New Brunswick

NB Power says it needs lower rate increase after settlement with insurers

NB Power says a settlement it reached with several insurers will allow it to ask for a lower rate increase than the two per cent now being considered by the Energy and Utilities Board.

Utility, province won't reveal value of settlement worked out over cost overruns at Point Lepreau

Utility has asked for an adjournment of rate hearings while it studies implications of settlement. (Shane Fowler/CBC)

NB Power says a settlement it reached with several insurers will allow it to ask for a lower rate increase than the two per cent now being considered by the Energy and Utilities Board.

The settlement was with insurers that underwrote a construction all-risk insurance policy during the refurbishment project at the Point Lepreau Nuclear Generating Station, the utility said.

"This is a great day for NB Power and the people of New Brunswick," Gaëtan Thomas, NB Power the president and CEO said in a news release. 

"While the specific details of this insurance settlement are subject to a confidentiality agreement at this time, we do know that the settlement allows us to seek a lower rate increase for all New Brunswickers in the current hearing." 

As a result, the utility's board of directors has asked management to seek permission from the Energy and Utilities Board to temporarily adjourn the current hearings so NB Power can assess the implications of the settlement on the general rate application for 2018-19. 

The EUB hearings have been going on since the beginning of February. 

Energy Minister Rick Doucet also kept the amount of the settlement private when questioned later by reporters.

"It's a very significant infusion of cash," he said. "I can't let out exactly what it is but I know it is quite significant.

Disputed claim

Last summer, NB Power agreed to negotiate with insurers to try to settle claims for delays and cost overruns during the Lepreau refurbishment.

NB Power was claiming $320.1 million from the insurers, an amount that would cover only a portion of the $1 billion the project went over-budget.

The refurbishment suffered a delay when the reactor's outer shell, called the calandria, was damaged with scratches during improper polishing in 2009.

Eight insurance companies, including Lloyd's Underwriting, had refused to pay for the damage and rejected the utility's claim that the costly, problem scratches had been accidental.

All sides agreed they would hold negotiations in November.

"NB Power is pleased to have resolved this matter and to be in a position to share the benefits of this settlement with our rate payers," Thomas said Monday. 

Doucet was asked what will be done now to recover the remainder of the $1 billion in overruns from the refurbishment.

"Once everything is finalized — once all the details are finalized — we're certainly going to be in a good position to consider our next steps." 

Not the 1st time

Although few details are available about its size, the Lepreau legal settlement would not be the first to affect NB Power rates. 

In 2007 the utility won a $333 million settlement with the Venezualan state oil company Petroleos de Venezuela, which was set up in a deferral account to benefit NB Power customers over a 17-year-period.   

This year, $24 million from that amount will be counted as utility revenue to displace the need for a higher rate increase. 

NB Power spent $750 million to update the Coleson Cove generating station to burn the Venezuelan fossil fuel orimulsion, which the country then refused to supply once renovations were complete.

Won lawsuit

NB Power successfully sued. 

The settlement included the payment of $115 million in cash and $218 million in discounts on future oil shipments, but the accounting of it was structured to be shared with customers over nearly two decades, to match the length of time the original orimulsion contract was meant to run.

If a similar accounting treatment is used for the Lepreau settlement, benefits could be streched over an even longer period.

Extra expenses incurred at the Point Lepreau nuclear plant refurbishment were placed in a deferral account that are being paid down over the next 22 years, until 2040.

Hike already questioned

As a result of the settlement, it is expected that the overall rate increase requested by NB Power will be adjusted down from the original overall request of two per cent.

Under an EUB rule, each customer group, including residential, is expected to be charged rates in a "range of reasonableness" between 95 per cent and 105 per cent of the costs NB Power incurs to serve the group. 

But at a recent session, a lawyer for the utility board argued that NB Power was proposing to charge residential customers a higher rate increase than other groups, at 2.33 per cent. 

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