On Wednesday, the Houston government introduced amendments to the Public Utilities Act to limit the size of power rate hikes the regulator can approve in the next two years. No one knows how high those rate hikes will be. That decision remains with the Nova Scotia Utility and the Review Board, although the government has given it new marching orders nine months into the process of sifting through thousands of pages of evidence.
Nova Scotia Power originally asked for a 10.2% rate hike over three years that did not include fuel costs for 2022, which have jumped by one-third. With 2022 fast disappearing, the request changed to 13.7% over two years.
On Friday, the company filed evidence that suggested if its fuel projections for 2023 and 2024 prove correct, power bills for residential customers could increase by 26% over the next two years.
Nova Scotia Natural Resources and Energy Minister Tory Rushton said on Wednesday that can’t happen.
“Global prices for fossil fuels have increased 200 to 700%,” Rushton told reporters during a bill briefing Wednesday morning. “Fuel costs are an unavoidable cost and well beyond anyone’s control … but we are protecting ratepayers as best we can by controlling what we can control by not allowing other costs to be passed on to ratepayers unless they improve the reliability of the system.”
Operation and maintenance costs make up about half of Nova Scotia Power’s costs, which until now, the utility has recovered from customers through power rates. Rushton said the government expects Nova Scotia Power to find efficiencies or use its profits — about $240 million last year — to cover its operating costs. With the stroke of a pen, these amendments mean such costs are no longer able to be downloaded to ratepayers.
Not surprisingly, Nova Scotia Power was quick to respond with an emailed statement from president Peter Gregg:
Today’s announcement by the Government of Nova Scotia poses serious risks to our ability to continue to serve our customers reliably and prepare for Nova Scotia’s future energy needs.
As an electric utility with strong regulatory oversight, we’re disappointed and concerned that the Government of Nova Scotia would use legislation to override what is meant to be a politically independent process. As part of our rate application, we requested over $500 million to strengthen our energy infrastructure and fund 60 new front-line jobs directly related to reliability.
Today’s proposed legislation limits this planned investment and the amount of storm preparedness and system hardening we can do in the province. As recent storms including Hurricane Fiona have made clear, severe storms will keep coming. Putting off these critical investments until later is not a solution.
This proposed legislation would impede our ability to meet targets set by the province to reach 80% renewable energy and be off coal by 2030. We’ve been focused on meeting these targets because they’re critical to building a sustainable energy future. But we can’t meet them without making the investments needed to get there… Serving our customers will always be our focus, despite the constraints imposed by this proposed legislation.
Meanwhile, Rushton said the government’s action today does not let the utility off the hook for closing coal plants by 2030. How that will be achieved — the rate application pegs the cost of retiring coal plants at close to $700 million and asks for the amount to be spread over many years — remains an open question.
The amendments to the Public Utilities Act would restrict increases in power rates to covering the cost of fuel, the cost of energy conservation programs delivered through Efficiency One, and the cost of “improving reliability of the grid.” Any power rate increases for spending on reliability will be limited to 1.8% over two years.
Trees falling on power lines are the cause of 90% of power outages; the utility spends on average about $20 million a year on “vegetation management.” The 1.8% rate hike would bring that spending closer to $25 million to $30 million a year, but even that might not be sufficient to withstand future storms.
Rushton was unable to estimate how much power rates will rise if, in addition to the 1.8%, the UARB decides to pass on 100% of fuel costs. Fuel costs are the big wild card, and the regulator gets to decide whether consumers pay them now or pay them later. If the UARB does pass along some or all the hundreds of millions of dollars in fuel costs over the next two years, rate hikes in the double digits are still possible.
“This is a bit of a smoke and mirrors announcement because the fact is, we are going to see increases because of the fuel costs and that is a terrifying thought,” said Susan Leblanc, the NDP critic on energy.
Leblanc said she wishes the government had acted on legislation the NDP proposed last spring, which would have permitted the UARB to establish a lower power rate for people struggling on fixed incomes.
“There are people right now, for whom literally any kind of increase to their power bills, will have to face the decision of paying for power or paying their rent. And many of them live in my riding (Dartmouth North),” Leblanc. “It just can’t happen.”
“We understand any private business is aiming to make a profit,” Rushton said. “But now is not the right time for a utility to be looking for more. In the General Rate Application, Nova Scotia Power asked to keep half of the profits above the amount approved by the UARB. We are saying ‘no.’ These excess profits will be returned to the ratepayers in full.”
Other amendments to the Public Utilities Act being introduced Wednesday do not reduce Nova Scotia Power’s profitability, but essentially maintain the status quo. Amendments will:
- not allow NS Power to earn above the 9.25% ceiling set in previous year; the company had asked for 9.5 %
- not allow proposed changes to the company’s equity ratio from 37 to 45%. The maximum will be 40%
- not allow NS Power to profit from interest earned on tens of millions of dollars in deferred fuel costs. The interest rate will be tied to the Bank of Canada rate plus 1.75%
The regulator’s role
The Houston government is also introducing an amendment that will require the UARB to respond within 90 days to recommendations brought forward by a yet-to-be appointed group called the “Performance Partnership Advisory Group.” Regulations are in the works to set it up. One of its key roles will be to recommend performance standards around reliability and meeting environmental targets.