The Conflict Over NSP’s Rates Could Cause Chaos

Former Prime Minister Lester B. Pearson once observed that “Politics is the delicate use of blunt instruments.” Premier Houston is all about blunt instruments but has not shown interest in the delicate part.

Crown corporations have been mashed together and their boards and CEOs dispatched. Deputy Ministers are relieved of their responsibilities. Municipalities, especially Halifax, are having their planning regimes and bylaws overridden.

The Utility and Review Board is charged with making fact-based decisions on many issues, including power rates. Houston has pre-empted the Board’s decision on Nova Scotia Power’s rate proposals. These would have upped the yield on shareholder capital from 9.25% to 9.5% and increased the amount of capital that went into each investment.

He is trying to dampen the pace at which electricity prices are increasing. Ironically, one source of the spike resulted from the last time government substantially interfered in the rate setting process. In 2012 the NDP made it difficult for the UARB to turn down the very bad deal for Muskrat Falls power.

Emera, who were enabled to invest $450 million at 9.1%, must have been very pleased with that legislation. Perhaps they had a role in shaping it.

Both of NSP’s proposals are vetoed by government legislation, a decision that the UARB might have reached on its own. Even more distressing for Emera, NSP’s shareholder, is a ceiling on rate increases attributable to expense growth other than for fuel, power purchases, and spending on demand reduction. The limit of 1.8% over two years can only be for spending to improve reliability of the grid.

In addition, a new Performance Partnership Advisory Table is to make recommendations to the UARB about performance standards that NSP should meet, and administrative penalties if they donot.

Emera owns other utilities besides NSP. It is a valuable head office employer and a good supporter of the community—the Emera Oval and the Emera IDEA building on Dalhousie’s downtown campus being two examples. This time the legislation is not in their favour and they are deeply upset.

Emera CEO Scott Balfour has been overplaying his hand. In May he tried to bully the UARB into accepting NSP’s request for profit increases by saying that they would down tools on initiatives for cleaner and more reliable energy if they didn’t get their way.

In response to the government’s legislation, they are stopping work on the Atlantic Loop and other green projects and reconsidering their views about investing in Nova Scotia. He says the government’s action should make any company rethink their plans to invest here.

There are many potential providers of new green power, so if Emera stops investing other players may step up. The recent tender for large wind power projects produced five winners out of 15-20 proposals. The government says that another round like that can move the province close to its goal of eliminating carbon by 2030.

Premier Houston is also overplaying his hand. NSP’s expenses include depreciation on investments to replace coal and improve reliability. The restrictions on expense growth leave little room for new investments, and do not adequately provide for inflationary pressures on wages and materials.

Standard and Poor’s, a bond rating agency, has downgraded the ratings outlook for NSP and Emera from stable to negative. That will increase NSP’s borrowing costs, adding further pain to ratepayers.

That kind of behaviour is usually associated with reckless populists. What is Houston going to do when workers go on strike for wages that keep up with inflation? Or NSP stops buying new poles and wires because the budget has run out? Or investors refuse to lend to NSP as its balance sheet deteriorates?

Emera might for pure spite launch litigation that would go on for years. The recent Supreme Court decision supporting Annapolis Group’s suit against Halifax Regional Municipality for damaging the value of their lands might bolster Emera’s case.

The intervention’s stipulations are likely to fall apart before the two years are up. In the unlikely event that they survive, one or both opposition parties will, as they have with rent control, urge Houston to do it again.

There are already calls for the province to buy NSP. That would be a terrible idea, resulting in non-stop demands for government interference on a topic which neither the civil service nor the politicians understand.

The decision to deny NSP’s proposed profit increases was correct, but it would have been much better for it to have been done by the UARB. Arguably, the province was provoked to interfere by Balfour’s highly inappropriate bullying in May.

The decision on expenses is wrong and will be a recipe for chaos. Houston and Balfour need to take a deep breath and start a new conversation, delicately.

The UARB’s role needs to be protected. An independent review of the UARB’s effectiveness might be useful, but the goal should be to strengthen, not replace. It is worth remembering that Newfoundland and Labrador’s disastrous experience with Muskrat Falls started with a decision to bypass their UARB equivalent.

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