27 Jul NS Power: the unreal threat of $500,000-a-day fines

Lurking behind Nova Scotia Power’s increasingly frantic efforts to find renewable sources of electrical generation is the threat of a crushing $500,000-a-day fine should it fail to meet legislated targets for 2010. That works out to $183 million per year—half again what NSP earned its shareholders in 2008.

For better or for worse, the threat is symbolic, not real.

Under the Electricity Act, a set of regulations known as the Renewable Energy Standards (RES) requires NSP to purchase at least five percent of its 2010 energy supply from renewable sources owned by third parties and built after 2001. The RES requirement increases to 10 percent in 2013, but may include generation from both third party and NSPI facilities. The Climate Change Action Plan, released last January, would have increased this to 25 percent by 2020, but a little noticed NDP campaign promise trumps that provision, moving the 25 percent deadline up to 2015.

RES regulations stipulate “a daily penalty of no more than $500,000” for failure to comply.

There’s the first loophole. $500,000 per day is the maximum fine. To receive it, NSP would presumably have to be guilty of egregious failure even to try to met the regulations—of thumbing its nose at the rules.

In reality, NSP took plausible steps to meet the target. It negotiated purchase agreements for 711 gigawatt-hours of renewable electricity, mainly wind power—more than enough to meet the 2010 standard. When the worldwide financial crisis put some of these projects in doubt, it rushed to cobble together the slapdash biomass project just rejected (albeit with an invitation to resubmit a more complete proposal) by the Utility and Review Board.

The RES regs offer a second loophole, even better than the first. The utility “is not subject to a penalty” if it can establish that it “exercised due diligence” or “reasonably and honestly believed in the existence of facts that, if true, would render the conduct of the person excusable.” In other words, due diligence is an absolute bar to any fine.

Rev up that Mack Truck, baby, we’re going through.

A senior official familiar with the situation sums it up this way: “Any significant threat that they would receive $500,000-a-day fines is unimaginable.”

What they could face, the official cautioned, is further reputational damage.

Ever since Huricane Juan, NSP has been a favorite public and media whipping boy. It is desperately anxious to shore up its public image. That desire, not ruinous financial penalties, is the real motivation for meeting the 2010 deadline.