Power Pays

The announcement of robust remuneration for executives at Emera and Nova Scotia Power (NSP) in the same week that yet another rate increase was being sought was, to say the least, unfortunate timing. Apparently shareholders are happy with what management is achieving. That executives were feeling festive is understandable but it would have been good taste to keep the celebrations private.

People of all political persuasion have expressed dismay and are unmoved by arguments that the pay amounts to only a few dollars per household. But the fussing over executive pay risks distracting attention from issues that are harder to understand but have a much larger impact on power rates.

1) Fuel costs are declining. The price of natural gas, though slightly higher than the record lows of recent months, is much less than when coal plants were converted to gas. In the United States the proportion of electricity from coal has dropped from 52% to 37% in the last five years as replacement with gas (also providing a great greenhouse gas benefit) becomes more and more attractive. So coal prices are also softening and New England electricity rates are decreasing. Shouldn’t the same happen in Nova Scotia?

2) Interest rates are  also near record lows. Long term Government of Canada debt obligations are paying less than 2.5%. An important cost for NSP is the interest on money borrowed to build new generation plants and transmission lines. Shouldn’t that cost be going down? And in this low rate environment shouldn’t the return on capital provided for in the electricity rates also be reduced?

3) Emera is an important supplier to NSP. This matters because while NSP is a regulated utility Emera is not. A tendering process is not by itself any guarantee that customers are benefitting from the lowest possible price for the service. What assurance do we have that this self-dealing is best for electricity customers?

It is in the context of these three themes that the Premier’s wheeling and dealing on the Muskrat Falls project should be considered.

It is worth remembering that the government’s track record so far is not good. Why was $4.5 million invested in Scanwood just weeks before it was declared bankrupt? Was it a good idea to invest $60 million (together with $10 million of federal money) in the DSME Trenton wind turbine plant, which represents $1 million per job as of the end of April 2012? Or $15 million (of $38 million in total) to dredge Sydney Harbour for no jobs at all and no prospects? Was it necessary to bid $250 million more than Vancouver (which received only $40 million of support from British Columbia) to get the shipbuilding contract?

Consider then the proposal that Emera be awarded, without the hint of a competitive process, the right to build a $1.2 billion power line from Newfoundland. Furthermore the province seems determined to prevent alternative sources of power from competing.

Hydro Quebec has lots of power available, as evidenced by a recent long term deal with Vermont at attractive rates (starting at $58.07 per megawatt-hour, less than half the expected Muskrat Falls price). Perhaps a little more effort in this direction from the Premier would have attracted a comparable bid for Nova Scotia.

At today’s natural gas prices, or even double those prices, a combination of new gas generation and continued growth in wind could deliver cheaper electricity than will be available from Muskrat Falls, while providing more jobs and meeting the goal of reducing greenhouse gas emissions by 25%. The Premier is unwilling to allow this alternative to be evaluated by the Utilities and Review Board.

It is quite a coup for Emera CEO Chris Huskilson and his team to be awarded a $1.2 billion untendered contract. No wonder the shareholders showed their satisfaction by providing big raises.

It is not primarily with them that Nova Scotians should be annoyed.

It is the government whose actions are consistently sabotaging the possibilities for lower electricity  rates.  Government  should make it harder for Emera executives to please their shareholders.

RESOURCES

http://www.boston.com/business/ticker/2010/11/nstar_proposes_4.html

http://www.bankofcanada.ca/rates/daily-digest/

http://www.iso-ne.com/nwsiss/pr/2012/final_amr11_release_05152012.pdf

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