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The NDP plan to freeze electricity rates next year is on increasingly shaky ground, as shown by the rough ride B.C. Hydro got in its attempt to get approval from the province’s independent utilities regulator.
The Crown energy corporation went to the B.C. Utilities Commission last week asking to cancel a three per cent increase set for April 1 because Energy Minister Michelle Mungall announced a rate freeze this month. Hydro was hit with tough questions about the $140-million revenue loss from freeze: how it would be paid off, how it would affect the existing 10-year rate plan, how it fits into the NDP’s vague promise to review Hydro’s operations.
Unfortunately for Hydro, the New Democrats hadn’t given the corporation any of the answers. As a result, the commission rejected Hydro’s pitch for a decision before Christmas.
The BCUC opted instead for a new round of written questions for Hydro that will push the issue to at least late January — just before the NDP’s first full provincial budget.
It was a decidedly awkward experience for Hydro, as more than one participant noted, because the company had already filed thousands of documents and spent considerable time arguing that three per cent was the minimum increase needed to cover its costs. Even that hike is probably inadequate to stabilize Hydro’s deteriorating financial situation.
The Crown power corporation in now in an unusually vulnerable position.
Hydro has a long history of stampeding through the regulatory process, drowning opponents in paper submissions with its army of lawyers, always confident the Liberal government would bail it out through a cabinet order overriding the commission if the regulator tried to say no.
That assurance is lacking from the new NDP government, which spent years criticizing the Liberals for interfering politically with the independent regulator and pledged it would never do the same. Hydro is now fully at the commission’s mercy.
Hydro’s lawyer Matthew Ghikas spent the bulk of his argument pointing commissioners to Horgan’s mandate letter to Mungall, which calls for a hold on rates, arguing that is “substantive regulatory justification for the rate freeze.”
There were 10 interveners at the meeting Thursday, and most appeared unimpressed with that argument.
The Commercial Energy Consumers Association of B.C. said Hydro plans to pay for the $140 million by adding to its rate-smoothing deferral account, which has to be paid off at some point. Critics, including the NDP, have long criticized Hydro’s use of deferral accounts, questioning how the Crown company will ever pay off the more than $5 billion already accumulated.
“Affordability by deferability is not affordability,” association lawyer Chris Weafer said. “We would like to have a sense of whether there are other costs that … will arise as a result of the mandate letter.”
The commission is “missing half the equation” because neither the utility nor the NDP government have explained the scope of their proposed review of Hydro, said David Austin for the Clean Energy Association of B.C.
Any operational savings will be a pittance, Austin argued, because what really drives Hydro’s rates is the almost $1.8 billion it is spending each year on capital projects such as fixing old transmission lines and generation equipment. That will jump to $2.4 billion a year if the NDP let the Site C dam proceed.
Fortis B.C., the B.C. Sustainable Energy Association and the Sierra Club of B.C. all argued Hydro hadn’t proved its case for the rate freeze.
The main supporter was the Association of Major Power Customers of B.C., which represents mines and pulp and paper mills.
“The election promised a rate freeze,” lawyer Matthew Keen said. “Parties have organized their affairs based on that promise. You don’t need more evidentiary process to be able to take note of those facts. The current rate uncertainty is disruptive.”
That argument didn’t fly with retired senior civil servant Richard McCandless, an individual intervener. “It’s been mentioned that this was an election platform of the party. It’s trying to adhere to its promise,” he said. “But that didn’t seem to stop it from, when it promised to freeze ICBC rates, putting rates up an average of eight per cent this year. So there is some kind of double standard going on.”
Commission chairman David Morton ended the meeting with a telling exchange with Hydro. He summarized the issues around costs and how the freeze would affect Hydro’s 10-year rate plan.
“Do I understand you correctly to say that it’s not really worth looking at those issues because, as a result of the review process, we might have a different 10-year rates plan and we’re going to have a different plan to deal with deferral account balances and so on, so therefore there’s really no point in looking at those issues?” Morton asked Hydro’s lawyer.
“Our position is that the refreshed rates plan would take care of those issues going forward,” Hydro’s lawyer replied, referencing the NDP’s vague future plans.
“But we don’t have a refreshed rate plan,” Morton replied.
“Not at this time,” the lawyer said.
An awkward end to an awkward hearing for B.C. Hydro.
Unless the NDP starts coughing up more details about its plans, there’s a real chance the rate freeze could get rejected by the utilities commission. That would put the Horgan administration in a tough spot: give up on its election promise for a rate cut or politically interfere with the regulator. The Liberals chose the latter option for years. The NDP may soon be tempted to follow suit.