Thread by @br_haley

Electric utility regulation lessons from Nova Scotia #nspoli

When is a rate cap not a rate cap?
How do you skew a utility towards fossil fuel dependence?

With a Fuel Adjustment Mechanism (FAM) 🧵👇

halifaxexaminer.ca/economy/utilit…

The background here is

Nova Scotia Power applied for a big rate increase

The gov't "capped the rate", but it isn't a real cap because fuel cost increases will increase rates under a Fuel Adjustment Mechanism (FAM)

Deep background is that Nova Scotia approved a FAM around 2007, allowing adjustment in rates based on fuel costs without a general rate application.

I was part of that process with @EcologyAction

My problem with FAMs is that they make it easy for a utility to charge ratepayers for what they spend on fuel

But it is still difficult to invest in solutions that reduce fuel costs

Those can include capital projects like transmission lines, energy efficiency, customer solar

Current rules reward utilities for building power plants & then selling energy, which is why utilities don't like energy efficiency or customer generation

A FAM supercharges this disincentive by taking away a fossil fuel power plant risk - getting stuck with the fuel bill

If we allow adjustments in rates for fuel costs, why not also do it for real energy sales?

That would "decouple" utility profits from sales and not make the utility worried when people use less energy (and lower their bills)

A balanced approach would see a utility have a set amount of ratepayer $$ to serve all customer needs.

The utility would be rewarded for spending less overall and optimizing the entire system

After removing bad incentives, you can have "performance based regulation" - as proposed by @ChenderClaudia - which rewards the utility for delivering what people want

Like better reliability, lower GHGs & even strategic electrification that reduces total bills across all fuels

A Fuel Adjustment Mechanism is "anti performance based regulation" because it tells a utility that investments to save fuel are not good expenditures

They can just recoup fuel costs, but they can't recoup investments that save fuel

The perverse aspect of the government's rate cap is that it still allows Nova Scotia Power to increase rates due to fuel costs, but caps the utility's ability to make investments that are cost-effective over the long-run because they involve burning less fuel

There is a long history of short-term solutions to energy costs in Nova Scotia.

This seems to just push off the discussion on how to create an energy system that is zero-emission and fair

A step towards that could be increasing trust that Nova Scotia Power is aligned with the public interest in building a green and affordable energy system

It might be time to get rid of the Fuel Adjustment Mechanism and move towards performance based regulation