Conflict of Interest
Posted June 9, 2017
Suppose that in 2014 you were interested in building a new house, one more environmentally friendly than your current dwelling which, in any event, will be wearing out by the early 2020s.
A contractor makes a proposition to you. A supplier in Newfoundland and Labrador (NL) is about to start construction on several excellent houses, more than they can use there. The contractor provides pricing that looks not too bad, although you wonder whether the contractor should have bargained harder since the supplier did not have much in the way of alternative markets.
You agree to buy the house with an expected delivery date in 2017. The contractor will be responsible for building the foundation, transporting the house, installing it, and hooking up utilities.
Sadly, things have gone rather slowly in NL. It is now 2017 and the expected delivery date of the house has been pushed back to 2020.
Meanwhile, the contractor has rushed the foundation to completion. He now expects you to pay for the interest costs at the bank where he borrowed 70% of his costs, and interest at 9% on the rest, the contractor’s own money that was used.
You don’t find this very satisfactory. Surely the contractor was keeping tabs on the house builder. Didn’t he know about the delays? Shouldn’t he have proceeded more slowly? The foundation is of no use until the house is ready. And doesn’t he have a conflict of interest? The earlier he builds that foundation the longer he gets the juicy 9% return on his investment.
That imperfect analogy provides a glimpse of an important matter now before the Utility And Review Board (UARB). Back in 2013, Emera, through its subsidiary NSPML, championed Nova Scotia’s involvement in the Muskrat Falls hydroelectric project. Emera’s subsidiary was to build the necessary transmission infrastructure, including capabilities that would allow NL to export electricity to the United States.
In exchange, Nova Scotian customers were to get 35 years’ worth of renewable energy. Emera’s work is now very close to completion. Meanwhile, first power from Muskrat Falls is now forecast to be delayed until at least 2020.
Ironically, that is the first time we will actually need it. The 2017 date was set for NL’s convenience, not ours. Until 2020 NSPI can produce enough power from infrastructure ratepayers have already paid for.
Emera is now asking to be paid for interest costs on their investment as if there is no problem with the way they have managed their project.
Emera is in many ways a great Nova Scotian success story. Through successive acquisitions it has grown to the point that its roots here represent only 25% of its business. It is a major employer in Halifax and a strong community supporter.
It is their fiduciary duty to proceed at a pace that minimizes both construction costs and interest costs to be absorbed by Nova Scotian electricity customers. With its long and deep experience as an electric utility, Emera should know a thing or two about monitoring major construction projects, and should have known long ago that Muskrat Falls was seriously behind schedule.
Filings on the matter have been made and hearings will commence on June 12th. The consultant hired by the consumer advocate has challenged NSPML’s proposal to charge $326 million over the next two years even though there will be no power from Muskrat Falls.
The CBC reports that: “the regional energy giant warned regulators this week it would “not have proceeded with its investment” if the initial approval could be revisited.”
That is not true.
The UARB was aware of this issue. In its 2013 decision approving the project, it noted that, as proposed by NSPML “…the risks related to construction delays… fall entirely on Nova Scotian ratepayers. This is an unreasonable allocation of risk for this project.
“Accordingly, the Board expects NSPML to prudently manage the… project construction timetable in a manner consistent with the construction schedule of the other components… while remaining mindful of the total impact on costs in order to minimize costs to ratepayers.”
The Board indicated its intention to “… review the management of the construction risks by NSPML. The Board will make a decision whether (interest costs) will continue beyond 2017 based on how NSPML has managed the construction scheduling within the scope of the ML Project and the related phases” in NL.
NSPML chose to proceed knowing that was the condition.
It is not surprising that Emera is trying to charge the full interest costs—that is their duty to shareholders.
It will be surprising, and disappointing, if the UARB lets them have it.
Related ArticlesPower Plays
- Halifax’s Green Plan Must Fit Into The Bigger Picture November 26, 2021
- The Atlantic Loop As Explained So Far Is A Mirage November 5, 2021
- Beware of Political Promises About Climate Change July 23, 2021