Nick Marty to the Chairman of the BC Utilities Commission

Dear Anarchist and Sidley neighbours;

On Tues March 28th, our community held a meeting with Ms. Linda Larson, MLA for our constituency. In all 38 people showed up for this meeting with our elected representative to the Provincial legislature.  We held a similar meeting earlier in March with the NDP candidate – Colleen Ross. There is no Conservative candidate fort the upcoming election so far.

When we invited Ms. Larson we indicated that there as several pressing issues that our residents wanted to be discussed with our MLA, these being the Two-Tier Electricity rates, the National Park, ICBC insurance rates, and the condition of Hwy 3 in our area.

The day before the meeting Ms. Larson emailed me to say she wouldn’t speak about the Two-Tier Electricity rates because that was an issue that the BC Utilities Commission had to deal with and it was out of the BC government’s hands.  Despite her reluctance to want to talk about this – she knew it would be brought up by residents. When Ms. Larson arrived she informed me at that time that she had invited 4 Fortis staff members from Kelowna to come to the meeting to answer our questions and to respond to resident’s  concerns. (Ms. Larson invited FORTIS without informing us or asking for our agreement). When asked by the Chair of the meeting what the 3 most important issues in our rider are and why people should vote for her — her response was : education, health care and  the National Park. She did not include electricity costs or ICBC insurance rates in her “top three issues” in this riding. MLA Larson spoke for perhaps 30 minutes, answered a few questions  for another 10 – 15 minutes ; then left the meeting, leaving FORTIS to answer tough questions raised by residents.  Of course we know FORTIS has no control over setting the electricity rates.. that is done by order of the BCUC, which is appointed by the BC Government. Personally I felt this was a very poor way for our elected official to interact with voters here on the Mountain, that have issues that they want their government to understand and to deal with.

Ms. Larson did provide Nick Marty with a note asking him to communicate directly with the Chairman of the BCUC (David Morton).   Nick’s letter to David Morton is below.

Mark McKenney,President, AMCS

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Mr. David Morton,
Chair
British Columbia Utilities Commission

Dear Mr. Morton:

Ms Linda Larson, MLA for Boundary-Similkameen, requested that I contact you concerning the two-tier rate system that the British Columbia Utilities Commission (BCUC) designed and implemented in BC Hydro’s service area (ie the Residential Inclining Block {RIB} rate) in 2008 and FortisBC’s (FBC’s) service area (ie the Residential Conservation Rate {RCR}} in 2012.

She told me that she had arranged for me to present to you my assessment that the BCUC made numerous errors in designing and implementing the two-tier rates and that, as a result, these rates are:

  • failing to meet their stated objective of achieving an optimal level of conservation and energy efficiency;
  • not targeting energy inefficient customers as an appropriately designed “conservation” rate should;
  • often charging higher rates to energy efficient customers while charging lower rates to energy inefficient customers;
  • price discriminating against customers who are solely reliant on electricity for space and water heating, charging them rates way above the cost of new electricity generation;
  • charging higher rates to the 5% of customers who consume the most electricity per household (because they use electricity for heating) in order to subsidize the rates of the majority of customers (who use fossil fuels rather than electricity for heating);
  • producing results that are contrary to the objectives of the Provincial Energy Plan, forcing electric heat customers to switch from renewable, emission-free hydro to natural gas, wood and heating oil, thereby increasing greenhouse gas emissions and harmful air particulates.

This is an unbiased assessment based on my acknowledged expertise in the area.  Before I retired, I was a senior executive in the Federal Government advising Ministers on energy policy matters as they pertained to energy conservation, efficiency and the mitigation of greenhouse gas emissions.  During my time as Director, Policy Development & Analysis with the Federal Office of Energy Efficiency, I was involved in the development, implementation and assessment of virtually every federal initiative aimed at enhancing energy conservation and efficiency and reducing greenhouse gas emissions.  I believe this makes me one of the foremost experts in Canada in this area.

