Nelson Hydro provides electricity and related services to customers in the City of Nelson and surrounding area including Blewett, Taghum, the North Shore, Harrop, Procter, Balfour and Queen’s Bay. Nelson Hydro is unique from most municipally owned utilities in that it is fully vertically integrated – that is , the utility operates generation, transmission, substation and distribution facilities. By contrast, the other four municipal utilities in the interior of British Columbia are limited to operation of distribution facilities only. Nelson Hydro operations are managed by two staff personnel overseeing fifteen IBEW members with varying technical expertise. Three quarters of the unionized staff hold journeyman qualifications, primarily in the powerline trade.

Supply

Includes Power Purchase and Generation – activities associated with the procurement and production of the electricity commodity.

Power Purchase
Approximately 45% of our annual energy requirements are obtained via power purchase. The supplier has historically been West Kootenay Power under the current traditional regulatory environment. We are currently finalizing a new five-year contract with West Kootenay Power for supply of our excess energy requirements. Power purchase represents approximately 30% of our annual operating costs.

Generation
Nelson Hydro owns and operates a 16 MW hydroelectric generation facility located at Bonnington Falls on the Kootenay River 16 km southwest of Nelson. The current water license allows a year-round output of 9.1 MW, which represents about 55% of our annual energy requirements. Operating costs for generation includes maintenance of the four generating units and of the buildings and property, water license fees and insurance. The cost of production at this facility for 2000 will be about 2.2 cents per kWh, which is about 40% less than purchase from WKP. The powerplant serves an important function in that it tempers the rate impacts that WKP increases would otherwise have on our customers. In 1999, Nelson Hydro set a production record at Bonnington Falls, generating 89 million kWh.


Delivery

Includes all other activities of the utility as listed below – activities associated with the delivery of the electricity commodity to the end use customer.

Transmission/Substations
Nelson Hydro owns and operates about 20 km of 63 kV transmission line that links the Powerplant and our supply points from WKP to our substation facilities in the City. Nelson Hydro also manages seven substation facilities – five within the City, one on the North Shore and one at the Powerplant. The facilities serve to convert transmission supply at 63 kV to distribution supply, primarily at 25 kV. Expenditures in these areas include crossarm and insulator replacement and outage response for the transmission lines and building, structure, switchgear and transformer maintenance in the substations.

Distribution
The most extensive portion of the Nelson Hydro system involves delivery of the electricity commodity to individual customers. This includes the medium (between 750 and 63,000 volts) and low (less than 750 volts) voltage facilities of Nelson Hydro, including transformation. Expenditures in this area include crossarm, insulator and conductor replacement, primary and secondary connector renewal, transformer maintenance, vegetation management and outage response. Over the last three years we have been able to make significant improvements to the distribution system using the funds in this account, resulting in a reduction of system downtime and outage frequency by over 50% from 1996 levels.

Metering
All field activities associated with revenue collection is grouped under Metering. Expenditures include labor and vehicles for meter reading, connects, disconnects and all activities associated with Measurement Canada certification of new meters and re-certification of meters in service.

System Operations
Activities that support and benefit the functions above are grouped into this category. Drafting, technical design services, easement costs, radio and alarm maintenance, standby, tool repair and replacement and insurance are the major items included in this category.

Administration
Supervisor salaries, training, legal and consulting fees and Nelson Hydro’s annual rent at the City Works Yard are the major components of this category. Also included in this category are Nelson Hydro’s share of City Hall staff in support of billing, computer services and other administrative functions.


Industry Restructuring

Since the early 1990’s, particularly in the United States, the electric utility industry has been positioning itself for competition similar to the situation that phone and natural gas have experienced. In the last five years, the British Columbia Utilities Commission has made only minor moves towards customer choice. Wholesale customers such as Nelson Hydro have the ability to choose their electricity supplier, provided that two year’s notice is given to the current supplier. There are no near-term plans to offer choice to the rest of the market. In 1997-98, Nelson Hydro and the five other wholesale customers of West Kootenay Power issued a request for proposals for supply of electricity and other services. Three potential bidders expressed interest, but ultimately declined to submit proposals because they were unable to offer a price lower than the current WKP tariff rates. Based on these conditions, Nelson Hydro has entered into negotiations for a new five-year supply contract with WKP.

In preparation for a competitive market, Nelson Hydro will conduct a new cost of service study this year to determine the following:

• Appropriate rates for the electricity commodity and delivery of that commodity.
• Review whether any cross-subsidization exists between classes of customers.

This study will allow Nelson Hydro to set rates that ensure customers are fairly treated, and will allow customers to make educated decisions about whether they can save money by exercising their option to choose an electricity supplier other than Nelson Hydro when that option becomes available.


External Rate Impacts

West Kootenay Power has made application to update their transmission facilities in the Kootenay-Columbia Valley from South Slocan to Waneta in partnership with Cominco and Columbia Power Corporation. West Kootenay Power’s estimate of the rate increase required to fund these improvements is about 5% over seven years. Because only 28% of Nelson Hydro’s cost of service is due to power purchase, the rate increase required for Nelson Hydro to pass on to their customers is 28% of 5%, or 1.4%. The importance of our ability to generate a significant portion of our energy requirement with Bonnington Falls becomes clear.

Outlook

Simply stated – rates are going up! In Canada, jurisdictions that have been in a position to develop significant hydro-electric resources have been able to keep rates low. Places that have developed thermal or nuclear generation have not been as successful (see rate comparison in PDF format). It is safe to say that there is little or no additional hydro resource left to develop. BC Hydro’s recently released Integrated Electricity Plan states that at least 70% of their new resource additions in the next ten years will be fired by natural gas. Natural gas prices have seen massive increases recently as US markets become more readily accessible. Increased fuel costs mean increased electricity costs as our dependence on thermal generation increases.