Nova Scotia Power credit rating woes continue

Nova Scotia Power is reporting more fallout from the provincial government rate cap, saying the credit rating downgrade triggered by the cap has shut off a key source of short-term financing.

Last month, rating agency S&P Global dropped the utility's credit rating to just above junk bond status and downgraded another credit category, known as Canadian commercial paper, which provides short-term financing to businesses and government agencies.

The downgrade was in response to Bill 212, passed by the Progressive Conservative government in November, that limits electricity rate increases to 1.8 per cent for everything other fuel and energy efficiency program costs.

Increased revenue must be dedicated to strengthening the electrical grid and profits are also capped by the law. It was imposed in the midst of rate hearings held by the Nova Scotia Utility and Review Board (UARB).

S&P saw the "unprecedented political intervention as significantly detrimental to NSPI's credit quality because it impairs the regulator's ability to act independently to protect the utility's credit quality, undermining the regulatory construct and the utility's cash flow predictability."

Nova Scotia Power says "for the first time in the company's history," it has now been excluded from the commercial paper market. That market deals in unsecured debt issued by a company for short-term costs like payroll or accounts payable.

"NS Power is currently in the process of attempting to regain access to the commercial paper market," the company said in evidence filed this week with the UARB.

"However, if the company is unsuccessful, this will make short-term borrowing more expensive for NS Power as access to the commercial paper market has saved customers significant financing costs as compared to traditional loans and revolving credit lines."

Greg Blunden, chief financial officer of parent company Emera, says Nova Scotia Power usually has about $400 million in short-term borrowing which now costs one per cent or more in higher interest.

He said that would be between $3 million and $4 million "of incremental interest expense that we would pay that we otherwise would not have paid."

Nova Scotia Power also told regulators it is on the precipice of losing its investment-grade credit rating.

Province unmoved

"A loss of investment grade credit rating status would have a significant and dramatic impact on Nova Scotia Power's ability to access capital and the associated borrowing costs to be borne by customers."

Blunden said the downgrade comes as no surprise.

"Investors are nervous, they're uncomfortable," he said. "They see this as unprecedented in North America in our sector and as a result of that are really challenging us and asking themselves whether or not they should move their capital to other jurisdictions and I think we're seeing that."

The province is aware, but unmoved by the consequences for Nova Scotia Power's credit rating downgrade.

"I do understand that our legislation has put Nova Scotia Power into that position," acknowledged Minister of Natural Resources and Renewables Tory Rushton on Thursday. "Nova Scotia Power has made more than $125 million profit for the last 12 years, every year. Every other company right now, with the times that we're in, has had to make changes. I expect Nova Scotia Power to be no different."

Protecting ratepayers

Rushton repeated the talking point he has used, along with Premier Tim Houston, since the rate cap was introduced: the government is acting to protect ratepayers.

Even with the rate cap, Nova Scotia Power and its customer groups have agreed to a 14 per cent rate increase over two years, which must be approved by the UARB.

Houston has written to the regulator, urging the UARB to reject the settlement.

Despite the lower value of Nova Scotia Power, Blunden says Emera has no intention of unloading it.

"We're not going to sell Nova Scotia Power," he said.

"It's our home. We care very much about the business. We care very much about our customers. We're committed to Nova Scotia."