Full 8.9% rate increase not required, N.B. Power hearing told

Opponents of N.B. Power's proposed 8.9 per cent rate increase say updated financial estimates filed at its ongoing rate hearing over the objections of the utility prove most of the increase is not needed.

A two per cent change would be enough, they say.

But a deterioration in N.B. Power's overall financial health revealed by the same updated numbers, which even experts call shocking, is complicating that argument.

On Tuesday, N.B. Power supplied new estimates for what it expects to spend on fuel and purchased power in the coming year and what it believes it will earn on export sales of electricity.  

The figures showed a $106.4 million overall improvement over estimates N.B. Power has in its official budget document at the rate hearing, which was mostly generated last spring and never updated.

J.D. Irving Ltd. requested more up-to-date numbers last week, and its lead lawyer, Nancy Rubin, pounced on what they revealed.

Because the 8.9 per cent increase is meant to raise an additional $135.8 million in revenue for N.B. Power in the coming year, Rubin elicited evidence to suggest a $106.4 million improvement in budget costs and revenues shows most of the increase is not required.

"If we applied this, what would that do to the requested rate increase?" she asked utility expert Robert Knecht during cross-examination.

"Taking out $106 million from that would leave roughly $29 million, or a rate increase of somewhere between one and a half and two per cent," Knecht said.

But those same updated numbers also showed N.B. Power's current financial year has deteriorated by more than $200 million from its budget, and Knecht said this is a problem that may trump the good news about next year.

On Tuesday, Knecht said he "did not believe it" when he first saw evidence of how poorly N.B. Power's finances have deteriorated this year following a series of generating station troubles and commodity price increases.

Under new accounting systems put in place by the Higgs government, those heavy losses have to be placed in a "variance" account and billed to N.B. Power customers over multiple years until they are paid in full, with interest. 

Knecht estimated that the variance account will likely reach a $300 million balance by the end of the year and that will trigger a three per cent surcharge on all N.B. Power bills starting in April 2024 until the amount is fully recovered.

Knecht made the point that if N.B. Power makes $106 million more than expected next year because of the 8.9 per cent rate increase, it will lessen the variance account balance, so leaving it alone has a benefit.

"The variance account is starting in a terrible place," said Knecht.

"If you reduce the rates now they [customers] are going to face those costs again in the future with interest." 

N.B. Power lawyer John Furey has been arguing against using the updated budget numbers to set rates for next year, in part because they involve only some of what has changed for the utility.

He noted, for example, that N.B. Power is facing $30 million in higher interest costs than it included in the original budget because of rising interest rates and new debt caused by this year's poor results.

Vincent Musco, an expert witness from Washington hired by the Energy and Utilities Board, has been critical of N.B. Power for not supplying fresher budget numbers for the rate hearing. He agreed with Furey, however, that everything, good and bad, should be updated if possible.

"If there's an update where you can get it more accurate, it makes sense to do it," said Musco.

A second expert hired by the board who criticized N.B. Power's rate increase as too high also conceded to Furey he has concerns about the financial problems at the utility that were revealed during the hearing.

Dustin Madsen of Calgary recommended a rate increase for N.B. Power of "no more than 5.06 per cent" based on his review of its application but admitted he, too, was stunned by numbers showing how poorly N.B. Power is doing this year.

"You sat through this proceeding. Would you agree that N.B. Power's financial condition has deteriorated? Furey asked.

"Yes, I am as surprised as Mr. Knecht," said Madsen. "I agree the position is deteriorating.

"It is alarming if that is the case."

Testimony at the hearing concluded on Wednesday afternoon.  The hearing reconvenes Friday for final arguments from all parties.