Powerful Election Promises
Posted May 15, 2015
A central plank in the successful Liberal election platform included promises to improve the lot of ratepayers by beating up on Nova Scotia Power (NSP). The footings under that plank have been shown to be rather unsound.
“By forcing Nova Scotia Power to pay for Efficiency Nova Scotia, we’ll save you $46 million per year…” That is not what has happened, although the total has been reduced and NSP will pay $3.7 million a year to help low-income households access efficiency services. The rest is still being charged to ratepayers, just not as a separate item.
Regrettably former Energy Minister Younger kept insisting that the charge had been “removed” from power bills, even while he was arguing with the Utilities and Review Board (UARB) about whether the charge should be paid by ratepayers immediately or be amortized over several years.
“Stop asking Nova Scotians to fund Nova Scotia Power’s Profits.” NSP earns its profit by making capital investments. Some of this is financed by debt and the rest by shareholder capital. Ratepayers are charged both for the debt interest and the return on capital, which exceeds 9%. Notwithstanding the election promise to reduce it that rate of return on capital has not changed.
On the other hand, by urging the UARB to spread the cost of efficiency investments over future years the government has sought to add to the amount of capital on which NSP can make its 9%+ profit.
“A Liberal government will give you choice by breaking Nova Scotia Power’s monopoly and creating a heavily regulated, competitive market. This will stabilize and eventually drive down energy prices, much the same way breaking the phone monopoly drove down monthly phone rates.” That has not happened yet and is unlikely to for the next fifteen years. The problem is that, with a stagnant population, growing benefit of efficiency initiatives, and Muskrat Falls coming on stream later this decade, we do not expect to need any significant new investments in new power capacity before perhaps 2030.
The current proposals for a competitive marketplace involve consumers being able to buy directly from suppliers of new renewable power, if necessary using NSP transmission infrastructure. If a project is small it is very unlikely to be cost competitive. If a proposed project is large it will reduce the demand on the main system, so perfectly good generation assets will be idled. To protect other ratepayers, this cost will have to be borne by the new project, making it uneconomic.
So some useful pilot projects can be undertaken but nothing significant is likely to occur on this front for the next fifteen years. It speaks volumes that the government has asked NSP to propose a method for creating the opportunity for competition with itself. Those hoping for real competition will have to be patient, and long-lived.
All of this is context for considering the Electricity System Review released on April 30. It is a useful summary of where we have been, and the source of the comments above about stagnant future demand. But on its own it tells us little about the policy context going forward. That will appear in the Electricity Plan to be released this fall.
We also have a new Minister of Energy. All things considered this is an excellent opportunity to bring the messaging into closer contact with reality.
- In the near term little will happen to offer Nova Scotians real competitive choice. In the longer term that can only happen if the ownership of generation assets is separated from assets involved in transmission and systems operation. This is the right time to seek an independent report about whether this is a viable alternative for Nova Scotia, and if so to begin a careful planning process.
- Efficiency One wants to spend $40 million on projects next year. NSP thinks it should be half as much. No surprise there—they are competitors. Stop pretending that there can be a meaningful negotiation between them and let Efficiency One just submit its proposal to the UARB.
- Efficiency spending is going to increase rates whether or not it is amortized over a number of years. If amortization is chosen it requires borrowing. Given that the payments come from a virtually guaranteed source of revenue it is needlessly expensive to do so through NSP. Explore other financial instruments.
- Consider whether large corporations, universities, hospitals, and municipalities should be paying for a larger share of the projects that benefit them. That will reduce the impact on rates for others in their rate class who do not benefit from efficiency initiatives.
The 2013 Liberal platform on electricity was a political success. The developments since the election, and the efforts to pretend that the platform was being implemented when in fact it was not, have been an embarrassment.
It is time for a fresh start.
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