“Rate shock” is an excessive increase in a public utility’s rates.

There is a general notion that ratepayers should, if possible, be spared excessive increases in rates. This is based on the Bonbright Principle that rates should be stable and predictable, “with a minimum of unexpected changes seriously adverse to ratepayers” (Principles of Public Utility Rates, Bonbright et. al., 1988, p. 383).

The BCUC generally considers that an increase of 10 percent or more in rates constitutes rate shock. This level is arbitrary, however, and must be looked at in context.

It is important to look more holistically at customers’ rates before determining that a specific increase in rates constitutes rate shock. For example, if a gas delivery rate increases by 12 percent, but there is an offsetting decrease in the gas commodity rate of 4 percent, the BCUC might consider that the combined effect (sometimes referred to as “bill shock”) is less problematic than the gas delivery rate change.

If rates are increasing sharply, but there’s an expectation that the increases will reduce or cease, a rate smoothing account might be used to smooth the increases over time, reducing the shock to the ratepayer. The utility records in the rate smoothing account the amounts that are being deferred, and collects them in future years, reducing the balance in the account.

However, if rate increases continue, a balance in a rate smoothing account can build up, causing ever larger problems. Either ratepayers, taxpayers or utility shareholders must eventually pay the bill.