Lepreau power costs add up

1/14/2013

SAINT JOHN – The cost of replacement power that is part of the nearly $1 billion figure that NB Power has racked up in a special deferral account while Point Lepreau was offline has been calculated accurately, says an energy modelling expert.

NB Power called its own expert in front of the Energy and Utility Board hearings in Saint John on Friday to defend the replacement power costs it incurred while Lepreau was offline during the power plant’s prolonged refurbishment.

James Sustman, the vice-president of a global software company with 36 years of experience developing models for electric utilities, said the modelling system that NB Power used worked within the parameters that it was required.

René Basque, the public intervener appointed by the province, disagrees and spent more than five hours on Friday questioning Sustman’s findings.

Kurt Strunk of National Economic Research Associates in New York, an expert hired by Basque who will testify at the hearings next week, has concluded that the $1 billion figure isn’t right and that the utility overstated the refurbishment costs by more than $100 million.

The board hearings – scheduled for five days– have been called to debate the balance of the deferral account and the projected operating life of the now-refurbished Point Lepreau Nuclear Generation Station.

The amount in the deferral account is important because the provincial government and NB Power will use it to help set rates for electrical customers over the next several decades.

The deferral account includes the operating costs of the plant such as salaries, services, and systems maintenance, as well as the cost of replacing the energy that was not being generated by Point Lepreau during the outage.

To come up with the extra cost of replacement power, NB Power subtracted the actual cost of buying and producing power with what Lepreau would have reasonably produced if it had been operating at the same time.

NB Power arrived at that figure by using the “Transaction Scheduling and Settlement” (TSS) computer model, which the utility created, the hearings heard on Friday.

The majority of the hearing was behind closed doors on Friday because the TSS is a proprietary model.

After the hearing, Sustman said the model has limitations because it is required to honour existing agreements such as heritage contracts that force some energy sources to be a part of the province’s energy mix, even if it isn’t the cheapest power available on the market.

But he said, beyond that, the model picks the cheapest fuel available to fill load demand.

In his study, Strunk concluded that NB Power did not follow standard utility practice in at least two areas: how it calculated replacement power costs at the Coleson Cove, Belledune and Dalhousie generating stations, and from places outside of the province, like Quebec. Sustman said he believes the margin of error in his calculation is “a few million dollars” that it could make the deferral account either larger or smaller.

“I would consider that immaterial,” he said. “After extensive review of the evidence filed with the Energy and Utilities Board, I am confident that NB Power has accurately calculated the Lepreau deferral account.

“Given the modelling guidelines and the environment that was defined for doing the calculation, the company did as best as they could to come up with a reasonable estimate.”

Basque emerged from the meetings to say that Sustman’s testimony on Friday did not satisfy his expert’s concerns. “He still maintains his position,” Basque said. “We think the deferral account should be reduced in an amount to be determined by the board.”

Basque said he believes NB Power has increased the deferral account to minimize annual expenses.

“I think it’s an accounting process,” he said. “If you increase the deferral account, you capitalize a greater amount; therefore, it is paid back over a number of years instead of being in your annual income statement.”

The accountants that audited the financial figures that went into the deferral account will appear before the Energy and Utilities Board on Monday.

There will also be testimony from Atomic Energy of Canada Ltd. on the life expectancy of Lepreau post refurbishment.

Strunk will appear Tuesday.

(Telegraph Journal)