[Published Oct. 30, 2024]
Summary
- BC Hydro has applied to the BC Utilities Commission to change its rates – the two-tiered pricing you are used to will be replaced by a flat rate, regardless of how much electricity you use.
- This change could create winners and losers: in particular, rural customers living in older houses could save hundreds of dollars on their energy bills. However, urban apartment dwellers could end up paying more.
- BC Hydro looked into other rate options that could help to mitigate the equity impacts of bills going down for some customers and up for others. However, they didn’t advance any of these options in their application to the BCUC.
- Neither BC Hydro nor the BCUC is seriously looking into protecting low-income customers against unaffordable bill increases, and without doing so, we believe this rate application is a missed opportunity to advance energy justice for vulnerable customers.
What’s happening with BC Hydro rates?
Most BC Hydro customers are probably not aware that how they are charged for electricity is about to undergo some big changes.
In late June, BC Hydro filed its first residential Rate Design Application in nearly a decade. The utility is looking at new ways to encourage customers to switch from fossil fuel heating and cooking to clean electricity and is also looking at increasing the number of rate options that customers have, depending on how and when they use electricity.
At Ecotrust Canada, we’ve been following the issue of electricity rates for a long time. We worked with the Regional District of Mount Waddington where we found that BC Hydro’s two-tiered rate was leading to electricity bills that were double the provincial average. Over the years, we have made continued calls for electricity pricing to be indexed to a customer’s ability to pay and their risk of experiencing energy insecurity.
What’s the issue with the tiered rate?
BC Hydro’s Residential Inclining Block (RIB) rate, also known as the two-tier or two-step rate, was designed in 2008 when BC’s energy landscape looked very different. At the time, BC Hydro had no mandate to encourage customers to switch from oil, propane, or gas to clean energy sources. “Facing a potential electricity shortfall, the RIB rate was introduced. It works by charging customers a lower rate for electricity use up to a certain threshold, beyond which a higher rate applies. In this way the rate was designed to keep consumption low, in a time when most customers were still being encouraged to use gas for the largest energy demands in their home, i.e. space and water heating.
Over time, the effectiveness of the RIB rate declined, to the point where BC Hydro estimated in 2018 that it was no longer leading to any conservation. As time went on, customers were encouraged to use electricity for space and water heating to reduce emissions from burning gas, while taking advantage of better, more efficient technologies like heat pumps. At the same time, the RIB rate was demonstrating some serious fairness issues. Chief among them, was the impact on rural communities, many of which do not have access to gas and so rely on baseboard electric heaters. In these smaller communities it is common to live in a larger, detached home that may be relatively old and energy inefficient – due to lack of insulation, older windows, and air leakage.
We saw that electricity bills for these rural residents were profoundly unaffordable – sometimes over $4,000/year – and the tiered electricity rate unfairly penalized them for their inefficient housing. At the same time, we recognized real trade-offs in the RIB rate. Urban apartment dwellers, particularly those that are lower income, tend to use very little electricity due to their smaller living spaces and lack of power-hungry appliances or electric vehicles. For these households, the RIB rate leaves them better off, as they rarely use enough power to be charged at the higher step price.
What rates does BC Hydro currently offer?
Here’s how BC Hydro’s current residential rates work: by default, most customers are on the RIB rate, with its two-tier pricing. But that’s not the whole story. Some customers are on a “flat rate,” which doesn’t get more expensive as you consume more electricity. This is the rate that’s offered to many small farms in BC – as well as the remote, coastal community of Bella Bella, where the Heiltsuk Nation fought hard on behalf of its citizens to be allowed a flat rate, given their access to abundant and affordable hydro energy from the Ocean Falls dam in their traditional territory.
There’s also a couple of other rates out there – one of them is the “Zone II” rate, which is a more expensive version of the RIB rate that is charged in communities that are off the main BC Hydro grid. These are overwhelmingly small, remote Indigenous communities that are reliant on noisy, polluting diesel generators for their power.
A final rate option is the newly approved time-of-day rate, which offers lower rates for customers outside of peak demand hours in the morning and evening. This rate is mostly designed to shift EV charging loads to lower demand periods and tends to benefit wealthier customers who own EVs or time-schedulable appliances.
Here’s what all that looks like. (Graphic: BC Hydro)
So, what options are being proposed?
