N.S. Power could profit too much on transmission line project, economist says

The amount of profit Nova Scotia Power could make through the construction of a major transmission line is "inappropriate," according to an economist who analyzed the arrangement for the province's energy regulator.

Sean Cleary, a professor of finance at Queen's University, filed testimony with the Nova Scotia Energy Board last week as a consultant and expert witness. He said Nova Scotia Power's return on equity — that is, how much money it gets back from what it puts in — is three percentage points too high. 

Based on figures provided by the utility to the board, CBC News has calculated the three percentage point difference is $4.1 million.

The infrastructure in question is a 160-kilometre, 345-kilovolt transmission line that will run from Onslow, N.S., to Salisbury, N.B., known as the intertie. The utility has estimated the total project cost at $684.7 million.

There is already a transmission line on that route, which will continue to operate. The new line would double the connection between the two provincial grids.

Nova Scotia Power says the intertie is needed for grid stability as more wind energy is added to the electricity system. The project is a partnership between the utility, the Canada Infrastructure Bank and a Mi'kmaw business collective.

Nova Scotia Power's rate of return on any endeavour is capped in provincial legislation at nine per cent. That's based on a 40 per cent equity ratio, meaning 40 per cent of the money going into the project comes from the company's coffers and 60 per cent from debt. 

The utility proposes a nine per cent return, but with a 60 per cent equity ratio. Cleary said the higher equity ratio means the project poses a "much lower financial risk" to Nova Scotia Power.

Cleary suggests a six per cent rate of return on the project would be more appropriate. 

In his submission to the board, Cleary doesn't say what the two different scenarios would yield. But CBC's calculation shows a six per cent return on Nova Scotia Power's share of the equity would be $8.1 million, while a nine per cent return would be $12.2 million.

Good or bad for ratepayers?

Nova Scotia Power declined to comment on Cleary's analysis, citing the ongoing review by the energy board. 

Company officials have said the financing arrangement, which includes low-cost financing through the Canada Infrastructure Bank, would be beneficial to ratepayers.

"[The arrangement] will reduce Nova Scotia customer costs by a net present value of approximately $200 million," the company said in a submission to the board.

But Cleary has another take on the impact to ratepayers. He said the extra profit Nova Scotia Power stands to earn would come "at the expense of customers whose benefits reaped from this project will be smaller as a result."

Minister concerned

Energy Minister Trevor Boudreau said he's "concerned" about the issue and said his department would be following the proceedings at the energy board closely.

"This is an important piece of infrastructure for Nova Scotians," he told reporters following a cabinet meeting this week. "It's going to help us with our transition and moving to 80 per cent renewables [by 2030], but respectfully, it has to be done in a way that's appropriate for ratepayers."

Interim Liberal Leader Derek Mombourquette said he doesn't agree with the proposed financing arrangement.

"Nova Scotians can't continue to be a piggy bank for Nova Scotia Power," he said in an interview.

Mombourquette said his party is looking at what options may be available to legislators to get involved, and said he hopes the government is doing the same.

"I think this is going to be a big conversation as we enter the House into the fall," he said, referring to the next sitting of the legislature.

Construction of the new transmission line has been granted environmental approval, and the utility expects to begin some preparatory work this fall.