New Brunswick

NB Power plan to remove Joi Scientific spending from rate increase an empty gesture, says expert

NB Power's gesture to remove money spent on Joi Scientific from this year's rate increase will not save customers from paying for the investment and the utility should stop putting money into "speculative" ventures, its rate hearing was told Wednesday.

Utility opened EUB hearings with surprise move to lower requested rate increase to 1.9%

A utility expert hired by the EUB said NB Power should stop investing into 'speculative' ventures, like Joi Scientific, during the utility's rate hearing Wednesday. (Radio-Canada)

NB Power's gesture to remove money spent on Joi Scientific from this year's rate increase will not save customers from paying for the investment and the utility should stop putting money into "speculative" ventures, its rate hearing was told Wednesday.

"NB Power ratepayers should only pay for costs that are directly related to the provision of utility service," said Dustin Madsen, a Calgary-based utility expert hired by the Energy and Utilities Board to review NB Power's application.

Madsen produced a 63-page report about the rate increase, but he began his testimony with a pointed criticism of money NB Power spent on a Florida hydrogen-from-seawater venture over the last four years.

"Costs that are speculative in nature are not in my opinion appropriate for NB Power's ratepayers to fund," said Madsen.    

"If a cost does not provide a direct benefit to customers or relates to an asset that is used or required to be used to provide utility service, then ratepayers should not bear that cost."

Utility expert Dustin Madsen listening to testimony at NB Power's rate hearing. Madsen said NB Power should not be permitted to invest in 'speculative' ventures. (Roger Cosman/CBC)

NB Power opened the hearing last week with a surprise announcement that it was lowering its rate increase request from two per cent to 1.9 per cent so customers would not have to pay for ongoing amortization and interest costs related to its investment in Joi Scientific.

"We thought it was important to notify the panel NB Power has recently decided it will not seek to recover the cost incurred for the licensing agreement with Joi Scientific," said Darren Murphy, NB Power chief financial officer and senior vice-president, minutes into the hearing.

"As a result, we are reducing the cost of our application accordingly."

NB Power CFO Darren Murphy announced last week NB Power would not be asking customers to pay for the utility's investment in Joi Scientific. (Roger Cosman/CBC)

But Madsen called that an empty gesture.  

He said customers have already paid for the non-capital costs of what has been spent — about $1.92 million — and because the rest is to be paid by NB Power, a lower rate increase for it this year will only have to be made up later for the utility to hit debt and equity targets.

"NB Power's ratepayers have paid for some of those costs and will still ultimately pay for the remaining costs in the future … as while the costs are not included in revenues, they are offset against NB Power's equity, which is legislated to be set at 20 per cent," said Madsen. 

"NB Power's ratepayers will not pay directly, but they will pay indirectly through higher net earnings for NB Power in the future. In my opinion, ratepayers should not bear this cost."   

Evidence unearthed at the hearing has shown the total cost of the hydrogen project was $16.5 million over four years, more than previously reported.

The amounts include $9.22 million NB Power spent of its own money and another $7.3 million it talked the province into contributing. That total includes $1 million spent this year by NB Power that was not specifically included in the budget approved by the EUB at last year's rate hearing.

Joi Scientific claimed to have developed a method to efficiently generate hydrogen gas from seawater to generate electricity on demand. It would have been a major scientific breakthrough where the energy output of the process was claimed to be greater than the energy input, and in 2016 senior NB Power officials, including President Gaëtan Thomas, became convinced it could work.     

NB Power spent $1 million on pursuing the hydrogen-from-seawater project this year, including money it paid for lab space at the Space Life Sciences Lab in Merritt Island, Fla. (Karissa Donkin/CBC)

Last week, Keith Cronkhite, NB Power senior vice-president for business development, said attempts to duplicate company test results and build a commercially viable device ultimately failed.

"The advances that were anticipated relative to the electronics and the ability to simplify the testing of the rig did not develop as we would have anticipated," he said. 

In December, Mike Holland, the minister for natural resources and energy, announced the province, as NB Power's sole shareholder, did not want the utility to pour any more money into Joi Scientific.

"At this particular moment I have not been presented with any proof of viability," said Holland about the technology.

In his larger report, Madsen was also critical of NB Power spending $1.3 million this year on studying the iron-ore processing facility being proposed by the company Maritime Iron in Belledune.

"It would be beneficial to understand if Maritime Iron will compensate NB Power for any of these costs as it would be presumably a mutually beneficial relationship," he wrote.

Hearings conclude Thursday with closing arguments.

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