Thanks to a provincial government decision, Nova Scotians could be looking at a future power rate increase.
The decision splices together the strands of many competing public and private priorities, and depending on where you sit, you’ll rank them differently. They include reducing greenhouse gas emissions, meeting renewable energy targets, preserving forestry jobs, and — if you’re the governing party – getting re-elected.
The Halifax Examiner has learned that in 2020, the Minister of Energy authorized Nova Scotia Power (NSP) to pay its parent company Emera up to $7 million to provide additional renewable energy from biomass. The decision in question is an order for NSP to “maximize” the use of what’s known in the energy business as “dispatchable renewable electricity” at its Point Tupper facility and its Brooklyn Power biomass plant. How and why that happened is the subject of this story.
Burning biomass is an expensive and inefficient method to generate electricity. Usually, the power company has the authority to choose the least-cost fuel option. But that changed last spring, as a result of two separate events — both of which brought a significant political dimension to the fuel sourcing issue.
First, the Northern Pulp mill shut down. The province was under intense pressure to find new markets for bark and woodchips which the pulp mill had been buying from sawmills and forestry companies.
Then, less than two months later, the COVID-19 pandemic caused the shutdown of construction activity at Muskrat Falls in Labrador. This latest delay in the troubled megaproject meant the delivery of a large amount of hydroelectricity wouldn’t arrive in Nova Scotia until at least the middle of 2021 (the current ETA…not written in stone). Without it, NSP couldn’t meet its 2020 legislated target of producing 40% of its electricity from renewable sources.
Woody biomass (chipped trees, bark, etc.) remains designated as a “renewable” energy source in Nova Scotia. But many scientific studies and environmental groups maintain the fuel is not truly “renewable” because the clearcutting involved erodes the carbon storage capabilities of forested land (as opposed to just in the trees themselves) and because even just considering the trees, it takes decades to replace the stored carbon lost when tree material is burned for electricity.
That debate over biomass’s “renewable” designation may partly explain why (as reported by the Halifax Examiner) it wasn’t until September 30 that citizens first learned the government had authorized NSP to generate more renewable electricity from biomass back in May.
“Change to Renewable Energy Standards (May 2020) is enabling Nova Scotia Power to generate more electricity from wood chips and sawmill residuals by operating 2 biomass plants at capacity until electricity from Muskrat Falls comes onstream,” Kelliann Dean told the legislature’s standing committee on Natural Resources and Economic Development. Dean was chair of the Forestry Transition Team and is also the deputy minister of Intergovernmental Affairs. “We are using all the policy levers at our disposal to support the sector.”
The Brooklyn bonus
At no time, from May through September, was there any mention of an extra payment being made to Brooklyn Power (owned by Emera) to fire up those biomass boilers, which usually do not run during the summer months but did this year.
It was October before lawyers who represent consumers and large and small businesses during power rate hearings first learned of the potential $7 million cost. That’s when Nova Scotia Power wrote a letter to the Utility and Review Board asking that the pricing information involving the transactions between Nova Scotia Power and one of its suppliers (Brooklyn Power) be exempted from the usual scrutiny that applies to business dealings with its affiliated companies.
(It’s worth noting that the financial relationship between Emera, a company with $34 billion in assets, and its subsidiaries such as Nova Scotia Power, has been an ongoing source of contention for the Consumer Advocate and other intervenors who appear before the regulator.)
NSP argues that information about the Brooklyn contract should remain off-limits because the company was tasked with carrying out an order in the “Alternative Compliance Plan” issued by Derek Mombourquette, the province’s minister of Energy and Mines. The May 15 Plan had been preceded by an Order-in-Council approved by the premier and cabinet on May 5.
Here’s a summary of those events from a letter written to the Utility and Review Board in November by David Miller, the director of electricity policy and programs for the Energy Department:
On May 11, 2020, the Chief Executive Officer of Nova Scotia Power wrote to the Minister of Energy and Mines seeking relief under section 7(2) of the Regulations, stating that the expected shortfall of renewable energy from contracts associated with the Muskrat Falls Project was likely to last more than 12 months.
The Minister, using his powers under section 7(2), issued an Alternative Compliance Plan, attached to this submission, directing Nova Scotia Power to make up the shortfall for the Renewable Energy Standard for 2020. In summary, the Minister’s Alternative Compliance Plan directs Nova Scotia Power to make up the shortfall in two ways:
• by extending the compliance period for meeting the 40% renewable energy standard over the three calendar years of 2020, 2021, and 2022.
• by enabling NS Power to maximize the use of dispatchable renewable electricity from its own facilities and those of dispatchable renewable electricity power producers in Nova Scotia, excluding COMFIT generation sources.
