BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT
S.B.C. 1996, CHAPTER 473
And
BC Hydro – 2008 Residential Inclining Block Application
Vancouver, B.C.
August 15, 2008
ORAL ARGUMENT
BEFORE:
A. C. Pullman,
Chairperson
B. Milbourne,
Commissioner
L. OʼHara,
Commissioner
VOLUME 6
Allwest Reporting Ltd.
1125 Howe Street
Vancouver, B.C
APPEARANCES
G.A. FULTON, Q.C.
Commission Counsel
J. CHRISTIAN
J. NYLAND
J. SOFIELD
British Columbia Hydro and Power Authority
J. QUAIL
L. WORTH
B.C. Old Age Pensioners' Organization, Council Of Senior
Citizens' Organizations, Federated Anti-Poverty Groups Of B.C.,
West End Seniors' Network (BCOAPO)
M. GHIKAS
Terasen Gas Inc (TGI), Terasen Gas (Vancouver Island) Inc.
(TGVI), and Terasen Gs (Whistler) Inc. (Collectively Terasen
Utilities)
M. LEYLAND
D. SWANSON
FortisBC Inc
P. COCHRANE
R. CARLE
City of New Westminster
R. B. WALLACE
Joint Industry Electricity Steering Committee (JIESC)
C. WEAFER
D. CRAIG
Commercial Energy Consumers of British Columbia et al (CEC)
A. KEMP
Rental Owners and Managers Society of B.C.
D. BURSEY
I. WIGINGTON
Corix Multi-Utility Services Inc.
W.J. ANDREWS
B.C. Sustainable Energy Association, Sierra Club of Canada,
British Columbia Chapter (BCSEA)
L. BERTSCH
Energy Solutions for Vancouver Island Society
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 843
1
CAARS
2
VANCOUVER, B.C.
3
August 15, 2008
4
5
(PROCEEDINGS RESUMED AT 10:03 A.M.)
THE CHAIRPERSON:
Please be seated.
Good morning, ladies
6
and gentlemen.
7
B.C. Hydro's residential inclining block application.
8
This is the oral phase of argument for
By letter dated June 10th, 2008, which is
9
Exhibit A-14 in these proceedings, the Commission
10
provided participants in this proceeding with
11
information to assist them in understanding the
12
hearing process.
13
Commission stated:
At page 3 of that letter, the
14
"Commission panel may hold an oral phase on
15
the final argument after the delivery of
16
final argument, including any reply argument
17
of B.C. Hydro.
18
to allow the Commission panel an opportunity
19
to ask any questions the panel may have
20
arising from the final written arguments.
21
Participants are not allowed to re-argue
22
their respective positions taken in final
23
argument during this phase, nor are
24
participants allowed to comment on the final
25
argument of others during this phase unless
26
in response to a question asked by the
The purpose of this phase is
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 844
1
panel.
The Commission panel may not have
2
questions of all participants."
3
By letter dated August 11, 2008, which is Exhibit A-
4
17, the Commission confirmed that the oral phase of
5
argument would take place and identified two areas
6
where the panel wished to ask questions of various
7
participants' final argument.
The first issue concerns the JIESC
8
9
submission, pages 5 to 6 of its submission, where it
10
says:
11
"In our submission, with rates going up 38
12
percent on average over this year and the
13
following three, it is grossly unfair on its
14
face that some customers should experience
15
increases of up to 90 percent while 42
16
percent experience increases of less than 10
17
percent.
18
with inclining block rates, the initial
19
block must better reflect current usage, or
20
alternatively, the consequences of paying
21
the second tier must be moderated."
22
If B.C. Hydro is going to proceed
Terasen Gas, paragraph 15 of its final
23
argument, submits that it cannot be the case that, for
24
B.C. Hydro to charge customers more for greater
25
consumption is unjust or unreasonable.
26
And the BCOAPO, in its final argument at
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 845
1
pages 69 and 70, submits that the Commission should
2
deny B.C. Hydro's application because, in addition to
3
other concerns, the looming prospect for B.C. Hydro's
4
revenue requirements over the next several years makes
5
the tweak of price signal rate strategies superfluous
6
and punitive to some customers.
7
The panel would like counsel for B.C. Hydro
8
and those intervenors who wish to comment to address
9
the issue of whether the assumption of the bulk of the
10
bill impacts by larger electricity consumers under the
11
proposed RIB rate results in unjust, unreasonable or
12
unduly discriminatory rates, contrary to Section 59 of
13
the Utilities Commission Act.
14
like B.C. Hydro and those intervenors who wish to
15
comment to address the question of whether a
16
Commission panel finding that a rate is punitive means
17
that the rate should be considered unjust,
18
unreasonable or unduly discriminatory.
19
The panel would also
The second item on the agenda concerns the
20
Heritage benefits and section 5.(d) of the Heritage
21
Special Direction to the Commission Number 2, which
22
reads as follows:
23
"In setting the Authority's rate, the
24
Commission must ensure that electricity used
25
by the Authority to meet its domestic
26
service obligations is provided to customers
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 846
on a cost-of-service basis."
In its reply argument at section 5.3 at
2
3
page 27, B.C. Hydro says that no intervenor commented
4
on its position in its final argument at pages 95 to
5
97 on Heritage benefits.
6
panel notes that Terasen, in its final argument at
7
page 5, footnote 20, comments on B.C. Hydro's
8
submission with respect to its system extension test.
9
And the panel would also like counsel for B.C. Hydro
10
and Terasen and other intervenors who wish to comment
11
to speak to the issues raised by subsection 5(d) of
12
Heritage Special Direction Number 2.
However, the Commission
Therefore, subject to any comments or
13
14
submissions that I receive to the contrary, the
15
Commission panel will hear submissions in the
16
following order:
17
first from counsel for B.C. Hydro.
18
from those parties who are in agreement with B.C.
19
Hydro.
20
with B.C. Hydro, with submissions from the BCOAPO and
21
JIESC to come as the last of such submissions, and the
22
panel will hear reply from counsel for B.C. Hydro.
23
Proceeding Time 10:08 a.m. T2
On item one, the panel will hear
It will then hear
It will then hear from those who do not agree
24
On item 2, the Panel will hear first from
25
counsel for B.C. Hydro, followed by those who are in
26
agreement with B.C. Hydro, and followed by those who
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 847
1
do not agree with B.C. Hydro with Terasen speaking
2
last among such intervenors.
3
will hear reply from counsel for B.C. Hydro.
And finally the Panel
4
Before I begin, it is possible that the
5
Panel may wish to refer in this proceeding to B.C.
6
Hydro's rate design criteria, which it characterized
7
as being paraphrases of Bonbright's principles.
8
what I'd like to do is I'd like the Hearing Officer to
9
hand pages 381 to pages 387 of Bonbright's Principles
10
of Public Utility Rates, and I'd like counsel for B.C.
11
Hydro to tell me that those are in fact the principles
12
on which its rate design criteria were based.
13
therefore, I'll give you a couple of minutes to do
14
that, Mr. Christian.
15
MR. CHRISTIAN:
So
And
Would you like me to address the
16
question now at the outset before I make submissions
17
on the --
18
THE CHAIRPERSON:
19
MR. FULTON:
Yes, if you don't mind.
Mr. Chairman, before Mr. Christian does
20
that, I just wanted to advise the Commission that I'd
21
received an e-mail this morning from Mr. Bursey on
22
behalf of Corix Multi-Utility Services.
23
no position on any of the issues that were raised by
24
Exhibit A-17, and accordingly Mr. Bursey will not be
25
here this morning.
26
THE CHAIRPERSON:
Thank you, Mr. Fulton.
Allwest Reporting Ltd., Vancouver, B.C.
Corix takes
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 848
1
SUBMISSIONS BY MR. CHRISTIAN:
2
MR. CHRISTIAN:
Thank you.
So the eight rate design
3
criteria that were quoted in B.C. Hydro's application
4
on page 2-1 and reference Bonbright reference the 1998
5
version of the text, and I'm not sure if this is the
6
same version, but assuming that it is, I think the
7
answer to your question is, yes, I think that we have
8
paraphrased the Bonbright criteria.
9
that I think, arguably, in Mr. Bonbright's list that
10
we didn't -- I think it's maybe harder to see in our
11
list of eight, is number 10, "freedom from
12
controversies as to proper interpretation," although I
13
think that probably goes to customer acceptance and
14
the idea that the tariff should be clear and plain and
15
understandable to the customers.
16
THE CHAIRPERSON:
And the only one
I can confirm, Mr. Christian, that this
17
is the second edition of March 1988 from which this is
18
copied, and I think basically the one that the Panel
19
will focus on today is number 6 at the bottom of page
20
383 to 384, which sort of starts with the word
21
"fairness".
Proceeding Time 10:14 a.m. T03
22
23
MR. CHRISTIAN:
24
THE CHAIRPERSON:
Thank you.
Thank you.
So, before you begin, Mr.
25
Christian, hearing no submissions from other parties
26
as to the way we proceed, I will assume that the order
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 849
of go is acceptable to all parties.
MR. CHRISTIAN:
I only have a comment on the second
3
question, which presupposes that I have a submission
4
to make on it, and in fact it wasn't clear to me --
5
there wasn't an issue that crystallized in B.C.
6
Hydro's mind as to what we might say about it.
7
comment on how -- on the Commission's understanding,
8
perhaps, of whether or not there was a comment on our
9
submission in Terasen's argument, but I'm not sure I
10
have a substantive submission to make on the point,
11
because I'm not clear what the issue is.
I can
So I'd be happy to start, but I think I'll
12
13
need some guidance from the Commission panel with
14
respect to what they would like me to address.
15
THE CHAIRPERSON:
16
MR. CHRISTIAN:
And then I will start with issue number
17
one, then.
And issue number one, in effect, has two
18
components.
19
impacts, bill impacts faced by larger customers under
20
the proposed RIB results in rates that are unfair,
21
sufficient to, and I'm going to paraphrase here the
22
Commission's letter, sufficient to warrant finding
23
that the rate can't be accepted by the Commission, set
24
and determined in accordance with Section 58(1).
25
26
Okay.
The first component is whether or not the
And the second arm of the first question
relates to the question of whether, if the Commission
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 850
1
concludes that the rate is punitive, that therefore it
2
should therefore conclude that the rate is unjust and
3
can't be accepted as proposed by B.C. Hydro.
4
two arms of the first question I'll deal with
5
separately.
So the
And the first one again to paraphrase is,
6
7
what I understand the issue here being is that the
8
nature of B.C. Hydro's proposed RIB and, indeed, the
9
nature of the different variations to the B.C. Hydro's
10
proposed RIB that were filed in evidence in this
11
hearing all have the effect of moving costs within the
12
residential customer class from smaller customers and
13
some large consumers to larger consumers.
14
that manifests itself is that at a given consumption
15
level, larger customers will have larger bill impacts
16
than smaller customers.
And how
And so the question, as I understand it, is
17
18
whether or not that fact by itself is something that
19
the Commission could use or could base its conclusion
20
that the rate was unjust and unreasonable and unduly
21
discriminatory.
And the starting point for my submission on
22
23
the question, then, is to observe that the Commission
24
has a very broad discretion with respect to setting
25
rates.
26
discretion of the Commission to find a rate to be
Section 59(4) states that it's within the sole
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 851
1
unjust or unreasonable or unduly discriminatory, and
2
that arguably is probably the largest scope of
3
discretion that the Commission can exercise under the
4
Act.
5
However, that scope of discretion is not
6
unqualified, as I think two significant elements to
7
the qualification, or two significant elements to the
8
exercise of that discretion.
9
relate to the manner in which the Commission takes a
10
fact, like the fact we'll talk about here, the
11
relative bill impact on large customers versus small
12
customers arising from the RIB or other variations of
13
the RIB, you take that fact and then, from that fact,
14
draw the conclusion that the rate is unjust.
15
And that is, and both
And before the Commission can do that,
16
lawfully, it needs to draw a chain of logic from the
17
fact to the conclusion that is based on relative
18
considerations within the scheme of the Act.
19
that's one observation.
20
submission, unlawful, for example, for the Commission
21
to say that the -- this effect we're talking about
22
here is unjust because it disadvantages the
23
manufacturers of relatively energy-inefficient
24
appliances to the detriment of manufacturers of more
25
efficient appliances.
26
approach to the problem that I think would not be
So
It would be, in my
That would be an analytical
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 852
1
justified within the scheme of the Act, and would
2
render that conclusion unlawful.
3
That one is a bit of a -- perhaps a red
4
herring, since I'm not sure that that issue really
5
arises on the facts on this case, and I don't think
6
there's any -- I haven't seen any of the arguments
7
except for Mr. Quail's, perhaps, on the lifeline rate
8
issue that kind of go to that issue with respect to
9
whether or not there's a consideration that's out of
10
scope here.
11
But the other kind of way that the
12
Commission can err in taking the fact -- the
13
observation that we're talking about, and translating
14
it into a conclusion that the rate is somehow unjust
15
sufficient that it can't be accepted, is that the
16
logical analysis must be logically consistent on its
17
own terms and must also be grounded in the record of
18
the proceeding before it.
19
that there are five ways -- five reasons, if you will
20
-- that the Commission would not be able to find that
21
the proposed RIB rate is unjust, for the reason we're
22
talking about.
23
24
And on that basis, I submit
Proceeding Time 10:20 a.m. T4
Now, four of those reasons relate to the
25
RIB rate and the variations of the RIB rate that B.C.
26
Hydro put in evidence, and those variations were
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 853
1
undertaking number 4, Exhibit B-22.
And so the first
2
four of these reasons I think apply to not only our
3
proposed RIB, the specific proposed RIB in front of
4
this Commission, but all those different variations.
And so the first reason that applies to the
5
6
RIB rate generally, and the first -- you can think of
7
it as a hurdle perhaps.
8
Commission I think will have to get over, if it were,
9
to lawfully conclude that their rate is unjust for the
10
reason we're talking about.
This is something that the
The first is that this Panel, this
11
12
Commission, this Panel concluded in the 2007 RDA
13
decision, that a particular proposed RIB rate, the one
14
that B.C. Hydro referred to in its application as the
15
BCUC proposal, was a rate that would be in the public
16
interest.
17
particular RIB rate that would have the effect that
18
we're talking about here is in the public interest,
19
it's hard to conclude that generally RIB rates,
20
whether the B.C. Hydro specific one or the
21
alternatives before this Panel, must be unjust for
22
that reason, for the reason that they caused those
23
differential bill impacts based on consumption.
24
And it's, I think, self-evident that if a
The second hurdle, again using that
25
expression, that I think the Commission would have to
26
get over if it were inclined to conclude that the RIB
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 854
1
proposal or the variations of are unjust for the
2
reasons we're talking about, is the existence of
3
numerous inclining block rate structures in different
4
jurisdictions.
5
Hydro's argument -- or, yeah, not argument, sorry,
6
application, and approximately one-third of the 88
7
utilities surveyed as described in Appendix C have
8
some form of an inclining block rate structure.
9
Nineteen of the 88 had a year-round inclining block
10
rate structure of the kind that B.C. Hydro is
11
proposing.
12
that the Commission has to get over if it wants to
13
conclude that our RIB rate or variations of it are
14
unjust and unreasonable.
15
regulators have come to an opposite conclusion and so
16
to just conclude it's unjust without dealing with the
17
fact that other regulators operating under generally
18
similar principles have come to an opposite conclusion
19
is going to be a challenge, a hurdle to get over, one
20
that can't be ignored if their decision -- if the
21
conclusion that the rate is unjust is going to
22
withstand scrutiny.
23
to go back to the words I used at the outset of this
24
submission.
25
26
And here I refer to Appendix C of B.C.
So that's another hurdle, I would submit,
Because clearly, other
It would be logically defensible
A third hurdle I think that faces this
Commission Panel, if it's inclined to conclude that
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 855
1
B.C. Hydro's RIB rate or variations of it are unjust,
2
is the manner of the cost distribution that exists
3
even under the existing flat rate.
4
I refer to B.C. Hydro's response to CEC IR 1.7.1 and
5
page 38 of B.C. Hydro's argument.
6
need to take the Commission Panel to that IR but it's
7
the one that shows the average rate paid by customers
8
plotted against their consumption level, and it's done
9
both for the flat rate and for the inclining block
10
rate proposed by B.C. Hydro.
11
And in this regard
I don't think I
And under the flat rate the Commission will
12
recall that the average rate of small consumption
13
customers is very high and it drops off steeply as a
14
function of consumption and effectively levels out.
15
And then under the proposed RIB rate, that average
16
rate for customers at low consumption levels also
17
starts up high, drops off a little bit steeper, and
18
then comes up and eventually also flattens out.
19
that graph I think shows graphically what we're
20
talking about here, the cost shift from smaller
21
customers to larger customers.
22
And
But the point I want to make is that even
23
under the flat rate, a change in consumption has a
24
different bill impact depending on what consumption
25
level you have.
26
see that the Commission has raised in their letter
So the kind of fundamental problem I
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 856
1
with respect to the RIB rate, already exists with the
2
flat rate.
3
think the Commission has to resolve if it's inclined
4
to find that the proposed RIB is unjust.
