Hydro seeks max rate hikes over three years
Utility outlines cost-cutting plan as demand for industrial power sags
Faltering demand for electricity among industrial customers will cost B.C. Hydro $3.5 billion less in revenue — over the term of its 10-year financial plan — than anticipated in 2013, CEO Jessica McDonald said Thursday.
In response, B.C. Hydro will cut administrative costs, re-prioritize capital projects and reduce its use of outside contractors.
“We had a choice,” McDonald said.
“Instead of passing those issues on to our customers, we gave careful thought to new measures to reduce our costs even further so we could stick to our plan to ensure low and predictable rates.”
However, B.C. Hydro will still have to borrow as much as $795 million over three years — on top of rate increases it’s seeking.
McDonald unveiled B.C. Hydro’s revised demand and revenue forecasts for the next three years as it filed its latest application for rate increases with the B.C. Utilities Commission.
In the application, B.C. Hydro is asking the commission to finalize the four per cent interim rate increase that took effect April 1 for 2016, a 3.5 per cent increase for 2017, and three per cent for 2018, the top limit for rate hikes prescribed by the provincial government in late 2013.
However, B.C. Hydro is also asking for permission to use its rate-- smoothing deferral account to cover “the balance of its revenue requirement” that won’t be recovered by the proposed rates.
In the document, Hydro estimates that will require borrowing $210 million for 2017, $286 million in 2018 and $299.4 million in 2019.
The rate-smoothing account is intended to protect ratepayers from short-term shocks to the system, allowing the utility to spread costs incurred in one year over several years that would otherwise require bigger rate increases.
However, energy lawyer Jim Quail characterized B.C. Hydro’s request in this application as “borrowing money from future ratepayers for today’s and yesterday’s consumption.”
In its annual report released last week, B.C. Hydro reported it used the rate-smoothing account to raise $121 million for the fiscal year that ended March 31, at which point the account’s balance stood at $287 million.
“Rate-smoothing is a euphemism for trying to contain a huge bulge in rates that would naturally flow from government policy,” said Quail, who represents B.C. Hydro employees.
B.C. Hydro had delayed the application it filed Thursday to reevaluate how its forecast would change because consumption by industrial customers had fallen by three per cent in 2016.
In its application, the utility noted that industrial customers have been hurt by declining commodity price. Delays in final investment decisions for major liquefied natural gas export proposals also weighed on the forecast.
McDonald said B.C. Hydro will re-prioritize capital spending to cut $380 million over the next three years, reduce contracting out by $20 million and seek to renew contracts with independent power producers at lower prices.
However, even with the shortterm dent in industrial electricity consumption, B.C. Hydro still estimates a 39 per cent increase in power demand over the next 20 years.