When Chris Huskilson retires as president and CEO of Emera at the end of this month, there is nothing to prevent his successor Scott Balfour from assuming Huskilson’s executive position and continuing in his current role as the Chair of the Board at Emera-owned Nova Scotia Power.
A decision Friday from the Province’s Utility and Review Board says it does not have legal authority under the Public Utilities Act to “order” that Nova Scotia Power be run by a separate leader to prevent conflicts of interest where ratepayers’ interests may not be the same as shareholders.’ The Board clearly wishes it did; stating in its decision:
What the UARB is concerned about is a governance circumstance that has been created which, to quote Board Counsel, “is rife with conflict.”
With its hands tied legally, the UARB is stuck with making a moral appeal to a company that does about $66 million dollars a year in transactions with its parent company Emera and many sister companies, including Emera Utility Services, Emera Maine, and Emera Caribbean.
The UARB has “requested” NS Power voluntarily return to the separate governance structure it maintained prior to June 2016. That’s when Emera COO (Chief Operating Officer) Scott Balfour was appointed chair of NS Power and a change was made that dropped the requirement that an independent director outside the Emera family of companies hold the leadership position.
On Friday, NS Power refused to explain or comment on why that change was made. The utility issued a statement in which president Karen Hutt said the company was “pleased” with the Board’s decision and had already made changes — an apparent reference to relieving Scott Balfour of his duties as chair of two other Emera affiliate companies, Emera Utility Services and Emera Brunswick Pipeline. That change was made last month, after the UARB hearing and following an intriguing case argued before the National Energy Board: Emera and Nova Scotia Power found themselves on opposite sides of a dispute over natural gas tolls. Notably, Balfour sat on all three boards of directors of companies involved in the dispute.
“The UARB has requested that we consider changes to our board structure,” said Karen Hutt in response to the regulator’s finding that NS Power ought to be chaired by a person outside the Emera orbit. “We will bring this to our Board of Directors for their consideration.”
Because NS Power has a virtual monopoly on the sale of electricity, rules have been set out in an Affiliate Code of Conduct for nearly a decade to prevent a situation where the buying and selling of goods and services among Emera-owned companies could result in ratepayers cross-subsidizing sister companies. The Code is also to ensure fair competition for companies outside the Emera stable which might want to compete for some of that work.
The UARB hired NorthStar Consulting of California to audit NS Power to see to what extent it had complied with these rules. Out of the 53 transactions NorthStar examined, it found two dozen shortcomings, but no clear examples where ratepayers should be reimbursed because the company had made a costly decision.
Consumer advocate Bill Mahody and lawyer Nancy Rubin, representing a group of Nova Scotia manufacturers, both argued ratepayers would be better served by a utility with a single focus and separate management from its parent company, Emera, which now has over $29-billion in assets spread among nine companies in several countries.
NorthStar argued that the co-mingling of senior management and leadership roles between Emera and NS Power should stop, because it ran contrary to the Affiliate Code of Conduct. The company disagreed and defended those decisions on the basis that “fiduciary obligations of Board members to act honestly and fairly” bind them to confidentiality, and to recuse themselves (withdraw from any discussion) that could be perceived as a conflict of interest.
The 80-page UARB report doesn’t disagree with that position but notes “there has not been a single documented recusal by an NSPI official, including its Chair of the Board of Directors, since these changes” (in June 2016).
The UARB decision means Nova Scotia Power has won that argument — unless the present or a future government decides to amend the Public Utilities Act to give the watchdog the authority to “interfere” in the management structure of an electrical utility that is accountable to its one and only shareholder: Emera.
Meanwhile, here are a handful of the key findings as described by the UARB and prescribed to Nova Scotia Power to comply with the existing Code of Conduct:
• The management structure is not sufficient to prevent conflicts arising. However, the UARB does not have jurisdiction to order NSPI to have an independent Chair for its board of Directors. The UARB also directed additional safeguards to address management conflict and confidentiality issues. (Examples include requiring the Power company to report all changes to its executive leadership team and preventing Emera affiliates from sharing the position of director of procurement.)
• Documentation was not adequate to support a number of contracts made with other Emera companies. NSPI did not adequately check to see if the work could be done by NSPI employees. (Note: One contract NSPI awarded to Emera Utility Services for transformer oil testing may have been carried out at less cost by employees of NSPI.)
• NSPI is required to advise the UARB if a new Power Line Technician contract is awarded or extended. The UARB reserves the right to revisit this if issues are identified in any future audit.
• NSPI and other participants are to develop a Cost Allocation Manual for UARB approval to address purchasing and accounting concerns. The UARB may direct further review if concerns are identified in future audits.
• The UARB advised NSPI that it would consider disallowing transactions in the future (essentially charging the cost of those transactions to company shareholders, instead of to ratepayers) if there is continued failure to adequately comply with the Code.
Tough talk, but limited action.