ccoommmmiissssiioonn ddee ll’’ÉÉnneerrggiiee eett … report 2011 eng.pdf2010 - 2011...

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N E W B R U N S W I C K E N E R G Y A N D U T I L I T I E S B O A R D A N N U A L R E P O R T 2 0 1 0 - 2 0 1 1

I am pleased to present the Annual Re-port of the New Brunswick Energy and Util-ities Board for the reporting periodbeginning April 1, 2010 and ending March31, 2011. It has been both a challenging andrewarding year for the Energy and UtilitiesBoard.

During the year the Board dealt withseveral major applications. These rangedfrom highly technical matters regarding theprovince’s electrical transmission system toapplications for rate increases for bus passen-gers, natural gas customers and other utilitycustomers.

In order to enhance its ability to dealwith its regulatory responsibilities, the Boardhas made progress modernizing our day-to-day operations. We have made significantimprovements in our filing system, develop-ing an electronic document management sys-tem that will be the basis of a number of newelectronic initiatives at the Board.

The first of these initiatives will be anelectronic hearing during the fall of 2011. Inthis hearing there will be no paper copies ofthe evidence presented; instead the documen-tation will be displayed on video screens inthe hearing room. Hearings regularly involvethousands of pages of evidence, tables ofnumbers and reports from experts. Movingto an electronic hearing will not only ease thedocument management burden during thehearing but it will also ease the burden on theutilities to print multiple copies of their evi-dence.

Another aspect of this initiative is thatwe will soon be able to make all evidence anddocuments connected to hearings availablethrough the Board’s website. We believe thatmaking the documents available online willmake it easier for members of the public tobe fully informed about the work of theBoard.

I would like to welcome two new ap-pointees to the Board, Pat Darrah and TerryTotten. Both Pat and Terry bring years ofvaluable business and management expertiseto the Board and I look forward to workingwith both of them.

At the same time, I would like to ac-knowledge some of the contributions madeover the past number of years. Firstly I wantto thank Board member Yvon Normandeaufor his service to the Board since 2007. Yvonserved on a number of panels helping to ar-rive at decisions related to natural gas, elec-tricity and intercity bus service.

I also want to acknowledge the contri-butions of Douglas Goss over the last 20years. Doug retired from his position as Di-rector of Regulatory and Financial Affairs inOctober 2010. During his tenure Doug wasthe backbone of the regulatory and financialside of the Board. His experience and excep-tional knowledge in regulatory matters wereuniversally acknowledged by both his peersand by the utilities regulated by the Board.

Finally I want to acknowledge the manycontributions of our Board members andstaff who have dedicated themselves over thepast year to providing New Brunswick witheffective and efficient regulation.

Raymond Gorman, Q.C.Chair, NBEUB

N E W B R U N S W I C K E N E R G Y A N D U T I L I T I E S B O A R D

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Chairman’s Message

We will soon be able tomake all evidence and documentsconnected to hearings availablethrough the Board’s website.We believe that making the docu-ments available online will make iteasier for members of the publicto be fully informed about thework of the Board.


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Introduction

Rate regulation is a publicprocess. For those who are inter-ested, the documents are avail-able to view and the process opento participation. The Board’s workis completed through and openand transparent process whichculminates in a public hearing.

The Energy and Utilities Board was es-

tablished in 2007 by the New Brunswick

legislature with the enacting of the Energy

and Utilities Board Act.

The role of the Board is to act as an in-

dependent, quasi-judicial agency to oversee

aspects of the energy sector and to regulate

the charges passed on to customers by the

province’s utilities.

Utility regulation is based on the princi-

ple that some industries are more efficient if

a monopoly is awarded to one company to

avoid duplication of costly services. These

natural monopolies usually come with price

regulation where the company must seek

approval from an independent Board or Tri-

bunal before raising its rates. The Board is

required to balance the consumer’s right to

reasonable prices with the company’s right

to a fair return on its investment.

In New Brunswick the EUB has juris-

diction over various aspects of the electricity

market, the distribution of natural gas and

inter-city bus service. The Board also has

the responsibility to ensure the safe con-

struction of pipelines that carry natural gas,

petroleum products and hazardous materi-

als.

Since 2006, the Board has been respon-

sible for the administration of the petroleum

pricing formula which sets the maximum

wholesale and retail price. The Board issues

the weekly maximum price according to the

formula results.

The Pay Day Loans Act gives the

Board jurisdiction to set interest rates for

Pay-Day Loans. This jurisdiction is depend-

ent on government regulations that are not

yet in force.

