Duane Hicks
Residential electricity rates for Fort Frances Power Corp. customers have gone up but thanks to the historic power agreement, they still remain the cheapest in Ontario.
During an operational update before town council last week, FFPC president and CEO Joerg Ruppenstein explained that because of a recent rate readjustment, the FFPC’s rates rank 14th-lowest in the province.
But with the benefit of the agreement factored in, “we still, by far, have the lowest rates of electricity,” he said.
By comparison, the FFPC had the third-lowest rates in 2011 (the lowest with the power agreement factored in).
One difference between 2011 and now is that five years ago, the FFPC had a preferential debt retirement charge of 0.23 cents/kWh, which provided a $2.30 advantage on a 1,000 kWh, noted Ruppenstein.
However, the debt retirement charge, which was in place since 1998 to help pay off the remaining debt from the former Ontario Hydro, no longer is in effect, meaning the FFPC lost “a little bit of the competitive advantage that we had in terms of just looking at rankings,” he said.
“But at the end of the day, [not paying the debt retirement charge] is a good thing,” Ruppenstein stressed.
“Our consumers have to pay less overall.”
But an even bigger change to rates has been the twin-linked processes of rate rebasing and multi-year rate making.
These have brought the FFPC up-to-date with its rates, but also resulted in residential customers paying a larger portion of costs than they used to due to a decrease in customers and in the volume of electricity consumed.
Local Distribution Companies (LDCs) such as the FFPC are required to file “Cost of Service” (COS) rate applications in order to adjust the distribution rates that customers pay.
For small utilities, any business changes that cost money, such as increasing staff size by one position, only can be addressed with COS applications to the Ontario Energy Board.
In 2014, the FFPC submitted a 1,118-page rate application to the OEB for five years (2014-18). The last time rates were rebased was in 2006.
As part of the rate rebasing process, LDCs are required to conduct a cost allocation study that determines the percentage of the revenue requirement to be collected from each customer class.
Distribution rates then are set to recover the OEB’s approved revenue requirement for the LDC.
The rate rebasing process reflects that there has been a three percent decline in the FFPC’s customer base since 2006, along with a five percent reduction in volume of sales during that same span.
The reduction in volume of sales has to do with fewer customers (both residential and business), as well as less power usage due to conservation efforts, including energy retrofits.
Less volume means less revenue.
There also have been cost structure changes since the last rebasing, including mandated initiatives such as “smart” meters and time-of-use billing.
All of these factors have changed the actual costs incurred to serve the residential customer class.
A total of 89 percent of the FFPC’s revenue requirement increase must by collected from the residential customer class—even though that class only consumes 48 percent of the volume of electricity.
The process identified that a 6.6 percent increase was needed to meet residential customers’ portion of the costs (this hike includes more money to reinvest into the town’s electrical infrastructure).
The FFPC’s 2014 approved revenue requirement was just under $2 million. This is how much the FFPC must “live off” annually until the day comes when it is realizing operating deficits, at which point it will have to go through the process again.
Ruppenstein noted the FFPC was scheduled to do rate rebasing in 2009, but because it is a not-for-profit entity, it was able to extend its 2006-09 rates to 2014.
He added rate rebasing is necessary when an LDC starts running deficits, and he’s hopeful the FFPC will be able to get 12-15 years out of the current customer rates.
“Our goal is we will not adjust the rates that we charge customers for as long as we can—until we’re back at the point where we’re running deficits, which was the case just before we did the rate rebasing in 2014,” Ruppenstein explained.
“We hadn’t changed the rates in so long that sooner or later, you’ve got to bite the bullet and go through the process,” he reasoned.
Ruppenstein also noted the FFPC was the first utility in Northwestern Ontario to go through this process in 2014.
What this means is other LDCs will go through it, and their rates also will increase—leaving the FFPC once again among the cheapest in Ontario.
“I’ll bet you $20 in five, six years, when all of the other utilities have done the rate rebasing, we’ll be right back where we were,” Ruppenstein pledged.
Coun. Ken Perry said he was livid when he got his electricity bill earlier this year, and went to the FFPC office for an explanation of the increase.
But after speaking with Ruppenstein, he walked away with an apt comparison for the position the FFPC is in.
“It’s like a NASCAR and you’re pitting under a green flag,” Coun. Perry reasoned. “We pitted first, so the guy behind us was in first place and we fell back.
“But once everybody rebases over the next few years, we may end up back in third.
“We may never get back to third, but we also may get back to #1,” he added. “We might be #1 with the agreement and #2 without the agreement.
“It’s all because of that green flag starting and stopping,” Coun. Perry stressed.
“They’re ahead of us because they haven’t rebased.”
Cost savings
In light of rate increases, the FFPC has been very efficient at managing money and has worked hard to achieve cost savings by doing as much as it can in-house.
In-house development of an asset management plan saved $159,000 in consulting costs while the in-house development of a distribution system plan avoided $90,000 in costs.
The in-house drafting and processing of the 2014 cost-of-service rate application saved $131,000 in consultant costs while the development and processing of mandated electrical customer satisfaction surveys by staff saved the FFPC $30,000.
It also saved about $20,000 in the development and processing of mandated electrical safety awareness surveys, and secured another $28,000 under the Northern Ontario Internship Program (NOIP).
The FFPC also has tapped into other grant programs to secure funding for scientific research and educational development, and has switched to using iPads for field inspections—saving on paper costs, Ruppenstein noted.
In other financial business, the FFPC also successfully has made the mandated transition from Canadian Generally Accepted Accounting Practices (CGAAP) to International Finance Reporting Standards (IFRS).
This process involves providing considerably more detail to IFRS accounting, such as the componentization of property and equipment, as well as adding more disclosures and notes to audited financial statements.
The 2015 audited financial statements show the FFPC managed a cash flow of $11 million.
The auditors did not find any significance matters that needed to be brought to attention of management; in layman’s terms, it was a “squeaky clean audit,” noted Ruppenstein.
The total comprehensive income was $259,676. Retained earnings as at Dec. 31, 2015 were $152,914.
“It was an excellent year for us,” Ruppenstein concluded.
