The Yukon Electrical Company Limited has been ordered by its regulator to stop lowballing its sales forecasts.
It’s a common practice to artificially increase company profits.
The tactic is a sly cash grab on the part of the power company, said Utilities Consumers’ Group president Roger Rondeau.
The Yukon Utilities Board is asking the privately owned power company for more information to prove its sales predictions. These forecasts are used by the board to set the company’s profit margin.
“The board is concerned with the lack of evidence on the record regarding past (Yukon Electrical) sales forecasts,” says the board’s written response to Yukon Electrical’s application.
If the company underestimates its sales, the regulator allows it to raise rates to cover set costs. If the company makes more than projected, that money is gravy.
And it frequently lowballs the estimates.
The company’s actual sales exceeded its forecasts in 1996 and 1997 by 3.9 per cent and 1.5 per cent respectively, according to the regulatory board. Actual sales exceeded the forecasts by between 1.4 per cent and 4.1 per cent between 2003 and 2007.
Yukon Electrical and its publicly owned cohort Yukon Energy Company do this all the time, said Rondeau.
“If you lowball your sales and you high-ball your operation and maintenance costs, at the end of the year you’re going to have more profits,” he said. “You get more sales and your costs aren’t as high, so you’ve got more profits.”
The profits of both the Alberta-owned Yukon Electrical Co. Ltd. and Crown-owned Yukon Energy are regulated by the board through hearings.
The utilities frequently change their financial models. The regulator checks their math – forecasts, expenses and rates – on so-called “test years.”
However, the companies argue the hearings should be performed during the test years, to ensure the most accurate information possible.
But there are ways of profiting off those test years.
“Although these companies are regulated, in test years they often over-earn,” said Rondeau. “In other words, they often earn more than what their (profit) percentage is.”
Because the hearings start during test years, the companies can charge ratepayers on the basis of their as-yet-unchallenged forecasted sales – the company is assumed to be giving accurate numbers.
The board can ask the company to hone its numbers, as it has in this case. But any money a utility makes from a wonky forecast won’t be refunded to ratepayers.
“There’s no mechanism in the system to take it away,” said Rondeau. “Once they over-earn that money, it’s a freebie. We’ve been pushing the board for years to put a mechanism in.”
So far, it hasn’t been successful.
If a utility earned one per cent more than its given earnings, it should have an incentive and keep half of that extra money and return the other half to customers, said Rondeau.
And if the utility made any more than one per cent, it should still only keep half a percentage and the rest would go to ratepayers, he said.
“This is done in other jurisdictions,” said Rondeau.
The board’s order also slammed down Yukon Electrical’s proposal for an automated meter reading, which would have modernized meters on individual homes and buildings.
The board cited a lack of evidence that the update was cost-effective and necessary.
The meters would have switched analog meters to digital. But that’s something happening already on an incremental basis as meters are replaced.
There would be no cost-savings because an employee would still have to check the meters, said Rondeau.
“These guys should fix what they have right now before they put money into new projects – they should get our reliability up,” he said.
“The reason they don’t want to do this is because they don’t make near as much money in repairs as when they put new infrastructure in,” he said.
The board also instructed both utilities to come up with a policy paper on independent power providers, which would allow smaller energy sources, like mini-dams and geothermal, to be used on the grid.
The companies have also been ordered to figure out a policy on demand-side management, which would try to lower energy use at the consumer level.
“We pushed the board to do this 10 years ago, and they started polling some submissions and basically the consumers’ group was the only one that filed a submission, and it just got buried,” said Rondeau.
Demand-side management would look at ways to manage consumption of electricity at peak hours, providing for deterrents or electronics that would time power-guzzling appliances to go on after the morning rush.
“It’s far cheaper to do this if you have a shortage of power coming up in the future,” said Rondeau. “It’s far cheaper to provide some demand-side management rather than put in some mega project, like the one in Mayo for $110 million.”
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