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B.C. acts to keep Hydro rates among lowest on continent

VANCOUVER, B.C. – The Province is taking steps to ensure that B.C. continues to have among the lowest electricity rates in North America as BC Hydro moves forward with significant investments in B.C.'s electricity system.

Two rate reduction strategies were announced Thursday, and the Province and BC Hydro remain committed to finding additional ways to keep rates low in the future.

"BC Hydro customers benefit from some of the lowest electricity rates in North America and we are committed to taking action to ensure they stay low," said energy minister Steve Thomson. "We're currently undertaking the largest expansion of electrical infrastructure in B.C.'s history to meet the growing demand for power in our province.

"That investment will have an effect on electricity rates, but the steps we're taking today will help ensure rates stay affordable for B.C. families."

The need for increased rates has been previously outlined in public rate submissions. An average residential electricity bill is about $71 per month. BC Hydro is currently forecasting an average monthly bill increase of about $7 each year for each of the next three years. However, these rate increases are only estimates and are subject to further BC Hydro review and approval by the BCUC.

"We are committed to meeting B.C.'s growing demand for electricity by modernizing and investing in the province's electricity system to safely keep the lights on for British Columbians, " said BC Hydro President and CEO Dave Cobb. "We are also taking steps to keep rates affordable by making our operations more efficient and introducing new conservation programs that will help offset rate increases."

Actions announced today by the Province and BC Hydro to keep rates low are:

• Effective January 2011, British Columbia's water rental rates will no longer be indexed to BC Hydro rates. Instead, water rental rates will be indexed to inflation.
• Effective April 2011, the Province will modify the way in which return on equity to the Province is calculated. Going forward, it will be based only on assets in service and not on projects that have yet to be completed.
• BC Hydro has implemented a cost reduction strategy which has resulted in $78 million in cost reductions between 2010/11 and 2011/12, including $25 million in savings beginning in 2011/12 related to the integration of the BC Transmission Corporation.

Also, in order to help low-income households save energy and money, BC Hydro has implemented an Energy Conservation Assistance Program which provides eligible low-income BC Hydro customers with free home energy evaluations and retrofits. BC Hydro has also distributed free of charge more than 30,000 energy saving kits which include energy-efficient light bulbs, low-flow showerheads and weatherization products.

BC Hydro is investing $6 billion over the next three years to build new systems to meet growing demand and renew or replace aging facilities. It is also installing smart meters in every household to help customers manage their electricity consumption and save money.

The building phase will also provide a number of economic benefits for the Province. These include job creation, opening new areas of the province to resource development, and attracting new industrial activity. Specifically, communities around the capital projects such as Terrace, Smithers, Nanaimo, Golden, Dawson Creek, Merritt, Saanich, Chilliwack, Burnaby and Vancouver will benefit directly from job creation and increased use of local infrastructure and facilities due to the sustained work in the region.

As a result of the capital investments, the province of British Columbia will be powered with clean, reliable electricity, at affordable rates, for generations.

See also

• Comparison chart BC Hydro rates vs. North America
• Capital projects chart

Further information is included in the Backgrounder below.

For more information, contact:

BC Hydro
Chris Brumwell
Communications, BC Hydro
604 623 4515
chris.brumwell@bchydro.com

Province of B.C.
Jake Jacobs
Public Affairs Officer
B.C. Ministry of Energy
250 952-0628
250 213 6934 (cell)

Backgrounder

1. Rate reduction details

Water Rentals:

BC Hydro currently accounts for approximately 95 per cent of all water rentals collected for power generation. Currently, water rental rates for hydroelectric producers are indexed to changes in BC Hydro electricity rates, leading to a compound effect for BC Hydro customers.

When rates increase, so do water rental costs, which in turn put upward pressure on rates. Effective January 2011, British Columbia intends to index water rental rates for power generation to inflation (CPI).

Benefits:

• Mitigates BC Hydro rate increases by more than half a per cent per year
• More stable, predictable basis for water rental rates

Return on Equity:

Previously, BC Hydro had a "deemed" equity structure that resulted in using 30 per cent of all debt and equity to calculate the return on equity (ROE) to the Province. It meant that customers would pay an ROE for capital projects that are not yet in service.