5
get over that hurdle.
And so that I say is another issue that I
It needs to
6
And then the fourth reason again, still
7
talking about both the RIB rate, specifically that
8
Hydro has proposed and RIB rates generally of the type
9
that are the subject of Undertaking No. 4, is that, as
10
the Commission observed in the 2007 rate design
11
decision, intervenors have been urging Hydro to move
12
forward on conservation rates.
13
Energy Plan requires Hydro to bring conservation rate
14
measures forward.
15
views, and I'm going to paraphrase here again, I think
16
told B.C. Hydro to get on with it.
17
what Hydro at the time was proposing, which was a more
18
measured response to that government energy directive
19
for energy policy.
20
forward, I think, fairly, with the RIB rate
21
application.
22
application by the end of March.
23
The 2007 government
The Commission endorsed those
It did not accept
And so Hydro is forced to go
Indeed of course, was ordered to file an
And so the problem kind of rises squarely
24
upon the Commission and Hydro to deal with, the
25
problem being the one that we're talking about here,
26
this fairness issue that arises from the differential
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 857
1
bill impact.
2
submission, if there's an alternative rate structure
3
that solves that problem, in light of the impetus and
4
the imperative that Hydro now faces to get these rate
5
structures in place.
6
And it can only be resolved, in my
And I submit that on the record of this
7
proceeding, there's only one rate structure that
8
theoretically has the ability to alleviate this issue,
9
to mitigate this issue, and that rate structure is the
10
CBL or the CBL rate structure that's -- we described
11
it that way in our argument -- there was different
12
variations of it put forward and discussed in the
13
proceeding, but generally speaking it means an
14
allotment of Tier 1 energy based on historic
15
consumption and a higher rate for the marginal
16
consumption, similar to the 1823 rate structure.
17
18
Proceeding Time 10:26 a.m. T05
And B.C. Hydro's evidence on that type of
19
rate structure was that it's practically impossible to
20
implement at this time as a mandatory default rate
21
structure for its customers.
22
issue that, even if you were to find a way to get
23
around that on the evidence, that that type of rate
24
structure raises its own problems.
25
foreshadow a little bit here what I'll be talking
26
about in the next arm of this first question, which is
It also raises the other
Allwest Reporting Ltd., Vancouver, B.C.
I'm going to
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 858
1
to say that, for every large consumer under the
2
proposed RIB who feels they're being punished because
3
they have a larger bill impact because of the RIB
4
structure, there's going to be somebody under a CBL
5
type structure who's going to feel punished because
6
they took conservation measures, and they invested in
7
efficiency measures, they changed their behaviour and
8
started putting on sweaters, and a CBL structure is
9
going to strike them as unfair, I submit, and as
10
punishing as the larger consumers face under the RIB.
11
They're going to think, "How did I get stuck with this
12
small allotment if I had been consuming gluttonously,"
13
to use a word that's been used in this proceeding, "I
14
would have a larger allotment."
15
unfair.
They will find that
16
And so the point is that the CBL
17
alternative, the one potential rate structure that can
18
in fact go to this very question raised by the
19
Commission panel here, isn't practical and raises its
20
own fairness issues.
21
It's not a magic bullet.
And then finally the fifth reason I have to
22
say that -- the fifth hurdle, I think, again, to use
23
that language, that the Commission will face if it's
24
inclined to find the proposed RIB unjust for the
25
reasons we're talking about, is that there are
26
alternatives to it that mitigate the consequence, that
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 859
1
mitigate that particular issue.
On the basis of the
2
record here, the Commission saw quite a few different
3
variations of the RIB structure; again, Exhibit B-22
4
and undertaking number 4.
5
purposefully designed, if you will, to mitigate the
6
bill impacts on the larger customers.
7
extent, to reject the RIB proposal in its entirety and
8
dismiss the application when alternatives are there
9
that specifically mitigate the issue we're talking
10
about here is to, you know, throw the baby out with
11
the bathwater.
12
in light of the Commission's direction to B.C. Hydro
13
last year, unwarranted in light of the government
14
Energy Plan, to simply not choose one of the
15
alternatives that mitigate directly the consequences
16
of this issue we're talking about.
And many of those were
And so, to some
It would be unwarranted, in my view,
So those are my submissions on the first
17
18
arm of the first question.
19
questions, I'll move to the second element.
20
21
22
23
THE CHAIRPERSON:
And if there's no
I think we'll hear from all before we
ask any questions.
MR. CHRISTIAN:
Thank you.
I'll proceed, then.
The next arm of this first question relates
24
to whether or not a finding that the rate is punitive
25
therefore justifies the conclusion that it's unjust,
26
unreasonable, unduly discriminatory.
Allwest Reporting Ltd., Vancouver, B.C.
And I'm going to
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 860
1
focus my submissions here on the use of the word
2
"punitive", and to that end I'm going to have a
3
handout here.
4
back, I think everybody should have it.
5
extract from the Shorter Oxford English Dictionary.
I've left it with counsel and at the
It's an
And in the middle column on the second page
6
7
of this extract that I've just handed up, you'll see
8
the word "punitive" defined there.
9
in the context of the word "punishment", as one would
10
expect.
11
punishment, retribution, exceeding simple
12
compensation."
13
what might be meant by the word "punitive" to go look
14
at what the word "punishment" reads, and happily
15
that's just a few inches above.
16
definition there, and there's a number of different
17
definitions.
18
because it draws a distinction between it and the
19
other meanings of punishment that I think is germane
20
to this issue.
21
reads:
And it's defined
"Inflicting or intended to inflict
So it requires, I think, to understand
You can see the
I'm going to only read the first one,
And the first definition of punishment
22
"The action or instance of punishing.
23
fact of being punished.
24
penalty in…"
25
26
The
The infliction of a
and these are key words here,
"…in retribution for an offence.
Allwest Reporting Ltd., Vancouver, B.C.
Also a
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 861
1
loss or suffering inflicted as a penalty, a
2
penalty imposed to ensure the application
3
and enforcement of the law."
4
That first definition has inherent within it an
5
element of infliction of, you know, I'll use the word
6
"suffering" on somebody for some sort of bad
7
behaviour, some sort of morally culpable behaviour.
8
think that's part of that definition.
9
part of it comes from the word for an offence and
10
retribution.
11
"punishment" is used, at least in one sense it's used
12
as a response to somebody doing something they're not
13
supposed to be doing.
I
Its inherent
So when the word "punitive" or
The rest of the definitions of "punishment"
14
15
go on and give variations of the word without that
16
element of moral culpability.
17
punishment as being something unpleasant faced by
18
somebody, you know, more or less depending on what it
19
is.
They simply refer to
Number 2 is a good example.
Rough treatment.
Proceeding Time 10:31 a.m. T6
20
So I say, my submission is that the word
21
22
"punitive" has these two essential differences in
23
meaning.
24
bad behaviour.
25
And two, the general or broader definition of
26
"punishment", which simply just means, you know, some
One, "punitive" can mean it's a response to
I'll call that the narrow definition.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 862
1
suffering or rough treatment.
2
definitions in mind I'll go back to the question now,
3
and the question as I understood it was:
4
that the rate is punitive, can we conclude that it's
5
unjust and unreasonable, or should we?
6
to that question is no.
7
that and they depend on the two different definitions
8
of the word "punitive" that I've just put to you.
9
And with those two
If we find
And my answer
And there are two reasons for
Starting with the narrow definition of the
10
word "punitive", the idea that punitive is some sort
11
of punishment for bad behaviour, in my submission it
12
would be impossible for this Commission to find, on
13
the record, that there's anything in B.C. Hydro's RIB
14
rate proposal that's meant to be punitive in the sense
15
that it's punishing bad behaviour.
16
been very clear that it's not making in its
17
application, or generally, moral judgments on its
18
customers and their electricity use.
19
specifically took the point of saying it wasn't going
20
to establish a third tier rate for the purpose of
21
punishing gluttonous consumption.
22
B.C. Hydro has
B.C. Hydro
So on the record of this proceeding, I
23
don't think it's possible to find that there's a
24
punitive element to B.C. Hydro's rate in that narrow
25
sense of the word.
26
Commission could conclude it's punitive and therefore
Therefore I don't think the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 863
it's unjust.
Now, the broader meaning of the word
2
3
"punitive" or "punishment" simply boils down, in my
4
submission, to the very fact that we're talking about
5
here.
6
it's causing some sort of differential effect, some
7
sort of suffering that isn't suffered by others, well,
8
then we're not really getting any further than the
9
very observation that I started my submissions with
10
here, namely the larger customers of B.C. Hydro, will
11
under the RIB rate proposal or the different
12
variations to it, have larger bill impacts than
13
smaller customers.
14
If what is meant by the word "punitive" is that
So punitive in the sense that it just means
15
the treatment, the rough treatment, doesn't get the
16
Commission very far.
17
larger bill impacts consumptions, therefore punitive,
18
therefore unjust, because the middle word in there,
19
the punitive part, is no different than saying
20
differential bill impacts.
21
conclude on that meaning of the word "punitive" that a
22
finding that it's punitive means that it's unjust.
23
Another way to describe my dilemma here, I think, is
24
that to find that it's punitive would be
25
bootstrapping, to use that idiomatic expression.
26
It would be reductionist to say
It would be illogical to
And so for those reasons, I think that the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 864
1
answer, as I say, is no, that the Commission can't
2
conclude that this rate is punitive and therefore
3
unjust in a way that's legally defensible.
So that's what I have on the first
4
5
question, and as I said, I don't have a submission
6
particularly on the second question, which relates to
7
paragraph 5(d).
8
THE CHAIRPERSON:
I think the idea is to sit you down now
9
and address item 2 when we've heard everyone on item
10
1.
11
MR. CHRISTIAN:
Excellent.
12
THE CHAIRPERSON:
Thank you.
Thank you, Mr. Christian.
The Panel
13
will next hear from those I believe who are in favour
14
of or agree with Mr. Christian's submission.
15
gentleman with a beard and pink tie -- is that you,
16
Mr. Ghikas?
17
18
MR. GHIKAS:
It is.
The
How can you tell I've been on
holiday, sir?
Proceeding Time 10:36 a.m. T07
19
20
SUBMISSIONS BY MR. GHIKAS:
21
MR. GHIKAS:
Mr. Chairman, Commission panel, I'm going to
22
approach this in approximately the same way Mr.
23
Christian did, in dealing with the two arms -- as he
24
referred to it -- of the first issue, the first one
25
being whether the assumption of the bulk of the bill
26
impacts by larger electricity consumers is unjust,
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 865
unreasonable or unduly discriminatory.
And suffice it to say at the outset that
3
the Terasen Utilities submit that the proposed RIB
4
rate is fair and to use the terminology in Section 59
5
of the Act, "fair, just, reasonable and free from
6
undue discrimination."
7
submissions this morning on this arm of the first
8
issue, I'm going to break the terms in Section 59 into
9
its constituent components and deal first with "undue
10
discrimination", because I think they connote
11
different things.
12
And for the purposes of my
So, as was observed in the -- by Mr.
13
Chairman this morning, when intervenors are referring
14
to the RIB rate being punitive or unfair, in my
15
submission, what they're talking about is not undue
16
discrimination.
17
it is fair or just and reasonable.
18
submission, undue discrimination connotes not just
19
differential impact or differing treatment of
20
similarly situated customers, but also differing
21
treatment without a regulatory justification.
22
my written submissions, I included a case, the Prince
23
George Gas decision, where, for example, it deals with
24
the undue discrimination issue in the context of
25
saying that it distinguishes between cross-
26
subsidization by effect, which is okay if it's for a
What they're talking about is whether
Allwest Reporting Ltd., Vancouver, B.C.
And in my
And in
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 866
1
valid regulatory purpose, versus intentional cross-
2
subsidization, which is prohibited.
And the relevant passage from that case is
3
4
-- the best possible quotation from that is found --
5
summarizing that principle is found at paragraph 106
6
of the decision.
7
design is not unduly discriminatory for four reasons,
8
primarily.
9
structure applies to all residential customers in
10
exactly the same way.
11
residential customers obtain the benefit of the lower
12
Tier 1 rate up to 1,600 kilowatt hours.
13
point is that all residential customers will feel the
14
Tier 2 rate to the extent that their consumption
15
exceeds 1,600 kilowatt hours.
16
that all of this occurs within the context of revenue
17
neutrality for the residential class as a whole.
18
And the -- in this case, the rate
The first point is that this rate
The second point is, all
The third
And the final point is
In my submission, that is the epitome of a
19
non-discriminatory rate.
20
same rate as everyone else.
21
the rate paid by everyone increases in the second tier
22
as consumption levels increase.
23
the Commission can put aside the issue of undue
24
discrimination.
25
facts of this case.
26
If you consume, you pay the
It just so happens that
So, in my submission,
It's simply not even arising on the
So that takes me to "unjust" and
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 867
1
"unreasonable".
I have three points as to why -- that
2
I will elaborate on, and with respect to unjust and
3
unreasonable rates.
4
unreasonable is not synonymous with saying that
5
there's a better way of doing things that the
6
Commission should adopt.
7
and one that suggests that the rate is contrary to
8
proper rate-making principles.
The first being that unjust and
It implies a higher test,
Proceeding Time 10:41 a.m. T08
9
10
The second point, which I will elaborate on
11
in a moment, is that the reasonableness of the rate as
12
question of fact must be determined with reference to
13
the evidentiary record in this proceeding.
14
third point is that unjust and unreasonable must also
15
be defined in the context of the overall legislative
16
framework.
17
it has to be reviewed in the context of the
18
legislation and, in particular, the additions that
19
came from Bill 15 which emphasized the importance of
20
conservation.
21
And the
It's a legislative terminology used, and
So, dealing with the first point that is
22
unjust and unreasonable isn't synonymous with saying
23
there's a better way of doing things.
24
59(5)(a) of the Act says that a rate is unjust or
25
unreasonable if the rate is more than a fair and
26
reasonable charge for the service, of the nature and
Allwest Reporting Ltd., Vancouver, B.C.
The Section
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 868
quality provided by the utility.
Now, there are always going to be trade-
2
3
offs in rate design.
That's the nature of rate
4
design.
5
losers in every rate design.
6
designed on the basis that it's unjust and
7
unreasonable, the Commission would have to be
8
satisfied that it's an unfair rate, that the balance
9
struck is unfair.
10
takes me to my second point.
There will be winners and there will be
But to reject the RIB as
Now, how do we decide that?
That
The reasonableness of the rate, as a
11
12
question of fact, has to be determined with reference
13
to the evidentiary record.
14
expressly provides that the question of whether a rate
15
is unjust or unreasonable is a question of fact of
16
which the Commission is the sole judge, and put
17
another way, the issue of whether the proposed rate is
18
more than a fair and reasonable charge can't be
19
considered in isolation of the evidentiary record
20
here.
21
or charge in excess of a particular threshold is
22
invalid or contravenes the Act.
23
implications for us today, the first of which is that
24
it's unhelpful to focus solely on the minority of
25
heavy electricity consumers while disregarding the
26
impact of the rate design on the majority of
Section 59(4) of the Act
There is no legal standard that a bill impact
As such, that has two
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 869
1
residential customers.
And the second important point
2
for us today is that the rationale for, or the
3
objective served by the rate design, is also relevant.
4
So, let me turn to the evidence.
I want to
5
make four points on the evidence that I say supports
6
my position that this rate is not unfair and not
7
unreasonable.
8
has very low rates relative to other jurisdictions.
9
So while my friends have emphasized the rate
10
increases, the starting point for the rate increases
11
is relatively low.
12
historical legacy, but it's not reflective of the new
13
reality in B.C.
14
the low rates in B.C. is BCOAPO 1.12.1, and there are
15
other references too, but that's one.
First of all, B.C. Hydro, we all know,
And that starting point is a
And the reference to the evidence on
The second point on the evidence is that
16
17
most customers, approximately 75 percent, I believe,
18
see lower bills than they would under the flat rate
19
structure.
20
revenue requirements increases.
21
there is Exhibit B-1, the application, page 4-1, line
22
27.
23
But they still see an increase, due to the
And the reference
The third point is that those customers
24
most affected by increases as a result of the RIB, the
25
minority of residential customers, tend to be quite
26
heavy users of electricity.
They, on average -- I
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 870
1
believe B.C. Hydro's evidence was they, on average,
2
use double the average residential customer's
3
consumption.
4
Proceeding Time 10:46 a.m. T9
5
And it's true that if their consumption
6
remains unchanged, their bill increases will range
7
from 15 to 38 percent.
8
unchanged.
9
to alter their consumption patterns.
10
percent of customers, very small minority, who were
11
the most defective, used 5.5 times the average amount
12
of energy.
13
page 4-4, lines 9 to 11.
14
that point again in the context of discussing the
15
legislative framework with respect to conservation.
If their consumption remains
Many of these people will have the ability
And the 1.2
And the reference to that is Exhibit B-1,
And I'm going to pick up on
The final evidentiary point that I want to
16
17
emphasize this morning is that the Tier 2 rate under
18
the proposed RIB, which is driving the increases for
19
that minority whose rates are increasing over the flat
20
rate structure, is still less than the long-run
21
marginal costs of new supply.
