An inclining block rate is a pricing scheme where customers pay a higher rate the more energy they use.

Inclining block rates specific to residential customers are sometimes referred to as Residential Inclining Block or RIB rates, although other rates classes such as commercial and industrial customers may also use inclining block rates.

Customers’ usage is divided into two or more blocks, each with different rates. The usage level at which the customer moves to a new (higher) price is called the threshold.

Setting block rates and thresholds is often contentious, as all changes result in winners and losers. For example, there is some correlation between income and energy use; in its evidence to a 2017 inquiry, BC Hydro estimated that 87 percent of its low-income customers were better off under its inclining block rate than they would be under a flat rate.

Why blocks?

Inclining block rates are sometimes called “conservation rates” because of the “price signal” they send; the higher price for higher levels of use gives customers a bigger financial incentive to reduce the part of their consumption that is above the threshold.

But why not just set the higher rate for all levels of consumption, and dispense with the complexity of creating usage blocks?

The answer is that the utility would probably collect too much revenue. One principle of rate setting is that utilities may collect only the revenue they need to deliver service, neither more nor less (the cost causation principle). Increasing a utility’s single rate to discourage usage would, in all likelihood, increase the total revenue received by the utility beyond what it needs.

Dividing customers’ usage into blocks allows the utility to charge lower rates for some blocks to compensate for the higher rate it charges for others.

BC Hydro

BC Hydro introduced a residential inclining block rate in 2008 to encourage conservation, at a time when the utility was short of electricity and forced to buy from the market. Read about the history of this BC Hydro rate here.

As of April 1, 2024, BC Hydro’s residential inclining block rate was:

• A bi-monthly threshold of 1,350 kWh;
• A Step 1 rate of 10.97 cents per kWh below the threshold; and
• A Step 2 rate of 14.08 cents per kWh above the threshold.

Customers also pay a basic charge of 22.53 cents per day.

BC Hydro periodically applies to the BCUC to finalize its rates using “pricing principles.” These “principles” determine how a general rate increase for BC Hydro, approved in a BCUC revenue requirement proceeding, is applied to each of BC Hydro’s basic charge, step 1 rate and step 2 rate.

BC Hydro implemented a two-tier rate for its transmission customers in 2006. Unlike the residential rate, all transmission customers have their own individual threshold at which they start paying the higher rate. The threshold is set such that transmission customers pay the tier 1 rate on the first 90 percent of their usage, and the tier 2 rate on the last 10 percent. BC Hydro started a three-year phase-out of its stepped transmission rate effective April1, 2024, replacing it with a flat rate for energy usage.

FortisBC

FortisBC Inc., an electrical utility, had a residential inclining block rate from 2012 to 2022.

The BCUC approved the following inclining block rate in 2012:

• A bi-monthly threshold of 1,600 kWh;
• A Block 1 rate of 8.453 cents per kWh; and
• A Block 2 rate of 12.408 cents per kWh.

Customers also paid a customer charge of $29.65 per billing period.

The BCUC directed FortisBC to use the following “pricing principles” when applying a general rate increase to its inclining block rate in the period 2012 to 2015:

• Keep the customer charge unchanged;
• Apply the general rate increase to the Block 1 rate; and
• Apply a sufficient increase to the Block 2 rate to allow FortisBC to collect the remaining amount of revenue implied by the generate rate increase.

If FortisBC were to experience a general rate increase, its Block 2 rate would increase faster than its Block 1 rate to make up for the fact that its customer charge remained unchanged.

In 2019, the BCUC approved a request to phase out FortisBC’s residential inclining block rate, leaving the utility with a flat rate from January 1, 2022. The BCUC appears to have been persuaded that replacing the higher Step 2 rate with a lower flat rate would promote the use of electricity for switching to cleaner fuels (e.g. electric vehicles).

BCUC RIB Rate report

In 2017, the BCUC produced the RIB [residential inclining block] Rate Report for the BC government, investigating complaints that some BC residential customers, in particular low income customers and rural customers with no access to natural gas, were experiencing “unreasonable bill impacts.” The BCUC concluded that the residential inclining block rates of both BC Hydro and FortisBC were just and reasonable, and not unduly discriminatory.