DBRS Comments on Nova Scotia Power Inc’s Fuel Cost Decision

DBRS notes that Nova Scotia Power Inc. (NSPI) recently received a decision on its Base Cost of Fuel Reset and Fuel Forecast Standardized Filing for 2011 Fuel Adjustment Mechanism (FAM) from the Nova Scotia Utility and Review Board (UARB). In the decision, the UARB approved in full the fuel cost rate increase submitted by NSPI for 2011, but NSPI will only be allowed to recover 50% of the increase in 2011, with the remainder deferred (30% recovered in 2012 and 20% in 2013). The estimated deferred amount to be recovered in 2012 and 2013 total approximately $53 million.

While DBRS understands that according to the FAM Plan of Administration, the UARB reserves the right to intervene where it believes an increase is not acceptable nor in the public’s interest, the current decision to defer recovery is not favourable for NSPI. While the deferred amount ($53 million) is sizable, DBRS recognizes that under the FAM, NSPI will recover all its fuel costs (including carrying charges) from its customers over the deferral period and, as such, does not view the decision as having a material impact on NSPI’s liquidity nor on the current ratings of A (low), R-1 (low) and Pfd-2 (low). However, DBRS will monitor future FAM filings, noting that a deferral significant enough to have a material effect on NSPI’s liquidity could affect the ratings, particularly in a period of high capital requirements.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating North American Energy Utilities (Electric, Natural Gas, and Pipelines), which can be found on our website under Methodologies.