The program will promote the adoption of EVs in BC, but ratepayers face paying a hidden $289 million subsidy to fund a cheaper overnight rate.

## The details

This month sees the launch of BC Hydro’s “time-of-use” rate. Residential customers will have the option of receiving cheaper electricity in the overnight hours, in return for paying more for their usage during peak hours. The program operates 365 days of the year and does not vary during the year.

This time-of-use rate is an “add on” to BC Hydro’s existing residential inclining block rate. Customers who opt into the new scheme continue to pay the current price for their electricity, either at the tier 1 or tier 2 rate, then additionally receive the discount or pay the surcharge based on the hours they have consumed electricity, as shown in the following table:

Period | Time of day | Time-of-use rate |

Overnight | 11 pm to 7 am | Discount of 5 cents / kWh |

On-Peak | 4 pm to 9 pm | Surcharge of 5 cents / kWh |

Off-Peak | All other times | Existing residential rates apply (no discount or surcharge) |

BC Hydro’s net metering customers may also opt into the scheme to receive the discount or pay the surcharge for the electricity they receive from BC Hydro, based on the time they consume it (see a previous article for other potential changes to the net metering rate).

## The rationale

In its application to the BCUC to approve the new time-of-use rate, BC Hydro states its purpose is to shift customer demand from On-Peak to lower-use periods, avoiding (or at least deferring) the cost of expanding its system as demand for electricity grows.

The peak demand on BC Hydro’s system occurs around 6 pm, which coincides with the peak demand from residential customers, as shown below:

BC Hydro must have the capacity to provide enough electricity to serve its customers at times of its peak demand, even if some of that capacity lies idle at other times of the day. The more the peak demand can be smoothed out, the more cost-efficient the system will be, as BC Hydro’s assets will have less idle time.

The challenge for BC Hydro is that its system peak demand has been growing steadily for the last five years, from 9,651 MW in 2018 to 10,762 MW in 2022. This growth is due, at least in part, to the adoption of electric vehicles (EV). The following graph shows that EV customers have a significantly higher peak usage than single-family homes in general:

By implementing the time-of-use rate and giving customers an economic incentive to move their electricity consumption away from the On-Peak period, BC Hydro expects to save 73 MW from its projected system peak by 2030. To put this in perspective, BC Hydro estimates the total effect of EVs on peak demand in 2024 will be 188 MW, rising to 2,196 MW in 2040.

The vast majority of the 73 MW in savings will come from EV owners charging their vehicles late at night, but other residential customers are also expected to opt in and take advantage of lower rates for operating appliances such as dryers and dishwashers overnight (according to BC Hydro’s customer survey).

BC Hydro’s assumptions appear to be quite conservative (only 8 percent of customers with no EV will participate by 2030, along with 25 percent of customers with an EV), so the projected saving of 73 MW reduction in peak system demand seems reasonable.

## Basis for the decision

The BCUC considered both economic and cost-of-service justifications for BC Hydro’s time-of-use rate, and also considered the Bonbright Principles, which are commonly used to evaluate new rate design proposals.

## Economic justification

BC Hydro’s economic justification was based on a benefit/cost ratio calculation. This considers the economic impact of the rate on all ratepayers, not just time-of-use program participants. The BCUC was satisfied that the time-of-use rate starts to break even on an annual basis by 2031 (year 7), and cumulatively by 2035 (year 11). It is not unusual that it would take some time for a program like this to ramp up and take a few years to pay off its implementation costs.

The BCUC also considered the 5-cent level for the discount and surcharge. The 5-cent credit means the net price of electricity in the Overnight period for time-of-use customers will be at least 5.96 cents / kWh for (in F2025 dollars) for customers paying BC Hydro’s tier 1 rate. This is sufficient to cover BC Hydro’s cost for electricity at that time of day, which is estimated to be 5.13 cents / kWh, so BC Hydro is not losing money on the sales of Overnight electricity.

The 5-cent surcharge for On-Peak electricity means customers pay either 15.96 or 19.08 cents / kWh, both of which the BCUC considered to be close to BC Hydro’s long-run marginal cost of 19.56 cents / kWh (2025 dollars), the estimated cost for the utility to add new firm generation. The price of On-peak electricity, then, also looks reasonable.

