Several questions loom around Nova Scotia Power’s proposal to hike residential bills by an average of 3.2% a year (roughly an extra $60 a year) between 2022-2024.
The questions have been put forward to the Utility and Review Board (UARB) by experts hired by representatives for many groups that include consumers, large companies, the provincial government, and a group of municipal electric utilities.
Nova Scotians pay the highest bills for electricity in Canada. The UARB, which regulates how much Nova Scotia Power may charge to cover the cost of service, will hold a public hearing this September on the company’s request for more money.
Here’s some context. For the past three years, rates in Nova Scotia have been relatively stable, increasing by 1.5%. Last year, Nova Scotia Power earned $152 million dollars profit on $1.5 billion in revenue. The company is asking the UARB to approve a rate hike for consumers, as well as changes that would increase how much profit shareholders could earn — estimated by one consultant to average around $186 million a year over the three-year period.
Nova Scotia Power claims it needs the extra profit so it can finance a planned $530 million spend on renewable energy projects (included $43 million to repair a hydro plant at Wreck Cove, Cape Breton) and to strengthen the grid to reduce untimely power outages.
The proposed increase in power rates would provide Nova Scotia Power with $162 million in additional revenue from 2022-2024, an increase of 7.2%.
According to the revised “NSPI Financial Outlook” filed on June 24, the profits earned over those three years could increase by more than that — if the UARB approves all the changes the company wants. For example, if power rates remain where they are today, Nova Scotia Power estimates it would earn profit of just $94.6 million in 2024. If the proposed rate hikes of 3.2% a year are approved, by 2024 the company estimates profit would double to reach $213.5 million.
The Halifax Examiner won’t attempt in this article to canvass all the issues raised by the current power rate application. There will be time for that later. But below are a few good questions from some experts hired by intervenors or interested parties.
Timing of rate hikes
Nova Scotia Power filed its 1,400-page application for changes to power rates, inspection fees, and its allowable profits in January 2022. The public hearing to determine if the changes can be justified will be held this September. The power company has requested that the first 3.2% annual increase for residential customers take effect as of August 2022. Several experts have questioned this approach and recommended the UARB not approve it, even though the impact on consumers might mean paying higher even power bills in 2023 and 2024.
Mark Drazen is an engineer with 30 years experience testifying before utility review boards. Drazen Consulting has been hired by the Industrial Group (representing large manufacturers) and Dalhousie University.
“Including 2022 as a “test year” and starting higher rates in August 2022 is neither appropriate nor realistic,” concludes Drazen in a written submission to the UARB. “ Nova Scotia Power surely was aware that an application filed at the end of January, 2022 would not be decided in time for new rates to become effective August 1. With smoothing, changing the effective date from August to something later changes all the rates over the whole period. Also, other components of rates — fuel cost, Annually Adjustable Rates, and Efficiency One charges — are all based on a January 1 reset.”
A lawyer for the Utility and Review Board submitted the following question to Nova Scotia Power:
Question: Given the timing of the Application, please confirm the rates proposed by Nova Scotia Power in the event the Board’s decision is only released effective January 1, 2023.
Answer from Nova Scotia Power: The Company has not made a determination with respect to 2023 and 2024 rates in the event the Board’s Decision is effective January 1, 2023…The smoothing mechanism beginning in 2022 moderates the rate increases proposed for 2023 and 2024. As such, an effective date of January 1, 2023 would put upward pressure on the 2023 and 2024 rate increases as the proposed revenue requirement increase from August 1, 2022 to December 31, 2024 would be recovered through two rate increases instead of three.
For consumers, this could mean seeing power bills go up by more than 3.2% a year in both 2023 and 2024.
Paul Chernick of Resource Insight Consulting submitted his expert opinion on behalf of the Consumer Advocate. Chernick recommends the UARB “not put new rates into effect in November-December 2022.” He goes a step further saying “If rates go into effect January 2023, they should not include the cost for 2022 except for fuel and Efficiency One conservation programs.”
