Hydro's 'imprudent' spending should not be shouldered by customers: Tom Johnson
Report found that public utility could have avoided $27M in spending
Newfoundland and Labrador's consumer advocate, Tom Johnson, says utility customers in this province should not be on the hook for nearly $27 million in avoidable spending by Newfoundland and Labrador Hydro.
"I think it's entirely appropriate when that happens that the utility pick up the tab and not the customers," said Johnson.
"Customers are supposed to be paying for prudent, reliable service. Not service that could be seen as being imprudent or wanting from a utility practice point-of-view."
Johnson was responding to a report by the Liberty Consulting Group that found Hydro "imprudently" spent just under $27 million in 2014 and 2015.
The independent consultants reviewed certain decisions and actions of Newfoundland and Labrador Hydro relating to power outages in 2013 and 2014.
The report says the corporation "systematically and broadly" failed to adhere to maintenance cycles in some cases, resulting in millions in additional capital and operating costs after equipment breakdowns.
The failure to carry out this maintenance deprived Hydro of an opportunity to address problems before they occurred, and led to widespread and prolonged power outages in January 2014 during an especially frigid period that become known as #darknl.
Public hearings scheduled for Sept. 9
The review of 12 decisions and actions dating back to 2009 was commissioned by the Board of Commissioners of Public Utilities of Newfoundland and Labrador, and was released publicly on Tuesday.
Its findings will be considered by the PUB as it decides whether to grant a rate increase of 2.8 per cent for residential customers.
Public hearings into Hydro's general rate application are scheduled to begin on Sept. 9.
Hydro is seeking to increase revenues in order to cover off a $46-million shortfall in 2014.
The Liberty report found a large portion of this shortfall was "avoidable costs," and it could end up costing rate payers in the pocketbook.
Two equipment failures at Hydro's Sunnyside substation on Jan. 4, 2014, for example, could have been avoided, the report found.
First, a transformer failed, and then a circuit breaker also failed, causing a widespread outage throughout the island-interconnected power grid.
Hydro spent more than $3.1 million to replace the damaged equipment, and incurred operating costs of nearly $900,000.
The report said Hydro neglected to perform necessary maintenance "for a number of years."
The words "imprudent deferral" and "systematic failure" of maintenance work comes up several times throughout the report.
Findings not based on hindsight
Johnson said Hydro should absorb any spending deemed to be imprudent.
He said it's important to note that Liberty's findings were not made with the benefit of hindsight, but with the facts available at the time.
"Hydro will not be pleased, but they have to face the facts," said Johnson.
"Hydro should absorb some of these costs and put it to bed."
Hydro issued a statement late Tuesday, saying it had to put money into its aging assets, and insisted it makes prudent business decisions to balance cost and reliability of the system's infrastructure.
- N.L. Hydro unnecessarily spent nearly $30M, report finds
- Power outages likely until 2017, #darknl interim report warns
The report found that Hydro could have avoided spending $10.9 million in 2014 capital costs, $13.4 million in 2014 operating expenses, and $2.6 million in estimated 2015 operating expenses.
"Hydro maintains an absolute commitment to its capital and operating cost decisions and fully stands by those decisions as measured, necessary and prudent," Hydro said in a statement.
The Crown corporation noted that the review covered just two per cent of Hydro's total expenditures, adding the report identified some items, like the new combustion turbine in Holyrood, as an appropriate expenditure.
Hydro said it "co-operated fully" with Liberty Group for the review.