FortisBC Upcoming Rate Design Application

Please see Nick’s email to Mr. Morton, Chair of the BC Utilities Commission:

———————————————————————-

Date: 1 August 2017 at 12:56
Subject: FortisBC Upcoming Rate Design Application
To: David.Morton@bcuc.com
Cc: “Larson.MLA, Linda” <linda.larson.mla@leg.bc.ca>, electricity.regulatory.affairs@fortisbc.com

 

Mr. David Morton,

Chair

British Columbia Utilities Commission

    1. Ms Linda Larson, MLA, Okanagen-Similkameen;

Subject: FortisBC Upcoming Rate Design Application

Dear Mr. Morton:

Thank you for your June 5, 2017 email, and for meeting with me in private on June 28, 2017, to respond to my concerns, and those of my MLA Linda Larson, about the two-tier electricity rates implemented by FortisBC (FBC) and BC Hydro. I am writing to you because FBC is clearly intending to bias the analysis of the residential rate design options to be considered as part of their Fall Application in order to cover up the many deficiencies of the two-tier rate system. I am requesting the British Columbia Utilities Commission (BCUC) to step in and ensure that this does not happen.

At the instigation of Ms Larson, I sent you an email, on March 30, 2017, presenting to you my findings, as one of Canada’s foremost experts on energy efficiency policies and programs. My findings are clear and undeniable. FBC’s Residential Conservation Rate (RCR) is:

  1. failing to meet its stated objective of establishing price signals to encourage efficient use;
  2. frequently charging higher rates to energy efficient customers and lower rates to energy inefficient customers;
  3. 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; and
  4. forcing electric heat customers to switch from renewable, emission-free hydro to natural gas, heating oil and wood, thereby increasing greenhouse gas emissions and harmful air particulates.

Moreover, by FBC’s own admission, the marginal cost of new electricity generation is now roughly equal to the average cost. This means that a return to the flat rate would actually produce the correct price signals to encourage efficient use and result in the optimal level of conservation for all customers. It follows that the flat rate is clearly superior to any two-tier rate system at meeting the Government’s stated energy and environment policy objectives.

I submitted my findings to the RIB Rate Procedure and neither FBC nor BC Hydro found fault with my analysis. I sent them to you in my March 30, 2017 email and neither did the BCUC refute any of my findings. In your response to me, the reason you gave for ignoring my findings in the conclusions of the RIB Rate Report was that the Minister set these issues out of the scope of the RIB Rate Report. But, you noted, the Minister stated “the analysis of higher greenhouse gas emissions, electricity conservation … are within the scope of FBC’s next Rate Design Application”.

So, I was pleased when, at the June 28, 2017, rate design “consultation” session, FBC listed their rate design principles, which included “price signals to encourage efficient use”, “fair appointment of costs among customers” and “avoidance of undue discrimination” and stated that the various rate design options, including flat rate, would be assessed against these principles. My only concern was that there is no principle concerning the mitigation of greenhouse gas and other harmful air emissions which, as you know, is a priority concern of the new Government.

I was subsequently shocked and dismayed in the follow-up July “consultation” when it turned out that FBC had deliberately misled us all at the June meeting. Apparently, since it was obvious to FBC that the two-tier rate system would not actually meet the above design principles, whereas a return to the flat rate would, FBC decided to ignore the principles that they had presented at the June “consultation” sessions and come up with a totally different “guiding principle” for residential customers; namely that “95% of customers should have bill increases no greater than 10% as compared to existing rates”. Using this principle, FBC concluded that the flat rate would result in “unacceptable bill impacts”, essentially eliminating it as an option.

Mr Morton, I am sure that, as Chair of BCUC, you understand how inappropriate and deceitful FBC is being in taking this approach to assessing the residential rate design options.

First, if there were to be one “guiding principle” above all others for narrowing down the list of design options for the Residential Conservation Rate, it would be “price signals to encourage efficient use”. That was the stated objective of the BC Government and the BCUC at the time that the RCR was created. Mitigating air emissions might also be considered the most important “guiding principle” since the objective of improving energy efficiency is largely driven by the imperative of reducing the harmful emissions associated with the burning of fossil fuels. And the principle of “price signals to encourage efficient use” will not produce this environmental benefit, when dealing with a hydro-based electricity generation system, if it encourages a switch from electricity to fossil fuels. Hence the need for an environmental guiding principle. A case could also be made for “non-discriminatory” rates as being the most important principle, since preventing monopolistic price discrimination is a mandated requirement of regulatory agencies around the world including the BCUC. However, there is absolutely no basis for using FBC’s 95% principle as the one “guiding principle” above all others. In fact, there is no basis for using it at all as a rate design principle, which is probably why it was excluded from the list of rate design principles put forward at the June consultation session that you attended.

