HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

ECONOMIC DEVELOPMENT COMMITTEE

Mr. Michel Samson (Chairman)

Mr. Brooke Taylor

Mr. William Dooks

Mr. Mark Parent

Mr. Howard Epstein

Mr. Charles Parker

Ms. Marilyn More

Mr. Wayne Gaudet

Mr. Harold Theriault

[Mr. Mark Parent was replaced by Ms. Judy Streatch.]

[Mr. Wayne Gaudet was replaced by Mr. Leo Glavine.]

IN ATTENDANCE:

Mrs. Darlene Henry

Legislative Committee Clerk

WITNESSES

Nova Scotia Power Inc.

Mr. Chris Huskilson

President & CEO

Mr. Peter Doig

Director of Government Relations

HALIFAX, THURSDAY, JULY 28, 2005

STANDING COMMITTEE ON ECONOMIC DEVELOPMENT

9:00 A.M.

CHAIRMAN

Mr. Michel Samson

MR. CHAIRMAN: Good morning members of the Economic Development Committee. It's a pleasure to have you here this morning and I want to take this opportunity to welcome our guests who are here on behalf of Nova Scotia Power Incorporated, Mr. Chris Huskilson, President & CEO and Mr. Peter Doig, Director of Government Relations. As is the standard, I will ask committee members to individually introduce themselves and then, Mr. Huskilson, I will invite you to make a presentation to us followed by a period of questions from the members. Marilyn, if you wish to start.

[The committee members introduced themselves.]

MR. CHAIRMAN: Thank you, members. With that, Mr. Huskilson, I turn the floor over to you for your presentation.

MR. CHRIS HUSKILSON: Mr. Chairman, committee members, thank you very much for the invitation to come before you today. With me today is Peter Doig, our company's Director of Government Relations. This is an important group for me to be addressing and meeting today. You are the duly elected representatives of your constituents, who are our customers. You represent the three Parties with members in the Legislature. That's why I'm here as President of Nova Scotia Power to share with you our perspective as a company but even more importantly, to listen to your views as MLAs and to do my best to answer your questions.

Suffice it to say that Nova Scotia Power is not like any other company. We are a regulated electric utility, regulated through a number of Statutes such as the Public Utilities Act and the Nova Scotia Power Privatization Act. We are a publicly-traded, shareholder-owned utility with thousands of hard-working Nova Scotians as our investors. We take our responsibilities very seriously, to our regulator who acts as our legislative watchdog, to our employees who deliver service, and to our investors who put up the dollars to run our company and to the top of our list, to our customers who often give you their voice. Without customers, there is no Nova Scotia Power but to borrow from what has become a bit of a cliché, the status quo is no longer an option for Nova Scotia Power.

This company must change and our customers expect us to change for the better. The call for change results from a number of obvious factors. First, we are facing big increases in the cost of fossil fuels, increases which I know other committees of the Legislature and the provincial government have attempted to deal with. Second, our customers rightly expect Nova Scotia Power to take more action to protect the environment and to do more on conservation, an issue I know that is near and dear to the hearts of many on this committee.

Third, and this isn't easy for any CEO to admit, our customers have less confidence in our company. Now, before any organization decides where it needs to go, it needs to look at where it has been. So first, some context on price. Since privatization 12 years ago, the rate of inflation in Nova Scotia has gone up by 25 per cent. Nova Scotia Power's rates, however, have increased by 13 per cent, half the rate of inflation. Indeed, of all electric utilities in Atlantic Canada over this same period, Nova Scotia Power has seen the lowest increases.

Now what does this mean for Nova Scotians today in the North American context? For the businesses our economy depends on for jobs, it means our industrial rates today are highly competitive to rates elsewhere in New England and many other U.S. states. For residential customers, homeowners, working families, seniors, it means our average residential rates are lower than in Moncton, lower than Charlottetown and lower than Toronto. So that said, where are we going as a company?

In Ottawa, carved in stone in Parliament's corner block building, there is a telling line from the Book of Proverbs, "Where there is no vision, the people perish." That's true for government and it's true for any company. Here's my vision for Nova Scotia Power. First of all, cleaner plants that produce fewer emissions; more renewable energy in our system, building on our first step of having contracts for 100 megawatts of new, clean energy in place by the end of the year; a multi-year conservation and energy efficiency plan that will reduce excessive consumption, save our customers on their power bills and help our environment; more confidence in Nova Scotia Power's network and service our workers provide because no amount of good reporting from the URB consultants or international agencies will reassure wary customers if they don't see the improvements for themselves.

But changing Nova Scotia Power for the better, changing Nova Scotia Power for our customers, will only happen if we have the financial strength to put this vision to work. The rate requested that we just filed with the URB earlier this month, is fairly straightforward. Many of you will be familiar with the breakdown of our classes of customers.

Before I delve too deeply into the pressures we've been facing on fuel, I thought you may be interested in one important fact about Nova Scotia Power, our earnings rate is set by our regulator. The URB reviews the evidence, makes the call and determines the bare minimum of what Nova Scotia Power needs to run its day-to-day business. Excessive profits by Nova Scotia Power are therefore impossible to achieve. The URB caps our return on equity between 9.3 per cent and 9.8 per cent. That may sound high but, as many of you know, if you're an investor and you pick up the Financial Post and look at which companies are drawing investors like flies to honey, you will find companies whose returns range anywhere from 20 per cent to 40 per cent.

Now when it comes to this rate request, the fundamental reason for the rates we've submitted to the URB is fuel. In the last decision rendered by the URB, just four months ago, the regulator deemed our fuel costs for the year to be $359 million. Today the actual cost for this year will be well over $400 million. Next year they will be closing in on $500 million. Over the last three years the jump in fuel totals $200 million. Over that same period, the price of fuel, especially the price of oil, has gone up 175 per cent; the price of natural gas has gone up 130 per cent; the price of international coal has gone up 160 per cent; and the price of petroleum coke has gone up 100 per cent.

In the next year alone we're facing major increases in coal that we import and petroleum coke and in heavy fuel oil. These fuel sources, the fuel sources we use to make electricity for our customers, account for more than 80 per cent of our capacity, fuel sources that have also spiked the prices for many of our customers as they pay their other energy bills. Regardless of the forces at play causing Nova Scotia Power to make this request, it's not for business as usual; it's for change. We know we have a responsibility at Nova Scotia Power to do everything we can to better manage our fuel costs. Our regulator and many customers have told us to do a better job.

So we acted on the advice of our regulator and made a number of changes that they directed us to do. We also know we have to do more to promote conservation and energy efficiency. Our customers told us that last Fall. We're proposing a fivefold increase in the amount we spend on conservation and energy efficiency programs. We'll be asking our customers this Fall where they would like us to make these new investments through our second annual customer energy forum. Last week we met with a customer leadership team that has been struck to help plan this event. It includes representatives from Clean Nova Scotia, the Ecology Action Centre, the Nova Scotia Department of Energy, Adsum House and the United Way, to name a few.

As our regulator has stated, provincial law prevents us from setting electricity prices on the basis of income. That's why we believe any conservation initiatives undertaken by Nova Scotia Power or the government should pay particular attention to low-income customers. As one of our customers said in last week's meeting, telling someone to buy an energy-efficient fridge is cold comfort when they can't afford food. Our team also includes representatives from the business community.

[9:15 a.m.]

I know all three Party Leaders, the Premier, the Leader of the Opposition and the Leader of the Liberal Party, have expressed concerns about the effect a rate request will have on major employers in Nova Scotia. We appreciate those concerns put forward by major employers. They are an important anchor to the economy in rural Nova Scotia. We know their competitors throughout North America are facing many of those same energy cost pressures. We will work with them to find ways to manage their costs.

Members of the committee, as I said earlier this month when the rate request was filed, if there was another way to change Nova Scotia Power for the better, to deal with skyrocketing fuel prices in the short term or to improve service and reliability, we would find it. I don't like being in the position of making this request to our regulator. I know it won't be easy for our customers. Nova Scotia Power can't control the world price of energy that we use to create electricity, but we can make changes that over time will reduce the pressure on our customers, help the environment and strengthen our service. Thank you very much. I would be happy to take your questions.

