Press Release - December 9, 1999

 

 Press Release

Public Utilities Board

December 9, 1999

 

The Board today released its Order P.U. 20 (1999-2000) approving an overall average 0.7% increase in rates for Newfoundland Power Inc., applicable to electricity consumed on and after January 1, 2000. This increase is as a result of the application of the automatic adjustment mechanism approved for use by the Board last year as a result of a public hearing.

The automatic adjustment mechanism is based on a variety of factors including the Canada long-term bond rates. Since establishment of the automatic adjustment mechanism in 1998, the interest on these bonds has increased 43 basis points. Under the automatic adjustment mechanism, changes to the long-term bond rates result in a return on rate base of 10.28%. compared with 9.98% established at the 1998 public hearing.

A revised schedule of rates, tolls and charges has been filed with the Board by Newfoundland Power. These revised rates reflect the new rate of return and have been reviewed by the Board and found to be correct.

On November 19, 1999, the Board, following public notice, conducted a public hearing on Newfoundland Power's capital budget application. Following the hearing, the Board issued an Order which approved an increase in the rate of return on rate base and other factors affecting the calculation. The Board also approved a capital budget for the year 2000 of $41,771,000.

During the last week of November 1999, staff of the Board undertook to update a previous survey of the domestic electric-utility rates across Canada, to be in effect as of January 1, 2000. The attached survey shows that rates paid by domestic customers of Newfoundland Power Inc. are, on average, mid range of rates paid by all consumers across Canada. They are slightly above the national average. In fact, only in Quebec, Manitoba, British Columbia, and the City of Calgary, are rates consistently lower than in Newfoundland for the seven, monthly energy-consumption levels selected.

For medium (750 kilowatt) to high (2000 kilowatt) monthly, domestic consumption, rates for Newfoundland Power customers are lower than in Nova Scotia, Prince Edward Island, the average of Ontario locations reviewed, and Alberta, excluding the City of Calgary. In relation to New Brunswick, rates in Newfoundland are lower for consumption up to 1330 kilowatt hours and higher for consumption over 1330 kilowatt hours.

All rates and monthly bills calculated exclude the impact of any federal and provincial taxation.

In absolute terms, for non electric-heat consumers (up to 750 kilowatt), the average monthly increase will range between thirty-five cents to forty-six cents, and for all-electric consumers (between 2000 and 3000 kilowatt), the average increase, on a monthly basis, will be between one dollar and thirty-five cents and one dollar and fifty-two cents.

Click to view the following:

Chart 1: NF vs. Maritime Provinces

Chart 2: NF vs. Ontario, Quebec

Chart 3: NF vs. Western Provinces

Chart 4: NF vs. Canadian Average

Table 1: NF Rates Before and After Change

Survey of current domestic electric utility rates across Canada

 

The Order of the Board P.U. 20(1999-2000):

 

IN THE MATTER OF THE PUBLIC UTILITIES

ACT, R.S.N. 1990, CHAPTER P-47 (ATHE ACT@)

 

AND

 

IN THE MATTER OF AN AUTOMATIC ADJUSTMENT

MECHANISM TO ADJUST THE RATES OF

NEWFOUNDLAND POWER INC. BASED ON VARIATIONS

IN RATE BASE AS ESTABLISHED BY THE BOARD OF

COMMISSIONERS OF PUBLIC UTILITIES ("THE BOARD")

IN ORDER NO. P.U. 16 (1998-99) AND ORDER NO. P.U. 36

(1998-99).

 

WHEREAS in Orders No. P.U. 16 and 36 (1998-99) the Board established a mechanism using Canada long term bond rates to adjust the rates of Newfoundland Power Inc. ("Newfoundland Power") annually based upon variations in the rate of return on rate base (the "Automatic Adjustment Mechanism"); and

 

WHEREAS in Order No. P.U. 16 (1998-99) the Board ordered that any change in the return on rate base of Newfoundland Power would be determined by the Board in November or December and any rate change would normally be effective on January 1st of the following year, and that the Board will issue an Order for revised rates to be filed for the following year if the change in the rate of return on rate base has the effect of moving the rate of return outside the previously approved range; and

 

WHEREAS in Order No. P.U. 36 (1998-99) the Board further ordered that the new rate of return on rate base resulting from application of the Automatic Adjustment Mechanism will be taken as the midpoint of the range which will be allowed for calculating revised rates, tolls and charges; and

 

WHEREAS the long Canada bond yield averaged over the last five trading days in the month of October, 1999 and the first five trading days of the month of November, 1999 is 6.18% compared with the long Canada bond yield of 5.75% estimated by the Board in Order No. P.U. 16 (1998-99); and

 

WHEREAS evidence heard by the Board at a hearing concerning, amongst other things, Newfoundland Power’s 2000 capital budget, was that the increase in the cost of capital, as reflected in the operation of the Automatic Adjustment Mechanism, increased the required return on rate base for 2000 by 30 basis points from 9.98 per cent to 10.28 per cent, which is outside the previously approved range of 9.80 percent to 10.16 percent; and

 

WHEREAS on November 25th, 1999, the Board issued Order No. P.U. 18 (1999-2000) which, inter alia,

  1. fixed and determined Newfoundland Power’s rate base for the year ending December 31st, 1998 at $488,204,000;
  2.  