Second, FBC’s 95% principle, as stated, is conceptually flawed as it fails to take into account the huge differences in electricity bills between those customers who rely solely on electricity for space and water heating and those that use fossil fuels for that purpose, consuming electricity only for appliances and lighting. Even with my highly efficient ground-source heat pump, my electricity bill for the two-month billing period of December 16, 2016 to February 16, 2017 was around $1200. Under a cost-based flat rate system which would charge me a rate equal to the cost of electricity generation, rather than 30% above, my bill would be about $250 less. I have a friend in Kelowna, who uses natural gas for his space and water heating needs, and his household electricity bill for the same period was less than $130. So, according to FBC’s “guiding principle”, a return to a flat rate (that would reduce my bill by $250 while at the same time providing all FBC customers with the correct price signal to achieve optimal energy efficiency) would result in an “unacceptable bill impact” because it would increase my friend’s rate by 13%, which, for him, means a $17 increase in his bill. This is clearly absurd, even more so when you take into account the fact that customers such as myself have been subsidizing him by roughly this same amount for the last five years!

The BCUC must be aware that the actions of private monopolies, such as FBC, do not always reflect the public interest – that is why they are regulated. In the case of the Residential Conservation Rate, FBC is unlikely to be enthusiastic about encouraging conservation and energy efficiency improvements since that simply reduces their revenue flow. They are also unlikely to be concerned about the negative environmental implications of forcing consumers of hydro electricity to switch to fossil fuels because FBC, itself, is a major seller of natural gas (and, in their advertising, continually stress how much cheaper it is to heat the home with natural gas than with electricity). But, like all private monopolies, FBC knows that monopolistic price discrimination (such as that being practiced under the two-tier system) is the best way to maximize revenue.

It is therefore the responsibility of the BCUC to ensure that FBC does not subvert the analysis of alternative rate options by inappropriately eliminating the flat rate from consideration. To this end, it is essential that the BCUC require FBC to submit, as part of its upcoming rate design application, a comparative assessment of each of the three major options (flat rate, two-tier rates and time-of-use rates) against the full list of design principles described in its June 26th presentation plus the principle of mitigating negative environmental impacts. I’m not suggesting that the BCUC tell FBC what option to recommend – only to present an unbiased comparative analysis and explain why they opted for their preferred option. I know that, as an intervener, I could request such analysis during the rate hearing but that would result in a major, completely unnecessary time delay. Moreover, I do not actually trust that the BCUC would grant my request, given the continuing bias in favour of the current two-tier system that the BCUC has exhibited during the last five years.

Mr. Morton, when we met you indicated that the BCUC wanted to ensure a thorough examination of the issues I raised at the upcoming FBC Rate Hearing and to that effect will be working actively to get more FBC customers involved as interveners. But that would be simply a waste of time for most customers, if you allow FBC to deliberately cover up the many deficiencies in the two-tier rate system in the analysis that they present, since that would make it virtually impossible for most customers to intervene effectively.

I would appreciate a timely response to this email. Should the BCUC decide not to require FBC to conduct and file a proper, unbiased analysis of the residential rate design options, then I will need as much time as possible, prior to the filing of the rate application, to prepare my case as an intervener. Since FBC’s sole justification for using the 95% principle seems to be that it somehow reflects what is “politically acceptable”, I would need the time to contact the new Energy and Environment Ministers to confirm the Government’s policy objectives and guiding principles with respect to the Residential Conservation Rate.

Sincerely,

Nick Marty

Osoyoos, BC

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One Response to FortisBC Upcoming Rate Design Application

  1. Karen Goodfellow says:

    Nick-I’ve been unable to go to any of the info sessions but am wholeheartedly supporting you. This letter is well-informed and my partner and I appreciate your steadfastness and tenacity in this matter.

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