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The Implications of Energy Conservation Pricing for Low-Income Households Owen, Jason Sep 30, 2010

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   The	
  Implications	
  of	
  Energy	
  Conservation	
  Pricing	
  	
   for	
  Low-­Income	
  Households	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   Jason	
  Owen	
   September	
  14,	
  2010	
         THE IMPLICATIONS OF ENERGY CONSERVATION PRICING FOR LOW- INCOME HOUSEHOLDS  by  JASON OWEN  M.Sc., The University of British Columbia, 2010  A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF  MASTER OF Science (PLANNING)  in  THE FACULTY OF GRADUATE STUDIES  School of Community and Regional Planning  We accept this project as conforming to the required standard   ......................................................   .....................................................   .....................................................     THE UNIVERSITY OF BRITISH COLUMBIA September 2010 © Jason Owen, 2010 	
   ABSTRACT	
  	
  Energy	
   conservation	
   pricing	
   has	
   been	
   implemented	
   as	
   a	
   method	
   of	
   meeting	
   the	
  demands	
  of	
  growing	
  electricity	
  consumption	
   through	
  conservation	
  and	
  changes	
   in	
  demand	
  patterns.	
  	
  RIB	
  and	
  TOU	
  rates,	
  two	
  such	
  pricing	
  regimes,	
  have	
  the	
  potential	
  to	
  subject	
  low-­‐income	
  customers	
  to	
  a	
  disproportionate	
  energy	
  burden.	
  	
  Energy	
  poverty	
  is	
  often	
  described	
  as	
  conditions	
  in	
  which	
  the	
  costs	
  of	
  energy	
  is	
  such	
  that	
  certain	
  households	
  struggle	
  to	
  pay	
  for	
  other	
  essential	
  items,	
  such	
  as	
  rent,	
  food	
  and	
  clothing	
  in	
  order	
  to	
  pay	
  their	
  energy	
  bill.	
  This	
  problem	
  is	
  amplified	
  by	
  the	
  fact	
  that	
   low	
   income	
   households,	
   which	
   are	
   at	
   the	
   greatest	
   risk	
   of	
   facing	
   a	
  disproportionate	
  energy	
  burden,	
  are	
  most	
  often	
   the	
   least	
  able	
   to	
  alter	
   their	
  use	
  of	
  energy	
  or	
  pay	
  for	
  energy	
  efficiency	
  improvements.	
  	
  Based	
  on	
  BC	
  Hydro’s	
  bill	
   impact	
  analysis	
  and	
   further	
  analysis	
  done	
   for	
   this	
  paper,	
  the	
   RIB	
   rate	
   likely	
   does	
   not	
   have	
   a	
   disproportionately	
   adverse	
   impact	
   on	
   the	
  average	
  low-­‐income	
  customer.	
  	
  There	
  is,	
  however,	
  in	
  all	
  likelihood	
  a	
  certain	
  portion	
  of	
   customers	
  who	
   consume	
  more	
   than	
   the	
   average	
   amount	
   of	
   electricity	
   for	
   their	
  income	
  group	
  and	
  are	
  in	
  energy	
  poverty	
  or	
  at	
  risk	
  of	
  becoming	
  so.	
  	
  Unlike	
  the	
  RIB	
  rate,	
  where	
  customers	
  who	
  consume	
  less	
  electricity	
  experience	
  fewer	
  negative	
   impacts,	
   TOU	
   pricing	
   requires	
   substantial	
   change	
   to	
   use	
   patterns	
   and	
  enabling	
   technology	
   in	
   order	
   for	
   the	
   customer	
   to	
   benefit.	
   	
   The	
   burden	
   of	
   capital	
  expenditures	
   required	
   to	
   implement	
   TOU,	
   equally	
   distributed	
   among	
   residential	
  customers,	
   is	
   less	
   likely	
   to	
  be	
  offset	
  by	
  conservation	
  potential	
  and	
  off-­‐peak	
  energy	
  consumption	
  for	
  the	
  low-­‐income	
  customer	
  base.	
  	
  Energy	
   efficiency	
   programs,	
   which	
   often	
   provide	
   assistance	
   to	
   homeowners	
   to	
  install	
  energy	
  efficient	
  retrofits,	
  require	
  that	
  the	
  participant	
  pay	
  for	
  at	
  least	
  a	
  portion	
  of	
   the	
   costs	
   and	
   are	
   generally	
   funded	
   through	
   energy	
   rate	
   increases.	
   	
   Customers	
   already	
   faced	
   with	
   a	
   disproportionate	
   energy	
   burden	
   cannot	
   likely	
   afford	
   to	
  participate.	
  	
  Considering	
  the	
  conservation	
  potential	
  in	
  the	
  residential	
  sector	
  identified	
  in	
  the	
  CPR	
  study	
  and	
  the	
  prevalence	
  of	
  energy	
  poverty	
  in	
  this	
  province,	
  there	
  is	
  clear	
  potential	
  for	
   electricity	
   conservation	
   through	
   household	
   energy	
   efficiency	
   improvements	
  targeted	
  at	
  low-­‐income	
  customers.	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   1	
   	
   Table	
  of	
  Contents	
   1.0	
   Introduction ................................................................................................................... 3	
   2.0	
   Background..................................................................................................................... 4	
   2.1	
   The	
  Climate	
  Justice	
  Project................................................................................................. 4	
   2.2	
   BC	
  Energy	
  Context ................................................................................................................. 4	
   2.3	
   Energy	
  Poverty	
  in	
  BC ............................................................................................................ 7	
   3.0	
   Distributional	
  Analysis	
  of	
  RIB	
  Rate ........................................................................ 8	
   3.1	
   Regulatory	
  Framework......................................................................................................11	
   3.2	
   Design	
  of	
  the	
  RIB	
  Rate........................................................................................................11	
   3.3	
   Proposed	
  Design	
  Parameters ..........................................................................................13	
   3.4	
   Calculating	
  the	
  RIB	
  Rate ....................................................................................................14	
   3.5	
   Price	
  Elasticity ......................................................................................................................14	
   3.6	
   Bill	
  Impact ..............................................................................................................................15	
   3.7	
   Decision	
  from	
  Hearing .......................................................................................................18	
   3.8	
   Distributional	
  Impacts	
  of	
  RIB:	
  Household	
  Income...................................................20	
   3.9	
   Impact	
  of	
  RIB	
  Rate	
  on	
  Low	
  Income	
  Customers ..........................................................27	
   4.0	
   Smart	
  Meters	
  and	
  TOU	
  Pricing...............................................................................30	
   4.1	
   Smart	
  Meter	
  and	
  Smart	
  Grid	
  Technology ....................................................................31	
   4.2	
   Time-­of-­Use	
  Pricing	
  Structures.......................................................................................32	
   4.3	
   Impacts	
  of	
  Smart	
  Meters	
  and	
  TOU	
  Pricing ..................................................................33	
   4.4	
   Challenges	
  for	
  Low	
  Income	
  Customers.........................................................................35	
   4.5	
   The	
  BC	
  Context......................................................................................................................36	
   5.0	
   Alternatives	
  for	
  Household	
  Conservation..........................................................38	
   5.1	
   Conservation	
  Scenarios .....................................................................................................40	
   5.2	
   Summary	
  of	
  Results ............................................................................................................41	
   5.3	
   Considerations	
  for	
  Low-­Income	
  Energy	
  Efficiency	
  Programs ..............................42	
   6.0	
   Discussion .....................................................................................................................43	
   6.1	
   RIB	
  Rate...................................................................................................................................43	
   6.2	
   Smart	
  metering	
  and	
  TOU	
  pricing....................................................................................44	
   6.3	
   Potential	
  for	
  DSM	
  and	
  Low	
  Energy	
  Efficiency	
  Programs........................................45	
   7.0	
   Conclusion.....................................................................................................................45	
   8.0	
   Bibliography.................................................................................................................47	
  	
   	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   2	
   Figures	
  	
  Figure	
  1	
  –	
  BC	
  Hydro’s	
  Supply	
  and	
  Demand	
  Outlook...................................................................6	
  Figure	
  2	
  -­‐	
  Breakdown	
  of	
  Energy	
  Use	
  in	
  BC .....................................................................................7	
  Figure	
  3	
  -­‐	
  System	
  Load	
  Distribution	
  Across	
  Residential	
  Customers ................................10	
  Figure	
  4	
  -­‐	
  Average	
  Annual	
  Electricity	
  Consumption	
  vs.	
  Household	
  Income	
  -­‐	
  British	
  Columbia .....................................................................................................................................................21	
  Figure	
  5	
  -­‐	
  Percent	
  of	
  Total	
  Income	
  Spent	
  on	
  Electricity	
  for	
  Top	
  and	
  Bottom	
  Two	
  Income	
  Groups .........................................................................................................................................26	
  Figure	
  6	
  -­‐	
  Percent	
  of	
  Total	
  Income	
  Spent	
  on	
  Electricity	
  for	
  Top	
  and	
  Bottom	
  Two	
  Income	
  Groups	
  (income	
  adjusted	
  for	
  annual	
  growth)............................................................27	
   Tables	
  Table	
  1	
  -­‐	
  Bill	
  Impact	
  Analysis	
  by	
  Income......................................................................................16	
  Table	
  2	
  -­‐	
  Average	
  Annual	
  Energy	
  and	
  Electricity	
  Use	
  by	
  Income	
  Group	
  -­‐	
  BC...............22	
  Table	
  3	
  -­‐	
  RIB	
  Rate	
  and	
  Revenue	
  Equivalent	
  Flat	
  Rate.............................................................23	
  Table	
  4	
  -­‐	
  Future	
  RIB	
  Price	
  Increases ..............................................................................................25	
  Table	
  5	
  -­‐	
  Annualized	
  Cost	
  of	
  Energy	
  Efficiency	
  Measures.....................................................39	
  Table	
  6	
  -­‐	
  Forecasted	
  Annual	
  Energy	
  Consumption,	
  Residential	
  Sector ..........................41	
   	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   3	
   1.0 INTRODUCTION	
  The	
  BC	
  Governments	
  2007	
  Energy	
  Plan	
  was	
  a	
  major	
   first	
  step	
   for	
   this	
  province	
   in	
  addressing	
   the	
   challenges	
   posed	
   by	
   depleting	
   finite	
   resources	
   and	
   climate	
   change	
  through	
  clean	
  energy	
  technology	
  and	
  conservation.	
  	
  With	
  this	
  policy	
  document	
  have	
  come	
  several	
  pieces	
  of	
  new	
  legislation	
  that	
  are	
  changing	
  the	
  way	
  energy	
  is	
  produced	
  and	
   consumed	
   in	
   BC	
   by	
   formalizing	
   greenhouse	
   gas	
   (GHG)	
   emissions	
   reduction	
  targets	
  and	
  setting	
  requirements	
  for	
  electricity	
  conservation.	
  	
  	
  	
  Improving	
   energy	
   efficiency	
   in	
   the	
   residential	
   sector	
   and	
   reducing	
   household	
  electricity	
  consumption	
  are	
  key	
  components	
   in	
  reaching	
  provincial	
  GHG	
  emissions	
  reduction	
   targets	
   and	
   meeting	
   the	
   growing	
   demand	
   for	
   new	
   electricity	
   in	
   an	
  ecologically	
  sensitive	
  way.	
   	
  Two-­‐tiered	
  electricity	
  rates	
  and	
  time-­‐based	
  differential	
  pricing	
  structures	
  are	
  common	
  methods	
  of	
  encouraging	
  households	
  to	
  consume	
  less	
  energy	
  and	
  adjust	
  daily	
  use	
  patterns.	
  	
  However,	
  both	
  of	
  these	
  pricing	
  regimes	
  have	
  the	
  potential	
  to	
  pose	
  challenges	
  for	
  low-­‐income	
  customers.	
  	
  Many	
  valid	
  questions	
  are	
  being	
  asked	
  as	
  to	
  whether	
  these	
  programs	
  will	
  be	
  effective	
  in	
  achieving	
  the	
  goals	
  of	
  an	
  environmentally	
  sustainable	
  provincial	
  energy	
  economy.	
  	
  Less	
   attention	
   is	
   paid,	
   however,	
   to	
   the	
   social	
   justice	
   implications	
   of	
   these	
   broad	
  environmental	
   and	
   fiscal	
   policy	
   actions.	
   	
   Policy	
   directions	
   that	
   meet	
   such	
  environmental	
  targets	
  as	
  energy	
  conservation	
  and	
  reduced	
  GHG	
  emissions	
  often	
  fail	
  to	
   address,	
   and	
   can	
   even	
   exacerbate,	
   the	
   underlying	
   social	
   inequities	
   of	
  disproportionate	
  wealth	
  distribution.	
  	
  	
  	
  The	
  intent	
  of	
  this	
  paper	
  is	
  to	
  examine	
  the	
  electricity	
  pricing	
  structure	
  in	
  BC	
  with	
  a	
  specific	
   lens	
  into	
  the	
  distributional	
  impacts	
  of	
  residential	
   inclining	
  block	
  (RIB)	
  and	
  time	
  of	
  use	
  (TOU)	
  rates	
  across	
  various	
  income	
  levels.	
  	
  The	
  concept	
  of	
  energy	
  poverty	
  will	
  be	
  explored	
  and	
  some	
  suggestions	
  will	
  be	
  made	
   for	
  ways	
   to	
  best	
  address	
   this	
  growing	
  problem	
  through	
  low-­‐income	
  energy	
  efficiency	
  programs.	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   4	
   	
  This	
   research	
   begins	
   by	
   presenting	
   background	
   information	
   about	
   the	
   broader	
  research	
   initiative	
   for	
   which	
   this	
   paper	
   has	
   been	
   written.	
   Background	
   on	
   energy	
  supply	
   and	
   consumption	
   and	
   the	
   concept	
   of	
   energy	
  poverty	
   in	
  BC	
   follows.	
   	
   In	
   the	
  next	
   two	
  major	
   sections,	
   this	
   research	
   provides	
   analyses	
   of	
   RIB	
   and	
   TOU	
   pricing	
  structures	
  and	
  their	
   implications	
   for	
  energy	
  poverty	
   in	
  BC.	
   	
   	
  The	
   following	
  section	
  provides	
   a	
   review	
   of	
   the	
   potential	
   for	
   conservation	
   through	
   household	
   energy	
  efficiency	
   improvements	
   as	
   an	
   alternative	
   to	
   large-­‐scale	
   investments	
   in	
   metering	
  infrastructure	
  and	
  provides	
   suggestions	
   for	
   targeted	
   low-­‐income	
  energy	
  efficiency	
  programs.	
  	
  	
   2.0 BACKGROUND	
   2.1 The	
  Climate	
  Justice	
  Project	
  The	
  Climate	
  Justice	
  Project	
  (CJP)	
  is	
  a	
  joint	
  initiative	
  of	
  the	
  Canadian	
  Centre	
  for	
  Policy	
  Alternatives	
  and	
  the	
  University	
  of	
  British	
  Columbia.	
  	
  It	
  is	
  aimed	
  at	
  developing	
  policy	
  to	
   meet	
   the	
   demands	
   of	
   climate	
   change	
   adaptation	
   without	
   compromising	
   social	
  justice	
  values	
  and	
  objectives.	
   	
  The	
  Energy	
  Poverty	
  and	
  Household	
  Energy	
  Efficiency	
  component	
   of	
   the	
   CJP	
   deals	
   with	
   the	
   impacts	
   of	
   household	
   energy	
   efficiency	
  initiatives	
  on	
  low-­‐income	
  households	
  and	
  examines	
  the	
  concept	
  of	
  energy	
  poverty.	
  	
  This	
   paper	
   is	
   the	
   result	
   of	
   independent	
   student	
   research	
   and	
   addresses	
   the	
  implications	
  of	
  energy	
  conservation	
  measures	
  in	
  BC.	
  	
   2.2 BC	
  Energy	
  Context	
  The	
  province	
  of	
  British	
  Columbia	
  has	
  been	
  blessed	
  with	
  abundant	
  natural	
  resources	
  including	
   vast	
   potential	
   for	
   large-­‐scale	
   hydroelectric	
   power	
   generation.	
   	
   For	
  decades,	
   this	
  has	
  provided	
  BC	
  with	
   inexpensive,	
  comparatively	
  clean	
  and	
  arguably	
  renewable	
  electricity.	
   	
  While	
  this	
  resource	
  has	
  provided	
  British	
  Columbians	
  with	
  a	
  reliable	
  source	
  of	
  energy	
  and	
  has	
  done	
  much	
  to	
  support	
  the	
  provincial	
  economy,	
  it	
  may	
   also	
   serve	
   as	
   a	
   barrier	
   to	
   efficiency	
   and	
   reduced	
   consumption	
   by	
   enabling	
  complacency	
  in	
  our	
  use	
  of	
  electricity.	
  	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   5	
   	
  Growing	
  demand	
  for	
  electricity	
  in	
  excess	
  of	
  existing	
  supply	
  coupled	
  with	
  increasing	
  severity	
  of	
  GHG	
  emissions	
   reduction	
   targets	
  has	
   led	
  government	
  policy	
  makers	
   to	
  implement	
  a	
  strategy	
  that	
  is	
  designed	
  to	
  stimulate	
  the	
  growth	
  of	
  a	
  renewable	
  power	
  industry	
  in	
  this	
  province.	
  	
  As	
  such,	
  the	
  BC	
  2010	
  Clean	
  Energy	
  Act	
  (Bill	
  17)	
  legislates	
  a	
  structure	
  for	
  formulating	
  long-­‐term	
  contracts	
  with	
  independent,	
  renewable	
  power	
  producers.	
   	
   This	
   is	
   meant	
   to	
   guarantee	
   rates	
   that	
   can	
   support	
   their	
   capital	
  investments	
  in	
  emerging	
  technologies.	
  	
  Given	
  this	
  new	
  policy	
  climate	
  and	
  the	
  cost	
  to	
  produce	
   incremental	
  new	
  supply	
  of	
  clean	
  electricity,	
  meeting	
  the	
  growing	
  demand	
  in	
  this	
  province	
  has	
  become	
  considerably	
  more	
  expensive.	
  	
  Forecasts	
  of	
  BC	
  Hydro’s	
  growth	
   in	
  demand	
   for	
  electricity	
  suggest	
   that	
  without	
   the	
  implementation	
  of	
  energy	
  efficiency	
  and	
  conservation	
  measures,	
  demand	
  is	
  likely	
  to	
  grow	
  upwards	
  of	
  35%	
  over	
  the	
  next	
  20	
  years	
  (BC	
  Hydro,	
  2009).	
  	
  Rather	
  than	
  meet	
  the	
   growing	
   demand	
   with	
   new	
   supply,	
   BC	
   Hydro	
   has	
   taken	
   the	
   approach	
   that	
  demand-­‐side	
   management	
   (DSM)	
   is	
   more	
   cost	
   effective	
   and	
   better	
   for	
   the	
  environment.	
   	
  The	
  following	
  chart	
   illustrates	
  the	
  growing	
  gap	
  between	
  supply	
  and	
  demand	
  of	
  electricity	
  and	
  the	
  potential	
  role	
  for	
  DSM.	
  	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   6	
   Figure	
  1	
  –	
  BC	
  Hydro’s	
  Supply	
  and	
  Demand	
  Outlook1	
   	
  The	
   residential	
   sector	
   accounts	
   for	
   a	
   significant	
   proportion	
   of	
   total	
   energy	
  consumption	
   in	
   BC.	
   	
   As	
   this	
   demand	
   is	
   closely	
   linked	
   to	
   customer	
   behavior,	
   this	
  represents	
   a	
   substantial	
   target	
   for	
   DSM	
   measures.	
   	
   The	
   figure	
   below	
   shows	
   the	
  breakdown	
  of	
  total	
  energy	
  use	
  in	
  BC	
  and	
  the	
  residential	
  share	
  by	
  end-­‐use	
  and	
  fuel	
  type.	
   	
