NERA's Role in the Matter of an Application by New Brunswick Power Distribution and Customer Service Corporation for Approval of Changes in its Charges, Rates, and Tolls
Advisory Services
The Situation
New Brunswick restructured its power sector in 2004. As part of the restructuring, the New Brunswick Power and Customer Service Corporation ("DISCO") signed a series of Power Purchase Agreements (PPAs) with its unregulated affiliated generator to cover its native load during the transition to a competitive market. However, since 2004, meaningful competition has not developed in New Brunswick and, on 23 May 2007, the Public Intervenor filed a motion requesting that the New Brunswick Energy and Utilities Board take jurisdiction over the PPAs to assure that the prices in them were reasonable. The Board set the matter for hearing.
NERA's Role
The Board heard evidence from two expert witnesses, including NERA Vice President Kurt Strunk, as witness for the Public Intervenor. Mr. Strunk stated that since the PPAs have not been reviewed by any regulatory body, have not been subject to market competition, and have not been justified by a comparison to other contracts subject to competition, a review of their specific terms and conditions is warranted. In support of this position, Mr. Strunk made reference to concerns about affiliate PPAs that regulators have raised in other jurisdictions. Mr. Strunk noted that, where a distribution utility (such as DISCO) buys power under a PPA from an affiliated generator, regulators have expressed concern about the potential lack of arms-length bargaining, which could result in the purchasing utility's customers paying too much. Mr. Strunk also noted that a review is required to determine whether the terms, prices, and conditions of the PPAs are just and reasonable.
The Result
On 16 July 2007, the Board ruled that DISCO is obliged to provide sufficient evidence to justify its revenue requirement. In addition, the Board required DISCO to set out what it has done to prove that the PPAs are in fact the least-cost resource option. The Board also ruled that DISCO must show that it cannot receive the same service from another supplier at lower cost. In doing so, the Board adopted recommendations made by Mr. Strunk.
