Over a century of power generation gives rise to modern municipal utility
After over 120 years the city-owned utility finally has its policies in place.
Nelson Hydro has developed and city council has approved and adopted six policies that will form the legal framework for the utility, one of the few municipally-owned power generating facilities in Canada.
The policies centre around how the utility makes certain decisions regarding cost allocation amongst the service areas, how the power generation was priced, debt financing, rate of return for both rural and urban customers and the use of deferral accounts.
City manager Kevin Cormack said Monday night during council’s regular business meeting that city staff ended up going back over 120 years to how Nelson Hydro started, how the utility survived and evolved over the last century, in order to develop a picture of how it needed to operate.
It was a struggle for decades to maintain the city-owned utility in the face of competition from bigger corporations, he said.
“Back in the day, when West Kootenay Power and Light, which was Cominco … was producing probably the cheapest power in the province it would have been easy for Nelson to just buy power (off of them), but that was resisted by councils for 100-plus years,” said Cormack.
The idea that sustained the city in its resolve was that Nelson Hydro was built for the social and economic benefit of its own citizens. And with FortisBC rates increasing substantially over time, Nelson Hydro has been able to keep its rates to its customers relatively low, by comparison, as a result of having their own power generation.
Although the policies were only recently introduced for adoption they were generally in line with how the city has operated and managed Nelson Hydro for some time, said the utility’s general manager Alex Love in his presentation to council.
However, it was felt that formalizing the policies would provide transparency in its operations and to the B.C. Utilities Commission (BCUC).
“Notably, Nelson Hydro is a unique utility as it is a municipally owned utility that possesses its own generating capacity, and also provides service to municipal or urban customers … and non-municipal or rural customers,” said Love.
“This unique dynamic often requires Nelson Hydro to operate differently from other utilities — as reflected in the proposed policies.”
Policies and their purposes:
- Cost allocation methodology policy
The purpose of this policy is to address the methodology by which Nelson Hydro divides its total costs amongst the three service sub-areas (north shore, south shore, city), then to the rural and urban services areas, and finally customer classes (i.e. residential, commercial, street light).
- Generation rates policy
The purpose of this policy is to address the factors that are used to calculate the rate that the utility charges for energy supplied from the city’s Bonnington Powerplant.
- Debt financing policy
The purpose of this policy is to address the amount of debt financing that is acceptable for Nelson Hydro to undertake considering both provincial legislation and direction from the BCUC.
- Rate of return (non-municipal) policy
The purpose of this policy is to formalize the city’s approach to determining the return on equity as it applies to the rural portion of Nelson Hydro. The city’s approach to setting the rate of return is one of many factors that impacts the setting of fair, just and reasonable rates for its rural customers.
- Rate of return (municipal) policy
The purpose of this policy is to formalize the city’s approach to determining the return on its equity as it applies to the urban portion of Nelson Hydro.
- Deferral account (non-municipal) policy
The purpose of this policy is to formalize the use of deferral accounts to account for the difference between budgeted expenditures and revenues and actuals in the rural service area.
— Source: City of Nelson
As well as creating transparency, the policies could help the utility in future applications to the BCUC in clearly explaining how certain decisions are made, “evidence a degree of thoughtfulness and consideration in arriving at such decisions” and illustrate how the city supports its utility.
However, in regard to the rural portion of the utility’s customer base, the policies could be pre-empted if the BCUC requires the city to operate in a manner “that is different from what is provided for in the policies,” said Love.
“In the event that the BCUC issues direction, guidance or a ruling that impacts one of the policies, staff would seek to amend the policy as needed in order to ensure that it is not in contravention of the BCUC’s regulatory authority,” he wrote in his report.
The bottom line
There is a significant cost associated with the city’s attempts to comply with regulatory requirements of the BCUC, including consultant and legal costs and staff resources incurred during various proceedings before the BCUC.
“Such proceedings are required to obtain approvals for matters impacting the rural portion of the utility such as general rate increases and rate redesigns,” said Love in his report.
Last year there was approximately $42,000 in costs related to regulatory proceedings paid out by the city in preparation of the COSA before it reached the BCUC. During that same period the city committed over $100,000 in staff resources in working to address the rural regulatory demands.
— Source: City of Nelson
Getting the word out
As with all council policies, the new Nelson Hydro policies will be made available to the public upon request. There is some anticipation that at least some of these policies will be submitted to the BCUC as attachments to Nelson Hydro’s 2020 Rate Redesign Application, said Love.