Opposition parties criticize deal that would boost Maritime Electric's profit margin

The Green and Liberal parties are both criticizing a deal struck between Maritime Electric and the P.E.I. government that would allow the private utility to increase its government-regulated profit margin.

Last June, as part of a rate application, Maritime Electric asked the Island Regulatory and Appeals Commission to increase the maximum return on equity (ROE) that the company is allowed to earn from the current 9.35 per cent to 9.95.

Earlier this month, the utility announced it had reached an agreement with the P.E.I. Energy Corporation, a Crown corporation that had applied for intervenor status in the rate application.

The deal would allow Maritime Electric to use a return on equity of 9.7 per cent in the calculation of annual earnings, while still using the old rate of 9.35 per cent to set electricity rates.

In effect, it would allow the corporation to increase profits by an average of $700,000 in each of the next three years as long as it does so by cutting costs — not by charging customers more.

The day the agreement was announced, Maritime Electric also said it was reducing its request for customer rate increases for the next three years, down from three per cent per year to 2.6 per cent in 2023 and 2024, and 2.7 per cent in 2025.

The deal still requires approval from IRAC. A public hearing on that rate application is scheduled to take place Tuesday, April 18.

"It has zero impact on customer rates," Jason Roberts, president and CEO of Maritime Electric, said of the agreement.

"If we are able to, let's say, grow the business, or find efficiencies, save costs, then we get to earn up to 9.7 per cent."

The one commitment the company has made is that it would not look to save money by cutting its vegetation management budget, used to trim tree branches along power lines. Otherwise, Roberts said it would be "up to us to manage the business" in terms of how the company might increase profitability.

Company should invest more, not less: opposition

P.E.I. Green Leader Peter Bevan-Baker said the province should be pushing Maritime Electric to invest more in improving the electrical grid, rather than providing an incentive for it to spend less, in light of the provincewide power outage triggered by post-tropical storm Fiona last fall.

"None of us ever imagined that they would just keep the [vegetation management] budget the same as it was," he said. "We all know that they have to increase that budget substantially."

Bevan-Baker said other investments are required "to create a more robust and more resilient electricity grid … but that requires dollars from the company and they're loath to do that."

Fiona initially knocked out power to all of Maritime Electric's customers. According to the company's post-mortem, it took three weeks to reconnect everyone, with the average customer without power for 157 hours — almost a week.

"As long as they are mandated to provide close to 10 per cent profit for their shareholders, they're not likely to put the investments in place that are going to serve this island and serve Islanders in the best way possible," Bevan-Baker said.

In a statement provided by the P.E.I. Liberal Party, interim leader Hal Perry said "Maritime Electric is still raising rates while asking to keep more of that money in their pockets. We think that money belongs to Islanders."

While Perry said the utility needs to be profitable, "a 9.35 per cent profit margin is healthier than some Island businesses struggling with increased costs. We all have to tighten our belts in these uncertain economic times."

No reduction in service, province says

A spokesperson for the P.E.I. government told CBC News in an email that "the province has not agreed to any reduction in service by Maritime Electric."

The spokesperson referred to a consultant's report commissioned by IRAC that recommended an increase in Maritime Electric's return on equity to 9.7 per cent, but without any caveat preventing that increase from being used to calculate higher electricity rates.

"The province did not want to see this increase in rate of return achieved by any further rate increases," the spokesperson said, noting that "there are provisions within the Electric Power Act that require Maritime Electric to provide a reliable level of service to Islanders."

P.E.I.'s Electric Power Act is the legislation that limits the profit a utility company can earn to a percentage approved by IRAC. Any earnings above that amount are returned to customers through a mechanism that lowers rates in future years.

If IRAC approves its deal with the province, Maritime Electric has asked for the first increase in electricity rates to kick in on May 1, 2023.

The company says that increase is a result of inflation, including increased energy supply costs, as well as the cost of expanding its vegetation management program. It does not involve costs related to restoring power after post-tropical storm Fiona, tabulated at $34.6 million.

Premier Dennis King said last November that those costs would be covered by the federal government through a Disaster Financial Assistance Program.