22
Hydro's evidence, which is referenced at paragraph 7
23
of my written submissions, is that the long-run
24
marginal cost significantly exceeds the current flat
25
rate.
26
And in fact, B.C.
And that's BCOAPO 1.3.3.
So if we step back for a moment and look
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 871
1
hard at what is being said here in the context of
2
arguing that the rate is unjust and unfair, what it's
3
saying is that it's unfair for customers to pay for
4
the next kilowatt hour of electricity acquired by B.C.
5
Hydro exactly what it costs B.C. Hydro to acquire the
6
next kilowatt hour of energy.
7
that cannot be unfair.
8
And in my submission,
In economic terms, the marginal cost is
9
what residential customers should be paying for the
10
next kilowatt hour consumed by a utility customer.
11
And the reason utilities can't charge the marginal
12
costs for every unit of energy, of course, leaving
13
aside the Heritage Contract, is because a utility
14
would over-recover, and stepped rates, as designed, as
15
proposed, but in general address that issue by, you
16
know, rejigging the amount of energy in the Tier 1
17
rate to compensate for the increased Tier 2 rate.
18
But in terms of fairness, paying what B.C.
19
Hydro pays for the next increment of energy is a sound
20
principle in my submission.
21
principles capable of being applied, but in my
22
submission, it cannot be said that this particular
23
principle is unfair.
24
There may be other
So the third point that I raised at the
25
outset was that unjust and unreasonable had to be
26
defined in the context of the overall framework of the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 872
1
legislation, and the legislation, particularly Bill
2
15, imposes new parameters that support, in my
3
submission, the conservation objective inherent in the
4
RIB.
5
of statutory interpretation in his written
6
submissions, and I won't dwell on those here.
7
Bill 15 is an important part of that legislative
8
context and there are a few aspects of Bill 15 which
9
are worth emphasizing.
10
My friend Mr. Christian addressed the principles
But
The first of which is that the overall
11
scheme of Bill 15 involved requiring the Commission to
12
consider government's energy objectives in the context
13
of long-term resource and conservation planning.
14
one of government's energy objectives is to encourage
15
public utilities to take "demand-side measures".
16
That's in Section 1, the definitions.
17
measures is defined in Section 1 to explicitly include
18
rates undertaken to conserve energy and promote energy
19
efficiency, to reduce the energy demand that a public
20
utility must serve or to shift the use of energy to
21
periods of lower demand.
Now, we're mostly concerned
22
with the first two here.
But the point is that it
23
explicitly contemplates rate structures designed to
24
achieve those objectives.
25
26
And
And demand-side
So the legislation requires public
utilities to explain why the demand for energy to be
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 873
1
served by facilities contemplated in long-term plans
2
can't be addressed by DSM.
3
a very strong message that there should be an emphasis
4
on conservation in rate structures.
That, in my submission, is
Proceeding Time 10:51 a.m. T10
5
There is also a legislative requirement to
6
7
achieve self-sufficiency by 2016 and we heard a lot of
8
evidence from B.C. Hydro's witnesses that the rate
9
design such as the RIB is the lowest-cost DSM and will
10
help them achieve that objective.
So moving the Tier 2 towards the long run
11
12
marginal cost of electricity advances the conservation
13
objectives behind the RIB, because it promotes
14
consumers taking a long-term view of investment in
15
conservation.
16
a higher bill to those customers who use double, or
17
5.5 times the average electricity consumption is
18
consistent with the conservation objective inherent in
19
Bill 15.
And there's no question that delivering
20
The JIESC, at the outset of its
21
submissions, said that it's unfair because it targets
22
a few people with extreme bill impacts for no good
23
reason.
24
is promoting conservation among the class of B.C.
25
Hydro customers that contribute, in a significant way,
26
to B.C.'s capacity and energy requirements.
And of course there is a reason.
Allwest Reporting Ltd., Vancouver, B.C.
The reason
And
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 874
1
that's a reason that's explicitly contemplated in the
2
recent amendments to the Act.
The passage referenced in the Commission's
3
4
letter calling for the oral submissions referenced
5
page 8 of JIESC's submission which suggested that
6
sending a message to the heaviest consumers results in
7
sending a false signal to the balance of customers
8
that electricity costs are only rising at the rate of
9
inflation.
10
rising.
11
point I made earlier about trade-offs in rate design.
12
Really, what's being said is that there's a better
13
way, in their view.
14
not there is a better way doesn't make this particular
15
structure or RIB structure generally unjust or unfair.
Now, first of all, the rates are still
And second of all, this gets back to the
And in my submission, whether or
So, my conclusion on the first arm of that
16
17
issue is that while bill impacts are of course a valid
18
consideration, should be considered by the Commission,
19
the conservation objectives inherent in the RIB are
20
also valid and consistent with the legislative
21
framework.
22
measures are indeed required and appropriate, in my
23
submission.
24
unfair about moving the Tier 2 rates away from
25
historic embedded costs towards long-run incremental
26
costs of energy being consumed by these customers,
The evidence shows that conservation
There's nothing punitive or unjust or
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 875
1
while keeping the class revenue neutral.
And in my
2
submission, the conservation objectives should be
3
given greater weight than bill impacts in these
4
particular circumstances where the larger bill impacts
5
are limited to a relatively small number of heavy-
6
using customers.
So, now, I'll make a few comments on the
7
8
second arm of this first issue, which is whether a
9
finding that the rate is punitive means that the rate
10
should be considered unjust, unreasonable or unduly
11
discriminatory.
12
echoing Mr. Christian's in respect of the reasons why
13
this rate is not punitive, rather than reiterate my
14
submissions.
15
regard.
And I would leave my submissions as
I think I can safely adopt his in that
But what the circulation of dictionary
16
17
definitions and the debate over this word "punitive"
18
suggest to me, and which I would urge on the
19
Commission is that, as a general matter, the
20
Commission should not be using terms that are like
21
"punitive" in rendering a decision on this rate
22
structure.
23
means different things to different people and it's
24
preferable to stick, in my submission, with the terms
25
set out in the legislation, which are "unjust, unfair,
26
undue prejudice and unduly preferential", et cetera.
"Punitive" is obviously a loaded term that
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
I'll leave that submission there.
1
2
3
4
Page: 876
If there
are any questions -THE CHAIRPERSON:
No, we're going to come back to you at
the end, Mr. Ghikas, thank you very much.
5
Anyone else wish to -- yes?
6
Mr. Andrews, I was thinking of calling a
7
break at 11:00.
Can you be done by then?
Proceeding Time 10:56 a.m. T11
8
9
10
MR. ANDREWS:
No, I don't think I will be done by 11:00
but I don't mind being interrupted if that's --
11
THE CHAIRPERSON:
No, we'll hear from you.
12
SUBMISSIONS BY MR. ANDREWS:
13
MR. ANDREWS:
My submissions are on behalf of the B.C.
14
Sustainable Energy Association and the Sierra Club of
15
British Columbia.
16
made by counsel for B.C. Hydro and by counsel for
17
Terasen.
18
As a result, to a certain extent there may be a bit of
19
disjointedness in this argument, which I hope you will
20
forgive me for.
21
I begin by endorsing the arguments
I'll endeavour not to repeat their points.
My first comment has to do with the
22
Bonbright principles that the Panel brought to the
23
attention of the parties, with particular reference to
24
Section 6, Principle 6 of Bonbright.
25
that to emphasize that principle number 6 as it states
26
at the beginning:
Allwest Reporting Ltd., Vancouver, B.C.
My point here is
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 877
"Fairness of the specific rates…"
here's my emphasis,
3
"…in the apportionment of total cost of
4
service among the different ratepayers…"
5
In my submission, the RIB proposal does not affect the
6
apportionment of total cost of service among the
7
different ratepayers.
8
neutral on a customer class basis.
The RIB proposal is revenue
Now, turning to the specific two questions
9
10
and starting with the first, what I'll do is go
11
through the referenced argument in JIESC's at page 5
12
and 6 that is referenced by the Panel, and simply make
13
comments on it as I go.
14
from JIESC's argument is that is uses the term
15
"fairness" in addition to the phrase in the statute on
16
just and reasonable or unduly discriminatory.
17
think, as has been emphasized earlier, there's no
18
problem with using the term "fairness" as long as it's
19
understood that it's just a term that falls within the
20
overall test under the statute of unjust, unreasonable
21
or unduly discriminatory.
The first thing that I note
And I
The next point may seem minor but I submit
22
23
that it is not, which is the JIESC argument uses the
24
terms "Step 2 customers", and I say that that is
25
incorrect.
26
customers in the residential class are required to pay
There are no Step 2 customers.
Allwest Reporting Ltd., Vancouver, B.C.
All
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 878
1
Step 2 for electricity consumed in the quantities to
2
which Step 2 is applicable.
3
the heart of the claim that there is something imposed
4
that is hardship against -- if the intention is to
5
argue that this is unduly discriminatory, the point is
6
that this is not a rate that's applicable to a
7
particular identified group of residential customers.
8
And that really goes to
JIESC says that the -- it points out,
9
correctly, that there would be a cumulative impact of
10
61.2 percent in the third year, and the number doesn't
11
particularly matter but yes, it's a large number.
12
my emphasis here is that that is for the highest
13
consuming tranche of the residential ratepayers.
14
is not a group.
15
is no evidence that there is any identifiable
16
characteristics of this highest consuming tranche.
17
There's no evidence that they live particular in one
18
area, that they have a particular colour of skin or
19
usage pattern.
20
they are the highest consuming, and by definition they
21
will pay the highest rates under a flat -- they will
22
have the highest bill under a flat rate, or any kind
23
of RIB rate.
24
25
26
But
This
This is not a group by -- and there
It is simply a tranche.
By definition
Proceeding Time 11:02 a.m. T12
JIESC also talks about the relationship
between the size of the Step 1 rate and the size of
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 879
1
the Step 2 rate and notes, correctly, that the
2
differential Step 2 rates will progress to "nearly
3
double" the Step 1 rates in nine years.
My response there is that transmission
4
5
service rates are already on an inclining basis, and
6
although the exact size of the Tier 1 will be
7
determined by a compliance filing, in rough terms the
8
transmission service is already at double the Tier 2
9
compared to Tier 1, more or less.
After JIESC complains that the 25 percent
10
11
of customers who will see Tier 2 prices regularly bear
12
the bulk of the burden of the revenue requirement
13
increase, which has been responded to by others, and I
14
won't repeat, JIESC says that 38 percent of the
15
customers -- that is, at the low end of consumption --
16
will see increases well below the revenue requirement,
17
and my response to that point is that that's the
18
purpose.
19
highest consuming customers, and that's exactly the
20
behaviour that is intended to be incented by the RIB
21
rate proposal.
22
capping of the Step 2 price at the long-run cost of
23
supply will not -- will serve as a limit on the spread
24
between Step 1 and Step 2.
They consume far less electricity than the
Furthermore, I would note that the
25
Now, JIESC argues that it won't because it
26
says the long-run cost of supply for IPPs is $125 per
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 880
1
kilowatt hour, but although that may seem high, that
2
is the cap at this point, and however high it gets,
3
that's as high as the Step 2 will go under the
4
proposal.
5
Now, JIESC says that it is grossly unfair
6
"on its face" that some customers, which would be 0.09
7
percent of customers, that by year 4 should experience
8
increases of up to 90 percent, while about 40 percent
9
experience increases of less than 10 percent.
10
respectful submission, what's missing here is the
11
definition of "fairness" by which it can be said that
12
that is grossly unfair.
13
number of residential consumers consume two, three,
14
four, five times as much of B.C.'s low-cost
15
electricity than other consumers?
16
choose to consume less electricity and thereby reduce
17
bill impacts to the equivalent of a flat rate or less.
18
Large customers also have more opportunities to reduce
19
consumption than do small consumers.
20
many of the largest customers are common-use accounts.
21
They're not people at all, for which the size of the
22
bill impact has no correlation to personal hardship.
23
In my
Is it fair that a small
Large consumers can
And furthermore,
JIESC argues that the acceptability of the
24
RIB requires "the initial block must better reflect
25
current usage or, alternatively, the consequences of
26
paying the second tier must be moderated".
Allwest Reporting Ltd., Vancouver, B.C.
In
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 881
1
response, with respect, the initial block of 800
2
kilowatts per month, or 1,600 per two-month billing
3
period, already well reflects current usage.
4
numbers of customers do not exceed it in some or all
5
months even without taking conservation measures.
6
secondly, the consequences of paying Step 2 are
7
moderated by customers choosing to purchase less power
8
at the Step 2 price, which is the fundamental purpose
9
of the RIB rate.
Large
And
JIESC summarizes, at page 1 of its
10
11
argument, that the RIB proposal is unfair because it
12
targets a few people with extreme bill impacts for no
13
good reason.
14
every customer pays the same Step 2 price as every
15
other customer who chooses to buy power in Step 2
16
quantities.
17
targets consumption above the threshold quantity.
18
term "extreme bill impacts" is hyperbole.
19
impact of RIB is no more extreme than the level of a
20
customer's consumption.
21
consumers with the most -- with the biggest bill
22
impact are the ones with extreme consumption, if
23
you're going to use that term.
24
reason" comment is patently incorrect, given the
25
conservation benefits of the RIB proposal that are --
26
don't appear to be disputed by JIESC.
At the risk of repetition, in response,
The RIB does not "target" customers, it
The
The bill
In other words, the highest
And the "for no good
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 882
Proceeding Time 11:08 a.m. T13
1
JIESC's argument in a nutshell, in my
2
3
submission, confuses fairness with equality.
A flat
4
rate results in the same percentage bill impact for
5
all customers, that is, equality.
6
of fairness is that all customers have to have the
7
same percentage bill impact, then only a flat rate can
8
be fair, can meet that definition.
9
tautological argument because it amounts to saying
10
that only a flat rate is fair.
But if a definition
That's a
And in the end I submit that JIESC's
11
12
argument avoids a proper balancing of the desirability
13
of RIB-induced conservation against the alleged
14
undesirability of quantity-based differences and bill
15
impact.
16
and incorrectly dismissing the conservation benefits
17
of RIB.
And JIESC makes its conclusions by sweepingly
The Panel asked intervenors and parties to
18
19
respond to a quote from BCOAPO's argument at page 69
20
to 70 to do with the looming prospects for B.C.
21
Hydro's revenue requirements over the next several
22
years makes the tweak of price rate strategies
23
superfluous, and punitive to some customers.
24
response, neither of those points is supported by the
25
evidence.
26
rate would induce more conservation than would be
In
The evidence is uncontested that the RIB
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 883
1
induced by a flat rate.
This contradicts the
2
assertion that the RIB proposal is superfluous.
3
And secondly, there is absolutely no
4
evidence that the RIB is "punitive" to any customers.
5
And I'll elaborate on that under the second arm of the
6
topics.
7
of the RIB rate seem smaller in an attempt to support
8
the superfluous argument, but it's contrary to
9
BCOAPO's argument of punitive to some customers or to
10
JIESC's argument of extreme bill impact, to the
11
extremely high consumption tranche.
12
The term "tweak" is loaded to make the effect
On the punitive topic, I have -- my friend
13
from B.C. Hydro gave you copies of the OED.
14
definitions from Black's Law Dictionary.
15
didn't occur to me that when the Panel used the term
16
"punitive" in the question that it might refer to the
17
colloquial use of "punishment" as in a punishing blow
18
from the boxer.
19
been distributed and there are copies at the back for
20
those who don't have them.
21
I have
Frankly it
I understood it to be a -- these have
The definition of "punitive" is on the last
22
of the three pages.
It simply says, "an adjective
23
involving over-inflicting punishment."
24
turn to the previous page, the definition of
25
"punishment", my submission on this is that the
26
definition of "punishment", or definition of
Allwest Reporting Ltd., Vancouver, B.C.
Then if you
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 884
1
"punitive" is "punishment for blameworthy
2
contravention of a legal norm."
3
just contravention of a legal norm but blameworthy
4
contravention.
5
both the OED first definition and the Black's
6
definition.
7
That is, it's not
And that is, I think, evident from
The distinction is made quite clear in the
8
definition of "punitive damages" on the second page of
9
the excerpt, where damages are categorized as
10
compensatory, where it does mean a breach of a legal
11
norm being a term of a contract but not in normal
12
circumstances considered blameworthy.
13
damages arise where there has been something
14
additional, as it says, awarded in addition to actual
15
damages where the defendant acted with recklessness,
16
malice or deceit.
17
Punitive
In my submission, it's not clear that any
18
of the parties have argued that the RIB proposal is
19
punitive in a legal sense.
20
that the RIB is onerous.
21
would certainly echo Mr. Ghikas's argument that the
22
Commission ought not to use the term "punitive" in a
23
general lay sense here.
24
ratemaking structure because that term "punitive" is a
25
legal term that has an important meaning.
26
potentially arise in the context of ratemaking.
They appear to be arguing
In my submission, and I
It would really foul up the
Allwest Reporting Ltd., Vancouver, B.C.
And it does
If
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 885
1
you imagine a situation where there was, say, water
2
rates and there is a ban on consuming water in certain
3
circumstances like watering your lawn in a dry spell,
4
and the question might be what was the rate for
5
consuming such water, if there were rates for
6
quantities of water, you could conceivably have a
7
punitive rate.