   	
   	
   	
   	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  1	
  Figure	
  extracted	
  from:	
  BC	
  Hydro.	
  (2009).	
  BC	
  Hydro's	
  Electricity	
  Conservation	
  Report.	
  Retrieved	
  August	
  23,	
  2010,	
  from	
  http://www.bchydro.com/:	
  http://www.bchydro.com/etc/medialib/internet/documents/planning_regulatory/meeting_demand/DSM_Report_2009.Par.0001.File.GDS09_316_DSM_Report_November_6.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   7	
   Figure	
  2	
  -­	
  Breakdown	
  of	
  Energy	
  Use	
  in	
  BC2	
   	
  	
   2.3 	
   Energy	
  Poverty	
  in	
  BC	
  Energy	
  poverty	
  occurs	
  when	
  the	
  quality	
  of	
  life	
  in	
  a	
  household	
  is	
  compromised	
  by	
  the	
  cost	
  of	
  energy.	
  In	
  a	
  2007	
  report	
  produced	
  for	
  the	
  BC	
  Ministry	
  of	
  Energy,	
  Mines	
  and	
  Petroleum	
   Resources,	
   Liz	
   Kelly	
   investigates	
   the	
   existing	
   energy	
   burden	
   on	
   low-­‐income	
  families	
  in	
  BC	
  and	
  provides	
  a	
  critique	
  of	
  some	
  of	
  the	
  recent	
  attempts	
  by	
  the	
  provincial	
  government	
  to	
  address	
  household	
  energy	
  efficiency.	
  	
  In	
  this	
  report,	
  Kelly	
  found	
  that	
  in	
  many	
  jurisdictions,	
  an	
  annual	
  energy	
  bill	
  that	
  amounts	
  to	
  10%	
  or	
  more	
  of	
   a	
   household’s	
   after	
   tax	
   income	
   is	
   considered	
   to	
   be	
   a	
   disproportionate	
   energy	
  burden	
   that	
   could	
   lead	
   to	
   energy	
  poverty	
   (Kelly,	
   2007).	
   	
  Households	
   faced	
  with	
   a	
  disproportionate	
   energy	
  burden	
   are	
   often	
   faced	
  with	
   an	
   inability	
   to	
   pay	
   for	
   other	
  essential	
  elements	
  of	
  a	
  healthy	
  lifestyle	
  such	
  as	
  food,	
  shelter	
  and	
  clothing	
  in	
  order	
  to	
  heat	
  their	
  homes	
  to	
  a	
  comfortable	
  temperature	
  (Kelly,	
  2007).	
  	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  2	
  Data	
  Source:	
  Statistics	
  Canada.	
  (2008).	
  Report	
  on	
  Energy	
  Supply	
  and	
  Demand	
  in	
  Canada.	
  Retrieved	
  June	
  1,	
  2010,	
  from	
  http://www.statcan.gc.ca:	
  http://www.statcan.gc.ca/pub/57-­‐003-­‐x/57-­‐003-­‐x2008000-­‐eng.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   8	
   This	
  problem	
  is	
  amplified	
  by	
  the	
  fact	
  that	
  low	
  income	
  households,	
  which	
  are	
  at	
  the	
  greatest	
   risk	
   of	
   facing	
   a	
   disproportionate	
   energy	
   burden,	
   are	
  most	
   often	
   the	
   least	
  able	
  to	
  alter	
  their	
  use	
  of	
  energy	
  or	
  pay	
  for	
  energy	
  efficiency	
  improvements.	
  	
  Further,	
  data	
   shows	
   that	
   households	
   in	
   the	
   lowest	
   income	
   quintile	
   in	
   Canada	
   occupy	
   the	
  greatest	
   proportion	
   of	
   older	
   homes	
  with	
   low	
   efficiency	
   insulation	
   and	
   appliances	
  (Kelly,	
  2007).	
  	
  	
  	
  Energy	
   efficiency	
   programs,	
   which	
   often	
   provide	
   assistance	
   to	
   homeowners	
   to	
  install	
  energy	
  efficient	
  retrofits,	
  require	
  that	
  the	
  participant	
  pay	
  for	
  at	
  least	
  a	
  portion	
  of	
   the	
   costs	
   and	
   are	
   generally	
   funded	
   through	
   energy	
   rate	
   increases.	
   	
   Customers	
  already	
   faced	
   with	
   a	
   disproportionate	
   energy	
   burden	
   cannot	
   likely	
   afford	
   to	
  participate.	
   	
  The	
  result	
   is	
  that	
  they	
  will	
  see	
  none	
  of	
  the	
  benefits	
  of	
  these	
  programs	
  while	
  helping	
  to	
  fund	
  them	
  through	
  their	
  energy	
  bill	
  (McEachern	
  &	
  Vivian,	
  2010).	
  	
  	
  	
  Renters	
  face	
  the	
  additional	
  challenge	
  of	
  the	
  split	
   incentive	
  between	
  the	
  short-­‐term	
  savings	
  they	
  may	
  receive	
  through	
  energy	
  efficiency	
  gains	
  and	
  a	
  landlord	
  who	
  owns	
  the	
  building	
  but	
  usually	
  does	
  not	
  pay	
  the	
  energy	
  bill	
  (Kelly,	
  2007).	
  	
  	
  In	
   order	
   to	
  meet	
   the	
   targets	
   set	
   out	
   by	
   the	
  2007	
   Energy	
   Plan	
   and	
   the	
  2010	
   Clean	
   Energy	
  Act,	
  BC	
  Hydro	
  has	
  begun	
   to	
   implement	
  new	
  pricing	
   structures	
  designed	
   to	
  encourage	
  responsible	
  use	
  of	
  electricity	
  and	
  conservation.	
   	
  The	
  first	
  of	
  these	
  is	
  the	
  RIB	
   rate,	
   established	
   in	
   2008	
   and	
   government	
   mandated	
   smart	
   meters	
   that	
   will	
  bring	
  TOU	
  pricing	
  into	
  the	
  fore	
  by	
  2012.	
  	
  With	
  sharp	
  cost	
  increases	
  that	
  are	
  required	
  to	
  recover	
  the	
  growing	
  costs	
  of	
  incremental	
  new	
  supply	
  of	
  electricity,	
  these	
  new	
  rate	
  structures	
  have	
   the	
  potential	
   to	
  place	
   an	
   added	
  burden	
  on	
   those	
  who	
  are	
   already	
  experiencing,	
  or	
  are	
  vulnerable	
  to,	
  energy	
  poverty.	
  	
  	
   3.0 	
   DISTRIBUTIONAL	
  ANALYSIS	
  OF	
  RIB	
  RATE	
  This	
   section	
   is	
   focused	
   on	
   the	
   recently	
   implemented	
   two-­‐tiered	
   pricing	
   structure	
  referred	
  to	
  by	
  BC	
  Hydro	
  as	
  the	
  RIB	
  rate.	
  	
  The	
  majority	
  of	
  the	
  research	
  on	
  this	
  topic	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   9	
   came	
  from	
  documentation	
  of	
  the	
  public	
  hearing	
  conducted	
  by	
  the	
  British	
  Columbia	
  Utilities	
  Commission	
  (BCUC)	
   following	
  BC	
  Hydro’s	
  RIB	
  rate	
  application.	
   	
  BCUC	
   is	
  a	
  regulatory	
  agency	
  established	
  under	
   the	
  Utilities	
  Commission	
  Act	
   that	
  oversees	
   the	
  activities	
  of	
  energy	
  utilities	
  in	
  the	
  province.	
  	
  	
  	
  In	
   this	
   section,	
   the	
   analysis	
   presented	
   as	
   evidence	
   throughout	
   the	
   hearing	
   is	
  reviewed	
   with	
   a	
   specific	
   lens	
   to	
   the	
   implications	
   for	
   low-­‐income	
   households.	
   	
   In	
  section	
   3.8,	
   an	
   in-­‐depth	
   analysis	
   of	
   the	
   potential	
   impacts	
   of	
   the	
   RIB	
   rate	
   on	
   low-­‐income	
  households,	
  conducted	
  for	
  this	
  paper,	
  is	
  presented,	
  followed	
  by	
  a	
  discussion	
  of	
  the	
  repercussions	
  for	
  social	
  justice.	
  	
  In	
   February	
   2008	
   BC	
   Hydro	
   submitted	
   it’s	
   application	
   to	
   the	
   BCUC	
   for	
  implementation	
  of	
  the	
  RIB	
  rate	
  for	
  billing	
  its	
  residential	
  customers.	
  	
  Referred	
  to	
  by	
  BC	
  Hydro	
   as	
   a	
   “conservation	
   rate”,	
   the	
  RIB	
   rate	
   consists	
   of	
   a	
   two-­‐step	
   electricity-­‐pricing	
  scheme	
  that	
  is	
  intended	
  to	
  encourage	
  electricity	
  conservation	
  through	
  direct	
  price	
  signals	
  to	
  its	
  residential	
  customers.	
  	
  	
  	
  The	
  plan	
  to	
  implement	
  the	
  RIB	
  rate	
  was	
  largely	
  driven	
  by	
  the	
  policy	
  objectives	
  set	
  out	
   in	
   the	
   provincial	
   governments	
  2007	
   Energy	
   Plan.	
   	
   These	
   objectives	
   include:	
   a	
  target	
   of	
   50%	
   of	
   Hydro’s	
   incremental	
   electricity	
   demand	
   to	
   be	
   met	
   through	
  conservation	
   by	
   2020;	
   and	
   a	
   requirement	
   that	
   BC	
   utilities	
   explore	
   new	
   rate	
  structures	
  that	
  encourage	
  energy	
  conservation	
  (The	
  Government	
  of	
  the	
  Province	
  of	
  BC,	
  2007).	
   	
  The	
  2010	
  Clean	
  Energy	
  Act	
   further	
  expresses	
  these	
  objectives	
  and	
  puts	
  into	
   legislation	
   a	
   required	
   reduction	
   of	
   the	
   “expected	
   increase	
   in	
   demand	
   for	
  electricity	
  by	
  the	
  year	
  2020”	
  of	
  at	
  least	
  66%	
  (Bill	
  17	
  -­‐	
  2010	
  Clean	
  Energy	
  Act,	
  2010).	
  	
  BC	
  Hydro	
  has	
  experienced	
  a	
  rapidly	
  growing	
  customer	
  base	
  and	
  increasing	
  demand	
  for	
  electricity	
  that	
  are	
  stretching	
  the	
  utility	
  to	
  the	
  limits	
  of	
  its	
  existing	
  hydroelectric	
  output	
  and	
  transmission	
  capabilities.	
  	
  With	
  the	
  province’s	
  focus	
  on	
  developing	
  run-­‐of-­‐the-­‐river	
  and	
  other	
  renewable	
  sources	
  to	
  meet	
  growing	
  demand,	
  the	
  future	
  costs	
  of	
   new	
   supply	
   are	
   much	
   higher	
   than	
   the	
   embedded	
   cost	
   of	
   the	
   existing	
   assets.	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   10	
   General	
  rate	
  increases	
  and	
  conservation-­‐pricing	
  structures	
  are	
  ways	
  to	
  address	
  both	
  the	
  increased	
  future	
  revenue	
  and	
  conservation	
  requirements.	
  	
  According	
  to	
  BC	
  Hydro,	
  the	
  top	
  20%	
  of	
  residential	
  customers,	
  ranked	
  for	
  electricity	
  consumption,	
  in	
  BC	
  represents	
  approximately	
  44%	
  of	
  the	
  total	
  residential	
  demand.	
  	
  On	
  average,	
  households	
  in	
  this	
  quintile	
  consume	
  25,000	
  kWh	
  of	
  electricity.	
   	
  This	
  is	
  almost	
  9	
  times	
  the	
  average	
  for	
  the	
  bottom	
  quintile	
  and	
  more	
  than	
  2	
  times	
  the	
  overall	
  residential	
  average	
   (BC	
  Hydro,	
  2008c).	
   	
  The	
  chart	
  below,	
  extracted	
   from	
  the	
  2008	
  RIB	
  Application	
  shows	
  the	
  disproportionate	
  amount	
  of	
  electricity	
  consumed	
  by	
  the	
  minority	
  of	
  customers.	
  	
   Figure	
  3	
  -­	
  System	
  Load	
  Distribution	
  Across	
  Residential	
  Customers3	
   	
   Annual	
  Electricity	
  Consumption	
  (1,000s	
  of	
  kWh)	
  	
  The	
  RIB	
  rate	
   is	
   intended	
  to	
  directly	
  address	
  the	
  disproportionate	
   load	
  imposed	
  on	
  energy	
   demand	
   from	
   BC	
   Hydro	
   by	
   a	
   minority	
   of	
   residential	
   customers.	
   	
   Large	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  3	
  Figure	
  extracted	
  from:	
  BC	
  Hydro.	
  (2008).	
  Residential	
  Inclining	
  Block	
  Application.	
  Retrieved	
  June	
  22,	
  2010,	
  from	
  BCUC	
  Website:	
  http://www.bcuc.com/Documents/Proceedings/2008/DOC_18056_B-­‐1_Residential_Inclining-­‐Block-­‐Rate.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   11	
   consumers	
  will	
  be	
  subjected	
  to	
  a	
  higher	
  unit	
  rate	
  that	
  is	
  designed	
  to	
  both	
  recoup	
  the	
  increasing	
  costs	
  of	
  incremental	
  new	
  supply	
  and	
  to	
  encourage	
  conservation	
  through	
  investment	
  in	
  energy	
  efficiency	
  measures	
  and	
  reduced	
  consumption.	
   3.1 Regulatory	
  Framework	
  As	
   a	
   utility	
   regulated	
   by	
   the	
   BCUC,	
   BC	
   Hydro	
   is	
   responsible	
   for	
   periodically	
  reviewing	
  its	
  rate	
  structure	
  and	
  submitting	
  applications	
  to	
  the	
  commission	
  for	
  any	
  proposed	
   changes.	
   	
   In	
  March	
   2007,	
   BC	
  Hydro	
   filed	
   one	
   such	
   application	
   aimed	
   at	
  restructuring	
   the	
   rates	
  paid	
  by	
   various	
   customer	
   classes.	
   	
   This	
  was	
   the	
   first	
   since	
  1991	
  when	
  the	
  utility	
  applied	
  to	
  replace	
  the	
  previous	
  declining	
  block	
  rate	
  structure	
  with	
  a	
  flat	
  rate	
  (BCUC,	
  2007).	
  	
  	
  In	
   October	
   2007,	
   following	
   a	
   public	
   hearing	
   of	
   BC	
   Hydro’s	
   2007	
   Rate	
   Design	
   Application	
   (2007	
   RDA),	
   the	
   BCUC	
   directed	
   BC	
   Hydro	
   to	
   adjust	
   its	
   rates	
   in	
   equal	
  increments	
  over	
  the	
  following	
  three	
  years	
  in	
  order	
  to	
  achieve	
  an	
  overall	
  revenue-­‐to-­‐costs	
  ratio	
  of	
  1	
  (BC	
  Hydro,	
  2008c).	
  	
  This	
  decision	
  set	
  in	
  place	
  a	
  process	
  by	
  which	
  BC	
  Hydro	
   could	
   begin	
   to	
   recover	
   the	
   increasing	
   costs	
   of	
   new	
   supply	
   through	
  applications	
  to	
  the	
  BCUC.	
  	
  	
  	
  	
  Following	
  the	
  2007	
  RDA	
  decision,	
  BC	
  Hydro	
  filed	
  an	
  application	
  for	
  approval	
  of	
   its	
  projected	
  revenue	
  requirements	
  for	
  the	
  2009	
  and	
  2010	
  fiscal	
  years	
  (F09/F10	
  RRA).	
  	
  This	
  would	
  be	
  the	
  basis	
  for	
  the	
  future	
  rate	
  increases	
  to	
  the	
  residential	
  class	
  and	
  the	
  baseline	
   for	
   analysis	
   of	
   the	
   RIB	
   rate,	
   proposed	
   in	
   the	
   RIB	
   application	
   submitted	
  immediately	
  after	
  the	
  F09/F10	
  RRA	
  (BC	
  Hydro,	
  2008c).	
   3.2 Design	
  of	
  the	
  RIB	
  Rate	
  The	
   basic	
   principle	
   of	
   the	
   RIB	
   rate	
   design	
   is	
   that	
   customers	
   consuming	
   excess	
  amounts	
  of	
   electricity	
  ought	
   to	
  be	
   responsible	
   for	
   a	
   larger	
   share	
  of	
   the	
   costs	
   than	
  those	
   who	
   may	
   already	
   be	
   conserving.	
   	
   As	
   such,	
   an	
   electricity	
   consumption	
  threshold	
  is	
  established	
  beyond	
  which	
  consumers	
  are	
  billed	
  at	
  a	
  higher	
  rate.	
  	
  It	
  was	
  established	
   in	
   BC	
   Hydro’s	
   2008	
   RIB	
   application	
   that	
   the	
   rate	
   structure	
   would	
   be	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   12	
   designed	
   to	
   be	
   revenue	
   neutral	
   with	
   respect	
   to	
   a	
   flat	
   rate	
   meeting	
   equivalent	
  revenue	
  requirement	
  projections	
  for	
  the	
  residential	
  class.	
  	
  A	
  number	
  of	
  design	
  criteria	
  were	
  established	
  in	
  the	
  2007	
  RDA	
  that	
  were	
  considered	
  essential	
   in	
  meeting	
  the	
  statutory	
  requirement	
  of	
  a	
  rate	
  structure	
  that	
   is	
  “fair,	
   just	
  and	
  not	
  unduly	
  discriminatory”	
  (BCUC,	
  2007).	
  These	
  are:	
  	
   1. “Recovery	
  of	
  the	
  revenue	
  requirement;	
   	
   2. Fair	
  apportionment	
  of	
  costs	
  among	
  customers;	
   	
   3. Price	
  signals	
  that	
  encourage	
  efficient	
  use	
  and	
  discourage	
  inefficient	
  use;	
   	
   4. Customer	
  understanding	
  and	
  acceptance;	
   	
   5. Practical	
  and	
  cost	
  effective	
  to	
  implement;	
   	
   6. Rate	
  and	
  bill	
  stability;	
   	
   7. Provision	
  of	
  revenue	
  stability;	
  and	
   	
   8. Avoidance	
  of	
  undue	
  discrimination	
  (BCUC,	
  2007).”	
  	
  In	
  addition	
   to	
   the	
  8	
  criteria	
   listed	
  above,	
  BC	
  Hydro	
  established	
  a	
   set	
  of	
   “economic	
  efficiency	
  tests”	
  for	
  the	
  RIB	
  rate	
  structure	
  that	
  would	
  have	
  to	
  be	
  carefully	
  balanced	
  throughout	
  the	
  design	
  process:	
  	
   • “No	
   customer	
   should	
   see	
   a	
   rate	
   decrease,	
   to	
   avoid	
   providing	
   disincentives	
   to	
   conservation;	
   	
   • As	
   many	
   customers	
   as	
   possible	
   should	
   see	
   the	
   Step-­2	
   Rate,	
   to	
   maximize	
   the	
   number	
  of	
  customers	
  that	
  have	
  incentives	
  to	
  conserve;	
   	
   • The	
  differential	
  between	
  the	
  Step-­1	
  Rate	
  and	
  Step-­2	
  Rate	
  should	
  be	
  sufficiently	
   large	
  to	
  provide	
  a	
  meaningful	
  incentive	
  for	
  conservation;	
  and	
   	
   • The	
  Step-­2	
  Rate	
  should	
  be	
  more	
  reflective	
  of,	
  while	
  not	
  exceeding,	
  the	
  full	
  cost	
   of	
  new	
  supply	
  (plus	
  fixed	
  costs),	
  relative	
  to	
  the	
  otherwise	
  applicable	
  flat	
  rate,	
  to	
   incent	
  more	
  conservation	
  than	
  under	
  a	
  flat	
  rate	
  (BC	
  Hydro,	
  2008c).”	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   13	
   In	
   an	
   analysis	
   of	
   the	
   flat	
   rate	
   structure	
   regarding	
   the	
   above	
   principles,	
   BC	
  Hydro	
  determined	
   that	
   the	
  previous	
  rate	
  structure	
  did	
  not	
   send	
  effective	
  price	
  signals	
   to	
  residential	
   customers.	
   Further,	
   it	
   did	
   not	
   account	
   for	
   the	
   increasing	
   costs	
   of	
  incremental	
  new	
  supply.	
   	
  Rather,	
   the	
  embedded	
  cost	
  of	
  BC	
  Hydro’s	
  existing	
  assets	
  were	
   distributed	
   across	
   the	
   customer	
   base	
   proportionally	
  with	
   respect	
   to	
   energy	
  consumption	
  (BC	
  Hydro,	
  2008c).	
   	