Ms. Larson’s concerns stem from the attached presentation that I made to her that provides supporting arguments for my conclusions. I have elaborated on these supporting arguments below.  Ms Larson would like the BCUC to confirm the validity of my arguments.  If you do not agree with any of my conclusions, then she would like you to clearly demonstrate where there are flaws in my logic.  Ms. Larson is deeply concerned about the negative impact that the two-tier rates are inappropriately having on her constituents who use electricity to meet all their space and water heating needs.  So, it would be appreciated if you provided a timely response to this request.  Since no new analysis is required on the part of the BCUC, it should not take you more than two weeks.

Nick Marty

Osoyoos, BC

———————————————

SUMMARY OF CONCLUSIONS

The BCUC has misunderstood the primary objective of implementing two-tier rates

The BCUC stated in its recently released report that “RIB rates were introduced to incent consumers to conserve energy and promote energy efficiency, and there is evidence that this is indeed happening”.  This statement reveals BCUC’s most serious error in implementing two-tier rates.  This is not an accurate description of the two-tier rates’ originally-stated objectives and hence not an accurate assessment of whether or not these rates are being effective.

Two-tier rates were introduced to create “a more economically efficient price signal” to incent an economically optimal level of customer conservation. The BCUC clearly stated back in 2008, and again in 2012, that this meant setting the tier 2 rate equal to the long-run marginal cost (LRMC) of electricity generation.  But, according to FBC, their current tier 2 rate of 15.6 cents/kWh is about 40% higher than the LRMC.  Customers wholly dependent on electricity for space and water heating frequently have 70% or more of their consumption that is charged the tier 2 rate.  By charging them rates that are way above the cost of generating that electricity on the majority of their electricity consumption, two-tier rates are clearly not sending an economically efficient price signal to these customers; a fact that has been acknowledged on more than one occasion by FBC.  And because those customers using electricity for space and water heating are paying rates way above the cost of generating electricity, they are over-conserving (or inappropriately switching to fossil fuels) often at high personal cost. At the same time, the majority of BC customers are paying rates below cost and are being encouraged to consume too much electricity.

The BCUC has failed to target the “conservation” rate on those customers who are energy inefficient

To make matters worse, the BCUC has committed another major error by mistaking high energy intensity for high energy inefficiency.  In this regard, the BCUC violated the first principle of designing an effective conservation initiative.  The differences in the total amount of electricity consumed by different households (the household’s electrical intensity) has, in fact, very little to do with relative differences in household energy efficiency.  As a result, the two-tier rates are often charging higher rates to customers who are very energy efficient (but use lots of electricity because they heat their homes with it) while charging lower rates to customers who are very energy inefficient (but use little electricity because they use fossil fuels for heating).

The two-tier rates, as designed and implemented by the BCUC, are clearly failing to meet BCUC’s and the Government’s stated objectives  Indeed, it is my expert assessment that the two-tier rate system was so badly designed that it is erroneous to call it a “conservation” rate.

The BCUC’s claim that two-tier rates are non-discriminatory is not supported by the facts

The BCUC states in its recently released report that “Since it is not the purpose of the RIB rates to benefit any customers at the expense of other customers, this supports the Commission’s view … that there is no undue discrimination in the RIB rate”.  Yet, when BCUC extended the two-tier system to Fortis, the BCUC stated that the goal was that “95% of its customers would see a rate increase of less than 10 percent”.  According to FBC, “the majority of our customers (75%) have benefitted with lower rates and that was the intent of the BCUC when it approved our application”.  And how did 75% of FBC’s customers “benefit” from the introduction of a “conservation” rate?  Did FBC agree to accept a lower rate of return?  No.  The majority of FBC’s customers benefited financially because the increased revenue from the 5% of customers who experienced rate increases greater than 10% was transferred to them in the form of lower rates.  It is therefore a fact, that the RIB rates were designed to benefit 75% of FBC’s customers at the expense of the 5%.  And there is absolutely no evidence to support the view that the 5% (the highest users of electricity) are any less energy efficient than the 75%.  Indeed, economic theory would suggest that the 5% are more energy efficient than the 75% since it costs significantly more to heat your house with electricity than natural gas, so customers that use electricity for heat have long had an incentive to maintain their houses at high levels of efficiency.

