Nova Scotia Power rejected a proposal Monday recommended by a majority of its electricity customers to phase in a planned power rate increase over the next three years.
Senior utility executives distanced the company from any deferral of fuel costs, arguing that financial markets want the utility’s costs paid in a timely manner or it will face higher borrowing costs when it builds a wind farm.
Nova Scotia’s consumer advocate, representing the province’s 440,000 residential customers, supports the proposal so customers don’t face rate shock next year.
In the coming years, Nova Scotia Power’s customers will be faced with "significant" increases to pay for energy savings programs, higher fuel costs and capital expenses on renewable energy projects required to meet new environmental targets, said Bill Mahody.
"The compromise reached by many of the interveners properly allows for the smoothing out of fuel costs paid by ratepayers over a relatively brief period," said Mahody.
"This deferral mechanism provides NSP with an opportunity to share in the burden faced by its ratepayers while also making the company whole by the end of the deferral period."
News of Nova Scotia Power rejecting the deal came on the first day of a scheduled hearing into its application before the Utility and Review Board to hike power rates for residential customers by 6.5 per cent starting next year.
If approved by the board, it would be the sixth power rate increase in nine years in Nova Scotia.
The utility is also seeking rate increases of 8.6 per cent for commercial customers and 11.3 per cent for industrial customers. In addition, customers are facing an increase of almost three per cent on power bills starting Jan. 1 to cover the $41-million budget of setting up a new government agency to run energy efficiency programs.
"What we are concerned about is future costs for customers. . . . We truly have customers in mind when we think about future costs of financing," Brian Rendell, Nova Scotia Power’s vice-president of finance, testified Monday.
The utility requires low-cost financing as it is investing over $1 billion in renewable energy such as wind projects and tidal development, said Rick Janega, Nova Scotia Power’s chief operating officer.
Nova Scotia Power’s largest customer, NewPage Port Hawkesbury Corp., maintains double-digit power rate increases are "very troublesome" at any time but, in these "uncertain economic times," they are of even "greater concern," said NewPage lawyer David MacDougall.
He said the energy efficiency charges combined with the proposed rate increase will mean an 8.8 per cent increase for homeowners and 12.4 per cent increase for large industrial customers.
Nova Scotia Power argues that those figures are "exaggerated" and higher than its estimates.
The proposed phasing in of the rate increases was agreed to by NewPage, Bowater Mersey Paper Co. and the so-called Avon Valley group, representing businesses, as well as the consumer advocate.
MacDougall said the board has the discretion to defer power rate increases under the new method, which was approved by the board in 2009, for recovering fuel costs called the fuel adjustment mechanism.
Under the plan, an estimate of Nova Scotia Power’s base fuel costs is reset every two years and built into power rates. The estimate is later adjusted in two stages so customers pay the actual fuel costs.
Nova Scotia Power is estimating its fuel costs to be $544.7 million in 2011.
The hearing continues today in Halifax.
http://www.thechronicleherald.ca/Business/1207674.html
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