Large NB Power rate increase is not in public's interest, says utility expert

A Calgary utility expert hired to analyze NB Power's application for a pair of 9.25 per cent rate increases over the next two years says the increase could be cut in half.

"NB Power's applied for rate increase of 9.25% is neither required nor in the public interest," said Dustin Madsen in a 140-page written evidence statement delivered to the New Brunswick Energy and Utilities Board last week.

"NB Power has forecast a variety of costs that are not supported as being just and reasonable."

Madsen is an accountant and former Alberta utility executive who now heads Emrydia Consulting Corporation.

He was hired by New Brunswick public intervener Alain Chiasson to review NB Power's rate application.

The utility has proposed rate increases totalling $157 million this year and $167 million next year to get control of its finances and meet New Brunswick government requirements to significantly reduce its multi-billion dollar debt burden.

The increases average 9.25 per cent in each of the next two years, although the amounts vary for different customer groups. For example, residential customers would pay 9.8 per cent more this year.

NB Power was given temporary permission by the Energy and Utilities Board to begin charging the higher rates on April 1 until a final decision can be made on whether they are justified.

A full hearing is scheduled to begin in mid-May. NB Power will be required to rebate customers any excess amounts if the rate increase is less than planned.

A separate three per cent rate increase expected to raise $64 million for NB Power to pay for past over-expenditures also took effect on April 1, but is not subject to the larger rate hearing.

Madsen identified three areas where either NB Power's costs are exaggerated or its revenues are underestimated.

He said given "the need to reduce the unprecedented rate increases sought by NB Power," those amounts should be used to ease the burden on its customers.

In one instance, Madsen pointed out depreciation charges on $1.3 billion worth of electrical infrastructure over the years was measured in a 2019 study to be $187 million more than actual depreciation.

He recommended $25 million per year of that difference be credited back to NB Power as income and that be used to either retire debt or lessen the size of the requested rate increase.

Madsen also said because revised revenue figures show NB Power expects to earn $36.7 million more in higher margins on domestic and export electricity sales this year than originally expected, that too should be credited to customers.

He also claimed operations, maintenance and administration expenses at the utility are being allowed to grow too fast without sufficient justification and should be cut by $19.2 million this year.

He said the increases exceed the inflation rate for the next three years.

"Increases of this magnitude are not just and reasonable particularly in the face of unprecedented rate increases and a lack of supporting evidence for some of those increases," said Madsen.

Madsen said those three issues are worth a combined $80.9 million in NB Power's budget this year and $82.5 million next year, which represent just over half of the value of NB Power's proposed rate increases.

If those calculations are validated at hearings in May, he said it's up to the Energy and Utilities Board to decide whether to reduce the size of the rate increases or the utility's debt levels.

Madsen also recommended NB Power cancel more than $14 million in planned capital spending in each of the next two years to finance a major internal transition in software systems.

He predicted those costs are "almost always, if not always, double or triple the original estimate," and said it would inevitably cause confusion among employees at a time organizational focus on other problems is required.

NB Power has not responded to Madsen's analysis.

The utility has until April 11 to submit a list of written questions to Madsen about his evidence and provide "rebuttal" evidence by May 8 to challenge any issue it disagrees with.

The rate hearing itself, where Madsen can be cross-examined in person by NB Power, begins in Fredericton on May 13.