MR. CHAIRMAN: Thank you, Mr. Huskilson, for your presentation. Mr. Epstein.

MR. HOWARD EPSTEIN: Mr. Huskilson, thank you, welcome to you, welcome to Mr. Doig. The invitation that you gave us, which was that you would like to listen to our views as MLAs, is a welcome one, because that's what I would like to do for a few minutes, give you my views as an MLA. My views, when I was Executive Director of the Ecology Action Centre, didn't get listened to a decade ago by Nova Scotia Power when I took the trouble, along with others, to lay them out at hearings before the URB into demand-side management, that is to say into energy efficiency and ways in which Nova Scotia Power could help Nova Scotians reduce their energy use. At that time it was recognized by studies that we laid in front of the URB and in front of your company that the potential for reduction in electrical energy use in Nova Scotia, through DSM measures, through an aggressive DSM program, was probably in the order of 20 per cent to 30 per cent.

So far as I can tell, virtually nothing has happened in the intervening decade, either led by the government or by Nova Scotia Power in order to take advantage of that. Now I understand that because, essentially as a privatized company, you make more money from selling your product than you do from not selling your product or getting your customer base

here in Nova Scotia to buy less of the product. So, there's an inherent conflict of interest in the privatized position of your company. Now, that's part of the context. I start with other kinds of observations about the context as well.

In my belief, Nova Scotia Power should never have been privatized in the first place. One of the consequences of that has been that since privatization, the return on equity that you refer to, essentially profits that your company has made, has amounted to about $100 million a year, that is to say a total of $1 billion that was paid by ratepayers that could have gone towards increasing services, towards upgrading equipment, towards a more sustainable base for the way in which the company carries on its business, but in fact that was money paid by ratepayers that, in essence, has gone out in profits. That is probably the main reason why it is that the company ought not to have been privatized, because the desire to pay money to the shareholders, in terms of payouts and dividends, competes with the other potential uses for money inside the company.

But that was a policy decision the government made more than a decade ago, 12 years ago now, I think. It's probably too late to reverse it, but the alternative for a government that no longer owns what is in essence an essential service that operates on virtually a monopoly basis is to regulate it, and to regulate it in an appropriate and aggressive fashion. So although I think there's something inherent in the situation you identified for us, that is when you said that you're a company like no other because you're regulated and so on, there are other reasons, it's the near-monopoly basis and the fact that you deliver a service that is an essential service for us. Those are other reasons why you're in a different position.

The failings have been not just yours, which are inherent, I think, in the position that you're in, to a certain extent, but those of the government, which have over the decade, or more than a decade, since privatization, really failed to regulate in an appropriate way. So I think there's a shared responsibility. I have a lot of sympathy for the position you must be in. I think it's a terrible business to be in at the moment, and I think you're facing potential disaster. I think that there's a reason that your stock price has been stuck at below $20 for many years, and it's because the future for your company is extremely difficult unless you rapidly transform yourselves, and I'm sure you're thinking along these lines, but you're caught in a trap as much as anybody else is here, because you can't be in the business of burning coal and oil in order to generate electricity forever. What you've done so far is begun to transform yourself just a little bit by getting into the gas business, which wasn't a bad move. On the other hand, we haven't really seen the benefits from it, particularly in Nova Scotia, since most of that gas was sold in the United States rather than burned here, so we haven't seen the environmental benefits. You've also, geographically, started to transform yourselves by buying into the United States, your acquisition of Bangor Hydro.

Now, to a certain extent, these are sensible corporate moves, but they're not going to, I think, in the end, save the company. I think that unless you transform yourself very rapidly and seriously along the lines that you talked about, that is to say moving into

renewable and perhaps getting out of the generation business entirely, then you're going to be in a very difficult corporate position. My concern isn't so much your corporate position and your shareholders - I'm sure you're thinking about them - I'm concerned about the public.

Having made those observations about the context, I want to point out the problems and the missed opportunities that I think we have had to struggle with and that I want you to begin grappling with. Your statement this morning seems to indicate that you're starting to think about them. As I pointed out, I think this is about a decade too late to start doing it, but better late than never. The first thing of course is that you're a highly-polluting business, because you burn coal and oil, primarily, to generate your electricity. This means air emissions, which are problematic, it means we have increased asthma rates here, it means our health care costs are driven up. This is highly problematic. Something has to happen very aggressively in order to change that and move away from the basis on which we now generate electricity. The energy strategy that the province has put in place has not really moved very much or very rapidly in that direction. I look to you to move much more rapidly in that direction.

I mentioned energy efficiency and DSM potential. Virtually nothing has happened. This can happen much more aggressively. I'm glad that the company is no longer marketing electric heat. The one small measure that I think you have put in place, the change in time-of-use inducements, although it's useful, it's marginally useful. It doesn't have a huge effect on the atmosphere if emissions come out of your plants at midnight, compared with coming out of your plant at noon. But I understand that there may be an avoided downside in that you may not have to come to adding capacity as early as you might. I see it as really a minor thing, and I'll remind you again that the potential is enormous.

Now you're coming to us with big rate increases. That's really the focus of what you're saying here, and you put it in terms that you need the financial strength to make change happen. Now that may be true, but you characterized what's happened over the last decade as rate stability, but it's not stable if there's inflation going on. In fact, it's an eroding income base if there's inflation going on. I have to say customers, just as they weren't happy last year with a projected 14 per cent increase, aren't going to be very happy - aren't happy this year with a projected 14 per cent or 15 per cent increase as well. It's these big jumps that are very hard to absorb. Just as you were saying it's hard for you to absorb big jumps in fuel costs when they come, it's hard for customers to absorb big jumps in their rate increases.

I think we're looking to the company to recognize this and understand it. I would like to flag for you, as well, that there's a lot of talk about the possibility of a national energy grid. The federal government recently put up a trial balloon about this. We know the idea is out there. What this suggests to us is why is it that we couldn't be importing a lot of our electricity from Labrador or Quebec where there's hydro-generation, abundant hydro-

generation capacity in place already, a lot of which is exported to the United States. It seems to me that there are things that you haven't grappled with yet, that we haven't heard.

In the end, I think that we are failed by the government in terms of a poor energy policy as much as by what we've seen Nova Scotia Power do in response. I wanted to say one other thing to you, which is that because you're in a monopoly position, because you have customers, many of whom are in very modest circumstances, and I heard you in your submission make at least some passing reference to them, I think we expect that the company is going to have some kind of demonstrated humanity in their approach to people. I'm just going to pass out case notes, a summary of case notes that I got this week from my constituency assistant with respect to someone who has consented to her case being made public. Here's what happened to her. This is a single mother with five children, not on welfare but living in public housing, struggling to make a go of it.

She fell behind in her billing, and is making it up but is being asked to pay a $500 security deposit which the company wishes to hold on to for two years. Now she's going to be able to make up her arrears in her bills over a couple of months. She's struggling, but she's going to do that. But she can't come up with $500. My assistant spoke to the people in the call centre, the individual spoke to the people in the call centre, all to no avail. I have to say to you that when you are in the position that you're in, we expect a corresponding humanity to be shown by the company that takes account of the position of people who are in the poorest of circumstances.

Now at the most recent hearings at the URB, Dal Legal Aid, which represents a lot of very poor customers and has dealings with your company, came along and tried to put forward these concerns and were really stymied by the structure of the legislation at the moment that doesn't allow differential rates and so on. But something has to be done for people who are in these poorest of circumstances. At the moment, essentially, the company does operate in some respects like a fairly aggressive collection agency, of which this is one example. I know it's not an isolated example, because we checked with other constituency associations, and we know from Dal Legal Aid, through their experience.