Rate regulation is a public process. For

those who are interested, the documents are

available to view and the process open to

participation. The Board’s work is com-

pleted through and open and transparent

process which culminates in a public hear-

ing.

The Board’s duties are carried out by a

staff of 16 including a full-time chair and

vice chair. There are eight part-time Board

members who are called upon as needed to

participate in hearings. The Board members

are appointed by the Lieutenant Governor-

in-Council.


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The Legislation

photo credit: NB DoE

The Board’s duties are car-ried out by a staff of 16 includinga full-time chair and vice chair.There are eight part-time Boardmembers who are called upon asneeded to participate in hearings.

Energy and Utilities Board ActElectricity ActGas Distribution ActPipeline Act Petroleum Products Pricing ActPayday Loans ActMotor Carrier Act

THE BOARD

FULL-TIME MEMBERSRaymond Gorman, Q.C.Cyril Johnston

PART-TIME MEMBERSDon BarnettPat DarrahWanita McGraw Edward McLeanRoger McKenzieConnie Morrison Yvon Normandeau Robert Radford, Q.C.Terry Totten

STAFFRaymond Gorman, Q.C. Chair and CEOCyril Johnston Vice-ChairLorraine Legere Secretary to the BoardEllen Desmond Director, Legal and AdministrationDoug Goss Director, Regulatory Affairs and FinanceJohn Lawton Director, Regulatory Affairs and Finance Todd McQuinn Director Pipeline SafetyJuliette Savoie Assistant Secretary to the BoardJoan Chamberlain Assistant to the Chair and the Vice-ChairTracy Cyr Administrative AssistantDavid Rhydwen Pipeline InspectorIan McDonald Pipeline InspectorDon Persaud Pipeline Inspector Trudy Atherton Payroll and Accounts AdministratorDavid Keenan AdvisorDavid Young Advisor


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Electricity

...the Board disallowed theamount of $200 thousand thatthe system operator anticipatedmight be recommended in apending compensation study.

In the electricity sector the Board has a vari-ety of roles and responsibilities.

These responsibilities include:

• Approving rate increases in excess of threepercent for NB Power customers

• Monitoring the electricity market in NewBrunswick

• Considering licence applications fromthose wishing to participate in the province’selectricity market.

• Regulating the New Brunswick SystemOperator and the rules for using the transmis-sion grid in the province.

• Setting the rates charged by transmissioncompanies in New Brunswick.

The Board held a number of electricity hear-ings during the year.

In April of 2010 the New Brunswick PowerDistribution and Customer Service Corpora-tion – which delivers electricity to most NewBrunswickers - notified the Board that itplanned to increase rates by three percent ef-fective June 1, 2010.

Under Section 99 of the Electricity Act, thedistribution corporation may increase its ratesby three percent or less without approval bythe Board. As in past years, the Board was di-rected by the Minister of Energy to investigatethe necessity of this increase.

The Board held a two-day hearing in Juneand delivered its report to the Minster on July12, 2010. In its findings and recommendations,the Board found:

• All of the 3% increase in rates will go toproviding net earnings for Disco.

• To determine the appropriate level of netearnings for Disco would require a hearingthat could take many months.

• Given the evidence that NB Power oper-ates as a vertically integrated utility, the focusshould be on the appropriate net earnings forthe entire group of NB Power companies.

• The Board does not have jurisdiction overeither the NB Power generating companies orthe NB Power holding company and thereforecannot make a determination regarding the ap-propriate level of net earnings for the NBPower group as a whole.

Based on those findings the Board concludedthat it could not determine whether or not thethree percent increase was necessary.

The Board’s role with respect to the NewBrunswick System Operator was a significantfocus of activity in this year.

The System Operator is charged with oper-ating the transmission grid in the province ofNew Brunswick as well as Northern Maine. Itis responsible for ensuring there is a reliablesupply of electricity and facilitates the develop-ment of a competitive marketplace in theprovince. The agency’s operations are fundedthrough user fees set out by a tariff that is ap-proved by the Board. The Board reviews andapproves a revenue requirement for the systemoperator annually.

The System Operator applied for approvalof its revenue requirement for 2010-2011. Thehearing was delayed by the proposed deal tosell NB Power to Hydro Quebec which origi-nally included a provision to discontinue thesystem operator. A hearing was held in June2010. In its final decision, the Board disal-lowed the amount of $200 thousand that theSystem Operator anticipated might be recom-mended in a pending compensation study.

