Critic of 'overly generous' Nova Scotia Power profits worried about rate cap - Action News
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Nova Scotia

Critic of 'overly generous' Nova Scotia Power profits worried about rate cap

An expert in Canadian electric utilities says the Houston government's decision to impose a cap onNova Scotia Power'srates, spending and profits "shocked" him.

'I don't think anybody anticipated that the province would impose a restriction like this,' says business prof

The side of a building with a sign that says Nova Scotia Power.
Provincial legislation now limits the profits of Nova Scotia Power. The province suggested the company eat extra costs not covered in rate increases by earning lower profits. (CBC)

An expert in Canadian electric utilities says the Houston government's decision to impose a cap onNova Scotia Power'srates, spending and profits "shocked" him.

"I don't think anybody anticipated that the province would impose a restriction like this," says University of Toronto business professor Laurence Booth.

"I was shocked."

Booth provided expert testimony for the Nova Scotia Utility and Review Board during regulatory hearings into Nova Scotia Power's application for higher rates in September before the province imposed a 1.8 per cent rate cap on non-fuel costs.

The province said it was acting to protect ratepayers.

Legislation also limited Nova Scotia Powerprofits and required revenue generated by the 1.8 per cent increase be spent only on strengthening the electrical grid. The province suggested the company eat extra costs not covered in rates bylowering its profits.

A critic of overly generous profits

"I do sympathize with the provincial government," Booth said.

Booth saidCanadian utilities have long reaped overly generous returns for too little risk a criticism he levelled at NovaScotia Power in testimony during the rate application.

But Boothsays political intervention like this is "a repeated problem" in the United States and rare in Canada, where utilities recover their costs in return for slightly lower rates of return.

Laurence Booth is a business professor at the University of Toronto. (CBC)

"I think in many cases that's a little bit generous, but that's the regulatory compact."

Booth says the province stepped on an independent regulator doing its job,sorting through a very expensive transition away from fossil fuels mandated by federal and provincial governments.

Nova Scotia Power is entitled to recover the cost of the coal-fired plants built to generate electricity and the renewable energy sources required by governments.

Credit rating shot

"The result is electricity users in Nova Scotia are going to be paying twice, once for the coal plants that are no longer used and useful, and again for alternative production," Booth said.

"Nova Scotia Power has got legitimate grief here and the board is stuck between a rock and a hard place, trying to implement policy in a reasonable way consistent with what every other regulatory board in Canada has done and they've just been sideswiped."

The rate cap triggered a credit rating downgrade, shutting Nova Scotia Power out of the commercial paper market basically an IOU issued by corporations with excellent credit ratings to cover short-term spending.

Its long-term credit is now one notch above junk bond status.

"What I fear is that the rating agencies like Dominion Bond Rating Services and Standard & Poor's, they're going to say, well, perhaps Canada isn't the safe, conservative regulatory environment that we thought it was, and they'll revise their opinion not just for Nova Scotia, but for every other utility in Canada," he said.

After the province imposed its rate cap, Nova Scotia Power and lawyers representing its major customer groups and some advocacy groups reached a settlement that would see rates increase by 14 per cent over two yearswhich includes higher fuel costs incurred by the utility.

Deadline Wednesday for final submissions in rate case

Nova Scotia Power insists the settlement adheres to the rate cap.

The proposed rate is currently before the Nova Scotia Utility and Review Board.

The deadline for final submissions is Wednesday.

Premier Tim Houston has called on regulators to reject the proposed increase, but has not said what the government will do if regulators accept the settlement.