8
question about how that relates to just, unreasonable
9
and unduly discriminatory, but in my submission that
10
simply does not arise here.
11
THE CHAIRPERSON:
And it would raise the legitimate
I think the E-Plus rate, when they're
12
curtailed, would be considered punitive.
13
think --
14
MR. ANDREWS:
You don't
I'm not in a position to agree or disagree,
15
but that certainly reinforces that whether it is or it
16
isn't is an interesting point that the RIB proposal
17
doesn't even come close to raising.
Proceeding Time 11:15 a.m. T14
18
19
MR. ANDREWS:
Those are my submissions.
20
THE CHAIRPERSON:
Thank you, Mr. Andrews.
I'm going to
21
call a 10-minute recess, if that's -- Mr. Fulton,
22
while we're in recess, could you canvass your fellow
23
counsel and get an estimate of the time to complete?
24
MR. FULTON:
Yes, I will, Mr. Chairman.
25
THE CHAIRPERSON:
26
(PROCEEDINGS ADJOURNED AT 11:16 A.M.)
Thank you.
Allwest Reporting Ltd., Vancouver, B.C.
Thank you.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 886
1
(PROCEEDINGS RESUMED AT 11:29 A.M.)
2
THE CHAIRPERSON:
3
Please be seated.
address the panel?
Anyone else wish to
Mr. Bertsch.
4
SUBMISSIONS BY MR. BERTSCH:
5
MR. BERTSCH:
My name is Ludo Bertsch and I present
6
Energy Solutions for Vancouver Society, ESVI for
7
short.
8
and try to add a new dimension and viewpoint which
9
might be helpful in dealing with this issue.
I'll try not to repeat the previous speakers
Proceeding Time 11:29 a.m. T15
10
First, we would like to address the second
11
12
question posed by BCUC, which states:
13
"Whether a Commission panel finding that a
14
rate is punitive means that the rate should
15
be considered unjust, unreasonable or unduly
16
discriminatory."
17
We take this question to be unconnected to this
18
particular application, and that will be how we look
19
at this question.
First, we should define "punitive" in this
20
21
situation.
In other words, for rate design.
22
is that a punitive rate is one in which a customer
23
pays a significantly high electricity rate but does
24
not have appropriate choices to counter that rate.
25
What do we mean by appropriate choices?
26
One choice a customer might have is to improve the
Allwest Reporting Ltd., Vancouver, B.C.
Our view
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 887
1
envelope of a house; for example, better windows or
2
higher levels of insulation.
3
implement is too high, or there are other substantial
4
hurdles, this choice might not be appropriate.
5
make this choice appropriate might include, for
6
instance, a supporting financial loan programme.
7
result of using this appropriate choice is lower
8
consumption to counteract the higher rates.
However, if the cost to
To
The
Another possibility for a choice that a
9
10
customer can make might be higher efficiency heating
11
systems, or better thermostats.
12
appropriate might involve a rebate to overcome the
13
initial capital cost.
14
a customer includes energy sources.
15
the water or inside air or cooling the inside air.
16
some regions, this historical nature of that -- the
17
historical nature of that region might eliminate some
18
sources completely.
19
available in some areas, for instance, on Vancouver
20
Island.
21
heating.
22
involve financial installation incentives.
To make this choice
Yet another possible choice for
We mean heating
In
For example, natural gas is not
Or others may wish to use solar hot water
To make this last choice appropriate might
So again, one part of a punitive rate is
23
24
the lack of appropriate choices to counter the higher
25
rate.
26
Now, back to the original statement:
Allwest Reporting Ltd., Vancouver, B.C.
A
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 888
1
punitive rate is one in which a customer pays a
2
significantly high electrical rate that does not have
3
appropriate choices to counter that higher rate.
4
have discussed the appropriate choices, but now, what
5
do we mean by "significantly high electrical rates"?
We
6
Our first point is that there is a certain
7
threshold at which an electrical rate becomes so high
8
that it is punitive.
9
about at what threshold that should be.
10
rate at a certain level, it will become significant
11
and become punitive.
Certainly there is a debate
But a certain
12
Our second point is that if there are no
13
appropriate choices, this threshold could be higher
14
and, with more choices, the threshold is lower.
15
given this context of punitive, in this particular
16
case, we agree that, if a rate is punitive, it means
17
that the rate should be considered unjust,
18
unreasonably or unduly discriminatory.
19
So,
Another way to look at this is to refer to
20
Section 59 of the Utilities Commission Act, which
21
supports this discussion.
Section 59(2) states:
22
"A public utility must not, as to rate or
23
service, subject any person or locality or a
24
particular description of traffic to an
25
undue prejudice or disadvantage."
26
So the rate must not subject a locality to an undue
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 889
1
prejudice or disadvantage.
We submit that Vancouver
2
Island is a locality, and one undue disadvantage
3
includes a higher rate without appropriate choices.
So now, let's go back to the first question
4
5
posed by BCUC regarding the larger electrical
6
consumers.
7
the bulk of bill impacts by larger electricity
8
consumers under the proposed RIB rate results in
9
unjust, unreasonable or unduly discriminatory rates
10
contrary to Section 59 of the Utilities Commission
11
Act.
12
punitive rates being higher rates without appropriate
13
choices.
14
That question is whether the assumption of
Keep in mind our earlier discussion about
The same principles apply here.
So if we now look at the specifics of the
15
RIB rate proposed by B.C. Hydro, first, we believe,
16
one important factor that must be considered in
17
dealing with a specific rate is time.
18
factor that we believe must be considered in answering
19
this question.
Proceeding Time 11:35 a.m. T16
20
21
Time is a
So first we would like to look at the time
22
period covering the fiscal periods 2009 and answer
23
this question.
24
perhaps 9 percent and 9 percent, might change this
25
analysis somewhat, but we submit that during these
26
early years, there may not be enough evidence to show
The updated revenue requirements,
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 890
1
that the rates and the spread would be above the
2
threshold as we previously discussed.
3
years, the number of DSM programs are limited because
4
the aggressive programs of the 2008 LTAP program will
5
not have been incorporated.
6
choices and therefore requires lower thresholds for
7
rates, as we discussed earlier.
In earlier
This results in limited
8
Now, if we look at the time period beyond
9
2009 and 2010, B.C. Hydro has indicated the RIB rate
10
will be the default rate, and the pricing principles
11
of the rate will continue in subsequent years.
12
shown throughout the proceeding, the rates can become
13
significant such that without new LTAP programs, it
14
may very well be beyond the threshold and may result
15
in unjust, unreasonable and unduly discriminatory
16
rates.
17
As
However, if we increase the appropriate
18
choices, in other words the 2008 LTAP aggressive DSM
19
solutions come into the picture for these later years,
20
then we can tolerate higher levels for the rates,
21
therefore resulting in fair rates.
22
appropriate choices.
23
But it requires
B.C. Hydro has suggested that they only
24
have compliance filings.
We do not agree that
25
revisiting the pricing principles should be determined
26
by B.C. Hydro or a challenge from the intervenors.
Allwest Reporting Ltd., Vancouver, B.C.
We
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 891
1
already know that there are many factors that could
2
come into play over the next couple of years which can
3
produce a significant effect on the 2011 RIB rate.
4
One of these choices we just discussed is the 2008
5
LTAP, which should hopefully be finished by then and
6
should be incorporated into the RIB rate.
7
have RRA increases and the experience of the RIB
8
implementation itself.
9
feed back into the RIB and therefore, we submit,
10
should require a stage beyond a simple compliance.
11
We also
All of this information should
So coming back to BCUC's original question,
12
whether the assumption of the bulk of bill impacts by
13
larger electricity consumers under the proposed RIB
14
rates results in unjust, unreasonable or unduly
15
discriminatory rates, contrary to Section 59 of the
16
Utilities Commission Act.
17
Now, if we come back to our original
18
comments, and in fact what we can do is we can have
19
our cake and icing too, with one simple tweak.
20
fiscal 2009 and 2010, the RIB rate, we submit, is
21
probably non-discriminatory but will only remain non-
22
discriminatory in future years if B.C. Hydro is
23
required to apply for a new order to revisit the
24
pricing principles for fiscal 2011.
25
26
THE CHAIRPERSON:
Thank you.
Thank you, Mr. Bertsch.
see you getting to your feet.
Allwest Reporting Ltd., Vancouver, B.C.
In
Mr. Weafer, I
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 892
1
SUBMISSIONS BY MR. WEAFER:
2
MR. WEAFER:
Good morning, Mr. Chairman, members of the
3
Commission.
I may have more appropriately gone ahead
4
of Mr. Bertsch.
I wasn't sure of his position.
The CEC is closer in line with B.C. Hydro's
5
6
application or B.C. Hydro's comments as it relates to
7
the issues set out in the letter of August 11th.
Dealing firstly with addressing the issue
8
9
of whether the assumption of the bulk of the bill
10
impacts by large electricity consumers under the
11
proposed RIB rate results in unjust, unreasonable or
12
unduly discriminatory rates contrary to Section 59 of
13
the Utilities Commission Act, we would align our
14
position closely to that of Mr. Christian and Mr.
15
Ghikas, with one qualification which I'll get to
16
towards the end of my submissions.
17
while we're a customer group supporting B.C. Hydro's
18
application, we're not sitting on the fence, we think
19
the fence is still being built, that what you have
20
before you is not complete.
21
I'll make suggestions as to how we think that can be
22
improved to ensure that the application before you
23
does not consist of a rate which is unduly
24
discriminatory or unfair.
And the closing comments,
Proceeding Time 11:40 a.m. T17
25
26
And that is that,
MR. WEAFER:
The issue of discrimination in any shift
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 893
1
from a flat rate to an inclining block rate is going
2
to raise the issue of discrimination.
3
rates, you're going to impose costs in a different
4
manner on different customers, and clearly in this
5
proceeding there has been some fairly strong comments
6
made about what the impact is on customers.
7
discrimination issue is live.
8
is undue discrimination.
9
five reasons on the evidence in this proceeding which
10
should lead the Commission to the conclusion that
11
there's no undue discrimination resulting from the
12
approval of the application.
You're changing
So the
The issue is whether it
And we submit that there are
Firstly, the evidence is the inclining
13
14
block rate is to a material extent mitigated by the
15
fact that a significant portion of the effect on
16
impacted customers can be mitigated by conservation
17
measures.
18
energy policy.
19
gave to B.C. Hydro, and we empathize with their
20
position that they are trying to move ahead, and that
21
this is a step in that process of implementing rate
22
designs which encouraged conservation.
23
long been on record that conservation has to be more
24
aggressively pursued through rate design.
25
26
And this is a critical objective of the
It was a direction that the Commission
The CEC has
Secondly, the CEC submits that the
importance of avoiding the cost of new supply for all
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 894
1
customers is critical and we accept B.C. Hydro's
2
position that this rate design will assist or create a
3
first step in terms of assisting in mitigating the
4
cost of new supply by encouraging conservation.
5
Thirdly, we take B.C. Hydro on their
6
submissions in this proceeding that this rate is a
7
transitionary rate, that there are further residential
8
rate design applications which will come, which will
9
enable parties to review whether the impact of this
10
rate has had unforeseen negative consequences or
11
created burdens on customers that need to be
12
addressed.
13
Fourth, B.C. Hydro has committed to an
14
annual review.
15
comments that those annual reviews need to be
16
effective and need to be thorough to ensure that if
17
this rate design is not functioning properly, there is
18
opportunity for stakeholders to participate and try
19
and remedy the ills which may arise in the event it is
20
approved by the Commission.
21
We're empathetic with Mr. Bertsch's
Lastly, we see -- and again, tying it in to
22
future processes, significant investments being made
23
by B.C. Hydro or proposed by B.C. Hydro for demand-
24
side management initiatives, and we would hope that
25
those initiatives will dovetail well with the RIB rate
26
structure to cause the conservation effects and
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 895
mitigate any negative impacts which may arise from it.
2
In short, and in conclusion, we do not see
3
the application as unduly discriminatory or unfair or
4
unreasonable, subject to the Commission, in its
5
decision, giving proper direction to the company to
6
ensure that it is monitoring and effecting improvement
7
where necessary as we go forward.
Those are my comments on the first question
8
9
set out in the Commission's letter.
On the second question, dealing with the
10
11
concept of punitive rates, I would adopt Mr.
12
Christian's submissions on that point.
13
the concept of punitive being applicable in this
14
proceeding.
15
where a punitive rate may be unreasonable or not
16
unreasonable depending on the facts in the case, but
17
it is not relevant to this proceeding.
18
THE CHAIRPERSON:
19
MR. WEAFER:
20
THE CHAIRPERSON:
There may or may not be circumstances
Thank you.
Those are my submissions.
who agree with B.C. Hydro?
22
the BCOAPO and the JIESC.
23
proposing to go first?
MR. QUAIL:
So now we are left with
Mr. Quail, are you
I'm delighted.
Proceeding Time 11:45 a.m. T18
25
26
Thank you.
Does that take care of all the people
21
24
We do not see
SUBMISSIONS BY MR. QUAIL:
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
MR. QUAIL:
Page: 896
Addressing first the initial question, that
2
is the unjust, unreasonable or unduly discriminatory
3
rates, and I understand we'll be going to the special
4
direction issue later.
5
saying that no RIB rate -- like generally RIB rates,
6
are beyond the jurisdiction of the Commission.
7
not saying that by their very nature they are
8
necessarily out of bounds of the statute.
9
saying is that the proposal advanced by B.C. Hydro is
10
unjust, unreasonable and unduly discriminatory, which
11
appears to be the focus of the Commission's question,
12
in fact, rather than the generic discussion of block
13
rates.
I want to be clear we're not
I'm
What we're
And I'd like to start with some further
14
15
discussion of the meaning of these various key terms,
16
that is, unjust, reasonable and unduly discriminatory.
17
And I'd like to, starting with unjust and
18
unreasonable, preface my comments with my
19
characterization of Terasen's position on this issue,
20
which, as I understand it, it boils down to this, that
21
making a minority pay for the incremental costs of the
22
system can't be considered unfair because the majority
23
benefit from it.
24
that's a fair characterization of the point that they
25
are making and it's not too distant from B.C. Hydro's
26
position.
Essentially, in my submission,
So it's okay if there's a small group that
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 897
1
get hammered with bearing a full load, because by
2
definition that's a benefit to everybody else.
With respect, I mean, the reason we have
3
4
constraints of fairness and justice and
5
reasonableness, undue discrimination, is to protect
6
minorities who could be adversely affected.
7
the interests of time I won't get into a dissertation
8
on this, but in fact utility regulation shares a
9
common historical lineage with human rights law, a
10
very close one that only parted company about a
11
century ago.
12
historically closely related.
And in
And many of the concepts are actually
Now, the issues of unjust and unreasonable
13
14
involve judgment calls by the Commission in its role
15
of guardian of the public interest in the context of
16
permitting utilities to make a fair return on their
17
investments.
18
this.
19
judgments.
20
there's no threshold where a red light goes off,
21
doesn't mean that, qualitatively, things can reach a
22
point where we're in a zone that's unfair or
23
unreasonable or discriminatory.
There's no cookie recipe for any of
This is all laden with subjective policy
But that doesn't mean -- just because
24
And the statute itself gives very limited
25
guidance, and particularly because Section 59(5)(c),
26
after people have quoted (a) and (b), "more than fair
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 898
1
and reasonable charge" and so on, (c) says "unjust and
2
unreasonable for any other reason".
3
you know, this sort of gaping jurisdiction that the
4
Commission has to apply its judgment, again in its
5
role as guardian of the public interest, as to what
6
might be unjust and might be unreasonable for any
7
reason that the Commission, on a reasonable basis,
8
considers to be a proper justification.
So this is this,
The question of what is unjust is obviously
9
10
a particularly subjective test, meaning essentially
11
not just or not fair.
12
for the Commission is: Does this structure pass the
13
sniff test?
14
needs to be brought to bear.
15
rate setting that ignores the impact or consequences
16
of rates on customers, or fails to heed the imposition
17
of a necessary hardship on a group of customers,
18
cannot be said to be just or fair.
19
And essentially the question
That's really the kind of analysis that
And we have argued that
We submit that "unreasonable" should be
20
given its literal meaning, which is "not based on a
21
sound reason".
22
will depend on whether it is based on a rationale that
23
is consistent with the mandate of the Commission, that
24
is, reconciling the public interest with the rights of
25
the utility's shareholders.
26
And whether a rate is unreasonable
So for instance, a highly arbitrary rate
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 899
1
that is not the result of a rational application of
2
social and regulatory policy is, by definition,
3
unreasonable.
4
to objectively set a threshold where a disparity in
5
rate impacts among customers groups becomes
6
unreasonable, there must be some point where disparity
7
becomes so disproportionate the rate is tainted with
8
unreasonableness.
And as I've said, while there's no way
Now, on the issue of undue discrimination,
9
10
there is absolutely no assistance from the Act in
11
determining what that is.
12
"discrimination" is not prohibited but it's "undue
13
discrimination".
