Nova Scotia Power (NSP) was before the Utility and Review Board yesterday asking for a rate increase that will see residential customers pay 1.5% more on their power bill in each of the next three years. Businesses and large industrial users could see their bills go up between 2 and 4% each year.
NSP blames rising fuel costs, which are based on the company’s forecasts for how much commodities such coal, oil, and natural gas will cost over the next three years. Despite some strides toward more renewable sources such as wind and tidal, the province is still more than 60% dependent on fossil fuels to generate electricity.
Roland Deveau, the vice-chair of the Utility and Review Board that decides how much NSP can charge its customers, noted that “the company’s track record in the past has not been good when it comes to forecasting.”
In fact, the application the company made three months ago forecast a $125-million increase in fuel costs over the next three years (compared to the last three-year period) with consumers still on the hook for $44 million of costs down the road. The consumer advocate as well as representatives for small and big business pushed back and when NSP filed its revised proposal last Friday, the forecasted fuel costs had changed. Projected fuel costs are now $50.1 million less than in June and the power company will no longer charge residential customers $44 million in deferred costs. Poof. Lower prices for coal and imported electricity are the reason, according to NSP.
That’s cold comfort to Chelsea Sawatzky who made a plea to the decision-makers at the Utility and Review Board to dismiss the company’s application for a rate increase. Sawatzky is a member of small group called the Lower Power Rates Alliance of Nova Scotia. She owns a modest, two-bedroom, 1,000 square foot home in Dartmouth that has electric heat.
“I struggle to pay my $463 a month power bill even though I would be considered by society to be earning a high wage,” Sawatzky told the Board and NSP executives at the hearing. “More and more, people are looking for a way out from this way of living. Our lack of control of the power company is the sole reason for this. Nova Scotians are consistently among the poorest people in the country. Nova Scotians also pay some of the highest electricity prices in the country. We are unable to accept any more increases in electricity prices: we are on the brink. I appeal to you to research how much money Nova Scotia Power makes for its investors every year and you will deny this application.”
Nova Scotia Power made a profit of $131 million in 2018, while parent company Emera hit a record high of $671 million. That’s not all. Because it has a monopoly on providing electricity, NSP shareholders receive a steady return of about 9% on their investment that’s set by the Utility and Review Board. So far in 2019, the power company has made $20 million over and above its regulated 8.75-9.25% range of return. Between 2016-2018, the utility made $26 million over its allowable range.
By law, all of that excess money was applied to keep fuel costs down. That legislation expires in a few months. So NSP is proposing any extra money it earns above 9.25% would go into a catch-all fund that could be used in the future to deal with non-fuel related costs such as the loss of a big customer (Northern Pulp?) or the costs associated with closing coal plants earlier than 2040 if there is a change in federal government or federal policy. NSP vice-president David Landrigan suggested that kind of flexibility through the proposed fund might keep the company from coming back as often to apply for rate increases. (Interestingly, a 1% increase in the power rate aligns closely with $14 million in revenue from ratepayers).
Landrigan testified designating money from the fund to keep rates from rising couldn’t happen without agreement from all the representatives of consumers and business groups. If they don’t agree on how the fund money gets spent, it flows back to ratepayers through the usual Fuel Adjustment Mechanism (FAM) account used to keep fuel costs in check.
Representatives for consumers and business groups regarded the idea with skepticism. They questioned Landrigan about whether in the event NSP did not earn at the top end of its allowable rate of return (9.25%), the company might ask to use the millions stowed in the catch-all fund to “top up” the amount disbursed to shareholders. Landrigan acknowledged that could be a possibility. Consumer advocate Bill Mahody told reporters under no circumstances would he go along with any such a request. Board Chair Peter Gurnham suggested the regulator might want to have the final word on where any “excess” earnings might be deployed in the future.
Some of the largest companies in Nova Scotia are also expressing concerns about the 4% a year more — 12% over the next three years — Nova Scotia Power is proposing to charge them.
In a written statement, Oxford Frozen Foods CEO David Hoffman says “it is simply too much.” Lawyer Nancy Rubin, who represents large manufacturers, including Oxford and Lafarge Canada, asked the Utility and Review Board to approve a reduced rate of 3% a year, which would include a bill for a deferred amount of $14 million at the end of 2022.
Board vice-chair Roland Deveau questioned why the amount budgeted for foreign exchange (over three years) had increased by $125 million if Nova Scotia plans to import hydroelectricity from Labrador to satisfy 20-30% of its total energy requirements and meet legislated targets to supply 40% of electricity from renewable sources. The forecast delivery date for Muskrat Falls (which has been delayed almost two years) is now June 2020. Should that get pushed out further, NSP will have to import “replacement power” at a higher cost.
NSP director of corporate communications David Rodenhiser says the June 2020 target delivery date is still accurate, even though there are mixed signals emanating from this rate application hearing. The answer Deveau got to his question about why the budget for foreign exchange is rising was that NSP expects to import greater volumes of solid fuel (coal) in American dollars. Why would the power company be relying more on foreign imports if hydro is expected to flow over the undersea cable (Maritime Link) during the first year of this three-year rate period?
Attempts to interview an accountable executive with Nova Scotia Power were short-circuited. A panel of seven NSP officials answered questions under oath during the hearing but were not free to speak with reporters until the proceeding was over. Prior to the lunch break, communications director David Rodenhiser indicated a member of NSP’s executive team would be available following the hearing. But when the hearing finished, Rodenhiser then told journalists from allnovascotia.com and The Halifax Examiner a decision had been taken over lunch not to make an executive available for questioning. By then the executives had left and despite our protests, reporters were left with the same communications person who is not accountable for multi-million dollar decisions affecting every citizen in the province.
“Of course we’re the greenest province in Canada but it’s not due to our dedication to the environment!,” Chelsea Sawatzky told the rate hearing. “It’s due to the fact that individuals are trying to escape the electricity grid. The only way to do that is through renewable energy. But Nova Scotia Power controls that too. I look around and I see people struggling with their power bills and trapped in a system they can’t change. They feel ‘powerless.’ I see families taking huge loans for renewable energy to try and lower their electricity bills with the return on investment often as long as 15 years. Then there is another echelon that could never afford to do that. These people live in the dark and keep their heat off so they can afford to eke out a living.”
Sawatzky and her partner have recently bought a pellet stove and say they are done with electric heat. By the way, the three-year increase in rates Nova Scotia Power requested yesterday look good compared to the one NSP is forecasting for 2023: a 3.8% hike for residential ratepayers. Much could change before then. Final arguments will be made on November 5.
With 20/20 hindsight, it clearly was a bone-headed idea to privatize Nova Scotia Power. In an era where carbon emissions must be reduced and to do that we need a partner who is committed to reducing power consumption, maybe a for-profit electric utility makes no sense. Perhaps the Utility and Review Board needs to restrain NSP’s profit making so that the utility can be re-acquired and run as a public service.
We don’t need hindsight. It was obvious from the very beginning that privatizing the utility was going to be a retrograde and damaging move. But par for the course in Nova Scotia where every government seems intent on making its own bone-headed decisions.