Helping Explain Rising Electricity Costs

1. Aside from electricity purchased from the Point Lepreau and Dalhousie plants in New Brunswick, and wind generated electricity on PEI, Maritime Electric purchases the balance (currently about 65%) of its needs in the open market. In 2008, the market price of this electricity soared as the costs of fossil fuels used to generate this electricity, oil and natural gas, soared. In addition, the Point Lepreau Generating Station is undergoing refurbishment during the period April 1, 2008 to September 30, 2009. The station normally supplies PEI with approximately 18% of its electricity requirements. While Lepreau is out of service Maritime Electric must purchase more expensive replacement electricity. Since purchased electricity represents 70% of a typical customer’s bill, this had a significant impact on customers’ bills in 2008.
2. Maritime Electric passes through, at cost, the cost of purchased electricity to its customers, through the Energy Cost Adjustment Mechanism (ECAM). The objective of the ECAM is to regulate or smooth the price of electricity charged to the consumer by collecting any increase (or decrease) in electricity purchase costs over an 8 month period. Therefore, part of the increase that is forecast for 2009 is related to the high cost of electricity purchased in 2008.
3. The Dalhousie Generating Station, which supplies Maritime Electric with approximately 13% of its annual energy requirement, uses a low cost fuel for producing electricity which will no longer be available beginning in late 2008. As a result Dalhousie will need to burn a more expensive fuel to generate electricity and this will increase our cost of purchased electricity beginning in 2009.
4. IRAC reduced the ECAM collection period from 12 months to 8 months due to the large buildup of deferred energy costs on the Company’s Balance Sheet. This increases the amount of ECAM collected through rates on a monthly basis.

1. The nature of ECAM, where actual costs are passed on to customers over time (to smooth the impact on customers) is such that the high costs to purchase electricity in 2008 were not all passed on to customers in 2008 but will be reflected in customers’ bills in 2009. Without ECAM, electricity costs would have been significantly higher in 2008.
2. Maritime Electric buys electricity in the New England marketplace and pays for it in U.S. dollars. While the costs of fossil fuels have fallen in recent months the Canadian dollar has weakened significantly and does not have the purchasing power it did earlier in 2008.

No. The forecast increases are based upon forecasts for purchased electricity costs (at the time the Rate Application was filed). The actual cost of purchased electricity is likely to vary from the forecast and only the actual cost, whether it be higher or lower than the forecast cost, will be passed on to customers through the ECAM.

No. The Company is forecasting, based on the costs expected to be paid for electricity (at the time the Application was filed), that 2009 annual electricity costs will increase by between 7.5% to 8.25% over 2008 annual costs. The Application does propose a change in the way ECAM costs are calculated and reflected on a customer’s bill in April 2009 but the bottom line of the customer’s bill is forecast to change only very slightly from the previous month’s bill.

Aside from wind the Province really has no cost effective fuel sources with which to generate electricity. Other Provinces have sources of low cost fuel to produce electricity. New Brunswick generates most of its domestic needs using a mix of hydro, natural gas, coal and nuclear. Nova Scotia uses natural gas, coal and hydro. Electricity has become a commodity sold in the open market to the highest bidder and PEI currently purchases 65% its electricity needs in the electricity commodity marketplace.

Maritime Electric purchases 15% of its total requirements from wind energy produced on PEI. There are challenges to incorporating more wind based electricity into PEI’s supply portfolio. Taking more than 15% will create circumstances in which there will be purchases of surplus energy during periods of low electricity demand. Challenges exist in selling this excess electricity at full cost recovery prices. A reasonable and low risk solution needs to be found to allow for the sale of this excess electricity into the marketplace particularly in the early morning hours when the demand for electricity is low. With the experience in hand from obtaining 15% of its requirement from wind generation, Maritime Electric is working closely with the Provincial Government to find effective solutions to this issue and allow the utilization of renewable energy for 30% of our customers’ electricity consumption.

Maritime Electric is working hard to provide electricity and service at the lowest possible cost to our customers. The following developments will help stabilize the future cost of electricity on PEI:

1. The return to service of Point Lepreau in October 2009.
2. The development of an alternate, lower cost, fuel for electricity generation at the Dalhousie facility beginning as early as 2010.
3. An increase in the percentage of Maritime Electric’s electricity generated from wind from the current 15% to 30% by 2013.
4. Continued management of operating costs within Maritime Electric’s control (the Company has proposed no rate increase in 2009 for non-energy operating costs).