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Premier John Horgan is joined by Minister of Energy Michelle Mungall at an event in Victoria in December. Mr. Horgan and Ms. Mungall had promised to freeze electricityrates at BC Hydro, but the province's utilities regulator has rejected that request.Chad Hipolito/The Globe and Mail

British Columbians will not get a freeze on electricity rates that had been promised by the NDP government, the province's independent utilities regulator has ruled.

Instead, rates will increase by 3 per cent in April.

The British Columbia Utilities Commission (BCUC) panel found "insufficient regulatory justification" to justify the New Democrats' election promise to keep rates flat, noting that even the approved increase won't cover what BC Hydro needs.

Energy Minister Michelle Mungall expressed disappointment with the decision, and promised legislation later this spring to provide "lifeline" rates and emergency grants to help low-income families with electricity costs.

She said no decision has been made on how those programs will be paid for, and she acknowledged that the BCUC made its decision based on the financial state of the Crown corporation.

"I appreciate their rationale. They were clear, in a nutshell, that there is a mess at BC Hydro that needs to be cleaned up."

The freeze was rejected after a two-year-long regulatory journey that was almost derailed over musings by Premier John Horgan to reporters during a wide-ranging question and answer session in January.

BC Hydro had initially planned to hike rates by 3 per cent this spring to meet its revenue requirements – the maximum allowed under previous direction set by the former B.C. Liberal government. The BCUC panel was set up in March, 2016, to hear the application.

But the results of the provincial election last May led to a new direction.

The BC NDP under Mr. Horgan campaigned in the provincial election on a promise to make life more affordable, including a freeze on hydro rates. Once installed in office, the new government directed Hydro to abandon its pursuit of a rate increase for 2018.

BC Hydro returned to the BCUC with an amended application, this time asking for a freeze. "This is an unequivocal expression of government policy," Hydro officials wrote in the revised request. "It should be given significant weight in this proceeding."

While that hearing was still under way, Ms. Mungall told reporters in November that her government would deliver on its commitment to freeze rates. "This is going to be a big savings in ratepayers' pockets," she promised.

However Ms. Mungall quickly had to backtrack on that commitment, acknowledging that the BCUC had yet to render a decision.

The hearing on the amended rate application was in the process of winding down, with BC Hydro's final submission filed on Jan. 15. But the next day, Mr. Horgan made remarks to reporters that raised questions about whether his government still wanted the freeze.

"On the rate freeze, it was a commitment we made during the election campaign, and we've asked Hydro to apply [to its regulator] for a zero-per-cent increase and we'll see how that unfolds," he said, but then added: "I'm now more convinced than ever that the better course of action on affordability is not blanket reductions or freezes, but targeted relief to those that can best benefit."

After months of discussing the clear direction from government for a rate freeze, the BCUC panel decided the Premier's stated preference for a "better course of action" warranted another round of hearings to gather views from stakeholders and BC Hydro. A total of 11 submissions were collected.

In the end, the panel concluded that Hydro cannot afford to pass up on a rate hike, because demand has been lower than forecast every year since 2009, reducing domestic revenues and adding to a growing debt as well as an oversupply of electricity. "If this oversupply cannot be managed, there will continue to be upward pressure on BC Hydro's rates," the panel found.

That finding will rankle opponents of the Site C dam, who argued that the Horgan government was wrong to approve the continued construction of BC Hydro's $10.7-billion hydroelectric dam given unresolved questions about future demand for electricity.

The panel expressed concern about "the apparent decoupling of revenues and expenditures," finding that expenditures are rising faster than revenues "and this situation is not sustainable."