The Power Of Competition
The Saturday Huddle is a weekly column that features opinion, analysis and reflections on Huddle stories, podcasts and business news in the region. Derek Montague is a Halifax-based reporter for Huddle.
When it comes to figuring out the best way to run a public utility in Atlantic Canada, by a private or public operator, it seems you’re damned if you do and damned if you don’t.
In Nova Scotia and New Brunswick, there are two distinct examples of utility ownership: one is a private company that shows no care for what the public can afford to pay. The other is a mess of a crown corporation, heavily in debt and a burden to taxpayers, who technically own the damn thing.
So, the question remains, which one should we go with if given the choice? The answer may be neither.
Nova Scotia Power may be the most despised company in the province in the year 2022. It all began in January as if the utility’s new year’s resolution were to make themselves out to be corporate villains.
It was applying to the utility board, wanting to increase rates by 10 per cent over three years, at a time when inflation means people can least afford it.
But as the cherry on top, they also wanted to charge solar users much more money, as if trying to discourage people from looking into alternative energy solutions. That part of the application was withdrawn, after public backlash and political pushback.
The 10 per cent rate hike request still stands, however.
According to NS Power’s own website, people in the province pay 16.21 cents per kWh as the standard rate. But that rate can go down on weekends below 10 cents. It also skyrockets during peak winter hours to a whopping 20.57 cents per kWh.
It shouldn’t be surprising to hear that many neighbourhoods in the Halifax region forgo the Christmas lights tradition with winter rates like that. That’s not cheap.
But the ratepayers’ suffering is the gain of Emera shareholders. Each year, Nova Scotia Power rakes in millions of dollars in profit. And they want to increase their profits even more.
It recently came to light through a PC government email that NS Power wants to increase profits from $130 million in 2020 to $213 million in 2024. The email was penned by a staff member in the Department of Natural Resources and Renewables, so one would assume he knew what he was talking about.
Nonetheless, NS Power claims these numbers are inaccurate. They told Huddle that, out of the first proposed increase of 3.6 per cent in the rate application, only 0.3 per cent is for more profit.
RELATED: Internal Email Suggests Proposed Rate Hikes Will Fuel Major Profits At Nova Scotia Power
It’s hard to discern who may be right about the numbers. The rate application by NS Power is written in a financial language that is so esoteric it would make George Orwell’s head spin. There’s no way the average ratepayer looking for accurate info would be able to discern what is going on.
When I did the story on the internal email, I called an economist to ask him about the language used. Even he had a hard time knowing what NS Power was talking about.
To add insult to injury, it hardly matters whether or not this private monopoly on power performs well for its customers. They are guaranteed a rate of return up to 9.25 per cent.
Can you think of any other business that is GUARANTEED profit regardless of the quality of the product they deliver? It’s insane this was ever allowed. Oh, by the way, NS Power is looking to increase that ceiling to 9.5 per cent.
Hopefully, the true numbers regarding profit are presented in clear and concise terms during the public hearings with the utility board.
Public opinion is so low about the utility that it has sparked debate about public ownership of NS Power. Premier Houston was asked about this possibility in a media scrum months ago. He stated the obvious: it would cost billions to buy back the utility.
NS Power was once a failing public company that ran losses instead of profits, which led to it being privatized in 1992. It was sold for a pittance of what it would later become worth. Houston deflected when asked in the same scrum if the PC government of the day made a blunder by privatizing it. He simply said it wouldn’t be fair to try and put himself in the shoes of decision-makers 30 years ago.
RELATED: Former NS Power CEO Recalls How The Public Utility Was Privatized in 1992
Nova Scotians may be wishing for a public utility again, but across the provincial border, there is a shining example of how that can all go wrong…very, very wrong.
Let’s start off with the positive. If you live in New Brunswick you pay much less for power than your Nova Scotia neighbours. NB Power, which is owned by you the people, charges just 11.61 cents per kWh. The problem is, you are carrying an albatross and a financial embarrassment on your backs, which will soon have to break.
If your rates don’t go up in the near future, you will pay for your power in other ways. The current model is not sustainable.
According to a CBC article this past April, the New Brunswick government has given marching orders to the public utility to reduce its comical debt load of $4.9 billion. That’s not the provincial debt, that’s just NB Power’s debt!
If that doesn’t concern you it should. The government even amended the law so NB Power could look at creative projects to reduce its debt load. The only other way is to raise rates.
And right there is the problem with crown corporations. There will always be politics involved, regardless of the whole “arms-length” thing.
If a public utility raises rates, they won’t look at the CEO, they will look at the minister responsible for energy and the Premier. It’s more politically sound to allow a utility to run deficits, having to be subsidized and going into nearly $5 billion in debt, it seems.
And crown corporations often reward failure, or at least tolerate it. Something that doesn’t happen when shareholders are demanding profits. You may remember the outrage more than 10 years ago in New Brunswick when NB Power executives patted themselves on the back for a job poorly done. They gave themselves retroactive pay raises and secretly brought in bonuses.
Bonuses for what accomplishments weren’t clear. It also brought up the age-old debate of how much say the government should have in the operations of a crown corp. How long should that arm be?
In a 2009 article re-published on the Atlantic Institute for Market Studies web site, then-energy minister Jack Keir said he would have liked to have seen better communication about the pay increases and bonuses, but poo-pooed any notion of bigger oversight.
“I don’t need to do the day-to-day operations of NB Power,” he said. “That’s why we pay them the money we pay them because they are very, very good at running the operations at NB Power.”
Sigh…
And here is where you should be worried. If rates don’t go up to tackle this debt, you will pay for it regardless. If taxpayer money is used for subsidies, that’s YOUR money. That’s less money going into roads, hospitals, and other programs.
It could also lead to service cuts if the price tag is too big. That’s something most New Brunswickers already know too much about.
So we have examples of failure in two utilities. One that operates on the basis of profit and another that operates on the basis of politics and other nonsense.
But both have one thing in common – lack of competition.
Having competitors keeps a business sharp and constantly evolving; being more efficient with money and resources. There’s also much-needed pressure to satisfy customers.
Just look at Nova Scotia, where NS Power is so unmotivated to satisfy customers that the government felt the need to introduce legislation that would “hold NSP accountable to ratepayers,” according to Minister Rushton.
The utility was fined $250,000 in 2020 for failing to meet performance standards. These things don’t happen in a free market where there are several companies trying to convince customers to stay. In most jurisdictions, ratepayers have no choice but to go with one provider. That has to stop, whether it’s to keep a public or private utility honest.
It seems impossible to imagine new utilities being able to set up shop, however. The capital investment to set up power lines and infrastructure in every nook and cranny of a province would be enormous.
But we can look to the world of the internet for a possible solution. Smaller internet providers like Purple Cow here in Halifax can operate due to a unique law. The bigger companies, like Bell, must be willing to give their competition access to their infrastructure (for a fee of course).
It sounds strange, but this is the only way to make sure we aren’t stuck with a couple of big companies. Maybe the same can work for electricity? I honestly don’t know the logistics of sharing power infrastructure. It could be unviable from a logical and engineering perspective, but it’s worth asking about.
It may not be financially viable for the more rural areas of our provinces. But it seems outrageous that in cities where there is competition for everything else, we can’t find competitive prices for electricity.
History has shown in Atlantic Canada that the current models of private and public utilities don’t work when there is no competition.