The Minister recognized that requiring additional output will create a burden on suppliers and directed Nova Scotia Power to make payments exceeding current contracts by $30/MWh to account for additional costs to suppliers.
This Alternative Compliance Plan specified dispatchable renewable energy, which was the source expected to provide additional renewable energy in the near term and maximize the use of Nova Scotia resources while balancing the potential impacts to ratepayers.
Wind and solar power are renewable sources of energy but they are not constant or “dispatchable” sources. Sharp-eyed readers will note the word “biomass” does not appear anywhere in David Miller’s letter. “Biomass” is a lightning rod in Nova Scotia for the aforementioned reasons and this letter refers only to “dispatchable renewable electricity.”
However, the May 15 letter from Energy Minister Mombourquette to the former CEO of NS Power couldn’t avoid mentioning the term:
Nova Scotia Power shall also maximize the use of dispatchable renewable electricity from its own facilities, as well as those of renewable electricity power producers in Nova Scotia (excluding COMFIT generation sources)…. Additionally, if the renewable electricity power producer uses biomass as a fuel source, Nova Scotia Power shall only pay the additional $30/MWh where the electricity is generated using biomass by-products produced from harvesting or processing primary forest products… Nova Scotia Power shall not spend more than $7 million to comply with this provision.
Who made the decision to increase use of biomass?
Now here’s where the going gets tricky — and political — because it appears neither Nova Scotia Power nor the Nova Scotia government wants to be blamed for making a decision that could affect power bills.
In its November 4 response to a written question from the Utility and Review Board, the power company says buying electricity from its parent Emera’s Brooklyn plant is the only way it can comply with the government’s directive:
NS Power confirms that it is maximizing the use of dispatchable renewable electricity from the Company’s own facilities (the biomass co-generation plant at Point Tupper). The Company also confirms that BPC [Brooklyn Power Company] is the only other renewable electricity power producer in Nova Scotia that can provide both dispatchable and renewable electricity as required under the terms of the Alternate Compliance Plan. There are no other sources in Nova Scotia from which NS Power can acquire dispatchable renewable electricity, whether biomass or otherwise. [emphasis added]
But wait. When contacted by The Halifax Examiner last week, that’s not the version of events put forward by the Department of Energy.
“The 2020 Alternative Compliance Plan does not require additional biomass, nor does it direct Nova Scotia Power to contract with Brooklyn Power,” said Energy Department spokesperson Patricia Jreige in an email. “Instead, it requires Nova Scotia Power to purchase additional dispatchable renewable energy. NS Power has identified the Brooklyn Power facility as a dispatchable renewable energy producer that could increase its output of renewable energy and would do so for the additional payment required by the Minister’s letter.”
Huh? Semantics aside, there seems to be plenty at play here.
Why does Brooklyn Power require an additional payment of $30/GWh to operate its 30 MW biomass facility? The following numbers show a significant increase in the amount of biomass purchased over this past summer and fall.
Source: Nova Scotia Power, November 2020
“The increase in price paid for biomass-generated electricity is because increased utilization of an existing generator may incur additional costs on the producer from wear and tear of the generating equipment, additional labour costs, potential for increased fuel costs, etc.,” replied Jreige, spokesperson for the Department of Energy and Mines. “$7M was set as a ceiling to ensure that increased fuel costs did not become burdensome on ratepayers, but encouraged producers to generate additional energy. $7M represents approximately 1% of the annual fuel bill for all of NS Power ratepayers.”
What’s going on here? If you’re looking for transparency, you won’t find it in these documents. Were there verbal conversations between the Department of Energy and Nova Scotia Power about using more biomass (aka preserving jobs in the forest industry)? Possibly.
It should be noted that NSP’s May 11 letter to the minister did not suggest or request using more biomass to make up for the shortfall in renewable energy. In fact, NSP estimates that additional biomass will replace only 4.6% of the renewable energy shortfall for 2020, which was exacerbated by this year’s dry summer. When asked by the Consumer Advocate, the utility estimated it will continue to burn more biomass through 2021, but will not need to buy from Brooklyn in 2022 — provided the tardy hydro power from Muskrat Falls finally arrives.
Former NSP CEO Wayne O’Connor did not recommend increasing imports of renewable power in 2020, saying that would be “prohibitively expensive.” ( The company did sign one contract with Hydro Quebec last year to help make up some of renewable energy shortfall.) As mentioned earlier, what Nova Scotia Power wanted from the Energy minister was a three-year extension to meet the 40% renewable goal.
On May 11, NSP president Wayne O’Connor wrote:
Although there continues to be uncertainty with respect to the commencement of delivery of the NS Block, NS Power is confident that if the compliance period was extended over a three-year period and counted domestic and imported renewable generated electricity, NS Power would achieve an average of 40% over the 2020 – 2022 period without materially increasing energy costs for Nova Scotians. We appreciate your consideration of this request.
