EUB hears call for lower increases to avoid rate shocks

An accounting expert was the final witness to testify during an Energy and Utilities Board hearing Wednesday about N.B. Power's proposed rate increases.

Dustin Madsen is a Calgary-based consultant hired by the public intervener to review the utility's proposed powerrate increases.

Madsencalled for the board toimpose lower increases toavoid rate shock, which could see people unable to pay their bills and put some businesses at risk of closure.

"A rate increase of this magnitude would cause, for a fixed-income customer, quite a lot of shock," Madsen said.

A 10 per cent increase is generally considered the threshold for "rate shock," he said. The average increase sought for all customers is 9.25 per cent for this year and next year.

When combined with other increases, figures presented to the board by N.B. Power show a total increase for residential customers of13.2 per cent in the first year,15.3 per cent for large industrial customers, and 11.5 per cent for small industrial customers.

He said the increases sought are among the largest he's seen a utility request outside Alberta, which has aderegulated energy market.

His comments came during cross-examination by representatives of theHuman Development Council and municipally-owned utilitieslike Saint John Energy.

"One of the potential risks of rate shocks is increased disconnections for people that can't afford the electricity, those people that are most in that poverty group. Would you agree with that?"Ryan Burgoyne, a lawyer representing municipal utilities, asked Madsen.

Yes, he replied.

"That's why regulators seek to avoid rate shock because you never want someone to not be able to pay their bill and get disconnected," Madsen said.

His written evidence said the board's overriding consideration should be the affordability of rates.

He testified the board is in anunenviable position in trying to balance the utility's financial position with the impact on consumers.

"A constant issue before every regulator in Canada, and the United States for that matter, is the risk of putting a utility into what they call the utility death spiral," Madsen said.

"Which is an issue where your rates are going up so high that more and more customers seek alternative means of consumption or delivery of their service."

Longer-term plan needed, accountant says

He said alternatives could include solar panels, but it's an option that'sharder for people with a lower income.

Madsen called for the board to impose lower rates than N.B. Power has soughtand for it to consider a later target date for reducing its reliance on debt.

The provincial government had ordered the utility toreduce its debt to 80 per cent of the total value of the utility by 2027.Butlast fall that was moved back to 2029.

Madsen has suggested the utility should investigate what moving that date even further back would mean, testifying it could allow for lower rates in the near-term.

In his written evidence, Madsen wrote that"there is no compelling evidence" a date beyond 2029 would be "significantly detrimental to NB Power's financial health or indeed that of the Province of New Brunswick," which borrows on behalf of the utility.

In a written response filed in February, N.B. Power said it views the directive as something it must comply with and that it followed when producing its rate increase proposal.

"Not meeting the target by that date wouldleave N.B. Power less prepared financially for the investments required for the Mactaquac Life Achievement Project and other needs," the utility wrote.

The board heard in June that work to keepthe dam operating into the 2060s could cost in the range of $4.4 billion to $7.2 billion. That's up from a2016 estimate of$2.9 billion to $3.6 billion.

Darren Murphy, the utility's chief financial officer, said in June that the project was the primary driver behind trying to meet the 2029 equity target.

Under cross-examinationby Glenn Zacher, a lawyer representing J.D. Irving Ltd.,Madsensaid he wants a plan beyond five years and a later equity deadline to avoid punishing current customers for historically low rates.

And, Madsen said, without a long-term view the utility could hit the 2029 target and then cut rates.

"That would also shift burden from a future generation to a current generation," he said.

The board will hear final arguments about the proposed rate increases on Monday.