Several residents have asked me to explain the outcome of the Fortis rate application and the impact it will have on them. I have prepared the following summary. If you have any questions, I can be contacted at firstname.lastname@example.org
Our electricity bills have two components: a monthly “Customer Charge” (that is currently $16.05) and a per kWh “Energy Used” charge. Prior to 2012, the Fortis’ “Energy Used” charge was a “Flat Rate”; that is each customer was charged the same per unit price.
• In 2008, the British Columbia Utilities Commission (BCUC) switched BC Hydro from a “Flat Rate” to a “Two-Tier Rate”. Such a system was being used in California to promote greater energy efficiency. Under a two-tier rate, customers pay a higher rate when their consumption exceeds a designated “Threshold”. The California system had multiple thresholds; for example, a customer that used electricity for heating rather than natural gas would have a higher threshold to take into account the resulting higher electricity use. Similarly, different customers would have different thresholds reflecting the climate zone where they lived.
• The BCUC, however, misunderstood the concept and, erroneously, set the same threshold for all customers.
• In 2012, the BCUC required Fortis to switch from a Flat Rate to a Two-Tier Rate. Again the BCUC erroneously set the same threshold for all customers (800 kWh/month). In addition, the BCUC ignored the key design principle that the Tier 2 rate not exceed the cost of electricity supply. In 2018, Fortis’ Tier 2 rate was 58% above the cost of electricity supply.
• In response to complaints from residents such as us, the BCUC conducted three reviews of the two-tier rate system between 2013 and 2017, concluding in every case that it was working fine. In their 2017 Report to the Government, the BCUC concluded that the two-rate did not result in any cross-subsidization and it was “neither unjust, unreasonable, unduly discriminatory or unduly preferential”. That same year, in their decision on BC Hydro rates, the BCUC rejected the option of returning to a flat rate.
• In response to complaints from residents like us, Fortis proposed, in its 2017 Rate Application, to move back to a flat rate, but to phase out the two-tier rate system over 5 years.
• In the evidence AMCS-RDOS submitted to BCUC, we estimated that, since 2012, $30-40 million was transferred from residents using more than 15,000 kWh/year to those using less. Since space and water heating accounts for 78% of the total energy used by the average house; most houses that use electricity for this purpose were significantly overcharged and required to subsidize the rates of lower electricity-using customers (ie those using natural gas, propane, wood etc for space and water heating)
• AMCS-RDOS also presented evidence that under Fortis’ phase-out proposal, electric heat customers would cross-subsidize fossil fuel heated customers by an additional $14 million, with significant financial hardship continuing to be imposed on low and fixed income residents dependent on electricity for their heating needs. Moreover, FBC’s approved phase out of the two-tier rates would mean the continued promotion, until 2023, of inefficient energy consumption and increased greenhouse gas emissions and air pollution. We presented evidence that Fortis’ phase-out proposal constituted undue discrimination in violation of the BC Utilities Act.
• The BCUC essentially ignored all the evidence put forward by AMCS-RDOS; neither agreeing with it nor refuting it. They approved Fortis’ phase-out proposal, so that no lower electricity-consuming customer would incur an increase in their rates of more than 3.5% per year.
• FBC also proposed the reopening of time-of-use rates to all residents on an optional basis (BCUC had discontinued the offering of time-of-use (TOU) rates to additional customers in 2012). While AMCS-RDOS supported an optional TOU rate system available to all customers, we expressed concerns, as did other interveners, about Fortis’ proposed rates which, by their own estimate, could result in those customers remaining with the default rate significantly cross-subsidizing the rates of TOU customers. The BCUC denied Fortis’ proposed TOU system, indicating that more work was needed on its development.
What Does This Mean For Residents?
• Your electricity rate is determined on a monthly or bimonthly basis. On average, if your annual electricity consumption is greater than 15,000 kWh (regardless of the reason), then you a paying an average rate greater than the flat rate and you are subsidizing the rates of those whose consumption is less than 15,000 kWh.
• Accordingly, if your annual consumption is greater than 15,000 kWh, your average rate for electricity used should decline over the next five years. For example, if your consumption in 2018 was 30,000 kWh, then you had 9,600 kWh in Tier 1 (10.117 cents) and 20,400 in Tier 2 (15.617 cents) and your average rate was 13.86 cents/kWh. If your consumption in 2019 stayed the same, then you will have 9,600 kWh in Tier 1 (10.394) and 20,4000 in Tier 2 (14.915) and your average rate will fall to 13.47 cents. You will also be paying an extra 53 cents a month for the Customer Charge.
• If your consumption is less than 15,000 kWh your electricity rate will increase as the cross-subsidization of your rate is phased out.
• As of January 1, 2023, all residents will be paying the same flat rate, currently forecast to be 11.749 cents/kWh, plus a $18.70 monthly customer charge (up from $16.05 per month in 2018). Of course, the actual rates may differ if Fortis’ revenue requirements are not met or are exceeded and they apply for a subsequent rate adjustment.
• With respect to those residents that are still a part of Fortis’ 2012 TOU system, it is not clear what the BCUC’s decision means. You will need to ask Fortis.