For F2007/08 revenue requirements application
Revenue Requirements Application General
What is BC Hydro's revenue requirements application for?
A revenue requirement is the forecast cost of doing business for a period of time. It must be approved by the BC Utilities Commission. BC Hydro can collect it through tariffs (the rate it charges its customers). The last revenue requirements review was in 2004 and resulted in a 4.85% increase. Previously BC Hydro had not submitted a revenue requirement or request for a change to its rates since 1993. Now under regulation, BC Hydro expects to file its revenue requirement on a more regular basis, every two years.
Rate Increase and Rider
What, specifically, is the rate increase going to be used for?
The rate increase will recover the costs BC Hydro incurs in providing service to its customers and to earn a level of net income that is reflective of the allowed return on equity under regulation. A large proportion of the rate increase requested for the 2006/2007 fiscal year is due to higher energy purchase costs. These are as a result of the lower-than-normal water inflows forecast for the year, continuing high prices for electricity purchased by BC Hydro, and gas market purchases and higher growth in the demand for electricity. Strong growth in the B.C. economy and the need to upgrade an aging electricity system are also driving BC Hydro's costs. Moneys from the rate rider, to be effective February 1, 2007, will be allocated to paying down BC Hydro deferral accounts.
What is a rate rider and what is it for?
The 2% rate rider, effective from February 1, 2007 until March 31, 2008, will be applied to the total of all charges, before taxes and levies. All moneys collected from the rate rider will be allocated to paying down BC Hydro deferral accounts. That means, recovering additional energy costs resulting from low water inflows and higher-than-forecast market prices over the last two fiscal years. The rate rider will appear as a separate line item on customers' bills.
How will the rate increase affect demand charges?
Demand charges will increase by the same percentage as the rate increase.
Will the rate increase be universally applied to all customer segments across B.C.?
Yes, any change in rates will apply to all customers in all classes.
What specifically, was the last rate increase used for?
The last rate increase was used in the same way – to recover our cost of providing service and earn a reasonable level of net income. The increased cost of energy was a principal cost driver causing the need for the rate increase at that time. As it has turned out, energy costs were higher than what BC Hydro had forecast in its 2004 revenue requirements application.
Why can't BC Hydro provide more notice of its expected increases, even a range, so customers can include it in their budgeting?
BC Hydro's income is influenced by a number of factors, including water inflows and gas prices, which set the marginal price for electricity generation in the Pacific Northwest market. The combined impact of these factors can at any time swing BC Hydro's earnings dramatically (plus or minus $250 M) and consequently the magnitude of the rate increase required. The range that BC Hydro could provide customers would be so broad that it would not likely be very helpful to customers in preparing their budgets.
Interim Increase and Refund
Why did BC Hydro request an interim rate increase?
Because BC Hydro requires additional funds to operate this year, we asked for an interim rate increase so we could start collecting those funds. Applying for an interim rate increase is standard practice for revenue requirements submissions to the BCUC.
How long is the interim rate increase in effect and when will I get my refund?
The interim rate increase of 4.65% will continue to be used to calculate customer's bills until January 31, 2007. The difference between the interim rate and the final rate from July 1/06 to January 31/07 is 4.65% less 1.54%, or 3.11%. This will be refunded to customers as a credit adjustment with interest in the April/May billing cycle.
If the final rate is 1.54%, then why are you still charging me the 4.65% on my bill until Jan. 31/07?
The 4.65% interim rate increase is in place until the end of January in order to give BC Hydro enough time to make the required changes to the billing system. However, customers will be refunded the difference (plus interest) between the interim rate increase and final rate increase for the entire period they were charged the 4.65% rate (i.e., from July 1, 2006 to January 31, 2007). Customers should expect the credit adjustment to appear on their bills during the April/May 2007 billing cycle.
What can I do to offset the impacts of potential rate increases?
Power Smart offers a wide range of both programs and ideas that can help customers partially or completely offset a potential increase in rates. Offerings range from buying back customers second fridges to rebates for ENERGY STAR windows to hints and tips for more efficient-energy use in the home that does not require the customer to purchase a product. For business customers, a product incentive program helps to identify where energy savings can be achieved and offers incentives to make upgrades. BC Hydro also plans to work with industrial customers on shifting their loads and creating efficiencies.
When do you expect the next rate review?
Under regulation, BC Hydro expects to file a revenue requirement application approximately every two years. The next revenue requirement application could occur for the fiscal year beginning April 1, 2008.