Ratepayers on hook for part of executive pay

Ratepayers are likely to be on the hook for close to half of the generous pay packets Nova Scotia Power’s top executives will collect from 2022 to 2024.

Nine top company executives were paid an aggregate of $4,423,097 in 2021, according to an NSP document filed in support of its application to the Nova Scotia Utility and Review Board for a 10 per cent rate hike over the next 18 months.

That executive salary aggregate breaks down to an average annual salary of $491,455 for the nine executives and the company says those compensation packages, which include base salaries and incentives, can be expected to increase by about two per cent each year.

That would mean an average salary package of $501,284 in 2022 for the nine executives, increasing to $511,310 for 2023 and $521,566 in 2024.

In its June 24 filing, Nova Scotia Power points out that Section 64B of the provincial Public Utilities Act and the company’s incorporated regulations limit the type and amount of compensation paid to its executives that can be recovered in electricity rates.

“Specifically, only a portion of base salary is recoverable up to the compensation paid to a deputy minister per the (province’s) Official Pay Plan, which is based on a compensation scale that goes from 80-110 per cent,” the company says in its UARB filing.

The base salary of NSP president and CEO Peter Gregg can be recovered from ratepayers up to the 110 per cent level of the legislated compensation scale and the

base salaries of all other executives can be recovered up to the 100 per cent level.

The base amount recoverable from ratepayers in 2021 for the CEO was limited to $222,829, the company document said, and for all other executives, it was capped at $202,571.

An additional 13 per cent of the recoverable base can be recovered in rates for other compensation and benefits.

Ratepayers, then, covered as much as $251,800 of Gregg’s 2021 salary and contributed $228,900 for each of the average $491,455 pay packets claimed by the nine top NSP executives.

The ratepayers’ contribution to executive pay should be zero, says Liberal Leader Iain Rankin.

“We need to look at limiting how a private company can tie in executive salaries at all to an increase in power rates,” Rankin said.

“I don’t think Nova Scotians want to see anything tied to a rate increase that directly benefits either the executives or the shareholders. They have enough profit that they can use that to determine how to pay executives. I think that’s an extra reach, asking for increases to fund increases in salaries.”

Peter Duke, a Dalhousie University legal aid lawyer representing the Affordable Energy Coalition, an intervenor in the NSP application proceedings, agreed.

“Ten per cent right now, where we have lots of Nova Scotians living in energy poverty, and we define that as anyone who has to spend six per cent or more of their (after-tax) income on energy costs, that becomes too high,” Duke said.

“That obviously is going to become huge down in the lower income folks and with all the other financial pressures that are coming at everyone from all these different angles, with interest rates, gas prices, record inflation, it’s quite a burden to put on Nova Scotians. If you are talking about increasing profits for shareholders and executive compensation, it seems kind of absurd.”

Duke said the coalition would like to see more transparency from NSP while it seeks such a significant rate increase.

“In order to understand that the compensation is reasonable, and this also goes to the return on investment, there should be transparency,” he said.

The company wants to maintain or increase its nine per cent rate of return, with estimated returns of more than $150 million this year, increasing to more than $190 million in 2023 and to $213 million in 2024.

The company also proposes an increased return on equity, asking the regulator to increase the proportion of shareholder money it can use to pay for capital projects from 37 to 45 per cent.

If approved, it would allow Nova Scotia Power to earn a nine per cent rate of return or slightly higher on 20 per cent more of the money it spends on capital projects.

For consumers, it would basically mean paying a nine per cent rate of interest to fund a capital project.

The utility is also requesting to dismantle the Earnings Sharing Mechanism (ESM) – an agreement that traditionally returned all of NSP’S over-earnings to Nova Scotians, Rankin said.

“They (NSP) are proposing to keep 50 per cent of any over-earnings from 2022 to 2024,” he said. “So $131 million was returned to ratepayers between 2009 and 2020. That’s a significant amount of money that they (NSP) would have been able to keep if they were able to have in place what they are asking for now.”

The Liberal caucus and the New Democratic Party have been critical of the Tim Houston-led Progressive Conservative government for not introducing legislation in the spring session that would curtail NSP’S profitability or tie any rate hike to performance.

Rankin said Nova Scotia Power has been able to charge Nova Scotia ratepayers a rate of return to the company of between 8.75 per cent and 9.25 per cent, typically earning the top return rate.

“They are actually asking to broaden that out between 8.5 and 9.5 (per cent) and .25 may not sound like a lot but I’m pounding the drums on this. Imagine if they build something like the Atlantic loop project, that’s the most extreme example because it’s billions of dollars. For every dollar that that company puts into it, they get a 9.5 per cent return, instead of 9.25. You’re talking about tens of millions if not hundreds of millions of dollars. Even without the Atlantic loop, they are going to be building infrastructure. This is the time we are going to be spending more on infrastructure to upgrade lines, to build new transmission lines than we have in my lifetime.”

The NSP application requests a 10 per cent rate hike, including increases of 3.33 per cent next month, in January 2023 and January 2024.

An NSP spokeswoman said Monday that the timing of the 2022 increase, if accepted, would be determined by the utility and review board during the regulatory process.

Despite NSP executives contending that the rate increase is required to finance one of the largest electricity transformations ever in the province, namely greening the grid to serve Nova Scotia’s 520,000 residential and commercial customers, Rankin says it seems the hike is more about company profits.

“There are a couple of pieces in the application that increase their profit and it has a lot more to do than with just greening the grid,” he said.

“The application to increase rates should be scrutinized by the utility and review board but the government also should be bringing in legislation to try to prevent any of these things from even making it to the review board. They are running out of time.”

Rankin said the big question is why the Houston government didn’t pass any such legislation during the spring House session.