Ratepayers are facing a substantial power rate increase
Posted February 4, 2022
Politicians are fussing over the wrong issue, choosing to engage with a distraction created by Nova Scotia Power, Inc. (NSPI) rather than the core issue. Ratepayers will suffer.
Examples of past misguided interventions were noted in this space last spring.
The NDP government fostered the development of very small scale wind projects. To be viable, they needed rates far higher than large projects or imported hydropower. The entire extra cost increased power rates and will continue to do so until they stop working.
Far worse was the disastrous contract for Muskrat Falls energy championed by Emera, negotiated by the NDP and signed by the Liberals. Nova Scotia agreed to build a transmission line in exchange for a block of power that was to begin in 2018, at least two years before we needed it.
It is only in 2022 that large amounts of power began to arrive consistently, and the full commitment is still not being met.
The most recent example involves the ability of homeowners with solar panels to feed power they don’t need into the grid, for which they get paid at retail rate. That makes it one of NSPI’s most expensive sources of power for other customers. In addition they must balance an unpredictable flow of net-metered electricity.
Today the benefit enjoyed by the few is paid for by all ratepayers. It is not a lot when spread that widely but it is an unfair hit, especially for low income households.
NSPI is supposed to divide its costs equitably between the various groups of customers. It has proposed that the costs should be born by the solar panel owners. The proposal is submitted to the Utilities and Review Board (UARB) whose job is to ensure that the costs are reasonable and are shared appropriately among customers.
The proposal triggered an energetic reaction from the solar panel industry, saying that their business model would be ruined. Natural Resource Minister Tory Rushton’s supportive response was ill-informed:
- “…this government will protect ratepayers. …we are exploring all of our options to respond to this move…”
The minister seems to think that reducing the connection charge will come out of NSPI’s profits. It won’t. The issue is about which ratepayers should pay for it.
- “Nova Scotia has set one of the most ambitious targets for reducing greenhouse gas emissions and to get there we will need a range of solutions to expand access to renewable energy, including solar.”
Solar installations may be useful to the homeowner but the contribution to the provincial grid from net metering of household solar installations is like the impact of a garden hose fighting a forest fire. What urgently needs attention now is securing much more imported hydroelectricity, without which the province’s ambitious emissions goals will never be met.
- “As a government, we want Nova Scotians to continue to adopt solar. That is why we have continued to invest in programs that encourage Nova Scotians to do that.”
Solar is not cost competitive in Nova Scotia’s climate. Small scale solar is even worse. Wind is much better, and the wind often blows at night.
The whole discussion is a diversion. There is a much bigger target that needs the government’s attention and energetic response.
NSPI’s 3,100-page filing to the UARB asks for two changes to bolster their profits. To understand them it is important to remember that most of the expenses incurred in creating and delivering electricity involve front end investments in things like wind farms and transmission lines, which are paid for over their useful lifetime.
They are financed by a mixture of borrowing from external lenders and capital provided by Emera, NSPI’s shareholder. In the event of financial difficulty Emera’s investment would be at risk before lenders were affected.
NSPI debt yielded about 3.6% to lenders this week and has been lower on loans taken over the last five years. The shareholder money is targeted to achieve a 9% return. At present the money is divided into 62.5% borrowing and 37.5% by NSPI shareholders. The proposal is to grow the capital proportion to 45%, to affect all past and future projects.
The cost of building the Maritime Link to Muskrat Falls was more than $1.5 billion. Under this proposal more than $100 million of borrowing that might have been done at 3% will be replaced by shareholder capital earning 9% when the project is fully operational.
This would add about $7 million to the costs to be born by ratepayers for this project alone. Applied across the whole rate base, this will add tens of millions to the annual costs to ratepayers.
In addition, NSPI is asking that the maximum possible return be increased from 9.25% to 9.5% plus half of any excess. Emera is no doubt delighted that the Houston government is distracted by the tiny stakes in the solar issue.
If Premier Houston wants to further subsidize solar installations he should do so through government spending, not by insisting that they be subsidized by other rate payers, for most of whom solar installations are not an option. Hiding subsidies in the way rates are determined produces the relentless parade of rate increases for electricity that we have experienced.
The UARB has a sensible mandate and mostly implements it well. Houston’s vow to legislate the outcome he wants on solar is unwise and unnecessary. A more muscular intervention may be needed to address NSPI’s profit grab.
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