14
addressed this in our written argument.
15
rate setting based on pooling customers into classes
16
entails some degree of discrimination, at least in the
17
sense that one-half of the customers at any given time
18
will be cross-subsidizing the other half within a
19
class.
20
the written argument.
And there's a reason for this and we
Any form of
And we addressed this in greater detail in
I won't repeat myself.
Proceeding Time 11:50 a.m. T19
21
22
But it's significant that
So the question is whether the
23
discrimination is due discrimination.
And our
24
proposed definition, which again we'll hearken back to
25
will be consistent with what we've said about
26
unreasonableness.
Discrimination is undue unless it
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 900
1
is the result of an appropriate measure to achieve a
2
regulatory or social objective which is valid in the
3
opinion of the Commission.
So, for example, in the case of postage-
4
5
stamp rates, which clearly create a form of
6
discrimination in a certain sense.
7
they eliminate another potential form of
8
discrimination.
9
setting is to further a societal goal of regional
10
equity, based on the supposition that equality is
11
equity.
In another sense,
The purpose of this approach to rate
The very process of grouping customers into
12
13
classes creates discrimination, but it's logistically
14
necessary in order to get on with the job of setting
15
rates, rather than setting a different rate that's
16
based on the cost of service allocated to each
17
customer.
18
unduly discriminatory, because it is in furtherance of
19
a specific societal and regulatory objective.
20
Setting lifeline rates, we say, wouldn't be
Regarding the question of loading the cost
21
of the system beyond -- that is, all of the real
22
incremental costs of the system onto higher-
23
consumption customers, we say that it is unjust if it
24
is done without due regard to the impact on those
25
customers or subgroups among them.
26
answer to say, "Well, most of them…." I don't know
Allwest Reporting Ltd., Vancouver, B.C.
We say it's no
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 901
1
there was any evidence of this on the record.
"Most
2
of them can mitigate it through conservation.
Most of
3
them are affluent, most of them can absorb this."
4
say that is no answer.
5
minority who are on the wrong end of this does not
6
eliminate the undue discrimination.
We
To say that it is only a
7
We say that it is unreasonable if the
8
amount of pain inflicted on the customers on the
9
receiving end is out of all proportion to the intended
10
benefits of the rate structure.
11
whether or not the measure which causes some
12
discrimination is an appropriately-calibrated tool to
13
achieve the societal or regulatory objective.
14
say this proposal is unduly discriminatory because it
15
is not a reasonably-calibrated tool to achieve its
16
societal objective of conservation.
17
ratio is so far off the scale that it is not an
18
appropriate means.
19
bill impacts that conveniently look only at the first
20
year, or potentially the second year.
21
seen projections on the record of where this is going,
22
and we know that the impact is quite enormous.
That really goes to
So we
The pain-to-gain
And people have put to you various
But we have
I have circulated a case, and I've got
23
24
copies for the panel, and I won't take any time going
25
through its entrails, but it may be of some
26
assistance.
It's quite a bit more recent than the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 902
1
rather antiquated decision that my friend Mr. Ghikas
2
has relied on.
3
decision in the case of B.C. Hydro v. Terasen
4
(Vancouver Island) Inc.
5
has some discussion, although not really an effort to
6
rigorously define, but of all of these issues of
7
unjust, unreasonable, and unduly discriminatory.
This is the 2004 Court of Appeal
And I circulate it because it
And just to recap this very briefly, the
8
9
issue -- there was a number of issues in this, it was
10
a rather convoluted case, but the Vancouver Island
11
natural gas pipeline system incurred very large
12
deficiencies in the front end, partly because the
13
customers who were initially being brought on stream
14
had their rates set by formulas that were nowhere near
15
enough to cover the costs.
16
called a revenue deficiency deferral account.
17
became very large.
18
as a customer, and says "It's not fair to us,
19
Commission, to make our rates set so that we are
20
helping to amortize that deficiency, because we didn't
21
contribute to it."
22
is significant for a number of purposes -- essentially
23
said that we had to look beyond the issue of
24
causality.
25
the utility recovers all of its costs, at reasonable
26
return.
So there was what was
That
Along comes B.C. Hydro, signs on
And the Commission -- I think this
There is an obligation to make sure that
So nowhere else to look to, you folks are
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 903
1
going to be paying more than, in fact, 125 percent of
2
your allocated costs of service.
3
Appeal upheld this in the face of arguments from B.C.
4
Hydro that this was unjust and unreasonable.
5
There was also an argument by the
And the Court of
6
industrial customers, the original core of them on the
7
Island, the Joint Venture, that aspects of the rate-
8
setting were discriminatory, and that also failed.
And I'd like to just identify some
9
10
paragraphs that the Commission might want to look at,
11
but I'm not going to go through those in the interests
12
of time.
13
I think are particularly helpful, because some of this
14
is full of detail that's not germane.
15
paragraphs 37 and 38, 48 through 52.
16
what I think is a useful discussion of those issues.
17
But significant in that case, because the
So, I'll just rhyme off the paragraphs that
Paragraph 2,
They contain
18
measure -- that is, a rate that set B.C. Hydro's rates
19
at 125 percent of the cost of service -- was driven by
20
valid regulatory concerns, the Commission was at
21
liberty and within the scope of its discretion to
22
depart from the cost of service approach to rate
23
setting.
24
25
26
Proceeding Time 11:56 a.m. T20
Now, on the issue of punitive, first of all
the question posed by the Commission is premised on
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 904
1
the Panel finding the rate as punitive.
And everyone
2
so far has argued on it, no, it's not punitive.
3
will address that but just briefly.
4
anybody has sort of belled the cat on this.
5
submission, there can be no doubt that if a rate is
6
found to be punitive, the Commission has no
7
jurisdiction to approve it.
8
jurisdiction to use rate setting as a punitive
9
measure.
10
literal question that's posed.
So I
I don't think
In my
This Commission has no
So I think there's a simple answer to the
On the issue of whether or not this outcome
11
12
produces a punitive rate -- that isn't what you've
13
asked us but if you want I'll address that.
14
all, we've had a couple of dictionary definitions
15
circulated.
16
more useful than Black's.
17
talks about punitive in the context of legal
18
proceedings.
19
proceedings, criminal penalties and things of that
20
nature.
21
revisit those, in fact are definitions we say are
22
appropriate and provide a basis for the Commission in
23
fact to determine that these rates are punitive.
24
severe, rough treatment.
25
case of a boxer, but in fact I think of people with
26
inefficiently insulated older houses, electric heat,
First of
In my submission the Oxford one is much
Black's Law Dictionary
That is, punitive damages in civil
And the Oxford definitions, and I won't
Very
It doesn't say only in the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 905
1
and I sort of get this image of poor old Rocky taking
2
the beating there on the canvas.
And significantly as well, the definition
3
4
that my friend Mr. Christian provided doesn't require
5
that that be the intention.
6
of "punitive" says "inflicting or intended to inflict
7
punishment".
8
the impacts are so disparately off the scale that it
9
amounts to an unduly severe treatment, which in the
10
common parlance would be considered punitive and that
11
was the meaning that we meant that we were relying on
12
in our argument.
That is, the definition
And so really it's a question of whether
13
Looking at the issue of setting high rates
14
for heavy consumers of electricity, one needs to very
15
carefully identify the purpose of such a strategy.
16
friend Mr. Christian at one point in his argument
17
suggested that "penalty" suggested that you were
18
inflicting something on somebody to stop them from
19
doing something.
20
actually what they're proposing to do.
21
that it is seeking to draw an end is heavy consumption
22
of electricity.
23
this mechanism is to change people's conduct.
24
not saying that that in itself is necessarily
25
punitive.
26
isn't by definition punitive.
My
Well, in fact, I suggest that's
The conduct
And in fact, the admitted purpose of
We're
That is, building incentives into rates
The question is whether
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 906
1
this particular rate structure has punitive
2
consequences for a subset of the customers.
3
So it's important to carefully identify the
4
purpose of the strategy.
5
customers on the head to make them change their ways,
6
we say that is punitive and invalid.
7
blunderbuss and letting them have it is punitive.
8
the purpose is to calibrate rates to achieve the
9
societal objective of conservation, the problem and
10
solution are both more complex and call for a much
11
more finely tuned instrument than what B.C. Hydro has
12
brought forward.
13
If it's simply to whack the
Bringing out the
If
One component of heavy consumers appears to
14
be very affluent customers who are relatively
15
insensitive to price changes in terms of their
16
consumption responses.
17
is a way to calibrate the rates in order to produce an
18
appropriate price response from that group, this may
19
amount to due discrimination.
20
analysis of that customer group, and there is a
21
calibrated rate measure designed to achieve a valid
22
societal objective, that may well constitute due
23
discrimination.
24
blunderbuss into the group of customers.
25
26
If it's determined that there
That is, if there is an
That's not the same as firing a
Furthermore, the blunderbuss hits a lot of
customers apparently who are not within that and can't
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 907
1
be characterized in that fashion, and say most of them
2
are of that nature, or that most of -- that a
3
proportion of them are common uses, does not resolve
4
the issue either.
And Step 2 is not calibrated to achieve a
5
6
particular impact, in my submission.
It's formula
7
driven, and the difference between Step 1 and Step 2
8
will depend on B.C. Hydro's future revenue
9
requirements and the rate of inflation.
10
future year, it cannot be predicted that the Step 2
11
rate will be on or off target in relation to an
12
intended conservation objective.
In any given
Conservation price signals like inclining
13
14
block rates, and by analogy carbon taxes, are
15
mechanisms applied where the price of energy or other
16
commodities is too low by itself to incent people to
17
reduce their consumption.
18
in terms of is this a reasonable tool to achieve the
19
objective? That is the whole reason, as the price
20
would otherwise be too low to change consumer
21
behaviour.
And this has to be framed
Proceeding Time 12:01 p.m. T21
22
And this is fundamentally why many people
23
24
question the point of imposing a carbon tax of a
25
couple of cents on gasoline that retails at $1.40 a
26
litre.
SUV sales are collapsing all over North
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 908
1
America, not just in B.C. where we've got a carbon
2
tax.
3
process of taking off.
4
not be as dramatic as the case of gasoline recently,
5
but the record shows very, very steep increases in
6
general electricity rates in British Columbia within
7
the next two or three years and beyond.
8
In the case of electricity, prices are in the
And the rate of increase may
Under the RIB, most customers would see no
9
real increases in perpetuity, or at least as long as
10
the proposed mechanism is retained.
11
cost of the units of electricity they consume would be
12
paid for by the minority who would be on the wrong end
13
of the rate.
14
friend Mr. Ghikas said that it's appropriate that Step
15
2 customers, being shorthand for people billed at Step
16
2 -- I think that's not too much of a stretch, frankly
17
-- that it's appropriate for them to be paying the
18
actual cost of their next consumption of a kilowatt
19
hour of electricity.
20
consumption of another kilowatt hour of electricity is
21
not the long-run marginal cost.
22
marginal cost.
23
price of electricity, which is way below where Step 2
24
is calibrated.
25
simply fails.
26
written argument as to which time frame is appropriate
The increased
And at this point, I'll also refer -- my
Well, the cost of their
It's the short-run
And that is presumably the spot market
So, my submission, that argument
And we went in some detail in our
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 909
1
in the duration, say, of a three-year span before a
2
review of the stepped rate, but certainly not the
3
long-term marginal price.
Over a relatively short period of time, the
4
5
disparity between steps will go to the point where it
6
bears no relation to any calibrated price response and
7
is punitive.
And avoiding retreading ground other people
8
9
have covered -- let me just check that I don't have
10
any other points arising from things you've heard
11
earlier.
12
question we're addressing, subject to any questions
13
you might have.
14
15
No, I'll save my breath for the second
THE CHAIRPERSON:
Thank you, Mr. Quail.
I don't -- we'll
hold our questions until --
16
Mr. Wallace?
17
SUBMISSIONS BY MR. WALLACE:
18
MR. WALLACE:
Thank you, Mr. Chairman, Commissioners.
Mr. Quail has covered many of the areas
19
20
that I would have spoken to, and that is appropriate
21
because it is his clients that will be paying these
22
rates.
23
correction to my original argument.
24
refer to $125 per kilowatt hour.
25
been $125 per megawatt hour.
26
heading up, but not that far.
Before I start, I would like to make one
At page 6, I
That should have
Hydro's rates are
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 910
1
THE CHAIRPERSON:
2
MR. WALLACE:
3
Thank you.
And when I heard Mr. Andrews perpetuate the
mistake, I thought I'd better get the record clear.
I, in preparing for today, thought that I
4
5
had little to add to my original argument, and I wish
6
to make it clear to the Commission that that argument
7
still stands.
8
do feel that I need to respond to some of the
9
submissions of others, and potential misunderstandings
10
of the JIESC's position.
It's short and, I hope, clear.
But I
First, I'd like to deal with common ground
11
12
between ourselves and some of the parties.
I think
13
it's pretty clear that everybody agrees that Section
14
59 is absolute and makes it very clear for everyone
15
that the definition of what is unjust and unreasonable
16
is in the sole discretion of the Commission.
17
think also in agreement that you should take all
18
circumstances into account in making that decision.
And I
Unfortunately, I think what is also clear
19
20
is that there aren't very many cases that can help
21
you, if any.
22
afraid we didn't find anything that we thought would
23
assist you to this particular factual pattern that we
24
face today.
25
26
We took a fairly good search and I'm
I think the second thing that's clear, and
there's common ground, which I think is useful for
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 911
1
you, is that there is no dispute on the bill impacts.
2
The numbers that are being discussed and are being
3
thrown out are numbers that were developed by B.C.
4
Hydro and appear to be accepted by all parties.
One of the first areas, however, where
5
6
there is significant disagreement, I think, is on the
7
onus.
8
that you must leap before you can dismiss B.C. Hydro's
9
application.
10
is to justify its application, to persuade you that
11
the rates are just and reasonable and, if you are not
12
persuaded, you should dismiss the application.
Mr. Christian put to you a number of hurdles
I submit to you that the burden on Hydro
13
Proceeding Time 12:06 p.m. T22
14
In spite of suggestions to the contrary,
15
JIESC recognizes energy conservation goals as
16
appropriate and the government policy and the desire
17
of Hydro and the desire of the government to move in
18
that direction.
19
RIB rate's failure is that it's neither fair nor
20
effective.
21
parties seem to ignore the effective side.
JIESC goes further and says that the
And there are two parts of it and a lot of
22
Just and reasonable is in part, I think, a
23
combination of both, and other parties have mentioned
24
goals, what you intend to achieve and the reasons for
25
it.
26
inappropriate burden or an unjust and unreasonable
In this case, JIESC is suggesting that there is
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 912
1
burden, and inappropriate or unjust and unreasonable
2
signal to the majority of customers.
A number of parties have focused on the
3
4
argument referring to no good reason for the increase.
5
Well, it's more than just the increase.
6
course that there is no cost of service to justify it.
7
And I think that is important.
8
mentioned, it is that the signals are either non-
9
existent or ineffective for the majority of customers
10
and that there has not been an attempt to segment the
11
class or to do otherwise, in some way take off the
12
worst of what I think can be called the punitive
13
aspects.
It's of
But again, as I
Mr. Christian said that there was no intent
14
15
to punish frivolous use, and he had some other term
16
for it too but I missed that.
17
and I think some others make it clear that they regard
18
larger use as somehow bad, no matter what the reason,
19
and that it should be discouraged.
20
you and Mr. Quail mentioned their reasons for larger
21
use other than frivolous use, and those include large
22
families, space heating, hot water heating, heating of
23
common areas.
24
people.
25
they are paid for by people, and I think there would
26
be many who would resent his comments.
However, Mr. Andrews
And I suggest to
Mr. Andrews suggested that was not
Well, that is the common areas of apartments,
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 913
Mr. Christian, in setting his hurdles,
1
2
mentioned four or five of them.
I'm going to comment
3
on just a couple.
4
application has its roots in BCUC rate design decision
5
and government policy and in general desires to
6
encourage conservation.
7
conservation generally.
One, he suggested that the
And I've already mentioned
With respect to the BCUC rate design
8
9
decision, I suggest to you that that was guidance,
10
that the Commission later made it very clear that it
11
was not binding and it expected B.C. Hydro to bring
12
forward its proposal.
13
ago.
14
the magnitude that we are now seeing, and I take you
15
back again to the forecast of 38 percent over three
16
years covered in the application in the subsequent
17
year.
It was not in an era where we see increases of
18
THE CHAIRPERSON:
19
MR. WALLACE:
20
THE CHAIRPERSON:
21
The decision was made two years
It was one year ago, Mr. Wallace.
Oh, is it?
I'm sorry.
I know it seems like a long time but it
was only a year ago.
22
MR. WALLACE:
It does.
23
THE CHAIRPERSON:
24
MR. WALLACE:
A lot has happened since.
Yes.
And there was the issue of how Tier 1 rates
25
would increase and the limits on them, and the
26
disparity that would happen between the Tier 1 and the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 914
1
Tier 2 was not nearly as obvious as it is today.
2
Mr. Christian mentioned similar rates
3
elsewhere.
They may be similar in that they are
4
inclining block rates, but I do not believe they are
5
identical.
