News Release

Posted by Dave Cobb

Dear Customers,

As we get ready to close out an exciting year for our province, I wanted to take this opportunity to update you about what you can expect in the coming year as we celebrate BC Hydro's 50th anniversary and embark on an important period for our company and the future of electricity in B.C.

As you may know, in British Columbia we have some of the lowest electricity rates in North America. In order to continue to provide reliable and clean electricity, BC Hydro is heading into a significant building phase. Our province's population is growing, technologies are advancing everyday.

We need to build new systems to meet increasing demands and renew or replace aging generating, transmission and distribution facilities that were primarily built between 1950 and 1980. This work is essential to keeping the BC Hydro system safe, reliable, and able to meet your needs and those of generations to come.

Take the Vancouver City Central Transmission Project as an example. It's a $200 million project right in the heart of downtown Vancouver – a project that is critical to meeting the electricity needs of the growing population in that part of the city and improving overall reliability in Vancouver. And there are similar projects that both generate and transmit electricity throughout the province. You can learn more about these major capital projects that we are undertaking in the projects section of bchydro.com.

To pay for these much needed projects, we need to increase rates, while still looking at every way to keep them among the lowest in North America.

Earlier today (December 2), we announced, together with the Province of British Columbia, two changes to ease future rate increases. The first change is that B.C.'s water rental rates will be indexed to inflation, instead of to BC Hydro rates. The second change is that when calculating BC Hydro's return on equity, the Province will only include in-service assets, rather than including capital projects that are not yet completed. Together, these two changes reduce your rate increases both now and in the future.

We will file our next rate application by March 2011 for the three fiscal years of 2012 through 2014. That three-year application will show we are continuing to balance investment in our vitally important capital investment projects costs with the need to keep our rates affordable. Given the measures taken by the Province, we estimate that the projected rate adjustments will result in an average monthly bill increase of about $7 each year for each of the next three years.

Also today, the British Columbia Utilities Commission (BCUC) confirmed our negotiated settlement on our rates for the fiscal year of 2010 through 2011.

Our rate increase will be 7.29 per cent – down from the original 9.3 per cent interim rate that has been in place since April 2010. As a result, you will see a small credit on your BC Hydro bills from January to March 2011.

BC Hydro has also taken some steps to control our own costs as we modernize the province's electricity system. So far, we have made $78 million in cost reductions over the past three years, including $25 million in savings beginning in 2011/12 from the integration of the BC Transmission Corporation.

We want to ensure you understand the necessity of rate increases to pay for the significant investments we are making to provide a safe, clean and reliable electricity system today and for generations to come.

And we will continue to work with you to provide information, conservation education and incentives through Power Smart and tools to help you manage your own energy use.

Thank you for your continued support and understanding as we embark on this exciting and necessary investment for the future of British Columbia.

Sincerely,

Dave Cobb
President and CEO
BC Hydro

 

Further information is included in the Backgrounder below.

For more information, contact:

BC Hydro
Chris Brumwell
Communications, BC Hydro
604 623 4515
chris.brumwell@bchydro.com

Province of B.C.
Jake Jacobs
Public Affairs Officer
B.C. Ministry of Energy
250 952-0628
250 213 6934 (cell)

Backgrounder

1. Rate reduction details

Water Rentals:

BC Hydro currently accounts for approximately 95 per cent of all water rentals collected for power generation. Currently, water rental rates for hydroelectric producers are indexed to changes in BC Hydro electricity rates, leading to a compound effect for BC Hydro customers.

When rates increase, so do water rental costs, which in turn put upward pressure on rates. Effective January 2011, British Columbia intends to index water rental rates for power generation to inflation (CPI).

Benefits:

• Mitigates BC Hydro rate increases by more than half a per cent per year
• More stable, predictable basis for water rental rates

Return on Equity:

Previously, BC Hydro had a "deemed" equity structure that resulted in using 30 per cent of all debt and equity to calculate the return on equity (ROE) to the Province. It meant that customers would pay an ROE for capital projects that are not yet in service.