In the Fall of 2010, the System Operator ap-plied for approval of its next revenue require-ment – for the 12 months beginning April 1,2011. A hearing was held in February of 2011.A decision was pending at the end of this re-porting year.

During the year the System Operator filedtwo other applications with the Board.

The first application involved a numberchanges to the Open Access Transmission Tar-iff. The goal of the tariff is to ensure that com-panies using the transmission lines are treatedfairly and without discrimination.

The second application was in connection tothe real power loss factor. In transmitting elec-tricity through the transmission wires, a cer-tain amount of electricity is lost. As a result,additional electricity must be generated, andinjected into the transmission system, to ac-count for the loss. The System Operator ap-plied to the Board to change this transmissionloss factor used in the tariff. The System Oper-ator also proposed a methodology for futurechanges in the transmission loss factor.

In the week prior to the commencement ofthe hearing, the System Operator informed theBoard that it was withdrawing both applica-tions following which the System Operatorwas ordered to appear at a hearing. At thathearing, the System Operator argued that ithad the right to withdraw applications withoutproviding any reasons. The Board ruled thatthe System Operator could not withdraw theapplications without providing appropriatereasons.


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Natural Gas

The Board loweredthe return on equity from13 percent to 10.9 percentbeginning January 1, 2011.

The natural gas distribution franchisein New Brunswick is held by Enbridge GasNew Brunswick which is a public utility. Assuch the Board has general regulatory su-pervision over Enbridge.

At the end of this reporting period theutility served 10,961 customers, a year overyear increase of 653 customers. Enbridgedelivered 5.4 million gigajoules of naturalgas compared to 5.2 million gigajoules lastyear.

The Board has initiated a series of hear-ings to resolve issues that face the companyas it makes the transition operation as a ma-ture utility.

When natural gas first came to NewBrunswick, it was realized that the cost ofinstalling pipe and building the distributionsystem would be so high that traditionalrates – based on the utility’s costs – wouldbe too high for customers to pay. A systemwas adopted where Enbridge would chargerates that would produce a savings com-pared to using an alternative fuel. Theserates would be lower than the cost of serviceand as a result Enbridge would lose money.Enbridge tracks these losses in a “deferralaccount” to be recovered from future cus-tomers.

Each year the Board reviews the finan-cial results of Enbridge Gas NewBrunswick at a public hearing. One of thekey roles in this review is to ensure that ad-ditions to the deferral account are prudent.

In the past year the Board modified thisprocess. In addition to reviewing the spend-ing for 2009 the Board reviewed the pro-posed 2011 budget. The purpose was to giveany guidance necessary to Enbridge aboutwhat spending the Board deemed prudentprior to the money being spent.

The hearing for the 2009 review and2011 budget occurred in February. TheBoard issued a decision in May of 2011, ap-proving the 2009 spending with some excep-tions. The decision also set rules forexpansion costs going forward.

The Board also held hearings into boththe Cost of Capital and the Cost of Servicemethodology in the Fall of 2010.

In its decision the Board lowered thereturn on equity from 13 percent to 10.9percent beginning January 1, 2011. Thecost of debt remained the same. Prior to thehearing the debt to equity ratio was 50 per-cent debt and 50 percent equity. However,the Board determined that the percentage ofdebt should be higher and set the ratio at 55percent debt and 45 percent equity. En-bridge appealed this decision to the Court ofAppeal. In a decision dated April 21, 2011,the appeal was denied.

Following the Cost of Capital hearingthe Board held a hearing into the Cost ofService.

One of the roles of a regulator is to en-sure that customers pay their appropriateshare of the utility’s costs. This involves ap-portioning shared costs between customerclasses. For example what portion of ad-ministration costs should be paid for bylarge customers and what share by smallresidential customers? The most significantof these shared costs is the deferral account.

While EGNB’s rates are currently mar-ket based and not based on the costs, it isanticipated that the rates will have some costcomponent in the near future. It was imper-ative to establish how those rates would bedetermined.

A decision on the Cost of Service wasissued at the end of 2010. This decisions setsout the methodologies to be applied in deter-mining the proportions of various costswhich are the responsibility of the differentcustomer classes.

Following both the Cost of Capital andCost of Cervice hearings the Board receivedan application from Enbridge for an in-crease in rates for all classes. The hearingwas pending at the close of this fiscal year.


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Pipeline

photo credit: Brunswick Pipelines

The Pipeline Safety Divi-sion’s mandate is to promotesafety and to ensure that com-panies design, construct, oper-ate and abandon pipelinesunder the Board’s jurisdiction ina manner that provides for thesafety of the public and com-pany employees, as well as theprotection of property and theenvironment.