   	
   It	
   is	
  clear	
   from	
  BC	
  Hydro’s	
  concurrent	
  F09/F10	
  RRA	
   and	
   RIB	
   rate	
   applications	
   that	
  while	
   all	
   of	
   the	
   design	
   principles	
   and	
   criteria	
  were	
   considered	
   in	
   the	
   rate	
   design	
   process,	
   the	
   need	
   for	
   a	
   rate	
   structure	
   that	
  accounts	
   for	
   the	
   incremental	
   cost	
   of	
   future	
   supply	
   was	
   paramount	
   and	
   potential	
  energy	
  conservation	
  was	
  a	
  desirable	
  secondary	
  outcome.	
   3.3 Proposed	
  Design	
  Parameters	
  The	
   billing	
   structure	
   of	
   the	
   RIB	
   rate	
   consists	
   of	
   3	
   major	
   components	
   whose	
  numerical	
  values	
  determine	
  how	
  each	
  customer	
  will	
  be	
  impacted	
  and	
  the	
  resulting	
  effect	
  on	
  BC	
  Hydro’s	
  revenues	
  and	
  overall	
  conservation.	
   	
  The	
  basic	
  components	
  of	
  the	
  RIB	
  rate	
  include	
  a	
  basic	
  charge	
  (or	
  daily	
  connection	
  fee),	
  an	
  initial	
  rate	
  charged	
  per	
  unit	
  of	
   energy	
  consumption	
   (step	
  1	
   rate)	
  and	
  an	
   increased	
  secondary	
   rate	
   for	
  consumption	
   (step	
   2	
   rate)	
   in	
   excess	
   of	
   a	
   specified	
   bi-­‐monthly	
   threshold	
   (step	
   2	
  threshold).	
  	
  	
  By	
   nature	
   of	
   this	
   type	
   of	
   rate	
   structure,	
   there	
   are	
   three	
   avenues	
   for	
   affecting	
   the	
  distribution	
  of	
  the	
  bill	
  impact	
  across	
  the	
  customer	
  base:	
  	
  	
   1. The	
  basic	
   charge	
   is	
   applied	
   as	
   a	
   daily	
   rate	
   to	
   every	
   customer	
   regardless	
   of	
  consumption	
  level;	
  	
  2. The	
  step	
  1	
  rate	
  is	
  applied	
  to	
  all	
  customers	
  at	
  a	
  fixed	
  rate;	
  and	
  3. The	
  step	
  2	
  rate	
   is	
  also	
   fixed,	
  but	
  the	
   impact	
  on	
  customers	
  varies	
  depending	
  on	
  the	
  chosen	
  step	
  2	
  threshold.	
  	
  	
  	
  The	
  basic	
  charge	
  is	
  intended	
  to	
  recover	
  some	
  of	
  the	
  fixed	
  service	
  costs.	
  	
  Based	
  on	
  the	
  design	
  criteria	
  set	
  out	
  in	
  the	
  2007	
  RDA,	
  the	
  design	
  of	
  the	
  rate	
  structure	
  is	
  confined	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   14	
   by	
  the	
  requirement	
  that:	
  a)	
  no	
  customers	
  should	
  see	
  a	
  rate	
  decrease;	
  and	
  b)	
  the	
  step	
  2	
  rate	
  should	
  not	
  exceed	
  the	
  full	
  cost	
  of	
  new	
  supply	
  (BCUC,	
  2008b).	
  	
  	
   3.4 Calculating	
  the	
  RIB	
  Rate	
  Development	
  of	
   the	
  specific	
  parameters	
  of	
   the	
  RIB	
  rate	
   is	
  an	
   iterative	
  process	
  and	
  requires	
  regular	
  updates.	
   	
   In	
  BC	
  Hydro’s	
  RIB	
  Application,	
   it	
  was	
  proposed	
  that	
  the	
  RIB	
  rate	
  structure	
  be	
  calculated	
  based	
  on	
  the	
  consumption	
  data	
  from	
  the	
  previous	
  two	
  years.	
   	
  The	
  first	
  step	
  in	
  this	
  process	
  would	
  then	
  be	
  to	
  determine	
  a	
  bi-­‐monthly	
  step	
  2	
   threshold.	
   	
   In	
  BC	
  Hydro’s	
  proposal,	
   the	
   step	
  1	
   rate	
  and	
  basic	
   charge	
  would	
  have	
   remained	
   the	
   same	
  as	
   in	
   the	
  previous	
   flat	
   rate	
   structure,	
   escalating	
  annually	
  for	
  inflation.	
  	
  Using	
  the	
  previous	
  2	
  years	
  of	
  consumption	
  data,	
  the	
  projected	
  revenue	
  from	
  the	
  basic	
  charge	
  and	
  step	
  1	
  rate	
  could	
  be	
  approximated.	
  	
  The	
  step	
  2	
  rate	
  would	
  then	
   be	
   calculated	
   annually	
   based	
   on	
   the	
   residual	
   component	
   of	
   the	
   projected	
  revenue	
   requirement	
   that	
   is	
   not	
   met	
   by	
   the	
   step	
   1	
   rate	
   and	
   basic	
   charge.	
   	
   This	
  proposed	
  rate	
  structure	
  was	
  designed	
  to	
  be	
  revenue	
  neutral	
  with	
  respect	
  to	
  the	
  flat	
  rate	
  structure.	
  	
  	
  In	
   theory,	
   this	
   proposed	
   design	
   was	
   accepted	
   by	
   BCUC.	
   The	
   methodology	
   for	
  calculating	
   the	
  step	
  1	
  and	
  2	
   rates	
   in	
  BC	
  Hydro’s	
  2008	
  RIB	
  Application	
  was	
   revised	
  through	
  the	
  process	
  of	
  the	
  BCUC	
  hearing,	
  as	
  described	
  below,	
  but	
  it	
  is	
  worthwhile	
  to	
  consider	
  as	
  it	
  provides	
  insight	
  into	
  the	
  implications	
  of	
  the	
  rate	
  design	
  process.	
   3.5 Price	
  Elasticity	
  BC	
  Hydro	
  estimated	
  that	
  the	
  elasticity	
  of	
  demand	
  for	
  the	
  proposed	
  RIB	
  rate	
  would	
  fall	
   somewhere	
   between	
   -­‐0.075	
   and	
   -­‐0.15	
   and	
   would	
   be	
   generally	
   uniform.	
   This	
  means	
   that	
   for	
   each	
   price	
   increase	
   of	
   1%	
   there	
  will	
   be	
   a	
   reduction	
   in	
   demand	
   of	
  0.075	
   –	
   0.15%.	
   	
   When	
   compared	
   to	
   an	
   estimated	
   elasticity	
   of	
   demand	
   of	
   the	
  previous	
  flat	
  rate	
  structure	
  of	
  -­‐0.05,	
  the	
  RIB	
  rate	
  was	
  estimated	
  to	
  result	
  in	
  200-­‐500	
  GWh/year	
  of	
   conservation	
  over	
   a	
   flat	
   rate	
  by	
   the	
  2010	
   fiscal	
   year	
   (BCUC,	
  2008b).	
  	
  Assumptions	
   for	
   these	
   calculations	
   were	
   drawn	
   from	
   various	
   studies	
   of	
   demand	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   15	
   response	
  in	
   jurisdictions	
  with	
  similar	
  conditions	
  to	
  BC	
  with	
  respect	
  to	
  climate	
  and	
  resources.	
  	
  	
  The	
  logic	
  presented	
  in	
  BC	
  Hydro’s	
  RIB	
  application	
  suggests	
  that	
  the	
  customers	
  who	
  consume	
  less	
  electricity	
  and	
  are	
  less	
  likely	
  to	
  exceed	
  the	
  step	
  2	
  threshold	
  will	
  have	
  reduced	
   incentive	
   to	
   conserve	
   from	
   the	
   previous	
   flat	
   rate	
   structure	
   since	
   the	
   flat	
  rate	
   would	
   increase	
   at	
   a	
   higher	
   rate	
   than	
   the	
   step	
   1	
   RIB	
   rate	
   over	
   time.	
   	
   The	
  incentive	
   for	
   larger	
   consumers	
   to	
   conserve	
  will	
  be	
  greater	
  under	
   the	
   flat	
   rate	
  and	
  this	
  incentive	
  will	
  continue	
  to	
  increase	
  over	
  time.	
  	
  As	
  the	
  larger	
  consumers	
  account	
  for	
   a	
   much	
   larger	
   proportion	
   of	
   overall	
   residential	
   consumption,	
   BC	
   Hydro	
  suggested	
   that	
   the	
   increased	
   incentive	
   for	
   conservation	
   in	
   this	
   group	
  would	
  more	
  than	
  offset	
  a	
  reduced	
  incentive	
  among	
  the	
  lower	
  consumers.	
   	
  The	
  overall	
  effect,	
  as	
  predicted	
  by	
  BC	
  Hydro,	
  would	
  be	
  an	
  overall	
  greater	
  amount	
  of	
  conservation	
  with	
  the	
  RIB	
  rate	
  than	
  under	
  the	
  previous	
  flat	
  rate.	
   3.6 Bill	
  Impact	
  As	
  part	
  of	
  its	
  2008	
  RIB	
  rate	
  application	
  to	
  BCUC,	
  BC	
  Hydro	
  conducted	
  a	
  “Bill	
  Impact	
  Study”.	
  	
  It	
  suggested	
  that	
  75%	
  of	
  residential	
  customers	
  would	
  be	
  better	
  off,	
  in	
  terms	
  of	
  bill	
  increases,	
  with	
  the	
  proposed	
  RIB	
  rate	
  than	
  they	
  would	
  have	
  been	
  under	
  a	
  flat	
  rate	
  escalating	
  in	
  accordance	
  with	
  F09/F10	
  RRA	
  rate	
  increases	
  (BC	
  Hydro,	
  2008b).	
  	
  	
  	
  The	
  Bill	
   Impact	
  Study	
   included	
  an	
  assessment	
  of	
   the	
  proposed	
  rate	
  structure	
  with	
  respect	
   to	
   potentially	
   adverse	
   impacts	
   on	
   residential	
   customers	
   of	
   various	
  groupings.	
   	
  The	
  groupings,	
  or	
  segments	
  as	
  referred	
  to	
  in	
  the	
  application,	
  are	
  based	
  on	
  household	
  income,	
  region	
  of	
  the	
  province,	
  dwelling	
  type,	
  household	
  size,	
  heating	
  fuel	
  type,	
  and	
  customer	
  age.	
   	
  The	
  intention	
  was	
  to	
  assess	
  whether	
  adverse	
  impacts	
  of	
  the	
  RIB	
  rate	
  would	
  be	
  concentrated	
  within	
  any	
  of	
  the	
  customer	
  groupings.	
  	
  	
  	
  In	
  response	
  to	
  various	
  calls	
  from	
  interveners	
  for	
  evidence	
  of	
  this	
  analysis,	
  BC	
  Hydro	
  produced	
  a	
  series	
  of	
   tables	
   to	
  demonstrate	
   the	
  bi-­‐monthly	
   impacts	
  of	
   the	
  RIB	
  rate	
  compared	
  to	
  the	
  previous	
  flat	
  rate	
  over	
  a	
  typical	
  year	
  (based	
  on	
  the	
  2006	
  Residential	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   16	
   End-­Use	
  Study)	
   for	
   each	
  of	
   the	
   customer	
  groupings.	
   	
  The	
   table	
  below	
  presents	
   the	
  data	
  from	
  this	
  assessment	
  based	
  on	
  household	
  income	
  groupings.	
  	
   Table	
  1	
  -­	
  Bill	
  Impact	
  Analysis	
  by	
  Income4	
  	
   	
  	
  	
  -­‐	
  See	
  next	
  page	
  -­‐	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  4	
  Figure	
  extracted	
  from:	
  BC	
  Hydro.	
  (2008).	
  Responses	
  to	
  BCUC	
  and	
  Intervenors	
  Information	
  Request	
  No	
   2.	
  Retrieved	
  July	
  1,	
  2010,	
  from	
  BCUC	
  Website:	
  	
  http://www.bcuc.com/Documents/Proceedings/2008/DOC_18749_B-­‐7_BCH-­‐IR2-­‐to-­‐BCUC&Intervenors.pdf	
   Table 1 Household Income Estimated Customers Unweighted base size for impact modeling Variable Apr- 09 May- 09 Jun- 09 Jul- 09 Aug- 09 Sep- 09 Oct- 09 Nov- 09 Dec- 09 Jan- 10 Feb- 10 Mar- 10 Total fiscal Estimated total revenue from all customers in group Average Monthly kWh 596 501 423 415 423 459 597 739 874 880 750 728 7,386 - Bi-monthly Bill Flat Rate $86 $68 $71 $103 $133 $113 $574 $107,583,227 Bi-Monthly Bill RIB Rate $82 $63 $65 $100 $134 $112 $555 $104,042,095 Under $20,000 187,500 364 % Difference: Rib vs. Flat -5.1% -7.9% -7.8% -3.0% 0.7% -1.2% -3.3% -3.3% Average Monthly kWh 658 584 514 526 527 547 695 820 961 963 811 805 8,412 - Bi-monthly Bill Flat Rate $97 $82 $85 $116 $145 $123 $647 $243,764,119 Bi-Monthly Bill RIB Rate $91 $76 $79 $112 $146 $121 $625 $235,255,971 $20,000 to under $40,000 376,500 731 % Difference: Rib vs. Flat -5.6% -7.6% -7.2% -3.1% 0.5% -1.6% -3.5% -3.5% Average Monthly kWh 761 677 597 608 617 636 804 956 1,107 1,107 925 906 9,705 - Bi-monthly Bill Flat Rate $111 $94 $97 $133 $165 $138 $739 $235,040,193 Bi-Monthly Bill RIB Rate $107 $88 $92 $132 $169 $138 $726 $230,880,026 $40,000 to under $60,000 318,000 665 % Difference: Rib vs. Flat -3.7% -5.9% -5.6% -1.2% 2.1% -0.1% -1.8% -1.8% Average Monthly kWh 841 751 666 674 686 710 868 1,048 1,220 1,224 1,036 1,001 10,726 - Bi-monthly Bill Flat Rate $121 $104 $107 $144 $182 $153 $812 $200,849,724 Bi-Monthly Bill RIB Rate $118 $98 $102 $144 $187 $154 $803 $198,651,929 $60,000 to under $80,000 247,500 523 % Difference: Rib vs. Flat -3.1% -5.4% -4.9% -0.6% 3.0% 0.8% -1.1% -1.1% Average Monthly kWh 993 880 786 794 797 840 1,041 1,220 1,412 1,412 1,185 1,169 12,533 - Bi-monthly Bill Flat Rate $141 $121 $125 $169 $209 $176 $940 $219,884,655 Bi-Monthly Bill RIB Rate $140 $116 $121 $171 $218 $180 $945 $221,147,751 $80,000 to under $120,000 234,000 452 % Difference: Rib vs. Flat -1.2% -3.6% -3.2% 1.3% 4.4% 2.3% 0.6% 0.6% Average Monthly kWh 1,149 1,029 899 886 883 929 1,197 1,365 1,614 1,618 1,344 1,344 14,258 - Bi-monthly Bill Flat Rate $163 $135 $137 $190 $238 $199 $1,062 $143,364,051 Bi-Monthly Bill RIB Rate $164 $132 $134 $195 $251 $206 $1,083 $146,140,106 $120,000 or over 135,000 220 % Difference: Rib vs. Flat 0.6% -2.5% -2.1% 2.6% 5.7% 3.6% 1.9% 1.9% Total Revenues Flat Rate $1,156,606,202 Total Revenues RIB Rate $1,142,627,135 Total 1,500,000 2,956 Percentage Difference: Rib vs. Flat -1.2%  Analysis is based on statistically weighted data in BC Hydro’s 2006 Residential End-Use Study – among survey respondents who permitted account linkage – in combination with actual bill impact modelling.  Note for percentage Difference RIB vs. Flat: The dollar amounts are rounded, but the percent differences are based on non-rounded bill impact values.  Estimated total revenues under Flat and RIB rates are based on the estimated numbers of customers in the category multiplied by their estimated total fiscal year bills B C U C  IR  2.67.1 A ttachm ent 1 P age 1 of 6 Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   17	
   In	
  its	
  final	
  argument	
  to	
  the	
  commission	
  in	
  the	
  RIB	
  hearing,	
  BC	
  Hydro	
  presented	
  this	
  analysis	
  as	
  evidence	
  that	
  the	
  proposed	
  RIB	
  rate	
  did	
  not	
  unduly	
  discriminate	
  against	
  any	
   specific	
   grouping	
   of	
   the	
   customer	
   base.	
   	
   While	
   conceding	
   that	
   some	
   of	
   the	
  customer	
   characterizations	
   may,	
   in	
   some	
   cases,	
   be	
   correlated	
   to	
   negative	
   bill	
  impacts,	
   these	
  relationships	
  are	
  not	
  determinative	
  or	
  strongly	
  predictive.	
   	
  Further,	
  BC	
   Hydro	
   asserted	
   that	
   the	
   only	
   truly	
   determinative	
   factor	
   in	
   bill	
   increases	
   is	
  consumption,	
   which	
   varies	
   across	
   the	
   customer	
   sub-­‐classes	
   (BC	
   Hydro,	
   2008b).	
  	
  While	
   this	
   may	
   be	
   true,	
   the	
   type	
   of	
   analysis	
   done	
   by	
   BC	
   Hydro,	
   using	
   average	
  monthly	
   electricity	
   consumption	
   for	
   each	
   of	
   the	
   customer	
   subclasses,	
   does	
   not	
  account	
   for	
   the	
  wide	
   range	
   of	
   consumption	
   levels	
   within	
   each	
   of	
   the	
   sub-­‐classes.	
  	
  The	
   average	
   consumption	
   of	
   the	
   lowest	
   income	
   group	
   in	
   the	
   household	
   income	
  analysis	
   is,	
   predictably,	
   quite	
   low.	
   	
   This	
   fails,	
   however,	
   to	
   account	
   for	
   the	
   large	
  consumers	
   within	
   this	
   group	
   who	
   have	
   little	
   or	
   no	
   control	
   over	
   their	
   level	
   of	
  consumption.	
  	
  	
  	
  For	
   each	
   of	
   the	
   customer	
   sub-­‐classes,	
   similar	
   results	
   were	
   presented	
   in	
   the	
   BC	
  Hydro	
   Bill	
   Impact	
   tables.	
   	
   In	
   each	
   case,	
   the	
   category	
   that	
   would	
   be	
   expected	
   to	
  consume	
  more	
  electricity	
  and	
  potentially	
  suffer	
  adverse	
  impacts,	
  such	
  as	
  those	
  with	
  single	
  detached	
  homes,	
  with	
  large	
  number	
  of	
  occupants,	
  located	
  in	
  harsher	
  regions	
  and	
  using	
  electricity	
  as	
  their	
  heating	
  source,	
  would	
  see	
  on	
  average	
  a	
  slightly	
  higher	
  bill	
  under	
  the	
  RIB	
  rate.	
   	
  However,	
  the	
  bill	
   impact	
  from	
  the	
  RIB	
  rate	
  did	
  not	
  exceed	
  $20	
   per	
   year	
   in	
   any	
   of	
   the	
   sub-­‐classes.	
   	
   As	
   with	
   the	
   table	
   showing	
   income	
   sub-­‐classes,	
   the	
   remaining	
   tables	
   show	
   average	
   electricity	
   consumption	
   and	
   therefore	
  are	
   not	
   representative	
   of	
   the	
   minority	
   of	
   large	
   consumers	
   within	
   each	
   sub-­‐class.	
  	
  Further,	
  by	
  aggregating	
   the	
  data	
   into	
  distinct	
   sub-­‐classes,	
   customers	
  who	
  may	
   fall	
  into	
  multiple	
   high-­‐risk	
   sub-­‐class	
   categories,	
   such	
   as	
   low-­‐income,	
   large	
   family	
   and	
  electric	
  heating,	
  are	
  not	
  represented	
  by	
  the	
  data.	
  	
  Research	
  done	
   for	
   this	
  paper	
   includes	
  analysis	
  of	
   the	
  projected	
  bill	
   impacts	
  of	
   the	
  RIB	
   rate	
   compared	
   to	
   a	
   revenue-­‐equivalent	
   flat	
   rate	
   using	
   the	
   current	
   RIB	
   rate	
  parameters	
   and	
   up-­‐to-­‐date	
   consumption	
   data.	
   	
