Nunavut power utility takes another crack at controversial one-rate system

Nunavut electrical power customers will almost certainly pay higher power bills after April 1, 2018 and many may endure further rate shocks over the next six years if the Utility Rates Review Council and the Nunavut government approve the creation of a one-rate system for all of Nunavut. (FILE PHOTO)

After trying and failing to gain approval for the idea twice since 2004, the Qulliq Energy Corp., through a general rate application released Nov. 9, will once again pursue a one-rate system for all Nunavut communities.

“Our plan is to have one rate for each type of customer across Nunavut. This means that all residential customers will pay the same amount of money for using the same amount of electricity regardless of where they live in our territory,” Bruno Pereira, the president and CEO of QEC, said Nov. 9 in a news release.

This is the power utility’s third attempt at the creation of a one-rate system.

Right now, the QEC, in a system inherited from the Northwest Territories, uses a different rate system for each Nunavut community, based on each community’s unique operating costs.

That means Nunavut’s high-cost small communities pay the highest power rates, while the largest communities pay the lowest rates.

In 2004, the QEC proposed to change that with a system in which each class of customer in each community would pay the same rates.

But the 2004 proposal fizzled, following furious opposition from businesses and homeowners in Iqaluit and other large communities.

That’s because customers in Iqaluit, Rankin Inlet and other large communities would suffer the biggest rate increases under a one-rate system. Grocery stores, restaurants, hotels and other customers who receive no subsidies in these communities would be hit especially hard.

Critics predicted that the proposed rate hikes would force grocery retailers to cover the increased cost of running power-hungry fridges, freezers and warehouses through higher food prices.

In 2011, the QEC tried again, through a scheme dubbed “rate rebalancing,” which also provoked loud opposition from larger communities.

In March 2014, Paul Okalik, then the minister responsible for the QEC, put the kibosh on rate rebalancing when he ordered the power utility to dump the scheme, which was set to start on April 1 that year.

But now, the QEC says the current community-based rate system produces unacceptable distortions when across-the-board per-cent rate increases are applied to all communities at the same time—causing bigger actual rate hikes in small places like Kugaaruk and smaller hikes in centres like Iqaluit.

And the current system does not actually reflect real operating costs in many communities anyway, the QEC said in an executive summary of its proposal.

“The rate adjustments needed to achieve community-based rates that fully reflect community-based costs would be substantial, far greater than rates proposed in this [general rate application]. For example, Grise Fiord would require a rate increase of 172 per cent and Iqaluit would require a 22 cent rate increase,” the QEC said.

Furthermore, community-based rates can’t accommodate the new costs of building replacement power plants and other badly needed capital improvements.

“A community that needs a new power plant may face rate increases of 50 per cent or more,” the QEC said.

This time, the power corporation proposes moving to a one-rate system gradually, over six years, and would limit any rate increases to less that five per cent a year.

The QEC’s current application covers only the first two years of that process. They’ll deal with the remaining four years in future applications.

And they point out that the Northwest Territories and Yukon have already moved away from community-based power rates.

But the one-rate proposal is already generating opposition in Iqaluit. Kyle Sheppard, an Iqaluit city councillor, said in a tweet the QEC’s application is “idiotic” and that he plans to fight it.

Territory wide rate structure is idiotic and places the burden of unsustainable communities onto ratepayers elsewhere. I’ll fight this application. https://t.co/CeeN40UhBH

— Kyle Sheppard (@Maqaiti) November 9, 2017

In the meantime, the utility is also proposing a 7.6-per-cent rate increase across all rate classes over two years: 2018-19 and 2019-20.

This means rate hikes of about 3.6 per cent in each of those two years for all customers, the QEC said.

That’s because the corporation estimates they’ll need annual revenues of $134 million to operate next year and the year after that.

But the current rate structure will produce an $8.8 million shortfall, and they need the proposed 7.6-per-cent rate hike to make it up, the QEC said.

Some of that shortfall is produced by salary and wage increases at the QEC, including those imposed on the corporation by this year’s collective agreement with the Nunavut Employees Union.

This past August, unionized workers at the QEC won wage increases of 2 per cent, 1 per cent, 1 per cent and 2 per cent for each year between Jan. 1, 2017 and Jan. 1, 2020.

“Increases in non-fuel expenses are approximately $6.7 million. This mainly reflects general inflationary pressures over the last three years as well as increases in salaries and wages from additional positions required to maintain and improve service levels, as well as salary increases consistent with labour agreements,” the QEC said.

At the same time, a rate rider fuel-price refund worth 5.41 cents per kilowatt hour, applied to all customers, has produced a decrease in revenues.

“[T]he combined revenue at existing rates with the fuel rider has decreased by approximately $5.7 million, the QEC said.

That rate rider refund would be eliminated after April 1 next year, and folded into a new rate system.

The combined effect of the 7.6-per-cent rate increase, the first phase of a one-rate scheme, and elimination of the rate rider would reduce power bills in 18 small communities and raise power bills in seven larger communities.

Iqaluit commercial customers, which includes stores, restaurants and hotels, would suffer an 11.4 per cent increase in 2018-19, the QEC said.

In comparison, similar customers in Whale Cove would see a decrease of 4.8 per cent.

The QEC has sent its general rate application to the minister responsible for the QEC, Johnny Mike.

But Mike, who was lost his seat in Pangnirtung in the Oct. 30 election, will be succeeded later this month by a new minister.

The QEC minister, whoever that may be, is expected to turn the application over to the Utility Rates Review Council.

The URRC, between November 2017 and February 2018, will look at the application and seek public comment, in a process that would likely include public hearings.

In March of 2018, the URRC is expected to submit a report with recommendations to the minister.

And by April 1, 2018, the minister will order the QEC to start charging new rates.

Public housing tenants everywhere in Nunavut will not be directly affected by any power rate increases.

That’s because they pay only a service charge plus a highly subsidized rate of only 6 cents per kilowatt-hour.

People who live in in privately owned housing also pay a subsidized rate up to 700 kilowatt-hours per month in the summer and 1,000 kilowatt-hours per month in the summer.

You can find the QEC’s general rate application and related documents at this web page.

2018-2019 QEC General Rate Application, Executive Summary by NunatsiaqNews on Scribd