Explaining the Math

Feb 17, 2011  4

Today's question: A recent article in the Whitehorse Star said: "Residential customers in the Yukon are currently paying 12.1 cents per kilowatt hour for the first 1,000 kWh or fewer...As industrial customers, the Minto Mine and the revamped Bellekeno Mine in Keno City are paying 10.5 cents per kilowatt hour...The two mines are paying more per kilowatt hour than it costs to provide them with electricity - approximately nine percent more. Residential customers on the other hand are paying 21 percent less than the true cost."  The math just doesn't make sense to me. Can you explain?

This is a very good question. A lot of people are not aware that it costs more for Yukon Energy to provide service to residential customers than it does for us to provide service to an industrial customer such as a mine. There are a number of reasons for this.

  • Industry typically has a more consistent load (the amount of electricity it needs doesn’t vary from summer to winter) whereas with residential customers their energy demand peaks in the winter, when it costs us the most to produce electricity.
     
  • Residential customers need special distribution services (lower voltage lines and related services necessary to get power to small customers) that industrial customers don’t need. This reduces the cost to industry service relative to residential service.
     
  • Also keep in mind that industrial customers currently must pay 100 percent of the cost up front to be connected to the grid. Since they’ve already paid this cost, it doesn’t show up in their power rate. For residential customers, they only pay a portion of the cost to connect them to the grid (the utility pays the rest). The portion paid by residential customers is taken into account when their rate is set.

The difference in rates and costs between industrial and residential customers is not unusual or unique to Yukon. There are similar situations in other jurisdictions. These differences aren’t new in Yukon either. They go back to when the Faro mine was operating and was an industrial customer.

So the bottom line is that while it costs less to serve mines, they pay the full cost (and then some) of getting power. While it costs more to serve residential customers, they only pay about 80 percent of the true cost.

4 comments

Commenting is not available in this channel entry.