In June 2024, BC Hydro plans to propose that residential customers’ default rate transition over time from the current RIB, to one that is “flat,” i.e. charges the same rate for electricity regardless of usage. There are a few ways this change could be introduced, and it’s likely that the difference between the current Step 1 and Step 2 rates would be gradually reduced over two to three years until the rate somewhere falls in between the current two steps (right now, about $0.11/kWh and $0.14/kWh). Customers would also have the option of moving to a flat rate immediately, as an opt-in rate choice.
A flat rate would create both winners and losers in terms of costs. Customers who currently consume large amounts of electricity (including wealthier households in large homes, but also lower-income rural households living in inefficient homes) would be better off under a flat rate, but others would pay more (including most apartment dwellers, and lower-income urban customers who typically use less electricity).
Eliminating Higher Rates for Remote Communities
Another major change to rate classes that is being proposed by BC Hydro is the elimination of the “Zone II” or Non-Integrated Area rate. This higher rate is currently charged to communities that are not connected to the integrated electricity grid, and which typically rely on diesel generation for their power.
Although these communities have historically been charged a higher rate based on the higher costs of generating electricity from diesel, the Zone II rate puts remote communities, most of which are Indigenous, at a fundamental disadvantage. The reality is that the cost of providing electric services varies widely. For example, an urban apartment customer connecting to the grid requires much less infrastructure than providing a connection to a rural customer at the end of a long distribution line – yet these two customers currently pay the same rates for electricity as long as they are on the grid. Eliminating the Zone II rate is a step toward greater rate fairness and extends the concept of “postage stamp” rates – where everyone equally shares the costs of maintaining the BC Hydro system.
What’s missing?
Unfortunately, BC Hydro has not addressed the potential for urban low-income customers’ electricity bills to rise under their flat rate proposal. After extensive consultation with stakeholders about additional rate designs that customers could choose to mitigate these impacts, BC Hydro originally proposed to introduce several other rate options alongside the flat rate. Later, support for those optional rates was withdrawn, citing a lack of clear understanding of and support for the options by customers they surveyed. We believe that this was a premature and flawed approach on BC Hydro’s part – it will leave customers with no options other than the flat rate or tiered rate, potentially for several years, until these other rate designs can be tabled.
Based on the consultations BC Hydro undertook throughout 2023 and 2024, we know quite a bit about what these proposed options looked like – here’s a summary of what was discussed:
Peak Charge Rate
One of the rate options that BC Hydro proposed is referred to as a “peak charge”, or demand-based rate. This rate would, by default, be lower than the energy charge for the flat rate. However, a “peak”, or premium charge would apply above a certain usage threshold during the times of day where demand for electricity is at its highest. When customers all use electricity during the same times of the day (for example, in the afternoon and evening when most people cook, use appliances and/or charge their EVs), the cost to provide that service becomes much higher and the grid can become strained. A peak charge rate is designed to alleviate these pressures on the utility by encouraging customers to “spread out” their consumption over the day.
The peak charge rate differs from a time-of-day rate in that it allows for a certain level of consumption during peak hours without incurring the premium charges. As such, it’s designed to be more beneficial to apartment dwellers and lower-income households, which typically have lower consumption overall and might not use enough electricity to pay the premium rate. It’s also meant to benefit households using a heat pump, which use a steady and small amount of energy, in contrast to baseboard electric heaters which have “spiky” consumption patterns.
Unfortunately, due to the realities of work and childcare schedules, many households are not able to easily change their consumption patterns, and many households (especially renters) are not able to switch from baseboard electric to heat pump heating. The peak charge rate may result in lower bills compared to a flat rate for some lower-income apartment dwellers, but low-income rural households living in larger, inefficient homes may not benefit as much.
Smart appliances and EVs, which can be scheduled to run at off-peak hours, are still largely unaffordable for all but the wealthiest households, so these well-off customers may see a disproportionate benefit from a demand-based rate (in addition to the benefits offered by BC Hydro’s time-of-use rate, which is largely tailored to EV owners).
Fixed Bill Plus
A second new rate option proposed by BC Hydro would involve customers paying a fixed bill every month, with no changes from season to season. Such a rate would be based on the customers electricity consumption over the previous year – with the fixed rate being readjusted annually.
The fixed bill option is based on a “subscription pricing” model and comes with a caveat – that the customers use smart appliances that are remotely controllable (for example, an internet-connected hot water tank, heat pump, EV charger, or dryer). BC Hydro would be able to control these smart devices and turn them off temporarily during periods of high electricity demand. These outages would be very short, for example a water heater might be turned off for a 15-minute period, which wouldn’t cause your hot water to cool down noticeably.