  3. approved Newfoundland Power’s forecast average rate bases for the year ending December 31st, 1999 of $503,298,000 and for the year ending December 31st, 2000 of $512,693,000;
  4.  

  5. approved the use of the forecast average rate base for 2000 of $512,693,000 and the forecast average invested capital for 2000 of $568,517,000 for the purpose of calculating allowed return on rate base for 2000 using the Automatic Adjustment Mechanism; and
  6.  

  7. directed Newfoundland Power to submit for the Board’s review and approval a revised schedule of rates, tolls and charges, to be effective on power consumed on and after January 1st, 2000, to reflect the change in the rate of return on rate base as determined through the Automatic Adjustment Mechanism; and

 

WHEREAS the net effect on revenue of the increase in the cost of capital as reflected in the operation of the Automatic Adjustment Mechanism is an increase in 1999 test year revenue requirement of Newfoundland Power of $2,415,000; and

 

WHEREAS on December 1st, 1999, Newfoundland Power filed the new schedule of rates, tolls and charges which provides for increased revenue of $2,415,000, reflecting the increase in Newfoundland Power’s test year revenue requirement resulting from the operation of the Automatic Adjustment Mechanism; and

 

WHEREAS the Board requested its Financial Consultants, Grant Thornton, to review the rates and other calculations submitted by Newfoundland Power on December 1, 1999 to ensure compliance with Orders No. P.U. 16 and 36 (1998-99) and P.U. 18 (1999-2000); and

 

WHEREAS the Board requested Grant Thornton to review the calculation of rate of return on rate base and the range of rate of return for Newfoundland Power for the year 2000 based on application of the automatic adjustment formula pursuant to Orders No. P.U. 16 and 36 (1998-1999), and P.U. 18 (1999-2000) and they have confirmed that the application of the formula results in a revised rate of return on rate base for the year 2000 of 10.28 per cent and revised range of rate of return for 2000 using the range of 36 basis points of 10.10 to 10.46 per cent; and

 

WHEREAS, after examination, Grant Thornton indicated that the rates, tolls and charges, as submitted by Newfoundland Power, based upon a January 1st implementation date, together with the operation of the Unbilled Revenue Increase Reserve, will, in accordance with the submission of the Newfoundland Power on December 1st, 1999, provide the additional 1999 test year revenue required as a result of the operation of the automatic adjustment mechanism.

 

 

IT IS THEREFORE ORDERED THAT:

 

  1. The allowed return on rate base for Newfoundland Power for 2000 is 10.28 per cent within a range of 10.10 per cent to 10.46 per cent; and
  2.  

  3. Approval be and it is hereby granted to the Schedule of Rates, Tolls and Charges of Newfoundland Power, attached hereto and marked Schedule "A", effective January 1, 2000.

 

DATED at St. , Newfoundland, this 9th day of December, 1999.

 

 

David A. Vardy,
Chair and Chief Executive Officer.

William B. Crosbie, P.Eng.,
Commissioner.

G. Fred Saunders,
Commissioner.

Darlene Whalen, M.A.Sc., P.Eng.,
Commissioner.

G. Cheryl Blundon,
Director of Corporate Services and Board Secretary.

 

 

 

Various Charts

 

 

Chart 1:  


**Where a utility has Urban and Rural rate, the average has been used for this survey.
Source: PUB Staff Survey for rates effective January 1, 2000.

Chart 2:


**Ontario rates are the average of rates applicable in Toronto, Etobicoke, Scarborough, Brampton, Geulph and London.
Source: PUB Staff Survey for rates effective January 1, 2000.

 

Chart 3:


**Where a utility has Urban and Rural rate, the average has been used for this survey.
Source: PUB Staff Survey for rates effective January 1, 2000.

 

Chart 4:


**Where a utility has Urban and Rural rate, the average has been used for this survey.
Source: PUB Staff Survey for rates effective January 1, 2000.

 

 

Table 1: Before and After Rate Change

Newfoundland Power
Domestic Electrical Service Costs
Before and After Rate January 1, 2000 Rate Change

Monthly
Consumption
kWh

NF Power
July 1, 1997
6.751/kWh

NF Power
July 1, 1998
6.782/kWh

NF Power
Sept. 1, 1998
6.644/kWh

NF Power
Feb. 1, 1999
6.734/kWh

NF Power
July. 1, 1999
6.816/kWh

NF Power
New Rate
6.863/kWh

$
Diff.
Monthly

%
Diff.

250

33.44

33.50

32.80

33.03

33.26

33.49

0.23

0.69

500

50.32

50.45

49.41

49.86

50.30

50.65

0.35

0.70

750

67.19

67.41

66.02

66.70

67.34

67.80

0.46

0.68

1000

84.07

84.36

82.63

83.53

84.38

84.96

0.58

0.69

2000

151.58

152.18

149.07

150.87

152.54

153.59

1.05

0.69

3000

219.09

220.00

215.51

218.21

220.70

222.22

1.52

0.69

Source:
PUB Staff
December, 1999