Unexpected surge in N.B. Power revenues draws attention at rate hearing

Evidence that N.B. Power may be having a better financial year than expected when it first proposed imposing a pair of large rate increases on customers has participants at its ongoing rate hearing asking whether that offers an opportunity to reduce the amounts.

But the utility is pushing back against that idea, arguing it should be allowed to keep any surge in income over and above what it originally budgeted for.

"We're not recommending any updates to the evidence as a result of changes since the filing," N.B. Power's chief financial officer Darren Murphy told public intervener Alain Chiasson on Tuesday, about the possibility amounts being earned on electricity sales may be better than expected.

If the windfall is to be considered, Murphy has argued, N.B. Power should be allowed to keep the money to shore up its finances, or at least have unbudgeted expenses recalculated to balance out the new revenues.

"If the board decides that updates are required, then we propose it be done in a more comprehensive way," he said. 

N.B. Power has applied to raise rates by an average of 9.25 per cent per year over the next two years, including 9.8 per cent on residential and industrial customers.

However, updated modelling done by N.B. Power, after it submitted its rate application in December, showed margins it is likely to earn on electricity sales have improved by $36.7 million this year and $37.7 million next year.

Multiple parties at the utility's ongoing rate hearings have been asking about those amounts, suggesting they are significant enough to reduce the size of rate increases N.B. Power needs.

"So $37 million a year equates to something over two per cent," noted J.D. Irving lawyer Glenn Zacher about the unbudgeted revenue.  

"So that would be a two-per-cent credit against what would otherwise be a 9.25 per cent increase."

Murphy acknowledged that amount of money could potentially be used to reduce a rate increase, but argued against it.

"That is not what we are recommending, but the math is right," said Murphy.

Pressed further on the issue by Ryan Burgoyne, a lawyer for New Brunswick's municipal utilities, Murphy said it is N.B. Power's preference that it be allowed to keep the first $40 million in any unbudgeted revenue that appears.

The utility is already planning for $64 million in net earnings this coming year but Murphy said it would like the number to be allowed to go substantially higher before it is made to divert any new money to reducing its rate increase.

"And just so I understand, that would mean N.B. Power would be looking for net earnings of $100 million to $104 million?" asked Burgoyne.

"That is correct," said Murphy.

N.B. Power has also made the point that unexpected expenses have arisen and if new revenues are going to affect its rate increase, then new costs also should be recalculated.

As an example, the utility pointed to a major winter storm that caused $19.3 million in damage just before Christmas and days after it had already submitted its rate increase request for the next two years.    

The utility budgets for storm damage based on multi-year rolling averages and so future costs will be affected by that storm.  

Under questioning by Chiasson, Murphy said it is only fair that if unexpected revenues are going to affect N.B. Power's request for higher rates, then so should any surprise increases in its costs.