B. C. industry cringes at rate increase warning

Possible electricity price rise could cripple competitiveness of resource- related companies

BC Hydro rate increases could quickly drive British Columbia’s industrial power prices from among the lowest in Canada to the highest, dealing corporations a disincentive to doing business in the province, according to the group that represents major power users.

Cheap power for industrial development has been a cornerstone of BC Hydro’s operations and provincial government policy since W. A. C. Bennett created the utility in the 1960s, so Energy Minister Bill Bennett’s recent warnings that ratepayers can expect rate increases makes industrial users nervous.

“When you do a proper comparison, ( B. C.) is in the bottom third or half ( for industrial power rates) across Canada,” said Richard Stout, executive director of the Association of Major Power Customers of B. C. “We’re not the lowest; we used to be.”

Quebec and Manitoba have cheaper industrial power rates now, Stout

In a few years ( of double- digit increases), we’ll have some of the highest rates in Canada and lose a lot of the business that we brought here.

RICHARD STOUT EXECUTIVE DIRECTOR OF THE ASSOCIATION OF MAJOR POWER CUSTOMERS OF B. C

added, and where rate increases have been in the range of ordinary inflation, indications are that BC Hydro rate increases will need to be in the double- digit range.

“In a few years ( of double- digit increases), we’ll have some of the highest rates in Canada and lose a lot of the business that we brought here, encouraged to come here, on the promise of low rates,” Stout added.

Bennett said the main driver of potential rate increases comes from BC Hydro’s need to spend some $ 2 billion a year over the next three years upgrading its infrastructure.

“All I can say to ( industry) is that I’m well aware of the impact and my job, as is written in my mandate letter from Premier Clark, is to keep the rate increase down to as low as possible,” Bennett said.

However, Bennett added that “we’re not there yet” in terms of balancing off Hydro’s need to upgrade versus reducing the utility’s costs in such a way as to minimize rate increases.

“I’m well aware of the danger of rates going up too fast,” Bennett said. “I think we’re going to have to let rates go up; hopefully, we can spread it out over several years.”

B. C.’ s industrial users, mostly pulp and paper mills, sawmills, mines and chemical plants, consume about 32 per cent of BC Hydro’s power, according to the utility’s latest electrical- load forecast. By way of comparison, the province’s residential sector consumes 35 per cent of BC Hydro’s sales of electricity.

And rates for industrial customers have increased. Last December, then- energy minister Rich Coleman launched a review of B. C.’ s policies when it comes to industrial electricity.

As part of that process, Catalyst Paper Corp., BC Hydro’s largest single industrial customer, made a submission highlighting a comparison of rates among 22 jurisdictions across North America compiled by HydroQuébec in 2012.

The data showed that the average price BC Hydro charged industrial customers in Vancouver increased 24- per- cent over the previous four years, with prices hitting $ 49.90 a megawatt hour in 2012 compared with $ 40.30 in 2009.

By contrast, Manitoba’s industrial rates for Winnipeg increased just seven per cent ( hitting $ 36.90 per megawatt hour in 2012) and HydroQuébec’s rate remained relatively stable ($ 45.10 per megawatt hour).

Electricity is Catalyst’s second- biggest input, accounting for 15 to 20 per cent of production costs, the company said. And increases aside, the submission noted that the re- application of provincial sales tax on its electricity purchases will add another 27 per cent to its bill.

Having recently exited bankruptcy protection in a process that saw Catalyst slash its annual operating costs by $ 78 million, the company said in its submission that power rate increases were “rapidly becoming uncompetitive.”

Stout said industrial customers understand that rate increases are inevitable; however, they are asking for Victoria’s support in putting the utility under more scrutiny.

“A better- regulated utility would have done whatever is necessary to maintain its infrastructure, to maintain its lines, to acquire more power more cost effectively than ( it has),” Stout said. “And they should consider maybe not flowing those costs through to rates.”

Bennett said that strategy will have limited value in short- term rate considerations for Hydro. However, in the longer term, he said he has an interest in reviewing the way the utility does business.

“I question myself whether BC Hydro is the most capable, suitable entity to deliver some of these capital projects,” Bennett said.