6
given consideration beyond the principle.
7
the principle is not opposed in general.
They are not universal and should not be
And I think
Mr. Christian mentioned alternatives.
8
One
9
alternative he did not mention was segmentation of
10
heating and non-heating customers, and it's one we've
11
raised in our argument and I won't say further about
12
it at this time.
13
14
THE CHAIRPERSON:
Well, let
me just while you still let
it linger there --
15
MR. WALLACE:
Yes.
16
THE CHAIRPERSON:
In your initial, your opening remarks
17
that you made to the Panel the first day of the
18
hearing, you were very specific that you felt there
19
ought to be segmentation between customers who used
20
electric heat for water and space.
21
that in your argument.
22
MR. WALLACE:
We did mention it.
But I didn't get
I think the reason we
23
didn't mention it specifically or in more detail is
24
that this is not a rate that the industrial customers
25
will be paying.
26
design to be worked out between B.C. Hydro and the
We do leave the details of the rate
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 915
1
residential customers.
We are concerned about what we
2
see as an unfair precedent and we wish to speak on
3
that.
Solutions, it is one that is there.
4
I
5
think we do say in the argument that B.C. Hydro
6
dismissed it, we say without enough investigation and
7
that it should be taken further.
8
THE CHAIRPERSON:
Okay, thank you.
Proceeding Time 12:12 p.m. T23
9
10
MR. WALLACE:
Terasen raised a number of matters, and
11
seemed to -- I think they had four points on why this
12
is non-discriminatory.
13
those four principles, and if you take Mr. Ghikas to
14
heart, I think utilities would only have one rate
15
class.
16
suggested the rate applies to all residential
17
customers, all residential customers will pay the full
18
rate in the same way, and variations on that.
19
sure.
20
everybody would be non-discriminatory, but I think if
21
you take discrimination as customers in similar
22
circumstances being treated similarly, that falls away
23
and should fall away in this case.
24
If you go back and you review
They wouldn't have different classes.
He
Well,
You can always argue that one rate for
I think actually I just looked at the rest
25
of my notes on what's been said, and I think between
26
Mr. Quail and myself, it has been covered.
Allwest Reporting Ltd., Vancouver, B.C.
I'd like
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 916
1
to just sum up by repeating what we put to you
2
initially in our argument, is that in this case, what
3
you need to decide is whether B.C. Hydro has satisfied
4
you that, in a four-year period where the revenue
5
requirement is forecast to increase by 38 percent, it
6
is just and reasonable for 42 percent of the
7
customer's rates to go up by less than 10 percent and
8
some others to go up by as much as 90 percent.
9
think this is a common-sense decision and it is one
10
that the Commission is eminently qualified to make.
11
Thank you.
12
THE CHAIRPERSON:
Thank you, Mr. Wallace.
I
Question?
13
Before you stand up, Mr. Christian, I think we would
14
like to ask a few questions now, if that's -- do you
15
want to --
16
COMMISSIONER O'HARA:
Perhaps you walked back to your
17
seat too fast, Mr. Wallace.
There are a couple of
18
clarification questions I have for you.
First, coming back to your reference to the
19
20
submission by B.C. Hydro regarding other
21
jurisdictions, and you said they are similar but not
22
the same rate.
23
explain on what grounds do you believe the other
24
jurisdictions have found these inclining block rates
25
fair or not unduly discriminatory?
26
MR. WALLACE:
So could you still, in your view,
I'm not -- I can't say I've done a detailed
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 917
1
analysis of them, but my understanding is, yes, they
2
have inclining block rates.
3
jurisdictions that have inclining block rates tied to
4
the rate of -- that work with the rate of inflation
5
and the increase in revenue requirements in the way
6
they do in this application.
7
of the costs above the rate of inflation are borne by
8
the Tier 2 customers, and the Tier 1 customers are
9
protected, or held at the level of the rate of
10
inflation -- or, the Tier 1 customers are held at the
11
level of the rate of inflation.
12
particular application is unique, and I think that
13
application leads to some of the extreme outcomes in
14
an era of rapidly increasing revenue requirements that
15
we see in this case.
16
COMMISSIONER O'HARA:
I am not aware of other
In this application, all
I think that
Thank you, that's helpful.
Then
17
another question of clarification, Mr. Wallace.
18
Again, I think -- well, perhaps just a question first.
19
Do you agree that there is no perfect solution to this
20
particular case?
21
MR. WALLACE:
I think I agree that, whenever you make
22
changes, there will be some customers that will
23
benefit and some will be hurt from the status quo when
24
they started.
25
COMMISSIONER O'HARA:
26
Exactly.
And we have to have
trade-offs between the bill impacts and the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 918
conservation effects.
MR. WALLACE:
That's correct.
And I think you have to
3
decide whether they're just and reasonable and whether
4
the balance is appropriate.
5
COMMISSIONER O'HARA:
Right.
And I just would like to
6
still ask you, Mr. Wallace, based on your submissions,
7
that because we had the Exhibit B-22 where we had a
8
number of other scenarios.
9
that none of those scenarios meet your tests?
10
asking -- you are not on a panel, but since you have
11
taken a strong position there I would just like to
12
seek your views.
13
14
MR. WALLACE:
In your view, do you say
I'm not
No, I can't say that I've analyzed them
sufficiently to say what might be preferable.
15
COMMISSIONER O'HARA:
16
COMMISSIONER MILBOURNE:
Okay, thank you.
While Mr. Wallace is there, I'm
17
just picking up on the comment in response to
18
Commissioner O'Hara.
19
there have to be trade-offs, or winners and losers,
20
put it that way.
Proceeding Time 12:18 p.m. T24
21
22
23
In all of these kind of designs,
COMMISSIONER MILBOURNE:
In the CBL structure that's in
your industrial customer class --
24
MR. WALLACE:
Yes?
25
COMMISSIONER MILBOURNE:
26
you refer to there?
-- what are the trade-offs that
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
MR. WALLACE:
Page: 919
Well, I think in the -- well, I guess in
2
that case it would have -- how you would have looked
3
at the CBL structure, the advantage of the CBL
4
structure is, it's individual, that you work on
5
customers --
6
COMMISSIONER MILBOURNE:
Not to interrupt you, but that's
7
my point.
8
a penalty or made any change in the aggregate on an
9
individual customer.
10
MR. WALLACE:
I don't believe that the CBL structure put
No, but when you change the rate structure,
11
those customers going forward that were thinking of
12
growing within the 10 percent would be worse off than
13
those that were thinking they were going to shrink a
14
bit within the 10 percent dead band.
15
some changes, and I think in the end people just said,
16
"Well, it's reasonable to achieve the goal of sending
17
a price signal on the second tier."
18
19
20
21
22
COMMISSIONER MILBOURNE:
So there are
At the time the rate was put in,
it was neutral to everybody in the class.
MR. WALLACE:
Provided your usage going forward was the
same as your usage prior to its implementation.
COMMISSIONER MILBOURNE:
Right.
Okay.
So the rate per
23
se -- I'm not trying to put words in your mouth, but
24
the rate per se didn't cause shifting within the class
25
at the time that it was put in place.
26
MR. WALLACE:
No, that's correct.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 920
COMMISSIONER MILBOURNE:
Thank you.
I just wanted to
clarify that.
3
MR. WALLACE:
Thank you.
4
THE CHAIRPERSON:
5
COMMISSIONER MILBOURNE:
6
THE CHAIRPERSON:
7
COMMISSIONER MILBOURNE:
Do you have any other questions?
Yes.
Okay.
8
through the list.
9
you, sir.
I'm now going to go backwards
I don't have any more questions for
10
MR. WALLACE:
No more for me?
11
THE CHAIRPERSON:
12
MR. WALLACE:
13
COMMISSIONER MILBOURNE:
Thank you, Mr. Wallace.
Thank you.
I had a question for Mr.
14
Weafer.
Within your -- I'll call it constituent or
15
client group, there's the general service small group
16
and the general service large group, is that correct?
17
MR. WEAFER:
18
COMMISSIONER MILBOURNE:
19
That's correct.
Those are your -- basically the
people that you're here representing.
20
MR. WEAFER:
Yes.
21
COMMISSIONER MILBOURNE:
As I understand it, but I just
22
want to confirm, you're -- with some reservations, or
23
whatever, you're generally in favour of this structure
24
that's being proposed here for the residential class.
25
26
MR. WEAFER:
We are.
We believe the proposal is
consistent with the initiative of promoting
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 921
1
conservation for the residential class of customers,
2
and conceptually that's something that the CEC has
3
been a strong advocate of.
4
COMMISSIONER MILBOURNE:
And that includes the basis on
5
which the thresholds are set, and includes the way
6
that the Tier 1 and Tier 2 are established going
7
forward.
8
MR. WEAFER:
Because it wasn't impacting our class of
9
customers, we didn't choose to put an alternative
10
before the Commission.
11
the rate study group with B.C. Hydro and you'll recall
12
in cross-examination we just -- we discussed an
13
alternative proposal that Mr. Craig in particular was
14
advocating at that process.
15
alternative forward before the Commission, so it's
16
difficult for us to support an alternative than what
17
B.C. Hydro has at this time.
18
COMMISSIONER MILBOURNE:
We certainly participated in
So, we've not put an
But again, I'm not trying to put
19
words in your mouth, I'm just trying to understand
20
where you're coming from.
21
this is, in my terminology, not a bad idea for the
22
residential class.
23
MR. WEAFER:
24
COMMISSIONER MILBOURNE:
25
26
You generally think that
Correct.
That whatever trade-offs there
are will achieve beneficial results.
MR. WEAFER:
Correct.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 922
COMMISSIONER MILBOURNE:
Would you hold the same view if
2
it were applied to the two classes of customers that
3
you represent?
4
MR. WEAFER:
The same model and same methodology?
The key to the success of this model, and
5
support for it, is that conservation measures have
6
been demonstrated that B.C. Hydro has said, with a
7
high level of confidence, the impact of the rates can
8
be mitigated.
9
the general service class as well, that there were
10
answers to the rate impact which could mitigate the
11
rate impact.
12
time, until we see what proposal B.C. Hydro comes up
13
with.
14
15
That would have to be demonstrated for
So, that's not determinable at this
COMMISSIONER MILBOURNE:
But in principle, I'm not
looking at it in detail.
16
MR. WEAFER:
In principle --
17
COMMISSIONER MILBOURNE:
I'm going to take -- sorry, just
18
to elaborate.
I'm going to take your general service
19
under 35 kW class, average the consumption, and set up
20
-- I'm going to set a threshold based on, within a
21
billing period, X, right?
22
going to have a Tier 2 that's kind of set to meet
23
these same parameters.
24
idea for your people?
25
MR. WEAFER:
26
COMMISSIONER MILBOURNE:
That's Tier 1, and then I'm
Is that going to be a good
Not necessarily.
Thank you.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
MR. WEAFER:
Page: 923
Differing economic impacts on commercial
2
customer sector than residential use.
3
commercial customers are already highly motivated to
4
conserve, because it goes to the bottom line if they
5
don't.
6
may be applied.
7
COMMISSIONER MILBOURNE:
8
9
10
11
12
13
In most cases,
So it's a different set of motivators which
Is it your suggestion that most
residential customers aren't motivated to conserve?
MR. WEAFER:
That would appear to be the case, based on
the evidence in this proceeding.
COMMISSIONER MILBOURNE:
Could you help me find that in
the evidence?
MR. WEAFER:
The forecast of B.C. Hydro in terms of
14
conservation initiatives, in terms of what they're
15
predicting can be the conservation response, seem to
16
demonstrate that there's room for improvement in terms
17
of the residential class and particularly the high use
18
residential class, the target of this rate. If we
19
didn't think those conservation efforts could be
20
achieved, we would clearly not be as supportive of the
21
application.
Proceeding Time 12:23 p.m. T25
22
23
COMMISSIONER MILBOURNE:
I'm going to apologize in
24
advance for being a little thick here, but I'm having
25
a bit of difficulty distinguishing the likely
26
responses from -- I'll call it the small business
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 924
1
cohort that would be represented in your under 35
2
class, from that which you seem to feel is expected
3
and supported by the evidence for residential
4
consumers.
5
MR. WEAFER:
Just as a matter of principle.
Well, I think as a matter of practicality,
6
with a household of three children and two teenagers
7
with no concept of energy conservation, it would seem,
8
I think, a rate impact on our household may not be a
9
bad thing.
10
margins can be thin in a tough economy, you may be
11
more sensitive to your energy consumption.
Running a small business where your
12
COMMISSIONER MILBOURNE:
13
MR. WEAFER:
14
THE CHAIRPERSON:
15
COMMISSIONER MILBOURNE:
Thank you.
Thank you.
Thank you.
I have a couple of questions for
16
Mr. Ghikas.
And rather than kind of go through a Dick
17
and Jane exercise here, I'd like you to consider the
18
same question I just posed of Mr. Weafer with respect
19
to his customers.
20
would it strike you as a good idea for your
21
residential cohort if you sat down and you averaged
22
the average consumption per household of natural gas,
23
right?
24
price X, and then for any consumption over that it's
25
going to be price Y but I'm going to adjust X and Y
26
within the dynamic structure you have for energy
Again, as a matter of principle,
And you said, "Okay, I'm going to bill them at
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 925
1
prices so that the class as a whole comes out to be
2
revenue neutral to you."
3
seem to advocate of charging differentially higher
4
rates to higher consumers of energy in the electricity
5
field, I'm asking you whether you would think that
6
would be a good idea for people in your residential
7
rate class.
8
MR. GHIKAS:
But the principle that you
The position that we're advocating here is
9
that the Tier 2 rate move towards reflecting the
10
marginal cost of electricity.
11
gas business, the commodity cost is a flow-through and
12
it's already reflected in the marginal cost.
13
what we're trying to advocate in the present
14
proceeding is that there'd be some reflection of the
15
actual costs of the commodity going forward for B.C.
16
Hydro.
17
context.
18
And with respect to the
And so,
I don't think the same issues apply in the gas
COMMISSIONER MILBOURNE:
Well, I understand what you're
19
saying, but I'm at the more general statements you
20
made which I think we've repeated here, that the
21
principle, okay, of having a differentially higher
22
rate for higher users is not unfair and it has
23
benefits.
24
MR. GHIKAS:
25
COMMISSIONER MILBOURNE:
26
Right.
Now, would you agree that the
benefits -- never mind the reason for them -- the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 926
1
benefits of putting that kind of structure on your
2
residential cohort would be the same, in terms of the
3
behaviour that it would motivate if you put a similar
4
structure in place.
5
6
MR. GHIKAS:
Well, I'm not -- we may be talking at cross
purposes here, but --
7
COMMISSIONER MILBOURNE:
8
MR. GHIKAS:
I hope not.
I hope not too.
But if you're referring to
9
the statement that was repeated in the letter from the
10
Commission, that it can't be the case that you pay
11
more for more consumption, I mean that statement was
12
made in -- I mean it was probably awkwardly worded,
13
but what I was saying is, if you're using more
14
electricity -- it was done in the context of the
15
Vancouver Island submission, right?
16
more electricity, you're -- that's what it is under
17
the current rate too.
18
and so, and so --
19
COMMISSIONER MILBOURNE:
If you're using
If you use more you pay more,
I understand that.
That's why I
20
read into it the word "differential", because that's
21
what B.C. Hydro's proposal is, is that you will pay a
22
differentially higher rate --
23
MR. GHIKAS:
Right.
24
COMMISSIONER MILBOURNE:
-- if you use more.
So I read
25
the word "differential" into it since you're here
26
supporting B.C. Hydro's position.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 927
1
MR. GHIKAS:
2
COMMISSIONER MILBOURNE:
3
Right.
|-- I understand what you're saying.
4
MR. GHIKAS:
5
COMMISSIONER MILBOURNE:
6
Yeah.
MR. GHIKAS:
8
COMMISSIONER MILBOURNE:
10
11
Now, if I put the structure over
on natural gas users --
7
9
So I'm saying, okay, now, that
Right.
-- would you think that was an
equally good idea?
MR. GHIKAS:
No, I wouldn't, and that's because -- I mean
I don't have instructions on this obviously, but --
12
COMMISSIONER MILBOURNE:
13
MR. GHIKAS:
14
COMMISSIONER MILBOURNE:
I realize that and I apologize.
Yeah, and it's -But I just want to understand
15
the principles, okay, of why you're advocating this
16
for the electricity users.
17
MR. GHIKAS:
Right, and the reason -- and I go back to my
18
initial comment, and the reason is that electricity
19
rates don't reflect the long-run marginal cost of
20
electricity.
21
mean under the current rate, there is no signal as to
22
the real cost of the next unit of electricity.
23
the tiered mechanism is a way of introducing that.
24
You can't claim -- I mean, for example, you couldn't
25
flow through the electricity cost all at the
26
incremental rate, because the utility would over-
And that's why.
It's introducing -- I
Allwest Reporting Ltd., Vancouver, B.C.
And so
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 928
1
collect.
I mean if it was -- I think as an economic
2
principle, it would be appropriate to, you know,
3
potentially charge all of it at the marginal cost.