The RIB charges different rates to different customers for the same service and constitutes price discrimination.  Under the RIB rates, if I’m using electricity to heat my house in winter, I am charged rates in excess of 14 cents/kWh.  However my next door neighbour, who lives in an identical house, at the same level of energy efficiency and consumes the same amount of energy, is charged only 10 cents/kWh solely because he uses natural gas or wood as his heating fuel.

While it may not be clear whether customers without access to natural gas are significantly subsidizing customers with access to natural gas, it is crystal clear that the highest electricity users (primarily customers who use electricity for space and water heating) are subsidizing customers who use less electricity (because they use fossil fuels instead of electricity for space and water heating)

Cross-subsidization is “the practice of charging higher prices to one group of customers to subsidize lower prices for another group”.  Clearly, the 5% of customers that constitutes the largest residential electricity consumers are cross-subsidizing the rates of the 75% of customers who saw their electricity rates decline upon the introduction of two-tier rates.  But Minister Bennett was mistaken when he assumed that the 5% were those customers without access to natural gas.  The fact of the matter is that many customers without access to natural gas use wood as either a primary or secondary source of heating fuel.  So, indeed, it is not customers without access to natural gas as a group who are cross-subsidizing other customers.  It is primarily customers who rely solely on electricity for space and water heating that make up the 5% of customers who are cross-subsidizing the 75%.  However, as FBC pointed out in its submission to the BCUC, it doesn’t have the data to actually identify those customers.  But just because there is insufficient data to quantify the extent of the cross-subsidization doesn’t mean it is not happening as BCUC concludes in it’s report.

Two-tier rates, as structured by the BCUC, are producing results that are contrary to the Policy Action of the Provincial Energy Plan

In 2012, when BCUC extended the two-tier system to Fortis, they stated that “the rate is intended to help achieve the Policy Action of the Provincial Energy Plan”. That Plan emphasized the need to promote clean energy.   Ninety-nine percent of BC’s residential sector greenhouse gas emissions come from space and water heating. Natural gas is the major source but burning oil, propane or wood will also generate emissions. By increasing electricity rates to excessively high levels for space and water heating, the two-tier rates are encouraging customers to switch from emission-free hydro to emission-producing fossil fuels; natural gas where it is available and wood and heating oil where natural gas is not available.  Solar is not a cost-effective alternative for space and water heating for most BC residents.  The burning of natural gas and heating oil both produce greenhouse gas emissions.  With respect to wood burning, the BC Air Quality website states: “Scientists have recently discovered that the pollutants in wood smoke, notably particulate matter, are harmful to human health. In fact, wood smoke has become the most serious kind of air pollution in B.C., causing more illness and deaths than smog does”.

Minister Bennett has stated that clean energy (i.e. hydro power) is in surplus in BC and that the Government is focusing on expanding the use of electricity including “encouraging people to switch to electric cars”. Yet, the two-tier rates penalize residents who use clean hydro for space and water heating while rewarding those who use fossil fuels for this purpose. Charging higher rates for those who use more electricity discourages the use of clean hydro power for space and water heating as well as for the home charging of electric vehicles. To expand the use of clean hydro power in B.C. and thereby reduce the Province’s dependency on fossil fuels, the Government should be charging lower electricity rates for those residential customers using larger amounts of electricity.

The BCUC has been ignoring the numerous complaints it has received on its two-tier rate system, refusing to directly address them

I have provided my assessment of the deficiencies in the two-tier rate system to the BCUC on numerous occasions, including during the recent “RIB Rate Report” proceedings. I have not been alone.  Other interveners have made the same criticisms as have hundreds of residents.  And many of these deficiencies have been pointed out by FBC in its various reports to the BCUC.  But the BCUC has never directly addressed any of these criticisms by demonstrating that there are flaws in their arguments.  Instead, the BCUC has simply required the utilities to do analysis in areas where there is insufficient data to come to any real conclusions.  Then, based on these inconclusive results, the BCUC has maintained that there is “no evidence” that anything is wrong with the two-tier rate system, while ignoring all the evidence to the contrary presented to them by all those electricity customers who are directly experiencing the negative impacts.

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