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A BC Hydro substation in the Fraser ValleyHO/The Canadian Press

British Columbia's utilities regulator will hear final arguments this week that will determine if the NDP government's election promise of a BC Hydro rate freeze will be approved.

The NDP campaigned in the 2017 election on a platform that promised to make life more affordable for British Columbians, including a freeze on hydro rates.

BC Hydro had planned to hike rates by 3 per cent this spring, but in November, Energy Minister Michelle Mungall met with reporters to announce that the scheduled increase would not happen. "The new NDP government is going to be delivering on its commitment to freeze hydro rates," she said at the time. "This is going to be a big savings in ratepayers' pockets."

After years of boasting that BC Hydro's rates are among the lowest in North America, a string of rate increases have started to erode that status. Every year, Hydro-Québec compares the monthly electricity bills across 21 major North American cities and in 2017, BC Hydro's residential customers in Vancouver were in fifth place, after Montreal, Winnipeg, Edmonton and Calgary. In 2016, Vancouver ranked third.

The NDP blamed the former Liberal government for undermining the province's low-energy-cost advantage, noting that rates climbed by 70 per cent during the Liberals' 16 years in power.

However, Ms. Mungall's rate-freeze announcement was premature – the independent regulator has not approved the measure.

The freeze could be rejected by the British Columbia Utilities Commission because the government is proposing to cover the $142-million in lost revenues by adding to BC Hydro's dangerously high debt load.

The bond rating agency Moody's has flagged Hydro's burgeoning "deferral accounts" as a risk to the province's triple-A credit rating. "BC Hydro posts some metrics that are among the weakest of Canadian provincial utilities," it warned last year.

In his submission to the BCUC on the proposed rate freeze, retired civil servant Richard McCandless, an expert on B.C. utilities who has intervenor status in the hearing, warns that adding $142-million to the deferral accounts goes against the strong advice from B.C.'s auditor-general. Since 2011, the auditor-general's office has described the so-called "rate smoothing" accounts as a smokescreen that creates the illusion of profit when there is none.

"The foregone revenue would be added to the rate smoothing regulatory/deferral account, and increase the debt liability faced by future customers," Mr. McCandless wrote, noting that Ontario's Auditor-General Bonnie Lysyk has similarly frowned on the practice.

In a report last September, Ms. Lysyk criticized the Ontario government's "Fair Hydro Plan" that has reduced household electricity bills, saying that treating billions of dollars in new debt needed to finance the electricity rebates as an "asset" – similar to BC Hydro's regulatory accounts – is not acceptable accounting.

Mr. McCandless is urging the BCUC to reject the rate freeze as proposed, and instead let the provincial government make up the difference – in part by giving up the $71-million dividend it intends to collect from BC Hydro this year. If the utilities regulator rejects the proposed freeze, the government may have to look at that option.

Even if the rate freeze is approved, it may only be a temporary reprieve. The government has promised to conduct a comprehensive review of BC Hydro's finances.

After the review is completed, "any cost and revenue adjustments identified will be reflected in rates starting in April, 2019," Ms. Mungall's announcement in November noted.

BC Hydro, in a December filing to the BCUC, said the government's promised freeze should be upheld because it was a clear direction to Ms. Mungall in her mandate letter from Premier John Horgan when she was appointed to cabinet last summer.

"The commission, while not legally bound to follow the minister's mandate letter, is entitled to give it significant weight," the Crown corporation argued. In the document, Hydro officials added that the freeze won't interfere with plans to repay its regulatory accounts.

By 2024, Hydro expects to have reduced its deferral accounts by a total of $2.4-billion, down from an estimated $5.6-billion today.

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