BCSEA is intervening in a BCUC rates proceeding regarding a new BC Hydro program to replace some 90,000 existing street lights with LED technology. The street lights are owned by BC Hydro and are attached to BC Hydro’s power distribution poles.
Most of the existing lamps are high-pressure sodium (bright yellow), and a smaller number are mercury vapour (bluish-green tint). The customers are primarily municipalities, regional districts, government ministries, and First Nation Communities. In many cases, municipalities also own and operate their own fleet of street lights in addition to having BC Hydro’s street lights.
Many municipalities have already switched their own street lights to LEDs, and one might ask why BC Hydro hasn’t yet switched its own street lights to LEDs. But in any event, BC Hydro is doing it now because it faces a December 31, 2025 deadline under the Federal Poly-Chlorinated Biphenyls (PCB) Regulation to remove or replace all equipment, including old-style street lights, that contain PCBs. The replacement program is now starting up and all the BC Hydro-owned street lights are expected to be converted to LEDs by 2023.
BCSEA has long pushed BC Hydro to convert its street lights to energy-efficient LEDs. Full conversion of BC Hydro-owned street lights to LEDs will save approximately 28 GWh/year in energy and 6.7 MW in peak demand. At wholesale market prices, the savings are worth about $2.2 million per year.
Energy savings and lower maintenance costs with LEDs will result in slightly lower rates for the customers who purchase service from street lights owned by BC Hydro (under Rate Schedule RS 1701). However, a contentious issue in the BCUC proceeding is that BC Hydro is asking for approval of a temporary supplemental charge to RS 1701 customers to cover the cost of replacing the old street lights and their undepreciated value. (A utility’s capital assets are assigned a book value when they come into service, and a depreciation rate is established based on how long the asset is expected to be useful. Every year, the depreciation amount (aka amortization) is deducted from the book value and included the utility’s revenue requirement that it recovers in rates paid by customers. When a utility’s asset is retired prematurely, the undepreciated book value comes into the revenue requirement, either right away or over several years.)
Some of the RS 1701 municipal customers object to the temporary supplemental charge, not surprisingly. They say the costs of complying with the federal PCB Regulation should not be “downloaded” onto municipalities. In the BCUC arena, however, the general expectation is that BC Hydro’s costs of serving customers, if prudently incurred, are recovered from customers through the rates they pay for service. From this perspective, BC Hydro’s costs of replacing its street lights with LEDs to comply with the PCB Regulation are recoverable from customers. But which customers?
This is where the regulatory issues get complicated. BC Hydro says the costs of installing the LEDs and the undepreciated value of the street lights that will be removed should be borne by the RS 1701 customers since they are the only customers who get the benefit of the street light service. This is logical as far as it goes. But, as BC Hydro acknowledged in response to questions from BCSEA, RS 1701 customers are already paying more than double the cost of providing service to them. The “revenue to cost ratio” for customers of BC Hydro-owned street lighting is 212% in the most recent “fully allocated cost of service” (FACOS) report. Aha! One might think that surely BC Hydro should recover the LED street lights replacement and depreciation costs from non-RS 1701 customers since the RS 1701 customers are already paying ‘more than their share’ of BC Hydro’s overall costs.
But there’s a legal problem with that. Section 58.1(7) of the Utilities Commission Act prohibits the BCUC from setting BC Hydro’s rates “for the purpose of changing the revenue-cost ratio for a class of customers” unless BC Hydro asks for rate rebalancing. And BC Hydro, presumably on instructions from the Government, is not asking for rate rebalancing.
Why has the Government blocked the BCUC from rebalancing BC Hydro’s rates between customer classes? Well, the Residential rate class – which includes some 1.9 million accounts (read voters) – has a revenue to cost ratio of only 94.6%. If BC Hydro’s rates were to be “rebalanced” to bring each customer class’s revenue to cost ratio closer to 100%, then residential rates would go up. Industrial customers (“transmission service”) have a revenue to cost ratio of 94.9%, and their rates would go up too. Rebalancing would reduce the rates for the customers of BC Hydro-owned street lights, as well as small general service customers (revenue to cost ratio of 120.9%), and medium general service customers (revenue to cost ratio of 115.1%).
LED street lights are a definite improvement over high-pressure sodium and mercury vapour street lights. Some areas in B.C. already have LED street lights, and it is high time for BC Hydro to replace the street lights it owns with LEDs. For the BCUC, the big issue will be ‘Who pays?’