NB Power rate increase request under scrutiny at EUB

NB Power wrapped up a four-day hearing into its request for a two per centrate increase in front of the Energy and Utilities Board Thursday afternoon amid questions about whether it really needs more money, given improving prospects for the Mactaquac dam.

The utility has been racing to build up profits and equity to deal with an impending multi-billion dollar renovation or shutdown of Mactaquac by 2030, but three days before the rate hearing began the crown corporation suggested the structure may last nearly 40 years longer than expected.

In closing arguments, NB Power's legal counsel, John Furey, told the hearing it should still be granted a rate increase while Mactaquac continues to be evaluated, and if the money is ultimately not needed a rate decrease could eventually be ordered.

"It's far easier to reduce rates if necessary in the future," said Furey about the possibility of multi-billion dollar Mactaquac costs not materializing.

Last Friday, NB Power said it has developed "greater confidence" that Mactaquac may be usable with much fewer repairs all the way into the late 2060's.

That would significantly change NB Power's financial prospects, and its need to stockpile money.

Evidence at the hearing showed with a zero per centincrease this year, NB Power would still post a profit of $65.1million.

A two per centincrease wouldpush that profit to $92.4 million, and although NB Power has been ordered by the New Brunswick government to pay down debt and generate bigger returns, there was still some opposition to the increase.

JD Irving Ltd. questions NB Power

JD Irving Ltd. lawyer Christopher Stewart said the sudden uncertainty about the financial problem Mactaquac actually poses undermines the case for an increase, and he scoffed at the idea of customers having to pay NB Power money now for Mactaquac if the utility is uncertain it is needed

"With respect, that's not how it works. Ratepayers are not lenders to the utility. You don't pay rates up front in case the utility might need them," said Stewart.

EUB chairmanRaymond Gorman asked whether NB Power had given any thought to foregoing an increase this year given an upcoming HSTincreaseof two per cent that its residential customers already have to cope with beginning July 1.

Furey said no. "Because of the operational and financial risks the company faces we think it's dangerous," hesaidabout passing on an increase this year.

"We recognize exactly what you're saying. Our concern is that each year we're going to face something. There is going to be some issue like an HST increase."

Increased staffing levels

Earlier in the week, NB Power also faced questions about the growth of its staffing levels, especially at the senior management level.

In 2010, the utility spent $17 million on special retirement and severance packages to encourage 123 people to leave the company.

But six years later, figures show NB Power has added 268 positions back since then.

That includes a growth in the senior management team from six to eleven, and the addition of two vice-president positions.

"Would you agree the number is now higher than it was after the staff reduction initiative?" Gorman asked NB Power vice-president and chief financial officerDarren Murphy.

"That is correct," said Murphy, who argued a number of changes had forced NB Power to get larger, including having to absorb employees from the remnants of the System Operator and Efficiency NB.

"It's important to note that a lot of things change in six years," said Murphy.

NB Power also released more information on the cost to customers of various contracts, purchase agreements and subsidy programs that the New Brunswick government requires it to operate under.

It said an updated computer model shows those deals will add $66.4 million to its costs this year, compared to what it could generate electricity for on its own, or buy on the open market.

That is slightly more than the $64.1 million in costs it detailed in an earlier modelling.

NB Power had tried to keep the second estimate confidential but dropped the effort at the beginning of the hearing after being challenged by EUB lawyer Ellen Desmond.

The EUB is now considering its decision on the two per centrate increase application. Last year's application took 11 weeks for a ruling.