Efficiency Nova Scotia and Nova Scotia Power: Stakeholder Dynamics in the Power Sector

The Nova Scotia Electricity Mix and the Environment

The electricity sector is a significant contributor of greenhouse gas (GHG) emissions and to climate change. In Canada, both the federal and provincial governments play a role in efforts to reduce emissions through mandatory targets for businesses, but many provinces do more to combat climate change than what is done at the national level.

Nova Scotia is an Atlantic Canadian province with a population of about 942,000 that has committed to reducing its GHG emissions. In June 2007 it enacted the Environmental Goals and Sustainable Prosperity Act (Government of Nova Scotia, 2007), with the target of reducing emissions to 10% below 1990 levels by 2020, as well as other objectives to stimulate the economy in an environmentally sustainable manner. The province has also committed to reducing emissions from its electricity sector by 25% by 2020. In January 2014 its Renewable Electricity Regulations were amended to require that 40% of electricity be generated from renewable sources (both domestic and imported) by 2020 (Government of Nova Scotia, 2015).

In 2014, 73% of Nova Scotia electricity was generated from fossil fuel sources (coal and oil-fired power, and natural gas). As illustrated in Figure 1, between 2005 and 2014, this percentage decreased, but it is still a high proportion compared to the national average. Across Canada, 22.4% of electricity is produced from coal and oil-fired sources (Natural Resources Canada, 2011) and 59% of electricity comes from renewable sources (hydroelectricity in Québec is an important contributor). In Nova Scotia, approximately 22% of energy is produced via renewable sources. Figure 1 illustrates the provincial electricity mix in 2005 and 2014.

Figure 1. Nova Scotia’s electricity generation, by source (2005 and 2014).

Source: Adapted from Our Electricity Future: Nova Scotia’s Electricity Plan 2015–2040, Figure 1: Electricity Generation of the Past Decade, p. ii. Retrieved from https://energy.novascotia.ca/sites/default/files/Our-Electricity-Future.pdf

Decisions about changes to the electricity system are complicated by many factors such as existing, conventional electricity plants and infrastructure that still have useful life; consideration of how to add new, renewable energy sources; and increased demand from consumers for opportunities to generate their own electricity (e.g., via solar power.). Upgrading outdated electricity infrastructure is very expensive. Combined with the rising costs of energy, many governments and organizations are focusing on demand side management (DSM) programs to help save money and reduce GHG emissions. DSM initiatives include programs that encourage consumers to reduce their demand for energy by educating them and offering financial incentives (e.g., rebates) for technology/building retrofits. The initiatives can also include strategies that help reduce high fluctuations in demand throughout the day – for example, by offering consumers lower electricity rates for consumption during off-peak hours. This allows companies to meet demands without having to invest in new supply. Energy efficiency involves using less power to perform the same tasks. When consumers shift to more efficient appliances, better insulation in their homes and buildings, and so on, then reduction in demand is permanent. Government regulation can also help keep products that use a high amount of energy off the market, while still offering consumers a wide range of choices.

Nova Scotia Power

Nova Scotia Power, a regulated utility, supplies almost all of the electricity in Nova Scotia. Known as a vertically integrated electric utility, NSP has ownership across all elements of the energy supply chain, including generation, transmission, and distribution (Nova Scotia Power, 2015). Electricity is generated from both domestic and imported fuel sources then transmitted via an infrastructure owned and operated by NSP. It operates as a near monopoly and, in return, guarantees supply to the province.

This model is not uncommon in Canada, due to the high costs of building and maintaining transmission lines, and the need to meet fluctuating consumer demands as they arise –something more easily done with centralized control (Nova Scotia Power, 2015). However, outside Nova Scotia, some provinces foster competition by distributing ownership across the supply chain – for example, one company might own the generation plant, another company might own the transmission lines and another company might own the localized distribution lines. Since this distributed ownership model does not apply to NSP, decision-making has typically not had to emphasize the external competitive environment. However, NSP is heavily regulated as a result. As a publicly traded firm, NSP (and its parent company, Emera) and its shareholders have financial interests in the generation, transmission, and sale of electricity. While competition is minimal, NSP is facing pressure from several sides as a result of recent closures of large industrial consumers in Nova Scotia, consumer demand for lower electricity rates, and the need to achieve GHG targets.

Environmental pressures have a direct impact on NSP operations. With GHG targets implemented, the company must monitor the level of emissions that come out of its generating stations. In efforts to improve air quality, NSP has invested in new technology to reduce the level of harmful emissions entering the atmosphere. NSP is also investing in electricity generation from renewable sources (wind, solar, biomass, and hydro) and cleaner fossil fuel sources (natural gas).

