In energy game, ratepayers lose

May 13, 2012
Rachel Brighton

Along with making luxury payments to its top executive and seeking back-to-back rate hikes for two years, Nova Scotia Power Inc. is also nudging for higher returns for its shareholders.

The regulated return on equity for shareholders fluctuates around 9.2 per cent, and last year it reached 9.6 per cent.

But the allowable rate is “bare bones” and ought to be closer to 10 per cent, according to a detailed report that formed part of the rate application submitted to the Nova Scotia Utility and Review Board this week.

Expert evidence commissioned for the report suggests the utility’s return on equity is low and should be “competitive with those of its peers.”

Some utilities in Canada and the United States set higher rates for return on equity and allow higher ratios of equity to debt. These combined factors place the utility at a disadvantage, according to the report.

It seems Nova Scotia Power may be warming up the room for a future application to bump up the allowed return on equity, when we all get over the current rate bump.

In the meantime, shareholder demands and credit concerns are driving factors behind the current application, which would push up rates by three per cent in 2013 and again in 2014.

Without these rate hikes, shareholders’ return on equity would nosedive from the nine-per cent range to below three per cent in 2013 and below six per cent in 2014.

As well, the utility’s ratio of cash flow to debt would be critically low. This could lead to downgrading of the utility’s creditworthiness and an increase in its borrowing costs, following a negatively revised outlook from Standard & Poor’s rating agency this year.

The rate application also pours cold water on the idea that the shift to renewable energy will ease pressure on power rates.

Using more green power promises to reduce spending on fossil fuel, which should reduce our power bills because wind, tidal and hydro are “free.”

But fuel savings will be offset by increased capital expenses that will see more money spent on interest and dividends to finance the infrastructure needed for renewable energy production.

All this means that power rates will be under pressure from the markets, along with our own government’s push for green power.

The demands of paper mills for major subsidies from other ratepayers will also drive up rates, as will the current weak demand for electricity.

Part of that reduced demand reflects the effectiveness of the conservation programs that we pay for with a surcharge on our power bills.

Yet it’s a win-lose scenario, because the more power we save, the more we pay as the utility raises rates to cover the lost consumption.

The only winners in this energy game are shareholders, power producers, and, for the short or the long term, the subsidized paper mills.

This leaves lowly ratepayers two choices: buy shares in Nova Scotia Power’s parent company or get off the grid and produce your own green energy.

Rachel Brighton is a freelance journalist and former magazine publisher. She writes on environmental technology for the new Herald Magazine and on small business for The Chronicle Herald.

http://thechronicleherald.ca/business/95838-in-energy-game-ratepayers-lose