Position Statement and Request to the Nova Scotia Utility and Review Board

2004 NSPI-P881

NOVA SCOTIA UTILITY REVIEW BOARD IN THE MATTER OF THE PUBLIC UTILITIES ACT And IN THE MATTER OF AN APPLICATION BY NOVA SCOTIA POWER INC. FOR THE APPROVAL OF CERTAIN REVISIONS TO ITS RATES, CHARGES AND REGULATIONS

Presented By: Nova Scotia Association of Health Organizations

Appearances: Robert Cook (President/CEO) Marjorie Sullivan (Director of Administration/CIO) Peter Nestman (Research &Policy Analyst) November 24th, 2004

Table of Contents

Introduction...... 2 Background- NSAHO...... 2 Purpose of Submission to Nova Scotia Utility and Review Board ...... 3

1-Problem for Health Providers ...... 3

2- Results of Analysis...... 4 Chart 1-Total Health Provider Payments by Customer Class Category ...... 4 Chart 2-Percentage spent in each customer class in 2003...... 5 Chart 3- NSPI Revenue comparison to Health Provider Power Costs...... 6 Chart 4- Nova Scotia Power Inc.-Summary of Revenue to Expense Recovery Ratios ... 7 Chart 5- Percentage of Health Provider Accounts in the General Demand Category.... 7 Chart 6- Revenue-Expense Recovery estimates by Year for Health Care Providers ..... 8

3- Recommendation...... 8

Appendix 1 NSAHO Membership List ...... 10 Appendix 2-Subtotal of Payments and Revenue Expense by Membership Type...... 12

1 Introduction

Background- NSAHO

The Nova Scotia Association of Health Organizations is a non-profit, non-government, member-driven association of health agencies. It exists to provide and, where appropriate, coordinate services that are beneficial to its members; and to represent the collective views of its membership through collegial and collaborative approaches. In general, the majority of NSAHO members belong to two different categories, which are identified as follows:

1- Facilities financed and managed by the nine district health authorities and the IWK Health Centre which were established on January 1, 2001 through the proclamation of Bill 34 by the Nova Scotia government. They have under their authority approximately forty-two hospitals/community health centres. They are funded by taxpayers and are expected to deliver a base level of services for all citizens across the province. This sector includes:

• Primary Care facilities which provide a basic level of care, usually given by doctors or nurses who work with general and family medicine, internal medicine (internists), children (pediatricians) and pregnant women (obstetricians). • Secondary Care Facilities which provide first level specialized care, requiring more sophisticated diagnostic procedures and treatment than provided at the primary care level. • Tertiary Care facilities which provide highly specialized services (e.g., neurologists, intensive care units, neurosurgeons, thoracic surgeons and other specialist). Such services often require complex technical equipment and extensive support facilities.

2- The continuing care sector of Nova Scotia is mostly operated by Municipalities, District Health Authorities, Private-Non-Profit or Private-For Profit operators. While the ownership structure may be mixed, it is regulated by the Nova Scotia Department of Health and the Nova Scotia Department of Community Services. All licensed and regulated facilities are viewed by government as an integral component of the overall health system. Beginning January 2005, healthcare services carried out in these facilities will be insured provincially. The continuing care sector includes;

• Nursing homes, homes for the aged and veterans’ units, which provide health care support, and physical, emotional and spiritual support to those who require intensive twenty four hour care. • Adult residential centres and regional rehabilitation centres which provide programs of support and personal development of persons with intellectual disabilities, physical disabilities or long term mental illness. • Residential care facilities which provide supervisory care and some personal care for six or more people. • Group homes and small options, which provide the required supports to enable people to participate in the community as independent and self sufficient individuals to the greatest extent possible.

2 • Home care and home support agencies which enable people to remain at home by providing them with nursing, personal and specialized services on a regular basis.

(For a full list of NSAHO members please see Appendix 1)

Purpose of Submission to Nova Scotia Utility& Review Board Many health providers across the province are struggling to provide patient care with fixed budgets and are concerned about the effect of the proposed rate increase by Nova Scotia Power Inc. (NSPI) on their internal operations. We have been asked by our membership to assess the costs and rate structure of power and to share our assessments with the Utility & Review Board.