## Cost-of-service justification

Even though the time-of-use program can break even for BC Hydro customers overall by 2035, this is not the whole story. A cost-of-service analysis examines whether ratepayers are paying their fair share of the utility’s total costs, the Bonbright rate design principle of “fair apportionment”.

BC Hydro acknowledges that time-of-use rate customers will not pay their way. In the first year of the program, they will only pay 82.2 percent of the costs to serve them (the revenue/cost ratio, or R/C ratio), rising to 92.6 percent by year 15. This compares to 97.3 percent for residential customers overall (BC Hydro’s 2022 figure).

Since BC Hydro is entitled to collect all its BCUC-approved costs, if one group of customers pays less than their fair share, others must subsidize them by paying more.

Such discriminatory or preferential treatment could be prohibited under section 59 of the Utilities Commission Act. But it is almost impossible to design a rate that avoids discrimination entirely, so the Act only prevents undue discrimination or preference. It is a matter for the BCUC to determine whether any discrimination or preference is acceptable.

In its decision, the BCUC found that the new rate was just and reasonable, and not unduly discriminatory or preferential, the tests for a rate under the Utilities Commission Act.

The BCUC stated that the new rate “generally performs well against the Bonbright rate design principles,” but didn’t provide any further explanation. This is a pity, because the time-of-use program does not do a good job of apportioning BC Hydro’s costs. In fact, the subsidy is considerable.

## Price subsidy

As I explain in Appendix 1 below, there are at least two ways to calculate the subsidy, but using the more conservative approach, it works out to be $289 million over fifteen years, the horizon of BC Hydro’s analysis (although it could be as high as $740 million).

The BCUC has approved subsidies for clean energy-related rates before. BC Hydro’s Net Metering rate, for example, which allows customers to bank their self-generated electricity until they need it, involved an annual subsidy estimated to be $456 per net metering customer. But with only 409 customers at the time (2016), the total subsidy was less than $200,000 per year. And in any case, this subsidy has declined since.

It is also true, as the BCUC observed, that the revenue/cost ratio improves as the time-of-use program develops. But even after 15 years, the annual amount of the subsidy received by participating customers is still increasing, and shows no sign of declining.

The time-of-use rate is therefore a good deal for EV owners, who are receiving subsidized electricity for charging their vehicles, but it’s hard to see how this is a “fair apportionment of costs” for everyone else.

## Taxation without representation

So who is paying for this subsidy? Probably you are.

Unknown to most BC Hydro customers, their rates will be at least $289 million higher over the next 15 years, to fund cheaper electricity for EV owners to charge their vehicles overnight.

This does not just affect residential customers who do not participate in the time-of-use program. BC Hydro’s commercial customers will pay more, and may in turn pass on these increased costs to consumers. And BC Hydro’s industrial customers will face higher costs as they seek to compete in international markets, putting BC jobs further at risk.

Had the BC government included this subsidy in the provincial budget, it would have been debated in the legislature. It escaped that scrutiny. Alternatively, the government could have passed a regulation to implement the subsidy; it would have escaped the budget debate, but at least the subsidy would have been justified by some form of legislation, such as the Clean Energy Act.

What has happened here is quite different. BC Hydro, presumably with the knowledge of its government owner, has proposed a rate with a built-in subsidy for EV owners, paid for not by taxpayers but by other electricity customers – and the BCUC has approved it.

## Conclusion

The focus during the BCUC proceeding was on how the new rate could ameliorate BC Hydro’s forecast increase in system peak demand, caused by EVs and other system growth. I expect that objective to be achieved, and in fact there may be other benefits too.

With new EV sales in BC currently stalling (see graph below), it helps that the time-of-use rate roughly halves the cost of electricity for charging an EV at home, at least for the 83 percent of EV drivers whom BC Hydro believes can charge their vehicles in the Overnight period. That improves the economic case for owning an EV, especially as the cost of operating the gasoline equivalent rises with the carbon tax.

*Source: Stats Canada*

There is also the possibility that the time-of-use rate could support other innovations in future, such as building heating and cooling systems that can adjust their use of electricity automatically to take advantage of the incentive.

