N-5NSPI (SBA) RIR - 1 to 3
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Earnings Outlook Earnings for NSPI have generally been very stable, reflecting the regulated nature of its operations. The Company has a FAM in place that allows it to recover actual fuel costs from customers through annual rate adjustment...
AI summary NSP's earnings have been stable due to regulated operations and a fuel adjustment mechanism (FAM). A 2023 base-rate increase boosted earnings, but ROE was below the approved band. Improvement is expected after the next GRA in 2026.
1. Low-risk regulated electricity business The Company's current regulatory framework is based on a cost-of-service (COS) methodology, under which NSPI can recover all prudently estimated operating expenses and earn a reasonable return on...
AI summary The Company's regulatory framework uses a cost-of-service (COS) methodology allowing NSPI to recover operating expenses and earn a reasonable return. The 8.75%-9.25% ROE range is deemed reasonable. A Fuel Adjustment Mechanism (FAM) mitigates fuel price risks by deferring cost differences. However, recent provincial intervention in the GRA process has increased regulatory risk and instability.
2. Political intervention in the ratemaking process In November 2022, the Province passed Bill 212, which amended the Public Utilities Act to cap the baserate increase for NSPI's most recent GRA at 1.8% during the 2022 to 2024 period, excl...
AI summary In November 2022, the Province passed Bill 212, amending the Public Utilities Act to cap NSPI's GRA baserate increase at 1.8% (excluding DSM and fuel costs) and limit ROE and deemed equity. The text argues political interference in ratemaking introduces instability and undermines regulator independence, negatively impacting credit.
3. Unfavourable generation mix As a result of the current generation mix, NSPI is dependent on international suppliers for its fuel supply, exposing the Company to volatile global pricing. This exposure, combined with continued investment...
AI summary NSPI faces challenges due to reliance on international fuel suppliers, leading to volatile pricing and higher electricity rates. Renewable energy investments and the Muskrat Falls project will reduce coal dependency, but coal assets will remain until 2030. The Canada-Nova Scotia Equivalency Agreement ensures compliance until 2029, but federal/provincial regulations require coal plant closure by 2030, necessitating significant investments.
5. Regulatory lag NSPI faces some regulatory risk with respect to the timeliness of fuel cost recovery, although this risk is lower now than when the FAM was not in place. Although the FAM allows the Company to recover fluctuating fuel exp...
AI summary NSPI faces lower regulatory risk in fuel cost recovery due to the Fuel Adjustment Mechanism (FAM), which allows annual recovery of fluctuating fuel costs with NSUARB approval. Future renewable energy from the Muskrat Falls Hydroelectric Project is expected to reduce the impact of fluctuating fuel prices.
Appendix 2—Regulation - NSPI operates under the NSUARB's regulatory environment using a COS methodology that allows the Company to recover all prudently estimated operating expenses and earn a reasonable return on approved capital investme...
AI summary NSPI operates under NSUARB regulation with a target ROE range of 8.75-9.25%. Bill 212 capped base-rate increases at 1.8% (2022-2024) and limited ROE to 9.25%. A 2023 rate settlement approved a 6.9% average increase, including DSM and fuel adjustments. NSUARB also approved a Storm Rider in 2024. NSPI's FAM allows fuel cost recovery, with a 2024 asset sale to the Province. NSPML's 2024 debt issuance reduced FAM liabilities.
Credit Highlights The provincial government of Nova Scotia recently proposed to compensate Nova Scotia Power Inc. (NSPI) about $117 million to offset the deferred fuel cost liability. NSPI generally recovers the incurred fuel cost from cus...
AI summary Nova Scotia's government proposed a $117 million compensation to NSPI to offset deferred fuel costs, which would otherwise increase customer bills. NSPI was fined $10 million for non-compliance with the Renewable Electricity Regulations (RER) and faces challenges in meeting renewable energy targets, requiring significant investments and potential government support.
further strengthening credit measures. As of Sept 30, 2024, the company had reduced long-term debt by about C$510 million. These two initiatives improve cash flow to debt measures by 80 basis points. The company is also in agreement to sel...
