Does B.C.'s hydro-rate-hike decision affect future of system?

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As Premier Christy Clark defended her government's decision to override the utilities commission on the issue of rate hikes, some questioned how reining in rates would affect BC Hydro's ability to upgrade and expand an aging system.

In documents filed with the B.C. Utilities Commission, BC Hydro has said it needs to boost rates to help pay for up to $6-billion worth of upgrades to its dams and other infrastructure, much of which dates back decades.

In a statement provided by staff, BC Hydro president Charles Reid said there would be no impact to BC Hydro's capital program.

"We are continuing to make critical investments to improve and replace aging facilities that were built in 1960s, 1970s, and 1980s," the statement said.

On Tuesday, the province issued a special directive that imposed a rate increase of about 17 per cent over the next three years – about half of the 32 per cent BC Hydro sought when it filed an application to increase rates in March of last year.

"The utilities commission had a different view of this, they would have had rates go up by 50 per cent," Ms. Clark said Wednesday in Victoria. Under an application filed last year by B.C. Hydro, rates were projected to increase by 50 per cent over five years.

"I think British Columbians don't want to see those huge rate increases, they want to know we are working hard to try and reduce total costs for everybody. When times are tough, a 50-per-cent rate increase is pretty tough to take."

The government had already stepped in to keep a lid on electricity rates last year, after Crown-owned BC Hydro applied to boost rates by about 32 per cent from 2012 to 2014. The province ordered a review. Through job cuts and other measures, the utility whittled the increases down to 17 per cent and filed a revised application – which was to be the subject of hearings starting next month.

The government on Tuesday issued a special directive that sets rates for the next three years, in effect cancelling the hearings.

The BCUC will comply with the special directive and decide within a week or so on next steps, which could include a request for written submissions from BC Hydro and intervenors, Philip Nakoneshny, BCUC's director of rates, said on Wednesday.

The government cast its decision as a consumer-friendly move that will save millions in legal costs.

Critics, however, said the directive guts a hearing process that could have shed light on the impact on rates of provincial energy policies, such as the $1-billion smart meter program and greater reliance on private-sector power producers.

"What the government is doing is preventing anyone from looking at their own policies," said Marjorie Griffin Cohen, a political scientist at Simon Fraser University.

New Democratic Party energy critic John Horgan called the Liberal's special directive a "cynical" move and questioned whether keeping rates down now could result in even steeper increases in years to come.

Along with aging infrastructure, B.C.'s electricity network could be strained by future demand from new industrial development, including proposed mines and liquefied natural gas plants.

And upgrading sites or building new facilities to boost supply doesn't come cheap. Last month, for example, BC Hydro announced a $718-million upgrade to its 82-year-old Ruskin dam and powerhouse, located on the Stave River in Mission about 60 kilometres east of Vancouver.

Amid the talk of rate hikes, there are also concerns around the utility's debt. In a report last year, provincial Auditor-General John Doyle criticized the way the Crown corporation has deferred expenses to future years.

As of March 2011, a net total of $2.2-billion in expenses had been deferred and, by government's own estimate, the balance is predicted to grow to $5-billion by 2017, Mr. Doyle said, adding that, "There does not appear to be a plan to reduce the balance of these accounts, let alone halt their growth."

The province on Tuesday said deferral and regulatory account balances would be reduced by more than $250-million under the new rate scheme.