The Pipeline Safety Division’s mandate

is to promote safety and to ensure that com-

panies design, construct, operate and aban-

don pipelines under the Board’s jurisdiction

in a manner that provides for the safety of

the public and company employees, as well

as the protection of property and the envi-

ronment. This is accomplished through the

Safety Divisions use of inspection, educa-

tion, compliance audits and damage preven-

tion programs.

This year Enbridge Gas New

Brunswick, which was awarded the provin-

cial gas distribution franchise in 1999, has

installed approximately 63 km of pipeline

during this reporting period. Inspectors

from the Pipeline Safety Division inspected

the installation and testing of this pipe.

Potash Corporation of Saskatchewan

(PCS) applied for and was granted approval

to amend a permit previously issued in Sep-

tember 2009 to construct eight pipelines to

transport natural gas, brine and brine slur-

ries between their Picadilly mine and

Penobsquis mill. The amended permit al-

lowed for an additional temporary ore slurry

pipeline and other minor revisions to sup-

port system design changes.

Irving Oil Limited was granted permis-

sion by the Board to resume operation of the

fuel oil pipeline to the NB Power’s Coleson

Cove Generating facility in November 2010.

The Board approved a further application

from Irving Oil to temporarily suspend op-

erations of this pipeline in January 2011.

Compliance Audits were conducted for

the pipeline operations of Enbridge Gas

New Brunswick and Corridor Resources

Inc. In both cases no major non-compliance

items noted.


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Petroleum

In 2010 the Board initiated itssecond review of the maximummargins, maximum delivery costsand maximum full service chargeallowed under the PetroleumProducts Pricing Act to ensurethey were justified.

The Board regulates retail and wholesalepetroleum sales in New Brunswick by settingmaximum prices for motor fuels and heatingfuels, including all grades of gasoline, ultra-lowsulphur diesel fuel, furnace oil and propaneused for heating. Maximum prices for all fuelsare set weekly.

Maximum prices are established using theweekly average spot price for refined petro-leum products traded at the New York Har-bour division of the New York MercantileExchange (NYMEX). The Board sets maxi-mum prices based on a seven-day tradingweek, commencing each Wednesday and con-cluding the following Tuesday. New maximumpetroleum prices come into effect at 12:01 AMeach Thursday morning.

The rules for setting maximum petroleumprices follow a strict formula set out in regula-tion.

In 2010 the Board initiated its second re-view of the maximum margins, maximum de-livery costs and maximum full service chargeallowed under the Petroleum Products PricingAct to ensure they were justified.

In August the Board retained GardnerPinfold Consulting Economists to independ-ently review the regulated marketplace andmake recommendations as to whether or notchanges would be justified. Gardner Pinfoldsubmitted its report to the Board in December2010. As part of the proceeding the Board alsoreceived evidence from the Atlantic Conven-ience Stores Association, Co-op Atlantic, theScholten’s Group, and the Public Intervenorappointed by the Attorney-General. The pub-lic hearing on the matter was held for Freder-icton in April 2011. A decision was pending atthe end of the reporting period.

In accordance with the Canadian Envi-ronmental Protection Act, ethanol-blendedgasoline was introduced to the NewBrunswick marketplace in March 2011. Inpreparation, the government approved newregulations to the Petroleum Products PricingAct to incorporate the new fuel into the sched-ule of prices issued by the Board. Under thenew regulation, the Board tracks the NewYork prices of regular unleaded gasoline aswell as prices for ethanol. The Board then cal-culates a price for a blended product contain-ing ten percent ethanol.

The regulations direct that each week theBoard set the price for regular gasoline on thehigher of either the regular unleaded gasoline

or for the ethanol blend.

Maximum prices for gasoline beganfalling from April through June and remainedfairly flat through the summer months. In Sep-tember, however, gasoline prices began rising,reaching the high point of 128.0 cents per litrein March 2011. For the year the lowest maxi-mum price for regular gasoline was 97.2 centsper litre, set on August 26, 2010.

Maximum prices for ultra-low sulphurdiesel fuel and heating oil followed a similarcourse throughout the year, falling from Aprilthrough June, reaching a low-point in July,and then rising for the remainder of the year.For ultra-low sulphur diesel fuel the lowestmaximum price for the year was 101.0 centsper litre set on July 8, 2010, while the highestmaximum price was 138.3 cents per litre inMarch 2011. The highest price for heating oilwas 119.3 cents per litre, also in March 2011,while the lowest was 85.8 cents per litre set inMay of 2010.

