Electricity Rate Forecast: Uneventful

The energy policy framework that the Liberals inherited was not very good, and their initial efforts made it worse. The Electricity System Review released this week is harmless enough and should give them some relief.

(1) Putting a limit on the size of the expensive Community Feed-in Tariff program earlier this year was a belated step in the right direction. The report likewise puts a ceiling on the amount that can be invested on behalf of ratepayers in future innovations. The report correctly calls into question the environmental friendliness and cost effectiveness of biomass projects that require the destruction of forests.

(2) Efficiency Nova Scotia (ENS) is a competitor with Nova Scotia Power (NSP), but the process for approving ENS budgets is based on the idea that it is competing with fuels to be a supplier to NSP. The report no longer uses that language. On the other hand, no change is proposed in the process to approve ENS budgets.

It is deplorable that Minister Samson continues former Minister Younger’s practice of claiming that the ENS costs have been “removed” from power bills when in fact they continue to be just hidden within the overall rate base.

(3) The crucial finding in the report is that little or no new capacity, whether through generation or imports, is likely to be needed before 2030. That is because we are committed to paying for Muskrat Falls power starting in 2018. That is before it will be required because our coal-burning plants reach the end of their economic life.

In the meantime the report recommends various experiments that will help inform decisions a decade from now. These include allowing new renewables projects to sell directly to consumers; permitting consumers, businesses, and institutions with their own generating capacity to sell electricity back into the grid at the same rate they pay for it; storage technologies for wind power; and a Community Buildings Solar Program. Projects will have to compete for the opportunity to experiment at ratepayer expense.

Each of the projects will add costs to customers because the cost of Nova Scotia Power’s generating capacity will be charged to electricity customers whether or not it is used.  The meagre competition that these experiments provide to Nova Scotia Power (NSP) will not affect its profitability.

Fortunately most of the experiments will not amount to much. For example the “Renewables to Retail” projects are likely to be more costly to customers than buying from NSP.

(4) An important exception is tidal power. These experiments are larger scale and will cause rates to rise by up to 2%. But if the experiments lead to a commercially viable technology for harnessing tidal power they will be well worth it.

(5) The review argues that competition is increasing because NSP’s ownership of generating resources has been diminished. But Nova Scotia’s Muskrat Falls investment is owned by a sister company of NSP, and two of the four large scale wind projects are half owned by NSP.

So the pretense that customers are benefitting from a new era of competition is false. We need to develop a viable system for creating real competition before the day comes when we need new sources of power.

At present only NSP can propose major new sources of energy for approval by the Utilities and Review Board.  We should be using the next decade to evaluate other approaches, such as separating ownership of transmission and load management from ownership of power generation. That way new entrants could compete on an equal footing for the right to provide new power facilities.

(6) An accountability plan has been introduced under which NSP can be fined up to $1 million if it fails to meet service standards. That is not much money to NSP. In 2012 it was dinged $2 million at a Utility and Review Board hearing for wasting time and being nasty to one of the witnesses. Perhaps the first effort at accountability sets the stage for a more meaningful program in future.

(7) Finally the government claims that its plan will cause rates to be stable and predictable for the next three years. They are likely to be stable with or without the plan. Thermal coal prices are about the same as they were fifteen years ago and less than half what they were at the peak in 2008.Coal still  provides more than half of our electricity.

The lack of rate increases is largely driven by those reduced fuel costs. In fact future rates would be lower if the NDP had done a more competent job of negotiating the Muskrat Falls contract, or the Liberals had used the chance they had to improve it.

The energy file was a key feature of the Liberals successful election campaign. Since then it has been an embarrassment. The benign external conditions underlying the Electricity System Review released this week should keep the topic off the front pages till after the next election.

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