Russell Wangersky: Electrical rates have nowhere to go but up


Published on May 29, 2017

Think of this column as science fiction — but as the informed kind of science fiction that Isaac Asimov used to do. Meaning, it’s science fiction right now, but it might become science fact sooner than you expect.

Maybe you let out a sigh of relief when, a week or so ago, a proposed 18.6 per cent electrical rate increase didn’t fully appear.

Russell Wangersky
File photo

After moving cash around at the direction of the Public Utilities Board, Newfoundland and Labrador Hydro was able to move the anticipated rate increase for individual customers down to around 8.5 per cent.

You can call that robbing Peter to pay Paul, or you can call it fiscal pragmatism to keep customers from near-revolt, but no one should think that we’re out of the woods on electrical bills just yet.

The simple fact is that Hydro, when asked to mitigate that 18.6 per cent rate increase, pointed out that more increases are coming, saying “While Hydro understands the Board’s efforts to mitigate the material rate increases projected for July 1, 2017, Hydro is concerned that the options being considered to mitigate rate increases at this time to avoid ‘rate shock’ could result in a more significant rate increase in the near future when other rate increases are required.”

So, on to that next rate increase.

Because there will be one — and sooner than you think. The utility is due to file its next general rate increase application, for power rates starting in 2018, in July.

I’ve been keeping track of the steady increase in capital work that Newfoundland and Labrador Hydro has been doing, and not just for my own health.

General rate increases follow a set formula — it’s a complicated one, but it’s not completely impenetrable, at least as long as you are willing to accept that back-of-the-envelope calculations aren’t anywhere near as accurate as using real numbers and real accountants and forecasters.

Just the way gas price advocate George Murphy can crunch numbers and calculate ahead of time what gas prices will do, you can run numbers, at least in a macro sense, on where electrical rates might go.

Just the way gas price advocate George Murphy can crunch numbers and calculate ahead of time what gas prices will do, you can run numbers, at least in a macro sense, on where electrical rates might go.

There are some things we know — the current, quite large, capital construction plans and generally how Hydro has recorded those, along with Hydro’s past operating expenses.

Consider those numbers, and it’s not outlandish to suggest that Hydro may come to the table in a couple of weeks with a rate increase that could range from 10 to 15 per cent, on top of the 8.5 per cent it’s already set for July 1. By the time the rate application works its way through the PUB process, we could see the new rate in place by March 31 of next year.

Better utility minds than mine agree that those numbers make sense, though they’re not keen to be talking about it on the record.

So, 8.5 already, plus a bigger number next March.

A cumulative increase of 20 per cent or more in a single year would be quite something.

And no — this has nothing to do with Muskrat Falls. All of that is still to come.

There are wild cards in this analysis, like the possibility of Newfoundland Hydro striking a deal to obtain cheap power and get it to customers using, for example, the Maritime Link, or the provincial government telling Hydro not to collect the rate of return legislation says it’s entitled to.

But it’s better to be prepared.

Like I said at the beginning — some of this is dabbling in the world of science fiction, with only the publicly available information.

But that certainly doesn’t mean it won’t happen.

 

Russell Wangersky’s column appears in 30 SaltWire newspapers and websites in Atlantic Canada. He can be reached at rwanger@thetelegram.com — Twitter: @wangersky.