The Annual General Meeting of Emera Inc. — a company that grew out of Nova Scotia Power and has become a multinational business with $34 billion in assets and 7,000 employees — was a tame, well-scripted affair.
There wasn’t a single question from shareholders about a controversial proposal to raise power rates by 10% in Nova Scotia over the next 18 months. That may be because only one-third of Emera’s profits derive from Nova Scotia and nearly two-thirds relate to regulated electric and gas utilities the company owns in Florida.
Or it could be because Emera continues to deliver very good returns to shareholders who have no reason to be upset about an application that proposes to increase power bills and increase the company’s profitability on each capital project from 37 % to 45% of the project’s cost. If that gets approved by the Utility and Review Board, profits to shareholders would increase by tens of millions of dollars each year.
Emera shareholders are doing very nicely, thank you. Total shareholder return (TSR) was 22% in 2021, 11.5% over the past three years, and 76% over the past five years. A good stock to hold.
The company reported a $723 million profit for 2021. Investors were told that compared to other regulated utilities in their Index or stock market grouping, only one other utility out-performed Emera in the last three years.
These examples of “creating shareholder value” are a few of the measures (but far from all) used by the board of director’s Management Committee to justify paying the Emera CEO compensation totalling $8.28 million last year. Shareholders also compensated two other senior executives living in Nova Scotia to the tune of $2 million each; two other Emera vice-presidents took home pay packets worth $1.6 million.
(Compared to these pay days, Nova Scotia Power president Peter Gregg is the poor cousin. Gregg earned less than $250,000. Provincial legislation ties the compensation paid to the president of Nova Scotia Power to that of the most senior civil servant within the government.)
Emera CEO Scott Balfour also chairs the board of directors at Nova Scotia Power. Why, journalists asked during a rare interview opportunity following the AGM, is Nova Scotia Power requesting an increase in how much profit (up to 45% of the cost) it can make from new capital projects such as wind farms and the Atlantic Loop?
“The return on capital for shareholders in Nova Scotia Power is among the lowest in North America,” replied Balfour, “and that’s because of the percentage of debt to equity” (currently 37%). “One of the challenges to reduce the carbon intensity and to close the coal plants is that it is going to take a lot of investment… and so if Nova Scotia Power isn’t generating a competitive return for Emera shareholders, it gets very hard to be able to attract that capital so that those investments can be made on behalf of Nova Scotians to achieve the vision of cleaner and more reliable energy.”
Fair enough. But 2021 was a record-breaking year for profits at Emera (up 11%) and profits were also up by $20 million at Emera subsidiary, Nova Scotia Power.
Balfour described “further challenges” the utility could face. They include seeing demand for electricity double by 2050 as more electricity is required to operate fleets of vehicles and home heating; more intense weather that will require more spending to strengthen the grid; and inflation that is presently driving up costs.
Nova Scotia Power may fail to meet 2020 green target
“The Maritime Link is a truly transformative project,” said Balfour. “Going forward, the link will be a major contributor to achieving the goal of hitting 80% renewables by 2050.”
However, at this point — four years later than it was supposed to deliver the equivalent of 20% of Nova Scotia’s energy needs — the link has over-promised and under-delivered. That’s due to ongoing problems with software supplied by General Electric to deliver hydroelectricity from Muskrat Falls in Labrador to Newfoundland. Balfour today described the problems as “beyond our control.” In May, he told reporters that Nova Scotia Power is receiving “most of the Nova Scotia Block on most days now, just not consistently every day.”
The Nova Scotia Block represents 10% of this province’s energy needs, but monthly reports filed with the UARB show Nova Scotia Power still isn’t receiving the full 10% most months. An additional 10% from Muskrat Falls referred to as the “Supplemental Block” is supposed to flow to Nova Scotia through the winter months but the first deliveries won’t begin before September at the earliest.
The ongoing delays make it increasingly less likely Nova Scotia Power will be able to meet the terms of its agreement with the province that extended the deadline from 2020 to 2022 to comply with legislated Renewable Energy Standards or targets.
Initially, 40% of the province’s electricity was to be generated from renewable sources such as wind and water by 2020. As Muskrat Falls delays mounted, the McNeil government extended the deadline until December 2022, when Nova Scotia Power must have generated an average of 40% of its electricity from renewable sources over the three-year period.
So where are we?
With only seven months left in that agreement, Nova Scotia Power has averaged 30% renewables in each of the past two years.
The company needs a dramatic influx of hydroelectricity from Muskrat Falls in the next six months — say 60-80% of its total supply — to comply with the terms of the agreement or face penalties. The Halifax Examiner asked Balfour if that 40% target is still achievable.
“It is very challenged right now,” admitted Balfour. “It is. The team is working very hard to meet that goal but it’s challenging and that’s why we are very anxious to ensure as much delivery over the Maritime Link as possible.”
Nova Scotia Department of Renewable Energy spokesperson Patricia Jriege said there are penalties in the renewable energy regulations for non-compliance.
“In summary, a failure to meet the standard can result in a penalty of up to $500,000 per day, with a maximum penalty of $10 million per occurrence. These regulations also state that there may not be penalty in certain circumstances and that any penalties levied must not be recovered through rates.”
Could the provincial government use the penalties under that legislation as leverage to persuade the power company to reduce its request to hike power bills by 10%? It’s not how the rate-making process is supposed to work but stranger things have happened before.
Given the headaches associated with the Maritime Link project, how does Emera feel about getting involved in the Atlantic Loop — an even more complicated megaproject with more partners?
Balfour was blunt. The Atlantic Loop is “crucial.”
“Look, if we want to close coal plants in Nova Scotia and we want a clean energy future, we are going to have to make both small and big investments. We are not going to be able to retire the coal plants in Nova Scotia with solar panels and batteries alone. It will require wind, hydro, and it will require transmission in order to bring hydro from other regions into Nova Scotia. We will need all those things and more.”