The war of words between the Houston government and Nova Scotia Power took a new twist last week.
In a letter dated December 13 and addressed to the ministers of finance, natural resources and renewables, and environment and climate change, the president of Nova Scotia Power asked for a meeting to sit down and discuss their differences.
In the letter, Peter Gregg said both parties have “a shared commitment to do the right thing.” However, Gregg noted the acrimony over a proposed 14% hike to power rates and public statements by Premier Tim Houston urging the UARB to reject a negotiated settlement have shutdown communication. Gregg’s letter reads, in part:
We remain deeply concerned that political intervention in the regulatory process, lack of consultation with NSP on energy and climate policy and continued comments in the media not only highlight the lack of a productive working relationship, but they also risk further exacerbating an already difficult situation.
The “political intervention” Gregg referenced was the decision by the Houston government late in November to pass a law that restricted the size of the power rate increase and to also restrict how much Nova Scotia could earn in profit, holding the company to its current 9%.
As you know, Bill 212 directly resulted in a strong response from capital markets and extraordinary credit downgrade for NSP, directly and indirectly imposing additional costs on NSP customers. Leading up to the passage of Bill 212, the NSP team made every effort to advise your government that the unprecedented interference into an independent regulatory process would result in the credit downgrade that has now happened. It is estimated that the downgrade will cost Nova Scotians $20-30 million annually once all existing debt is refinanced.
Unfortunately, this situation is not stabilized and any further political interference continues to present additional risk and could lead to more actions from rating agencies and more unnecessary costs for customers.
The reference to “any further political interference” can be taken as a strong reminder — or a thinly veiled threat — that any future legislation or court challenge by the Houston government after the UARB makes its decision on rates will make life worse, instead of better, for consumers.
Minister Tory Rushton chided
The letter goes on to scold Natural Resources and Renewables Minister Tory Rushton for suggesting the power company could use some of the profits it has garnered over the past 12 years — more than $125 million each year — to make up for getting $70 million a year less in 2022-2024. Gregg suggests Rushton is unfamiliar with the cost-of-service model that governs ratemaking in Nova Scotia, a model the NDP has argued, unsuccessfully, is overdue for major changes.
I’d also like to address recent comments in the media by Minister Rushton. Suggesting that NSP should simply use “profit” to cover the increased costs resulting from Bill 212 is misleading. This is not the way costs are managed in investor-owned regulated utilities. Consistent with every single regulated utility in North America, all costs are recovered in customer rates, including costs that are imposed by government actions, like those associated with Bill 212.
Gregg suggests Rushton doesn’t understand the relationship between shareholder profits and raising the hundreds of millions of dollars necessary to invest in wind farms, grid-scale battery storage, and a new power line at the New Brunswick border to help wean the province off coal. In its final submission to the UARB, Nova Scotia Power said those projects are in jeopardy of being cut and are under review. The letter continues:
Just as a steady income is required for an individual to obtain a mortgage, a predictable return is required for a utility to raise capital. Without that return, investors will not provide the capital necessary to operate and improve the system. Over the past twelve years, NSP has invested a total of $3.7 Billion of capital in the electricity system of the province. That is over $310 million invested in the system each year to benefit our customers…and it is an amount that far exceeds the reasonable ‘profit’ set and controlled by the independent regulator.
Gregg and Rushton have a couple of hot topics they could discuss over coffee. It wasn’t that many months ago the province forgave $165 million the company owed for failing to comply with cape-and-trade targets for GHG emissions. Ongoing delays in receiving the forecast amount of hydroelectricity from Muskrat Falls are being blamed for this development, as well as the failure of Nova Scotia Power to comply with regulations around the province’s Renewable Energy Standard. The deadline and target was extended by three years to allow the power company to generate an average of 40% of electricity from renewable sources between 2020-2022.
The $10 million question
Under regulations in the Electricity Act, the government has the authority to charge Nova Scotia Power a penalty or fine of up to $10 million dollars if it doesn’t hit the 40% target. The government also has the discretion to waive it.
Renewables Minister Rushton has told The Examiner he will make that decision in the new year once Nova Scotia Power has filed the percentages for each of the past three years. Up until the beginning of 2022, 30% of Nova Scotia’s electricity came from renewable sources. Do the math and the company would have to generate 60% from renewable sources in 2022 to meet the legislated target. That’s not happening. And it’s another reason why Gregg wants a meeting.
The letter ends with a conciliatory tone:
We need your government to engage with us directly in a more positive and productive way as we move forward. We want to work constructively with you and your colleagues to develop meaningful, long-term, and enduring solutions for the province. We can achieve better outcomes for customers if we work together. That’s what Nova Scotians expect of both of us. I respectfully ask that we meet as soon as possible.
Premier Houston was cc’ed on the letter. Catherine Klimek, a spokesperson for the premier’s office, told reporters the government will respond to Nova Scotia Power’s request for a meeting in the new year. A decision by the UARB on power rates is expected within the next couple of weeks. Much will depend on what its ruling contains.
Everybody loves to hate NSPower. Houston’s recent public comments are a cheap way to pander to this populist sentiment, but they also undermine the principles of regulatory independence. As Gregg correctly points out, those principles bind every regulated utility in North America.