Top News

IRAC to Maritime Electric: Use $10 million over-earnings to offset rate hike and pay back the rest

John Gaudet, president and CEO of Maritime Electric, started with the company 37 years ago.
John Gaudet is president and CEO of Maritime Electric.
CHARLOTTETOWN, P.E.I. —

Maritime Electric overcharged ratepayers in P.E.I. by more than $10 million since 2016, according to a report by the province’s independent regulator.

In a decision related to Maritime Electric’s application to increase electricity rates on P.E.I., the Island Regulatory and Appeals Commission raised concerns about the ability of the company to forecast its own sales, revenues and expenses.

The commission noted that Maritime Electric had charged rate-payers $10 million more than it was permitted to earn between Jan. 1, 2016 and Dec. 31, 2018. These funds have been maintained in a rate of return adjustment account, which is designated to defer earnings taken in above Maritime Electric’s allowed rate of return.

“For a company with annual net earnings of approximately $13 million, over-earnings of $10 million are significant and – for a regulated entity operating in a cost of service model – this is not acceptable,” the commission wrote in its report.

Between Jan. 1, 2019 and June 30, 2019, the company also over-earned by an additional $3.3 million. The company is forecasting its rate of return adjustment account earnings to be zero by year-end.

The commission ordered that the $10 million in over-earnings be used to minimize any proposed rate increases between March 1, 2020 and Feb 28, 2021. If the revenue from proposed increases is less than $10 million, the commission ordered that the remaining balance be refunded to ratepayers between March 1, 2021 and Feb. 28, 2022.

By 2016, Maritime Electric had also earned $15 million more from ratepayers than its allowed rate of return. This sum was ordered by IRAC to be refunded to customers between 2016 and 2019.

IRAC also turned down a request by Maritime Electric to increase electricity costs for P.E.I. ratepayers.

Maritime Electric had applied to the Island Regulatory and Appeals Commission for a 3.3 per cent increase in electricity rates between March 1, 2019 and Feb. 28, 2022.

The commission’s report said that after Maritime Electric had submitted an initial request for the rate increases in November 2018, a second schedule of proposed rate increases was submitted six days before hearings on the request began.

In a July 2019 submission, the proposed rate increase was changed from a 1.1 per cent yearly increase over three years to a 0.7 per cent increase per year, or 2.1 per cent over three years.

But Maritime Electric stated during the hearings that if the increases were approved, most customers would in fact see an average rate increase of 1.7 per cent as of September 2019, no increase in 2020 and a 0.8 per cent increase in 2021.

“This represents a cumulative rate increase of 2.5 per cent – not 2.1 per cent as suggested by MECL,” the commission wrote.

The report said Maritime Electric’s explanation for the front-loaded 1.7 per cent increase in electricity rates in September 2019 was because the company needed to recover its revenue requirements. However, the report also notes the company had over-earned by $3.3 million in the first six months of 2019.

“In most instances, the company provided little to no explanation for the change in its forecasts,” the commission wrote in its report.

“The commission is not satisfied that the company’s forecasts as presented in this application, and as revised on July 31, 2019, are reasonable, accurate or reliable. As such, the commission is not prepared to approve the rates that are derived from those forecasts.”

The commission also delayed a final decision on Maritime Electric’s request to phase out a discount for ‘second block’ users, such as farms, that use large amounts of electricity.

Maritime Electric was ordered to file a rate design study by June 30, 2020.

Stu.neatby@theguardian.pe.ca

Twitter.com/stu_neatby

Recent Stories