BC Hydro Applies to Flatten Transmission Service Rate

BC Hydro Applies to Flatten Transmission Service Rate

June 5, 2023

BC Hydro has applied to the BC Utilities Commission for approval to “flatten” the two-tier energy rate paid by most Transmission Service customers (large consumers who receive power at transmission voltages at about 150 sites across the province). The application comes after two years of stakeholder engagement, in which BCSEA participated.

The current rate design (Rate Schedule 1823(B)) is a conservation-oriented rate. The energy charge has a low Tier 1 price and a high Tier 2 price, designed to motivate and incent customers to invest in energy efficiency measures. RS 1823 was introduced in 2006 following the BC Government’s 2002 Energy Plan. In a complicated and contentious process, RS 1823(B) customers are assigned a “customer baseline” (CBL) representing their “normal” annual energy usage. RS 1823(B) customers pay the Tier 1 energy charge for consumption up to 90% of their CBL and the Tier 2 energy charge for consumption above 90% of their CBL on an annual basis. RS 1823(B) also has a fixed demand charge (i.e., $/MW). There is also an RS 1823(A) that applies to new customers that don’t yet have a CBL.

BCSEA solidly supported RS 1823 when it was introduced, due to RS 1823’s conservation and efficiency benefits. Over the years, RS 1823 has successfully motivated many customers to implement energy-saving capital investments.

However, RS 1823 is now seen as discouraging “electrification,” i.e., new large electricity customers setting up in BC and existing customers expanding their operations. Also, the Tier 2 energy charge is now higher than BC Hydro’s long-run marginal cost of acquiring new energy supplies, which means the Tier 2 energy charge sends an economically sub-optimal price signal (too high) to customers.

The proposed rate redesign would transition RS 1823 to a flat energy rate and boost the demand charge. Boosting the demand charge means that more revenue would come from the demand charge and correspondingly less revenue would have to come from the energy charge. This would allow the proposed flat energy rate to be somewhat less than a simple weighted average of the Tier 1 and Tier 2 energy charges. Put another way, increasing the demand charge and reducing the energy charge reduces the bills of “high load factor” customers within RS 1823 (who maintain fairly steady electricity consumption). And it increases the bills of “low load factor” customers (whose electricity consumption varies up and down).

The proposed rate redesign package also includes special transition provisions for customers who did customer-funded efficiency projects that have remaining duration (aren’t fully paid off by energy costs savings).

BCSEA and other interveners are insistent that the new rate design should not come at the expense of customers in other rate classes. This will be scrutinized during the BCUC proceeding.

Like RS 1823, the Residential Inclining Block rate is a conservation oriented rate adopted under the influence of the 2002 Energy Policy. For residential rates, however, the BC government has apparently told BC Hydro not to proceed with flattening the RIB rate. Presumably, the government wants to avoid a political backlash given that flattening the RIB rate would increase electricity bills for many customers. Rather than flattening the RIB rate, BC Hydro is looking to optional residential rate designs to mitigate the RIB rate. One such optional rate, the optional residential time-of-use rate, is now before the BCUC.

By Bill Andrews and Tom Hackney