The removal of Maritime Electric’s two-tiered power rate system will have a “major impact’’ on the agricultural industry in Prince Edward Island, a hearing was told Monday (June 14).
Groups representing Island farmers warned of dire consequences if Maritime Electric is allowed to proceed with plans to eliminate a lower power rate that kicks in for rural users who consume more than 2,000 kilowatts of electricity per month.
The Island Regulatory and Appeals Commission began holding a hearing Monday into Maritime Electric’s application for reconsideration of a proposal to eliminate the reduced second block rate.
Such a reduction, warned PEI Federation of Agriculture President Ernie Mutch, would result in an increase in power rate charges of 17.3 per cent in 2010 and 23.3 per cent in 2011 with farmers representing the bulk of Maritime Electric customers to be hit with the hike. Farmers make up more than half of the 3,400 customers who would be impacted by such a rate change.
“Island farms cannot absorb these increases and remain competitive and in business,’’ said Mutch.
He noted that the number of farms on PEI has decreased by 28 per cent over the last 15 years. Any additional input costs, such as increased power rates, could result in further loss of farms in the province.
“We respectfully request that IRAC order the maintaining of the current rate system with the second block rate system intact,’’ he concluded in his presentation to the panel.
He says the Federation of Agriculture is prepared to work with IRAC, the provincial government and Maritime Electric to find ways to reduce power consumption by Island farmers.
The impetus for eliminating the lower rate, Maritime Electric has said in the past, actually originated with the previous Conservative government when it passed legislation requiring the utility to comply with measures aimed at encouraging conservation. The current two-tier rate, which effectively rewards consumption, is seen to run counter to conservation.
Edith Ling, the women’s district director of the National Farmers Union, told the panel Monday (June 14) that Island farm families are “extremely motivated’’ already to conserve energy and to cut all costs as much as possible.
“Further, it is unlikely that an electricity price hike will lead to farmers using less electricity — it will only lead to them paying more,’’ she said reading from a prepared presentation.
“Using conservation as a pretext to raise rates to farmers is disingenuous, financially harmful to farmers, and unlikely to trigger any significant energy-use reductions on Island farms.’’
The NFU is not only recommending IRAC rescind its approval of Maritime Electric’s proposal to move to a single-block billing structure, it also urged IRAC to rescind its April 2008 approval to vary the set-point between blocks one and two, thus returning the block-one cut-off to 1,200 kWh from its current rate of 2,000 kWh.
Ling says many medium-sized and larger farms on the Island use 5,000 kWh of electricity per month. Some of the largest farms use 10,000 to 20,000 kWh per month.
She says elimination of the less expensive second block rate would mean hundreds of dollars in increased costs per year for medium-sized farms while larger farms face thousands of dollars more in annual power bills.
“Because Island farmers are competing to sell their products in national, continental and international markets, they cannot pass higher costs on to customers,’’ said Ling.
“And because of capital constraints and equipment-replacement cycles these farmers cannot act in the short- and medium-term to reduce electrical use. Increased electrical costs will come directly from net income, that is, the money that PEI farm families live on.’’
Harold McNevin, chairman of the Dairy Farmers of PEI, told the panel that the Island already has some of the highest power rates in the country, putting farmers at a disadvantage.
He says dairy farmers, like all farmers these days, are struggling with the current economic situation and elimination of this second block rate would be difficult to bear.
Maritime Electric president and CEO Fred O’Brien told The Guardian following the presentations Monday morning that the utility recognizes the challenges facing the Island’s farm community.
“We had some very clear and direct presentations this morning from our customers,’’ he said.
“Ultimately it’s not our decision but certainly we would not contest if it (second block rate) was to remain in place.’’
O’Brien says as the planned date of April 1, 2010, approached to phase out the second block rate, it became clear that Maritime Electric’s customers in the farm community that would be impacted by the change were not aware that it would be occurring.
“We therefore supported the plan that the second block rate be reassessed as part of this hearing,’’ he told the panel.
“We look forward to hearing other views on this issue and reviewing any additional evidence that comes before the commission.’’
The Guardian
UTILITY WANTS TO COLLECT MORE OF SUPPLY COSTS AT TIME OF CONSUMPTION
By JIM DAY
Maritime Electric wants to collect more of the electricity supply costs from its customers at the time of consumption and less over a future period.
A request to rebase the Energy Cost Adjustment Mechanism (ECAM) is one of a handful of applications the utility currently has before IRAC.
The ECAM consists of a fixed base component, which is included in the kWh basic rate, and a variable component recalculated monthly and added on to the kWh rate.
“To rebase the Energy Cost Adjustment Mechanism means we wish to increase the amount of energy supply costs collected through the fixed base rate,’’ Maritime Electric president and CEO Fred O’Brien told an IRAC panel Monday.
“This will, in turn, reduce the variable component in the following months. In other words, we are recommending under the application that more of the electricity supply costs be collected at the time of consumption and less over a future period.‘’
O’Brien says the proposed change is required to reduce the lag between the time Maritime Electric pays for electricity produced and purchased on behalf of customers and the total recovery of those costs.
“It is important to note that at the end of the day customers will pay the same amount, the only difference is timing,’’ he said.
“If approved, customers will see an increase in the kWh rate in August, followed by gradual rate decreases over the following months as the outstanding Energy Cost Adjustment Mechanism balance is recovered.’’
Maritime Electric is also requesting to establish how and when the costs of replacement energy, purchased during the extended refurbishment outage at the Point Lepreau Generating Station in New Brunswick, will be recovered. O’Brien says the company is recommending that these costs be recovered over a 25-year period beginning when the station returns to service, currently projected to be in 2011.
A third request before IRAC is for Maritime Electric to maintain the company’s allowable return on equity at the 2009 level of 9.75 per cent for each of the years 2010 and 2011.
“Maintaining an adequate return on equity is critical to ensuring Maritime Electric can continue to attract the necessary capital funds to invest in infrastructure to meet customer growth and maintain service reliability,’’ said O’Brien.
And a fourth order of business before the IRAC panel is the reassessment of the impact of maintaining or eliminating the second block residential rate for consumption greater than 2,000 kWh per month.
The farming community is outraged at the prospect of losing the lower, second block rate.
The Guardian
