Power rates are going up

Power rates will go up an average of 1.5% in January and by the same amount for each of the next two years.

The new rates were approved by the Utility and Review Board in a written decision released Friday. While large industrial customers such as Oxford Frozen Foods will pay 3% a year more, residential customers will see a 1.3% increase on their bills. For “average” residential customers that will work out to an additional $70 a year by 2022.

Fuel costs account for 45% of the cost of electricity in Nova Scotia and that bill is forecast to increase by $2.2 billion over the 30-year period from 2020-2022. Higher prices for coal as well as the need to import natural gas to replace volumes no longer being produced offshore Nova Scotia are two big reasons. Ratepayers also start paying for the Maritime Link to bring in hydroelectricity from Muskrat Falls that will allow the province to hit a legislated target of generating 40% of electricity from renewable sources by 2020.

Electricity from Muskrat Falls is supposed to flow June 1, 2020 but that is dependent on the Project developer (Nalcor) successfully commissioning and working out current glitches in the software that will control the delivery of the power exports.

Nova Scotia Power had gone to the regulator asking for an average 1.9% rate hike a year, spread over both residential and industrial customers. In its written decision, the UARB regulators said one reason why it made a small reduction in how much NS Power could charge was because the company’s most recent forecasts on fuel costs turned out to be too high.

“In its evidence, Bates White (the Board’s consultant) noted that in 24 out of the first 30 months of the 2017-2019 Rate Stability Period, NS Power’s estimated fuel costs (upon which rates were based) were higher than the costs that were actually incurred. This led to over-recoveries from customers in each of those months. Taking all of the above into account, the Board considers that the public interest weighs in favour of reducing NS Power’s average rate increase of 1.9% per year by about 0.4%. While NS Power characterized this decrease as a ‘relatively small reduction,’ the Board is mindful that even small decreases will help Nova Scotians manage their household and business expenses.”

It’s fair to assume most Nova Scotians heating with electricity at this time of year would have liked to have seen zero increases in what NS Power is allowed to earn. The company did fail to convince the regulator that when it earns profits in excess of the 9% the UARB allows, that money should be allocated to a Rainy Day fund that would allow the company to use it for “non fuel-related items” to keep power rates stable ($38 million in storm repairs come to mind in the wake of Dorian). Advocates for consumers and businesses did not support that proposal and the UARB decision called it a “much less desirable solution.”

The UARB ruled that NS Power must continue to do what it has always done: place any excess earnings in the Fuel Adjustment Mechanism account that exists to put excess profits toward reducing fuel costs paid by customers. Since 2007, the UARB has applied $130 million of NS Power’s excess earnings toward the fuel cost bill.

Air pollution

There is still some unfinished business connected with the decision to approve power rate increases for next year. It has less to do with the UARB and more to do with the provincial government permitting an increase in air pollution, to use an old term. In its rate application filed with the UARB, NS Power stated:

“NS Power was advised by the Minister of Environment that the province intends to propose amendments to the Air Quality Regulations respecting the SO2 cap for a three-year period from 2020 to 2022.”  So far it hasn’t done so. If and when the government does, this will increase the amount of sulphur dioxide emissions polluting the air from the current 72,500 tonnes per year to 90,000 tonnes total* for two years, 2021-2022.

The revised emissions requirements are shown below in Figure 17 below.

The original rate application says: “SO2 (sulphur dioxide) is governed by annual maximum limits as well as a multi-year cumulative emissions limit of 304,500 tonnes for 2015 to 2019.   The forecast emissions over the 2020-2022 period were modelled to account for access to renewable energy from the Maritime Link which is forecast to displace solid fuel (coal) in June 2020. The revised SO2 emission limits for 2020-2022 will result in significant savings in solid fuel costs for customers”. (Emphasis mine)

The bottom line appears to be that the government is prepared to let NS Power purchase dirtier coal (“solid fuel”) that will produce more sulphur dioxide emissions because it is cheaper — to keep fuel costs down for ratepayers in a province where more than half our electricity is still generated by coal.

At the time of this writing it’s not clear how much money we’re talking about but perhaps NS Power or the Department of Environment will explain where the province is going with this. The regulations have not been proclaimed. Mercury emissions from burning coal will also go up in the 2021-2022 period for which NS Power intends to purchase offset or diversion credits to meet emission targets.

*As originally published, 90,000 tonnes was incorrectly stated to be the total for one year.