   Included	
   in	
   the	
   analysis	
   are	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   18	
   projections	
   for	
   future	
  RIB	
  rates	
  and	
   the	
  distributional	
   impacts	
  across	
   the	
  range	
  of	
  household	
  incomes.	
  	
  The	
  results	
  are	
  presented	
  in	
  section	
  3.8	
  below.	
  	
   3.7 Decision	
  from	
  Hearing	
  On	
   August	
   28,	
   2008	
   the	
   BCUC	
   concluded	
   that	
   the	
   implementation	
   of	
   BC	
   Hydro’s	
  proposed	
   RIB	
   Rate	
   would	
   be	
   in	
   the	
   public	
   interest	
   and	
   outlined	
   a	
   series	
   of	
  conditions	
  that,	
  if	
  met,	
  would	
  allow	
  the	
  RIB	
  rate	
  to	
  come	
  into	
  effect	
  as	
  of	
  October	
  1,	
  2008	
  (BCUC,	
  2008b).	
  	
  The	
  conditions	
  to	
  the	
  approval	
  included	
  minor	
  changes	
  to	
  the	
  basic	
   structure	
   of	
   the	
   RIB	
   rate	
   and	
   to	
   the	
  methodology	
   for	
   its	
   calculation.	
   	
   As	
   BC	
  Hydro	
   had	
   simultaneously	
   submitted	
   their	
   application	
   for	
   projected	
   revenue	
  requirements	
  for	
  the	
  2009	
  and	
  2010	
  fiscal	
  years,	
  the	
  requirements	
  for	
  the	
  RIB	
  rates	
  were	
  determined	
   to	
   correspond	
  with	
   this	
   time	
  period.	
   	
   Future	
   adjustments	
   to	
   the	
  RIB	
   rate	
   beyond	
   the	
   2010	
   fiscal	
   year	
   (ie.	
   April	
   1,	
   2010)	
   would	
   be	
   dealt	
   with	
   in	
  subsequent	
  applications.	
  	
  	
  In	
  its	
  decision,	
  the	
  Commission	
  considered	
  the	
  proportion	
  of	
  revenue	
  that	
  would	
  be	
  collected	
  by	
  each	
  of	
  the	
  step	
  1	
  and	
  2	
  rates	
  based	
  on	
  the	
  proposed	
  rate	
  structure	
  and	
  projected	
  increases	
  to	
  the	
  revenue	
  requirement.	
   	
  Drawing	
  on	
  submissions	
  from	
  BC	
  Hydro,	
  the	
  Commission	
  noted	
  that	
  there	
  would	
  be	
  a	
  cumulative	
  increase	
  of	
  59%	
  in	
  the	
   revenue	
   requirement	
   over	
   the	
   next	
   10	
   years	
   and	
   the	
   step	
   1	
   and	
   step	
   2	
   rates	
  would	
   increase	
   by	
   23%	
   and	
   135%,	
   respectively.	
   	
   The	
   commission	
   considered	
   the	
  dramatically	
  uneven	
  price	
  signals	
  that	
  would	
  result	
  for	
  customers	
  above	
  and	
  below	
  the	
  step	
  2	
  threshold	
  to	
  be	
  “unjust	
  and	
  unreasonable”	
  (BCUC,	
  2008b).	
  	
  	
  	
  Favoring	
  a	
  price	
  structure	
  that	
  would	
  send	
  more	
  balanced	
  price	
  signals	
  in	
  both	
  the	
  step	
  1	
  and	
  2	
  rates,	
  the	
  commission	
  found	
  that	
  a	
  reasonable	
  cap	
  ought	
  to	
  be	
  set	
  for	
  the	
   step	
  2	
   rate	
   for	
   the	
  F2009	
  and	
  F2010	
  periods.	
   	
   It	
  was	
  determined	
   that	
   the	
   cap	
  ought	
   to	
   reflect	
   the	
   incremental	
   cost	
  of	
  new	
  supply	
   including	
   transmission	
   losses.	
  	
  As	
  such,	
   the	
  BCUC	
  decided	
   that	
   the	
  previous	
   flat	
   rate	
  would	
  be	
   increased	
   in	
  equal	
  increments	
   to	
   a	
   step	
   2	
   cap	
   of	
   8.27	
   cents/kWh	
   for	
   the	
   F2009	
   and	
   F2010	
   periods.	
  	
  This	
  was	
  the	
  established	
  “Long	
  Run	
  Marginal	
  Costs”	
  based	
  on	
  figures	
  presented	
   in	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   19	
   the	
  F2006	
  call	
  for	
  tenders	
  (BCUC,	
  2008b).	
  	
  It	
  was	
  determined	
  that	
  beyond	
  the	
  F2010	
  period,	
   increases	
   in	
   the	
   step	
   2	
   cap	
   rate	
  would	
   have	
   to	
   be	
   reviewed	
   in	
   a	
   separate	
  application.	
  	
  With	
  respect	
  to	
  the	
  proposed	
  step	
  2	
  threshold	
  of	
  1,600	
  kWh	
  per	
  bi-­‐monthly	
  billing	
  period,	
  the	
  Commission	
  took	
  issue	
  with	
  the	
  lack	
  of	
  theoretical	
  basis	
  for	
  this	
  number	
  and	
   stated	
   that,	
   using	
   this	
   threshold,	
   close	
   to	
   40%	
   of	
   customers	
   would	
   never	
   be	
  billed	
  at	
  the	
  step	
  2	
  rate.	
  	
  This	
  was	
  considered	
  to	
  be	
  in	
  contradiction	
  with	
  the	
  second	
  economic	
   efficiency	
   test	
   of	
   maximizing	
   the	
   number	
   of	
   customers	
   that	
   would	
   be	
  subjected	
   to	
   the	
   step	
   2	
   rate.	
   Instead,	
   the	
   Commission	
   recommended	
   that	
   after	
  removing	
  the	
  high	
  and	
   low	
  energy	
  consuming	
  outliers,	
  a	
  step	
  2	
  threshold	
  equal	
   to	
  90%	
   of	
   the	
   median	
   consumption	
   would	
   result	
   in	
   a	
   more	
   fair	
   and	
   reasonable	
  structure	
  (BCUC,	
  2008b).	
  	
  	
  Throughout	
  the	
  RIB	
  hearing,	
  calls	
  were	
  made	
  from	
  interveners,	
  namely	
  the	
  British	
  Columbia	
  Old	
  Age	
  Pensioners	
  Organization	
  (BCOAPO),	
  to	
  implement	
  a	
  differentiated	
  rate	
   for	
   low-­‐income	
   customers.	
   	
   The	
  BCOAPO	
   suggested	
   that	
   a	
   discrete	
   rate	
   class	
  could	
  be	
  created	
  for	
  low-­‐income	
  residential	
  customers	
  that	
  would	
  provide	
  relief	
  for	
  those	
  with	
  difficulty	
  affording	
  essential	
  household	
  energy	
  services	
   (BCUC,	
  2008b).	
  	
  As	
  summarized	
  in	
  the	
  Reasons	
  for	
  Decisions:	
  	
   “BCAOPO	
  submits	
  that	
  a	
  policy	
  based	
  measure	
  which	
  takes	
  account	
  of	
  the	
   disparate	
   circumstances	
   of	
   customers,	
   and	
   of	
   their	
   differing	
   ability	
   to	
   afford	
   essential	
   household	
   energy	
   services,	
   is	
   an	
   example	
   of	
   appropriate	
   purposive	
  discrimination	
  and	
  is	
  not	
  “undue”	
  within	
  the	
  meaning	
  of	
  the	
  UCA.	
   Conversely,	
   BCOAPO	
   argues	
   that	
   a	
   rate	
   which	
   bars	
   access	
   to	
   sufficient	
   household	
  energy	
  to	
  provide	
  comfort	
  and	
  safety,	
  on	
  the	
  basis	
  of	
  household	
   income,	
  results	
  in	
  an	
  “undue	
  disadvantage”	
  (BCUC,	
  2008b).”	
  	
  Concerning	
  segmentation	
  of	
  the	
  residential	
  customers	
  into	
  a	
  low-­‐income	
  rate	
  class	
  or	
  directed	
  relief	
   for	
   low-­‐income	
  customers,	
   the	
  Commission	
  found	
  that	
  there	
  was	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   20	
   not	
   sufficient	
   evidence	
   to	
   show	
   that	
   a	
   large	
   enough	
   proportion	
   of	
   low-­‐income	
  customers	
  would	
  be	
  worse	
  off	
  under	
  then	
  RIB	
  to	
  warrant	
  such	
  policy	
  actions	
  (BCUC,	
  2008b).	
  	
  Further,	
  the	
  Commission	
  stated	
  that	
  it	
  was	
  not	
  its	
  role	
  to	
  make	
  decisions	
  of	
  a	
  socio-­‐political	
  nature,	
  rather	
  this	
  was	
  a	
  task	
  for	
  elected	
  legislators.	
  	
  Ultimately,	
  the	
  Commission	
  did	
  not	
  want	
  to	
  set	
  a	
  precedent	
  of	
  allocating	
  resources	
  on	
  the	
  “basis	
  of	
  social	
  worth.”	
   3.8 Distributional	
  Impacts	
  of	
  RIB:	
  Household	
  Income	
  Research	
   for	
   this	
   paper	
   included	
   carrying	
   out	
   detailed	
   and	
   probing	
   analysis	
   of	
  available	
  energy	
  use	
  and	
  income	
  data	
  to	
  determine	
  whether	
  the	
  current	
  model	
   for	
  the	
  RIB	
  rate	
  imposes	
  adverse	
  impacts	
  on	
  low	
  income	
  customers	
  and	
  whether	
  these	
  impacts	
  may	
  be	
  exacerbated	
  over	
  time	
  with	
  increases	
  to	
  the	
  revenue	
  requirement.	
  	
  	
  	
  This	
   research	
   collected	
   data	
   from	
   the	
   Natural	
   Resources	
   Canada	
   (NRCan)	
   2007	
   Survey	
   of	
   Household	
   Energy	
   Use.	
   	
   It	
   is	
   useful	
   to	
   begin	
   by	
   looking	
   at	
   the	
   average	
  electricity	
  consumption	
  among	
  the	
  5	
  household	
  income	
  groupings,	
  as	
  aggregated	
  by	
  NRCan,	
  shown	
  in	
  the	
  figure	
  below.	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   21	
   Figure	
  4	
  -­	
  Average	
  Annual	
  Electricity	
  Consumption	
  vs.	
  Household	
  Income	
  -­	
  British	
   Columbia5	
   	
  	
  From	
   the	
   figure	
   above	
   it	
   can	
   be	
   seen	
   that	
   electricity	
   consumption	
   appears	
   to	
   be	
  correlated	
  with	
  household	
   income.	
   	
  This	
   is	
  also	
  the	
  case	
  when	
  total	
  annual	
  energy	
  consumption	
  is	
  plotted	
  against	
  the	
  same	
  household	
  income	
  groups.	
  	
  When	
  assessing	
  the	
   distributional	
   impacts	
   of	
   electricity	
   pricing,	
   it	
   is	
   important	
   to	
   also	
   note	
   the	
  amount	
   of	
   electricity	
   consumed	
  as	
   it	
   relates	
   to	
   total	
   energy	
  use.	
   	
   The	
   table	
  below	
  shows	
  the	
  percentage	
  of	
  the	
  total	
  annual	
  energy	
  consumption	
  that	
  is	
  represented	
  by	
  electricity	
  use.	
  	
  	
  	
   	
   	
   	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  5	
  Data	
  extracted	
  from:	
  NRCan.	
  (2007).	
  2007	
  Survey	
  of	
  Household	
  Energy	
  Use.	
  Retrieved	
  May	
  20,	
  2010,	
  from	
  Natural	
  Resources	
  Canada	
  Website:	
  http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/data_e/sheu07/tables.cfm?attr=0	
   0	
  2,000	
   4,000	
  6,000	
   8,000	
  10,000	
   12,000	
  14,000	
   16,000	
   <	
  $20,000	
   $20,000	
  -­‐	
  $40,000	
   $40,000	
  -­‐	
  $60,000	
   $60,000	
  -­‐	
  $80,000	
   $80,000	
  -­‐	
  $100,000	
  $100,000	
  -­‐	
  $150,000	
   >	
  $150,000	
   A n n u al 	
  C on su m p ti on 	
  ( k W h )	
   Household	
  Pre-­Tax	
  Income	
  ($)	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   22	
   Table	
  2	
  -­	
  Average	
  Annual	
  Energy	
  and	
  Electricity	
  Use	
  by	
  Income	
  Group	
  -­	
  BC6	
   Household	
  Income	
   (thousands	
  of	
  $)	
   Average	
   Annual	
   Energy*	
  (kWh)	
   Average	
   Annual	
   Electricity	
  (kWh)	
   %	
  Electricity	
  <	
  20	
   20,120	
   6,801	
   34%	
  20	
  -­‐	
  40	
   23,941	
   9,136	
   38%	
  40	
  -­‐	
  60	
   28,676	
   9,414	
   33%	
  60	
  -­‐	
  80	
   25,208	
   9,067	
   36%	
  80	
  -­‐	
  100	
   27,022	
   10,828	
   40%	
  100	
  -­‐150	
   31,768	
   11,273	
   35%	
  >	
  150	
   36,774	
   14,713	
   40%	
  *	
  Energy	
  includes	
  electricity,	
  natural	
  gas,	
  heating	
  oil,	
  propane	
  and	
  wood.	
  	
  For	
  the	
  lowest	
  income	
  group,	
  on	
  average	
  about	
  one	
  third	
  of	
  all	
  energy	
  consumed	
  is	
  in	
  the	
  form	
  of	
  electricity.	
  This	
  is	
  fairly	
  consistent	
  across	
  all	
  income	
  groups.	
  	
  	
  In	
   order	
   to	
   conduct	
   an	
   analysis	
   of	
   the	
   average	
   bill	
   impact	
   of	
   the	
   RIB	
   rate,	
   it	
   was	
  necessary	
   to	
   distribute	
   the	
   average	
   annual	
   electricity	
   consumption,	
   presented	
  above,	
   for	
  each	
   income	
  group	
  over	
   the	
   twelve	
  months	
  of	
   the	
  year.	
   	
  To	
  do	
   this,	
   the	
  annual	
   patterns	
   of	
   electricity	
   consumption	
   from	
   BC	
   Hydro’s	
   bill	
   impact	
   analysis	
  were	
  applied	
  to	
  the	
  NRCan	
  data.	
   	
  The	
  first	
  step	
  in	
  this	
  process	
  was	
  to	
  calculate	
  the	
  annual	
   average	
   for	
   each	
   income	
   group	
   from	
   BC	
   Hydro’s	
   monthly	
   data	
   and	
   then	
  calculate	
  the	
  ratio	
  of	
  monthly	
  total	
   to	
  annual	
  average	
   for	
  each	
  month.	
   	
  The	
  annual	
  average	
  from	
  the	
  NRCan	
  data	
  was	
  then	
  multiplied	
  by	
  this	
  ratio	
  for	
  each	
  month	
  of	
  the	
  year.	
  	
  	
  	
  Once	
   the	
  monthly	
   electricity	
   consumption	
   values	
  were	
   calculated,	
   the	
   bi-­‐monthly	
  bill	
  impacts	
  could	
  be	
  assessed	
  across	
  a	
  range	
  of	
  pricing	
  structures.	
  	
  As	
  such,	
  the	
  bi-­‐monthly	
   and	
   annual	
   bill	
   impacts	
   from	
   both	
   the	
   proposed	
   RIB	
   rates	
   and	
   revenue	
  equivalent	
  flat	
  rates	
  for	
  fiscal	
  years	
  2009	
  and	
  2010	
  (shown	
  below)	
  were	
  compared	
  for	
   each	
   of	
   the	
   seven	
   household	
   income	
   groups.	
   	
   The	
   table	
   below	
   shows	
   the	
   RIB	
  rates	
   and	
   revenue	
   equivalent	
   flat	
   rates	
   for	
   the	
   period	
   beginning	
   in	
  October	
   2008,	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  6	
  Data	
  extracted	
  from:	
  Statistics	
  Canada.	
  (2008).	
  Report	
  on	
  Energy	
  Supply	
  and	
  Demand	
  in	
  Canada.	
  Retrieved	
  June	
  1,	
  2010,	
  from	
  http://www.statcan.gc.ca:	
  http://www.statcan.gc.ca/pub/57-­‐003-­‐x/57-­‐003-­‐x2008000-­‐eng.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   23	
   when	
   the	
   RIB	
   rate	
   was	
   first	
   implemented,	
   to	
   present	
   based	
   on	
   the	
   approved	
   BC	
  Hydro	
  RIB	
  and	
  RRA	
  applications.	
  	
   Table	
  3	
  -­	
  RIB	
  Rate	
  and	
  Revenue	
  Equivalent	
  Flat	
  Rate7	
   	
   F2009	
   F2009	
  -­	
  RIB	
   F2010	
  -­	
  RIB	
   F2011	
  -­	
  RIB	
   Date	
  Implemented	
   April	
  1,	
  2008	
   October	
  1,	
  2008	
   April	
  1,	
  2009	
   April	
  1,	
  2010	
  Bi-­‐Monthly	
  Threshold	
  (kWh)	
   	
   1,350	
   1,350	
   1,350	
   Rates	
  (cents)	
  Basic	
  Charge	
   	
   12.38	
  per	
  day	
   12.64	
  per	
  day	
   13.41	
  per	
  day	
  Step	
  1	
  (per	
  kWh)	
   	
   5.98	
   5.91	
   6.27	
  Step	
  2	
  (per	
  kWh)	
   	
   7.21	
   8.27	
   8.78	
  	
  Basic	
  Charge	
   12.13	
  per	
  day	
   12.93	
  per	
  day*	
   13.99	
  per	
  day*	
   	
  Flat	
  Rate	
  (per	
  kWh)	
   6.15	
   6.55*	
   7.09*	
   	
  *	
  Revenue	
  equivalent	
  flat	
  rate	
  as	
  presented	
  in	
  the	
  F09/F10	
  RRA	
  	
  The	
  bill	
  impact	
  analysis	
  conducted	
  for	
  this	
  paper	
  is	
  based	
  on	
  the	
  RIB	
  and	
  flat	
  rates	
  shown	
  above	
  and	
  yielded	
  similar	
  results	
  to	
  the	
  BC	
  Hydro	
  analysis.	
  	
  With	
  respect	
  to	
  the	
  lowest	
  household	
  income	
  group,	
  the	
  average	
  bi-­‐monthly	
  electricity	
  consumption	
  (1,134	
  kWh)	
   is	
  well	
  below	
  the	
  1,350	
  kWh	
  bi-­‐monthly	
   threshold.	
   	
  Only	
   in	
   the	
  mid-­‐winter	
   months	
   (December	
   to	
   April)	
   does	
   the	
   average	
   consumption	
   in	
   this	
   group	
  exceed	
  the	
  step-­‐2	
  threshold.	
  	
  For	
  those	
  groups	
  including	
  household	
  income	
  greater	
  than	
  $80,000,	
  the	
  step-­‐2	
  threshold	
  is	
  exceeded	
  in	
  each	
  bi-­‐monthly	
  billing	
  period.	
  	
  For	
  the	
  two	
  fiscal	
  years	
  (F2009	
  and	
  F2010)	
  with	
  available	
  revenue	
  equivalent	
  flat-­‐rates	
  to	
  compare	
  with	
  the	
  RIB	
  rate,	
  the	
  RIB	
  rate	
  actually	
  results	
   in	
  annual	
  savings.	
  	
