6 takeaways from Maritime Electric's latest rate increase
This week the Island Regulatory and Appeals Commission signed off on a rate increase application from Maritime Electric that will have Islanders paying more for electricity in the years ahead (and probably more than you think).
Maritime Electric revised its application earlier this month, scaling down the increases it had been asking for, saying it had reached a settlement agreement with the P.E.I. Energy Corporation, a provincial Crown corporation.
But IRAC still had to approve the plan, and the commission said it had "concerns about certain aspects" of it.
Here are some of IRAC's concerns, along with some that customers might have:
Rates are going up more than you've heard
Maritime Electric has described this as a rate increase of 2.6 per cent in 2023 and 2024 followed by 2.7 per cent in 2025.
In fact, that's what the company considers the increase for what it calls a typical rural residential customer, and that factors in the flat-rate service charge that appears on your bill, which isn't increasing.
In terms of the actual rate Islanders pay for electricity, residential customers using less than 2,000 kWh per month (the vast majority of us) will see an increase of 4 per cent per kWh starting with their next bill in May. Over three years, the increase will be roughly 10.3 per cent.
Maritime Electric rates - residential first block
Rates will likely go up again this year
Islanders can expect an additional rate hike as soon as this October. The reasons are a bit technical. It has to do with something called the Energy Cost Adjustment Mechanism (ECAM), kind of like a long-term savings account meant to spread out the impact of energy cost fluctuations that happen during a rate period.
Through ECAM, customers owed Maritime Electric $11.7 million as of the end of last year. The company didn't include a plan to recoup all of that in its most recent rate application, something IRAC took issue with for two reasons:
It means customers today are getting energy below cost, at the expense of future generations; and
Maritime Electric earns a rate of return off the ECAM balance, meaning more cost to customers.
So IRAC told Maritime Electric to prepare another plan for rate increases to account for the ECAM balance, and those hikes could kick in this fall.
Increasing profit margin will cost customers, IRAC says
For years, Maritime Electric has been asking IRAC to increase the profit margin it's allowed to earn under P.E.I.'s Electric Power Act, which up until now was 9.35 per cent.
This time, the utility reached an agreement with government through the P.E.I. Energy Corporation to increase that to 9.7 per cent, as long as the old number, 9.35 per cent, is used to calculate electricity rates.
That's meant to keep rates where they would have been under the old margin, while allowing Maritime Electric the opportunity to increase profitability through cost savings.
The rationale put forward by the government was that it's okay for the utility to earn a higher profit as long as it doesn't cost customers. The province has said Maritime Electric can find ways to cut spending that don't negatively impact service.
While IRAC agreed to the higher profit margin, it pointed out this will come at a cost to customers, because in the past any earnings beyond that 9.35 per cent went into a fund to be eventually returned to customers in the form of lower rates.
Now that return mechanism won't kick in until the company hits the new 9.7 per cent margin. IRAC is ordering Maritime Electric to submit a report each year, outlining what cost efficiencies it found, and how those are either neutral or beneficial to customers.
Company needs a plan to cut back trees from lines
IRAC has made it clear it's not happy with the job Maritime Electric has done clearing trees back from power lines, along with the decrease in the reliability of the grid that comes when too-close trees take down power lines.
About 40,000 trees came down on lines during post-tropical storm Fiona in September, and Maritime Electric identified concerns with its own vegetation management plan, along with risks to its transmission system, as far back as 2019, in the aftermath of post-tropical storm Dorian.
During the public rate hearing, officials with Maritime Electric said the industry standard is to cut back those trees along power lines once every 5 to 10 years — but the company was on a schedule to do that once every 35 years.
IRAC has ordered Maritime Electric to file a comprehensive report on the current state of its vegetation management program post-Fiona, along with current and future planned expenditures, by Dec. 1 of this year.
Fund to pay Maritime Electric more when it's warmer
Seven years ago Maritime Electric set up a reserve account meant to compensate the company for lost electricity sales when temperatures are warmer, meaning Islanders have to use less electricity to heat their homes.
On paper, the idea put forward was that the company would defer revenue from colder years and spread it to warmer years, levelling out earnings and rates for customers. The company said by using a 10-year average in its temperature calculations, the account would balance out over that time.
But so far it hasn't. After seven years, the account shows customers owe Maritime Electric $3.2 million.
IRAC said it "continues to have serious concerns" about the weather reserve account, compounded by the growing balance owed by customers to the company.
One problem: There's no mechanism to consider increased revenues for Maritime Electric when customers turn on their air conditioners during hot weather.
The commission has ordered Maritime Electric to file a comprehensive review of the program, which must assess adding a counter-mechanism to account for electricity used to cool homes, by Jan. 31, 2024.
Despite previous orders, second-block billing still there
IRAC has previously ordered Maritime Electric to get rid of the billing system it uses that charges customers less for electricity the more they use, also known as second-block billing.
The commission says that forces some customers to subsidize rates for those who use more power. Others have said it sends the wrong message, encouraging more consumption of electricity rather than less.
(Other utilities, including Ontario Hydro, charge customers a higher rate when they consume more electricity, the opposite of what Maritime Electric is doing.)
Maritime Electric has put a separate application forward to phase out second-block billing. If and when IRAC approves that application, it will result in a further increase in rates for customers whose energy consumption puts them within the second billing block.
Maritime Electric said it plans to increase the second-block rate until it's the same as the first-block rate, but has no plans to lower the first-block rate.