What if…the Nova Scotia government acted to restrict profits at Nova Scotia Power and introduced a program to help low-income people pay their power bills?
What if… a portion of the power company’s earnings were tied to meeting performance standards for reliable service and reducing carbon emissions?
What if… a mechanism could be found so taxpayers could buy back a portion of the utility that was sold off in 1992 and is now a $6.1 billion company owned by Emera?
Fantasy Island? Or thinking outside the box of a regulated private utility?
The aforementioned “What Ifs” are the broad strokes contained in a series of four proposals presented by NDP House leader Claudia Chender in the legislature last week. Together, they aim to change the rules under which Nova Scotia Power has operated since it was privatized in 1992 by the Progressive Conservative government of the late Donald Cameron.
The proposed bills arrive just as Nova Scotia Power (NSP) has applied to the Utility and Review Board (UARB) to substantially increase its profitability while asking consumers to pay 10% more over the next three years. Power costs here are already among the highest in the country.
“When the rate application was filed, Houston said it was unacceptable and everything is on the table,” Chender told the Examiner. “Well, we are putting it on the table for him. Very little is prescriptive, but we are saying you cannot solve a systemic problem with a one-time fix. So we are proposing that we find a detailed and equitable way forward around power in this province that is not a quick fix.”
On Friday, Liberal leader Iain Rankin jumped into the fray with a bill called the Ratepayers Protection Act. If passed, it would prevent the UARB from considering an application to increase NSP’s profit to 9.5%. The Liberal bill would also dismiss a request by the company to increase from 37.5 to 45% the share of a project’s costs that could be financed by shareholders equity. That larger slice of the investment pie would then qualify for the same 9.5% profit and boost payments to shareholders by tens of millions of dollars.
From the Liberals’ Ratepayers Protection Bill:
Notwithstanding the Public Utilities Act, the Nova Scotia Utility and Review Board shall limit Nova Scotia Power Incorporated’s equity share to 37.5% of its capital investments and its rate of return to between 8.75 and 9.25 %.
According to the Liberals, their bill would prevent Nova Scotia Power from making even higher profits. But it would not have much impact on ratepayers.
In the meantime, Premier Tim Houston continues to hint his government may introduce its own legislation.
Of the Liberals’ bill, the NDP’s Chender says, “It’s a bill enshrining the status quo, which is exactly the opposite of what people say they want. The status quo is something Nova Scotians are increasingly fed up with, whether it’s power rates or reliability or energy efficiency. Sure — it’s better than nothing! But the point we are trying to make with the suite of legislation we are introducing, is that things need to fundamentally change. Nova Scotia Power is a legacy utility that is very good at doing one thing — which is building big plants, and it is rewarded through the power rates we pay.”
Reducing profits
Under the present system, ratepayers will pay the bill for whatever it costs to transition from generating electricity from coal to renewable sources. And while ratepayers feel powerless to control how much they will be charged for heat, lights, and hot water, the shareholders of Nova Scotia Power can count on a steady profit in the range of 9%, which hit $241 million last year.
The NDP’s “An Act Respecting Performance-Based Regulation of Electrical Utilities” proposes to turn that model upside down.
First, the bill proposes the government set up a commission to establish a “performance-based regulation framework.” There are many types of performance-based regulation; the NDP Bill suggests Nova Scotia Power’s profit margin or rate of return should reflect how well it complies with standards set in such categories as decarbonization, reliability, customer satisfaction, energy efficiency, and lowering power bills.
This approach builds in more accountability than performance standards the utility is currently supposed to meet, and which were designed to be an incentive to reduce the frequency and duration of power outages. Prolonged power failures after Hurricane Arthur in 2014 led to the establishment of these standards; after repeatedly failing to meet them, Nova Scotia Power paid a $250,000 fine in 2020. But the standards do not link reliability to profit.