I know we've covered a lot of ground here, but so have you and you did invite our comments as MLAs. What I hope is some recognition that our concerns are heard on your side of the floor here, and that they're acted on. I know that you're forced now into transformation and forced into change. What it seems to me that human beings have is the capacity to look ahead and anticipate change, and to move there before the circumstances become so dire that you have no choice.

So, those are my worries in response to your invitation to hear some of our concerns as MLAs. I can only say to you, I'll be interested to hear what other colleagues have to say to you, and I certainly will continue, along with others, to be there watching what the

company does and pushing for what I hope will be a much more progressive agenda than we've seen in the past. It's nice to see you, thank you.

MR. CHAIRMAN: Mr. Huskilson.

MR. HUSKILSON: First of all, I'd like to thank you for your comments. Clearly, you have thought this through very well, and I think, as you say, you've been watching our business for a long time. I understand that. There's no question that the kind of change that we're talking about, both a rate increase and also the kind of change we need to make in the company to make it able to move forward the way that it needs to, both of those things are big changes. They'll be difficult - they'll be difficult for our customers; they'll be difficult for all of our stakeholders. I think we understand that.

If there was any other way to do it, then we would be looking to find that. We just don't think that there is, at this point, especially in the short term, because of the pressure we see from price increases and the energy markets, where they're going today. Everyone sees what's happening in the energy markets today, whether you go to the gas pump or whether you fill up your oil tank, you see those.

So those are the kinds of pressures that we're all facing, and the economy in general is facing. But I certainly take your points. They are important points that you make. I think the company, as you say, is responding to those points.

MR. CHAIRMAN: I will now turn it over to Mr. Brooke Taylor.

MR. BROOKE TAYLOR: Mr. Chairman, again I want to thank our guests for coming in this morning. Mr. Huskilson, as President and CEO, you admitted this morning what some of us have felt, frankly, for some time, that many of your customers, and when I say that I'm not only concerned about residential users, in my riding we have some big industrial users, National Gypsum, MacTara, Taylors, Moshers, Lafarge Cement and so on and so forth.

The last time you filed for a rate application, you agreed a few months afterwards to perhaps lower that request a considerable number of percentage points, so to speak, for the various customers you serve. I'm wondering, this time, why we should have confidence that the NSP rate application is accurate, legitimate and reflects the percentage that you actually do need? Having said, Mr. Chairman, I want to point out that it has been less than four months since the latest rate increase was meted out by the URB to the utility.

Some trucking companies that are impacted - all trucking companies are being impacted across this country by fuel rates, I'm not disagreeing that fuel makes it very difficult for any person, organization or utility to budget, but some of the trucking companies that I have spoken with, and I still dabble a little bit in the trucking industry - have applied

over the last four to six months a fuel surcharge of between 3 per cent and 6 per cent. That may be an unfair comparison, but I'm trying to have you somehow legitimize for Nova Scotians the huge increase that you're requesting this time, once again.

MR. HUSKILSON: I thank you for your question. First of all, I think, no question, this size of an increase is going to be difficult for customers, and that nobody wants to see an increase of this size. That's an absolute. When we look at the pressures that we're seeing right now, we're seeing gasoline having gone up 24 per cent over the past three years; we're seeing the coal that we burn having gone up 160 per cent over the past three years. Between 2004 and 2005, we saw between a 30 per cent and 40 per cent increase in our costs for fuel. And between 2005 and 2006, we project another 30 per cent to 40 per cent increase.

So those are the pressures that are coming from the world markets that are really pushing our costs. I think it's important to go back, though, to last year's rate request. I think there is potentially some misunderstanding in the public about what happened there. We asked for around 12.5 per cent, 12.7 per cent I believe, on average, in the last round. If I break down how we got to the 5.3 per cent that we actually received April 1^st, first of all, the first almost 4 per cent came off that number as a result of deferring the Section 21 tax costs from 2005 to 2007. So that took the 12.5 per cent down to about 8.7 per cent. That was the settlement that we had proposed.

Then the URB disallowed some of our fuel costs, and made several comments about where we should go on fuel. That took another $18 million, or about 1.8 per cent off. As well, the settlement that we had put forward made a rate settlement with large customers, and that was about another $10 million. So the 8.7 per cent became 5.3 per cent, because of those other reductions. The costs we were incurring were still there, the reductions actually came through those three blocks, the deferral of the tax recovery, the reduction in fuel and the reduction in industrial prices. So the 12.7 per cent was still there, it was just taken in different blocks.

[9:30 a.m.]

I think the other thing we take from the most recent order that the URB gave us was that they've told us they want to see changes, and our customers have said that they want to see changes in how we manage our fuel. We've begun immediately to make those changes. We now have started buying longer-term fuel contracts for low-sulfur coal. We've also brought more expertise to bear. We've centralized fuel buying through one office in the company, and we've reduced any perceived or apparent conflict between Emera and NSPI. We've taken those steps immediately, and we continue to take steps to improve our fuel situation. We've filed those with the regulator, and we look forward to their comments.

MR. TAYLOR: Mr. Chairman, this time around the overall rate increase is 14.7 per cent. By and large, people are quite skeptical that in fact that rate increase is accurate. Perhaps it will be proven to be, but right now there is a lot of skepticism, to say the least, out there. I think the president recognizes that. The application also proposes to maintain a current return on common equity of 9.55 per cent, with a 37.5 per cent common equity component. I think earlier on in your presentation, you said that was established by the URB. Could you explain for Nova Scotians this part of the application process? I guess the way I see it, I believe that if in fact the overall average price increase is potentially going to be 14.7 per cent, then perhaps everybody, and I mean everybody, should feel the pain, not just the customers.

MR. HUSKILSON: Well, that's a very important question. How the regulator determines what return a shareholder should see, and it really goes to Mr. Epstein's point from earlier. He made the point that we've paid out profits to shareholders over the past 10 years, and his point was that that could have gone to other things. The difficulty with that is that the shareholders have put a $1 billion into the business, which, if it was being financed in another way, would have had to bear interest or some other cost. So, one way or the other, that $1 billion would garner a return of some sort.

Now what the regulator does is look at the markets and make a determination based on expert advice that they bring together as to what a fair return is for that $1 billion that our shareholders have put in the company. They have determined, as of March 31^st, that a fair return for that $1 billion was the 9.55 per cent. So that's something that is determined directly by the regulator based on what it takes to attract capital. It's very critical to the company that it can attract capital, and it's critical to our customers, because if we can't attract capital then we can't provide the service for our customers that we need. We need to constantly invest in the system. Again, as Mr. Epstein pointed out earlier, there is a large investment that's needed to be made as we reduce emissions, as we put more renewable energy into the system. All those things are things that our customers have told us they want us to do, but if we're going to do that, we need to make sure that we can attract the capital necessary to do that.

So, really, that's why the return is necessary, and the return is a part of what is decided by the regulator. They decide what is fair and reasonable for shareholders. And that's part of their job.

MR. TAYLOR: I'm going to defer to Ms. Streatch, if I can, Mr. Chairman, for the rest of our time.

MR. CHAIRMAN: Ms. Streatch, you have the floor.

MS. JUDY STREATCH: Good morning and thank you for coming in. As the most recently elected MLA, I have to tell you that I was on the hot seat during the campaign trail, and though Nova Scotia Power wasn't the number one issue, I really could have used you on the trail because your company certainly did come up. I reflect on the major storm of November 2004, the rate increase of April 2005, and then I hit the campaign trail.

So, I have to tell you that it was a challenge for me to try to understand and, to quote you, Mr. Huskilson, to acknowledge that our customers have less confidence in our company. That must be a very difficult quote for you to make, and I appreciate that. I have to tell you that I agree that that's the case, Nova Scotians and certainly my constituents do. They have a concern, they had a concern during the storm, they have concerns now about rate increases and how they're going to reach those challenges themselves.

Last night I was being a good soccer mom. I went to the soccer field and, maybe naively, I looked around the stands and I said, now, folks, I'm going to go chat with Nova Scotia Power tomorrow morning, is there anything you'd like me to ask? Well, I have to tell you that I had a senior management official from the New Ross Credit Union to my right, I had a mom and a grandmother to my left, a university student sitting behind me, and a worker from one of our major industries in the area sitting down to my left, as well, and I was bombarded by their concerns. Of course we know that any increase affects all Nova Scotians, and each one of those individuals had their own concerns as it pertained to their own situation.

