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Apr 26, 2016
Does "Low-Impact Energy" Mean High Costs for Nova Scotian Electricity Consumers?
As some consumers find themselves raising concerns around traditional energy production, the Nova Scotian government has created a legislative framework to begin allowing renewable energy providers to offer their product directly to consumers (referred to as the "Renewable to Retail" market). This will require the provincial transmitter (Nova Scotia Power) to offer transmission service to renewable energy generators. One big question that this raises is who should bear the costs of this paradigmatic shift?
On March 23, 2016, the Nova Scotia Utility Review Board (the "Board") rendered its decision in the Matter of the Electricity Act, (the "Electricity Act Hearing"). At the Electricity Act Hearing, the Board considered how to implement recent amendments to Nova Scotia's Electricity Act (the "Act") and ultimately approved a suite of new rates and services that will support allowing Nova Scotian consumers to purchase renewable low-impact electricity directly from suppliers. The matter was brought to the Board by Nova Scotia Power Inc. ("NSPI") in order for the Board to consider NSPI's recently established tariffs, and general framework, relating to the sale of renewable low-impact electricity generated within Nova Scotia, pursuant to the Electricity Reform Act (the "Reform Act").
The Reform Act amended the Act by providing for the purchase and sale of renewable low-impact electricity generated in Nova Scotia from provincially-licensed "retail suppliers" to "retail customers," which are now both defined in the Act. This is a unique development in the Canadian electricity supply industry, as it allows Nova Scotians to decide what type of electricity they wish to receive, renewable or otherwise, and allows suppliers of renewable low-impact electricity to take advantage of NSPI's existing infrastructure in order to feed that demand. However, facilitating renewable low-impact electricity's inclusion in NSPI's existing grid comes with costs and the primary purpose of the Electricity Act Hearing was to examine how best to handle the associated financial burden.
In order to establish the "Renewable to Retail" ("RtR") market, as it has become known, NPSI introduced a number of new tariffs on renewable low-impact electricity suppliers looking to tap into NPSI's grid - the most controversial being the Renewable to Retail Market Transition Tariff (the "RTT"). Opponents of the RTT argue that it limits the economic feasibility of the RtR market because it burdens renewable low-impact electricity suppliers with all of the transition costs, including NSPI's generation- related fixed costs (e.g. depreciation, costs of financing including return on common equity, income tax and operating, maintenance and general expenditures) and allows NSPI to essentially recover costs of building the province's electricity system. On the other hand, NPSI claims it is simply respecting principles set out by the provincial government when it passed the Reform Act.
The Reform Act introduced provisions to the Act, obligating NSPI to ensure that existing customers do not subsidize new renewable low-impact energy entrants and that the cost of opening up the retail market to such entrants should be borne by its new participants. The new section 3G(2) of the Act provides two guiding principles in connection with developing the RtR market. First, that customers of NSPI are not to be negatively affected if some new or existing customers decide to purchase renewable low-impact electricity in the RtR market. Second, that renewable low-impact electricity retail suppliers and their customers are to be responsible for all costs related to the provision of such electricity in this new market.
At the Electricity Act Hearing, NSPI claimed that its proposed new tariffs and electricity policies - including the Distribution Tariff, the Energy Balancing Service Tariff, the Standby Service Tariff, amendments to the Open Access Transmission Tariff, amendments to the NSPI Regulations, the Licensed Retail Supplier ("LRS") Participation Agreement, LRS Terms and Conditions, and the RTT - are consistent with section 3G(2) of the Act and, as such, asked the Board to approve them. Several interveners, the majority of which were potential renewable energy suppliers, opposed many of the NSPI tariffs and policies. Despite opposition, however, the Board largely accepted NSPI's tariffs and policies as presented, though qualified with a variety of amendments and adjustments suggested to the Board by various experts and interveners present at the hearing.
The Board supplemented its general approval of NSPI's application by requiring NSPI to provide the Board with regular reports, on a semi-annual basis, as the RtR market develops. The Board will take these reports into account when deciding whether to adjust certain tariffs and policies related to the new renewable low-impact electricity retail market in the future. As the market develops and more Nova Scotians choose to contract to directly receive renewable low-impact electricity generated within Nova Scotia, it may be that tariffs on renewable low-impact electricity suppliers will eventually decrease. It will be interesting to see how this new RtR market develops in Nova Scotia, and whether similar options emerge in other provinces.