  This	
  may	
   lead	
   readers	
   to	
   believe	
   that	
   the	
   structure	
   of	
   the	
   RIB	
   rate	
   has	
   not	
   been	
  designed	
   to	
   recover	
   the	
   required	
   revenue	
   as	
   approved	
   by	
   BCUC.	
   This	
   points	
   to	
   a	
  major	
   flaw	
   in	
   this	
   type	
   of	
   analysis:	
   average	
   consumption	
   is	
   used	
   for	
   each	
   of	
   the	
  household	
  income	
  groups.	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  7	
  Data	
  extracted	
  from:	
  BCUC.	
  (2008).	
  BC	
  Hydro	
  and	
  Power	
  Authority	
  F2009	
  and	
  F2010	
  Revenue	
   Requirements	
  Decision.	
  Retrieved	
  June	
  20,	
  2010,	
  from	
  BC	
  Hydro	
  Website:	
  http://www.bchydro.com/etc/medialib/internet/documents/planning_regulatory/rev_req/rra_f09_f10_decision_and_errata.Par.0001.File.rra_f09_f10_decision_and_errata.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   24	
   As	
  stated	
  by	
  BC	
  Hydro	
  in	
  their	
  final	
  arguments	
  for	
  the	
  RIB	
  Hearing,	
  there	
  is	
  a	
  wide	
  range	
   of	
   consumption	
   levels	
   within	
   each	
   of	
   the	
   customer	
   sub-­‐classes.	
   	
   By	
   only	
  presenting	
   the	
   average	
   consumption	
   for	
   each	
   of	
   the	
   sub-­‐classes	
   (and	
   sub-­‐sub-­‐classes,	
   eg.	
  household	
   income	
  groups),	
   the	
   largest	
   consumers,	
   those	
   that	
  are	
  most	
  likely	
  to	
  be	
  hit	
  the	
  hardest	
  by	
  the	
  step	
  2	
  rate,	
  do	
  not	
  emerge	
  in	
  the	
  data	
  analysis.	
  	
  	
  	
  During	
   the	
  RIB	
  Hearing,	
   council	
   for	
   the	
  BCOAPO	
  commented	
  on	
   the	
  population	
  of	
  low-­‐income	
   customers	
   that	
   consume	
   more	
   electricity	
   than	
   the	
   average	
   for	
   their	
  income	
   group.	
   They	
   suggested	
   that	
   while	
   the	
   numbers	
   may	
   be	
   relatively	
   small	
  currently,	
   the	
   trend	
   of	
   increasing	
   prices	
   over	
   the	
   next	
   few	
   years	
   will	
   likely	
   force	
  more	
  households	
  into	
  this	
  category	
  (The	
  British	
  Columbia	
  Public	
  Interest	
  Advocacy	
  Centre,	
  2008).	
   	
  Disaggregated	
  customer	
  data	
  was	
  not	
  available	
  for	
  this	
  research	
  to	
  assess	
  the	
  impacts	
  on	
  the	
  largest	
  consumers	
  among	
  the	
  lowest	
  income	
  group.	
  	
  Using	
  projected	
   revenue	
   requirements	
   and	
   respective	
   RIB	
   rates	
   provided	
   in	
   BC	
  Hydro’s	
  2007	
   Load	
   Forecast	
   (2008	
   LTAP),	
   this	
   research	
   extrapolated	
   the	
   future	
   impact	
   of	
  the	
  RIB	
  on	
   the	
   lowest	
   income	
  group	
  based	
  on	
   current	
   rates	
  of	
   consumption.	
   	
  The	
  following	
  table	
  was	
  extracted	
  from	
  BC	
  Hydro’s	
  response	
  to	
  a	
  request	
  for	
  information	
  during	
  the	
  RIB	
  Hearing	
  and	
  provides	
  the	
  assumed	
  RIB	
  rate	
  increases	
  as	
  a	
  result	
  of	
  the	
  projected	
  future	
  revenue	
  requirements	
  from	
  the	
  2008	
  LTAP.	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   25	
   Table	
  4	
  -­	
  Future	
  RIB	
  Price	
  Increases8	
   	
  	
  This	
  research	
  calculated	
  the	
  bill	
  impacts	
  for	
  F2012	
  to	
  F2018	
  using	
  the	
  projected	
  RIB	
  rate	
   prices	
   in	
  Table	
   4	
   and	
   the	
   current	
   consumption	
   rates	
   for	
   each	
   of	
   the	
   income	
  groups.	
   	
   Since	
   the	
   revenue	
   equivalent	
   flat	
   rates	
   were	
   not	
   available	
   for	
   these	
  estimates,	
   it	
   is	
  useful	
   to	
  compare	
   the	
  percentage	
  of	
   total	
   income	
  consumed	
  by	
   the	
  electricity	
   bill	
   for	
   each	
   of	
   the	
   income	
   groups	
  moving	
   into	
   the	
   future.	
   	
   The	
   figure	
  below	
  presents	
   this	
  analysis	
  using	
   total	
  pre-­‐tax	
   income	
  estimates,	
   in	
  2010	
  dollars,	
  for	
  the	
  top	
  and	
  bottom	
  two	
  income	
  groups.	
  	
  This	
  research	
  assigned	
  the	
  average	
  total	
  income	
   for	
   the	
   lowest	
   income	
   group	
   based	
   on	
   the	
   figure	
   for	
   the	
   lowest	
   income	
  quintile	
  from	
  the	
  2008	
  report	
  on	
  Income	
  in	
  Canada(Statistics	
  Canada,	
  2010).	
  	
  Total	
  income	
   for	
   the	
   other	
   income	
   groups	
  was	
   estimated	
   as	
   the	
  midpoint	
   between	
   the	
  income	
  range	
  for	
  each	
  group.	
  	
   	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  8	
  Table	
  extracted	
  from:	
  BC	
  Hydro.	
  (2008).	
  2008	
  Long-­Term	
  Acquisition	
  Plan	
  Application.	
  Retrieved	
  July	
  5,	
  2010,	
  from	
  BC	
  Hydro	
  Website:	
  http://www.bchydro.com/etc/medialib/internet/documents/planning_regulatory/iep_ltap/2008_ltap_application.Par.0001.File.2008_ltap_application.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   26	
   Figure	
  5	
  -­	
  Percent	
  of	
  Total	
  Income	
  Spent	
  on	
  Electricity	
  for	
  Top	
  and	
  Bottom	
  Two	
  Income	
   Groups	
   	
  It	
   should	
   be	
   noted	
   that	
   electricity	
   only	
   accounts	
   for	
   about	
   1/3	
   of	
   total	
   energy	
  consumption	
   in	
   the	
   case	
   of	
   the	
   lowest	
   income	
   group	
   and	
   40%	
   in	
   the	
   case	
   of	
   the	
  highest	
  income	
  group.	
  	
  This	
  suggests	
  that	
  by	
  2018	
  the	
  average	
  cost	
  of	
  energy	
  for	
  the	
  lowest	
  income	
  group	
  could	
  be	
  upwards	
  of	
  17%	
  of	
  their	
  total	
  income,	
  assuming	
  that	
  natural	
  gas	
  and	
  other	
  fuel	
  types	
  will	
  be	
  more	
  or	
  less	
  equivalent	
  in	
  price	
  to	
  electricity	
  by	
  2018.	
   	
  This	
  analysis	
  does	
  not	
  account	
  for	
  overall	
   increases	
   in	
   income	
  over	
  time	
  due	
  to	
  inflation	
  or	
  reduced	
  consumption	
  from	
  conservation.	
  	
  	
  	
  For	
  a	
  more	
  conservative	
  estimate	
  that	
  incorporates	
  growth	
  in	
  income	
  over	
  time,	
  the	
  figure	
  below	
  presents	
   the	
   same	
  analysis	
  adjusted	
   for	
   income	
  growth.	
   	
   In	
   the	
  2008	
   Statistics	
   Canada	
   report	
   on	
   Income	
   in	
   Canada	
   average	
   total	
   income	
   is	
   tabulated	
  based	
   on	
   income	
   quintiles	
   between	
   1998	
   and	
   2008.	
   	
   Using	
   the	
   average	
   annual	
  percent	
  growth	
   in	
   income	
   for	
   this	
  period,	
   this	
   research	
   forecasted	
   income	
  growth	
  rates	
   for	
   each	
   of	
   the	
   income	
   groups,	
  which	
  were	
   adjusted	
   accordingly	
   for	
   annual	
  growth.	
  	
  	
   	
   	
   	
   	
   	
   0%	
  1%	
   2%	
  3%	
   4%	
  5%	
   6%	
  7%	
   F2012	
   F2013	
   F2014	
   F2015	
   F2016	
   F2017	
   F2018	
   P er ce n t	
   of 	
  T ot al 	
  In co m e	
   <	
  20k	
  20k	
  -­‐	
  40k	
  >	
  150k	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   27	
   Figure	
  6	
  -­	
  Percent	
  of	
  Total	
  Income	
  Spent	
  on	
  Electricity	
  for	
  Top	
  and	
  Bottom	
  Two	
  Income	
   Groups	
  (income	
  adjusted	
  for	
  annual	
  growth)	
   	
   3.9 Impact	
  of	
  RIB	
  Rate	
  on	
  Low	
  Income	
  Customers	
  Conceptually,	
   the	
   goals	
   of	
   the	
   RIB	
   rate,	
   and	
   conservation	
   pricing	
   in	
   general,	
   are	
  sound:	
  as	
  the	
  cost	
  of	
  energy	
  increases,	
  so	
  does	
  the	
  incentive	
  to	
  conserve.	
  	
  The	
  cost	
  to	
  provide	
   incremental	
  new	
  supply	
  of	
   electricity	
   through	
  network	
  expansion,	
   run-­‐of-­‐the-­‐river	
   hydro,	
   or	
   other	
   renewable	
   sources	
   of	
   energy	
   is	
   much	
   greater	
   than	
   the	
  embedded	
   cost	
   of	
   the	
   existing	
   assets	
   in	
   this	
  province.	
   	
  As	
   an	
   electricity	
  utility,	
  BC	
  Hydro	
   cannot	
   operate	
   at	
   a	
   loss	
   and	
   therefore	
   needs	
   to	
   meet	
   required	
   revenue	
  targets.	
  	
  Both	
  fiscal	
  responsibility	
  and	
  energy	
  conservation	
  objectives	
  can	
  be	
  met	
  by	
  increased	
  rates	
  with	
  a	
  billing	
  structure	
  that	
  sends	
  a	
  price	
  signal	
  to	
  large	
  consumers.	
  	
  The	
  challenge	
  is	
  doing	
  this	
  in	
  such	
  a	
  way	
  that	
  the	
  threat	
  of	
  energy	
  poverty	
  on	
  low-­‐income	
  customers	
  is	
  not	
  exacerbated.	
  	
  	
  	
  In	
   Affordable	
   Energy:	
   Diversifying	
   DSM	
   Programs	
   in	
   BC,	
   Liz	
   Kelly	
   presented	
   data	
  showing	
   that	
   upwards	
   of	
   270,000	
   (approximately	
   18%)	
   households	
   in	
   BC	
   spend	
  more	
  than	
  40%	
  of	
  household	
  income	
  on	
  “major	
  payments”	
  which	
  include	
  the	
  costs	
  of	
   rent	
   or	
  mortgage,	
   energy,	
  water	
   and	
   other	
  municipal	
   services.	
   	
   From	
   this,	
   it	
   is	
  deduced	
  that	
  these	
  households	
  likely	
  spend	
  10%	
  or	
  more	
  of	
  their	
  after-­‐tax	
  income	
  on	
  energy	
  and	
  are	
  therefore	
  considered	
  energy	
  poor	
  (Kelly,	
  2007).	
  	
  	
  	
   0%	
  1%	
   2%	
  3%	
   4%	
  5%	
   6%	
   F2012	
   F2013	
   F2014	
   F2015	
   F2016	
   F2017	
   F2018	
   P er ce n t	
   of 	
  T ot al 	
  In co m e	
   <	
  20k	
  20k	
  -­‐	
  40k	
  >	
  150k	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   28	
   Based	
  on	
  BC	
  Hydro’s	
  bill	
   impact	
  analysis	
  and	
   further	
  analysis	
  done	
   for	
   this	
  paper,	
  the	
   RIB	
   rate	
   likely	
   does	
   not	
   have	
   a	
   disproportionately	
   adverse	
   impact	
   on	
   the	
  average	
  low-­‐income	
  customer.	
  	
  There	
  is,	
  however,	
  in	
  all	
  likelihood	
  a	
  certain	
  portion	
  of	
   customers	
  who	
   consume	
  more	
   than	
   the	
   average	
   amount	
   of	
   electricity	
   for	
   their	
  income	
  group	
  and	
  are	
  in	
  energy	
  poverty	
  or	
  at	
  risk	
  of	
  becoming	
  so.	
  	
  In	
  these	
  cases,	
  it	
  is	
  possible	
  that	
  the	
  RIB	
  rate	
  could	
  have	
  an	
  adverse	
  affect	
  on	
  top	
  of	
  increasing	
  rates	
  in	
   a	
   flat	
   rate	
   scenario.	
   	
   A	
  more	
   detailed	
   analysis	
   on	
   disaggregated	
   customer	
   data	
  would	
  be	
  required	
  to	
  confirm	
  this	
  fact	
  and	
  provide	
  recommendations	
  for	
  alleviating	
  the	
  hardship.	
  	
  	
  	
  Another	
  potential	
   impact	
  of	
   increasing	
  prices	
  for	
  electricity	
  and	
  implementation	
  of	
  the	
  RIB	
  rate	
  could	
  be	
  that	
  customers	
  with	
  the	
  means	
  to	
  upgrade	
  space	
  heating	
  and	
  hot	
   water	
   equipment	
   may	
   choose	
   to	
   use	
   less	
   expensive	
   natural	
   gas	
   as	
   the	
   fuel.	
  	
  Based	
  on	
   the	
   average	
   consumption	
   in	
   the	
  Lower	
  Mainland,	
   the	
   total	
   billed	
   cost	
  of	
  natural	
  gas	
  is	
  approximately	
  4	
  cents	
  per	
  kWh	
  of	
  energy	
  (Terasen	
  Gas,	
  2010).	
   	
  This	
  compares	
   to	
  7	
   cents	
  per	
  kWh	
   for	
  electricity,	
  based	
  on	
  average	
  consumption	
   in	
  BC	
  billed	
  at	
  the	
  2010	
  RIB	
  Rate9.	
  	
  The	
  potential	
  incentive	
  to	
  switch	
  from	
  hydro	
  electricity	
  to	
  burning	
  of	
  a	
   fossil	
   fuel	
   created	
  by	
   this	
  price	
  discrepancy	
   is	
   certainly	
  not	
   in	
   line	
  with	
  the	
  province’s	
  GHG	
  reduction	
  and	
  clean	
  air	
  targets.	
  	
  However,	
  this	
  is	
  probably	
  more	
  an	
  issue	
  of	
  the	
  price	
  of	
  natural	
  gas	
  not	
  reflecting	
  its	
  true	
  environmental	
  costs.	
  	
  Price	
  increases	
  due	
  to	
  diminishing	
  supply	
  and	
  stricter	
  regulations	
  in	
  the	
  oil	
  and	
  gas	
  industry	
   could	
   bring	
   the	
   price	
   of	
   electricity	
   and	
   gas	
   closer	
   together	
   in	
   the	
   near	
  future.	
  	
  After	
   reviewing	
   the	
   projected	
   BC	
   Hydro	
   revenue	
   requirements	
   moving	
   into	
   the	
  future,	
   it	
   appears	
   that	
   the	
   impact	
   of	
   energy	
   costs	
   on	
   the	
   average	
   low-­‐income	
  customer	
  will	
  be	
  amplified	
  with	
  increased	
  rates	
  and	
  possibly	
  more	
  hydro	
  customers	
  will	
  fall	
  into	
  the	
  energy	
  poor	
  category.	
  	
  With	
  the	
  existing	
  RIB	
  rate	
  structure,	
  there	
  is	
  little	
  that	
  can	
  be	
  done	
  to	
  lessen	
  the	
  impact	
  of	
  increasing	
  costs	
  for	
  electricity	
  on	
  low-­‐	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  9	
  Based	
  on	
  calculation	
  from	
  RIB	
  impact	
  analysis	
  conducted	
  for	
  this	
  paper.	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   29	
   income	
   customers	
   through	
   broad	
   scope	
   policies.	
   	
   The	
   calls	
   from	
   BCOAPO	
   for	
  establishing	
  a	
   low-­‐income	
  rate	
  class	
  seem	
  viable	
  but	
  are	
  unfavorable	
   to	
  BCUC	
  and	
  BC	
  Hydro	
  due	
  to	
  their	
  reluctance	
  to	
  engage	
  in	
  social	
  policy	
  as	
  described	
  above.	
  	
  This	
  points	
  to	
  a	
  major	
  barrier	
  to	
  policy	
  tools	
  that	
  could	
  potentially	
  address	
  the	
  burden	
  of	
  energy	
  costs	
  on	
   low-­‐income	
  customers:	
   the	
  unwillingness	
  of	
   the	
  BCUC	
  to	
  consider	
  social	
  policy	
  objectives	
  as	
  part	
  of	
  its	
  mandate.	
  	
  	
  A	
   price	
   structure	
   that	
   places	
   too	
   much	
   of	
   the	
   cost	
   burden	
   on	
   high	
   consuming	
  residential	
  customers	
  is	
  considered	
  to	
  be	
  “unjust	
  and	
  unreasonable”	
  (BCUC,	
  2008b)	
  by	
  the	
  BCUC.	
   	
  Given	
  the	
  correlation	
  between	
   income	
  and	
  energy	
  consumption	
  and	
  the	
  fact	
  that	
  such	
  a	
  large	
  proportion	
  of	
  residential	
  demand	
  comes	
  from	
  the	
  highest	
  electricity	
   consuming	
   quintile	
   (44%	
   of	
   total),	
   it	
   seems	
   fair	
   that	
   this	
   group	
   be	
  impacted	
  the	
  most.	
  	
  The	
  common	
  trend	
  in	
  North	
  America	
  towards	
  larger	
  homes	
  and	
  thus	
  more	
  ft2	
  per	
  capita	
  is	
  likely	
  a	
  factor	
  in	
  increased	
  energy	
  use	
  among	
  the	
  higher	
  income	
  groups.	
  	
  A	
  third	
  tier	
  in	
  the	
  RIB	
  rate	
  could	
  be	
  an	
  effective	
  method	
  of	
  holding	
  those	
   who	
   consume	
   excessive	
   amounts	
   of	
   electricity	
   accountable	
   through	
   higher	
  rates.	
  	
  One	
   option	
   could	
   be	
   to	
   lower	
   or	
   remove	
   the	
   basic	
   charge	
   on	
   the	
   hydro	
  bill.	
   	
   This	
  would	
  increase	
  the	
  price	
  discrepancy	
  between	
  the	
  step	
  1	
  and	
  2	
  rates	
  and	
  place	
  more	
  of	
  the	
  burden	
  of	
  revenue	
  recovery	
  on	
  those	
  experiencing	
  the	
  step	
  2	
  rate.	
  	
  The	
  basic	
  charge	
   is	
   currently	
   applied	
   equally	
   to	
   all	
   residential	
   customers	
   regardless	
   of	
  consumption	
  level	
  and	
  is	
  therefore	
  a	
  regressive	
  pricing	
  policy.	
  	
  Adjusting	
  the	
  step	
  2	
  threshold	
   so	
   that	
   fewer	
   low-­‐income	
   customers	
   would	
   experience	
   the	
   step	
   2	
   rate	
  would	
  lessen	
  the	
  impact.	
  Since	
  the	
  average	
  consumption	
  of	
  the	
  lowest	
  income	
  group	
  is	
  quite	
   low,	
  adjusting	
   the	
   threshold	
   to	
  provide	
  a	
   reduced	
  bill	
   impact	
  on	
   the	
   large	
  consumers	
  in	
  this	
  group	
  would	
  inevitably	
  provide	
  more	
  benefit	
  to	
  customers	
  in	
  the	
  higher	
  income	
  groups	
  who,	
  on	
  average,	
  consume	
  more.	
  	
  Designing	
   a	
   rate	
   structure	
   that	
   is	
   just	
   and	
   fair	
   for	
   all,	
   yet	
   attempts	
   to	
   shield	
   the	
  minority	
  of	
  customers	
  from	
  adverse	
  affects	
  is	
  a	
  difficult	
  task.	
  	
  It	
  seems	
  that	
  it	
  would	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   30	
   make	
   more	
   sense	
   to	
   address	
   the	
   challenges	
   of	
   those	
   suffering	
   from	
  disproportionately	
   adverse	
   impacts	
   with	
   targeted	
   efficiency	
   improvement	
   and	
  rebate	
  programs.	
  	
