Nova Scotia Power's credit rating has been downgraded — again

Nova Scotia Power has been hit with another credit rating downgrade courtesy of the Houston government's electricity rate cap.

The DBRS Morningstar cut NSP's long- and short-term debt rating on Tuesday.

It cited increased risk created by the provincial government's imposition of a cap on rates, spending and profits in the middle of hearings on all three issues by the Nova Scotia Utility and Review Board (UARB).

S&P Global downgraded Nova Scotia Power last month. It also blamed "unprecedented political interference" by the Nova Scotia government.

Ratings agency react to political intervention

The  UARB, an independent regulator, was still weighing evidence in a general rate application for a two-year, 14 per cent power rate increase when the province intervened.

"DBRS Morningstar believes meeting the provincially mandated renewable generation targets will be challenging given the financial restraints on [Nova Scotia Power] over the near term, as well as the heightened regulatory risk on the company's ability to receive rate increases to recover and earn a reasonable return on any new investments," the rating agency said Tuesday.

The downgrades are in response to Bill 212, passed by the Progressive Conservative government in November. For two years it limits electricity rate increases to 1.8 per cent for everything other than fuel and energy efficiency program costs. It also caps profits and requires increased revenue to be dedicated to strengthening the electrical grid.

DBRS Morningstar dropped NSP long-term debt one notch from A-low to BBB- high and commercial paper — the equivalent of a corporate IOU — a notch from R-1 low to R-2 high.

It said the decision follows "the deterioration in the regulatory environment" for NSP and discussions with company management.

The rating agency said it was encouraged Nova Scotia Power and intervenors representing customer groups reached a negotiated settlement after the provincial rate cap was imposed.

Customers face rate increase

The settlement reconfigures what rates will cover — for example it increases the amount that will go to pay higher fuel costs.

But the settlement submitted to the UARB amounts to the same 14 per cent increase on the table before the province intervened to "protect ratepayers" through Bill 212.

Premier Tim Houston has called on the Utility and Review Board to reject the settlement.

Conditions needed to restore NSP credit rating

DBRS Morningstar said in order to upgrade the rating it needs to see the next general rate application "conducted free of any interference and with the [UARB's] full independence on the determination of rates."

Another condition is "meaningful progress on the replacement of coal-fired plants with renewable sources in order to meet the mandated targets."

Nova Scotia Power reacts

On Tuesday evening, Nova Scotia Power spokesperson Jackie Foster said in a statement the latest downgrade "demonstrates the ongoing fallout from the government's passage of Bill 212."

Last week, the utility company estimated the credit rating downgrades will cost between $20 million and $30 million annually in higher interest payments once existing debt is renewed.

Higher interest cost cannot be passed on to ratepayers for two years because of Bill 212. After that the company intends to recover them from ratepayers.

On Dec. 13, NSP president Peter Gregg wrote to several provincial cabinet ministers asking for a meeting.

In an interview with CBC News at the time, he said "We need to work closely with the provincial government, put our differences aside, work through the differences, whatever it takes.

"I do believe we have the same interests, but we've got to stop this fighting," he said.

The premier's office says it will decide in the new year whether it will sit down with the company.

"This additional action by a credit rating agency reinforces the seriousness of the current situation and this is exactly why we are requesting a meeting with government, so we can work move forward and work productively together to find meaningful, long-term solutions for Nova Scotians," Foster said in the statement.