Iqaluit businesses to URRC: QEC rate hike too big to swallow at once
“I’m faced with a double whammy.”
The Qulliq Energy Corp. should raise its power rates in step-by-step phases, Iqaluit businesses told the Utility Rates Review Council at a public hearing in Iqaluit Jan. 6.
The power corporation applied for a 19.3 per cent rate increase for all customer classes this past October, saying the corporation faces a potential revenue shortfall of $22.7 million for the 2010-11 fiscal year.
Peter Mackey, the power corporation’s president, said in a presentation that in Iqaluit, a typical homeowner, based on a winter consumption level of 1,000 kilowatt hours per month, would see their monthly bill rise by about $20.
That’s because a Government of Nunavut subsidy protects homeowners from the full impact of the territory’s high power rates.
But private businesses, who are not protected by any subsidy, would take a much bigger hit — likely forcing them to raise prices for consumers.
Mackey said a small commercial customer in Iqaluit consuming 2,000 kilowatt hours a month would see their monthly bill rise from $808.92 to $957.39.
But at the same time, the City of Iqaluit would likely be forced to raise property taxes to cope with higher power rates — yet another hit that businesses and homeowners would be forced to absorb.
“I’m faced with a double whammy. It could make it extremely difficult for us to survive,” said Terry Fernandes, the proprietor of Valupharm Drugs.
Because of that, Fernandes said the QEC’s rates, which haven’t risen since 2006, should rise by small increments over multi-year period.
Madeleine Redfern, the mayor of Iqaluit, confirmed that the rate hike would inflict a big blow on the city’s finances.
She said the city now pays about $1 million a year in power bills and that the QEC’s new rates would cost them about $200,000 a year on top of that.
At the same time, the GN, in part of its response to $110 million housing debacle, has cut $100,000 from its annual contributions to the City of Iqaluit.
Redfern said this cut, combined with the prospect of bigger power bills, puts big pressures on the city.
“We can’t charge that money to our taxpayers…,” Redfern said.
She also said a big one-time power rate increase would create a price-shock throughout the entire local economy, driving up the costs of most consumer goods, including food.
“There are homeowners right on the verge of making ends meet,” Redfern said, saying she’s aware of people throughout Nunavut who have been forced to either sell their homes or had their homes repossessed by banks.
Kenn Harper, the owner of the Arctic Ventures store, said the URRC should recommend a series of “modest annual increases” rather than one big rate hike.
Harper, who was out of town, sent his statement to Iqaluit resident Al Hayward, who read it for him at the hearing.
“I suggest that the corporation should have to dig itself out of the hole it finds itself in, laboriously, over a period of years, like other business people have to do when they make mistakes,” Harper said.
Harper said the corporation “has been mismanaged” since 2004, when the QEC last applied for increases to its general rates, and should have acted sooner to fix its revenue problems.
The corporation estimates it will need $101.2 million to break even in 2010-11, but under the rate system approved in 2006, expects to receive only $76.2 million, the QEC’s rate application says.
“What credible organization waits this long to play catch-up on its revenue requirements?” Harper said.
He also said he supports the current community-specific rate system and that he;s opposed to the idea of creating one territorial power rate or a set of rate zones, saying Iqaluit consumers shouldn’t have to subsidize power rates in other communities.
Right now, Nunavut is one of the few jurisdictions in Canada that does not use some kind of blended rate system aimed at reducing costs for smaller, higher-cost communities.
And he said the URRC should also recommend that the GN do at least four external studies on the QEC’s operations:
• a study on the cost of its decentralized management structure, where’s there’s one head office in Baker Lake and another head office in Iqaluit;
• a management audit to find out if some functions can be streamlined;
• an audit of how much the corporation relies on external consultants;
• and audit of external functions to find out if any savings can be achieved by privatization.
In an interview with Nunatsiaq News late last year, Peter Mackey said the QEC’s operating costs are rising in many areas.
Wages and benefits for QEC workers have risen by an average of three per cent a year over the past six years, and the corporation also bears the cost of an Inuit employment plan that has seen the corporation take on 25 trades apprentices and other trainees.
“In finance, which is extremely difficult for the GN to get, we’ve identified beneficiaries that have either concluded either a finance degree or business degree and we’ve moved them into CA and CMA programs,” Mackey said.
Another is the rising cost of maintaining the QEC’s aging power plants, may of which are 30 to 40 years old.
“We have in our fleet something like 90 to 95 generators that need either regular routine maintenance or some that may need to be overhauled every year,” Mackey said.
Yet another is cost of travel, parts and equipment, a cost created by the need to send maintenance crews all over Nunavut to keep power plants running.
“Our travel budget is fairly extensive given that on any given day you might have crews leaving the Cambridge Bay, Iqaluit or Rankin regional offices for five or six or seven communities,” Mackey said.
The Jan. 6 hearing kicks off a Nunavut-wide tour by the URRC. There were to have held another hearing in Iqaluit Jan. 7 at 2:30 p.m. in the parish hall, a hearing in Pangnirtung Jan. 10, and a hearing in Apex Jan. 11. Between Jan. 12 and Jan. 18, the council will hold hearings in Chesterfield Inlet, Rankin Inlet, Cambridge Bay and Taloyoak.
The URRC must make its recommendation to the Government of Nunavut by March 2.
Ray Mercer, the chair of the URRC, said the first phase of the council’s work will be a calculation of how much revenue the QEC needs to operate. The second phase will set new rates.