So although I appreciate all of the documents and I appreciate your comments, really, in short, for me, it's what do I tell my constituents and how do I justify to my constituents, as their elected MLA, the increases that you've asked for, and certainly as a company, as Mr. Epstein pointed out, with a monopoly in this province, how do I even attempt to rationalize that in my own mind?

One final little piece, I'm building a new home this Spring. I didn't ask for much input in that house. I didn't ask to design the appliances, nor did I ask to design the draperies. I simply asked my carpenters, my contractors and my partner to make sure I could wire in a big generator, because I don't have confidence that in the next big storm that comes that I will have power. In November I was without power for four days, and with four children, I'll tell you that was a challenge without running water and without electricity.

My question, in a nutshell is, how do I tell my constituents, how do I justify it to all of those people who sat with me at the soccer field last night, a potential 16 per cent increase, and perhaps even more when you consider the major industries?

MR. HUSKILSON: Well, thank you for your question. As I said in my remarks, I very much share the concerns that you put forward about what our customers are believing about our company today. We are working hard to understand what our customers want from

us. We are working hard to make sure that we are listening to our customers, and we're acting to make the kinds of changes that they see. We absolutely acknowledge that some change is necessary, and that we need to make some changes if we're going to move forward.

When it comes to the rate application, it's going to be very difficult for the whole economy of Nova Scotia, when we see this kind of energy cost increase. That is something that we're seeing right across the world. The big thing, though, is to make sure that we remain competitive. If we look at where we are today, Nova Scotia Power's rates are currently competitive with rates in the region, they're competitive with rates in our neighbouring provinces, they're competitive with rates in North America. In fact, in large part, Nova Scotians continue to see a very competitive situation for electricity.

That's really the primary thing that Nova Scotia Power is focussed on, making sure that the businesses, industry and residential customers see competitive prices for electricity. We're working hard to make sure that's the case, and when we look today we find that that is the case. So, when we look at what's happening, it's happening worldwide. Whether it's at the gas pump or when you fill up your oil tank or wherever it happens to be, you find that these increases are there. Over the past three years, as an example, home-heating fuel has gone up 48 per cent, where electricity has gone up 6 per cent. So in that time frame, electricity has been unique.

[9:45 a.m.]

We know that it's going to be difficult for our customers. When it comes to the issues of reliability, we're building changes into this most recent application, we're going to be spending about $14 million more on customer service initiatives, reliability initiatives to improve the situation. When we look at what the regulator's experts have said when they reviewed the system, they said the system is normal. They said the system has good maintenance practices, the system is a normal North American electric system. That's basically what they said.

What we've said, though, is that it's not performing the way Nova Scotians want it to perform. So there are still changes we have to make to it. Even though it's normal, it still requires changes. So we've built some of those changes into the most recent application we have, and we've continued to work in that way. Making our system more able to withstand large storms is something that we're working on as we speak.

MR. CHAIRMAN: I've given each caucus 15 minutes on the first round. If I could, I'll take a few minutes on behalf of our caucus to ask a few questions. Mr. Huskilson, you'll recall, when we met at the Liberal caucus office, we discussed the low-income program that is offered through your sister company, Bangor Hydro, which basically provides a set electrical rate for individuals, based on their income. We indicated an interest in having that adopted here in Nova Scotia, and we subsequently tabled legislation to that effect.

At the time, we certainly were not left the impression that Nova Scotia Power was interested in adopting such a program here. Yet, I was surprised to learn, following a meeting with The Daily News editorial board, that there was an apparent interest in this. So I guess my first question to you is, is it Nova Scotia Power's position today that it would support the implementation of a low-income program, should it receive legislative approval to do so?

MR. HUSKILSON: First and foremost, we understand that low-income Nova Scotians and people on fixed incomes will face the biggest problems with this kind of a rate increase. We understand that is a big challenge for people. Really, when we look at a program like the one that you suggest, we see that as really a public policy issue. Our regulator has been clear that the legislation that we have today does not allow for decisions to be made by them to support such a program. So, what we've said is that that's a public policy issue. It was a public policy issue in Maine, when it first came forward in Maine, and I think it continues to be one today.

Our situation, and I think the same would be true for the discussion that we had with The Daily News, is that if such a program came forward, then certainly we would implement it, that would be a part of the role that we would play. That's essentially the role that we play in Maine, as well. As the utility serving the population in Maine, we implemented a program as put forward by the Legislature in Maine. So the same thing would be true here.

MR. CHAIRMAN: When looking for the increased leadership that you've indicated that your customers are looking for, I see this as one of the areas where you could show leadership. Basically the response we're getting is that if the Legislature does it, you'll implement it. What we're looking for is why wouldn't you, as President and CEO, today, tell us we are supportive of this program and we would encourage a minority government, which is a bit of a unique situation, to pass such public policy legislation, so that we can implement the program and have these kinds of benefits for those who you have just admitted would be hardest hit by the proposed increase.

MR. HUSKILSON: Since low-income customers are the customers who will be hardest hit, what we can't do, we've already said; what we can do, though, is we can work through our conservation methods to help low-income customers. We've made sure that we're getting advice from proponents for low-income customers. We believe that the conservation programs that we can put forward over this next number of months can be very helpful in this area. So that's what we can do.

MR. CHAIRMAN: I appreciate what you're saying, and I'm assuming some of the conservation methods are in the insulation of people's homes and the means in which their electric utilities are set up. I see that taking months, if not years. Whereas, with the Fall session of the Legislature coming, with this legislation already being before the House, I'm still at a loss as to why you would not just take this opportunity to say you do support the program and hope the Legislature does implement it to allow your company to show

leadership and implement the program as quickly as possible. In fact, I think you've also indicated that it wouldn't take much time to implement the program, being that Bangor Hydro already has such a program set up. I'm still at a loss as to why you would not simply give public support for that today.

MR. HUSKILSON: I think, primarily, what we've said is what we can do is work through our conservation programs to make a difference for low-income customers, and we believe that's how we can but help. When we look at the situation in Maine versus the situation in Nova Scotia, we see quite different situations. The electricity price in Maine is at least 30 per cent higher than it is in Nova Scotia today. So the circumstance there is quite different. The program in Maine came in after several double-digit increases in the price of electricity occurred in a row.

So it's a different circumstance. It's not the kind of decision that the utility should be making, we don't believe. We believe that it's a public policy decision, and a decision that the Legislature should be making. The Legislature is in a much better position to assess the circumstances for Nova Scotia. It's a more holistic issue in our view. We think it's a social, public policy issue that the utility is not well placed to make.

MR. CHAIRMAN: I appreciate your answer. I guess I'm disappointed, in talking of the leadership that you are looking to provide to your customers that you're still not taking the opportunity to show that here today with this kind of program, and the mixed messages we're getting from The Daily News article to our caucus meeting to today. Anyway, we'll continue to move forward on that. Hopefully the government and the NDP will support that legislation.

One of the questions I want to raise is regarding the new terminal that was built in the Strait area. It's my understanding that this terminal was built at a cost of approximately $34 million. The intention of Nova Scotia Power the entire time was not to absorb this cost, but instead have an outside operator be able to maintain this facility and be responsible for the facility itself. Am I correct in saying that to date you have been unsuccessful in finding an operator to manage that terminal and accept the responsibility for any liabilities around that terminal?

MR. HUSKILSON: First of all, thank you for the question. Certainly, the terminal in Point Tupper has been a very successful project that Nova Scotia Power has pulled together. It has been successful for a number of different reasons. Firstly, the construction project itself has gone very well. Built primarily by local contractors, it really is a world-class facility that's been built in the area.

