B.C. government proposes short-term freeze on B.C. Hydro rates
A Hydro One smart meter at a property near Algonquin, Ont. File photo/Postmedia Network
VICTORIA — The NDP government is proposing to freeze B.C. Hydro rates for one year, fulfilling an election promise but leaving questions over whether the cash-strapped public utility can afford it.
Energy Minister Michelle Mungall said a planned three per cent rate hike set for April 1, 2018, will be cancelled while the government launches an operational review of Hydro.
"We committed to British Columbians to make life more affordable for them," Mungall said. "This is going to be a big saving in their pockets."
The decision will mean a loss of $150 million in planned revenue. Hydro will push those costs into its "rate smoothing" account, which delays repayment of debt until some time in future.
When asked whether Hydro can afford the loss, Mungall pointed to the planned review of Hydro operations, which she said will begin after her government makes a decision on whether to proceed or cancel the $8.3-billion Site C dam later this year.
"This is exactly why we’ve tied the rate freeze to a one-year review of B.C. Hydro," Mungall said. "We know there are savings to be had there, and we need to be taking into account the deferral accounts that already exist. The auditor general has been very clear about the need to look at those deferral accounts and get them into order."
Hydro has been struggling with rising rates, growing debt and warnings of credit downgrades in recent years. To make matters worse, the three per cent rate increase the NDP has cancelled was already lower than the five per cent Hydro needed to break even on costs in the coming year. Hydro wasn't allowed to raise rates the full five per cent because the previous Liberal government capped them for political reasons as it also struggled to keep rates affordable.
"All this is, is putting off decisions that should be made today in the best interests of ratepayers, B.C. Hydro and the province, to the future," said Liberal critic Tracy Redies.
B.C. Hydro rates have gone up more than 24 per cent in the last four years, and more than 70 per cent since 2001, the government said in a release. The NDP promised the freeze during the election campaign.
Hydro will either have to increase its debt or cancel its dividends to government to pay for the rate freeze, said Richard McCandless, a retired civil servant who now studies Hydro and the Insurance Corp. of B.C. "They've got a real problem and they may or may not have walked into this with their eyes open," McCandless said of the new NDP administration.
The previous Liberal government in 2013 set a 10-year rate plan for Hydro. That plan had called on the independent B.C. Utilities Commission to begin setting rates and to remove them from political interference.
The Liberal plan also set targets for the phase out of annual dividends Hydro was forced to pay government — often by borrowing money — which Mungall said the NDP will honour.
However, it's unclear what will happen to Hydro's growing reliance on deferral accounts, which let it push off annual costs into accounts due in the future. The Crown agency is expected to accumulate $5.7 billion in such accounts by 2019.
Hydro's deferral accounts could grow even larger if the NDP cancels the Site C dam later this year, forcing Hydro to absorb almost $4 billion in sunk and remediated costs, also through deferral accounts.
“If they terminate Site C and there’s a $2-billion write down and another $1.8-billion in termination costs that would trigger a 10 per cent rate shock," said Redies. "So for the government that keeps talking about affordability for B.C. residents this doesn’t seem to make a lot of sense."
Late Wednesday, Mungall faced questions in the legislature about whether her announcement of a rate freeze was misleading because it still requires approval from the utilities commission.
Green leader Andrew Weaver said he was "really troubled" that government made it sound like the freeze was already approved, when it could still be rejected by the commission. He asked Mungall to issue a formal correction. "Sometimes it's OK to admit you made an error," he said.
Mungall refused, saying she would have to "agree to disagree" with the Liberals and Greens.