NS Power May Be Forced To Raise Rates

HALIFAX -- - The largest power utility in Nova Scotia says it will be forced to raise $160 million through higher electricity rates, unless a tax ruling is overturned through an appeal to the Supreme Court of Canada.

Nova Scotia Power, a subsidiary of the energy and services company Emera Inc., said it did nothing wrong when it wrote off $130 million in depreciation between 1998 and 2002. But a recent ruling from the Federal Court of Appeal said otherwise. As a result, the company also owes Revenue Canada an additional $30 million in interest.

If the firm loses the case, it will pass on the costs to residential and industrial customers, said Judy Steele, Emera's director of investor relations.

Asked how customers should view the case, Steele replied: "We would be happy if they rooted for us."

The company expects stiff resistance if it has to raise its rates.

Last April, Emera sought an 8.9 per cent rate increase from the Nova Scotia Utility and Review Board, saying it needed $67 million to offset higher federal and municipal tax expenses, and the increased costs of imported coal.

After dozens of industries intervened, the board granted only a 3.3 per cent increase for 2003. The board criticized the utility's fuel-cost estimates and the salaries of top executives.

If there's another round of rate hikes, industrial and residential ratepayers will start to question Nova Scotia Power's monopoly, said John Woods, director of the Electricity Consumers Alliance of Nova Scotia.

Covering the tax bill would require increases over several years totalling about 16 per cent of 2003 rates, he said.

"If this went through then the industries would want to know why they couldn't have choice in power companies," said Woods, whose alliance includes 50 industrial users.

"We would want a restructured environment where we had choice rather than this monopoly."

The tax battle has it origins in 1998, after Crown-owned Nova Scotia Power Corp. was privatized.

When the Crown agency built facilities it added the interest from loans onto their value.

After the privatization, the company claimed the interest as part of substantial tax depreciation used to reduce its income.

The tax department disallowed the deductions, but the company won a ruling last year in Tax Court. Revenue Canada appealed that decision to the Federal Court of Appeal, which overturned the Tax Court ruling.

The Halifax-based firm will soon pay $130 million to Revenue Canada to avoid more interest charges - an amount that will be recovered if the issue is decided in the company's favour.

Jonathan Norwood, a Halifax-based analyst who tracks the company, said the tax case is hanging over the company's head.

"I'd say to some extent it's adding insult to injury at this point," he said. "It's a drain on cash."

He said the news comes amid declining earnings in the third quarter and a $13-million charge the company has taken to cancel a contract with the Cape Breton Development Corp., its former coal supplier.

"There have also been a number of power outages in the fourth quarter as well, which will increase maintenance costs," the Beacon Securities analyst said.

Emera is a diversified energy and services company with 550,000 customers and $4 billion in assets. Its wholly owned Nova Scotia Power unit supplies more than 95 per cent of the Maritime province's power needs, while Bangor Hydro has 110,000 customers in eastern Maine.