Newfoundland Power receives approval for rate increase

Customers will see drop in power rates July 1, after application of annual fuel adjustment

Ashley Fitzpatrick afitzpatrick@thetelegram.com
Published on June 10, 2016
Gary Smith. — Newfoundland Power photo

Following an in-depth review of Newfoundland Power’s operation, the Public Utilities Board (PUB) has granted approval for the utility to raise rates by 1.5 per cent. But customers will not see an increase. As of July 1, there will actually be a drop in power prices, with the average residential rate dipping by seven per cent.

The decrease comes as a result of Newfoundland Power’s increase being offset by a change in rates flowing from an annual review of Newfoundland and Labrador Hydro’s power supply costs, under the rate stabilization program. This adjusts bills to largely reflect year-to-year ups and downs in the cost of oil for the Holyrood power plant (considering both oil price and amounts used).

Newfoundland Power’s 1.5 per cent increase in rates was the result of a separate general rate application. The utility had been seeking an even greater increase, at 2.5 per cent for the average residential customer.

In its application to the regulator, Newfoundland Power asked for, among other things, approval of a 9.5 per cent return on equity (tied to shareholder profits). It received approval for only an 8.5 per cent return instead, accounting for much of the difference between what the utility wanted to charge customers and what it has been allowed to charge.

“I still think that that’s too high (a return),” said Consumer Advocate Tom Johnson, speaking with The Telegram Thursday.

“For instance a sister affiliate, in Fortis Alberta, is still getting 8.3 per cent … my expert had said that 7.5 per cent was reasonable.”

Johnson said he believes it is also time for the regulator to start seeking a reduction in the common equity component of Newfoundland Power’s capital structure (currently at 45 per cent). But he was pleased, he said, the board recognized customer rates should not be weighed down by certain executive incentives, forcing responsibility for covering some of the compensation onto corporate shareholders.

For the general rate review, the PUB looked at everything from operating costs to asset depreciation to the cost of power supply. “Those costs for the most part were deemed reasonable,” said Newfoundland Power spokeswoman Michele Coughlan.

“From Newfoundland Power’s perspective, we respect the decision of the PUB,” she said, adding the utility will continue to provide service with an eye to cost and an aim to offer the best value possible for customers and shareholders.

One unknown factor at this point is the unresolved request by Newfoundland and Labrador Hydro to increase its rates.

The numbers there remain uncertain, particularly since the PUB ruled certain Hydro expenses would have to be swallowed by that utility, having resulted from its own missteps.

Any increase to Hydro rates would increase the cost of the majority of Newfoundland Power’s supply and most likely be passed down to ratepayers through a rate adjustment.

Meanwhile, the increase in HST, announced with the provincial budget, will start on power bills as of July 1.

And one final element to consider for the near future is the refund due to customers from the “rate stabilization plan surplus” — a pot of money emerging with the sudden closure of the mill in Grand Falls-Windsor and the re-purposing of the mill’s hydropower supply for general power generation, dropping oil power costs.

Details of that refund have been developed following a series of legal decisions and are expected to be released later this year.