4
I'm not going to profess to be an economist, but
5
charging it at the incremental cost is the right price
6
signal.
7
to prevent the overcollection by virtue of collecting
8
for the marginal cost.
And the reason that Step 1 is going down is
So I'm not seeing the analogy carrying over
9
10
to the gas context where every unit is being paid at
11
the marginal cost.
12
COMMISSIONER MILBOURNE:
No, the principle I'm asking you
13
to speak to is the notion that you're going to incent
14
conservation.
Proceeding Time 12:30 p.m. T26
15
16
17
COMMISSIONER MILBOURNE:
I think you all agreed that
conservation of energy is a good thing.
18
MR. GHIKAS:
Right.
19
COMMISSIONER MILBOURNE:
20
driven rate.
21
rate.
And this is a conservation
This is a demand-side management driven
That's why it's here.
22
MR. GHIKAS:
Right.
23
COMMISSIONER MILBOURNE:
Okay.
It's not here to
24
specifically look after a way of funding the
25
incremental capacity growth of B.C. Hydro.
26
that aspect to it, but it is fundamentally, as I
Allwest Reporting Ltd., Vancouver, B.C.
It has
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 929
1
understand the application, a conservation-driven
2
rate.
3
MR. GHIKAS:
And it is so because it's reflecting moving
4
the second tiered rate toward the marginal cost, to
5
send a real price signal.
6
COMMISSIONER MILBOURNE:
That's my --
It is because the second tier --
7
sorry to argue, but it's because the second tier is
8
priced higher than the first tier regardless of how it
9
got there.
10
really cares, or could be expected to care on what
11
basis the Tier 2 is established.
12
that this Tier 2 rate is higher -- materially higher
13
than a Tier 1 rate.
14
MR. GHIKAS:
The customer, with respect, I don't think
Right.
All they know is
And so in the gas context, if I
15
understand what you're saying, Commissioner Milbourne,
16
is that you would be -- under what you're suggesting,
17
if I understand it, you would be reducing the price of
18
the commodity artificially for the first increment,
19
and then overcharging for the marginal cost in the
20
second increment.
21
22
Is that --
COMMISSIONER MILBOURNE:
To get revenue neutrality across
the class.
23
MR. GHIKAS:
Right.
24
COMMISSIONER MILBOURNE:
25
MR. GHIKAS:
26
COMMISSIONER MILBOURNE:
Which is what this rate does.
Right.
Okay.
And I'm asking you for
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 930
1
your view on the applicability of that to your natural
2
gas customers.
3
MR. GHIKAS:
Right.
I mean, I --
4
COMMISSIONER MILBOURNE:
Because I assume that over on
5
your side of the house, you've got people with what
6
has been characterized here as excess or wasteful or
7
gluttonous consumption of a resource, right?
8
you've got people on your side of the house that have
9
all-gas houses with pool heaters and all the rest of
10
the stuff, right?
11
MR. GHIKAS:
12
COMMISSIONER MILBOURNE:
13
And
Right.
And you've got the same kind of
distribution.
14
MR. GHIKAS:
Right.
15
COMMISSIONER MILBOURNE:
Okay, and I understand you to be
16
saying there's a good thing to do to the customers of
17
B.C. Hydro for conservation objectives.
18
MR. GHIKAS:
Right.
19
COMMISSIONER MILBOURNE:
What I'm asking you, is it a
20
good thing to do -- would it be a good thing,
21
hypothetically, to do for the natural gas customers?
22
MR. GHIKAS:
I'd have to give this a lot of thought, but
23
I mean, I'm not sure that overcharging beyond the
24
marginal cost of electricity would necessarily be the
25
right thing to do, and artificially decreasing the
26
price at first.
I mean, the reason it's underpriced
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 931
1
in the first year now is because of the Heritage
2
assets in Hydro's context.
3
4
COMMISSIONER MILBOURNE:
Well, I think we're going to get
to the heritage thing next, so --
5
MR. GHIKAS:
Okay.
Well --
6
COMMISSIONER MILBOURNE:
7
MR. GHIKAS:
8
COMMISSIONER MILBOURNE:
-- I won't respond to that.
Sure.
Any event, that -- the only
9
other question I had was kind of a technical one, at
10
least to me technical.
11
thesis that the next kilowatt hour you're using should
12
be at the marginal cost.
13
MR. GHIKAS:
14
COMMISSIONER MILBOURNE:
You kind of ascribe to the
Right.
Given that the next one you use
15
is -- depends on how many you've used previously, in
16
other words, it depends on your historical consumption
17
pattern, how can you achieve that level when you don't
18
allow for historic consumption patterns on the part of
19
the customer base?
Again, I'll make it simple.
20
The CBL
21
structure does that for the transmission customers.
22
It's a much better approximation of that model you're
23
espousing.
24
any relationship between the next kilowatt hour you
25
use and the one that B.C. Hydro has to go and acquire.
26
MR. GHIKAS:
The model that's before us doesn't have
Well, I would -Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 932
1
COMMISSIONER MILBOURNE:
2
MR. GHIKAS:
3
Yeah.
In my layman's view, okay?
I mean -- and with respect, I would
disagree that it has no relation.
4
COMMISSIONER MILBOURNE:
5
MR. GHIKAS:
Okay.
And, but I would agree with you to the
6
extent that there has been a trade-off in the context
7
of a residential customer, and customer class, in
8
recognition of the difficulty of implementing a CBL
9
methodology for every single Hydro rate residential
10
customer.
11
Hydro speak to the precise difficulties of that, but I
12
can imagine that the transactional costs associated
13
with operating that type of system may not be in the
14
ratepayers' best interest.
And you know, I'm -- I would have to let
15
COMMISSIONER MILBOURNE:
16
THE CHAIRPERSON:
17
MR. GHIKAS:
18
THE CHAIRPERSON:
21
22
23
That's my questions.
Thank you, Mr. Ghikas.
Thank you.
Mr. Christian.
Proceeding Time 12:36 p.m. T27
19
20
Thank you.
COMMISSIONER MILBOURNE:
I'm sorry.
I don't have a
question for you.
MR. CHRISTIAN:
That was the easiest appearance I had to
make standing up.
24
COMMISSIONER MILBOURNE:
25
THE CHAIRPERSON:
26
MR. CHRISTIAN:
Sorry about that.
Stay standing.
All right.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 933
THE CHAIRPERSON:
I have no questions so if you wish to
make your reply at this stage.
3
REPLY BY MR. CHRISTIAN:
4
MR. CHRISTIAN:
Thank you, I will.
I've got three brief
5
comments.
Two in response to Mr. Quail's submissions,
6
one in response to Mr. Wallace's submissions.
7
Firstly, Mr. Quail, I referred again to Section
8
59(5)(c) of the Utilities Commission Act.
9
one that says:
That's the
10
"In this section a rate is unjust or
11
unreasonable if the rate is unjust and
12
unreasonable for any other reason."
13
And Mr. Quail referred to that provision in support of
14
thesis that the Commission has virtually an unlimited
15
discretion to decide what's unjust and unreasonable.
16
B.C. Hydro has already allowed that the Commission's
17
scope of discretion is very broad, probably as broad
18
as anywhere else, but 59(5)(c) does not mean it's an
19
empty vessel to be filled with whatever the Commission
20
thinks, and we address this specifically in our reply
21
argument on page 21 and relied on some authorities for
22
our point there.
23
Secondly, Mr. Quail, I believe, as I
24
understood what he was saying, added a little wrinkle
25
to his lifeline rate argument and submissions to you
26
this morning, suggesting not only, as he did in his
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 934
1
argument, that the Commission might provide a
2
discounted rate for low income customers, but
3
potentially might be able to charge a higher rate to
4
wealthier electricity customers.
5
say is for the same reasons we think that the
6
Commission doesn't have the jurisdiction under the
7
current statute to give a preference to low income
8
customers in the way that BCOAPO would have you do, we
9
don't think the Commission would have the jurisdiction
10
to set a higher rate for higher income customers.
And all I want to
And then the only reply response I have to
11
12
Mr. Wallace is that he thought that there was some
13
common ground with respect to the parties on the scope
14
of the Commission's discretion.
15
of echoes, I think, how I'm replying to Mr. Quail.
16
Mr. Wallace, as I noted down his words here, that all
17
circumstances that the Commission feels are relevant
18
are within the scope of relevance.
19
heard me just say, I don't think that's right.
20
with that qualification or that reply, we're not quite
21
on common ground with Mr. Wallace on that point.
So
to the points we've heard.
24
THE CHAIRPERSON:
25
COMMISSIONER MILBOURNE:
26
And as you've
Those are all the reply submissions I had
22
23
And again this sort
Commissioner Milbourne remembers -I found both my raincoat and my
question.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 935
I believe you made the comment that if in
1
2
fact you did put in a CBL-type structure in for
3
residential class, people would feel that was unfair.
4
Certain people in the class would feel that was
5
unfair.
6
fact there was absolutely no change in their bill as a
7
result of putting that in place, that all it presented
8
to them was an opportunity if they were able to reduce
9
consumption, and a penalty if they increased
10
consumption.
11
that unfair, and I was just interested in how you
12
would find unfairness in that structure.
13
And my question to you would be why, if in
MR. CHRISTIAN:
But you used the comment some might find
Right.
So I'm going to first remind the
14
Commission that we actually addressed this, I believe
15
in our undertaking response, and while I'm speaking
16
perhaps we can find where that is.
17
paraphrasing earlier and probably as I was
18
paraphrasing it wasn't as clear as it could have been.
So, but I was
The point was that in anticipation or in
19
20
response to existing demand-side management programs
21
and Power Smart messaging, we believe that residential
22
customers are responding and are changing their
23
behaviour and are investing in energy efficiency
24
measures in a way that they wouldn't otherwise have
25
had to do -- or they wouldn't otherwise have done, I
26
should say.
And so when those customers who have been
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 936
1
reducing their consumption are suddenly stuck with
2
having a Heritage allotment, if I can use that word --
3
we use that a fair bit in our -- or an allotment based
4
on their previous consumption of the lower-priced
5
energy -- the amount that they get is going to be
6
reflective of their earlier conservation efforts.
7
Whereas the customers who had no disregard for the
8
conservation message and were -- again, to use the one
9
word that has been bandied about somewhat, were
10
gluttonous consumers, they get a larger allotment of
11
the lower-priced energy.
12
And so the argument -- or the evidence that
13
we filed and what I was paraphrasing in my submission
14
earlier was that from a customer who has been
15
conserving, they will perceive it as unfair that they
16
don't get the benefit of their conservation in the way
17
that the person who was not consuming it gets.
18
get a little reward, in effect.
19
customer's perspective, the non-conserving customer is
20
rewarded for their non-conservation.
21
counterintuitive to what a conservation rate is
22
supposed to do.
23
and that's why I'm summarizing argument here, why we
24
think that there are fairness issues that arise from a
25
CBL-type rate structure.
26
They
From the conserving
It's
And that's why we said in evidence
And remember, I've acknowledged, we've
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 937
1
acknowledged that the CBL-type rate structure does
2
respond to the specific concern addressed by the
3
Commission in its letter to us.
4
first, practically impossible to do it, but secondly,
5
it opens a different issue.
6
that solves all issues because it raises that fairness
7
issue, that conserving customers will see as unfair
8
that they are not getting the benefit of a larger
9
block of energy that they would have got had they not
10
conserved.
11
COMMISSIONER MILBOURNE:
So we were saying
It's not a magic bullet
But you would agree with me that
12
no customer would see a bill impact initially as a
13
result of that change.
14
MR. CHRISTIAN:
Well, again, if we're talking about an
15
1823 type structure that's meant to be revenue neutral
16
on a customer billed basis, then that's the central
17
design.
18
design, yes.
19
So it follows as a consequence of that
COMMISSIONER MELBOURNE:
22
23
you.
Proceeding Time 12:43 p.m. T28
20
21
Thank
THE CHAIRPERSON:
I have no questions, Mr. Christian.
think your assistant may have found your -MR. CHRISTIAN:
I think -- well, you know what?
This
24
isn't the one I had in mind.
But you know what?
25
Before the end of the day, I'm sure we'll have an
26
opportunity to get the undertaking response to you.
Allwest Reporting Ltd., Vancouver, B.C.
I
BC Hydro - RIB
Volume 6, August 15, 2008
1
THE CHAIRPERSON:
Page: 938
Okay.
Moving to item 2, you're not
2
certain how to respond to item 2.
3
the issue as far as item 2 as far as the panel is
4
concerned, and I'll let my fellow panel members speak
5
if they have other issues, is that Terasen, in its
6
reply, and in its footnote, which we -- on footnote
7
20.
8
MR. CHRISTIAN:
9
THE CHAIRPERSON:
I think the only --
Yes.
Reminds the Commission panel, if you
10
like, that when we go back to the system extension
11
test from last year's rate design application, it was
12
B.C. Hydro's contention that their previous system
13
extension test in effect disqualified new customers
14
from the benefits of the Heritage resources.
15
won't go into the reason why, but I mean, that was
16
your thesis, I believe.
17
of the intervenors that continues to -- it does it at
18
Section 16 -- to talk about the Heritage resources and
19
the allocation of the low-cost resources, whereas B.C.
20
Hydro in its application has largely, if I can use the
21
word, resiled from the concept of setting the
22
threshold on the basis of anything to do with the
23
Heritage assets and the 42.9 terawatt hours of power
24
that it produces in every year.
25
really -- we were looking to some form of response
26
from B.C. Hydro in this regard.
And I
And Terasen is the only one
And I think this was
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
MR. CHRISTIAN:
Page: 939
So, I need to make sure that I'm clear on
2
what the concern is.
3
concern amongst the Commission panel members that B.C.
4
Hydro was inconsistent in its submission in the RDA
5
with respect to how the benefits of the Heritage
6
resources ought to be allocated amongst its customers,
7
and what it's saying in this RIB application, on the
8
basis that in the RDA we said we shouldn't deny new
9
customers any element of the Heritage benefits, and in
10
this hearing we're saying it's not useful to set the
11
Step 1 block on some allocation of Heritage resources.
12
Is that the --
13
THE CHAIRPERSON:
As I understand it, there is a
I think that's a fair summary of the
14
panel's observations.
Now, if you want ten minutes to
15
think about that, we can break again.
16
MR. CHRISTIAN:
17
THE CHAIRPERSON:
18
(PROCEEDINGS ADJOURNED AT 12:46 P.M.)
19
(PROCEEDINGS RESUMED AT 12:55 P.M.)
20
THE CHAIRPERSON:
That would be appropriate, I think.
Thank you.
Please be seated.
T29
Mr. Christian, you
21
look like a man who might have found the reference you
22
were looking for.
23
MR. CHRISTIAN:
Unfortunately, appearances aren't
24
consistent.
We didn't find the reference.
25
not going to be found before I finish today, we'll
26
send it in to all parties and to the Commission.
Allwest Reporting Ltd., Vancouver, B.C.
If it's
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 940
1
THE CHAIRPERSON:
Okay.
2
SUBMISSIONS BY MR. CHRISTIAN:
3
MR. CHRISTIAN:
You probably aren't going to be surprised
4
to hear me say that I don't think there is an
5
inconsistency between the position we took in the rate
6
design hearing with respect to the set test and the
7
position that was taken in the RIB hearing with
8
respect to the establishment of a Step 1 threshold.
9
The gist -- the point, of course, that we made in the
10
RDA was that the effect of not changing the existing
11
set test, which required new customers to pay the
12
marginal cost of new -- be denied any benefit of the
13
Heritage resources, and so that set test would have
14
established two classes of customers, as it were.
15
Those existing ones who got the benefit of the
16
Heritage resources, and those new ones who were
17
connecting had to pay the extension fee, and didn't.
18
And that's what we thought was inappropriate.
19
Now in this case, of course, we firstly are
20
proposing a RIB rate that would be universally
21
applicable, with some minor exceptions that I don't
22
think go to this point.
23
the gate the fact that it's universally applicable,
24
everybody gets the same shot at some Heritage
25
benefits, not on an equal percentage basis of
26
historical consumption, of course, that would be the
And so we think right out of
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 941
CBL method, but on an equal volume amount.
Before I take that a little further, I need
3
to just step back a little bit and remind the
4
Commission panel that, in our proposal, we never
5
talked about an allocation of Heritage resources and
6
in the argument I made a point of drawing the
7
distinction between a purposeful allocation, where you
8
go ahead and say, "Every customer should get some
9
percentage or some volume amount of the Heritage
10
resources, or the benefits of the Heritage resources,"
11
which is, you know, what you can do, for example, in
12
the CBL-type rate structure, or any type of inclining
13
rate structure where when you have an inclining block
14
rate structure, you may not be purposefully allocating
15
a portion, but in effect many people will see that
16
there is some sort of implicit allocation.
17
our argument we say we didn't allocate in this
18
purposeful sense, but there is an implicit allocation
19
nevertheless.
20
And so in
And so to that extent, as I say, I think
21
that the RIB structure that B.C. Hydro has proposed is
22
consistent with the RDA position, because there is
23
this implicit allocation of the Heritage resources to
24
all customers, by virtue of the fact that they all
25
face that lower Step 1 rate.