With BC Hydro's significant capital plan over the next several years, this could have a significant impact on costs that must be collected from customers – each $1 billion in debt incurred for projects not yet in service would result in a 1.4 per cent rate increase.

Benefits:

• The Province of BC has now changed its method for calculating BC Hydro's ROE so that the ROE is only earned once the capital asset is in service. This reduces rate increases by 1.9 per cent in the first year and smaller increases in subsequent years.
• In addition, this change aligns BC Hydro's capital structure with common utility practice and avoids fluctuations in rate-setting caused by accounting changes in equity.

2. Recent rate approval for 2011

A negotiated settlement agreement reached between BC Hydro and its customer groups has been approved and confirmed by the BC Utilities Commission (BCUC). It confirms a 7.29 per cent electricity rate increase for April 2010 through to April 2011, down from 9.3 per cent interim increase that has been in place since April 2010.

As a result, BC Hydro customers will see a small credit on their January to March 2011 bills. BC Hydro plans to file its next rate application to the BCUC for review and approval no later than March 2011.

3. 10 largest BC Hydro capital investment projects

BC Hydro is investing more than $6 billion dollars over the next three years to build, upgrade and expand capital infrastructure across the province. The10 largest projects that are being planned, underway or near completion include:

• The Vancouver City Central Transmission Project – the most significant investment in central Vancouver's electrical system in almost 30 years, including a new substation in Mount Pleasant and approximately 8 km. of new underground 230-kilovolt transmission circuits. Estimated investment of $200 million, resulting in 216 person years of direct employment.
• The Interior to Lower Mainland Transmission Project – a new 255 kilometre, 500 kV transmission line between the Nicola Substation near Merritt and the Meridian Substation in Coquitlam. By ensuring the most efficient transfer of electricity, the ILM Project will retain energy that otherwise would be lost – enough energy to supply about 80,000 homes per year. Estimated investment of $600 million and direct employment of 543 person years.
• The Revelstoke Unit 5 Project – will add a fifth generating unit to the Revelstoke Generating Station providing 500 megawatts of additional capacity. Estimated investment of $230 - $250 million and 190 person years of direct employment.
• Mica Units 5 and 6 Projects – will add two generating units to the Mica Dam Generating Station north of Revelstoke. Estimated investment of $700 - $800 million with 800 person years of direct employment.
• At the WAC Bennett Dam near Hudson's Hope, eight projects are underway or about to start, the largest being replacement of five turbines. Total estimated investment of $500 million and 144 direct jobs.
• The Fort Nelson Generating Station will be increasing its generating capacity from 47 megawatts to 72 megawatts at an estimated investment of $150 - $165 million, resulting in 130 direct jobs.
• The Northwest Transmission Line is 340 km, 287 kilovolt transmission line that will encourage economic development in North West BC by providing a secure connection point for clean energy Independent Power Projects and clean energy supply for industrial development (mines). This and related projects will reduce dependency on diesel power for some First Nations communities and help reduce greenhouse gas emissions. Total investment is $404 million, of which $94 million to be borne by BC ratepayers, the remainder to be funded by the federal government and the private sector. Up to 280 direct jobs per year of construction
• The Dawson Creek-Chetwynd Area Transmission Project, a 92 kilometre transmission line is being planned in response to an annual rate of load growth in the South Peace area that is approximately 10 times the average annual rate of load growth in BC. This is mostly due to an unprecedented increase in planned natural gas extraction sites in the area. Estimated cost is $150 - $200 million.
• The Central Vancouver Island Transmission Project, a 12 kilometre, 230 kilovolt transmission line, including the new Harewood West Substation, was recently completed on time and under budget, to ensure a continued, reliable supply of electricity to the growing communities between Nanaimo and Qualicum Beach. Estimated cost of $66.3 million.
• The Columbia Valley Transmission project, a new 140 km, 230-kilovolt transmission line from Invermere to Golden including a new substation and expanding the existing Golden Substation will provide the upper Columbia Valley with the reliable electricity needed to meet increasing demand and power economic development. Estimated investment of $154 million.