Can NB Power deploy smart meters within its proposed budget?

Several major capital projects undertaken by NB Power in the last three years that went millions of dollars over budget, including maintenance shutdowns at various power plants and an undersea transmission line in the Bay of Fundy, are raising questions about the utility's ability to keep a major smart meter deployment on track — if the $92 million project is approved.

NB Power is facing a second hearing before the Energy and Utilities Board (EUB) in January as it seeks permission to install so-called Advanced Metering Infrastructure (AMI). The plan hinges on the installation of 360,000 smart meters with NB Power's entire residential and commercial customer base.  

Hundreds of pages of evidence to be considered in the application have already been filed with the EUB and are on the public record for review.

Among that evidence are dozens of written questions about AMI submitted to NB Power that were answered earlier this week. One of those, by New Brunswick public intervenor Heather Black asked the utility directly about its track record with capital budgets and why it has only included a provision for cost overruns of two per cent on the majority of proposed AMI costs. 

"Given historical cost overruns, what is the company's rationale for setting a two per cent cost contingency value for the AMI capital project?" asked Black     

Cost overruns total $35.5 million

Last month, in response to a separate round of questioning, NB Power acknowledged that eight significant capital projects it has completed since 2017 — originally projected to cost $188.9 million — finished over budget by a combined $35.5 million (18.8 per cent).

A number of those cost overruns occurred during planned maintenance shutdowns at its large generating stations, including two shutdowns at the Point Lepreau nuclear generating station and one each at the Belledune coal fired generating station and Coleson Cove oil fired generating station. The utility says those are unique events and cannot be fairly compared to what might happen during a large scale deployment of smart meters in the province.

"The drivers for cost overruns during a maintenance outage generally differ from those that might occur in the AMI project," wrote the utility in reply to Black.

"Maintenance outages, although well planned, often result in unforeseen emergent work. When a plant is shut down and equipment is dismantled, other issues may arise or other repairs need to be made that were not planned."

The other capital projects that went over budget were all related to transmission infrastructure, including 17.5 kilometers of new submarine power lines to Campobello and Grand Manan Islands. Those cost $44.4 million over two years to acquire and install, $7.2 million more than expected.

Intense scrutiny of plan

Advanced Metering Infrastructure refers to a collection of physical and digital upgrades to the electrical grid, including the installation of smart meters that will allow NB Power to collect individual consumption data from customers electronically in real time instead of once a month by a meter reader.

The utility hopes that will allow for all sorts of pricing and service innovations that the current electrical grid cannot deliver, like offering different electricity prices at different times of the day to match periods of low and high demand.

NB Power's first application to adopt AMI was rejected by the EUB last year for being uneconomical after the utility presented evidence showing costs outweighed benefits over a 15-year period by $1.3 million. 

This time, the utility has reworked the figures and claims benefits of the project will be $31.1 million, or 28.4 per cent, greater than costs over the same 15 year period — a change that is generating intense scrutiny among those scheduled to participate in the January hearing.

Multiple questions have been directed at assumptions underpinning the significant increase in the recalculated benefits of AMI, including Black's question around the likelihood of the project staying on, or at least close to budget to realize those benefits.

NB Power acknowledges it has allowed for only two per cent cost overruns on just over half of the project expenses but argues that is on equipment for which fixed-cost contracts have already been negotiated.   

"The fixed price contract protects NB Power from unforeseen overages, resulting in low risk. As a result, the contingency was set accordingly," said the utility in response to Black's question.   

Other "variable" capital costs have a 10 per cent cost overrun cushion built into the estimate with one riskier element budgeted with a 26.5 percent contingency, the utility noted.

"This was added because the contract has not yet been executed and there is a possibility of scope changes during negotiations," it said. 

NB Power also noted that a number of capital projects it has undertaken since 2017 have come in under budget, including the most recent maintenance shutdown at Belledune.