The Examiner contacted Brendan Haley, Director of Policy at Efficiency Canada, a research and advocacy agency based at Carleton University. Haley’s ties to Nova Scotia include a two-year post-doc at Dalhousie University and his former work with the Ecology Action Centre. The Examiner asked for examples of places that adopted performance standards for such categories as reducing GHG emissions or increasing energy efficiency. Haley said states such as Minnesota, Hawaii, Massachusetts, and Vermont have made these environmental linkages, but no Canadian province has done so yet. Ontario and Alberta link profit to performance standards which control costs, although a standard that narrow can be used as an excuse to cut employees or programs.
Haley said some performance-based regulation models lower the amount of profit the company can earn to what it costs to pay interest on the money it borrows. That “cost of debt” is running around 3.6% today — significantly less than the 9% NSP earns most years. If the power company meets or exceeds certain performance standards, it could then earn additional payments or bonuses. This concept sounds closer to a variable rate mortgage, with the profit set at some percentage between the cost of debt (where the company would earn no profit) and a point that would still make the company an attractive investment for banks and shareholders.
But what if Nova Scotia Power doesn’t make enough money to attract investors to pay the construction costs of the Maritime Link? Or the depreciation on those mothballed coal plants when they close?
“I don’t know, but I think we are moving to a different paradigm, where what’s more important is seeing the utility acting as a system integrator of projects that are not directly owned by them,” said Haley, “almost like orchestrating ‘an energy internet’ rather than a utility whose main purpose is to make capital investments.”
The Performance Regulation Bill proposed by the NDP has another component. This provision separates how much ratepayers will pay to operate the grid (call it The Power Bill) from how much the company is allowed to charge (call it The Power Price). Without this separation, Haley said there is no incentive for Nova Scotia Power to encourage widespread adoption of solar technology or independently owned wind turbines, because that lowers their revenue and subsequent profit. To break this business model, some jurisdictions have fixed the amount of revenue that will be paid to the company. And if annual electricity sales exceed that amount, the company would then have to lower the price it charges customers in the following year.
“The name of the game would be trying to hold Nova Scotia Power at a lower revenue level,” explained Haley. “And then, if they do better in terms of improving reliability or reducing GHG emissions, you might provide a bonus or incentive because they would have reduced system costs or improved environmental performance.”
The Examiner reached out to Nova Scotia Power for a response to the flurry of bills currently being proposed by the NDP and Liberal parties. A statement provided by the utility’s Senior Media Relations officer Jaqueline Foster said,
Our 2000 employees work hard every single day to provide safe, reliable, and affordable electricity to our customers. That’s a commitment we take very seriously – not just because it’s our job, because Nova Scotia is our home, too. We live and work in communities across this province and are focused on meeting the needs of our customers as we continue the work to achieve government’s clean energy goals.
Buy back the power company?
The guts of the Nova Scotia Power Ownership Act is “a study” to see if there is any viable route whereby the province could buy back either some or all of the $6.1 billion power company owned by Emera.
There was no public consultation or study taken when Premier Don Cameron privatized Nova Scotia Power for $800 million 30 years ago. Last year, shareholders paid Emera’s president $8.2 million; the president of Nova Scotia Power earned $800,000. It’s worth noting ratepayers tapped out at $250,000, thanks to a legislative change made half a dozen years ago. The rest of Peter Gregg’s compensation was paid by company shareholders.
It’s hard to imagine how buying Nova Scotia Power could be a silver bullet to provide more accountability. Why would we want to take over aging coal-fired plants that will soon become a liability? The province, however, might be more interested in making an offer on the transmission system, especially if we eventually have excess wind or hydro power that could be profitably exported through the grid to the United States. Is it even possible to buy the transmission portion of the company without including the generation and distribution assets?
“I don’t have a degree in any of this, but what I understand is that this is a political hot potato generationally and we haven’t fixed it,” said Chender. “And the situation now is drastically different because we have legislated the end of coal. So what does that mean? How does that transform the bills we pay and how we generate our energy?”
If history is any judge, Brendan Haley thinks buying back Nova Scotia Power is a poor idea.
“The most important thing is to align objectives of the province with the utility. If not, nationalization could make things worse”, he said. “Politicians have found it easy to exploit people’s concerns about rate increases and to essentially push off the costs for future governments to deal with. I think that is what the McNeil government did… so I don’t see nationalization preventing premiers from playing politics with power rates and seeking to hide from the responsibility of the investments we do need to make.”