26
THE CHAIRPERSON:
Mr. Ghikas, do you have any comment on
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 942
1
that?
You, as I say, Terasen, your client, is the
2
only party that really makes mention of the Heritage
3
resources.
4
SUBMISSION BY MR. GHIKAS:
5
MR. GHIKAS:
Yes, Mr. Chairman, and I apologize if there
6
was confusion about that.
I think part of Mr.
7
Christian's confusion about what the topic was about
8
was shared by me, in a sense, in that I -- that
9
Terasen endorses the interpretation of the Heritage
10
Special Direction that Mr. Christian provided.
11
actually don't think there is a disagreement of any
12
material sense.
13
straw man which he anticipated might, you know, might
14
be running through the mind of the Commission and I
15
was merely intending -- whether I was successful or
16
not -- intending pointing out that the concern about
17
the rate design application having some sort of
18
precedential value in this circumstance was a bit of a
19
red herring.
20
comments, right now, about the difference in the
21
circumstances being that in the present circumstances
22
there is, in effect, an equal allocation in the Tier 1
23
of the Heritage resources.
24
know, the merits or any disagreements over what was
25
done in -- or what B.C. Hydro was arguing in the rate
26
design.
So I
So Mr. Christian was throwing up a
And I would endorse Mr. Christian's
So, regardless of, you
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 943
THE CHAIRPERSON:
So when B.C. Hydro cites some remark
2
made by the Commission panel in its 2007 RDA, where we
3
addressed the system extension test, and suggested
4
that we erred, it was in the context of whether all
5
rates, individual components of each rate has to have
6
a cost of service background, has to be backed by a
7
cost of service study.
8
intention of the remarks we made in finding that the
9
Hydro's proposed SET complied with the Commission's
10
guidelines.
11
MR. GHIKAS:
Right.
Whereas that was not the
And that's consistent -- what you
12
just said is consistent with what I was trying to say
13
in footnote 20.
14
THE CHAIRPERSON:
15
MR. GHIKAS:
Okay.
I don't see any inconsistency, and I don't
16
see that the Heritage Special Direction has any
17
relevance in the context of this hearing.
18
believe it stands for the proposition or imposes any
19
restriction or direction on the Commission to ensure
20
that every individual element of a rate have a cost of
21
service basis.
22
THE CHAIRPERSON:
Stay both where you are.
I don't
Commissioner
23
Milbourne may well have a question for one or both of
24
you.
25
26
I was assuming that no one else had
anything to say on this.
If there is -- Mr. Quail.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 944
Proceeding Time 1:00 p.m. T30
1
2
SUBMISSIONS BY MR. QUAIL:
3
MR. QUAIL:
Yes.
We, in terms of the implications of the
4
Special Direction, Section 5(d), we, I guess, go
5
further than B.C. Hydro in a sense and say that
6
there's no obligation arising from the Special
7
Direction or anywhere else, for the Commission to set
8
rates on a cost of service basis.
9
And the section can't be read in isolation.
10
First of all you have to have -- and we discussed this
11
in our written argument, pages 13 to 19.
12
Section 61(b.1) basically, that is subsections (a) and
13
also (b.1), already cover this off.
14
under this Act or the Regulations, (a) the Commission
15
must consider all matters because there was proper
16
relevant affecting the rate, but significantly (b.1):
In the Act,
In setting a rate
17
"The Commission may use any mechanism,
18
formula or other method of setting the rate
19
that it considers advisable, and may order
20
the rate derived from such a mechanism,
21
formula, or other methods to remain in
22
effect for a specific period."
23
24
Then we have the Special Direction 5(c),
which is significant.
Says:
25
"In setting the authority's rates, the
26
Commission may employ any mechanism, formula
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
Page: 945
or methods…"
2
It just regurgitates and cites Section 60(1)(b.1) of
3
the Act.
And then (d):
4
"Unless a different mechanism, formula or
5
method is employed under paragraph (c), must
6
ensure that electricity used by the
7
authority to meet its domestic service
8
obligations, is provided to customers on a
9
cost of service basis."
10
which is kind of a tautology.
11
you know, everybody wants black unless they want a
12
colour other than black.
13
know, you could basically -- you could set out any
14
basis that you determine is proper within the Act, and
15
the Special Direction adds nothing.
16
It's like saying, well,
I mean it's, you know, you
And one of the difficulties that the
17
Commission and participants have is our legislative
18
framework is just terrible.
19
Frankenstein.
20
another body part on.
21
with, frankly, Bill 15, and it really doesn't hang
22
together very well.
23
It's sort of like a
Every now and then somebody sews
We just had some more of that
And this might be an example.
But in my submission, and we expound this
24
in further detail so I won't retrace all that, the
25
statutory scheme does not require cost of service base
26
rate making whether marginal or fully allocated, as a
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 946
1
matter of fact, even though that's, you know, the
2
general one.
3
regulatory process.
4
Some flavour of that is the most common
In terms of the -- and now, how you merge
5
that with the Heritage resource and access to that is
6
sort of an imponderable.
7
know what you do with it.
8
point, we'd suggest that in fact -- let's assume that
9
on average through the year varying across the seasons
10
about 80 percent of our generation is sourced from
11
Heritage resources.
12
percent of every kilowatt hour consumed by every
13
customer at every point in time is sourced from a
14
Heritage resource.
15
It's one of these -- I don't
But for maybe a starting
That means that on average, 80
So arguably -- and maybe I'll convince
16
myself I should have put this in a written argument --
17
complying with that objective requires a flat rate,
18
because anything else gives the customer a blend other
19
than the 80/20 as it stands now, of the Heritage
20
resource benefit and their price.
21
only way to get to some kind of differentiated rate
22
that would preserve that equal access probably would
23
be a CBL system where every customer's -- the
24
threshold, Tier 1, Tier 2 threshold would be based on
25
the Heritage component of their consumption.
26
could micro it down to a customer-by-customer basis or
Allwest Reporting Ltd., Vancouver, B.C.
And in fact the
So you
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 947
1
maintain a flat rate, which I would argue also gives
2
everybody an 80 percent thickness currently of the
3
Heritage resource in their price.
And other than that, I don't think I can be
4
5
of much assistance to the Panel.
6
questions I'll do my best.
7
THE CHAIRPERSON:
If you have any
Thank you, Mr. Quail.
8
wish to address the Heritage issue?
9
do you have any questions?
10
MR. CHRISTIAN:
11
THE CHAIRPERSON:
12
MR. CHRISTIAN:
13
THE CHAIRPERSON:
14
15
Does anyone else
Hearing nothing,
Sorry but I need to reply to Mr. Quail.
You will have your opportunity.
Sorry.
I thought we were --
No, I said at the beginning that you
get the right of reply.
MR. QUAIL:
And if I can pop up.
Just for the record,
16
we're not advocating a differentiated higher rate for
17
wealthy customers.
18
saying that or saying that the Commission can or
19
should do that, I retract that suggestion.
20
THE CHAIRPERSON:
And if it sounded like I was
Thank you.
21
Christian, I think.
22
REPLY BY MR. CHRISTIAN:
23
MR. CHRISTIAN:
We'll hear your reply, Mr.
Thank you, and the reply is only in
24
response to what I think is a new argument raised by
25
Mr. Quail now.
26
quickly from paragraph 5(d) of the Heritage Special
He started off his submissions going
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 948
1
Direction to Section 60(1)(b.1) of the Act, which is
2
referenced of course in the Heritage Special
3
Direction.
4
wouldn't have to reply because I think that issue and
5
what that provision means is already fully on the
6
record.
I didn't want to -- I was hoping I
7
But then he went further and had an idea
8
that he felt compelled to share with the Commission
9
Panel, which I think I will require an opportunity to
10
review in the transcript and perhaps respond to it.
11
don't think I can do that now, but it was a new idea
12
that basically, as I understood it, would, if correct,
13
have limited the Commission's ability to do anything
14
other than establish a flat rate or a CBL type rate
15
structure.
16
not foreshadowed by anything the Commission issued in
17
its letter.
18
either to have an opportunity to respond to that, and
19
I can do that like Monday morning if I need to, or the
20
Commission needs to let the participants in this
21
hearing know that it's not going to be considering
22
that argument in the course of its deliberations.
23
Because that's a pretty significant issue and it came
24
up absolutely at the last second, without, in my
25
submission, fair warning.
26
I
That's a brand new topic, absolutely was
And so I think fairness requires me
So.
Proceeding Time 1:06 p.m. T31
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
3
Page: 949
THE CHAIRPERSON:
Your suggestion is quite acceptable,
that you would reply on Monday.
MR. CHRISTIAN:
Right.
And so that assumes I get a
4
transcript today, which I don't think will be a
5
problem. Thank you.
6
THE CHAIRPERSON:
7
COMMISSIONER MILBOURNE:
8
I'm sure it won't.
Before you get to sit down, I do
have a question for you.
9
MR. CHRISTIAN:
Okay.
10
COMMISSIONER MILBOURNE:
And it may bear on your
11
response.
12
think you can confirm it.
13
the subject of the Heritage benefit kind of drifted in
14
and out of that proceeding, and generally the response
15
from B.C. Hydro was that the benefit was allocated on
16
a pro rata basis to consumption.
17
consumption.
18
MR. CHRISTIAN:
This is a statement, not a question, but I
Throughout the 2007 RDA,
It was based on
The position that Hydro took then, and
19
continues to take in this proceeding, is that there
20
has been no Commission determination that there is an
21
express way to allocate it.
22
COMMISSIONER MILBOURNE:
23
MR. CHRISTIAN:
Right, but that was your --
And what we said was that there was an
24
allocation that fell out of the particular rate design
25
at the time, just like there will be an allocation
26
that falls out of this particular rate design, in the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 950
1
absence of a Commission decision saying "Here's how it
2
should be allocated."
3
COMMISSIONER MILBOURNE:
I don't have the decision in
4
front of me, but I'm pretty certain I recall a fair
5
number of transcripts of that proceeding, a fair
6
number of instances where the assurance was given, or
7
the -- that it was B.C. Hydro's practice, whether it
8
was de facto or deliberate, that the Heritage benefit
9
was allocated based on consumption.
10
MR. CHRISTIAN:
Right.
11
COMMISSIONER MILBOURNE:
And I would -I believe the Commission asked
12
-- the panel asked questions about what percentage,
13
and how was it going to move, and so on.
14
fairly live issue in that proceeding, as I recall.
15
16
MR. CHRISTIAN:
It was a
It was absolutely a live issue,
Commissioner Milbourne.
17
COMMISSIONER MILBOURNE:
18
MR. CHRISTIAN:
The de facto is the key part.
Okay.
It was de facto because I don't think
19
there has been a decision by anybody, certainly not by
20
the Commission, and when you say it's Hydro's
21
practice, of course, we're setting the rates
22
established by the Commission.
23
anything other than a de facto allocation of those
24
Heritage sources.
25
26
COMMISSIONER MILBOURNE:
So there has not been
As part of the practice and it
was even a little more deliberate than that, the CBL
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 951
1
structure in the transmission rate class did kind of
2
flow out of that, and it does notionally tie in to the
3
notion of percentage of consumption allocation.
4
it -- so, I'll leave that there.
And
5
But I did notice in the reference material
6
to policy framework in that 2007 decision there was a
7
statement that along the lines -- and it comes from
8
language that's in the enabling Act for -- the B.C.
9
Hydro Public Power Legacy and Heritage Contract Act.
10
MR. CHRISTIAN:
Yes.
11
COMMISSIONER MILBOURNE:
Which I haven't read the Act
12
recently, but the statement is made in there that
13
electricity generated by the Heritage resources to
14
continue to be available to B.C. Hydro ratepayers
15
based on cost of service, not market prices.
16
17
18
19
MR. CHRISTIAN:
So is the question, is that a fair
summary of -COMMISSIONER MILBOURNE:
Yes.
of what's --
20
MR. CHRISTIAN:
21
COMMISSIONER MILBOURNE:
22
23
Is that your understanding
Yes.
I think that's right.
-- the overall ambit within
which you, and we, tend to operate.
MR. CHRISTIAN:
Right?
I think that's exactly right.
And
24
indeed, this question came up not only in the RDA
25
decision, but it came up again in this proceeding.
26
There was -- I can't recall now whether it was an
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 952
1
undertaking response or one of the Commission panel
2
IRs, which prompted B.C. Hydro to file the entirety of
3
the Heritage contract report, and summarize the two
4
distinct models, regulatory schemes, that were at
5
issue in that proceeding, that led to that report,
6
one being the revenue requirements model and the other
7
being a fixed-price, fixed-quantity model, which would
8
have set the rate of electricity -- or, the quantity
9
of electricity that generation provided distribution
10
at a fixed quantity value, which would imply the risk
11
premium, which would have brought the rates overall
12
closer to market.
13
structures in that proceeding that led to that report.
So those were two competing
14
COMMISSIONER MILBOURNE:
15
MR. CHRISTIAN:
16
17
18
19
20
But this is from --
And that reference is in front of the
Commission right now.
COMMISSIONER MILBOURNE:
But the reference I'm reading is
from the Act, not from the report.
MR. CHRISTIAN:
So, I'm not following the -- what is
there -- I'm not following what the question is.
21
Maybe if I could have you tell me which
22
page of the RDA decision you're referring to, that
23
would provide some assistance.
24
COMMISSIONER MILBOURNE:
It's in the section on
25
legislative and policy background, towards the far
26
end.
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 953
You know, there's a listing in there of
1
2
things like energy plans and all the rest of that
3
stuff.
4
see it addressed in this thing you're going to give us
5
on Monday.
6
MR. CHRISTIAN:
7
COMMISSIONER MILBOURNE:
You don't have to address it now.
I'd like to
Well, I need to know -Whether or not this over -- I'll
8
call it an over-arching view of the legislature as
9
reflected in this Act does in fact give rise to
10
certain consequences with respect to this RIB
11
proposal.
Proceeding Time 1:12 p.m. T32
12
13
MR. CHRISTIAN:
Well, if I may -- if you're reading from
14
a specific part of the RDA decision, if I could look
15
at it, I may be able to answer the question now,
16
rather than have to add to a written submission on
17
Monday.
18
19
20
COMMISSIONER MILBOURNE:
with me.
It's one of the list of items.
MR. CHRISTIAN:
21
decision.
22
sentence:
I'm sorry, I didn't bring mine
Okay, there it is.
It's on page 8 of the
And just to make sure we're on the same
23
"The enabling legislation, the B.C. Hydro
24
Public Power Legacy and Heritage Contract
25
Act, allowed government to require B.C.
26
Hydro distribution and B.C. Hydro generation
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
Page: 954
1
to sign a 'Heritage Contract' that ensured
2
the electricity generated by the Heritage
3
resources continues to be available to B.C.
4
Hydro ratepayers based on cost of service,
5
not market prices."
6
COMMISSIONER MILBOURNE:
7
MR. CHRISTIAN:
Yes.
That's it.
So this, of course, isn't a quote
8
from the statute, this is a paraphrase that the
9
Commission drew from -- I don't even remember,
10
actually, there being submissions on that statute, but
11
there might have been.
12
question you'd have me address is whether that
13
conclusion the Commission drew there is correct?
14
that what I'm meant to address?
15
COMMISSIONER MILBOURNE:
16
proceeding, yes.
Is
Its relevance to this
Looking at that --
17
MR. CHRISTIAN:
18
COMMISSIONER MILBOURNE:
19
And so I need to know -- the
Okay.
Yeah, I understand.
And it ties in with what Mr. --
I believe with what Mr. Quail was raising.
20
MR. CHRISTIAN:
Sure.
21
COMMISSIONER MILBOURNE:
Which kind of leads me down the
22
rest of the path, and if the question really is if
23
some of the intervenors that don't support your
24
proposal have pointed out here today, the RIB proposal
25
has the effect of shifting the cost burden of new
26
resources onto a small covert -- a minority of the
Allwest Reporting Ltd., Vancouver, B.C.
BC Hydro - RIB
Volume 6, August 15, 2008
1
2
Page: 955
residential ratepayers.
MR. CHRISTIAN:
Well, yes, that's the fundamental issue
3
that is raised in the first question and posed by the
4
Commission at --
5
COMMISSIONER MILBOURNE:
Does that outcome contravene the
6
body of policy or practice surrounding the allocation
7
of Heritage resources?
8
MR. CHRISTIAN:
9
COMMISSIONER MILBOURNE:
10
11
No, I don't believe it does.
THE CHAIRPERSON:
by the close of business on Monday evening.
MR. CHRISTIAN:
15
THE CHAIRPERSON:
16
today.
17
business?
19
That's my intention.
MR. FULTON:
Mr. Fulton, is there any further
I suggest that Mr. Christian also provide
his evidentiary references at the same times.
MR. CHRISTIAN:
21
THE CHAIRPERSON:
23
Okay, and you'll get the transcript
Thank you.
20
22
Thank you, Mr. Christian.
So, you'll be able to provide your response
14
18
I look forward to
your submission on Monday.
12
13
That's fine.
adjourned.
That's a good idea.
Thank you.
Having no further business, we stand
Thank you.
(PROCEEDINGS ADJOURNED AT 1:15 P.M.)
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.