'Yo-yo' rebate scheme will see N.B. Power give customers $15M — then take it back

A $15-million rate rebate N.B. Power has been promoting to customers as a "good news" benefit they will begin to receive in April will likely be clawed back from the same customers in 2024 and provide no advantage at all, evidence presented to the New Brunswick Energy and Utilities Board suggests. 

Likened to a $15-million "yo-yo" that will be flung to ratepayers this year and then yanked back 12 months later, the rebate is facing heavy criticism from one utility expert, who calls it a financial conjuring trick or, in his words, "accounting legerdemain." 

"The company's yo-yo proposal … is irresponsible," wrote Robert Knecht, who analyzed the rebate in a package of evidence he submitted regarding N.B. Power's application for an 8.9 per cent rate increase.  

The 8.9 per cent rate increase and one per cent rebate are separate issues being dealt with by the utilities board simultaneously, but both are scheduled to begin for N.B. Power customers in April.

Last month, N.B. Power acting president Lori Clark announced that under new rules created by the New Brunswick government, the utility is required to deliver rebates or impose surcharges on customers each April depending on whether it is over or under budget on revenues and expenses by Oct. 31 of the previous year.

This year, N.B. Power was showing a paper surplus of $28.5 million on its accounts in October and, based on that, announced a partial rebate of $15 million would be paid to customers as outlined by the province's new rules.  

In a briefing for reporters Dec. 15, Clark called it a "good news story for customers" that would help soften the effect of a large rate increase.   

She said the rebate would be delivered through a one per cent credit on power bills over 12 months beginning in April and would effectively lower the proposed 8.9 per cent rate hike to 7.9.

 "It is prescribed by regulation and we'll follow that regulation," said Clark. 

"The one per cent credit is as a result of improved hydro flows, as a result of improved export margins, and a hedge transaction that we have benefited from in this year," she said.

But not mentioned at the time was that N.B. Power's October surplus was known to be transient, and customers would eventually be made to pay the rebates back. 

That's because most of the temporary positive results were caused by a surge in the value of financial "hedges" N.B. Power bought to protect itself against the prices for oil, coal, natural gas and uranium rising this year.  

Prices did rise, and that inflated the value of the hedges when they were measured in October.  

But that gain was offset by the higher fuel prices.  

However, N.B. Power consumes most of the fuels it uses in winter, after the October measurement, and so those expenses weren't counted.  

By next spring, when both the hedges and the high fuel prices are accounted for, the utility and Knecht both estimate the illusory October surplus will be replaced by a significant full-year deficit. 

"Rather than showing a net under-collection for the first seven months of 2022, the Company actually reports a favourable balance," wrote Knecht about the N.B. Power accounts as of October.  

"When the offsetting higher fuel costs are recognized this winter, the variance accounts will presumably drop into a significantly unfavourable position."  

That expected end-of-year "unfavourable position," which will include the $15 million being paid to customers on the basis of the brief October surplus, will be factored into next October's calculations and then have to be recovered back from customers beginning in April 2024.

In an email Monday, N.B. Power suggested it is possible for positive things to happen to its finances between now and next October, and there are "too many variables" to know for certain if customers will have to repay rebates they get this year.

But that is not what the utility is saying in its own evidence to the Energy and Utilities Board.

"There will be a 'yo-yo' effect," N.B. Power writes in its official explanation of what will likely happen to those who get a rebate this year.   

"The amount reimbursed in 2023/24 will have to be clawed back from customers in 2024/25."

The decision to track actual revenues and expenses of N.B. Power, and have it issue rebates or impose surcharges, was made by the New Brunswick government to try to compensate for the utility regularly under-performing its profit targets.

Knecht was hired to analyze N.B. Power's rate proposals by acting public intervenor, Rick Williams. He doesn't believe the utilities board has the authority to reject N.B. Power's rebate plan, but said it makes no sense to him that the utility is giving out money this year it expects to be demanding back next year.

"The objective of the legislation change is to allow N.B. Power to recover its … shortfall," Knecht wrote.