NSAHO has conducted an internal study of the power expenditures by healthcare providers since January 2003. The findings from this study have demonstrated that health providers are paying rates that are greater than NSPI requires to recover its costs. This is largely due to the revenue-expense recovery process whereby commercial general demand customers are paying higher rates. As the bulk of power expenses of health providers are in the general demand category, the health system is unduly subsidizing NSPI customers in the Industrial and Residential sectors. As the discriminatory rate allocation process has been occurring for years, likely resulting in millions of dollars in accumulated costs, the time has come for a meaningful resolution that is fair for both health providers and NSPI.

This position paper and request will have three main sections. Firstly, it will identify the key problem of health providers with respect to the rate application. Secondly, it will demonstrate the key findings of our study which lead us to believe health providers are facing unduly discriminatory energy rates. Thirdly, the position paper will offer a resolution to the problem by offering a solution that is fair to both healthcare providers and NSPI.

1-Problem for Health Providers

Healthcare providers are currently being treated as common commercial clients with similar characteristics as commercial enterprises. No real recognition has been offered with respect to their unique mandates and different operational requirements. This has resulted in large numbers of health provider power accounts being placed in the general demand category where they pay additional fees due to the revenue-to-expense recovery process. This is problematic for the following reasons:

¾ Health providers are not regular commercial entities which can write off expenses through income taxes. ¾ They are judged primarily on the health outcomes they provide to patients and residents across the province. Many facilities, such as nursing homes, residential care facilities and adult residential centres, are struggling to meet their mandates of delivering quality care to the most vulnerable members of our society when additional costs, such as power, are increasing. Any additional costs apportioned to health providers represents dollars that can not be spent on patient care. ¾ As most health providers are required to provide 24 hour care, 365 days of the year, many of the traditional options to improve cost efficiency are not easily transmitted to the health sector.

3 2- Results of Analysis NSAHO sought and received authority from a majority of its membership, in the form of consent forms, to retrieve power bill data from NSPIs customer service branch. The list of accounts represents a mostly complete listing of power expenditures by the health sector. However, there were several accounts that NSAHO was unable to retrieve. The few missing accounts are likely located in the general demand category meaning many of the estimates provided are conservative.

Through an investigation of power bill data collected NSAHO was able to assess overall and by customer the payments that were made to NSPI from January 2003 until September 2004. With this data NSAHO was able to predict, based on historical demand requirements, how much healthcare providers will have paid at the end of fiscal year 2004 and fiscal year 2005, assuming the rate increase as proposed by NSPI is implemented, and to compare that with the amount actually spent in fiscal year 2003. NSAHO was able to estimate the effects of the power rate increase on each facility account that was collected (181 customer accounts were analyzed). NSAHO was able to estimate the approximate level of monthly demand and Kilowatts used per hour for each facility and to estimate the approximate power costs for 2005 by using the proposed rate structure rates by unit presented in figure 4.8 in Revised Appendix O from NSPI’s Notice of Application and Direct Evidence. Chart 1 below summarizes these findings by customer class. The chart demonstrates that if the power rate increase is implemented as proposed by NSPI, health provider energy costs will likely escalate by roughly two million dollars per year.

Chart 1-Total Health Provider Payments by Customer Class Category

Power Payments by Estimated Payments by Estimated Payments by Health Providers 2003 Health Providers 2004 Health Providers 2005 Residential $49,878 $52,380 $85,768

Small General $10,598 $13,088 $14,140 General Demand $8,989,107 $9,064,042 $9,868,360 Large General $6,546,831 $6,615,239 $7,945,265 Total General $15,546,536 $15,692,369 $17,827,765

Small Industrial $14,506 $8,842 $13,492

Other $52,209 $38,682 $1,048 Unmetered $27,364 $21,278 $32,387 Total $15,690,493 $15,813,551 $17,960,461

Power increase is likely to result in over $2,000,000 in additional power expenses for health providers assuming proposed rate structure is implemented. 4

Chart 2 demonstrates the percentage of health sector payments by customer class in fiscal year 2003. The chart demonstrates that 57% of health provider payments were in the general demand category where the revenue to expense ratio is highest. 42% of energy costs were spent in the large category. Only marginal payments were made by providers in the other customer rate categories.

