NB Power overstated deferral costs by $100M, expert says1/8/2013
A startling accusation by a U.S. energy expert that NB Power overcharged itself $100 million on the Point Lepreau nuclear refurbishment is being vigorously denied by the utility in advance of regulatory hearings later this week.
"Yes, there are differences that exist between expert points of view," said Brent Staeben, a NB Power spokesperson.
"We look forward to making our case in front of the board and deferring to their judgment."
René Basque, the public intervener, has filed evidence with the Energy and Utilities Board from New York-based energy expert Kurt Strunk claiming NB Power charged the Point Lepreau refurbishment about $100 million too much for replacement power during the 56-month shutdown.
Replacement power was needed to fill the gap of what Point Lepreau would normally produce and as a result it was given unique accounting treatment.
Costs for replacement power were charged directly to the Point Lepreau project and became part of its $2.4-billion price tag in a so-called "deferral account,” bypassing NB Power's normal profit and loss statements.
That allowed NB Power to claim $326 million in profits during the four-and-a-half year refurbishment, even though the deferral account was forcing the utility deeply into debt the entire time.
It was up to NB Power to estimate how much of its electricity production between 2008 and 2012 was for replacement power using computer models.
But according to Strunk, the modelling regularly ignored normal utility operating practices and the requirements of New Brunswick's Electricity Act and wrongly charged the refurbishment project for enormous amounts of electricity.
"I conclude that there are two areas where the deferral account has not been made in compliance with the act and associated regulations," wrote Strunk.
"Correcting the calculations to make the deferral account compliant would materially reduce the amounts deferred and the future charges to customers. I estimate that the order of magnitude reduction to the deferral account may be in excess of $100 million if changes are made so that the deferral balances are calculated in accordance with the regulations."
If true, Strunks's accusation would have a significant domino effect on several provincial government bodies, undermining four straight years of audited financial statements for each.
It would mean NB Power overstated its profits during the refurbishment period by $100 million and the New Brunswick government had understated its deficits by roughly the same amount.
It would also mean New Brunswick's claim for compensation from Ottawa for $1 billion in cost overruns at Point Lepreau is $100 million too high.
But NB Power disputes that and has hired its own expert to debunk Strunk's analysis.
James Sustman of the worldwide consulting firm Ventyx filed rebuttal evidence dismissing Strunk's conclusions as deeply flawed that "reflect a lack of understanding" of how the utility operates in real world situations.
Energy and Utilities Board hearings into NB Power's deferral account begin on Thursday morning.