Amid the move to a greener grid, Nova Scotia Power considers buying Donkin coal

Nova Scotia Power is negotiating with the owners of the recently reopened Donkin mine in Cape Breton to secure a domestic source of coal.

The company made the disclosure Wednesday under questioning at hearings into its application for an 11.6 per cent rate increase by 2024.

"I'll limit my response to, 'We're in detailed discussions,'" Nova Scotia Power's vice-president commercial David Landrigan told the Nova Scotia Utility and Review Board (UARB).

"We're in confidential discussions in the pursuit of a commercial arrangementwith them."

Kameron Coal of West Virginia owns the mine, which reopened this month after a two-year shutdown.

The negotiations are another reminder that even as it transitions to a grid supplied by 80 per cent renewables by 2030, Nova Scotia Power still relies on burning fossil fuels including coal, natural gas and oil to generate electricity.

Soaring fuel prices prompted the company to increase its ask to 11.6 per cent up from the 10 per cent it applied for earlier this year.

Earlier this month, Nova Scotia Power updated its fuel forecast showing fuel costs are $681 million higher than the May 2021 forecast it used in its original application.

This matters because fuel costs are automatically passed on to ratepayers.

To prevent rate shock, the Nova Scotia government waived carbon emission penalties worth $165 million and the company deferred or put off recovering fuel costs in rates.

"Under your proposal, ratepayers will finish paying for 2022 fuel costs in December of 2025, is that correct?" consumer advocate Bill Mahody, representing residential customers, asked Michael Willett, Nova Scotia Power's director of regulatory finance.

"That is the proposal, correct," Willet replied.

Next two years uncertain

The next two years are even more uncertain.

The rate application omits recovery of $516 million in higher fuel costs forecast for 2023 and 2024.

"Your best estimate (for 2023) is that there's somewhere in the range of $200 million in fuel costs that customers are going to face that are not currently in the rates that you've applied for," Mahody said.

"Could I see a scenario where it's significantly reduced? Yes, but a lot of good things have to happen and a lot of cooperation on some aspects. I can see a scenario. Is it going to be hard to do and is it a lot of heavy lifting? Yes," Landrigan replied.

It's not just fossil fuels.

The company did not get 2,700 gigawatt hours of additional market priced, and cheaper, hydroelectricity it had counted on from the Muskrat Falls hydro project in Labrador.

Storm rider

That loss makes up some of the $516 million in higher fuel costs.

"Our estimate is it would be under 20 per cent of that total But we don't have it refined to how much," Landrigan said.

The company continued to take questions Wednesday about a proposed storm rider.

A storm rider would allow Nova Scotia Power to add up to two per cent per year to rates to recover the cost of responding to severe storms if the cost came in over the $10 million set aside in rates.

Board counsel Bruce Outhouse wanted to know if the company would seek the storm rider if it earned its nine per cent rate of return.

"If you were at that nine per cent, surely you wouldn't expect the board to consider an application to get extra money for storm costs, would you?," Outhouse asked.

Selective Dorian requests

Nova Scotia Power finance director Craig Flemming would not make that commitment. Flemming said the company would not apply if it was at the top end of its allowed range of earnings which the company wants set at 9.5 per cent.

If the board denies the storm rider, the company wants permission to charge ratepayers $20 million per year to cover severe storms.

The figure incorporated the cost of responding to Hurricane Dorian in 2019, the most expensive storm in the company's history.

Board member Steven Murphy noted the company is selective in how it uses Hurricane Dorian in matters before the regulator.

The company asked for and was granted permission to exclude its response to Dorian when the board was evaluating its performance for 2019.

"Why do you think it would be appropriate to include Hurricane Dorian costs when Nova Scotia Power applied for and received board approval to have Hurricane Dorian removed from any metrics related to calculating Nova Scotia Power's performance standards?," Murphy asked.