Since its election to leadership in 2013, the Liberal Party of Nova Scotia has focused on creating competition in the power sector, with the view of increasing consumer choices in the face of rising electricity prices. This competition is being created via independent renewable energy projects not owned or operated by NSP. In 2004, NSP owned more than 95% of power generated in the province. By 2014, its ownership had decreased to 85%, with a future projected drop to just over 60% by 2020, made possible by a number of large wind projects (Government of Nova Scotia, 2017).

Efficiency Nova Scotia

In October 2007, the Nova Scotia government announced a public stakeholder consultation process to make recommendations on how to manage DSM programs, due to a perceived conflict of interest related to NSP managing them. The Faculty of Management at Dalhousie University, Halifax, Nova Scotia, was contracted to lead the process. Over a six-week period, three formal consultation meetings were held, attended by up to 40 participants per session. The final report was delivered on April 20, 2008 and included a recommendation that consumers pay a fee to establish an independent, ‘performance-based’ agency to address issues of accountability and oversight. They also recommended regular audit measures in the form of annual performance reports to the NSUARB. The agency needed to have guaranteed, non-reversible funding in order to plan predictably and build credibility with clients and stakeholders.

The government accepted the consultants’ recommendations; however, a government election was called before the new body was established, and the new party took control in June 2009. Despite this change, legislation was enacted in November that established an administrator for electricity DSM (ENS), a fund for carrying out work, regulatory oversight of the administrator, and authority to engage in energy efficiency and conservation programs other than electricity DSM (Government of Nova Scotia, 2009).

Allan Crandlemire was hired as the interim Chief Executive Officer of ENS; provincial spending on energy efficiency and resulting energy savings grew significantly following its establishment. In 2009, spending on efficiency measures totaled approximately $9 million; in 2010 it was about $20 million, for electricity savings of about 80 GWh; and, by 2011 (to 2015) it hovered around $40 million annually, for savings of 135–150 GWh. The growing energy efficiency sector also created new indirect jobs for energy auditors, construction contractors, and others working to promote and implement efficiency measures. Over a five-year period, ENS grew to become a resilient organization that exceeded its energy-savings targets. By 2013, ENS programs had reached 100,000 participants and reduced the annual electricity load by 469 GWh, or 4.3% – in fact, ENS is seen as the reason that “Nova Scotia is the leader in energy efficiency in Canada” (Abreu, 2013, p.4).

During the 2013 provincial election, breaking the monopoly held by NSP became a priority for the Liberal Party trying to win the leadership. The Liberals stated they would “stand up to Nova Scotia Power and implement energy solutions that benefit Nova Scotians, instead of the monopoly’s bottom line” (Nova Scotia Liberal Party, 2013). The party promised to allow private renewable energy producers to sell directly to consumers, to force NSP to pay for ENS, and to urge the NSUARB to reject high returns on investment for NSP. The party was elected and the new Liberal Minister of Energy tabled legislation in April 2014 (Government of Nova Scotia, 2014b) that removed the DSM fund established by the 2009 Efficiency Nova Scotia Corporation Act. Existing assets, liabilities, and staff were transferred to a new, not-for-profit entity that would continue to operate under the ENS brand.

The changes resulting from the new bill meant that consumers no longer paid the efficiency tax. The bill required NSP to purchase the most cost-effective energy option to ensure the lowest power rates for consumers. This meant that where investing in new infrastructure was more- costly, energy efficiency investments may be forced. The legislation also provided the NSUARB with a regulatory oversight role for efficiency programs, and to determine their affordability.

These changes repositioned the relationship between ENS and NSP. Following the announcement, Allan Crandlemire said, “The team at Efficiency Nova Scotia is eager and ready to embrace its evolution to help build a prosperous, sustainable province” (Government of Nova Scotia, 2014a). Suddenly future funding felt less certain, so efforts were made internally to ensure that the organization’s impact was measured in preparation for making a case to continue long-term support for programs.

A Complex Stakeholder Environment

The legislative changes affecting NSP and ENS were a result of a complex stakeholder environment governing electricity in Nova Scotia. Multiple bodies have vested interests in the decisions about how and what electricity is provided. As a result, NSP and ENS need to be aware of the complex environment they work in, and understand who is advocating for what in order to influence decision-making.

Government: The Nova Scotia Department of Energy

The Nova Scotia Department of Energy (DoE) has a mandate to “manage and promote energy resources to achieve optimum economic, social, and environmental value from the energy sector” (Nova Scotia Department of Energy, 2015). It protects citizen interests by ensuring that energy resources are developed and used efficiently and sustainably. From an energy efficiency standpoint, the DoE sets policies and priorities based on research and direction from political leaders.

In April 2014, the DoE released Using Less Energy: Nova Scotia’s Electricity Efficiency and Conservation Plan, which includes six key outcomes:

• Removal of the separate efficiency charge from electricity bills in January 2015.
• Restructuring of the electricity efficiency model. A franchise will be created that sells long-term energy savings in direct competition with energy supply options and will operate under the brand “Efficiency Nova Scotia.”
• Increased oversight and accountability of electricity efficiency and conservation programs.
• Enhanced low-income energy efficiency programs for electric and non-electric homes.
• Innovative financing options for homeowners and businesses to assist with the upfront cost of major energy efficiency upgrades.
• Continuous improvement of the minimum energy performance of buildings and products purchased in Nova Scotia.

