Electricity price cap lowers Nova Scotia Power’s credit rating
Nova Scotia Power’s credit rating has been downgraded after the Houston government imposed a two-year rate cap on electricity prices last month — heeding the company’s warnings.
S&P Global said the business risks facing Nova Scotia Power Inc. have increased significantly Passage of Act 212, which limited rates, profits and expenses In the midst of a rate hearing by the Nova Scotia Utility and Review Board.
“We expect utilities to operate under a regulatory framework sufficiently insulated from political interference to protect their credit risk profile, even in times of economic stress,” S&P Global said in its Nov. 21 credit report.
“We believe that NSPI’s ability to operate at a consistent financial level, consistent with that of its peers, has declined.”
The rating agency downgraded Nova Scotia Power two notches to BBB – the lowest corporate investment grade in North America.
That weaker credit rating will raise the cost of borrowing, said Greg Blunden, chief financial officer of parent company Emera Nova Scotia Power.
Customers will pay in the end, says the CEO
“The consequences for Nova Scotia Power – and ultimately our customers – every time we go to the market to raise money, either for new capital investments or to refinance existing bonds, will be at a significantly higher price than it would otherwise be,” Blunden said.
“And those costs will be costs that our customers will bear for decades to come,” he said.
The higher interest costs will not be paid during the period of the rate cap, which limits non-fuel increases to 1.8 percent in 2023 and 2024, barring some energy efficiency measures.
The increase in revenue must be directed to strengthening the electric grid, according to the law.
S&P Global says “NSPI has become disincentive to invest in decarbonising its generation fleet”.
That echoes earlier warnings from Emera CEO Scott Balfour and Nova Scotia Power president Peter Gregg.
The green network has been slowed by the tariff cap
Blunden also says the rate cap will slow the greening of the grid.
“It’s going to be more challenging in the coming years to move coal faster than we would otherwise. We’re going to be challenged to keep investing in renewable generation, battery storage, things like that,” he said. .
The cap on statutory rates prompted S&P Global to revise “our rating on Nova Scotia’s regulatory jurisdiction to our lowest level.”
“We see this unprecedented political intervention as significantly damaging to NSPI’s creditworthiness by undermining the regulator’s ability to act independently to protect the company’s creditworthiness, regulatory construction, and the predictability of the utility’s cash flow.”
Dalhousie University energy specialist Larry Hughes says it matters.
“The province looks bad because of this interference in a regulated service,” Hughes said.
The province brushes aside the criticism
The provincial government has ignored criticism of the bill by Emera, business groups and consumers who represent ratepayers at regulatory hearings.
Premier Tim Houston says he was protecting customers from high rates and would do it again if necessary.
The Department of Natural and Renewable Resources said its responsibility is for ratepayers.
“It is up to the company to manage its relations with its stakeholders,” the province said in a statement. “We will continue to explore options to help keep life affordable for Scots and hold Nova Scotia Power accountable for the service it provides to people.”
Opposition leaders in Parliament also supported the rate cap.
Nova Scotia Power produces about 15 per cent of Emera’s profits.
In response to the rate cap legislation, Emera said it will reduce spending in Nova Scotia, something the ratings agency noted.
“The announcement that Emera will significantly reduce its equity investment in NSPI, maintaining only the minimum required equity in the capital structure, weakens our view of Emera’s long-term support for NSPI relative to our previous expectations.”
Blunden downplayed the impact of the S&P drop on Emera.
“It’s basically going to be isolated … to Nova Scotia Power. So we don’t expect any follow-on effects from Emera at this point.”
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