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Rate increase a shock to the system
Penticton residents, and the City of Penticton were surprised to hear FortisBC will raise the base rate for electricity it sells to the City of Penticton by nearly 12 per cent. This follows a six per cent increase imposed by the BC Utilities Commission in 2009. That’s 18 per cent in two years. For the record, the consumer price index for the same period was steady at two per cent annually. Energy price inflation during the same time was closer to seven per cent, however, that number includes volatile gasoline and coal-fired electricity prices — neither of which impact the actual cost of electricity generation in B.C.
FortisBC financial information (available on-line) indicates that rather than increasing in cost, all sources of electricity generation, except the electricity it purchases from BC Hydro, were lower in 2010 than 2009. Cost of electricity purchased from BC Hydro increased about five per cent in 2009. Assuming the six per cent 2009 rate increase was passed to FortisBC by BC Hydro, it stands that actual cost of generating and purchasing electricity actually decreased marginally over the past year.
Financial statements for FortisBC and BC Hydro for the year ended Dec. 31, 2009 (2010 statements are not posted, but other than rate increases there have been no material changes in either business) indicate net income of $36.2 million or 14.4 per cent of revenue for FortisBC, and $366 million or eight per cent of revenue for BC Hydro. These results, in terms of percentage of revenue, were consistent with the previous year. Free cash flows and the balance sheets of both companies are similarly very strong. Clearly, neither company requires increased rates to improve business or stave off bankruptcy.
The utilities claim the rate increases are required to cover increased power generation costs, required infrastructure upgrades and increased costs of financing the upgrades. All three rationalizations are disingenuous at best.
FortisBC’s financial statements (and those of BC Hydro) show the that actual cost of generation has not increased. Given the fact that virtually all FortisBC electricity, even that bought from BC Hydro, is generated from hydro electric sources, there is no possibility of increased operating costs — the “cost” of taxpayer-owned water turning taxpayer-subsidized turbines is fixed.
Infrastructure upgrades would be assumed largely to be on the transmission side of the business, or the “grid”. It is unlikely any large dams will be built, nuclear and coal are non-starters in B.C. Therefore, while building out new, or upgrading existing transmission infrastructure, does require significant capital, it is not at the same scale as a new hydro dam. Contrary to the utilities’ rationalization, the infrastructure upgrades demands are not large, relative to the existing businesses or assets. This is true for upgrades and ongoing repair and maintenance of existing facilities, such as dams.
Real interest rates are effectively at zero per cent. Canadian utilities bonds cost the issuer about five per cent annually, and are attractive in the world markets. Contrary to the utilities’ claims, financing for projects is neither expensive, nor difficult to secure.
None of the excuses given the public for the rate increases are valid. But don’t blame the utilities. Blame the BC Liberals, their protégés in the NDP and their enablers at the BC Utilities Commission.
From BC Hydro’s 2009 financial report we get this quote: “For many years we have relied on the firm, reliable power generated from our heritage hydroelectric assets. But these dams and infrastructure, built in the 1950s, ‘60s and ‘70s, require significant reinvestment. And we need to add new sources of clean, renewable power to our system to meet demand for reliable power.”
The final sentence is cryptic and significant. Since there will be no new “traditional” power generation developed in B.C. anytime soon, and the actual cost of current generation, transmission and distribution is stable or lower, the actual reason for rate increases is to finance “new sources of clean, renewable power...”
Around the world these sources of clean, renewable (and demonstrably unreliable) power are two to seven times the cost of traditional power generation. The same will true in B.C. — amplified by the fact that, because of our abundant, largely publicly financed hydro generation capacity, we enjoy some of the lowest priced electricity in the world. This advantage is coming to an end, and it is ending as a result of provincial government policy to “go green”.
Do not expect your electric rates to stabilize or decrease as the utilities are mandated to buy and develop inefficient and expensive “renewable” energy in the years to come. In addition, expect to pay more for all forms of energy in the form of surcharges and taxes to further subsidize the folly of renewable energy. Ontario is experiencing these impacts today — we’re next.
Unless and until the voters of B.C. direct the government to abandon its green agenda, and seriously consider developing proven, traditional sources of energy, 12 per cent annual increases in electric rates will become the norm — and may begin to look reasonable. Something to consider when you’re choosing you next MLA.
Mark Walker is the publisher of the Penticton Western News.