Low-income power consumers
The NDP proposes changing the Public Utilities Act to allow the UARB to establish a program for low-income people who can’t afford to pay their power bills. The Nova Scotia Court of Appeal ruled the UARB did not have that authority when the Affordable Energy Coalition tried to do that 15 years ago.
The NDP has no firm position on whether other groups of ratepayers (residential and business customers) would pick up the tab or whether that cost should be shouldered by the provincial government and taxpayers, as it is in Ontario.
In Nova Scotia, the Public Utilities Act was amended to ensure consumers who got behind on their power bill could not be cut off during the winter months.
The proposed “Equity and Sustainability in Electrical utilities Act” goes a step further, proposing that no one will be denied electricity if they fall behind on the bill. Consumers who spend more than 6% of their income would be eligible, but Chender said those kinds of detail are wide open for discussion. The 6% was based on a 2015 Statistics Canada report that found the average Canadian household spent 3% of its income on energy costs.
Chender said while she expects power rates will rise, one of the most effective ways to assist people with higher power bills is to reduce the amount of power they use. But insulating homes and apartment buildings costs big money, which poor people don’t have. The Energy Efficiency Act sponsored by the NDP is a companion bill that would triple the amount of money the province currently spends insulating and retrofitting buildings and homes.
Efficiency Canada has just released a study of provincial efficiency programs for lower-income people titled “Efficiency for All.” It indicates participants in Nova Scotia’s HomeWarming program saw an average 30% reduction in their power bill. http://efficiencycanada.org/low-income-report
Since 2015, about 1,800 low-income households a year have benefitted from major retrofits as a result of Nova Scotia Power contributing $3.7 million annually. As successful as that program is, Efficiency Canada estimates it reaches only 1.3 % of eligible households.
Efficiency Canada is urging the federal government to top up provincial energy efficiency programs geared to help low-income consumers. “Increasing the annual program reach to at least 5% could accelerate emission reductions and insulate low-income Canadians from energy price inflation and upcoming carbon price increases,” said Abhilash Kantamneni, Research Associate at Efficiency Canada, and co-author of the report.
The NDP bill aimed at increasing provincial government support for energy efficiency programs comes at the same moment ratepayers are being asked to pay more through our power bills. EfficiencyOne claims in the past 10 years its two dozen programs have saved $1.4 billion in energy costs and cut GHG emissions by 25%. EfficiencyOne is currently before the UARB asking for a substantial budget increase from $40 to $57 million in each of the next three years to expand its reach.
EfficiencyOne estimates that the plan could increase electricity bills by approximately $2 a month, starting in 2023, but customers will save far more – on average $5 a month,” according to the news release accompanying the EfficiencyOne rate application.
Interestingly, five dollars a month more is what Nova Scotia Power has estimated the average residential consumer will pay if its 3.3% a year rate hike is approved. Stay tuned; reforming energy policy is likely to remain a hot political topic over the next couple of months.
Hooray for the NDP proposals! It is certainly time to reconsider the role of utility companies, which provide a good that is increasingly necessary to all Nova Scotians. Electric power is so integrated into our society and functioning within the society, that governments should not allow private companies to determine whether they are providing power fairly and effectively. As a practical matter, those who may need electricity the most for their essential necessities, such as heat, lighting and operation of medical devices, are those least able to pay for rate increases and do not have the capital to limit their use of electricity or acquire alternatives.
Financial institutions use performance measures to determine how much security must be provided, or the amounts that must be retained in operations’ accounts for their borrowers. So there is really no reason for governments to take a tool from the private market sector to ensure that monopolies which provide public goods are making decisions and operating in the best interests of the public. Without such performance standards, monopolies make decisions primarily with an eye to lining their own pockets at the expense of the general public and ratepayers. The result is that NSP has ” saved” money by making cuts in service, failing to make prudent investments in necessary infrastructure, and failing to consider alternatives that may provide better service to the public at lower cost.