Homeowners, small businesses and industrial users are facing a staggering 26.4-per-cent electricity rate increase from 2014 to 2016, according to a confidential B.C. Hydro document. B.C. Energy Minister Bill Bennett said Tuesday the coming hike will not be that high. However, in an interview, he said he could not put a number to it.

According to a Rates Working Group document dated Aug. 23, 2013 obtained by The Vancouver Sun, the electricity rate increase is necessary to pay for Hydro's costs, which are estimated to rise to $4.8 billion in 2016 from $3.8 billion in 2014.

article continues below

The increased revenues are needed in the two years to pay for capital additions ($515 million), smoothing out rates from year to year ($160 million) and contracts with independent power projects such as run-of-the-river hydro ($135 million), said the internal document.

The cost increases are also linked to deferring the payment of dam and transmission upgrades ($130 million), interest rates ($40 million) and other items ($10 million). Increasing operating costs ($15 million) are having much less effect on the pressure to increase rates.

Another 8.4-per-cent increase is forecast in 2017, after which rates continue to increase but at a slower pace.

By the end of the decade, rates are forecast to increase 41.5 per cent from 2014. The increase is expected to reach 57.3 per cent by 2024.

The Hydro document does not say how the rate increase would be spread among homeowners and businesses, but notes that just a 10-per-cent rate hike would increase the average household bill by $105, and $240 for small commercial customers.

Under a 10-per-cent increase, the largest five industrial customers would see their collective bills increase by $30 million.

Rate increases are felt much more significantly by people on fixed incomes, noted Hydro.

Bennett had not seen the internal document until it was provided to him Tuesday by Hydro, but said he had been aware of the magnitude of the proposed rate increase.

He said the forecast is part of an ongoing rate review process, including of Hydro capital expenditure plans, and involves senior officials from Hydro, his ministry and the finance ministry.

He said the efforts to blunt rate increases were in the early stages and insisted the increase would not be as high as 26 per cent from 2014 to 2016.

“I know the public may well be shocked by the number, but what I can say is I've been very forthcoming since I took over as energy minister, in terms of saying to the public there will be some rate increases,” said Bennett. “But I have always coupled that statement with my commitment that I will do everything I can to keep the rate increases to a minimum.”

Although it was known a rate increase was coming, a Hydro union official called the prospective hikes outlined in the internal document “massive.”

“We are strapped into this bus heading for a cliff, and we can't get out,” said Jim Quail, of Canadian Office and Professional Employees Union, local 378.

Quail put the blame for the prospective rate hike on the Liberal government for what he called an unnecessary, “failed experiment” with independent power producers.

Bennett argued the pressure on rate increases from IPPs was not that great.

Quail also noted that the province takes a huge chunk of Hydro's revenues in dividends and rents, forecast at $1.3 billion or 27 per cent of Hydros' revenues in 2016, according to the document.

He said the government should dial back the amount it collects from Hydro and cancel every independent power contract they legally can.

The B.C. Liberal government has already announced BC Hydro will cancel as many as 10 electricity purchase contracts with independent power producers and defer delivery dates on nine more of the 120 remaining contracts as part of the province's mandate to reduce the utility's cost.

Taking a smaller chunk of Hydro's revenues would undermine the government's efforts to balance the budget.

While electricity rates increased significantly in the 1970s and ’80s, they rose at a much slower pace in the past two decades and they were effectively frozen in the ’90s under the NDP.

Just last year, the government overrode the B.C. Utility Commission to slash the 2012 rate hike to 3.91 per cent from 9.73 per cent, and capped this year’s increase at 1.44 per cent.

That’s well below what’s needed to cover Hydro's spending on dam and transmission upgrades, initiatives such as its $930-million smart meter program and the $5-billion mountain of debt that awaits ratepayers in so-called deferral accounts.

According to the internal document, Hydro appears to have little room to reduce costs to ease rate increases.

As part of its effort to reduce rate increases in 2012-2014, Hydro noted it is already cutting operating costs by $390 million, including the elimination of 800 jobs, and has delayed $800 million in capital additions.

The only short-term option to keep rate increases down is by increasing the amount in the deferral accounts, Hydro said in the document.

NDP energy critic John Horgan was shocked by the magnitude of the prospective rate increases.

He said the Liberals have to take blame because for their “ill-advised” decisions, including spending on smart meters, cost overruns that have nearly doubled the cost for the Northwest Transmission Line to $746 million and unneeded independent power projects.

“We are reaping what we have sewn in as much as we made bad decisions that didn't have third-party oversight at the B.C. Utilities Commission,” said Horgan.

The Liberals have exempted several projects from the scrutiny of the independent utilities commission, including the smart meter program.