AI summary Nova Scotia Power Inc. (NSPI) reduced long-term debt by C$510 million and plans to sell New Mexico Gas Co. for $750 million, improving credit metrics. Securitization of deferred fuel costs, supported by federal and provincial funding, lowers leverage and mitigates regulatory lag. These measures aim to maintain credit measures above 10% and reduce rate impacts on customers.
Assumptions - Implementation of the multi-year rate increases at TEC. - No adverse weather beyond our base-case expectations. We assume deferred costs incurred in 2024 related to Hurricane Milton and Hurricane Helene will be recovered by t...
AI summary The assumptions section outlines key factors including multi-year rate increases at TEC, no unexpected adverse weather impacts, C$3.5-4.0B annual capital spending (2025-2026), C$600M annual dividends, negative discretionary cash flow, and assumed sale proceeds from New Mexico gas in 2025.
Environmental, Social, And Governance Environmental factors are a negative consideration in our credit rating analysis of Emera Inc. reflecting energy transition risks through its operations in electric generation that is primarily coal an...
AI summary Environmental factors negatively impact Emera Inc.'s credit rating due to its reliance on coal and natural gas for electricity generation. However, the company has reduced coal-based generation by 77% since 2005 and plans to invest $3.5B over five years in renewable energy, including solar and battery storage. Social and governance factors align with industry peers.
96757Submissions - IG
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Delivered by E-mail Crystal Henwood Regulatory Affairs Officer/Clerk Nova Scotia Utility and Review Board 3rd Floor, 1601 Lower Water Street PO Box 1692, Unit "M" Halifax NS B3J 3S3 Dear Ms. Henwood: Re: M11990 – NSPI – WACC and AFUDC Rate...
AI summary NSPI seeks to lower WACC and AFUDC rates to 6.66%, aligning with updated financial costs. The Industrial Group comments on methodology changes, specifically the use of Bloomberg Outlook rates and CORRA for short-term debt calculations.
Change in Methodology NSPI stated that the methodology employed to calculate WACC/AFUDC is consistent with that used in prior GRAs and WACC Applications.[1](#page-0-0) At the same time, NSPI acknowledged that it "updated" its short-term in...
AI summary NSPI updated its methodology for calculating WACC/AFUDC by switching from T-Bill data from five Canadian banks to Bloomberg rates and adopting CORRA as the benchmark. NSPI argues this doesn't alter the core methodology, but the Board previously confirmed a methodology change in M11563. The Board now considers these updates for approval.
Bloomberg At the Board's request, NSPI has now provided the requisite information to determine whether the Bloomberg Outlook rate should be used to calculate the short-term interest rate forecasts going forward. NSPI provides three rationa...
AI summary NSPI proposes using Bloomberg data for short-term interest rate forecasts, citing improved accuracy, administrative efficiency, and industry alignment. The Industrial Group supports this, noting minimal impact on WACC and reduced error risks. Monitoring is suggested to ensure continued minimal impact.
CORRA The rationale and changes implemented with respect to the transition to Term CORRA from the Canadian Dollar Offered Rate ( CDOR ), is less clear. NSPI states that this is a replacement recommended by the Canadian Alternative Referenc...
AI summary The text discusses NSPI's transition from CDOR to Term CORRA as recommended by the CARR Working Group. It notes CDOR's discontinuation by Refinitiv in June 2024 and highlights that Term CORRA is one of several options for implementing the CARR-recommended rate, not the only available benchmark.
CONCLUSION The Industrial Group does not object to the change to using Bloomberg data and recommends that if not included as part of its Reply, the Board direct NSPI to more clearly justify the choice and impact of using the Term CORRA rat...
AI summary The Industrial Group supports using Bloomberg data but urges the Board to require NSPI to justify using CORRA over CDOR for 2025 calculations. The submission includes exhibit references and is part of regulatory proceedings related to rate methodology.