Nova Scotia Utility and Review Board

The NSUARB reports to Legislature through the Department of Finance; it is an independent, quasi-judicial body, meaning that it has powers and procedures that resemble a court of law. The NSUARB regulates NSP by setting rates, tolls, and charges; approving large capital expenditures; regulating service provision; and anything else needed to fulfill its mission to fairly and independently resolve issues.

The NSUARB also has jurisdiction over energy efficiency issues. It makes funding decisions and approves ENS’s annual plan for supply of electricity efficiency and conservation activities.

Political Parties

Three major political parties have held leadership in Nova Scotia: Liberal; Progressive Conservative (PC); and New Democrat. The Liberal and PC parties have been in power for every governing period since 1993, except from 2009 to 2013 when the New Democrats won a majority leadership (see Table 1). Since at least 2006, energy costs and supply were key election issues, often seen more as economic priorities than environmental ones. In 2006, leaders debated removing a provincial sales tax on home heating costs. While the other parties favored this policy, the Liberals rejected it on the grounds that it would encourage consumption and harm the environment. Changes in political party leadership can have significant effects on how electricity is governed, and whose perspectives are most influential.

Note: includes only those seats held by the top three political parties in Nova Scotia.

Source: Adapted from Wikipedia “Politics of Nova Scotia”. Retrieved from https://en.wikipedia.org/wiki/Politics_of_Nova_Scotia, May 31, 2017 .

Residential and Commercial Consumers

Residential and commercial consumers are the primary electricity stakeholder in any jurisdiction. While usage varies across businesses and industries, demand in those sectors can be more predictable than with residential users. In both cases, consumers need and expect immediate supply whenever they demand electricity.

Shareholders

As a public company, NSP relies on shareholders to fund large investments such as infrastructure projects. These shareholders then expect to benefit from a return on that investment, regardless of whether investments are made in fossil fuel or renewable electricity sources, or energy efficiency. The NSUARB sets the allowed return on equity for the company. As of 2013, the range for this return was limited to 8.75–9.25%.

Environmental Groups: The Ecology Action Centre

Due to the environmental impacts of electricity production and use, environmental advocacy groups are important stakeholders. The Ecology Action Centre (EAC) is a social service organization founded in 1971 and based in Halifax, Nova Scotia, with a vision to build a “society in Nova Scotia that respects and protects nature and provides environmentally and economically sustainable solutions for its citizens” (Ecology Action Centre, 2015).

In 2013, the EAC produced the report Electricity and Nova Scotia’s Future: Hurdles and Opportunities, authored by Energy Coordinator, Catherine Abreu (Abreu, 2013). It notes that environmental initiatives in Nova Scotia need to be protected in electricity policy, and that affordability issues for consumers need to be addressed. In light of a ‘crisis’ with the old system, stemming from an expensive and unsustainable reliance on fossil fuel sources and an outdated infrastructure, Abreu points to the need to engage Nova Scotians for developing innovative solutions that help the province move towards a cleaner energy future and a better quality of life for citizens.

Facing the Jury

While ENS was originally optimistic that the new legislative changes would not hamper its efforts, it soon became apparent that securing future funding would not be without challenges. Removing the efficiency tax from consumers’ bills meant that NSP now had to pay for the energy savings from its revenue stream. As a result, negotiations for funding had become a battle ground. In June 2015, ENS presented a three-year funding plan to the NSUARB that would cost NSP $121 million (roughly equivalent to current expenditures), and would grant ENS with regulatory approval to implement the plan (CBC News, 2015a). NSP responded with a counter-offer of $66 million – nearly half of the current budget.

As the NSUARB jury heard from stakeholders, those who had been intimately involved with ENS reflected on how they had arrived at this roadblock. NSP had been an early supporter of energy efficiency, but now it was in clear opposition with ENS about how to move forward. Was it possible that NSP had not fathomed the success that ENS had experienced and did not originally see them as a true competitor? Since 2010, NSP had lost some major industrial consumers through the closure of a number of large electrical operators including two pulp and paper mills. With a flat and shrinking load, and NSP’s parent company Emera expanding outside Nova Scotia, this hearing was really about setting a pattern and expectations for the next decade. The government had made it clear that it would not support rate increases, yet it wanted more spending on renewable energy sources and continued emphasis on energy efficiency. NSP needed to make investments in its transmission infrastructure, yet were constrained by its impact on consumer rates. Put in this impossible place, NSP had opted to point the finger at the cost of energy efficiency programs. It seemed to those at ENS that once again, environmental efforts would be subjected to the power dynamics of profits and politics.