   4.0 	
   SMART	
  METERS	
  AND	
  TOU	
  PRICING	
  This	
   section	
   deals	
   with	
   the	
   potential	
   repercussions	
   of	
   a	
   recent	
   provincial	
  government	
   policy	
   decision	
   to	
   implement	
   smart	
  meters	
   and	
   TOU	
   pricing	
   on	
   low-­‐income	
   households.	
   	
   Unlike	
   the	
   RIB	
   rate,	
   first	
   implemented	
   in	
   2008,	
   this	
   type	
   of	
  conservation	
   pricing	
   is	
   untested	
   in	
   BC	
   and,	
   therefore,	
   data	
   is	
   not	
   available	
   for	
  analysis.	
   	
  Accordingly,	
  this	
  portion	
  of	
  the	
  research	
  takes	
  the	
  approach	
  of	
  reviewing	
  various	
   smart	
   meter	
   and	
   TOU	
   pricing	
   pilot	
   studies	
   in	
   other	
   jurisdictions	
   for	
  information	
  relevant	
  to	
  the	
  BC	
  context.	
  	
  	
  In	
   its	
  2010	
   Clean	
  Energy	
  Act,	
   the	
   provincial	
   government	
   recently	
   enabled	
   another	
  form	
   of	
   electricity	
   conservation	
   pricing	
   through	
   the	
   mandated	
   network-­‐wide	
  installation	
   of	
   smart	
  meters	
   by	
   the	
   end	
  of	
   the	
   2010	
   calendar	
   year	
   (Bill	
   17	
   -­‐	
   2010	
  Clean	
  Energy	
  Act,	
  2010).	
   	
  Smart	
  meters	
  allow	
  transfer	
  of	
   to-­‐the-­‐hour	
  consumption	
  data	
   between	
   the	
   utility	
   and	
   its	
   customers,	
   which	
   in	
   turn	
   enables	
   the	
  implementation	
  of	
  a	
  variety	
  of	
   time-­‐of-­‐use	
  (TOU)	
  pricing	
  structures	
  aimed	
  at	
  peak	
  load	
  reductions	
  and	
  improved	
  system	
  efficiency	
  (Girvan,	
  2009).	
  	
  	
  	
  Along	
  with	
  the	
  approximately	
  1.8	
  million	
  residential	
  smart	
  meters,	
  the	
  act	
  calls	
  for	
  the	
  creation	
  of	
  a	
   smart	
  grid	
   installation	
  program.	
   	
   Initial	
   estimates	
   report	
   costs	
  of	
  $660	
  million	
  for	
  the	
  meters	
  and	
  $270	
  million	
  for	
  the	
  grid,	
  for	
  a	
  total	
  price	
  tag	
  of	
  just	
  under	
  $1	
  billion	
  (BC	
  Hydro).	
  	
  	
  	
  The	
   main	
   benefits	
   of	
   a	
   system	
   with	
   smart	
   meters,	
   smart	
   grids	
   and	
   TOU	
   pricing	
  structures	
  include:	
  	
   • Offset	
   investment	
   in	
   generation	
   facilities	
   to	
   meet	
   peak	
   demands	
   through	
  shifting	
  of	
  demand	
  to	
  off-­‐peak	
  hours	
  (peak	
  load	
  shifting);	
   • System	
  electricity	
  cost	
  savings	
  from	
  change	
  in	
  demand	
  patterns;	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   31	
   • Efficiency	
  cost	
  savings;	
   • Theft	
  prevention;	
  and	
   • Modernization	
  of	
  the	
  grid.	
  	
  The	
  extent	
  to	
  which	
  the	
  above	
  benefits	
  are	
  realized	
  appears	
  to	
  depend	
  on	
  a	
  number	
  of	
   factors	
   not	
   directly	
   related	
   to	
   the	
   initial	
   capital	
   investment	
   in	
   metering	
   and	
  infrastructure.	
  	
  In	
  the	
  case	
  of	
  reduced	
  consumption	
  and	
  peak	
  load	
  shifting,	
  customer	
  uptake	
  of	
  new	
  technologies	
  and	
  behavioral	
  change	
  likely	
  dictate	
  the	
  level	
  of	
  impact	
  of	
  TOU	
  programs.	
   4.1 Smart	
  Meter	
  and	
  Smart	
  Grid	
  Technology	
  Traditional	
   electromechanical	
   meters,	
   the	
   ones	
   currently	
   used	
   by	
   BC	
   Hydro,	
  continually	
  measure	
  the	
  amount	
  of	
  electricity	
  consumed	
  in	
  kWh	
  and	
  require	
  manual	
  reading	
   each	
   billing	
   period.	
   	
   A	
   smart	
   meter	
   records	
   the	
   electricity	
   usage	
   and	
  communicates	
   this	
   information	
   digitally	
   to	
   the	
   utility.	
   	
   This	
   usually	
   occurs	
   on	
   an	
  hourly	
  basis,	
  but	
  more	
  frequent	
  reporting	
  is	
  possible	
  (Girvan,	
  2009).	
  	
  Smart	
  meters	
  are	
   also	
   capable	
   of	
   receiving	
   information	
   from	
   the	
   utility,	
   which	
   is	
   useful	
   for	
  delivering	
  messages	
  about	
  upcoming	
  peak	
  rate	
  periods.	
  	
  Smart	
   meters	
   are	
   a	
   critical	
   component	
   of	
   an	
   advanced	
   metering	
   infrastructure.	
  	
  Other	
  components	
  required	
  to	
  enable	
  advanced	
  metering	
  are:	
   • Hardware	
  and	
  communications	
  software	
  that	
  allow	
  two-­‐way	
  communication	
  between	
  customers	
  and	
  energy	
  suppliers;	
   • Data	
  management	
   systems	
   to	
   receive,	
   store	
   and	
   compile	
   information	
   from	
  smart	
  meters;	
  and	
   • Utility	
   operation	
   software	
   to	
   coordinate	
   meters,	
   the	
   communications	
  network	
  and	
  the	
  data	
  management	
  system	
  (Girvan,	
  2009).	
  	
  Additional	
  technological	
  devices	
  are	
  available	
  to	
  enable	
  customers	
  to	
  better	
  manage	
  their	
  energy	
  consumption	
  by	
  taking	
  advantage	
  of	
  off	
  peak	
  rates,	
  identifying	
  areas	
  for	
  efficiency	
  gains	
  and	
  potentially	
  selling	
  power	
  back	
  to	
   the	
  electricity	
  provider	
   from	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   32	
   small-­‐scale	
  onsite	
  generation	
  (BC	
  Hydro).	
   	
  This	
  aspect	
  of	
   the	
  smart	
  grid	
  will	
   likely	
  provide	
   valuable	
   opportunities	
   for	
   integration	
   of	
   onsite	
   renewal	
   energy	
  technologies	
   and	
   will	
   have	
   particular	
   value	
   if	
   and	
   when	
   electric	
   vehicles	
   become	
  commonplace.	
   	
   Individual	
   customers	
   would	
   be	
   financially	
   responsible	
   for	
   these	
  devices,	
  but	
  such	
  technology	
  is	
  considered	
  an	
  integral	
  part	
  of	
  a	
  modernized	
  utility.	
  	
  BC	
  Hydro	
  defines	
  a	
  smart	
  grid	
  as	
  “a	
  modern,	
  automated,	
  intelligent	
  power	
  delivery	
  system	
   that	
   supports	
   additional	
   services	
   and	
   benefits	
   to	
   customers,	
   the	
  environment	
  and	
  the	
  economy”	
  (BC	
  Hydro).	
  There	
  is	
  no	
  one	
  formal	
  definition	
  of	
  the	
  term	
   smart	
   grid.	
   However,	
   smart	
   meters,	
   advanced	
   metering	
   infrastructure	
   and	
  customer-­‐supplied	
   technologies	
  as	
  mentioned	
  above	
  are	
  generally	
  accepted	
  as	
   the	
  fundamental	
  components	
  (Girvan,	
  2009).	
  	
  	
  	
   4.2 Time-­‐of-­‐Use	
  Pricing	
  Structures	
  	
  Most	
  of	
  the	
  benefit	
  of	
  smart	
  meters	
  and	
  smart	
  grids	
  is	
  found	
  in	
  the	
  ability	
  of	
  a	
  utility	
  to	
  differentiate	
  it’s	
  pricing	
  based	
  on	
  peak	
  and	
  off-­‐peak	
  demand	
  periods.	
  	
  Customers	
  are	
   provided	
   with	
   information	
   about	
   upcoming	
   on	
   and	
   off	
   peak	
   rates	
   with	
   the	
  intention	
   of	
   shifting	
   demand	
   away	
   from	
   the	
   peak	
   use	
   periods.	
   	
   This	
   can	
   allow	
  customers	
   to	
   save	
  money	
   on	
   their	
   electricity	
   bill	
   by	
   adjusting	
   their	
   consumption	
  patterns	
  accordingly	
   (BC	
  Hydro).	
   	
  More	
   importantly	
   from	
  the	
  utilities	
  perspective,	
  reductions	
  in	
  peak	
  demand	
  can	
  offset	
  the	
  need	
  for	
  large	
  investments	
  in	
  transmission	
  and	
  distribution	
  infrastructure	
  upgrades	
  (Girvan,	
  2009).	
  	
  There	
  are	
  many	
  ways	
   in	
  which	
  a	
  utility	
  can	
  structure	
   its	
  prices	
   to	
  encourage	
  peak	
  load	
   reduction.	
   	
   Some	
   of	
   the	
   more	
   common	
   forms	
   of	
   time-­‐sensitive	
   pricing	
   are	
  described	
  in	
  a	
  report	
  prepared	
  for	
  the	
  Industry	
  Canada,	
  Office	
  of	
  Consumer	
  Affairs	
  titled	
  the	
  Ontario	
  Smart	
  Metering	
  Initiative	
  as:	
  	
   1. “Time-­of-­use	
   (TOU)	
   prices	
   -­	
   when	
   electricity	
   prices	
   are	
   set	
   for	
   a	
   particular	
   period	
  of	
  time	
  in	
  advance	
  and	
  vary	
  according	
  to	
  different	
  time	
  periods	
  during	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   33	
   the	
  day.	
  Typically,	
  the	
  periods	
  include	
  "peak",	
  "off-­peak"	
  and	
  sometimes	
  "mid-­ peak".	
   	
   The	
   prices	
   are	
   set	
   and	
   consumers	
   are	
   made	
   aware	
   of	
   the	
   levels	
   in	
   advance;	
   2. Critical	
   peak	
   pricing	
   (CPP)	
   -­	
   coupled	
   with	
   a	
   time-­of-­use	
  model,	
   critical	
   peak	
   pricing	
   involves	
  charging	
  very	
  high	
  prices	
  on	
  certain	
  peak	
  days	
  or	
   for	
  certain	
   hours	
   when	
   most	
   or	
   all	
   available	
   generation	
   resources	
   are	
   needed	
   to	
   meet	
   electricity	
  demand;	
   3. Critical	
   peak	
   pricing	
  with	
   rebates	
   (CPR)	
   or	
   peak	
   time	
   rebates	
   (PTR)	
   -­	
   under	
   these	
   rates	
   a	
   customer	
   is	
   charged	
   according	
   to	
   the	
   same	
   rates	
   the	
   typical	
   customer	
   in	
   that	
   class	
   faces.	
   The	
   local	
   distribution	
   company	
   notifies	
   the	
   customer	
  of	
  an	
  impending	
  critical	
  peak	
  and	
  the	
  customer	
  has	
  the	
  opportunity	
   to	
  reduce	
  usage	
  during	
  that	
  peak	
  relative	
  to	
  a	
  baseline,	
  receiving	
  a	
  rebate	
  for	
   their	
  actions;	
  and	
  4. Real-­time	
  pricing:	
  refers	
  to	
  pricing	
  signals	
  that	
  are	
  based	
  on	
  actual	
  wholesale	
   prices,	
  often	
  hourly,	
  and	
  not	
  necessarily	
  set	
  in	
  advance	
  (Girvan,	
  2009).”	
   4.3 Impacts	
  of	
  Smart	
  Meters	
  and	
  TOU	
  Pricing	
  There	
   are	
   examples	
   of	
   time-­‐based	
   energy	
   pricing,	
   enabled	
   by	
   smart	
   meters	
   and	
  smart	
  grids,	
  throughout	
  North	
  America.	
  	
  Many	
  jurisdictions	
  have	
  implemented	
  pilot	
  programs	
   to	
   test	
   the	
   various	
   assumptions	
   around	
   time-­‐based	
   pricing	
   structures,	
  customer	
  behaviour	
  and	
  peak	
  load	
  reduction.	
   	
  In	
  Ontario	
  Smart	
  Metering	
  Initiative,	
  Girvan	
   researched	
   various	
   smart	
   meter	
   pilot	
   programs	
   in	
   Ontario	
   and	
   the	
   U.S.	
  	
  While	
   the	
  range	
  of	
  pilot	
  programs	
  reviewed	
   in	
   this	
  study	
   included	
  a	
  varied	
  mix	
  of	
  TOU	
   pricing	
   structures,	
   some	
   common	
   themes	
   emerged.	
   	
   The	
   following	
   points	
  highlight	
   the	
   key	
   lessons	
   learned	
   from	
   the	
   sample	
   of	
   pilot	
   projects	
   reviewed	
   by	
  Girvan:	
  	
   • TOU	
  rates	
  can	
  induce	
  load	
  shifting	
  and	
  conservation,	
  but	
  do	
  not	
  necessarily	
  do	
  this;	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   34	
   • The	
   presence	
   of	
   enabling	
   technologies	
   such	
   as	
   display	
   monitors,	
   smart	
  thermostats	
   and	
   cycling	
   switches	
   for	
   air	
   conditioners	
   results	
   in	
   greater	
  customer	
  response	
  than	
  without;	
   • The	
  most	
  effective	
  rate	
  structures	
  were	
  those	
  with	
  CPP	
  rates;	
   • Bill	
  impacts	
  may	
  not	
  be	
  significant;	
  and	
   • High	
  electricity	
  users	
  will	
  benefit	
  more	
  than	
  low	
  users	
  (Girvan,	
  2009).	
  	
  Girvan	
  also	
  pointed	
  to	
  some	
  of	
  the	
  limitations	
  of	
  pilot	
  programs	
  in	
  general.	
  	
  For	
  the	
  most	
   part,	
   the	
   programs	
   include	
   a	
   statistically	
   small	
   number	
   of	
   participants,	
  who	
  have	
  been	
   selected	
  on	
  a	
  voluntary	
  basis.	
   	
   Participants	
   are	
   therefore	
   likely	
   to	
  have	
  prior	
   knowledge	
   of	
   energy	
   issues	
   and	
   a	
   general	
   desire	
   to	
   reduce	
   consumption	
  through	
  new	
  technology	
  (Girvan,	
  2009).	
  	
  Another	
   limitation	
   is	
   that	
   full	
   cost/benefit	
   analyses	
   of	
   the	
   capital	
   and	
   long-­‐term	
  costs	
  and	
  savings	
  of	
  smart	
  metering	
  were	
  not	
  included	
  in	
  any	
  of	
  the	
  studies.	
  	
  Girvan	
  makes	
   the	
   point	
   that	
   through	
   rate	
   increases,	
   the	
   customer	
   base	
   is	
   partially	
  responsible	
  for	
  the	
  costs	
  to	
  implement	
  new	
  technologies	
  and	
  ought	
  to	
  be	
  provided	
  with	
  full	
  access	
  to	
  detailed	
  cost/benefit	
  analysis	
  (Girvan,	
  2009).	
  	
  In	
  a	
  separate	
  study	
  conducted	
  by	
  the	
  Brattle	
  Group	
  on	
  residential	
  demand	
  response	
  to	
  dynamic,	
  time-­‐based	
  pricing	
  structures,	
  fourteen	
  of	
  the	
  most	
  recent	
  TOU	
  pricing	
  experiments	
  in	
  the	
  U.S.	
  were	
  examined	
  in	
  detail	
  with	
  respect	
  to	
  customer	
  response	
  (Faruqui	
  &	
  Sanem,	
  2008).	
   	
  The	
  high-­‐level	
   conclusions	
  are	
   similar	
   to	
   the	
  Consumer	
   Council	
  of	
  Canada	
  report	
  and	
  are	
  as	
  follows:	
   • The	
   largest	
   load	
   reduction	
   is	
   experienced	
  with	
  CPP	
  pricing	
   combined	
  with	
  the	
  enabling	
  technology;	
   • TOU	
  programs	
  lead	
  to	
  less	
  load	
  reduction	
  but	
  also	
  benefit	
  from	
  the	
  inclusion	
  of	
  enabling	
  technology;	
  and	
   • The	
   most	
   effective	
   programs	
   include	
   a	
   combination	
   of	
   various	
   dynamic	
  pricing	
  with	
  enabling	
  technologies	
  (Faruqui	
  &	
  Sanem,	
  2008).	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   35	
   Faruqui	
   and	
   Sanem	
   also	
   focused	
  more	
   quantitatively	
   on	
   the	
   average	
   peak	
   period	
  consumption	
   impacts	
   across	
   all	
   pilot	
  programs.	
   	
  Results	
   of	
   the	
   study	
   showed	
   that	
  the	
  average	
  peak	
  period	
  demand	
  reduction	
  from	
  TOU	
  pricing	
  alone	
  was	
  5%.	
  	
  When	
  combined	
  with	
  enabling	
  technologies,	
  the	
  effect	
  on	
  peak	
  period	
  consumption	
  was	
  an	
  average	
  reduction	
  of	
  25%.	
  TOU	
  rates	
  combined	
  with	
  CPP	
  rates	
  resulted	
  in	
  average	
  reduction	
  in	
  demand	
  on	
  CPP	
  days	
  of	
  20%,	
  increasing	
  to	
  30%	
  when	
  combined	
  with	
  enabling	
  technologies	
  (Faruqui	
  &	
  Sanem,	
  2008).	
  	
  Aside	
   from	
   customer	
   response	
   projections,	
   Faruqui	
   and	
   Sanem	
   touch	
   on	
   some	
  important	
  social	
  justice	
  issues.	
  	
  One	
  of	
  the	
  pilot	
  programs	
  in	
  particular	
  looked	
  at	
  the	
  correlation	
  between	
   customer	
  demographics	
   and	
  demand	
   response.	
   	
   It	
  was	
   found	
  that	
  the	
  customer	
  characteristics	
  most	
  highly	
  correlated	
  with	
  peak	
  period	
  demand	
  reduction	
   are	
   possession	
   of	
   central	
   air	
   conditioning	
   and	
   a	
   college	
   education	
  (Faruqui	
  &	
  Sanem,	
  2008).	
   4.4 Challenges	
  for	
  Low	
  Income	
  Customers	
  The	
  potential	
  benefits	
  to	
  customers	
  of	
  reduced	
  peak	
  period	
  consumption	
  driven	
  by	
  smart	
  meters	
  and	
  TOU	
  pricing	
  structures	
  are	
  uncertain	
  with	
  respect	
  to	
  the	
  extent	
  of	
  the	
  future	
  bill	
  impacts	
  and	
  total	
  conservation.	
  	
  It	
  appears	
  however	
  that	
  any	
  level	
  of	
  reduced	
  consumption	
  leading	
  to	
  favorable	
  bill	
  impacts	
  will	
  be	
  related	
  to	
  the	
  extent	
  to	
  which	
  each	
  individual	
  customer	
  has	
  the	
  means	
  to	
  shift	
  their	
  use	
  patterns,	
  pay	
  for,	
  and	
  gain	
  the	
  knowledge	
  of	
  new	
  technologies.	
  	
  	
  Smart	
   metering	
   and	
   TOU	
   pricing	
   requires	
   significant	
   utility	
   capital	
   cost	
  expenditures	
  (estimated	
  at	
  $960	
  million	
  in	
  BC)	
  that,	
  by	
  necessity,	
  are	
  passed	
  down	
  to	
   the	
   ratepayers.	
   	
   Other	
   forms	
   of	
   conservation	
   pricing,	
   such	
   as	
   the	
   recently	
  implemented	
  RIB	
  rate,	
  result	
  in	
  comparatively	
  negligible	
  capital	
  cost	
  impacts	
  to	
  the	
  customer.	
   Unlike	
   the	
   RIB	
   rate,	
   where	
   customers	
   who	
   consume	
   less	
   electricity	
  experience	
  fewer	
  negative	
  impacts,	
  TOU	
  pricing	
  requires	
  substantial	
  change	
  to	
  use	
  patterns	
  and	
  enabling	
  technology	
  in	
  order	
  for	
  the	
  customer	
  to	
  benefit.	
  	
