February 21, 2013
Nova Scotia

Regulator urged to reject NSP bid to include wind farm cost in rates

By JOANN ALBERSTAT Business Reporter | The Chronicle Herald | February 20, 2013 | thechronicleherald.ca

Nova Scotia Power should shoulder the risk related to its partnership in a Lunenburg County wind farm instead of expecting ratepayers to do so, a Halifax developer told the provincial regulator Wednesday.

John Brereton, president of Natural Forces Wind Inc., urged the Nova Scotia Utility and Review Board to reject the power company’s bid to include its $93-million share of the capital cost of the South Canoe project in rates.

“We do not believe that the work order should proceed,” Brereton said in a public presentation during a hearing in Halifax. “We do not believe that it is in the best interests of the Nova Scotian ratepayer.”

Nova Scotia Power is partnered with Oxford Frozen Foods and Hantsport’s Minas Basin Pulp and Power on the $200-million wind farm.

The 102-megawatt project, slated to be operational by January 2015, will be Nova Scotia’s largest wind farm.

South Canoe was approved by the province’s renewable electricity administrator last August after a competitive bidding process.

The independent administrator, Massachusetts-based consultant Power Advisory LLC, had 19 projects from which to choose in awarding contracts for about 100 megawatts of renewable electricity.

John Dalton, who heads Power Advisory, was also recently hired by the Energy Department to produce a study on the proposed Maritime Link project.

All three of the wind farms that Dalton selected as the best value for ratepayers were backed by Nova Scotia Power. The third project is 13-megawatt Sable Wind, which is being developed by the Municipality of the District of Guysborough.

South Canoe was divided into two wind farms, each majority-owned by the Braggs or Jodreys – two of Nova Scotia’s leading business families – because of size limits on proposed projects.

Brereton, whose company was among the losing developers, said ratepayers should only be on the hook for the cost of buying electricity produced by South Canoe, not potential capital cost overruns or other unforeseen expenses.

The wind farms were awarded 20-year deals by the administrator to sell their electricity to Nova Scotia Power at a fixed price.

Contract details are removed from the public version of regulatory filings in the case.

Dalton has said the average price for the electricity from the three wind farms is $70 to $75 per megawatt hour.

“In submitting our bids, and in line with the (request for proposals)process, we priced in all of the risks associated with delivering a price per kilowatt hour to the ratepayer,” the Natural Resources president told the hearing. “Nova Scotia Power, in this application, is now looking to shift risks onto the ratepayer and those risks are considerable.”

Besides its share of the capital cost, Nova Scotia Power will need a separate board approval for $23 million in transmission and system upgrades required for South Canoe.

Board member Roberta Clarke, who is chairing the three-member panel hearing the case, told the developers that the regulator doesn’t have the authority to scrutinize the administrator’s decision. Nor does the board have the mandate to review other bids, she said.

Seven developers either taking part in the hearing or represented there made such an offer Wednesday, saying their projects would prove to be a better deal for ratepayers than South Canoe.

“That’s not what we’re here to do today, although I obviously note your comments in that regard,” Clarke told the developers who spoke at the hearing.

A Nova Scotia Power executive told panel members he wasn’t surprised that utility-backed projects were the winners.

“The reason we participated in the process is because we believed it would lower costs for customers,” Robin McAdam testified.

He said South Canoe had an advantage over other projects because of the utility’s low cost of capital, tax advantages and experience in building wind farms.

“We don’t believe there’s a coincidence in the company achieving superior economics to (independent power producers),” the executive vice-president of strategic business and customer service testified.

“We believe that’s the trend that Nova Scotia’s experience has demonstrated.”

The utility bailed out three wind farms – Digby, Nuttby Mountain and Point Tupper – when their developers, who were awarded contracts during a previous tendering process in 2007, ran into financial trouble during the global financial crisis.

Although customers could be on the hook for any unexpected costs related to South Canoe, they would also see savings if capital costs are less than expected, McAdam said.

He said the capital cost of Digby and Nuttby Mountain, both of which it owns, was $8 million less than the amount approved by the board.

McAdam said the regulator should handle South Canoe the same way it did those projects, as well as Point Tupper, in which it’s a partner.

Nova Scotia Power officials told the board the utility has taken steps to reduce risk related to South Canoe. For instance, various equipment and service contracts have already been signed to help lock in costs, McAdam said.

“We believe that we have managed the risk of this project in a substantial way.”

While Nova Scotia Power officials say the administrator knew about its capital cost plan, developers told the panel they were surprised by it.

Reuben Burge said Nova Scotia Power should have to play by the same rules the other developers did in making their bids.

“We put our best price forward and then stick by it and absorb those risks throughout the life of that project,” he said in his presentation.

Burge, president of Dalhousie Mountain Wind Farm Inc., told the hearing he found it “particuarly awkward” to speak out against South Canoe, since he does business with Nova Scotia Power.