NL Power’s noted costs go beyond fuel or return on equity
Newfoundland Power line technician, Melissa King scales a pole to assist co-workers in carrying out system upgrades. — File photo by Joe Gibbons/The Telegram
In the coming year, Newfoundland Power will have to explain to the Public Utilities Board (PUB) why it should be allowed to hike the power rates for customers.
The proposed increase — running 7.2 per cent for the average homeowner — has already been criticized by Consumer Advocate Thomas Johnson.
That said, the hike is still far from reality.
Newfoundland Power must lay out for the PUB its anticipated costs through 2014 to justify the rate increases.
The Telegram dug into the utility’s application, to get a better sense of what has been put on the table.
Return on equity
Newfoundland Power is looking for a 10.4 per cent return on equity for shareholders in 2013 and 10.5 per cent in 2014.
In 2009, the PUB found nine per cent to be a fair return. The 2012 return is set at 8.8 per cent.
Determining a fair return is a complicated venture. “Return on equity, it’s an area of expertise that really none of us have,” Newfoundland Power spokesman Bob Pike said, adding all sides go to consultants for opinions on what is fair. That testimony informs the debate.
“(The requested return) may not be a number (Newfoundland Power) just throw(s) out, however they use the same sort of expert testimony case after case, which reaches for the sky and the moon,” Johnson has said.
Cost of service — Modernizing
Other costs are affecting the company’s rate request — a mix of minor and major concerns.
For one, the company states it is dealing with customers who want a different kind of service than was offered in the past.
“From 2007 to 2011, the number of customer initiated contacts with Newfoundland Power via email has increased by approximately 97 per cent,” the rate application states.
In 2007, the company responded to about 24,000 customer emails. In 2011, the number was up to 47,000.
“In 2011, customer (contacts) with Newfoundland Power through the company’s website exceeded (contacts) by telephone for the first time.”
Then there are eBills — the promoted electronic billing system.
In 2007, about 19,000 customers participated in the eBills program. In 2011, that number was more than 45,000.
While providing services electronically — eBills versus paper bills for example — can be cheaper per transaction, “provision of additional customer service alternatives tends to increase operational complexity and costs,” the company claims.
An example given is adapting the company’s website for iPhone, Android and Blackberry.
“The costs of modifications to the company’s website were approximately $130,000 and $123,000 in 2010 and 2011 respectively, and are forecast to be approximately $183,000 in 2012.”
Cost of service — Labour costs
The total number of Newfoundland Power employees has not changed significantly since the company’s 2010 rate application.
However, the company is dealing with a jump in retirements — facing a level not seen since an early retirement package was offered in 2005.
At that time, 76 employees left. Newfoundland Power is currently forecasting more than 70 retirements for 2011 through 2013, with 25 more forecast for 2014.
Within the current labour market, Pike told The Telegram, the utility has been unable to replace retirees by simply hiring off the street.
“We have to create our own qualified people, because you can’t hire them,” he said, explaining apprentices have been hired as they work towards journeyperson status.
Internal needs aside, the company has been absorbing some growing labour costs from contractors, Pike said.
“When we have contractors who do our pole setting and vegetation management and so on, because of the change in the labour market, these contractors are having to pay more for labour to compete with the larger megaprojects in the province. Then that gets reflected into the price to us for the work that they do,” he said.
Cost of Service — Capital spending
Newfoundland Power runs through a separate review with the PUB each year, to approve capital expenditures. These costs include, among other things, major maintenance and upgrades to substations.
Proposed work for 2013 includes replacement of a structure at Soldiers Pond, refurbishment of washrooms at the Kenmount Road offices, upgrades to group billing and the addition of a “virtual hold” customer call-back system.
A decision by the PUB covering the proposed spending, totalling just over $80 million, is pending.
Looking forward, “new investment must be made to serve customers who have moved to urban areas, as well as to maintain service in communities with declining populations,” states Kathleen McShane of Foster and Associates, an expert in financial matters relating to utilities who has filed an opinion on the rate hike for Newfoundland Power.
If the rate hike is approved, the new residential power rates will still be the lowest in Canada, Newfoundland Power president and CEO Earl Ludlow has stated.
The review of the rate application is just beginning and a public hearing is expected to be scheduled for early in the new year.