Chart 2-Percentage spent in each customer class in 2003.

Power Payments by Customer Class 2003 Power Payments by Customer Class 2003

Othe r, Othe r, $154,555 , $154,555 , Large General, 1% Large General, 1% $6,546,831 , $6,546,831 , 42% General 42% General Demand, Demand, $8,989,107 , $8,989,107 , 57% 57%

Chart 3 on the following page takes the above information and compares health provider energy payments with estimated revenues of NSPI in fiscal years 2003, 2004 and 2005. It demonstrates that payments by health providers in the general category make up approximately 4% of NSPI revenues collected from customers in that specific customer class in 2003. Approximately 26% of revenues collected by NSPI in the large general rate came from accounts of healthcare providers in 2003. Overall, health provider expenditures account for slightly less than 2% of NSPI’s revenues in 2003.

5 Chart 3- NSPI Revenue comparison to Health Provider Power Costs

NSPI Revenue Forecasts taken from Appendix A-Table 6 of NSPIs Notice of Application and Direct Evidence

2003 2004 2005

NSPI Power % NSPI Estimated % NSPI Estimated % Revenues Payments by Revenue Revenues Payments by Revenue Revenues Payments by Revenue 2003 Members 2003 2003 Forecast Health Providers 2004 Forecast 2005 Health Providers 2005 2004 2004 2005 Residential $375,800,000 $ 49,878 0% $ 402,500,000 $52,380 0% $ 406,800,000 $ 85,768 0% General Small General $ 13,100,000 $10,598 0% $ 15,700,000 $13,088 0% $ 23,200,000 $ 14,140 0% General Demand $215,200,000 $8,989,107 4% $ 212,300,000 $9,064,042 4% $ 214,900,000 $ 9,868,360 5% Large General $ 25,100,000 $6,546,831 26% $ 27,800,000 $6,615,239 24% $ 29,500,000 $ 7,945,265 27% Total General $253,400,000 $15,546,536 6% $ 255,800,000 $15,692,369 6% $ 267,500,000 $ 17,827,765 7%

Industrial Small Industrial $ 20,000,000 $14,506 0% $ 19,300,000 $8,842 0% $ 20,100,000 $ 13,492 0% Other Industrial $198,500,000 0% $199,400,000 0% $ 222,400,000 0% Total Industrial $218,500,000 $14,506 0% $ 218,700,000 $ 8,842 0% $242,500,000 $ 13,492 0%

Other $52,209 $38,682 $ 1,048 Municipal $ 11,800,000 0% $ 12,500,000 0% $12,500,000 0% Unmetered $ 18,700,000 $27,364 0% $ 20,100,000 $21,278 0% $20,100,000 $ 32,387 0% Total Other $ 30,500,000 $79,573 0% $ 32,500,000 $59,960 0% $32,500,000 $ 33,436 0%

Total In Province $878,200,000 $15,690,493 2% $ 909,600,000 $15,813,551 2% $950,000,000 $ 17,960,461 2% Electric Revenue

Export Sales $ 17,300,000 $ 23,200,000 $ 7,300,000 Total Revenue $895,500,000 $ 932,800,000 $957,200,000

6 The chart below demonstrates that customers in the general category have and will continue to have the highest Revenue to Expense Recovery Ratio of all customers if the proposed rate increase is introduced.

Chart 4- Nova Scotia Power Inc.-Summary of Revenue to Expense Recovery Ratios taken from Exhibit 1 of Appendix K from NSPI’s Notice of Application and Direct Evidence

Present Proposed Class Ratio Ratio

Domestic Service 96.45 97.83

100.12 99.98 Small General General 110.75 105.00 Large General 95.26 97.83 Small Industrial 100.47 100.68 Medium Industrial 99.38 100.01 Large Industrial 95.32 101.28 Municipal 93.20 97.83 Unmetered 96.91 97.83

Chart 5 below demonstrates the percentage of health provider accounts in the general demand category. Out of 181 accounts counted, 62% (112 accounts) of health provider accounts are in the general demand category. 38% (69 accounts) are located in the small general, large general, residential and other categories. In other words, most health provider accounts are in the general demand category where the revenue to expense revory ratio is highest.

