NB Power rate freeze could cost utility $135M in stranded carbon costs
Federal carbon taxes are scheduled to take effect on major greenhouse gas emitters like NB Power on Jan. 1
The potential cost of a four-year power rate freeze to NB Power keeps climbing.
On Tuesday, the Liberals said they will not allow NB Power to pass along the cost of any carbon taxes imposed by the federal government to customers covered by a freeze, on top of not allowing the utility to apply for its normal two per cent rate hikes.
That could leave the utility stuck with $135 million in stranded carbon costs over four years and raise the total revenue shortfall to NB Power because of the promised freeze to as high as $300 million.
- Liberals promise 4-year freeze on NB Power rates for homeowners, small businesses
- NB Power rate freeze could cost more than Liberal calculation
- Saint John and Edmundston initially left out of power rate freeze
That is well-beyond the "$13 million per year" the Liberals suggested when the policy was unveiled three weeks ago.
Still, the party is adamant it weighed all the potential financial consequences to the utility before the freeze was proposed.
"We have considered all of the cost pressures and believe that this can be achieved," said Jonathan Tower, a Liberal party spokesperson, in an email to CBC News about whether the rate freeze will hold in the face of federal carbon taxes.
"The rate freeze will apply to all residential and small business customers for four years."
Federal carbon tax to take effect
Federal carbon taxes are scheduled to take effect on major greenhouse gas emitters, such as NB Power, on Jan. 1.
Although the final amounts are not set, the utility has a large carbon footprint and it is generally known what kind of bill it is facing.
According to rules put forward by the federal government so far, NB Power's coal-fired generating station in Belledune will have to start paying a $10 per tonne tax on about 60 per cent of its total emissions in January after credits are applied — an amount that will cost the utility close to $18 million for 2019.
That will double in 2020, triple in 2021 and quadruple in 2022 until the tax reaches $50 per tonne in 2023.
Earlier this year the utility indicated that if carbon taxes were imposed at those levels it would require significantly more money from customers to remain profitable.
Darren Murphy, NB Power's chief financial officer, explained to the Energy and Utilities Board in March that the utility was committed to limiting its rate increases to two per cent, unless a carbon tax was imposed.
"The one single exception to that I would suggest is the uncertainty associated with carbon cost," said Murphy.
Special annual rate increases
According to the utility's 10-year financial plan the federal carbon tax — if imposed — could require a series of special annual rate increases of 1.7 per cent to customers to pay for the extra costs, on top of the standard two per cent increase the utility normally applies for.
That's a combined 3.7 per cent increase beginning on April 1, 2019 and continuing for several years to follow.
"The planned two per cent increase that NB Power has mused about for the last little while for the next four years would cost the NB Power customers about $13 million per year," said Gallant.
"Consumers will no longer have to pay the cost of NB Power's planned rate increases which could have cost them more than $13 million extra each year over the four years."
The actual amount of money involved — including the rate freeze's effect on carbon costs — is more than double that.
The freeze is set to apply to $784 million of NB Power's current electricity sales, preventing the utility from charging both a two per cent regular rate increase and a special 1.7 carbon cost increase would save affected consumers — and cause a revenue shortfall to NB Power of $29 million in the first year — not $13 million.
Identical rate hikes planned for subsequent years means the revenue shortfall would then compound to $59 million in the second year of the freeze, $90 million in year three and $122 million in year four — for a total combined cost to NB Power over the four years of $300 million.
Liberals say cost cutting at the the utility and other measures can make up for lost revenue caused by the rate freeze and leave NB Power profitable.
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