‘We’re not back at Square 1’: Hydro VP

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Ashley Fitzpatrick
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Utility working to minimize effect of changes to rate application

Newfoundland and Labrador Hydro vice-president Rob Henderson said work required to update a proposal by the utility for new power rates is underway.
Hydro filed a general rate application to the Board of Commissioners of Public Utilities (PUB) at the end of July 2013 and public debate erupted soon after over proposed changes to Hydro’s cost of power.

Power lines. — Photo by Joe Gibbons/The Telegram

As reported earlier this week, the utility has decided to put a pin in the application as of last Friday, June 6.

Henderson confirmed the plan is to file an updated application, one proposing different rates for consideration. It will be filed with the regulator in the fall, he said.

“We realized that with the passage of this much time, we needed to really update our financial information to provide to the board and the interveners, so they had the latest information on Hydro’s financial situation to enable a good review and decision on our costs and what our appropriate rates are,” he said.

The change was prompted, Henderson said, by exchanges with interveners in the rate review, changes since January in Hydro’s outlook for capital spending and the time it has taken to deal with the existing proposal at the PUB.

“The rates that people are paying right now are reflective of the costs that Hydro had, basically that it forecast in 2007. That was from our last general rate application,” he noted.

With the exception of the cost of oil, for which rates are given an adjustment every July 1 to reflect oil prices, there has been no consideration in recent years of other factors affecting Hydro’s costs, not to mention costs to come.

It is important the utility see a rate review completed and changes to rates made, to reflect current information.

In this case, in order to be completed, it will require a meeting of the provincial cabinet.

The rate review process requires the utility to put together detailed forecasts on key cost influences, customer profiles, and outlooks for the various power systems served by Hydro throughout the province.

Certain calculations are based off a “test year,” typically a year after the rate application is filed. Yet Hydro’s original application proposed new rates based off of the same year, requiring the provincial government to step in to make it happen.

“The normal process in legislation is a future test year,” Henderson said, explaining it was through a cabinet order in the spring of 2013.

“In 2013, we filed the same year as the test year. And putting forward a 2013 test year while you’re in 2013 was unusual in the sense that there isn’t always an Order in Council for this.”

As for why the utility asked the province to permit it to go outside the normal process?

“That was because Hydro wanted to be quick in getting something before the Public Utilities Board and move the process forward to get rates in quickly, for Hydro’s financial needs, but as it turned out the process was much longer, there was a lot more requests for information than we’ve ever seen, and of course we had the power outage and the subsequent things that happened on that,” he said.

The provincial government’s Order in Council, stating Hydro has to base its rate proposal off a 2013 test year, still stands.

For its updated proposal, Hydro plans to go to a 2015 test year.

Cabinet will need to address the Order in Council in some way, before Hydro can move ahead with its plan.

It may be confusing, but Henderson said the bottom line is the change being undertaken is the best way to complete required regulatory work as quickly as possible.

He said not making a change, with new rates set this year on old figures, could simply have resulted in another rate application being needed in 2015, leading to more work, time, cost and uncertainty for a greater time period.

The provincial government is supportive of the move, according to Minister of Natural Resources Derrick Dalley.

“We would have to address the Order in Council and that’s being considered now,” he said.

He could not say when the required cabinet discussion would occur and exactly what would be done, but said the provincial government will do what is in the best interests of ratepayers.

 

afitzpatrick@thetelegram.com

Organizations: Public Utilities Board

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  • Samuel J.
    June 12, 2014 - 08:51

    So if we can cut through the gobble-gook, Hydro can either re-apply this Fall for a rate increase based on its 2013 cost structure and then apply again for another increase in 2015 based on its - by then - new cost structure (let's call that Option A; or Cabinet can alter its earlier decision and allow Hydro to make one application this Fall based on its 2015 numbers (let's call that Option B). Not surprisingly, Hydro prefers Option B - the accelerated cost recovery option - because it allows them to get their Muskrat return sooner. The downside for ratepayers and homeowners, of course, is that our utility bills take a bigger hit right away. Now ordinarily I'd say Cabinet would have no qualms about going along with Hydro's request. But with an election coming next Spring, Premier Coleman might well question if he wants to hit homeowners in their pockets just yet - or wait until after next Spring's election and leave that unpopular chore to the incoming Liberals. Any guesses?