Chart 5- Percentage of Health Provider Accounts in the General Demand Category.

%% of of Accounts Accounts in in General General Demand Demand CategoryCategory Other Other Types of Types of Accounts, Accounts, 38% 38% General General Demand Demand Accounts, Accounts, 62% 62%

With these rates in mind, along with the yearly totals provided in Chart 1, it is possible to estimate, by account and overall, the amount which providers are subsidizing the other rate classes. Chart 6 below summarizes these

7 findings for general demand customers. For example, it demonstrates that overall healthcare providers in the general demand category paid an extra $966,329 and $974,385 through the Revenue-Expense Recovery process in fiscal 2003 and 2004 respectively. While the costs which are lost through the revenue-expense recovery process would likely decrease next year with the new proposed ratio, health providers in the general demand category are still likely to lose an estimated $(493,418) in fiscal year 2005.

Chart 6- Revenue-Expense Recovery estimates by Year for Health Care Providers Projected loses Power Payments by Health Providers Revenue-Expense Recovery for General 2003 $8,989,107 $(966,329) Demand customers due General Demand 2004 $9,064,042 $(974,385) to Revenue- Expense Cost 2005 $9,868,360 $(493,418) Recovery process

The analysis demonstrates the unfair allocation of costs that have been proportioned, historically and as proposed by NSPI’s recent submission, to health providers in comparison to many other NSPI customers. NSAHO is concerned that the health sector is paying disproportionately higher per unit costs of energy than many other sectors within the Nova Scotia economy. Over the years, the revenue to expense recovery ratio has cost many health providers millions of dollars in accumulated power costs. The rate application of NSPI does not rectify this unfair allocation of costs as health providers in the General Demand category will still be subsidizing the other rate classes by $493,418 in 2005. The costs across sectors and regions of the province are also apparent. See Appendix 2 for the distribution of payments according to customer type.

Health providers are not regular commercial clients with the same characteristics and responsibilities as enterprises. As health providers they face unique challenges that simply do not exist with other customers, including other public institutions, in the commercial category. Moreover they are unable to write off any portions of power expenses within the tax system. 3- Recommendation

NSPI should preclude a rate structure that places an undue burden on Health providers. NSAHO is asking the review board to grant all facilities in the various regional health authorities and all licensed continuing care facilities regulated by the provincial government with accounts in the general demand category, the right to have their revenue to expense recovery ratio capped at 100% beginning in fiscal year 2005. Could be granted in the form of a monthly rebate or reimbursement. NSPI should file a yearly audit to the Utility Review Board to ensure they are fulfilling the above mandate.

These requests are fair for both health providers and NSPI for the following reasons:

¾ Health providers are and have been paying more than an equal share of power costs due to the revenue-expense recovery process resulting in millions of dollars in additional accumulated costs

8 over the past 10 years. To correct the unfair treatment of the past, the time has come for health providers to be treated with greater equity. While the revenue to expense recovery rate structure proposed by NSPI for 2005 is an improvement, it is still unduly discriminatory towards health providers. The healthcare sector expects to pay its fair share of NSPI expenses; however healthcare providers need the assurance that their facilities are not indirectly subsidizing other rate classes. ¾ These additional power costs are indirectly being paid by taxpayers. ¾ Additional power costs represent money not spent on patient care. ¾ Health providers do not have the same ability to reduce power costs internally as other commercial customers. As mentioned, health providers would have difficulty obtaining substantial savings through the use of electric thermostats and other energy saving programs. They provide service 24 hours a day 365 days of the year to vulnerable and sick members of our society and are often operating at maximum capacity. For example, facilities in the continuing care sector have a bed occupancy rate of over 97%. ¾ Health providers are offering a unique public service, and therefore should not be treated as regular commercial clients. They are unable to write off power expenses within the income tax system.

We would like to thank the Utility Review Board for its time and consideration of our submission.