What it's done for Nova Scotia Power to date is it's been able to allow Nova Scotia Power much greater access to a larger supply basin for coal and for other solid fuels, like petroleum coke. In the past, Nova Scotia Power was restricted to only be able to go as far as

the eastern seaboard of the U.S. and South America, in order to be able to access markets for coal and petroleum coke. With this new facility in place, we'll be able to go to any market in the world and get those products.

The reason that that's important is twofold. One, is it reduces the cost of transportation in general, because we are able to use lower-cost vessels to actually ship the product. Secondly, because it gives us much more access to lower-sulfur coals. Today we'd be restricted to coals that go as low as 0.9 per cent sulfur. In the future we'll be able to get coals that go as low as 0.1 per cent and 0.2 per cent sulfur. So we'll be able to get cleaner coals at more competitive prices, and we've already seen some of those benefits begin to accrue to Nova Scotia Power.

On the topic of whether or not the terminal will be sold, we have now achieved getting an operator to operate the terminal. Savage Services is a company that is actually now operating the terminal. They operate terminals and coal facilities all over North America. So we've been successful there. We have not yet determined whether or not we will sell the terminal, though. That's still the open question. But all of the steps along the way have been very good, and they've been very helpful to our ability to access the kinds of products that we need in order to be able to improve our emissions over time.

MR. CHAIRMAN: Could you indicate whether the cost of building this terminal, the $34 million, is part of Nova Scotia Power's rate application increase, in other words, the 15 per cent? Is the cost of this terminal, which the whole time was not supposed to be a cost borne by the customers or by the company, being considered as part of your rate increase?

MR. HUSKILSON: What we've always said is that the cost of this terminal, the cost of using this terminal will be lower than the cost of using other facilities. Traditionally that area has used the Martin Marietta facilities, and we've said that the cost of this terminal will be lower. That is the case for Nova Scotia Power. Today the cost, the $34 million, has been a shareholder expense, but Nova Scotia Power pays to use the terminal, which is a lower cost than they would have seen before. So what the application sees is a lower cost for use of the terminal.

MR. CHAIRMAN: In the application, is there consideration for the $34 million spent by the company to build this terminal? In other words, will users be asked to pay a higher electric rate as a result of this terminal?

MR. HUSKILSON: No. In fact, this terminal reduces costs for customers.

MR. CHAIRMAN: If you're unable to sell the terminal, what is plan B? Who picks up the cost? I'm assuming your shareholders aren't going to always assume this liability, therefore if you're unable to sell it, what's plan B?

MR. HUSKILSON: I think what we've always said is that the terminal will be a very useful asset for Nova Scotia Power. Whether it goes into Nova Scotia Power's rate base is really a decision for the regulator. We've said, at this point we think that we can sell it to a third party, and we will work hard to do that but in the end, Nova Scotia Power will pay for the use of the terminal when it uses the terminal. That's what it's paying today. That cost is a lower cost than they were paying before.

MR. CHAIRMAN: One of the other issues, you've indicated you were willing to work with some of your larger industrial customers who could be seeing an increase as high as 30 per cent in their electric rates. One of the proposals that's being lobbied right now is to have legislative changes that would allow large industrial customers to be able to set rates with Nova Scotia Power for a period of time, whether it be two years, three years or five years; that's still under discussion. I guess, if I can ask this, is it your position as president and CEO of Nova Scotia Power that you would support legislative changes which would allow you to negotiate power rates with your largest industrial customers for a longer period of time than your yearly rate that's currently in place?

MR. HUSKILSON: First of all, certainly the health and status of our industrial customers is extremely important to us and extremely important to the province. We work hard to make sure that our industrial customers have competitive rates. Certainly today, the rates that our industrial customers pay are very competitive. That's been the approach that we've taken, and would continue to be the approach. When it comes to the largest customers that we have, the URB has currently started a process by which they're reviewing those rates. We at Nova Scotia Power have been very supportive of the approach the URB has brought forward, and we think that approach has some good potential to give an outcome that will be helpful to the industrial customers, and we've been supporting that approach with the regulator. So that's where we are today. What I would say to you is, let's see how the regulator's approach works and what our outcome is relative to the competitiveness of our industry.

MR. CHAIRMAN: It's my understanding that under the legislation right now, you are unable to negotiate a rate with your largest industrial users for more than one year at a time. There's a proposal to remove that barrier for the largest industrial customers, therefore, if I'm Stora in the Strait area and I'm looking at whether I want to expand or not, and yet I don't know what my power rate is going to be in year two, year three or year four, it makes it extremely difficult. My question, again, is your company prepared to support the legislative change that would allow you to enter into negotiations for a longer period of time with specific large industrial customers to allow them to better prepare for future costs or future expansions?

MR. HUSKILSON: Again, as I said, the industrial customers, and their competitiveness, is extremely important to us. If that's a part of ensuring that our industrials can be competitive and can expand the way that they need to continue to grow, then,

certainly, that's something the company would be supportive of. At this point, though, I think it's important to note that the URB is in a review of these rates. We'd like to see what the outcome of that review is.

[10:00 a.m.]

MR. CHAIRMAN: Mr. Dooks. We'll go in 10-minute rounds.

MR. WILLIAM DOOKS: Gentlemen, a quick question, what is the profit that the shareholders made from Nova Scotia shares in 2004?

MR. HUSKILSON: From Nova Scotia Power?

MR. DOOKS: Yes. The shareholders. What was the profit?

MR. HUSKILSON: In 2004, I think Nova Scotia Power earned about $112 million.

MR. DOOKS: What is your projected profit for 2005?

MR. HUSKILSON: Nova Scotia Power would be around $80 million, $82 million.

MR. DOOKS: You requested a 15 per cent increase. Obviously you're good businessmen, or you wouldn't be sitting here with us today. The question I have for you is, when you requested 15 per cent, what is the real margin of increase that you need to sustain what you've requested, or what you're talking about? As businessmen, when we go out to make a deal, of course we always ask for a littler higher, knowing that the purchaser would want to pay a little less and we factor that in. So, answer that question for me.

MR. HUSKILSON: Again, when we look at a rate increase of 15 per cent, that certainly is not something that we take lightly. We know that's a difficult kind of increase to pass on to our customers. We know that customers will not see that as a good thing. So we work hard to make sure that we put forward as low a cost as we possibly can. We are a cost-of-service business, so it really is up to the regulator to determine whether or not the costs that we put forward are fair and costs that should be passed on to customers. So that's why we have the regulatory process, that's what the regulatory process is for. The regulator has told us they want us to change how we're managing fuel. Okay, we are changing that.

MR. DOOKS: You asked for 15 per cent. What happens if you do not get anything? Can people expect to have power next year?

MR. HUSKILSON: What we've said is that if Nova Scotia Power didn't see an increase at all, our returns would drop to something like 2 per cent. That would cause us to have great difficulty in raising capital, that would cause us to likely see a downgrade in our

investors, in our bond ratings. So that would make it very difficult for us to be able to continue to make the kinds of changes that we've been talking about today. Really, that's the challenge that we'd face.

MR. DOOKS: It was $112 million and $80 million this year, I would just like to state that once again for the record. Earlier in your opening comments, you said caucus members of all Parties, it's nice to see you here this morning, your constituents are our customers, and we care about our customers. You also talked about major employers. You've talked about different provinces, you cited three of them that were lower. What about the other provinces that are higher? You also talked about vision. You talked about a lot of things.

I see your presentation as a calming presentation to caucus members. I also read into your comments that you're defending the reason why there should be a 15 per cent increase. Well, there's a different relationship with you to your customers than I would have with my constituents. We have to follow it through. We cannot make a statement and simply say, we are sorry for the increase. We have to deal with the people who have been negatively affected by all increases, power, fuel. I can tell you that every member sitting in this Legislature today takes the calls from the people.

So, when you talk about power increase, when you talk about fuel increase, when you talk about the price of drugs, and on and on, we have to follow that through and make sure that person has a level of safety and comfort within their lives. I see your corporate image being somewhat different than that. You have a responsibility to your shareholders. If you guys do not make profits, then your shareholders are not happy, and that's the difference - $80 million, $112 million, I suggest that you should go back and rework the direction in which you're going.

