What’s Up with BC Hydro?
Will it be all change on Dunsmuir St, or business as usual once the storm clouds subside?
By Tom Hackney and Bill Andrews
The big energy policy events this year so far have involved BC Hydro and its rates, and political interventions on electricity policy. The major outcome, likely to become known after cabinet meets this fall, will probably be a change from the current policy of strongly supporting renewable energy development and exports. BCSEA is preparing for a season of policy work defending energy conservation and renewable energy in a new, more cost-constrained environment, where sustainable energy may be valued much lower than other political goals.
Events were triggered by Hydro’s filing in March of its Revenue Requirements Application, asking the Utilities Commission to approve electricity rate increases of 9.73 percent per year for the next three years, totaling 32 percent. Close to half (44%) of the proposed increase was driven by increases in capital expenditures to meet expanded service demands and maintain aging infrastructure. The cost of energy accounted for 11 % of the increase. Increased operating costs, 18%.
The media discussion has been vigorous, especially addressing the contribution of independent power producer contracts to Hydro’s costs, and the justification for the “self-sufficiency plus insurance” policy of the Campbell government, which forced Hydro to over-acquire power. BCSEA published an op ed (Vancouver Sun, 19 April, Rate increases should not be a surprise to the province) speaking to the harm to energy conservation and intergenerational equity that would come from artificially reducing rates and forcing Hydro to put off paying for necessary infrastructure investments. Unfortunately, the government did not listen to us.
Normally, Hydro and interested parties would have argued for and against the rate increase in front of a panel of the Utilities Commission, which would have approved or cut back the rates. But this year, politics took over.
Gordon Campbell had just stepped down as premier after a decade in power, during which he had aggressively pursued privatized renewable power development and power exports. Christy Clark, as the new premier, faced an immediate political imperative to assert her leadership credentials and distance herself from the previous administration. Hydro’s large rate application, tinged with the controversial power acquisitions, was a perfect target.
Premier Clark’s new energy minister, Rich Coleman, immediately ordered a cost-cutting review of Hydro, striking a team led by the premier’s deputy minister, John Dyble. Hydro’s application to the Utilities Commission was suspended for the summer, pending the outcome of the review.
The Review of BC Hydro was released on August 11th, along with a negotiated commitment by Hydro to halve its proposed rate increase and some contrived admissions of inefficiencies from BC Hydro. In our view, the review did not find any deficiencies in Hydro’s planning or operations sufficient to warrant a decrease in the proposed electricity rates. Indeed the quality of the review’s analysis was inadequate to justify any conclusions. For example, Hydro was told it should reduce its staff from 5,600 employees to 4,800 with no analysis of what would happen to the work being performed – whether it would cease to be performed or contracted out, and if contracted out, whether it would cost more or less. There was considerable discussion about Hydro’s deferral accounts and the amount of debt it was taking on, the logical outcome of which should have been support for higher, not lower rates; however, given the review’s political mandate, the only conclusion was, “the panel recommends further review of the regulatory accounts to determine a more sustainable approach.”
The government’s slant has been to suggest they are reining in an out-of-control crown corporation. Some media opinion reflected this, but others pointed to the superficiality and political bias of the review, and the fact that government-imposed policies, including smart meters and “self-sufficiency plus insurance,” were more to blame than Hydro for increased costs. However, it should be noted as an additional layer of detail that there are virtually no smart meter costs in the current rate application (these are deferred to the future), and the costs of new supply contracts amounts to only five percent of the current revenue requirement (though they were higher in the fiscal 2011 application and will be higher in the future).
In the coming months, BCSEA will stay hard at work on these issues. BC Hydro will file its revised Revenue Requirements Application, probably in November, when it will lay out how it intends arbitrarily to cut $800 million over three years from its costs. One likely target will be for Hydro to seek ways to defer into the future the paying down of capital investments. Another is conservation.
The review unaccountably said that Hydro should consider cutting conservation spending because Hydro’s Power Smart programs are meeting their targets. BCSEA says that conservation is the most cost-effective energy to acquire. Power Smart’s success proves that even more cost-effective conservation can be achieved with more investment, reducing the need for more expensive supply-side resources. We will assert this strongly when the Utilities Commission reviews Hydro’s application.
