi no 34 sur les tarifs d'électricité : des objectifs louables, assortis de certaines préoccupations », online: https://www.newswire.ca/news-releases/projet-de-loi-no-34-sur-les-tarifs-d-electricite-des-objectifs-louables-assortis-de-certaines-preoccupations-820221171.html (in French only).

[9] Hydro-Québec Distribution, « Stratégie tarifaire » (R-4057-2018), at page 45 (in French only).

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