In an ordinary business - and I'll speak about business in Nova Scotia - if a business owner should have a lack of vision over the past number of years, should not have prepared for the future, that business owner has to take the brunt of that. He has to refinance, he has to take a loss personally, or the people involved in that company. We cannot simply go out and say to people, well, we're going to increase the next job or this item to such an extent that we're going to cover our losses.

Fifteen per cent is unacceptable to me. What it does is it sends a message to all the people who are on fixed incomes, understanding that we do have constituents who live on $12,000 a year and less. If the average homeowner's utility bill is $100 a month, that means $15 more a month, and with the other increases that are coming through, that person has a difficult time surviving. That is what we're all about.

We're all about delivering a level of comfort and safety to our constituents. Sometimes that simply means survival. I'm going to repeat once again, $80 million, $112 million, that's a lot of profit. I suggest that you go back, rework your figures and tell the

shareholders that because of a lack of vision over the years, we're in a negative place here, and we have to dip in your pockets a little deeper to provide the new vision for the future.

Alternative to fossil fuels - where are we? This is 2005. We've been talking in this Legislature, we've been talking in this province, we've been talking in the country and in the world about alternatives to fossil fuels for energy for a number of years. Yes, we have one or two windmills floating around - we should have many more. We should go back to hydro. There are other things that we must do.

To defend an increase of 15 per cent, number one, citing it on fuel increases, truckers, businesspeople - and we must not only talk about large employers, we must also talk about the backbone of Nova Scotia, the small businesspeople, small employers. And we talk about protecting the environment - protecting the environment is nothing new. We've all had an interest in that for a long time, so to even put that on as a line item is something that should have already been there. It should have been understood that we have to protect our environment. So to defend it with that one, it's a little upsetting for me.

Reduced public confidence. I know you've put some money in, but what our province has suffered over the last couple of years because of poor power line maintenance, because half the people who worked at Nova Scotia Power 10 years ago are now laid off, they're just not there, and we won't go down that road. But because of poor maintenance, people have struggled. The reason why there has been poor maintenance is because we've been focussed on providing extra funding for the shareholders. There's no other reason for that.

You have maintenance people in your department. We know that each line should be up to a certain standard, and they're not. The cost that has brought, not only the emotional, the stress that people have endured but also government has been able to put funding in comfort stations, and community Lions Clubs, had set up comfort stations throughout Nova Scotia in the anticipation that there's going to be a power failure at any given time.

All of these things today are upsetting to me. I see you simply defending your position and talking about fuel increase - if it's a fuel increase, you have to eat it out of the profits. Environment - a very weak argument here for today. You talk about vision, and you should have had vision 10 years ago or whenever. The bottom line - I can sit here in my place in this House and talk all day - this is about profit. That's clearly what it's about.

When you have to go back and represent your constituents, and the person is on a fixed income, I cannot simply put out a press release and say, we have to increase 15 per cent because this is the vision for the future. I have to find clothing, fuel, I have to find drugs, and all of these things for constituents. So a 15 per cent or 16 per cent increase in power, and I suggest that you'll take more because you wouldn't put in 15 per cent if that was your target because you know you would get less - the thing is it's hurting the financially oppressed in this province, and don't think that it's not. Don't go out of this Chamber thinking that

defending your position is all right for the member for Eastern Shore, because it's not, because it's going to cause hardship for those who cannot afford it.

MR. CHAIRMAN: Mr. Huskilson, if you can give us a brief response to that, please.

MR. HUSKILSON: Certainly we understand that the 15 per cent increase is going to be difficult for customers, and if there was any way for us to avoid that, we would. It is really what's happening in the world today, it's what's happening to energy prices, and it's happening in all aspects of energy right across North America and in all our regions.

MR. CHAIRMAN: I'll now move over to Mr. Parker. You have 10 minutes.

MR. CHARLES PARKER: Mr. Chairman, I'll follow up on the member for Eastern Shore. He sounds more like a New Democrat all the time. (Laughter) Anyway, I want to pick up on what he's saying there. We're living in tough times, there's no question about it. Perhaps it's hard for corporations like your own, but it's certainly hard for many Nova Scotians at this time. Small and medium businesses are hurting, whether it's a lumber mill or a farm business or a machine shop or whatever. Large industrial users are going to find this increase hard to swallow, and that will affect our economy.

It is also going to hurt our residential users, whether they live in an apartment or whether they own their own home. A 15 per cent increase is going to be quite a burden on some people. Some of my constituents in Pictou West are living on a very low income, $5,500, $6,000, $8,000 or $10,000, $12,000 and so on, depending on the number of people who live in the household. This will be quite a burden on them.

As was mentioned by the chairman a few minutes ago, I think the idea of some help for low-income Nova Scotians is something that has to be seriously looked at, perhaps both by Nova Scotia Power and through government means. I certainly like the idea that was mentioned, what's been done in the State of Maine, income help below a certain threshold. Hopefully that's something we can look at and see if we can assist our most vulnerable, those most in need. Something that our Party, too, has supported and still would like to see happen is taking the HST off family essentials, and, again, that would be a government initiative. If it was taken off fuel or electricity, that would be a great benefit to a number of low-income Nova Scotians.

What I want to come to is low-income Nova Scotians or residences in particular, are we paying more than our fair share for power in comparison to industrial users or commercial users? I read somewhere in the report that we were given that residential customers make up 33 per cent of the use of power but they're actually paying 42 per cent of the cost. So that means, as a residential owner, we're paying more than our fair share of the power costs. I assume, therefore, someone else is paying less than their share, commercial or industrial I would think. So that's my first question, around residential users, in particular

low-income users, are we paying more than we should in relation to other users in this province?

MR. HUSKILSON: I thank you for your question, that's a very good question. When prices get set for electricity in Nova Scotia, they're done by the Utility and Review Board. We make a request and then the regulator actually makes the decision. Part of their decision making is to try to assign the costs for electricity to the users who actually cause those costs. So what you find is that the regulator is very critical about ensuring that those costs are actually paid by the customers who incur them. So, even though you see that 34 per cent generates 42 per cent of the revenue, that's because it's a little more costly to serve a small customer than it is to serve a large customer. The regulator looks at that on an ongoing basis, especially during rate hearings, and then decides whether that's a fair and reasonable price to be charged. So that is part of the approach that we have in Nova Scotia, and it's part of the protection that Nova Scotians have to ensure that prices are set fairly.

[10:15 a.m.]

MR. PARKER: I want to ask a related question. For residential users, on our power bill, I've noticed there is a base charge, I think it's $10.83 a month, and over the past three or four years, we've had a number of power outages, whether it's from hurricanes or ice storms or other factors, but more often it seems than ever we've been without power for a few days, sometimes as long as a week or more in some areas, and I'm wondering about that base charge. What is it for? I'll ask this first, and then I'll come to the second point. What is the base charge all about?

MR. HUSKILSON: Well, the base charge on the bill is there to pay for the basic costs of being connected to the system, things like the cost of actually bringing the wire into your house, of reading your metre, those kinds of things. That's what's in the base cost. Again, it's a cost-based rate. The regulator would look at how much it costs to do those things for various customers, and then would assign that price based on what they believe the costs are.

MR. PARKER: Coming back to the number of power outages we've had, and this suggestion has been brought to me and I'm passing it along, I guess it would be an incentive for your company to make sure that the power stays on, and also perhaps a reward for not having power. I guess that base charge is still there, all the time, whether people have power or not. The suggestion is that if the power is off for more than, let's say, 48 hours in a billing period, that base charge should be waived in order to give an incentive to your company to make sure you provide the service. If you're not provided the service, then the customer should not have to pay. I just want to get your thoughts on that, whether that would be a fair system for customers who are paying for something they're not getting, and secondly would provide an incentive to make sure that you do provide the service.