The witness for the Consumer Advocate also urges the UARB to make the power company — and not ratepayers — responsible for all costs associated with under-deliveries of hydroelectricity from Muskrat Falls in 2022. He asks the UARB “find that Nova Scotia Power bears responsibility for the additional [here the dollar amount is redacted] in fuel and cap-and-trade compliance costs due to undelivered energy from the NS Block.”
Since 2018, ratepayers have paid more than $200 million to make up for these shortfalls.
Rising fuel costs
Fuel costs are one of the largest components included in power rates. Sometimes they are higher than what the company estimates they will be for a given year, and occasionally they are lower.
To avoid or “smooth out” that volatility, the UARB approved a fuel adjustment mechanism that functions similar to a bank account. Nova Scotia Power pays into it when costs are lower than estimated and withdraws from it when fuel costs spike. The idea is to keep power rates stable and avoid large fluctuations up or down.
There are signs that could be challenging and could even result in a re-filing of proposed rate increases for 2023 and 2024. A fuel cost hearing is scheduled for August 19 to determine how much should be rolled into future power rates.
The following question was submitted by the lawyer on behalf of the Municipal Electric Utilities group that provides electricity in the communities of Berwick, Mahone Bay, Antigonish, and Riverport.
Question: The Board’s schedule for this Application contemplates the filing of a Fuel Update on August 19. Please explain how NSPI intends to specifically incorporate the findings of the Fuel Update, and whether it will seek any further adjustments to its Proposed Rates for 2023 and 2024 specifically associated with the results of the Fuel Update.
Answer from NSPI: The Fuel Update is a part of the regulatory process to help inform the Board and intervenors of the changes in fuel costs since the time of the original fuel forecast provided in the application. In particular, the conflict in Ukraine has had an impact on commodity prices.
Prior to providing the Fuel Update, Nova Scotia Power will continue its engagement with intervenors regarding the magnitude of this impact and potential options to mitigate. The manner in which the Fuel Update will impact the proposed rates is contingent on the outcome of these discussions.
Hmm. Not much time to figure that out before the September hearing. The revised 2022-2024 Financial Outlook filed by Nova Scotia Power on June 24 shows an estimated fuel cost for 2021 of $92.2 million. This compares to $ $63.9 million in the previous year, about a 30% jump. And that was well before the conflict in the Ukraine.
The chair of the Nova Scotia Power Board of directors is Scott Balfour, the CEO of Nova Scotia Power’s parent company, Emera Inc. Balfour has indicated the cost to close coal-fired generating stations in 2030 rather than 2040 could be in the range of $1 billion.
Nova Scotia Power is proposing to set up an account to spread those costs over a much longer period of time for ratepayers, similar to the mechanism set up to “smooth” fuel costs. It’s working title is the De-carbonization Deferral Account.
To replace the energy lost when coal-fired stations shutter, Nova Scotia Power is planning to spend hundreds of millions of dollars on new wind farms, battery storage projects, and the construction of a proposed overhead power line called the Atlantic Loop that would bring hydroelectricity through New Brunswick from Quebec. This suite of projects is called the Eastern Clean Energy Initiative (ECEI) and it is designed to meet government-mandated deadlines to reduce carbon emissions by closing coal-fired stations before they have reached the end of their useful life and have been paid off. Nova Scotia Power and the Province of Nova Scotia have a request in to Ottawa for $2 billion.
“We are working with the Province in an effort to obtain $2 billion in federal assistance to mitigate the cost for customers of this accelerated transition from 2040 to 2030,” says Nova Scotia Power in its rate application.
Nancy Rubin, the lawyer for a group of major manufacturers in the province and Dalhousie University, submitted this question to Nova Scotia Power.
Question: In the event that such efforts do not come to fruition, please explain the impact on Nova Scotian ratepayers (i) if the assistance is denied entirely; (ii) if only partially granted.
Answer from Nova Scotia Power: Federal Government funding is being pursued by Nova Scotia Power to reduce the cost of the energy transition that would be borne by Nova Scotia Power’s customers. To the extent the funding is not provided, the cost of the energy transition for customers will be increased.
More cost to be factored into those rising power rates.