Nova Scotia Power defends business dealings with Emera subsidiaries

Nova Scotia Power pushed back Monday against an audit criticizing its business dealings with fellow Emera subsidiaries.

It happened inside and outside regulatory hearings into the audit of Nova Scotia Power's compliance to its affiliate code of conduct.

"Of all of the transactions that were reviewed, there's not a single disallowance that was recommended," Nova Scotia Power president Karen Hutt told reporters outside the Nova Scotia Utility and Review Board hearing.

"If we weren't acting appropriately in terms of getting the best value for customers, that would be proof positive of that and that hasn't occurred."

Nova Scotia Power on Tuesday provided regulators with a summary of affiliate transactions. It shows in 2016, the utility spent about $42.9 million buying goods and services from related Emera companies.

First test since 2015

NorthStar Consulting Group was hired by the regulator to examine millions of dollars in transactions between Nova Scotia Power and other companies owned by its parent Emera in 2015 and 2016.

It was the first compliance test since a new affiliate code of conduct was brought in for the electrical monopoly in 2015.

The audit singled out a big transformer testing contract awarded to affiliate Emera Utility Services.

NorthStar's Douglas Bennett said Nova Scotia Power shared insider data with its affiliate, overpaid the agreed price and characteristically did not analyze alternatives.

Transactions 'were not competitive'

The contract cost is blacked out in publicly released regulatory documents.

"What we saw in the accounting functions, what we saw in the procurement function, the transactions with EUS [Emera Utility Services] were not competitive," Bennett testified Monday.

Bennett said the board should take an even closer look at those contracts with Emera Utility Services in what's called a prudence review.

Hutt defended the Emera Utility Services transformer contract on Monday, saying, "in this transaction we feel very comfortable that we acted in the best interest of customers."

Hutt said Nova Scotia Power does not have the workforce available to inspect approximately 10,000 transformers, so the job was outsourced.

"It made sense for us to be able to keep the core work of the business inside and make sure that that was executed against our service standards and the incremental work would then be outsourced to an appropriate provider. In this case, it happened to be an affiliate," Hutt said.

Picking away at audit  

Inside the hearing room, Nova Scotia Power lawyer Dan Ingersoll picked away at the audit's finding that Nova Scotia Power could not demonstrate the required analyses preceding the majority of transactions with affiliates.

Ingersoll said the literal interpretation of the affiliate code of conduct used by NorthStar — that each and every transaction be analyzed — was impractical, especially in cases where Nova Scotia Power was providing services to other Emera affiliates like renting space.

Nova Scotia Power said it has accepted 23 of 33 recommendations made by NorthStar and has an action plan in the works.

But that did not impress Bennett, who said those steps did not satisfy him. 

Corporate governance dispute

The utility and the auditors also disagree on another criticism from NorthStar, that there is not enough separation between Nova Scotia Power and Emera in Nova Scotia Power's corporate structure.

Many Emera executives hold the same post at Nova Scotia Power.

Nova Scotia Power said it's common for corporate officers of utility holding companies to be members of their regulated affiliates' board of directors and that "it is not inappropriate or outside industry norm for the Emera COO [chief operating officer] to occupy the position of board chair at Nova Scotia Power."

Hutt said officers and directors of Nova Scotia Power have a fiduciary duty of care to treat information confidentially when dealing with affiliates.