Last week the provincial government announced a staggering increase in BC Hydro rates: more than 25% over five years. This rate hike was inevitable because BC Hydro is simply not sustainable as an ongoing concern with the current subsidized rate system. It was also encouraging to see that the BC Utilities Commision will be given responsibility for rate oversight going forward. However, if BC Hydro is to truly offer low prices in the long run, we should be focused on lowering its underlying costs, not just the price.
B.C. Hydro has one shareholder; the Province of British Columbia. The residents of B.C. are both customers and owners of B.C. Hydro. When B.C Hydro incurs a cost, whether it be ongoing operating costs or one off capital costs such as for Site C, we all feel that cost in one way or another. The rate that B.C Hydro charges us as consumers, determines whether we feel that cost through our hydro bills or through our taxes. That doesn't mean that BC Hydro rates are irrelevant. Having hydro rates represent as close as possible the true cost of delivering electricity ensures that those who use it most pay there for share. That's what I liked about last week's announcement.
What was troubling about last weeks announcement was the lack of any discussion around lowering B.C Hydro's long term cost structure. As a quasi-government department, B.C. Hydro has been exposed to neither the competitive pressures of the market, nor the serious cost cutting that has occurred within government departments, (at both the federal and provincial level) over the past two decades. A good example of B.C Hydro not containing its cost is the Northwest Transmission line currently under construction. Its cost has already ballooned from an original estimate of about $400 million when first announced to over $700 million today, and the project is not completed yet. Site C is budgeted at $ 8 billion. I wonder what it will eventually cost? Keeping costs down is the only way to ensure both reasonable hydro rates and no unnecessary burden on the taxpayer.
It didn't get quite as much media attention but at the same time as the rate increase announcement, government also announced that the BC Utilities Commision, (BCUC) would be taking a stronger role in setting hydro rates going forward. Most of us have never heard of the BCUC and that is a reflection of just how marginalised they have become in regulating utility prices in B.C. However, short of a free market solution, they are best placed to address the politically sensitive topic of utility rates. BC Hydro's long history as a political football has shown that governments of any stripe have struggled to set proper, if politically inconvenient, power prices.
B.C. Hydro was, is, and will continue to be, central to B.C.'s economy. Last week's announcement about BC hydro rates was a good step in acknowledging that their rate structure is unsustainable. I look forward to the next step, which must dig deeper than the high level rates and look at the underlying costs.