Respectfully,

Nova Scotia Association of Health Organizations

November 24, 2004

Appendix 1 NSAHO Membership List • Alderwood Rest Home • GEM Health Care Group Limited • All Saints Springhill Health Care Foundation o Centennial Villa • Annapolis County Adult Residential Centre o Gables Lodge o Glades Lodge • Annapolis Valley District Health Authority (Annapolis Valley Melville Lodge Health) o Mira o Annapolis Community Health Centre o o Eastern Kings Memorial Community Health Centre • Glace Bay Physiotherapy o Soldiers Memorial Hospital • Glen Haven Manor, Home for Special Care o Valley Regional Hospital • Guysborough Antigonish Strait Health Authority (GASHA) o Western Kings Memorial Health Centre o Eastern Memorial Hospital • Annapolis West Health Foundation o Guysborough Memorial Hospital • Association for the Development of Children's Residential o St. Martha's Regional Hospital Facilities o St. Mary's Memorial Hospital • Atlantic Assisted Reproductive Therapies o Strait Richmond Hospital • The Birches • Harbour View Haven • Braemore Home • Harbourside Lodge • Cape Breton County Homemakers Association • Health Services Foundation of the South Shore • Cape Breton District Health Authority • High-Crest Enterprises Limited (Springhill Facility) o Buchanan Memorial Hospital • Highland Visions Society o Cape Breton Healthcare Complex • Inverary Manor Cape Breton Regional Hospital • IWK Auxiliary New Waterford Consolidated Hospital • IWK Health Centre Northside Harbor View Hospital • Jones Manor Glace Bay Healthcare Corporation o • Kings Regional Rehabilitation Centre o Inverness Consolidated Memorial Hospital o Sacred Heart Hospital • Laing House Association o Victoria County Memorial Hospital • MacDonald Hall Society • Cape Breton Regional Hospital Foundation • MacGillivray Guest Home • Capital District Health Authority (Capital Health) • MacLeod Group o Cobequid Multi-Service Centre o Mahone Nursing Home o Dartmouth General Hospital o Port Hawkesbury Nursing Home o Eastern Shore Memorial Hospital o Shiretown Nursing Home o Hants Community Hospital o Surf Lodge Nursing Home o Musquodoboit Valley Memorial Hospital o Victoria Haven Nursing Home o Nova Scotia Hospital • Maple Hill Manor o QEII Health Sciences Centre • Maritime Odd Fellows Home o Twin Oaks Memorial Hospital • Milford Haven • Cobequid Multi-Service Centre Foundation • Mount Saint Vincent Motherhouse • Colchester East Hants Health Authority • Mountain Lea Lodge o Colchester Regional Hospital • Musquodoboit Valley Home for Special Care o Lillian Fraser Memorial Hospital • Nakile Home for Special Care • Colonial Community Services • New Waterford Consolidated Hospital Charitable Foundation • Cumberland Health Authority (CHA) o All Saints Springhill Hospital • North Queens Nursing Home o Bayview Memorial Health Centre • North End Community Health Centre o Cumberland Regional Health Care Centre • Northhills Nursing Home o North Cumberland Memorial Hospital • Northside Community Guest Home o South Cumberland Community Care Centre • Northwoodcare Incorporated • Cumberland Health Care Foundation o Dartmouth Community Homemakers Association • Duncan MacMillan Nursing Home Society o Home Support Central • Dykeland Lodge • Nova Scotia Gaming Foundation • East Cumberland Lodge • Nova Scotia Health Organizations Protective Association • Evergreen Home for Special Care • Nova Scotia Health Research Foundation • EKM Health Foundation • Nova Scotia Hearing & Speech Clinic • Foyer Pere Fiset • Oakwood Terrace • Friends of the IWK Health Centre • Ocean View Manor

