NB Power's proposed residential rate hike may be too high, hearing told

The lawyer for New Brunswick's Energy and Utilities Board is pushing back against NB Power's proposal to charge residential customers a higher rate increase than other groups beginning next month and questioning whether the utility gives homeowners full credit for what they pay already.

The EUB has a rule that each customer group should pay rates for power in a "range of reasonableness" between 95 per cent and 105 per cent of the costs incurred by NB Power to serve the group and because the utility says residential customers are the only ones below that range, their rates should go up the most — 2.33 per cent.

But during a hearing in Saint John on Tuesday, EUB lawyer Ellen Desmond suggested residential rates, at 94.97 per cent of their costs, are already so close to the required range there is no need to charge the group extra.

"If we were to apply a principle of rounding, wouldn't you agree residential would have been 95 [already]?" asked Desmond.

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NB Power rate design specialist Kevin Gibson acknowledged that point but said there was uncertainty inside the utility whether mathematical rounding is allowed by the EUB. It was decided to charge residential customers extra to be safe, he said.

"In the absence of having any clear idea about which of those two choices we should make, we just made one," said Gibson.

A two per cent increase in residential rates would add an estimated $13.3 million to NB Power residential bills next year. The 2.33 per cent increase adds $15.5 million instead.

New Brunswick's municipal utilities tend to mimic NB Power's increases and are likely to add extra to residential bills as well.

No rule on rounding

John Todd, an expert in regulation who helped NB Power develop its rate structure, said there is nothing wrong with rounding numbers off to decide if customer groups are inside the range of reasonableness and paying enough.

But he said there was no way to know if the EUB's predecessor — the Public Utilities Board — meant 95 per cent to be an absolute minimum number or not when it picked the figure 25 years ago.

"It's not specified, it's never been addressed historically and, at least as I look at it, I'd say there are two interpretations of 95 and it's valid to take either interpretation," Todd said.

"The company [NB Power] has defined it as 95.00."

Charges 122.5% of cost for water heaters

But Desmond and public intervener Heather Black both suggested residential customers overpay NB Power for water heater rentals and if that was factored into its calculations the group would be comfortably inside the 95 per cent number without rounding.

Evidence at the hearing shows NB Power rents more than 244,000 water heaters provincewide. It charges $21.5 million per year, which is 122.5 per cent of its costs to supply the service.

Most of the water heaters, 87 per cent, are rented to residential customers and both Black and Desmond suggested what they overpay for that service could reasonably be counted against what they underpay for electricity.

"You don't allocate those net revenues for water heaters down through the residential class, you keep them separate as a water heater class," said Black.

"That's correct," said Brad Crawford, NB Power's manager of regulatory affairs.

Desmond said this suggested to her that residential customers may pay enough already to be given an average rate hike next year, not one that's higher than other groups.

"If we were to look at the allocation with respect to water heaters, we could see the revenue-to-cost ratio for residential is actually better [than 95 per cent]," she said.