Nova Scotia’s government introduced legislation last week that would effectively freeze electricity rates – a move observers said could delay retirement plans for the province’s coal-fired power plants.
Bill 212, which underwent first reading on Wednesday, would compel the Nova Scotia Utility and Review Board to grant Nova Scotia Power (the province’s largest utility) a rate increase no greater than 1.8 per cent between now and 2024 – far less than the utility had requested. The legislation effectively bypasses the utility board, which normally sets the rates that electric utilities charge customers after a lengthy hearing process.
DBRS Morningstar, a bond rating agency, said the legislation will “be negative” to the company’s creditworthiness and that “the heightened and adverse political interference will reduce the predictability and stability of the regulatory framework.”
While Premier Tim Houston’s majority government doesn’t need it, the move seemingly enjoys widespread support. The provincial Liberal caucus decried Nova Scotia Power’s request to increase its allowable profits “while people’s purchasing power is being reduced and our economy is heading toward a recession.” The NDP had also called on the Premier to intervene.
Scott Balfour, president of Emera Inc. EMA-T, the utility’s parent company, said an annualized rate increase of 0.6 per cent won’t even keep pace with inflation, let alone allow the utility to make the investments necessary to meet provincial requirements to close and replace coal-fired power plants by 2030. He said the utility informed the federal government it is pausing work on the Atlantic Loop, a proposed expansion of regional transmission infrastructure intended to facilitate more clean energy generation throughout the Maritimes.
“Half a billion dollars of investment that Nova Scotia Power was going to make in 2023 and 2024 is now not going to happen as a result of this legislation,” he said.
“The path to be able to close those coal plants by 2030 was always very challenging,” Mr. Balfour added. “Frankly, right now, I don’t see a path.”
The conflict highlights how rising utility bills can trump other considerations – and may bode ill for other Canadian provinces and utilities striving for carbon-free power grids.
Nova Scotia Power applied to the utilities board for a rate increase in January. In its written application, the company asserted that since 2014 it has maintained rate increases in line with inflation “through aggressive and prudent cost management.” However, it emphasized that transitioning from fossil fuel to clean energy required “an adjustment” to NS Power’s electricity rates and its rate design. Moreover, recent high inflation was significantly raising its costs.
Including budget increases for Efficiency Nova Scotia (a separate utility that promotes more efficient use of energy within the province), the requested rate increase amounted to 5.2 per cent in each of 2023 and 2024.
Other factors are contributing to rate shock. A recent filing to the utility board revealed Nova Scotia Power is considerably over budget this year on coal, natural gas, diesel and other fuels, as well as greenhouse gas compliance costs: As of Aug. 31, it had paid $483-billion, compared with a full-year budget of $276-billion. It passes these fuel costs on to customers through something called the fuel adjustment mechanism.
Controversially, Nova Scotia Power also asked for a broader allowable profit margin. It’s approved to earn a profit of between 8.75 per cent and 9.25 per cent, but asked the utility board for a broader allowable range of 8.5 per cent to 9.5 per cent. It also asked that its shareholders be allowed to keep half of any returns above that level.
During hearings before the board in September, Daniel Boyle, a lawyer representing Nova Scotia’s Department of Natural Resources and Renewables, said the utility had “overstated its business risk, which in turn has inflated assumptions on what constitutes a reasonable regulated return on equity.” He also criticized compensation paid to executives, which he said “far exceeds the regulated compensation figure.”
William Mahody, a lawyer appointed to represent the interests of Nova Scotia’s residential power consumers, said at the hearings that Nova Scotia Power, as a monopoly, might be preoccupied with “justifying rate increases, rather than focusing on cutting costs and finding efficiencies to avoid the necessity for rate increases.” He urged a reduction in the company’s allowable return on equity.
Fending off accusations of inaction last week in the legislature, Tory Rushton, Minister of Natural Resources and Renewables, said his government was “very clear from the start that we did not want to see a rate increase from Nova Scotia Power.”
The Ecology Action Centre, a Halifax-based charity that focuses on environmental issues, said that while it was pleased the government had stepped in to address energy affordability, it feared the legislation would only lower rates in the near term, while hindering Nova Scotia Power’s transition to cleaner power generation.
“The risk is, if they can’t get the money to invest in greening the grid, and they can’t get the loans to invest in more infrastructure, we could be at a stalemate,” said Jacob Thompson, the organization’s energy co-ordinator. “And it might not just be for two years. We could delay our 2030 plans for five years.”
Mr. Thompson urged Nova Scotians to look beyond rates when thinking about energy affordability. He said that even if they’re rising, efficiency programs and other techniques that reduce demand could lower household energy costs over all.