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 couldbe 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."

Madsenis an accountant and former Alberta utility executive who now heads EmrydiaConsulting 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.

Theincreases average 9.25 per cent in each of the next two years, although the amounts vary for differentcustomer groups. For example,residential customers wouldpay 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 1until 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 separatethree 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 whereeither 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 theburden 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 2019study 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 sizeof the requested rate increase.

Madsenalso said because revised revenue figuresshow NB Powerexpects to earn$36.7 million more in higher margins on domesticand export electricitysales this year than originally expected, that too should be credited to customers.

He also claimed operations, maintenanceand 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 representjust over half of the value of NB Power's proposedrate increases.

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

Madsen also recommendedNB 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 8to 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.