Manipulating Electricity Rates
Posted December 5, 2014
Investments in making use of electricity more efficient are subsidized by all ratepayers. You pay whether you use it or not. So make sure you get your share.
Subsidies and knowledgeable advice are available to residential, commercial, and institutional customers. Readers can get a feel for how it works from the Efficiency Nova Scotia website.
Each energy-saving project helps those who participated, helps the environment since it reduces the total amount of power being generated, and helps the economy if it makes a business more competitive.
The program saves money for participants, so they use fewer kilowatt hours, the measure that appears on your electricity bill. But the program does not cause rates per kilowatt hour to go down. So those who do not participate are paying for a program from which they get no benefit in their power bill.
Because Nova Scotia Power (NSP) is a monopoly the Utility and Review Board (UARB) has responsibility for regulating electricity rates. Customers are represented at the board by knowledgeable advocates for residential consumers as well as small and large businesses.
Having this done at arm’s length from government is a good idea. Power rates are politically sensitive. Given the chance, governments will always be tempted to manipulate them to hide and postpone the true cost.
The three principal components are operations and maintenance, fuel, and paying for investments in transmission and generating capacity. The first two are incorporated into customer prices based on actual experience, subject to oversight by the Board that they are being well managed.
NSP makes its profit by supplying the money needed for investments in capacity. That is why they (through Emera) were so anxious to participate in the Muskrat Falls investment rather than just buying and reselling the electricity.
Until now the money spent to subsidize efficiency initiatives was paid for immediately by all customers as a visible surcharge on their bill.It makes residential rates about 4% higher; for participants Efficiency Nova Scotia predicts average reductions in consumption of approximately 12% so participants see their bills go down by 8%.
The spending on efficiency initiatives does not provide any profits for NSP because it does not require any capital investment.
All this will change at the beginning of 2015. The cost of it will no longer show up as a separate charge on your power bill. Rather it will be charged to NSP.
It will show up in customer bills, but not in 2015. The Liberals’ 2014 legislation requires NSP to provide financing for the cost. Customers will pay it off, with interest, over eight years starting in 2016. Customers who participate in new energy-saving projects should receive the same kind of benefits as in previous years.
Financing the cost will be an attractive way for NSP to increase its profits. It’s easier to manage a bank account than a coal plant. The minister’s suggestion that he is “removing” the charge to customers is nonsense. The charge is just less visible, and made bigger by financing costs.
The UARB decided on a related matter on Nov. 25. As a result of last year’s long cold winter and high fuel prices there was a substantial bill still to be paid for 2013 and 2014. Typically this would be spread over future years to prevent abrupt rate increases.
Every one of the representatives of customers urged the UARB to offset the deferred fuel cost by the amount of efficiency spending that was being deferred to later years. Doing so allowed rates to remain level while reducing future interest expense to customers.
The decision concluded: “The question the Board has to ask itself is, if the customers wish to begin paying this obligation early and NSPI does not object, why would the Board not accept that suggestion as being reasonable? Indeed, Counsel for the Province candidly conceded it was a reasonable option.”
The minister apparently does not think it reasonable because he was denied the political trophy of announcing that he had caused a rate decrease. In an op-ed piece in the Chronicle Herald he said: “Government is very disappointed with this decision…the government will bring in legislation that will better protect ratepayers by changing the relationship between Nova Scotia Power and the Utility and Review Board. It is our goal to ensure more affordable rates and greater accountability on bills.”
The minister’s position dismisses the unanimous recommendation by well informed customer advocates, adds to NSP’s profits, and increases rates in later years. Is that what he wants to ensure in future?
Exactly what changes he has in mind is not clear but ratepayers should be very concerned. He seems to want the ability to manipulate rates for purely political purposes, which is exactly what the UARB was set up to prevent.
In the meantime, find a way to benefit from the Efficiency program. You will be paying for it anyway, sooner or later.
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