The city’s utility could bump residential power costs by over six per cent if it attempts to ‘re-balance’ its rates.
In an online open house on its upcoming rate change on Thursday night Nelson Hydro general manager Scott Spencer said the results of the cost of service analysis (COSA) and rate design application before the B.C. Utilities Commission have indicated that there is a discrepancy between what the residential customers pay versus the commercial customers in Nelson.
He said the current structure is 12 per cent higher on the residential side and 12 per cent lower on the commercial end.
“What we need to do and try and balance that and make it fair for all ratepayers is to do a rate re-balancing,” he said. “It is within the bounds of Nelson city proper so it is not something the BCUC has been looking at, at all.”
Nelson city council has supported the rate re-balancing, Spencer said, and it would be similar to what has been proposed for rural customers, spreading the increase out over three years so it would be four per cent per year, plus the general rate increase.
According to COSA, rural ratepayers would see a 5.72 per cent increase in the cost of service, plus the 2.5 per cent increase, making it a 8.22 per cent increase in order to recover costs for the utility, said Spencer.
COSA and the rate design application filed with the BCUC on Nov. 27, 2020 is still awaiting a decision from the provincial body. Spencer anticipated a decision would be issued by March 2022.
“Until the COSA and RD application is resolved, the BCUC has directed the utility to continue submitting rate applications for the utility costs as a whole (rather than only for the rural portion of the utility),” he said earlier this month in city council.
As a result, the 2022 general rate increase application follows the requested format.
It is anticipated that beginning with the 2023 rate application, Nelson Hydro could begin submission of a rate application to the BCUC based on the costs of only the rural portion of the utility, Spencer said.
“Rural rates at this time are not adequate to fund their share of the revenue requirement for the utility and this matter is being addressed through the COSA and RD application,” he said.
He said urban commercial ratepayers are over contributing to capital reserves and urban residential ratepayers are under contributing, with the matter (rate rebalancing) expected to come to council soon.
Walking the walk
In September Spencer noted that Nelson Hydro was willing to walk away from its rural customer base and hand them over to FortisBC, part of the largest privately-owned utility company in Canada.
He said if the BCUC application was turned down, Nelson Hydro could look to divest itself of its rural ratepayers — which the company has deemed revenue neutral.
Currently, Nelson Hydro has a cost of service analysis (COSA) and rate design application (RDA) before the BCUC, proposing an 18 per cent increase over almost four years for rural Nelson Hydro customers to account for the rising costs and the delivery of service to rural areas.
Talking the talk
Negotiations continue on non-binding discussions around the rural assets, Spencer said during the open house.
“COSA has indicated to us clearly that it costs more for us to service the … rural service areas, North Shore and South Shore, than we get in rates back from those areas,” he said.
As a result, another option for Nelson Hydro is to re-structure the utility, creating a municipal corporation for the rural service that would have an independent board of its own and would be somewhat separate from the city.
That move would allow the BCUC to more clearly understand the differences in the finances and structure of how Nelson Hydro operates relative to the city, Spencer explained.
“(B)ecause that seems to be a challenge that we’ve seen through the regulatory process, them understanding how a municipality works and operates with respect to operating an utility,” he said.
The move is another attempt to understand where the options lie for improving the service Nelson Hydro provides, as well as clarity to both the ratepayers as well as the BCUC in servicing those customers, Spencer said.
The lesser evil
There are three scenarios for Nelson Hydro as it concerns its rural customers, Spencer said: receiving the rate design approval; moving the rural customer base to FortisBC; and restructuring Nelson Hydro.
The rate design application with the BCUC is actually a lesser cost for rural customers than moving to FortisBC, said city chief financial officer Colin McClure when he spoke on the issue in August.
“Nelson Hydro recognizes that the rate increases proposed in the applications before the BCUC represent a potential hardship to its customers, which is why it has endeavoured to mitigate the impact by spreading the increases out over almost four years,” said McClure.
“(E)ven after the proposed rate increases, rural customers will still be paying less than their neighbours in the region supplied by Fortis BC.”
Nelson Hydro is submitting final arguments to BCUC on the RDA and COSA, then there will be another period of questions before a final decision is handed down, likely early next year.
General rate application
In July BCUC approved Nelson Hydro’s last application for a general rate increase but, with that, Nelson Hydro was asked to do a number of things with respect to the approval.
The first order was to resolve confusion for rate payers with payment, with a year-long rate having to be approved for Jan. 1 instead of April, eliminating the need to have a higher monthly percentage to account for nearly four months of backdated increases.
This precipitated the need for Nelson Hydro to move up the budget submission to the city and the earlier open house on the rate rise proposal.
As well, the city-owned utility was asked to establish a five-year vegetation management plan and a capital plan that addresses reliability, which it has.
Spencer said the BCUC also asked them to work with FortisBC on finding a solution to the loss of supply outages that Nelson Hydro frequently endures — a conversation that is well underway.
Rate rise annual event
If Nelson Hydro receives approval on the general rate application it will mean a continual rise in rates for the foreseeable future.
Spencer said the rise over the next five years will allow the utility to conduct the work that BCUC has outlined.
“They reflect the priorities that Nelson Hydro has and the city has, as well as the BCUC in terms of improving reliability and investing in infrastructure to provide better service to our customers,” he said.
In addition, Nelson Hydro is looking at establishing a storm reserve budget to help deal with the cost of the extreme weather events that have plagued the city in the last few years.
“For 2022, we want to move forward with the 2.5 per cent rate increase, as well as for years beyond 2022 until we know what is happening with the rural customers and the residential rates there,” Spencer said.
“It looks like that is a reasonable thing to do, given that we do not know what is happening with our cost of service analysis.”