  	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   36	
   As	
   previously	
   discussed,	
   low	
   income	
   customers	
   are	
   more	
   likely	
   to	
   rely	
   on	
   less	
  efficient	
  appliances	
  and	
  live	
  in	
  energy	
  inefficient	
  homes	
  than	
  the	
  average	
  customer.	
  	
  Further,	
  they	
  may	
  be	
  faced	
  with	
  insurmountable	
  barriers	
  to	
  adjusting	
  their	
  energy	
  use	
   patterns.	
   	
   A	
   single	
   parent,	
   for	
   example,	
   has	
   little	
   choice	
   but	
   to	
   consume	
  electricity	
  for	
  cooking,	
  cleaning,	
  laundry,	
  etc.	
  before	
  or	
  after	
  regular	
  work	
  and	
  school	
  hours.	
   Renters	
   living	
   in	
   apartment	
   buildings	
   may	
   face	
   the	
   additional	
   barrier	
   of	
  restricted	
   hours	
   of	
   operation	
   of	
   shared	
   laundry	
   facilities.	
   Purchasing	
   new	
  devices	
  that	
   could	
   enable	
   personal	
   benefit	
   from	
   smart	
   metering	
   is	
   likely	
   also	
   out	
   of	
   the	
  question.	
   	
   So,	
   in	
   a	
   sense,	
   the	
   burden	
   of	
   capital	
   expenditures,	
   equally	
   distributed	
  among	
  residential	
  customers,	
  is	
  less	
  likely	
  to	
  be	
  offset	
  by	
  conservation	
  potential	
  and	
  off-­‐peak	
  energy	
  consumption	
  for	
  the	
  low-­‐income	
  customer	
  base.	
  	
  	
  	
  This	
  has	
  major	
  implications	
  for	
  a	
  conservation	
  pricing	
  mechanism	
  that	
  ought	
  to	
  be	
  socially	
   just.	
   	
   Environmental	
   and	
   economic	
   benefits,	
   in	
   the	
   form	
   of	
   energy	
  conservation	
  and	
  reduced	
  cost	
  of	
  future	
  assets,	
  may	
  result	
  from	
  the	
  implementation	
  of	
   smart	
  meters	
   and	
  TOU	
  pricing.	
   	
  However,	
   the	
  potential	
   benefits	
   reaped	
  by	
   low	
  income	
   customers	
   are	
   inhibited	
   by	
   the	
   costs	
   of	
   enabling	
   technology	
   and	
   the	
  difficulty	
  in	
  adjusting	
  daily	
  energy	
  use	
  patterns.	
  	
   4.5 The	
  BC	
  Context	
  Pilot	
   studies	
   from	
   other	
   jurisdictions	
   are	
   useful	
   in	
   providing	
   insight	
   into	
   what	
  aspects	
  of	
  smart	
  metering	
  have	
  been	
  successful	
  and	
  any	
  lessons	
  learned	
  that	
  could	
  lead	
  to	
  better	
  implementation	
  of	
  future	
  programs.	
  	
  There	
  are	
  however	
  limitations	
  to	
  certain	
   types	
   of	
   data	
   and	
   observations	
   as	
   they	
   apply	
   to	
   the	
   British	
   Columbian	
  context.	
  	
  BC	
  is	
  unique	
  compared	
  to	
  other	
  jurisdictions	
  currently	
  implementing	
  smart	
  metering	
  programs	
  in	
  that	
  the	
  vast	
  majority	
  of	
  electricity	
  supply	
  comes	
  from	
  large-­‐scale	
   hydroelectric	
   facilities.	
   	
   This	
   results	
   in	
   vastly	
   cheaper	
   electricity	
   rates	
   and	
  fewer	
  concerns	
  over	
  GHG	
  emissions	
  and	
  other	
  pollutants	
  compared	
  to	
  many	
  other	
  jurisdictions	
  that	
  rely	
  heavily	
  on	
  electricity	
  generated	
  from	
  coal,	
  oil	
  and	
  natural	
  gas.	
  	
  In	
  addition,	
  the	
  value	
  of	
  peak	
  load	
  reduction	
  in	
  BC	
  may	
  be	
  reduced	
  by	
  the	
  ability	
  to	
  adjust	
  the	
  flow	
  of	
  water	
  through	
  large	
  reservoirs	
  in	
  response	
  to	
  demand	
  changes.	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   37	
   	
  BC	
   Hydro	
   claims	
   that	
   a	
   full-­‐scale	
   cost/benefit	
   analysis	
   reveals	
   that	
   “the	
   Smart	
  Metering	
   and	
   Smart	
   Grid	
   Programs	
   will	
   deliver	
   a	
   positive	
   net	
   present	
   value	
   of	
  approximately	
   $500	
   million	
   for	
   the	
   benefit	
   of	
   all	
   ratepayers”	
   (BC	
   Hydro).	
   	
   The	
  analysis	
  that	
  leads	
  to	
  this	
  figure	
  has	
  not	
  been	
  made	
  publicly	
  available.	
  	
  However,	
  it	
  is	
  implied	
  that	
  the	
  majority	
  of	
  the	
  cost	
  savings	
  to	
  the	
  utility	
  result	
  from	
  the	
  offset	
  costs	
  of	
   new	
   supply	
   generation,	
   transmission	
   and	
   distribution	
   infrastructure	
   to	
   meet	
  growing	
  peaks	
   in	
  demand.	
   	
   It	
   is	
   not	
   clear	
  whether	
   these	
   savings	
   include	
   the	
  peak	
  load	
   reduction	
   from	
   customer-­‐supplied	
   technologies,	
   or	
   whether	
   the	
   costs	
   to	
  customers	
  of	
  these	
  technologies	
  are	
  considered.	
  	
  BC	
   Hydro	
   has	
   touted	
   another	
   significant	
   potential	
   savings	
   in	
   electricity	
   that	
   is	
  enabled	
  by	
   the	
   smart	
   grid,	
  which	
   is	
   reducing	
   the	
   theft	
   of	
   electricity	
   for	
  marijuana	
  grow-­‐ops	
  and	
  other	
  illegal	
  activity.	
   	
   It	
   is	
  reported	
  that	
  in	
  2006,	
  a	
  total	
  of	
  500	
  GWh	
  was	
  illegally	
  diverted	
  from	
  the	
  grid	
  (Simpson,	
  2010).	
  	
  At	
  2006	
  rates,	
  this	
  equates	
  to	
  a	
  total	
  cost	
  to	
  the	
  utility	
  and	
  ratepayers	
  of	
  $30	
  million	
  ($40	
  million	
  at	
  the	
  2010	
  RIB	
  rate).	
  	
  Implementation	
  of	
  a	
  smart	
  grid	
  would	
  allow	
  BC	
  Hydro	
  to	
  monitor	
  the	
  amount	
  of	
   electricity	
   delivered	
   to	
   particular	
   areas	
   and	
   individual	
  meters	
  would	
   provide	
   a	
  reading	
  for	
  each	
  customer.	
  	
  	
  Others	
  argue	
  that	
  smart	
  meters	
  may	
  make	
  it	
  easier	
  for	
  criminals	
   to	
   steal	
   electricity.	
   	
   Research	
   in	
   other	
   jurisdictions	
   has	
   shown	
   that	
   for	
  anyone	
  with	
  a	
  laptop	
  and	
  a	
  moderate	
  level	
  of	
  computer	
  expertise,	
  it	
  may	
  be	
  possible	
  to	
   hack	
   into	
   the	
   smart	
   metering	
   system.	
   	
   This	
   could,	
   in	
   effect,	
   increase	
   the	
  prevalence	
  of	
  power	
  theft	
  as	
  well	
  as	
  give	
  rise	
  to	
  a	
  range	
  of	
  other	
  security	
  concerns	
  (Quail,	
  2010).	
  	
  	
  	
  The	
  modernization	
  of	
  the	
  electricity	
  sector	
  that	
  comes	
  with	
  smart	
  meters	
  and	
  smart	
  grids	
   is	
   associated	
   with	
   a	
   range	
   of	
   potential	
   benefits.	
   The	
   effectiveness	
   of	
   smart	
  metering	
  in	
  BC	
  is	
  yet	
  to	
  be	
  seen,	
  but	
  the	
  upfront	
  capital	
  investment	
  for	
  the	
  utility	
  is	
  unquestionably	
  significant.	
   	
  The	
  following	
  section	
  will	
   look	
  at	
  some	
  alternate	
  ways	
  of	
   spending	
   ratepayer	
   dollars	
   through	
   household	
   energy	
   efficiency	
   improvments,	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   38	
   and	
   the	
   comparative	
   value	
   in	
   these	
   investments	
   for	
   electricity	
   savings	
   and	
   social	
  equity.	
   5.0 	
  ALTERNATIVES	
  FOR	
  HOUSEHOLD	
  CONSERVATION	
  Much	
  of	
  the	
  focus	
  of	
  this	
  report	
  has	
  been	
  on	
  the	
  social	
  equity	
  issues	
  around	
  energy	
  conservation	
  pricing	
  and	
  large-­‐scale	
  investments	
  in	
  metering	
  infrastructure.	
  	
  In	
  this	
  section,	
  this	
  research	
  has	
  identified	
  potential	
  savings	
  in	
  electricity	
  consumption	
  that	
  could	
   arise	
   from	
   investments	
   in	
   household	
   energy	
   efficiency	
   improvements	
   as	
   an	
  alternative	
  to	
  new	
  pricing	
  regimes	
  and	
  smart	
  meters.	
   	
   In	
  section	
  5.3,	
   this	
  research	
  provides	
  suggestions	
  for	
  how	
  energy	
  efficiency	
  improvements	
  can	
  help	
  to	
  alleviate	
  the	
  pressures	
  of	
  energy	
  poverty	
  through	
  low-­‐income	
  energy	
  efficiency	
  programs.	
  	
  	
  BC	
  Hydro’s	
  2007	
  Conservation	
  Potential	
  Review	
  (CPR)	
  was	
  commissioned	
  to	
  identify	
  potential	
   for	
   electricity	
   conservation	
   through	
   DSM	
   measures	
   in	
   the	
   residential,	
  commercial	
  and	
  industrial	
  sectors.	
  	
  Over	
  a	
  20-­‐year	
  study	
  period,	
  the	
  study	
  estimates	
  the	
   total	
   potential	
   electricity	
   savings	
   and	
   peak	
   load	
   reduction	
   from	
   new	
   and	
  emerging	
  energy	
  efficiency	
   technologies,	
   customer	
  supplied	
  small-­‐scale	
   renewable	
  energy	
  and	
  behavioral	
  change	
  (BC	
  Hydro,	
  2007).	
  	
  	
  	
  For	
   the	
   residential	
   sector,	
   the	
   CPR	
   study	
   began	
   by	
   developing	
   a	
   “base	
   year	
  calibration”	
  using	
  data	
  from	
  the	
  2006	
  fiscal	
  year.	
  	
  A	
  reference,	
  or	
  business-­‐as-­‐usual,	
  case	
   was	
   developed	
   through	
   macro-­‐modeling	
   based	
   on	
   the	
   expected	
   level	
   of	
  electricity	
  consumption,	
  accounting	
  for	
  projected	
  economic	
  and	
  population	
  growth.	
  The	
   CPR	
   study	
   group	
   researched	
   available	
   and	
   emerging	
   energy	
   efficiency	
  technologies	
  and	
  practices	
  along	
  with	
  the	
  capital,	
  operating	
  and	
  maintenance	
  costs	
  of	
  each	
  (BC	
  Hydro,	
  2007).	
  	
  	
  	
  For	
   energy	
   efficiency	
   upgrades,	
   the	
   CPR	
   study	
   developed	
   a	
   valuation	
   unit	
   to	
  compare	
  the	
  cost	
  and	
  performance	
  of	
  various	
  technologies	
  and	
  programs.	
  This	
  was	
  referred	
   to	
   as	
   the	
   Cost	
   of	
   Conserved	
   Energy	
   (CCE).	
   	
   CCE	
   is	
   calculated	
   as	
   the	
  annualized	
  incremental	
  cost	
  (including	
  operating	
  and	
  maintenance)	
  of	
  the	
  measure	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   39	
   divided	
  by	
  the	
  annual	
  kilowatt-­‐hour	
  savings	
  achieved,	
  excluding	
  any	
  administrative	
  or	
   program	
   costs.	
   All	
   costs	
   and	
   savings	
   are	
   “annualized”	
   by	
   accounting	
   for	
   the	
  service	
  life	
  of	
  the	
  required	
  equipment	
  using	
  a	
  discount	
  rate	
  of	
  6%	
  and	
  are	
  expressed	
  in	
  constant	
  2007	
  dollars	
  (BC	
  Hydro,	
  2007).	
  	
  The	
  following	
  table,	
  extracted	
  from	
  the	
   2007	
   Conservation	
   Potential	
   Review	
   report,	
   provides	
   a	
   summary	
   of	
   the	
   energy	
  efficiency	
  measures	
  considered	
  in	
  the	
  study.	
   Table	
  5	
  -­	
  Annualized	
  Cost	
  of	
  Energy	
  Efficiency	
  Measures10	
  	
   Measure	
   Average	
  CCE	
   ($/kWh)	
   Annual	
  Savings	
   (GWh/year)	
  Whole	
  House	
  Fans	
   -­‐0.03	
   295	
  LCD	
  Computer	
  Monitor	
  	
   0.00	
   41	
  DHW	
  Pipe	
  Wrap	
  	
   0.00	
   15	
  High	
  Performance	
  T8	
  Lighting	
  -­‐	
  Common	
  Areas	
  	
   0.01	
   68	
  CFLs	
  -­‐	
  Standard	
  	
   0.01	
   708	
  Low-­‐Flow	
  Showerheads	
  and	
  Faucets	
  	
   0.01	
   16	
  DHW	
  Tank	
  Insulating	
  Blanket	
  	
   0.01	
   31	
  Programmable	
  Thermostats	
  	
   0.02	
   148	
  Standby	
  Losses	
  	
   0.02	
   678	
  Timer	
  	
   0.02	
   6	
  Heat	
  Pumps	
  for	
  Swimming	
  Pools	
  	
   0.03	
   185	
  Replace	
  air-­‐source	
  heat	
  pump	
  with	
  a	
  cold-­‐climate	
  heat	
  pump	
  	
   0.03	
   33	
  Energy	
  Star	
  Top	
  Loading	
  Clothes	
  Washer	
  	
   0.03	
   610	
  Energy	
  Star	
  Windows	
  	
   0.04	
   192	
  Motion	
  Sensor	
  	
   0.04	
   10	
  Heat	
  Pump	
  Water	
  Heater	
  	
   0.04	
   468	
  LEED	
  Rated	
  Apartment	
  Building	
  	
   0.05	
   124	
  New	
  House	
  Designed	
  to	
  an	
  EGNH	
  80	
  Rating	
  	
   0.05	
   216	
  Standard	
  T8	
  Lighting	
  -­‐	
  Common	
  Areas	
  	
   0.06	
   13	
  Front	
  Loading	
  Washing	
  Machine	
  	
   0.06	
   21	
  Energy	
  Star	
  TV	
  	
   0.07	
   119	
  Energy	
  Star	
  Fridge	
  	
   0.07	
   67	
  Energy	
  Star	
  Dishwasher	
  	
   0.07	
   129	
  LED	
  Holiday	
  Lights	
  	
   0.08	
   75	
  CFLs	
  Specialised	
  	
   0.08	
   101	
  High	
  Efficiency	
  AC	
  	
   0.08	
   10	
  Wall	
  Insulation	
  	
   0.08	
   403	
  Energy	
  Efficient	
  Freezer	
  	
   0.10	
   35	
  DHW	
  Heat	
  Trap	
  	
   0.10	
   4	
  Ground	
  Source	
  Heat	
  Pump	
  in	
  Commercial	
  Buildings	
  	
   0.11	
   9	
  Air	
  Leakage	
  Sealing	
  	
   0.11	
   278	
  Building	
  recommissioning	
  	
   0.11	
   61	
  Furnace	
  Fan	
  Motor	
  (ECPMM)	
  	
   0.12	
   183	
  Insulating	
  Pool	
  Covers	
  	
   0.12	
   118	
  Air	
  Source	
  Heat	
  Pump	
  	
   0.13	
   124	
  Attic	
  Insulation	
  	
   0.14	
   19	
  High	
  Efficiency	
  HRV	
  	
   0.17	
   7	
  Pool	
  Pump	
  Timer	
  	
   0.17	
   108	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  10	
  Table	
  extracted	
  from:	
  BC	
  Hydro.	
  (2007).	
  BC	
  Hydro	
  2007	
  Conservation	
  Potential	
  Review	
  .	
  Retrieved	
  June	
  1,	
  2010,	
  from	
  BC	
  Hydro	
  Website	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   40	
   Ground	
  Source	
  Heat	
  Pump	
  	
   0.17	
   24	
  Waste	
  Water	
  Heat	
  Recovery	
  	
   0.18	
   19	
  Duct	
  Sealing	
  	
   0.23	
   69	
  Super	
  High	
  Performance	
  Windows	
  	
   0.23	
   142	
  Elevators-­‐Geared	
  Regenerative	
  	
   0.23	
   11	
  Vacuum	
  Panel	
  Insulation	
  	
   0.24	
   183	
  Foundation	
  Insulation	
  	
   0.24	
   84	
  LCD	
  TV	
  	
   0.25	
   111	
  Premium	
  efficiency	
  motors	
  (2500	
  hrs/yr)	
  	
   0.30	
   2	
  Efficient	
  Motors	
  for	
  Pool	
  Pumps	
  	
   0.36	
   100	
  Microwave/convection	
  Oven	
  	
   0.60	
   132	
  Energy	
  Star	
  Computer	
  	
   0.62	
   581	
  Crawl-­‐space	
  Insulation	
  	
   0.95	
   11	
  	
   5.1 Conservation	
  Scenarios	
  The	
   CPR	
   study	
   reviewed	
   three	
   classes	
   of	
   potential	
   energy	
   savings:	
   economic	
  potential,	
  upper	
  achievable	
  potential	
  and	
  lower	
  achievable	
  potential.	
  	
  The	
  economic	
  potential	
  electricity	
  savings	
  are	
  defined	
  as	
  the	
  potential	
  savings	
  if	
  all	
  “cost	
  effective”	
  technologies	
  are	
  implemented.	
  	
  In	
  this	
  case,	
  a	
  technology	
  is	
  considered	
  cost	
  effective	
  if	
  the	
  CCE	
  is	
  less	
  than	
  $0.13/kWh,	
  a	
  figure	
  derived	
  from	
  BC	
  Hydro’s	
  “Reference	
  Price	
  for	
  Energy”	
   of	
   $0.088/kWh	
   (based	
  on	
   the	
   results	
   of	
   the	
  2006	
  Call	
   for	
  New	
  Energy	
   Supply).	
   The	
   reference	
   price	
   for	
   energy	
   represents	
   the	
   average	
   cost	
   to	
   deliver	
  energy	
   to	
   the	
   Lower	
  Mainland,	
   including	
   infrastructure	
   costs,	
   transmission	
   losses	
  and	
   projected	
   future	
   costs	
   of	
   regulated	
   GHG	
   emissions.	
   	
   An	
   “economic	
   screen”	
   of	
  50%	
   of	
   the	
   reference	
   cost	
   is	
   added,	
   which	
   accounts	
   for	
   uncertainties	
   in	
   the	
  reference	
  cost	
  (BC	
  Hydro,	
  2007).	
  	
  The	
   achievable	
   potential	
   conservation	
   approach	
   includes	
   the	
   implementation	
   of	
  technologies	
  that	
  could	
  realistically	
  be	
  taken	
  up	
  within	
  the	
  study	
  period.	
  It	
  is	
  based	
  on	
   the	
   recognition	
   that	
   not	
   all	
   customers	
   can	
   be	
   expected	
   to	
   implement	
   available	
  technologies	
  within	
  the	
  study	
  period	
  regardless	
  of	
  whether	
  they	
  meet	
  the	
  economic	
  test	
  or	
  not.	
  	