MR. HUSKILSON: First of all there's no question that customers have seen, and we've seen, difficult situations over the past couple of years as it relates to storms that we've had and the resultant outages that have come from those storms. It's been very difficult for customers. We understand that, and it's something we're working hard to improve. The regulator actually has done a review, I think requested by the Premier. As part of that review, they brought experts in, they had experts look at our system, they had experts look at our maintenance practices, they had experts look at the circumstances.

The conclusion of those experts was that the system was maintained properly, that the system was in good shape. That doesn't, though, alleviate the situation that you're talking about. So, since we've had more abnormal storm conditions over the past number of years, we believe that there is more to be done. We believe that there is more to be done to ensure that the power stays on more regularly than it has through that period. So, part of this application that we have right now before the regulator is to make some changes to our response, to make some changes to the various attributes that we have to customer service.

Another thing that the regulator is doing is they haven't yet come out with their decision in this case. We anxiously await that decision to see what the regulator will say to us about what they expect around this issue.

MR. PARKER: As you can appreciate, it's certainly frustrating for customers when they're without power for a number of days and then they still get the bill for service they haven't received, even though on the kilowatt-per-hour basis they're not paying for power they're not getting, but they're paying the base charge for something they haven't gotten. So there's frustration there, certainly. How much longer do I have, Mr. Chairman?

MR. CHAIRMAN: Two minutes.

MR. PARKER: I'm going to ask about disconnection when somebody is not paying their bill, and this happened a few times in my constituency. We get a call, somebody is going to be cut off. Does your company have a policy in Winter, in particular? I know you have a policy around a medical emergency or a medical situation, where you may not disconnect the power if somebody is on oxygen or on a generator, something that's needed for their medical use. In the Winter months, in January for example, do you wait until Spring to disconnect? Just what is your company's policy in that regard?

MR. HUSKILSON: I can get you some more detail on the specifics of how those things work. In general, what happens is that we actually have a device that we can put on the metre that limits the amount of electricity that someone would take during that kind of period. Often that's what's done in the Wintertime.

MR. PARKER: So, do you disconnect in January or February, or do you use a method like you mentioned?

MR. HUSKILSON: Generally it's the method that I mentioned, but I can get you some more detail on that.

MR. PARKER: I have one final question that I'll ask. It's around alternate energy, around co-generation, around wind power. I know you're looking seriously at this issue, but the concern that I've heard is that the rate that you're paying is not competitive or there's not enough incentive for somebody to want to set up a turbine to come on to your system. Are you paying enough to somebody as an incentive to really want to set up another business?

MR. HUSKILSON: Again, I think that's a great question. Our customers have certainly told us, as we've talked more and more to customers about this issue, that they want more renewable energy as part of the solutions that they see as we go into the future. What we've done in the past couple of years is we've made a commitment to increase our renewable energy by 2.5 per cent in total or 25 per cent. We've been able to exceed that by the solicitations that we've put forward. We've put out requests to independent power producers to supply renewable energy, and they've all been over-subscribed. Every time we've put out a request, we've had more offers than the demand that we actually put out. In the last couple of rounds, we actually took all those offers. We have not, at this moment, seen any trouble in attracting people to renewable energy.

MR. CHAIRMAN: Mr. Theriault.

MR. HAROLD THERIAULT: Mr. Huskilson, thank you for your presentation. I said if it was good, you wouldn't get any questions. It was pretty good, though. I know where you're coming from. I know you're running a business. I know you have shareholders to take care of. You've got business responsibilities, and you need an increase in your fuel costs, just the same as I do as a tour operator down in the Bay of Fundy. We've had to increase our prices this year because of fuel. Everywhere you go, truckers, no matter who it is. What do you do about it? You have five or six companies around the world bidding on the stock market on oil prices. How do you deal with that?

The only way I know to deal with it is use less. I've got a boat in the Bay of Fundy with a 600 horsepower diesel in it. It will take a lot of fuel. I've had to raise my price 6 per cent or 7 per cent to cover it all. We have a sailboat next to us, and he didn't have to increase his price. He gets 90 per cent of his power from the wind. I'm trying to figure out how to put a sail on my boat, common sense. We can all work at this by cutting back, by reducing. We could start right here in this room. Every one of those lights around the walls, shut them off, you could shut half of them off up there and I could still read this paper without my glasses.

Waste, waste, we all waste. Every building - I look at this city a lot. I'm not used to a city. I go look at these buildings at night, and there's enough energy used in one of those buildings at night over here, 15 stories, to supply 10 households for two months. I'm just amazed at the abuse. And sucking it out of the ground, the oil and coal. It was 52 degrees the

other day in the desert, down in the middle of the States, 40 degrees in Toronto, and rising every year. I've watched the weather all my life. I've never seen so many low pressures on a map in the summertime in my life. There's seven on it today. I've never seen that, 10 years ago, that many in the Wintertime. I don't know what's happening.

I think it has something to do with what we're doing to the atmosphere, that's for sure. So we can all work at correcting this. I know you need a raise, I need a raise, everybody in business buying fuel needs a raise, but we certainly have to look at alternative ways. Wind is one of them, sun is another. We have enough power in the Bay of Fundy to run the world with hydro, if we could harness it right. Why isn't Nova Scotia Power promoting to cut back, is that not good business sense to you? I know you need an increase, but you're saying you have to, you have to. So let's get the people to work on cutting back 15 per cent to 20 per cent. We can start right here today, shut those lights out around here. We don't need them. Can you answer that?

MR. HUSKILSON: Absolutely. We agree with what you are saying. We agree that there is opportunity in this market, in our economy in Nova Scotia, to reduce consumption. That's why we've increased our spending on conservation programs fivefold this year. We've put forward a $5 million program. We are in the process of consulting with a leadership team that we've brought together to help us not only put the right programs together, but ask the right questions on how we can be most effective with these programs, and we will also bring customers together in the Fall and ask them and consult with them on the best ways to make that investment and to make the change you are talking about. We agree that there is opportunity there and that we can make a difference if we move down that path.

MR. THERIAULT: It's all about supply and demand. Everything in the market is supply and demand. My daughter, last month, she had a car that gave her 30 miles to the gallon. She bought a little car that gives her 70 miles to the gallon - SmartCar, smart move. Lovely little thing to go to work in and she over doubled her mileage overnight. We can all work that way. It just needs promotion. Are you willing to work with anyone who comes forth and says they want to put a lot of wind towers up this afternoon? Are you willing to work with anyone in this country?

MR. HUSKILSON: Absolutely. Other than two, all of the wind turbines that have gone up, or are going up right now, are being done by others. We've only actually put two up ourselves. Our customers have told us that they want more renewables. Our customers have told us that wind is a preferred approach in Nova Scotia, so we're absolutely there to work with other people to actually make that happen. So far, we've been able to increase the amount of renewables we have by 25 per cent, so it will be a full 100 megawatts of new renewables by the end of 2007. We think that the opportunity is even greater. We think that as time goes forward, we will be able to increase that quite dramatically.

MR. THERIAULT: If there was a place picked out to put wind towers that would constantly turn wind 24 hours a day, 7 days a week and the grid wasn't proper for that area, would Nova Scotia Power invest in making that grid better for that area?

[10:30 a.m.]

MR. HUSKILSON: I think that's actually the way we would do things today. Part of a project proposal is to make the connections that are necessary in order to make the system work the way it is. I think one of the things that is really important about renewables, especially about wind today is that it is very much in its infancy. It's in its infancy in the market as a whole in North America. It's in its infancy clearly in Nova Scotia. There are a couple of things we don't know about and there is prospecting going on. The second solicitation that we put out this past year, most of the people who actually came forward, came forward with what they call prospecting machines. So machines that would go up to start to characterize and start to tell us where the best places to put wind turbines are in the province.

So that is all starting to happen now. Things like being able to understand the impact that wind turbines will have on people around them. Things like the impact that wind turbines will have on birds, especially the migratory seabird population. All of those things are things that we are learning but we have to do it by doing, and that's part of what's happening now. I refer to it as applied research. It's not pure research, but in this province we have to get more machines up, we have to get a better understanding of where the value is created and then we have to make that happen. I think there are lots of opportunities, there are lots of people out there willing to do it and we are moving ahead now.

