Double-digit rate hikes still loom for B.C. Hydro

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Update: B.C Hydro's rates will rise by 15 per cent over two years as part of a 10-year energy plan. Read the latest here.

B.C. Energy Minister Bill Bennett will outline the province's energy future on Tuesday, including new rates for B.C. Hydro's customers, just months after promising to "get a grip" on his government's biggest and most impenetrable Crown corporation.

A leaked report earlier this year forecast rate hikes of 26 per cent for B.C. Hydro's residential, commercial and industrial clients over the next two years: Mr. Bennett has vowed to bear down on the Crown's spending in order to reduce the shock.

But a draft report on Hydro's industrial rates, written in October, underscores the many reasons why rates are still likely to climb by double digits over the next two years. Here are the highlights:

Maintaining the grid: Hydro is set to spend about $2-billion annually over the next decade to maintain its infrastructure. That alone would amount to a five-per-cent annual rate increase – and that figure that does not include the $8-billion proposed Site C dam.

Selling the surplus: The corporation expects to have a surplus of energy until the year 2021, but weak export markets are hurting Hydro's profit margin. The price that Hydro has been able to get for its surplus electricity has dropped by 36 per cent over three years.

Not-so-hidden debts: B.C. Hydro has 27 "regulatory accounts" where it has amassed debts in the name of rate smoothing. The total amounts to $4.67-billion owing, as of June 30, 2013. The utility's regulator has ordered Hydro to raise rates to repay those accounts, and even then it will take years to dig out from these 27 holes.

The future is electric: Meeting the province's greenhouse-gas reduction targets for the year 2050 "would require British Columbia to virtually de-carbonise its economy," observed the Industrial Electricity Policy Review task force, in a draft report. That means Hydro needs to build big, or the provincial government needs to back down on its targets.

Since he was handed the energy portfolio in June, Mr. Bennett has been working on three, often competing, aspects of Hydro's future, which are expected to be bundled together at a news conference scheduled for Tuesday morning.

The first item is the core review of government, which Mr. Bennett heads. This will shape residential rates. Premier Christy Clark maintains that Hydro rate hikes need to be reined in to meet her "family friendly" policy objectives. Mr. Bennett has set out to impose on B.C. Hydro the same degree of restraint that the rest of the public service has experienced in recent years, and he may deliver a progress report on that in order to take the sting out of whatever hikes are coming.

One policy direction Mr. Bennett has hinted at is a reduction of the dividend that his government takes from B.C. Hydro. In an earlier interview, he said: "Governments – the NDP and us – have become too reliant on BC Hydro's annual dividend …That has created a situation where we have less leverage to force important changes to make this corporation operate like a commercial corporation – which is what my overall goal is."

The second piece is the final report of the industrial electricity policy review. The panel, in their draft report, found industrial users are frustrated by the Crown utility's rising rates and declining service levels. "Rate increases may lead to decisions to close or reduce production in British Columbia, or move production out of the province," they found, while access to service "is perceived as slow, cumbersome, unresponsive and expensive by customers."

Finally, there is B.C. Hydro's long-range energy strategy, known as the Integrated Resource Plan. Mr. Bennett has already sent B.C. Hydro back to rewrite the draft IRP to include more opportunities for private clean energy projects.

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