  The	
  upper	
  and	
  lower	
  achievable	
  potential	
  scenarios	
  represent	
  a	
  range	
  of	
  possible	
   outcomes.	
   	
   The	
   lower	
   achievable	
   scenario	
   assumes	
   that	
   government	
  support	
   and	
   market	
   conditions	
   favoring	
   the	
   implementation	
   of	
   energy	
   efficient	
  technologies	
   remain	
  at	
  existing	
   levels.	
   	
  The	
  upper	
  achievable	
  scenario	
  assumes	
  an	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   41	
   increased	
  level	
  of	
  support	
  for	
  energy	
  efficiency	
  through	
  government	
  incentives	
  and	
  favorable	
  market	
  conditions	
  for	
  new	
  technologies	
  (BC	
  Hydro,	
  2007).	
  	
  	
   5.2 Summary	
  of	
  Results	
  The	
   model	
   developed	
   for	
   the	
   CPR	
   study	
   projected	
   future	
   potential	
   reductions	
   in	
  electricity	
  consumption	
  for	
  the	
  three	
  conservation	
  scenarios	
  described	
  above.	
   	
  The	
  results	
  are	
  presented	
  in	
  the	
  table	
  below.	
  	
  	
   Table	
  6	
  -­	
  Forecasted	
  Annual	
  Energy	
  Consumption,	
  Residential	
  Sector11	
   	
  As	
   shown	
   in	
   this	
   table,	
   the	
   potential	
   electricity	
   savings	
   from	
   conservation	
   in	
   the	
  residential	
  sector	
  are	
  projected	
  to	
  be	
  in	
  the	
  range	
  of	
  2,295	
  –	
  3,193	
  GWh/year	
  by	
  the	
  year	
  2026.	
  	
  With	
  the	
  values	
  from	
  this	
  table	
  and	
  the	
  model	
  results	
  for	
  the	
  commercial	
  and	
   industrial	
   sectors,	
   the	
   CPR	
   study	
   team	
   projected	
   that	
   the	
   total	
   conservation	
  potential	
   for	
   BC	
  would	
   be	
   in	
   the	
   range	
   of	
   8,659	
   –	
   15,072	
   GWh/year	
   by	
   the	
   year	
  2026.	
  The	
  associated	
  costs	
  of	
   reaching	
   this	
  potential	
   is	
  $354	
  –	
  $619	
  million.	
   	
  This	
  equates	
  to	
  approximately	
  $0.04/kWh	
  of	
  annual	
  electricity	
  savings	
  (BC	
  Hydro,	
  2007).	
  	
  Assuming	
   this	
   rate	
   is	
   constant	
   for	
   all	
   DSM	
  measures	
   across	
   the	
   three	
   sectors,	
   the	
  upper	
   achievable	
   electricity	
   savings	
   of	
   3,193	
   GWh/year	
   could	
   be	
   met	
   with	
   an	
  investment	
  of	
  $127	
  million.	
  	
  	
  	
  When	
  compared	
  to	
  the	
  estimated	
  $960	
  million	
  that	
  will	
  be	
  spent	
  on	
  installation	
  of	
  smart	
  meters	
  and	
  infrastructure	
  this	
  seems	
  to	
  be	
  a	
  more	
  effective	
  use	
  of	
  ratepayer	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  11	
  Table	
  extracted	
  from:	
  BC	
  Hydro.	
  (2007).	
  BC	
  Hydro	
  2007	
  Conservation	
  Potential	
  Review	
  .	
  Retrieved	
  June	
  1,	
  2010,	
  from	
  BC	
  Hydro	
  Website:	
  http://www.bchydro.com/etc/medialib/internet/documents/info/pdf/info_2007_conservation_potential_review_summary_report.Par.0001.File.info_2007_conservation_potential_review_summary_report.pdf	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   42	
   revenues.	
  	
  In	
  addition,	
  investment	
  in	
  DSM	
  measures	
  is	
  more	
  likely	
  to	
  be	
  distributed	
  within	
  the	
  local	
  economy	
  while	
  smart	
  meter	
  installation	
  will	
  likely	
  be	
  contracted	
  out	
  to	
  a	
  single	
   firm,	
  potentially	
  operating	
  from	
  overseas	
  where	
  more	
  advanced	
  energy	
  efficiency	
  technologies	
  exist.	
   5.3 Considerations	
  for	
  Low-­‐Income	
  Energy	
  Efficiency	
  Programs	
  Energy	
   conservation	
   pricing	
   regimes	
   have	
   the	
   potential	
   to	
   achieve	
   marginal	
  reductions	
   in	
   electricity	
   consumption,	
   but	
   are	
   not	
   effective	
   tools	
   at	
   addressing	
  issues	
  of	
   social	
   inequity.	
   	
  Rather,	
   in	
   some	
   cases,	
   they	
   can	
  be	
   shown	
   to	
   exacerbate	
  inequalities	
  and	
  potentially	
  worsen	
  conditions	
  of	
  energy	
  poverty.	
  	
  	
  	
  Considering	
  the	
  conservation	
  potential	
  in	
  the	
  residential	
  sector	
  identified	
  in	
  the	
  CPR	
  study	
  and	
  the	
  prevalence	
  of	
  energy	
  poverty	
  in	
  this	
  province,	
  there	
  is	
  clear	
  potential	
  for	
   electricity	
   conservation	
   through	
   household	
   energy	
   efficiency	
   improvements	
  targeted	
   at	
   low-­‐income	
   customers.	
   	
   Typical	
   energy	
   efficiency	
   programs	
   offer	
  incentives	
  or	
  rebates	
  for	
  energy	
  efficiency	
  improvements,	
  which	
  are	
  funded	
  through	
  the	
  utilities	
  general	
  revenue	
  stream.	
  	
  Low-­‐income	
  customers	
  rarely	
  participate	
  due	
  to	
  the	
  upfront	
  cost	
  required	
  in	
  order	
  to	
  benefit	
  (Kelly,	
  2007).	
  	
  Programs	
  targeted	
  at	
  low-­‐income	
  customers	
  could	
  address	
  issues	
  of	
  social	
  inequality	
  while	
  capitalizing	
  on	
  a	
   relatively	
   untapped	
   demand	
   for	
   efficiency	
   improvements	
   and	
   opportunity	
   for	
  electricity	
  savings.	
  	
  	
  	
  	
  In	
   a	
   separate	
   report	
   produced	
   for	
   the	
   Energy	
   Poverty	
   component	
   of	
   the	
   Climate	
   Justice	
  Project,	
  McEachern	
  and	
  Vivian	
  reviewed	
  a	
  broad	
  range	
  of	
  low-­‐income	
  energy	
  efficiency	
   programs	
   and	
   developed	
   a	
   set	
   of	
   best	
   practices	
   for	
   development	
   and	
  implementation	
  of	
   future	
  programs.	
   	
   Some	
  of	
   the	
  key	
   recommendations	
   from	
   this	
  study	
  include:	
  -­‐ Program	
  providers	
  should	
  pay	
  up-­‐front	
  cost	
  to	
  enable	
  low-­‐income	
  customers	
  to	
  participate;	
  -­‐ Programs	
  should	
  include	
  outreach	
  and	
  education	
  targeted	
  at	
  renters	
  and	
  other	
  low-­‐income	
  customers;	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   43	
   -­‐ Partnerships	
   should	
   be	
   made	
   between	
   multiple	
   levels	
   of	
   government	
   to	
  leverage	
  resources;	
  -­‐ Non-­‐profit	
  organizations	
  and	
  community	
  groups	
  should	
  be	
  sought	
  to	
  help	
  with	
  outreach	
  and	
  education;	
  -­‐ Opportunity	
  to	
  develop	
  construction	
  and	
  retrofit	
  workforce	
  drawing	
  from	
  local	
  population	
  and	
  providing	
  work	
  training	
  to	
  low-­‐income	
  groups;	
  and	
  -­‐ Energy	
   efficiency	
   regulations	
   should	
   be	
   developed	
   for	
   rental	
   apartment	
  buildings	
  resulting	
  in	
  little	
  or	
  no	
  cost	
  to	
  landlords(McEachern	
  &	
  Vivian,	
  2010).	
   6.0 	
   DISCUSSION	
  	
  The	
  cost	
  of	
  providing	
  new	
  sources	
  of	
  electricity	
  to	
  meet	
  the	
  growing	
  demand	
  of	
  an	
  increasing	
   population	
   in	
   a	
   way	
   that	
   limits	
   ecological	
   impact	
   and	
   advances	
   the	
  provincial	
   economy	
   is	
   out	
   of	
   line	
   with	
   the	
   cost	
   to	
   operate	
   and	
   maintain	
   existing	
  assets.	
   	
  Conservation	
  and	
   improved	
  efficiency	
  are	
   likely	
   the	
  best	
   tools	
  available	
   to	
  bring	
  overall	
  demand	
  for	
  electricity	
  closer	
  to	
  the	
  capacity	
  of	
  current	
  supply.	
  	
  Energy	
  conservation	
  pricing	
  regimes,	
  such	
  as	
  RIB	
  and	
  TOU,	
  are	
  key	
  tools	
   in	
  meeting	
  fiscal	
  responsibility	
   and	
   energy	
   conservation	
   objectives	
   simultaneously.	
   	
   These	
   tools,	
  however,	
  are	
  rather	
  blunt	
  and	
  come	
  with	
  a	
  risk	
  of	
  posing	
  significant	
  challenges	
   to	
  low-­‐income	
  customers.	
   	
   It	
   is	
   important	
  that	
  these	
  impacts	
  are	
  carefully	
  considered	
  and	
   that	
   attempts	
   are	
   made	
   to	
   mitigate	
   the	
   potential	
   damage	
   caused	
   to	
   those	
  already,	
  or	
  at	
  risk	
  of,	
  being	
  subjected	
  to	
  energy	
  poverty.	
  	
  	
   6.1 RIB	
  Rate	
  Overall,	
   the	
   RIB	
   rate	
   has	
   a	
   limited	
   impact	
   on	
   the	
   average	
   customer.	
   	
   The	
   highest	
  consumers,	
   those	
  most	
   likely	
   to	
  be	
  of	
  a	
  higher	
   income	
  group,	
  experience	
  marginal	
  cost	
  increases	
  that	
  are	
  relatively	
  insignificant	
  in	
  proportion	
  to	
  income.	
  	
  Low-­‐income	
  customers	
   consuming	
  more	
   than	
   the	
   average	
   for	
   their	
   income	
   group	
   are	
   likely	
   to	
  experience	
   added	
   costs	
   that	
   could	
   potentially	
   pose	
   a	
   significant	
   threat	
   to	
   their	
  livelihood.	
  	
  In	
  one	
  instance,	
  those	
  with	
  the	
  means	
  to	
  reduce	
  consumption	
  are	
  given	
  little	
  incentive	
  to	
  do	
  so	
  and	
  in	
  another	
  there	
  is	
  considerable	
  incentive	
  for	
  those	
  with	
  limited	
  means.	
  	
  	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   44	
   	
  The	
  RIB	
  rate,	
   in	
  its	
  current	
  form,	
  will	
   likely	
  not	
  result	
   in	
  a	
  substantial	
  reduction	
  in	
  electricity	
   consumption	
   from	
   most	
   customers	
   and	
   does	
   little	
   to	
   re-­‐distribute	
   the	
  costs	
   of	
   incremental	
   new	
   energy	
   supply	
   across	
   the	
   customer	
   base	
   proportionally	
  with	
   consumption.	
   	
   Considering	
   the	
   increases	
   in	
  BC	
  Hydro’s	
   revenue	
   requirement	
  moving	
  into	
  the	
  future,	
  the	
  RIB	
  rate	
  is	
  likely	
  better	
  than	
  a	
  flat	
  rate	
  increase	
  for	
  the	
  average	
   low-­‐income	
   customer,	
   but	
   customers	
   struggling	
  with	
   financial	
   difficulties	
  and	
  consuming	
  more	
  than	
  the	
  average	
  for	
  their	
  income	
  class	
  will	
  be	
  hit	
  the	
  hardest.	
  	
  	
  	
   6.2 Smart	
  metering	
  and	
  TOU	
  pricing	
  	
  Whereas	
   the	
   RIB	
   rate	
   is	
   targeted	
   at	
   reducing	
   energy	
   consumption	
   by	
   charging	
   a	
  higher	
  rate	
  to	
  those	
  that	
  exceed	
  a	
  bi-­‐monthly	
  electricity	
  threshold,	
  smart	
  metering	
  and	
  TOU	
  pricing	
  structures	
  are	
  intended	
  to	
  incent	
  off-­‐peak	
  electricity	
  consumption	
  and	
  reduce	
  the	
  need	
  for	
  added	
  capacity.	
  	
  Smart	
  meters	
  also	
  offer	
  an	
  opportunity	
  to	
  use	
  power	
  more	
  efficiently	
  and	
  potentially	
  generate	
  electricity	
  on	
  site.	
   	
  Unlike	
   the	
  RIB	
  rate,	
  smart	
  meters	
  and	
  the	
  related	
  infrastructure	
  require	
  a	
  significant	
  up-­‐front	
  capital	
  investment	
  from	
  the	
  utility.	
  	
  	
  The	
  existence	
  of	
  a	
  full	
  cost/benefit	
  analysis	
  is	
  unclear,	
  as	
  are	
  the	
  potential	
  savings	
  to	
  the	
   ratepayers.	
   	
  Pilot	
  projects	
   in	
  other	
   jurisdictions	
  have	
  shown	
   that	
   the	
  extent	
  of	
  energy	
  savings	
  and	
  potential	
  for	
  positive	
  bill	
  impacts	
  largely	
  depend	
  on	
  the	
  ability	
  of	
  the	
  customers	
  to	
  anticipate	
  peak	
  rate	
  periods	
  and	
  apply	
  enabling	
  technology,	
  at	
  an	
  added	
  cost,	
  within	
  the	
  home.	
  	
  This	
   pricing	
   strategy	
   poses	
   greater	
   challenges	
   for	
   low-­‐income	
   customers.	
   	
   The	
  projected	
  $960	
  million	
  cost	
  of	
  the	
  meters	
  and	
  grid	
  upgrades	
  will	
  be	
  recovered	
  by	
  the	
  utility	
  through	
  evenly	
  distributed	
  rate	
   increases	
  over	
  time.	
  The	
  resulting	
  customer	
  savings	
  will	
  require	
  both	
  the	
  ability	
  to	
  adjust	
  use	
  patterns	
  and	
  the	
  financial	
  means	
  to	
  implement	
   enabling	
   technologies	
   in	
   the	
   home.	
   	
   This	
   strategy	
   has	
   the	
   potential	
   to	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   45	
   increase	
   the	
   cost	
   burden	
   of	
   electricity	
   on	
   vulnerable	
   low-­‐income	
   households	
  without	
  providing	
  any	
  benefit	
  to	
  those	
  in	
  need.	
  	
   6.3 Potential	
  for	
  DSM	
  and	
  Low	
  Energy	
  Efficiency	
  Programs	
  The	
   results	
   of	
   the	
   detailed	
   analysis	
   carried	
   out	
   in	
   the	
   CPR	
   study	
   indicate	
   that	
  upwards	
   of	
   3,193	
   GWh/year	
   of	
   electricity	
   could	
   be	
   conserved	
   through	
   energy	
  efficiency	
   improvements	
   in	
   the	
   residential	
   sector	
   at	
   a	
   cost	
   of	
   approximately	
   $127	
  million.	
   	
   The	
   question	
   raised	
   by	
   this	
   research	
   is	
   not	
  whether	
   to	
   implement	
   smart	
  meters	
  or	
  DSM.	
  Rather	
  it	
  is	
  a	
  question	
  of	
  how	
  much	
  money	
  will	
  be	
  dedicated	
  to	
  each	
  and	
  what	
  this	
  means	
  for	
  low-­‐income	
  customers	
  and	
  the	
  local	
  economy.	
  	
  Considering	
  the	
  sizeable	
  price	
  tag	
  attributed	
  to	
  smart	
  meters,	
   it	
  seems	
  that	
   there	
  should	
  be	
  no	
  hesitation	
   to	
   make	
   the	
   comparatively	
   small	
   investment	
   required	
   to	
   maximize	
  conservation	
  potential	
  in	
  the	
  residential	
  sector.	
  	
  	
  	
  Given	
   the	
   barriers	
   to	
   low-­‐income	
   households	
   in	
   participating	
   in	
   typical	
   energy	
  efficiency	
  programs	
  and	
  making	
  energy	
  efficient	
  choices	
  for	
  housing	
  and	
  appliances,	
  there	
   is	
   likely	
   significant	
   potential	
   to	
   address	
   energy	
   poverty	
   and	
   energy	
  conservation	
  through	
  targeted	
  low-­‐income	
  energy	
  efficiency	
  programs.	
  	
  	
   7.0 CONCLUSION	
  In	
   the	
   context	
   of	
   energy	
   conservation	
   pricing,	
   goals	
   of	
   social	
   justice	
   and	
  conservation	
   can	
   sometimes	
   be	
   at	
   odds.	
   	
   The	
   increasing	
   cost	
   to	
   supply	
   clean,	
  renewable	
  and	
  reliable	
  electricity	
  ought	
  to	
  be	
  reflected	
  in	
  the	
  rates	
  that	
  consumers	
  face.	
   	
   Further,	
   multi-­‐tiered	
   and	
   time-­‐based	
   rate	
   structures	
   can	
   lead	
   to	
   electricity	
  savings	
   by	
   encouraging	
   consumer	
   conservation	
   and	
   reductions	
   in	
   peak	
   load	
  requirements.	
  	
  However,	
  if	
  left	
  unmitigated,	
  these	
  rate	
  structures	
  along	
  with	
  general	
  rate	
  increases	
  are	
  likely	
  to	
  exacerbate	
  the	
  disproportionate	
  energy	
  burden	
  already	
  faced	
  by	
  many	
  British	
  Columbians.	
  	
  	
  	
  The	
   RIB	
   rate	
   and	
   TOU	
   pricing	
   both	
   present	
   potential	
   challenges	
   to	
   low-­‐income	
  households.	
   	
  The	
   impact	
  of	
  RIB	
  may	
  not	
  appear	
  significant	
  when	
  only	
   the	
  average	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   46	
   consumption	
  for	
   low-­‐income	
  households	
   is	
  considered,	
  but	
  those	
  consuming	
  more	
  than	
   the	
   average	
   could	
   be	
   faced	
   with	
   additional	
   hardship.	
   	
   The	
   TOU	
   and	
   smart	
  metering	
  pricing	
  mechanisms	
  will	
  come	
  at	
  a	
  cost	
  to	
  all	
  rate-­‐payers,	
  but	
  low-­‐income	
  customers	
  will	
  have	
  little	
  opportunity	
  to	
  take	
  advantage	
  of	
  the	
  benefits.	
  	
  	
  	
  There	
   is	
   a	
   considerable	
   opportunity	
   to	
   reduce	
   electricity	
   consumption	
   through	
  household	
   energy	
   efficiency	
   upgrades	
   as	
   identified	
   in	
   BC	
   Hydro’s	
   CPR	
   study.	
   	
   If	
  combined	
  with	
  a	
   thoughtful	
   low-­‐income	
  energy	
  efficiency	
  strategy,	
   such	
  measures	
  could	
  go	
  a	
   long	
  way	
   towards	
  reducing	
  energy	
  consumption	
  and	
  alleviating	
  energy	
  poverty.	
   	
   Developing	
   a	
   sustainable	
   energy	
   economy	
   in	
  BC	
  will	
   require	
   a	
   balanced	
  approach	
  that	
  includes	
  carefully	
  designed	
  pricing	
  structures	
  and	
  aggressive	
  support	
  of	
   energy	
   efficiency	
   improvements.	
   	
   In	
   all	
   of	
   these	
   endeavors,	
   social	
   justice	
  implications	
  must	
  be	
  considered	
  and	
  attempts	
  be	
  made	
   to	
  address	
   the	
  barriers	
   to	
  low-­‐income	
  households.	
  	
  	
  	
  	
  	
  	
   	
   Jason	
  Owen	
  	
   	
   September	
  14,	
  2010	
   47	
   8.0 BIBLIOGRAPHY	
  	
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  BC	
  Hydro	
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  J.	
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   Ontario's	
  residential	
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  L.	
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