In this way, the fixed bill model allows customers predictability in their electricity costs, and potentially lower bills than under a flat rate. BC Hydro in exchange gains the flexibility to temporarily curtail demand during high usage periods. The major drawback is that this model requires that customers have smart, networked devices that they are willing to let BC Hydro control.
Altogether, BC Hydro’s proposals looked like the below graphic: a gradual elimination of the two-tiered rate, and the introduction of a flat rate, complimented by a few optional rate choices including peak charge, fixed bill plus, and time of day. However, after pulling the optional rates from their filing, BC Hydro has effectively left customers with only two choices: switch to the flat rate now, or wait until the tiered rate is phased out and the flat rate is the only option. (Graphic: BC Hydro)
The BCUC: a regulator in need of reform
Part of the issue at play here is that BC Hydro’s proposals for rates must be approved by a provincial regulator who we believe is operating under an outdated and inequitable mandate. The BC Utilities Commission, which is meant to provide independent oversight into whether utility rates and decisions are fair to ratepayers, has no jurisdiction to consider some very important issues in its scope of regulation. This includes basic priorities like reducing emissions, but also extends to how utilities support lower-income and vulnerable ratepayers. On these issues, the BCUC is mute – a result of its enabling legislation only allowing it to focus on short-term rate impacts, rather than the costs of utility decisions on British Columbians and the environment as a holistic picture.
We believe that the BCUC’s participation model is also flawed. Despite publicly encouraging impacted ratepayers and organizations to get involved with their proceedings and have a say in utility decisions, it is in fact very difficult to participate in the BCUC’s processes, due to the costs and time involved in participating in lengthy, technical proceedings and securing legal counsel to make and refine arguments. The BCUC also demonstrates a clear preference to work with a few established intervenor groups, and makes it difficult or impossible for other interested parties to join.
This was demonstrated to us when we attempted to register as interveners for BC Hydro’s rate design, in order to share the perspectives and expertise we have gained from over six years of working in deep partnership with rural, remote, and Indigenous communities on energy affordability. The BCUC rejected our application outright, stating that we were “not sufficiently impacted”, and that the perspectives of every rural Indigenous community in the province could be adequately represented by just a single intervenor, the Salteau First Nations. Although not directly representing an Indigenous government ourselves, we believe it is a deeply flawed, pan-Indigenizing assumption to argue that one community can speak to the concerns of dozens or hundreds of other First Nations.
What’s missing?
BC Hydro’s decision to cancel consideration of these rate designs is a missed opportunity when it comes to advancing equity and participation in our electricity system. However, there are some even more glaring gaps that will make it more difficult to meet the goal of providing equitable, affordable access to electricity for all British Columbians.
One of the biggest issues that BC Hydro faces when designing rates is that it is not allowed to design rates based on a customer’s ability to pay, that is to say, it is forbidden from offering a rate discount to lower-income customers. This is a fundamentally inequitable situation that has been the subject of controversy for many years.
As recently as 2018, the BC Government promised to create an income-tested rate discount, which at the time was referred to as a “lifeline rate.” Unfortunately, approving such a rate is not currently allowed by the BC Utilities Commission, who makes decisions about what kinds of rates BC Hydro is allowed to offer.
Reforming the BC Utilities Commission Act is currently the only clear pathway toward enabling a “lifeline rate” – something that the BC Government should be actively considering as many other aspects of the Act are outdated. However, this is not the only way that bills could be reduced for lower-income customers.
One other option is to provide a basic electricity subsidy, or rate credit, for income-qualified customers. This option differs from a rate discount in that is applied to the bill, rather than charging a different price for the electricity itself. This approach is currently used by several other jurisdictions, including Ontario, which offers an Electricity Support Program for lower-income residents.
One key advantage of this approach is not distorting the relationship between consumption and price, as a lifeline rate would. A key disadvantage is that a bill credit would likely need to be funded by government and is therefore more vulnerable to cancellation, as opposed to a rate discount which could be recuperated by all customers of the utility on a permanent basis.
Conclusions
There is a lot to be done to make BC Hydro’s rates fairer and more equitable. This year’s Rate Design Application is an incomplete solution, though it has the potential to reduce energy bills for certain customers depending on how and when they use the most electricity. Ultimately, flattening BC Hydro’s rates will create winners and losers, and these impacts will be felt more strongly low-income customers. More needs to be done by BC Hydro and Government in the future, including a review of the BCUC’s enabling legislation so that utilities can be allowed to pursue more equitable rate designs.