| Presentation to the Standing Committee on Community Affairs and Economic Development Tuesday, June 16th 2009 |
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| Presentation by PEI Senior Citizens’ Federation Inc. to The Standing Committee on Community Affairs and Economic Development Thursday, September 24th, 2009 |
On June 16, our Federation recommended that the Standing Committee propose to
Government that it establish an Electrical Energy Appeal Board (EEAB). This Board
would consider issues outside the legal interpretation of the Power Act, accept
representations from both Government and customer groups, adopt an arbitration
role and be able to revoke or modify IRAC Orders pertaining to Maritime Electric Co.
Ltd.
For this final September public meeting of the Standing Committee our Federation
presented an additional, supportive recommendation that would provide both IRAC
and the new Electrical Energy Appeal Board (EEAB) with a common, improved
legislative environment and start to restore Islanders’ confidence in the IRAC control
of Maritime Electric Co. Ltd. and electricity prices.
Our Observations:
1) Maritime Electric Co. Ltd. has enjoyed increasing profits for the last six years (from
$8.2M to $11.4M) despite huge electricity price increases (40% over the last three
years) paid by customers.
2) Maritime Electric Co. Ltd. has increased it’s book value over the last six years from
$93M to $120M benefiting only Fortis shareholders.
3) The Maritime Electric Co. Ltd. claim that a high return is necessary to secure a
solid credit rating and limit debt interest charges has not been scrutinised by IRAC.
4) Maritime Electric Co. Ltd. has no incentive to aggressively negotiate electricity
purchase price nor does the Electric Power Act direct Maritime Electric Co. Ltd. on
purchase price expectations.
5) The Electric Power Act encourages Maritime Electric Co. Ltd. to increase debt and
increase retained earnings, which then guarantees increased future years’ profits. As
a result Maritime Electric Co. has an incentive to accrue customer debts and to
borrow project money.
6) The Electric Power Act is weak in defining adequate financial control of a
monopoly. It has just one objective financial control clause: “shareholder investment
not less than 40% of Capital”, (section 12.1) and one subjective financial clause: “a
just and reasonable return on (average) Shareholder investment” (section 24).
7) The Electric Power Act does not include any directives for future electricity supply,
or targets for reducing the vulnerability of PEI on external suppliers nor requirements
to stabilise future electricity prices.
8) A result the Electric Power Act does not provide any form of Consumer price
protection.
Our Conclusions:
The existing Electric Power Act has allowed Maritime Electric Co. Ltd. to become a
stellar profit provider for Fortis despite complete failure in providing comparable
Canadian market prices for dependent customers. Citing the Electric Power Act as
the guiding principle, IRAC has rejected individual appeals on the excessive financial
returns of Maritime Electric Co. Ltd. or the fairness of consumer price increases. The
deterioration in the PEI electricity supply environment over the past five years since
the Electric Power Act was last updated (January 2004) dictates that changes to this
act are overdue.
Our Recommendations:
We proposed that the Standing Committee recommend in its report to the Legislature
that the Electric Power Act be amended to include new sections to redirect our
monopoly electricity supplier to become a responsible Public Utility, entrench
consumer price control and create focus for future electricity supplies. Our four
suggested changes to the Electric Power Act included the addition of a strong
consumer protection clause, financial control clauses and legislation to entrench PEI
electrical wind energy generation in the future mix of our electrical energy sources.
With the Electric Power Act as the single guiding legislation, IRAC has failed to
provide individual consumers and businesses with fair electricity prices and issues no
guidance or requirements for future electricity supplies. Altering the legislative
environment through changes to the Electric Power Act will gradually return PEI to
having fair electricity prices and position us for future self-sufficiency in electrical
energy needs.
Government that it establish an Electrical Energy Appeal Board (EEAB). This Board
would consider issues outside the legal interpretation of the Power Act, accept
representations from both Government and customer groups, adopt an arbitration
role and be able to revoke or modify IRAC Orders pertaining to Maritime Electric Co.
Ltd.
For this final September public meeting of the Standing Committee our Federation
presented an additional, supportive recommendation that would provide both IRAC
and the new Electrical Energy Appeal Board (EEAB) with a common, improved
legislative environment and start to restore Islanders’ confidence in the IRAC control
of Maritime Electric Co. Ltd. and electricity prices.
Our Observations:
1) Maritime Electric Co. Ltd. has enjoyed increasing profits for the last six years (from
$8.2M to $11.4M) despite huge electricity price increases (40% over the last three
years) paid by customers.
2) Maritime Electric Co. Ltd. has increased it’s book value over the last six years from
$93M to $120M benefiting only Fortis shareholders.
3) The Maritime Electric Co. Ltd. claim that a high return is necessary to secure a
solid credit rating and limit debt interest charges has not been scrutinised by IRAC.
4) Maritime Electric Co. Ltd. has no incentive to aggressively negotiate electricity
purchase price nor does the Electric Power Act direct Maritime Electric Co. Ltd. on
purchase price expectations.
5) The Electric Power Act encourages Maritime Electric Co. Ltd. to increase debt and
increase retained earnings, which then guarantees increased future years’ profits. As
a result Maritime Electric Co. has an incentive to accrue customer debts and to
borrow project money.
6) The Electric Power Act is weak in defining adequate financial control of a
monopoly. It has just one objective financial control clause: “shareholder investment
not less than 40% of Capital”, (section 12.1) and one subjective financial clause: “a
just and reasonable return on (average) Shareholder investment” (section 24).
7) The Electric Power Act does not include any directives for future electricity supply,
or targets for reducing the vulnerability of PEI on external suppliers nor requirements
to stabilise future electricity prices.
8) A result the Electric Power Act does not provide any form of Consumer price
protection.
Our Conclusions:
The existing Electric Power Act has allowed Maritime Electric Co. Ltd. to become a
stellar profit provider for Fortis despite complete failure in providing comparable
Canadian market prices for dependent customers. Citing the Electric Power Act as
the guiding principle, IRAC has rejected individual appeals on the excessive financial
returns of Maritime Electric Co. Ltd. or the fairness of consumer price increases. The
deterioration in the PEI electricity supply environment over the past five years since
the Electric Power Act was last updated (January 2004) dictates that changes to this
act are overdue.
Our Recommendations:
We proposed that the Standing Committee recommend in its report to the Legislature
that the Electric Power Act be amended to include new sections to redirect our
monopoly electricity supplier to become a responsible Public Utility, entrench
consumer price control and create focus for future electricity supplies. Our four
suggested changes to the Electric Power Act included the addition of a strong
consumer protection clause, financial control clauses and legislation to entrench PEI
electrical wind energy generation in the future mix of our electrical energy sources.
With the Electric Power Act as the single guiding legislation, IRAC has failed to
provide individual consumers and businesses with fair electricity prices and issues no
guidance or requirements for future electricity supplies. Altering the legislative
environment through changes to the Electric Power Act will gradually return PEI to
having fair electricity prices and position us for future self-sufficiency in electrical
energy needs.