With BC Hydro's significant capital plan over the next several years, this could have a significant impact on costs that must be collected from customers – each $1 billion in debt incurred for projects not yet in service would result in a 1.4 per cent rate increase.

Benefits:

• The Province of BC has now changed its method for calculating BC Hydro's ROE so that the ROE is only earned once the capital asset is in service. This reduces rate increases by 1.9 per cent in the first year and smaller increases in subsequent years.
• In addition, this change aligns BC Hydro's capital structure with common utility practice and avoids fluctuations in rate-setting caused by accounting changes in equity.

2. Recent rate approval for 2011

A negotiated settlement agreement reached between BC Hydro and its customer groups has been approved and confirmed by the BC Utilities Commission (BCUC). It confirms a 7.29 per cent electricity rate increase for April 2010 through to April 2011, down from 9.3 per cent interim increase that has been in place since April 2010.

As a result, BC Hydro customers will see a small credit on their January to March 2011 bills. BC Hydro plans to file its next rate application to the BCUC for review and approval no later than March 2011.

3. 10 largest BC Hydro capital investment projects

BC Hydro is investing more than $6 billion dollars over the next three years to build, upgrade and expand capital infrastructure across the province. The10 largest projects that are being planned, underway or near completion include:

• The Vancouver City Central Transmission Project – the most significant investment in central Vancouver's electrical system in almost 30 years, including a new substation in Mount Pleasant and approximately 8 km. of new underground 230-kilovolt transmission circuits. Estimated investment of $200 million, resulting in 216 person years of direct employment.
• The Interior to Lower Mainland Transmission Project – a new 255 kilometre, 500 kV transmission line between the Nicola Substation near Merritt and the Meridian Substation in Coquitlam. By ensuring the most efficient transfer of electricity, the ILM Project will retain energy that otherwise would be lost – enough energy to supply about 80,000 homes per year. Estimated investment of $600 million and direct employment of 543 person years.
• The Revelstoke Unit 5 Project – will add a fifth generating unit to the Revelstoke Generating Station providing 500 megawatts of additional capacity. Estimated investment of $230 - $250 million and 190 person years of direct employment.
• Mica Units 5 and 6 Projects – will add two generating units to the Mica Dam Generating Station north of Revelstoke. Estimated investment of $700 - $800 million with 800 person years of direct employment.
• At the WAC Bennett Dam near Hudson's Hope, eight projects are underway or about to start, the largest being replacement of five turbines. Total estimated investment of $500 million and 144 direct jobs.
• The Fort Nelson Generating Station will be increasing its generating capacity from 47 megawatts to 72 megawatts at an estimated investment of $150 - $165 million, resulting in 130 direct jobs.
• The Northwest Transmission Line is 340 km, 287 kilovolt transmission line that will encourage economic development in North West BC by providing a secure connection point for clean energy Independent Power Projects and clean energy supply for industrial development (mines). This and related projects will reduce dependency on diesel power for some First Nations communities and help reduce greenhouse gas emissions. Total investment is $404 million, of which $94 million to be borne by BC ratepayers, the remainder to be funded by the federal government and the private sector. Up to 280 direct jobs per year of construction
• The Dawson Creek-Chetwynd Area Transmission Project, a 92 kilometre transmission line is being planned in response to an annual rate of load growth in the South Peace area that is approximately 10 times the average annual rate of load growth in BC. This is mostly due to an unprecedented increase in planned natural gas extraction sites in the area. Estimated cost is $150 - $200 million.
• The Central Vancouver Island Transmission Project, a 12 kilometre, 230 kilovolt transmission line, including the new Harewood West Substation, was recently completed on time and under budget, to ensure a continued, reliable supply of electricity to the growing communities between Nanaimo and Qualicum Beach. Estimated cost of $66.3 million.
• The Columbia Valley Transmission project, a new 140 km, 230-kilovolt transmission line from Invermere to Golden including a new substation and expanding the existing Golden Substation will provide the upper Columbia Valley with the reliable electricity needed to meet increasing demand and power economic development. Estimated investment of $154 million.