DECISION NSUARB-NSPI-P-875 2002 NSUARB 59 NOVA SCOTIA UTILITY AND REVIEW BOARD IN THE MATTER OF THE PUBLIC UTILITIES ACT - and - IN THE MATTER OF AN APPLICATION by Nova Scotia Power Incorporated for approval of certain Revisions to its Rates, Charges and Regulations BEFORE: John A. Morash, C.A., Chair Margaret A. M. Shears, Vice-Chair John L. Harris, Q.C., Member COUNSEL: NOVA SCOTIA POWER INCORPORATED Peter W. Gurnham, Q.C. Daniel M. Campbell, Q. C. ANNAPOLIS GROUP et al. Robert G. Grant, Q.C. Nancy G. Rubin DALHOUSIE LEGAL AID SERVICE Claire McNeil ELECTRICITY CONSUMERS ALLIANCE OF NOVA SCOTIA John Woods, P. Eng. HALIFAX REGIONAL MUNICIPALITY Mary Ellen Donovan MUNICIPAL ELECTRIC UTILITIES OF NOVA SCOTIA CO-OPERATIVE Donald Regan Albert Dominie PROVINCE OF NOVA SCOTIA Jeannine Lagassé Document : 78377 STORA ENSO PORT HAWKESBURY LIMITED and BOWATER MERSEY PAPER COMPANY LIMITED George T. H. Cooper, Q.C. David S. MacDougall TRENTONWORKS LIMITED et al. A. William Moreira, Q. C. Ben R. Durnford HEARING DATES April 22-26 and 29-30, May 1-3, 13-17, 21-24 and June 3-4, 2002 FINAL SUBMISSIONS June 24, 2002 LIST OF WITNESSES APPENDIX - A LIST OF INTERVENORS APPENDIX - B BOARD COUNSEL: S. Bruce Outhouse, Q.C. BOARD COUNSEL’S CONSULTANTS: Dr. John Stutz, Tellus Institute James A. Rothschild Rothschild Financial Consulting DECISION DATE: October 23, 2002 DECISION: Requested Revenue Requirement increase of $67.1 million reduced to approximately $24.7 million; Proposed average rate increase across all classes of 8.9% reduced to approximately 3.3%. Document : 78377 TABLE OF CONTENTS 1.0 INTRODUCTION ..................................................................................................1 2.0 BACKGROUND ....................................................................................................6 3.0 TEST YEAR REVENUE AND LOAD FORECAST..............................................16 3.1 Load Forecast and Revenues..................................................................16 3.1.1 Submission - NSPI ........................................................................16 3.1.2 Submissions - Intervenors.............................................................18 3.1.3 Findings.........................................................................................18 4.0 TEST YEAR EXPENSES....................................................................................20 4.1 Fuel Costs................................................................................................20 4.1.1 Submission - NSPI ........................................................................20 4.1.2 Submissions - Intervenors.............................................................24 4.1.3 Findings.........................................................................................27 4.2 CBDC Buyout..........................................................................................30 4.2.1 Submission - NSPI ........................................................................30 4.2.2 Submissions - Intervenors.............................................................34 4.2.3 Findings.........................................................................................37 4.3 January Adjustment .................................................................................38 4.3.1 Submission - NSPI ........................................................................38 4.3.2 Submissions - Intervenors.............................................................41 4.3.3 Findings.........................................................................................43 4.4 Hydro........................................................................................................44 4.4.1 Submission - NSPI ........................................................................44 4.4.2 Submissions - Intervenors.............................................................44 4.4.3 Findings.........................................................................................46 4.5 Compensation..........................................................................................47 4.5.1 Submission - NSPI ........................................................................47 4.5.2 Submissions - Intervenors.............................................................48 4.5.3 Findings.........................................................................................52 4.5.3.1 Executive Compensation...............................................52 4.5.3.2 Incentive Compensation................................................56 4.6 Operating, Maintenance and General Expenses (OM&G) .......................58 4.6.1 Submission - NSPI ........................................................................58 4.6.2 Submissions - Intervenors.............................................................60 4.6.3 Findings.........................................................................................63 4.7 Depreciation Expense ..............................................................................67 4.7.1 Findings.........................................................................................67 Document : 78377 5.0 CAPITAL STRUCTURE AND RATE OF RETURN.............................................68 5.1 Capital Structure ......................................................................................68 5.1.1 Submission - NSPI ........................................................................68 5.1.2 Submissions - Intervenors.............................................................70 5.1.3 Findings - Capital Structure...........................................................72 5.2 Rate of Return on Equity .............................................................................73 5.2.1 Submission - NSPI ........................................................................73 5.2.2 Submissions - Intervenors.............................................................75 5.2.3 Findings - Rate of Return on Equity ..............................................78 5.3 Return on Rate Base................................................................................78 5.3.1 Findings.........................................................................................78 6.0 AFFILIATE ACTIVITY.........................................................................................81 6.1 Code of Conduct - PricewaterhouseCoopers Report...............................81 6.1.1 Submissions..................................................................................81 6.1.2 Findings.........................................................................................85 6.2 Emera Energy - Agency Agreement.........................................................87 6.2.1 Submission - NSPI ........................................................................87 6.2.2 Submissions - Intervenors.............................................................90 6.2.3 Findings.........................................................................................95 6.3 Shared Services Allocation ....................................................................101 6.3.1 Submission - NSPI ......................................................................101 6.3.2 Submissions - Intervenors...........................................................102 6.3.3 Findings.......................................................................................104 6.4 Coal Transportation Costs .....................................................................106 6.4.1 Submission - NSPI ......................................................................106 6.4.2 Submissions - Intervenors...........................................................108 6.4.3 Findings.......................................................................................109 6.5 Independence and Insulation.................................................................111 7.0 COST OF SERVICE, RATE DESIGN AND OTHER RATE-MAKING ISSUES.116 7.1 Overview - Rate-making Issues .............................................................116 7.2 Cost of Service Study.............................................................................117 7.2.1 Submissions - NSPI ....................................................................117 7.2.2 Submissions - Intervenors...........................................................118 7.2.3 Findings.......................................................................................119 7.3 Revenue/Cost Ratios and Rate Shock...................................................119 7.3.1 Submissions - NSPI ....................................................................119 7.3.2 Submissions - Intervenors...........................................................120 7.3.3 Findings.......................................................................................123 7.4 Annually Adjusted Rates........................................................................124 7.4.1 Submission - NSPI ......................................................................124 7.4.2 Submissions - Intervenors...........................................................124 7.4.3 Findings.......................................................................................125 Document : 78377 7.5 Rate Design ...........................................................................................126 7.5.1 Submissions - NSPI ....................................................................126