Maximum prices for delivered propaneshowed less price variability than other prod-ucts for the year. The lowest maximum pricefor propane was 99.6 cents per litre in July2010 while the highest maximum price was113.6 cents per litre in March 2011.

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cent

s pe

r lit

re

Price of Petroleum Products 2010-2011

Regular Gas

Deisel Fuel

Heating Fuel


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Motor Carrier

In March 2010 the Board con-ducted a public hearing to con-sider Acadian’s application tochange its routes and schedulesin New Brunswick, including re-ductions in service and the elimi-nation of service to severalcommunities.

The Board regulates the motor coach industrythrough the licensing of charter buses and set-ting the routes, schedules and passenger faresfor intercity, scheduled service bus companies.On matters related to motor carrier issues theBoard sits as the Motor Carrier Board.Acadian Coach Lines is the primary intercity,scheduled service motor coach company inNew Brunswick, providing connecting serviceto Nova Scotia, Prince Edward Island andQuebec. In March 2010 the Board conducteda public hearing to consider Acadian’s applica-tion to change its routes and schedules in NewBrunswick, including reductions in service andthe elimination of service to several communi-ties. As part of the proceeding the Board heldsessions for public input in St. Stephen, Mi-ramichi and Fredericton. The Board issued itsdecision on July 16, 2010 approving the fol-lowing changes to Acadian’s route network:•Route 1 – to discontinue one daily round-tripbetween St. Stephen NB and Bangor MEwhile providing a minimum three-day-per-week, round-trip service between St. Stephenand Saint John.•Route 2 – to reduce service between Freder-icton and Rivière-du-Loup QC from threeround-trips per day to two round-trips perday.•Route 3 – to reduce direct service betweenFredericton and Miramichi from one dailyround-trip to a minimum of three-days-per-week, round-trip service. •Route 4 – no changes to the one daily round-trip between Moncton and Campbellton.•Route 5 – the elimination of the Friday andSunday evening round-trip between Monctonand Charlottetown. Twice daily, round-tripservice between these communities to be con-tinued.•Increase to the frequency of intercity serviceon the Halifax-Moncton-Fredericton-SaintJohn corridor.In September 2010, before implementing theapproved changes to its routes and schedules,Acadian applied to the Board to vary the Julydecision. The company requested that the re-quirement to increase the frequency of servicealong the intercity corridor routes be dropped,based on declining ridership numbers. Afterproviding other participants to the proceedingwith an opportunity to make further submis-

sions, the Board varied the July decision onDecember 8, 2010, removing the requirementfor Acadian to increase the frequency of serv-ice along the Halifax-Moncton-Fredericton-Saint John corridor. Acadian implemented itsnew schedule, effective February 27, 2011.In April 2010 Acadian Coach Lines filed anapplication to increase passenger fares by anaverage of two percent. As Acadian operatesan integrated bus service in New Brunswickand Nova Scotia, with a uniform fare struc-ture, the application was heard jointly with asimilar application to the Nova Scotia Utilityand Review Board on June 8, 2010. TheBoard approved the applied-for fare increase,effective June 14, 2010.In September the Board received an applica-tion from EASTLINK Door-to-Door Shuttle-Express Inc. of Moncton, a licensed charteroperator, to amend its licence so the companycould provide daily, scheduled passenger serv-ice between Moncton and Shediac NB. Theapplication was heard in Saint John on De-cember 1, 2010. The Board approved theamendment to the company’s motor carrier li-cence, as well as the applied-for schedule andpassenger fares. EASTLINK commenced itsscheduled service on January 5, 2011.In December the Board received an applica-tion from the Saint John Transit Commission,which operates a scheduled, weekday com-muter service (ComeX) between Saint Johnand the communities of Grand Bay, Hampton,Rothesay and Quispamsis. The transit com-mission applied to increase its cash fares andpasses. The Board heard the application inSaint John on January 17, 2011 approving theapplied-for increases. During the year the Board also granted threenew applications for charter bus service, re-newed 42 charter licences, issued 281 motorcarrier plates, and issued three temporary per-mits.


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Board Members

Don Barnett Wanita McGraw

Roger McKenzie

Yvon Normandeau

Raymond Gorman, Q.C.

Pat Darrah

Edward McLean Connie Morrison

Robert Radford, Q.C. Terry Totten

Cyril Johnston


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