Four days later, Minister Mombourquette agreed to the three-year extension. But he also ordered the increased use of “dispatchable renewable electricity” within the province — a decision that could add up to $7 million in fuel costs that will be charged back to homeowners and businesses.
The change to electricity policy may well have been one of those “levers” to help the forest industry, as suggested by Forestry Transition Team chair Kelliann Dean. That’s even though running the biomass plant at Brooklyn is an expensive proposition for ratepayers. Two previous fuel cost audits by a consultant hired by the UARB have come to that conclusion.
It is not a finding that Nova Scotia Power disputes.
From the Bates White Audit of Nova Scotia Power’s Fuel Costs 2018-19, page 330:
Conclusion XI-18: The Brooklyn biomass facility remains an expensive source of energy for ratepayers that is the product of a PPA [Power Purchase Agreement] signed in 1992. As we noted in our last Audit Report, given its high cost, it is not clear to us that, if proposed today, the contract would be in the interest of FAM [Fuel Adjustment Measures] customers — let alone the fact that the contract now resides with NSPI’s parent, Emera. Nevertheless, NSPI appropriately administered the contract during the Audit Period by minimizing the output of the facility—thereby minimizing the cost borne by NSPI ratepayers.
Boiled down to its most simplistic level, the contract requires Nova Scotia Power to pay Emera when the Brooklyn facility operates — but also when it doesn’t operate. (Sounds a bit like the contract for the Yarmouth ferry.)
Normally, it costs NSP and ratepayers less not to run the biomass facility. A lawyer for one of the business groups asked NSP if the company had brought this fact to the attention of the Energy Minister before he issued the Alternative Compliance Plan. NS Power has yet to answer that question.
If you have read this far, you may be wondering if there’s any prospect for ratepayers getting off the hook for the government’s $7 million decision. It doesn’t look promising.
The “trueing up” of fuel costs happens during a Fuel Adjustment Mechanism (FAM) review — about two years after the electricity has been produced. Nova Scotia Power deposits and withdraws from an account where money is held to smooth out fuel costs that come in at either above or below forecasts. So it will be 2023 before the impact from 2020’s and today’s higher fuel costs would flow through and be reflected in power rates that could rise by 1%.
The power company argues in its Nov. 4 letter that it can’t be held accountable since it the government chose to order more “dispatchable renewable electricity”:
NS Power would anticipate that during the next FAM Audit, the Auditor may review the transactions to confirm whether the additional payments to Brooklyn Power were made pursuant to the Minister’s Alternate Compliance. However, because there are no other sources of dispatchable renewable electricity in Nova Scotia and the Company is required to purchase from Brooklyn and pay the additional $30/GWh for compliance purposes, the Auditor would not be assessing them to determine if Brooklyn Power was the cheapest alternative source.
So it seems probable that extra cost will end up reflected in your power bill.
Information blackouts and “moist bark”
A hearing is currently underway to review fuel costs incurred back in 2018-2019. Once again, the Brooklyn biomass plant figures in the narrative. John Wilson, a consultant and expert witness hired by the Consumer Advocate, has filed a submission arguing Nova Scotia Power should refund customers for higher than forecast fuel costs for running the Brooklyn plant back in 2018-2019. Annoyingly, the public is unable to see the amount in dispute; the figures contained in the Bates White audit have been blacked out.
Wilson says consumers should be entitled to a refund because the bark supplied to Brooklyn by a particular company (the company name is also blacked out) was too moist. This required the biomass facility to buy more expensive (and presumably drier) wood chips. Was Nova Scotia Power able to recover the extra expense from its supplier of moist bark? Wilson says that remains unclear.
Then there is the domino effect. “The high dispatch cost for the biomass unit may have resulted in increased dispatch of more costly units,” states Wilson. If it costs more to run one facility, the power company will choose to buy relatively cheaper electricity from another generating plant. But the difference between the sources may drive up the overall system cost. As Wilson explained:
For example, if the biomass unit should have operated at a cost of $60 per MWh but actually operated at a cost of $80 per MWh, and if the marginal (highest priced) dispatched unit operated at a cost between $60 and $80 per MWh, then the costs to operate units over $60 per MWh could have been avoided entirely or in part.
The UARB will decide whether it’s worth ordering Nova Scotia Power to make that calculation. Certainly, paying out millions of dollars to its parent company Emera to run an already expensive biomass plant (not to mention the environmental consequences) is worthy of a revisit.
Perhaps it will take witnesses testifying under oath for ratepayers to find out ultimately who lit the fire in 2020 to burn more biomass under the guise of supplying a debatable form of “green” electricity.