Return $85M surplus to NBers: Utility says surplus that led to hefty rate hikes ‘the nature of forecasts’

As NB Power appeared before the province’s energy regulator this week to justify its need to increase power rates by another 3 per cent, many were thinking about the utility’s $85-million profit posted last year despite the utility’s claim it would lose $300,000 per day without that year’s large increase.

Daniel Thériault was the province’s public intervenor in last year’s Energy & Utilities Board hearing, which granted NB Power a 5.9 per cent rate increase.

He says the current review, which is non-binding, brings up a lot of the same questions as the past, and a lot of the same frustration for ratepayers as they stare down another projected surplus that has been forecast at more than $65 million.

“Well if I am a ratepayer, which I am, the question I have is if you’re making money and you can break even, why do you need an increase?

“It actually was one of the first questions I had in my own mind earlier this year when the budget came out showing a huge profit for NB Power.”

Thériault was among many New Brunswickers shocked Thursday when NB Power lawyer Terry Morrison defended the NB Power forecasts that were responsible for drawing $85 million more than necessary out of New Brunswickers pockets.

“All forecasts are wrong. That’s the nature of forecasts,” said Morrison, noting that forecasts are based on projects and costs which could always change in the future.

Thériault says nobody expects forecasts to have exact precision, but he says New Brusnwickers should not have to pay for NB Power’s inability to forecast future trends.

“Forecasts can be wrong, but forecast shouldn’t be that wrong,” he says.

“Forecasts are like a budget; you are taking your best educated guess. But if you are that far out obviously your forecasting methodology leaves something to be desired, so there should be a review into the forecasting methodology that NB Power is using.”

In March of this year, NB Power announced it will increase rates by three per cent for the fiscal year 2008-2009. The announcement came a week after the Energy and Utilities Board approved a 5.9 per cent increase for this fiscal year. The latest increase means the average homeowner can expect to pay about $52 more a year for electricity. Combined with the 5.9 per cent increase, homeowners will be paying about $150 more than they were last year.

Energy Minister Jack Keir says he is not concerned by a $65 million profit margin on a billion dollar annual budget.

“That’s why it’s called a forecast, because they are ‘guestimating’ a wide variety of things that could occur,” he says. “It is 30 days of unscheduled maintenance at Point Lepreau, $60 million is a lot of money to me, but $60 million is not a big surplus for NB Power.”

Keir says a number of variables could have just as easily plunged NB Power’s year into a deficit, and notes that the diversity of power sources that feed the province’s grid complicate the annual forecast.

“I don’t know how you can predict that Coleson Cove or Dalhousie is going to go down for maintenance. You certainly couldn’t predict what the price of a barrel of oil was going to be earlier this week. I think they do their very best.”

Thériault says a fundamental issue that must be resolved is NB Power’s inability, or unwillingness, to disclose the profits of its individual companies.

He says that is the only way to determine whether NB Power’s distribution company — which is the only regulated company within the utility — actually needs a rate increase to break even.

The result of the lack of transparency is that New Brunswickers are left blind to the actual necessity of their escalating power rates.

“At the end of the day if (NB Power’s distribution company) needs the revenue they need the revenue,” he says. “But its hard for an average ratepayer to say, ‘You are making millions of dollars but you are telling us you need more money, and you are asking us to pay more.'”

Keir says he will be introducing changes to NB Power’s structure that will create transparency for the distribution company, which must have its prices approved by the EUB when rate increases exceed 3 per cent.

He did not say, however, whether changes would occur in time for the next potential rate review or hearing.

“There are issues right now, and I get it, on issues like transparency and information processing from each of these silos, and we’re going to address it,” he says.

Riverview MLA Bruce Fitch says NB Power should return its large surpluses to its shareholders — New Brunswickers.

“This is a Crown corporation, it is owned by the people of the province, if there is a substantial surplus, they should receive some type of a dividend back from the utility,” he says.

Fitch says the idea evolved into the Lord government’s HST rebate on home heating costs, which was scrapped by the Graham government when it took office, breaking a key election campaign promise.

Fitch says the Liberal government has given NB Power a green light to take as much money as the Crown corporation deems necessary and NB Power is taking advantage of the situation.

“When they continue to post surpluses of $60 million or more, obviously they are taking more than they need,” he says. “This government needs to listen to consumers because they are saying they are having a tough time dealing with the increased taxes, increased power rates, and there has to be a breaking point.”

Ian Munro, research director of the Atlantic Institute for Market Studies, says the idea of returning surpluses to ratepayers is an interesting option, particularly in a regulated monopoly that is void of the competition that usually keeps energy prices low.

“If you have a regulated price for energy and you are basing it on forecasts going out and that utility ends up bringing in much more money than it needed to cover its costs, then you want to find some way to get that money back into people’s hands,” he says. “Maybe some kind of dividend or rebate program can work.”

David Plante of the Canadian Manufacturers & Exporters Association says manufacturers have a hard time understanding how NB Power’s energy costs for 2007-2008 were forecast to be 45 per cent higher than the actual costs.

Plante says overly conservative forecasts could stifle innovation and efficiencies within NB Power.

“We can’t have estimates that are so conservative that they don’t require the utility to look into measures to improve their efficiencies and lower their costs,” he says.

He says the distance between NB Power’s forecast — which was used to justify rate increases — and actual costs destabilize customers.

“It creates a great deal of uncertainty for not only industrial consumers, but residential consumers as well. We’ve been arguing for a longer term forecast of NB Power power’s rates as well as a longer term plan to dealing with its debts.”

Thériault says mandatory hearings for every rate increase, not just those that seek more than 3 per cent, will help NB Power become more accountable and efficient.

He says NB Power needs to accomplish both goals to deal with customer frustration.