The province is urging the Utility and Review Board (UARB) to reject a settlement that would raise power rates by an average of at least 14% over the next two years.
The agreement was worked out among Nova Scotia Power and the consumer advocate, as well as groups representing businesses, municipalities, and low-income consumers after the Houston government passed a law limiting rate increases to 1.8% outside non-fuel expenses. Bill 212 also limits proposed increases to Nova Scotia Power profits.
In its final, 30-page submission to the UARB, the government argues the settlement does not represent the best interests of ratepayers:
Bill 212 was introduced to protect ratepayers from significant shock based on unprecedented global inflationary pressures. The terms of the Settlement Agreement increase rates and contravene the purpose, spirit, and intent of Bill 212.
Fuel costs falling to ratepayers are largely due to the rising cost of coal and gas required to replace the undelivered Maritime Link/Labrador Island Link (LIL) energy. Ratepayers are being asked to pay for investments in failed or disappointing projects at the same time they face inflated costs for replacement fuels…NSP’s profits should bear at least a portion of inflated fuel costs that are being passed along to consumers.
Specifically, here are a few arguments the province makes to support its position:
Storm costs
The province rejected a three-year temporary provision that would permit the power company to recover from consumers the annual cost of major storms above a threshold of $10.4 million. Although Fiona wouldn’t qualify because it took place in 2022, its estimated cost to Nova Scotia Power was $48 million. If similar storms happen over the next three years, the company will be entitled to recover costs above the threshold.
The province argues this mechanism gives the power company no incentive to spend more money trimming trees associated with most power outages or taking proactive measures to harden the grid.
Nova Scotia Power must be accountable for the costs associated with reliability issues. Electricity is an essential service. Power failures cause internet services to go down and disrupt businesses which may be forced to close for the duration of outages…
Losses occasioned by Nova Scotia Power’s failure to invest sufficiently in system hardening, or failure to develop and implement a reasonable system hardening strategy, represent an indirect subsidy to NSP for these deficiencies.
Decarbonization Deferral Account
The province rejected a provision to spread out the costs associated with retiring coal-fired power plants because Nova Scotia Power failed to provide enough information about how it would work. Other intervenors support the province’s position, but have agreed to establish it on the condition further discussions take place with Nova Scotia Power.
Profits
The final submission by the province reminds the UARB that several experts suggested an annual rate of return of 9% was too high if the company is permitted to “de-risk” its business by recovering storm costs from ratepayers and spreading out the price of greening-the-grid by means of a deferral account. The province also wants the UARB to reject a proposal that would boost profits by allowing the company an increase in equity thickness from 37.5% to 40%.
Ironically, the final submission by consumer advocate Bill Mahody noted that it was the government’s introduction of Bill 212 which subsequently triggered a downgrading of the power company’s credit rating by one bond rating agency that torpedoed Mahody’s original position.
Prior to the introduction of Bill 212 it had been the intention of the Consumer Advocate to seek a return on equity at less than 9%. The passage of Bill 212 represented a post-hearing development that materially altered what reasonable position could be taken regarding the return on equity. In all those circumstances the Consumer Advocate submits that the Settlement Agreement ROE figure of 9% is reasonable.
Nova Scotia Power’s position
After a year-long process, the settlement agreement provides Nova Scotia Power with $70 million less in revenue than the company applied for originally. It does not reduce its profits, which have consistently been above $100 million for the past dozen years. And it reduces its business risk related to storm costs and costs to retire carbon-emitting, coal-fired power plants that trace back to the Buchanan era.
While the final submission by the province made no mention of the downgrading of Nova Scotia Power’s credit rating, the submission by the power company spends many pages detailing how the government’s legislation has negatively impacted its business. Specifically linking its downgraded credit rating to higher borrowing costs in the future that will eventually get passed along through higher power rates. Nova Scotia Power notes:
The amendments to the Public Utilities Act have real and material near and long-term impacts on the costs Nova Scotia Power must incur to provide electric service to its customers. The Board’s consideration of whether the Settlement Agreement represents just and reasonable rates and is in the best interests of customers must occur through the lens of the PUA Amendments and consider the increased costs and risk that have resulted from this legislation.
What other intervenors had to say
In a final submission from lawyer Nancy Rubin on behalf of Dalhousie University and large companies such as Michelin and Oxford Frozen Foods, Rubin said she worries about the future impact of additional information provided by Nova Scotia Power since the rate hearing concluded. Rubin says:
It is noted with concern that fuel and purchased power remains a moving target and the deferred and under-collected amount continues to grow. The most recent October monthly FAM report which includes actuals to the end of October forecasts the 2022 under-recovery at $315.8 million.
The Houston government has paid $165 million of that amount to try and keep rates down. Rubin notes that although the agreement proposes paying off the entire 2022 balance in two years’ time, the fuel bill could end up being well above what is reported today. If so, that should trigger a re-visit by the UARB.
The NDP caucus also filed a final submission to the UARB critical of the action taken by the Houston government in the process to determine power rates.
We were disappointed to see the Premier make another unprecedented move of dismissing the settlement and threatening action if it is accepted. Our caucus is adamant that it remains possible to respect the regulatory independence of the UARB, address high power bills, and build a reliable and green electricity system.
Hasty amendments to the Public Utilities Act did not fix the issue of rising rates, address reliability issues or assure Nova Scotians that there is a plan to meet our climate change targets.
The “threatened action” the NDP mentioned was contained in a letter Premier Tim Houston wrote to the UARB after the settlement agreement was made public. Nowhere in the final submission by the province is there any mention of the government bringing in additional legislation should the UARB approve the agreement.
Nova Scotia Power is asking the UARB to make a decision that would see power rate increases take effect next month. A decision is expected by the end of this year.