10 • Pictou County Health Authority o Aberdeen Hospital o Sutherland Harris Memorial Hospital • Queens Manor o Queens Home Support • QUEST • Richmond County Home Support Services Society • Richmond Villa • Riverview Home Corporation • R.K. MacDonald Nursing Home • Roseway Manor • Scotia Nursing Home • Seaview Manor • Shannex Health Care Management o Arborstone Enhanced Care o Cedarstone Enhanced Care o Harbourstone Enhanced Care o Maplestone Enhanced Care • Shoreham Village • South Shore District Health Authority (South Shore Health) o Fishermen's Memorial Hospital o Queen's General Hospital o South Shore Regional Hospital • South West Nova District Health Authority o Digby General Hospital o Roseway Hospital o Yarmouth Regional Hospital • St. Anne Community and Nursing Care Centre • St. Vincent's Guest House • Sunset Residential & Rehabilitation Services • Tidal View Manor • Tideview Terrace • Valley Regional Hospital Foundation • Valley View Villa • Victoria Park Guest House o Hants Community Homes o Kendall Lane Housing Society • Villa Acadienne • Villa St.Joseph-du-Lac • VON Canada--Nova Scotia o VON Annapolis Valley o VON Antigonish o VON Cape Breton Metro o VON Colchester East Hants o VON Cumberland o VON Greater Halifax o VON Pictou o VON Lunenburg o VON Queens o VON Tri-County • Western Kings Memorial Health Society • Willow Lodge • Windsor Elms • Wolfville Nursing Homes • Yarmouth Argyle Home Support Services • Yarmouth Hospital Foundation

11 Appendix 2-Subtotal of Payments and Revenue Expense by Membership Type Continuing Care facilities and healthcare facilities under the Process. Notably Continuing Care facilities and health facilities jurisdiction of rurally based District Health Authorities (facilities not under the jurisdiction of Cape Breton, South West Nova, Annapolis based in Capital) have, and will continue to pay, a higher share Valley, Pictou, Cumberland, South Shore, Colchester East Hants and proportionately to their energy usage if the NSPI rate application is Guysborough Strait Antigonish, will have lost an accumulated implemented. When the same subtotals are added up according to $777,274, $ 785,108 $ 386,972 during fiscal years 2003, 2004 and health provider type it becomes apparent that certain types of health 2005 respectively. providers are bearing the costs of the Revenue-Expense Recovery

2003 2004 2005

Estimated- Estimated- Total-Spent- Revenue- Revenue- Revenue- Health Provider Type Expense- Total-Spent- Expense- Total-Spent- Expense- 2003 Recovery2003 2004 Recovery-2004 2005 Recovery-2005 Capital $ 5,189,946.45 $ 54,942.44 $ 5,261,109.14 $ 57,060.08 $ 6,186,461.04 $ 28,605.15 Cape Breton $ 1,915,914.85 $ (45,313.82) $ 1,982,476.35 $ (52,982.51) $ 2,258,354.42 $ (22,159.79) IWK $ 1,599,085.86 $ 75,796.67 $ 1,600,751.24 $ 75,875.61 $ 1,985,063.47 $ 43,075.88 South West Nova $ 1,041,765.81 $ (111,841.46) $ 1,037,952.50 $ (111,460.14) $ 1,121,424.54 $ (55,981.34) Annapolis Valley $ 768,191.55 $ (82,535.11) $ 769,141.50 $ (82,638.30) $ 830,618.40 $ (41,507.04) Pictou $ 595,074.52 $ (62,436.75) $ 564,265.19 $ (59,504.85) $ 632,710.62 $ (30,743.01) Cumberland $ 554,374.13 $ (59,595.22) $ 526,503.73 $ (56,599.15) $ 588,890.96 $ (29,444.55) South Shore $ 366,046.56 $ (39,249.39) $ 384,839.32 $ (41,294.76) $ 401,164.84 $ (19,982.76) Colchester East Hants $ 358,641.82 $ (38,492.69) $ 369,948.06 $ (39,708.26) $ 392,780.75 $ (19,604.76) Guysborough Strait Anti. $ 125,126.01 $ (13,451.05) $ 125,606.63 $ (13,502.71) $ 133,754.15 $ (6,687.71) DHA Totals $12,514,167.56 $(322,176.37) $12,622,593.66 $(324,754.99) $14,531,223.20 $(154,429.93)

Continuing Care Sector $ 3,107,280.70 $(324,358.38) $ 3,128,787.40 $(327,417.35) $ 3,357,816.76 $(160,861.16)

Other $ 69,045.04 $ (6,939.10) $ 62,169.53 $ (6,190.11) $ 71,420.71 $ (3,205.33)

Grand Total $15,690,493.30 $(653,473.85) $15,813,550.59 $(658,362.45) $17,960,460.68 $(318,496.42)

12 NOTES