NB Power may need bigger rate increase, says intervener's expert

Surprising new expert evidence submitted in advance of NB Power's upcoming rate hearing suggests the utility may not be raising its prices to customers fast enough. The surprising part? The expert behind the idea works for the public not the utility.

In material filed with the New Brunswick Energy and Utilities Board (EUB) on Tuesday, Robert Knecht, a consultant with Industrial Economics in Cambridge Mass., suggested NB Power employs too much wishful thinking in its long-term planning and needs to become more realistic and aggressive in meeting its financial targets.

"I have concerns that the NB Power 10-year plan may be more of an optimistic rather than an expected value forecast," wrote Knecht in his evidence.

2% overall increase sought

Knecht was hired by public intervener Heather Black to review NB Power's application for an overall two per cent rate increase beginning in April, which includes a 2.33 per cent increase for residential customers.

The proposed increase is part of a multi-year series of rate hikes that were supposed to pay off $1 billion in debt and build up an equity cushion of 20 per centfor the utility by 2021.

But disappointing financial results this year and last year, which sawprofits coming in more than $100 million lower than expected,has Knecht wondering why NB Power is not budging from its long-term plan to raise rates just two per centthis year.

"The uncertainty in forecasting should be recognized, and the company's rate trajectory should involve rate increases of sufficient magnitude to ensure that progress toward achieving a 20 per cent equity share of capital will be made under unfavourable economic and weather scenarios," wrote Knecht.

Behind in meeting debt targets

In October, NB Power executives, including president Gatan Thomas, appeared before the legislature's Crown corporations committee and acknowledged the utility had fallen significantly behind in its debt reduction targets.

Nevertheless, that same month it applied for its normal twoper cent rate increase even though it is not enough to get its debt reduction plan back on target.

• NB Power likely to miss debt reduction target of $1B by 2022
• NB Power seeks average 2% rate hike for all customers next year

Much of NB Power's disappointing recent financial results have been caused by production problems at the Point Lepreau nuclear generating station.

The plant has missed budgeted production targets every year since coming back online in 2012 and Knecht suggests the utility needs to employ more "cost realism" in its budgeting to reach its debt reduction goals.

Still, Knecht said he is not yet decided on whether NB Power should be forced to take a higher rate increase than it has applied for, but promised to take a position during the rate hearing in February.

"I will consult with the public intervener and present a recommendation either during the hearings or in final argument," wrote Knecht.

Although she commissioned Kenecht's evidence, Heather Black has neither endorsed nor rejected it. She said she could not comment on it prior to the hearing.