However, while I support BC Hydro’s time-of-use rate in principle, I respectfully disagree with the BCUC’s decision to approve BC Hydro’s time-of-use rate with this scale of subsidy for its participants.

The BCUC was “satisfied that, over time, the Rate’s benefits in terms of capacity savings will either match or exceed the costs in terms of implementation and revenue loss” and was therefore justified on a cost-of-service basis. This may be true for BC Hydro ratepayers overall, but it sidesteps the issue of the subsidy.

As an economic regulator, the BCUC’s role is to allow utilities to recover only the costs necessary to provide service to customers. It is not the BCUC’s place to determine, without legislative authority, that some customers should also pay to subsidize others.

This has already been established in a 2017 BC Hydro rates decision, where the BCUC determined it did not have the legislative authority to approve a rate for low-income customers subsidized by other BC Hydro ratepayers. Ironically, in an unsuccessful appeal to the BC Court of Appeal to reverse this 2017 decision, BC Hydro supported the BCUC’s decision and objected to the subsidized rate. Quite a turnaround.

BC Hydro’s time-of-use proposal was opposed by the BC Public Interest Advocacy Centre, and two other interveners also raised concerns about the level of subsidy (the proposal was supported by the BC Sustainable Energy Association and the Vancouver Electric Vehicle Association).

Notwithstanding the objections, the BCUC approved the entire proposal, adding to the apprehension that the BCUC is just “rubber stamping” BC Hydro decisions.

Also, perhaps it’s time for us to consider whether subsidies such as these should be made transparent in government budgets rather than hidden in obscure utility rate decisions?

## Appendix 1 – Calculation of the BC Hydro time-of-use program subsidy

There are two ways of calculating the subsidy received by participants of BC Hydro’s time-of-use program participants, primarily EV owners charging their vehicles at home.

The first method uses BC Hydro’s total revenues and costs associated with time-of-use program participants, the second method looks only at the revenues and costs directly impacted by their participation.

I have used the second, more conservative method, but both methods show that EV owners charging their vehicle overnight at home receive a significant subsidy.

The data for the calculations comes from BC Hydro’s evidence in the BCUC proceeding. This is one of the benefits of a BCUC proceeding; the evidence is publicly available, which wouldn’t necessarily be the case if the BCUC were not involved.

### Method One

The BCUC used the total BC Hydro revenues and costs associated with time-of-use participants to evaluate whether they are paying their way. These are shown in the table below:

These figures show that for the next 15 years, time-of-use participants will be charged less for their electricity than BC Hydro’s cost to provide it. The total deficiency, which is made up for by other BC Hydro customers, is a staggering $740 million. Even by year ten, a common cut-off point for these analyses, the total subsidy is over $400 million.

Another key point here is that the amount of the subsidy increases every year. The BCUC often approves rates with a short-term revenue deficiency, as long as it is made up in future years. This is not one of those rates.

But while this subsidy of $740 million is real, it is perhaps unfair for the time-of-use rate to take all the blame. BC Hydro’s rates contain other built-in subsidies, usually with commercial customers subsidizing the residential sector. In 2020, for example, BC Hydro’s small-sized commercial customers paid a 16.4 percent premium for their electricity, allowing residential customers to pay only 93.3 percent of their costs.

Instead, I’ve looked at a narrower definition that calculates only the subsidy directly caused by the time-of-use rate.

### Method Two

Using this more conservative method, the time-of-use program has two forms of direct costs. The first is the implementation cost (including ongoing operational costs); the second, more significant cost, is the revenue lost when customers shift their demand to the cheaper Overnight rate.

BC Hydro provides all the information to perform this calculation. BC Hydro forecasts the revenue it loses paying the discount for the Overnight rate, and the revenue it gains from the surcharge for On-Peak usage.

Even though the discount and surcharge are the same figure (5 cents / kWh), there is a net loss of revenue to BC Hydro. This is because some customers will shift their usage from the Off-peak period, for which BC Hydro does not charge a surcharge, to the Overnight period when they receive a discount.

The following table shows the revenue loss and implementation costs of BC Hydro’s time-of-use program:

By this calculation, over the next 15 years the total time-of-use revenue deficiency, which is made up for by other BC Hydro customers, is $289 million. The ten-year figure is about $145 million.