MR. THERIAULT: If I was a bird, I would take a chance on the windmill over the coal and oil that's putting what's in the air that the birds are breathing. A fellow told me that the other day. He said they're hard on birds and I said not half as hard as the grill of your car is. So he understood that quite well. Anyway, thank you, Mr. Huskilson.

MR. CHAIRMAN: For our last round, we will start with Ms. More and it will be for eight minutes.

MS. MARILYN MORE: Mr. Huskilson, I want to talk a little bit about how I think your company might be able to do more to minimize the negative impact of the current and potential rate increases. You've heard from many of us how we struggle on a day to day basis in our constituency office because the majority of people who come through our doors are residents who are struggling on low incomes. For them, covering any increase in an essential bill is not a discretionary situation. They actually have to take money out of another essential budget - for example, food - in order to pay that bill.

I recognize your point that a policy that would provide lower rates for low-income customers is a public policy issue, but I would suggest that a socially responsible company would be looking at these in a more proactive manner. Quite frankly, I think it would improve your image and it certainly would improve public confidence that you are looking at working alongside customers and helping them meet some of their financial challenges, rather than just another pressure from the outside who doesn't care about them.

Certainly, for the majority of people who I deal with, the idea of sharing in profits ranging from $80 million to $112 million is beyond their imagination, let alone their reality. I'm not suggesting that Nova Scotia Power should be a social service agency. I realize your business situation, but I think you do have a special responsibility because of your unique status. You have a near monopoly in providing power in this province. So what I'm leading up to, I'm not convinced that your current policies and procedures help low-income customers enough and I'm wondering if you could look at that area of support. It looks almost inevitable that you are going to get some increase. I've reviewed, as much as possible, your business case and I understand the financial pressures you're under as a company, but I think there has to be some way to minimize the harm that a potential increase could create on the most vulnerable of our citizens.

So I'm wondering, we've heard an earlier example that one of your policies suggested there should be a security deposit on people who have not been able to meet their regular payments. This is just an indication that you are not taking that harm situation seriously enough, so what are you currently doing, through your policy and procedures, that would protect low-income customers, and what could you do more of in the future to minimize that harm?

MR. HUSKILSON: Certainly, you are talking about the group of customers that will have the most difficulty with the kind of rate increase that we are talking about. As you see from the application, there's very little room for us to do anything to make that change. If there was something else we could do, then we would. If we could shield Nova Scotians from this, then we would. It's not something we can do.

When it comes to low-income programs and this approach, today we have an energy fund that's in place that we support and that is administered by the Salvation Army. That is a fund that works to help the situation that you're talking about. As well, we do review our policies on a regular basis, and we continue to look at their impact on our customers and what we can do around that. Then, as we look at conservation, we see a lot of opportunity to help low-income customers from a conservation perspective. It really can make a sustainable difference. If you can make a change where our customers consume less electricity on an ongoing basis, then that is something they see as a reduction, continuously. So we're consulting broadly on this issue, and we're trying to make sure that the programs we've put in place on conservation will make a difference. We think that we can make a difference there.

MS. MORE: Often you have to spend money to take advantage of those conservation programs, to get the most benefit from them. So I'm wondering, are you actively working with the government in some sort of partnership to ensure that low-income residents can take advantage of those initiatives?

MR. HUSKILSON: Certainly, where we are today is we've pulled together an advisory group, and it involves the Department of Energy, Adsum House, the United Way, a number of parties that we think will be helpful in making sure we get the right advice. As part of the programming that we put forward, the issue that you raise will be addressed.

MS. MORE: Do you feel that's enough?

MR. HUSKILSON: Well, I think it's too early to judge from my perspective what the outcome of the work will be. We've just brought the group together, and I have great confidence that the group will do what we need to do.

MS. MORE: Would you consider expanding the number of representatives from the voluntary sector who are working with low-income people, and perhaps include some actual low-income consumers?

MR. HUSKILSON: What we've tried to do today is make sure that there are representatives there. We'd certainly be happy to talk to you off-line about that.

MS. MORE: Okay. I'm going to share the rest of my time with my colleague.

MR. CHAIRMAN: Mr. Epstein.

MR. EPSTEIN: Could I ask, has Nova Scotia Power been buying back any of its shares? The reason I ask is that you indicated earlier, in response to one of my points - although you spoke, I think, to one of the other MLAs - that your shareholders had invested $1 billion in the company. I think what they say in the business world is that equity is more expensive than debt. What that means is that it's more expensive to the company to have shareholders than to go to the bond market and borrow the money.

The reason, of course, is that if you go to the bond market and you borrow the money, if you needed $1 billion then you will be paying it back, both principal and interest, in some kind of set period of time. So after 20 years, you're paid back and you're probably paying 5 per cent, 6 per cent, 7 per cent on corporate debt, but when you have shareholders and they're investing money in the company that way, which is how you characterized it, you're paying them 10 per cent return on equity, and you're paying it forever if you're not buying back shares.

So, hence, the common statement that from the point of view of a corporate entity like yourselves, equity is more expensive than debt, it seems to me that it's not really a justification for having shareholders and saying that they have to have their 10 per cent, when you have an alternative available to you. The only thing that might even begin to bring it into the realm of something sensible is if you're buying back, particularly in any kind of significant number, some of the shares that are outstanding. I wasn't aware the company was. Are you buying back shares?

MR. HUSKILSON: No, we're not buying back shares today. What you're really raising is the whole issue of privatization. I think Nova Scotians have actually benefited greatly from privatization. It has occurred in a number of different areas. First of all, if you look, today, Nova Scotia gets about $50 million in taxes from Nova Scotia Power that would not have been there pre-privatization. Today $50 million goes back to the economy. As well, we also see that the $3 billion of what would have been debt, today it's $2 billion of debt and $1 billion of equity, but the $3 billion that would have been debt has come off the province's books. With that - not alone, but as part of that relief of debt - the province has seen three upgrades in its bond ratings since that time.

There are a number of things that have occurred. The province no longer has the risk of generation. The province no longer has the risk of the utility. There are a number of real benefits that have accrued to the people of Nova Scotia as a result of that. So certainly, one of the parts of that is that you have to have equity in the company for it to maintain bond ratings.

MR. EPSTEIN: Very dubious, I have to say. We disagree.

MR. CHAIRMAN: Thank you, Mr. Epstein. I figured there would be disagreement on that. Mr. Glavine.

MR. LEO GLAVINE: Thank you to Mr. Huskilson and Mr. Doig for being here today. In the heat of Summer, this topic is as hot as the weather, perhaps, coming up this weekend. There's no question, I certainly take the perspective that - Mr. Huskilson, I know you weren't there for the 12 years as CEO, but when you started off quoting from proverbs - which was a nice touch for the start of our morning - with the word "vision", I haven't seen any vision from Nova Scotia Power, at least in its first 12 years.

The first of the wake-up calls about oil was in 1973. I remember my students saying, is the world running out of oil? I said, absolutely, every day the world runs on a little less oil, as we know. If we take a look at the Hubbert curve, we know that now we're precariously close to the peak point and going down the other side. Fossil fuels cannot be part of - and I know in the first part, you still talked about buying and purchasing more low-sulphur fuels.

But I disagree with your premise that wind energy is in its infancy. I just spoke to one of three people who presented to educators in a short course on energy that was just given by NSTU. There is absolutely no question that Nova Scotia is now identified as one of the three top areas in North America for wind energy. And in that land of plenty, of fossil fuels - Alberta - with its oil, gas, tar sands and coal, Calgary, a city with over 1 million people, the population of Nova Scotia, 75 per cent of its energy is generated by wind energy. Think about it.

Mr. Samson pushed you hard to make a commitment on the Bangor energy area to give support to Nova Scotia customers, as they do with Bangor Hydro. I'd like to push you to let Nova Scotians know, by 2020 or 2025, that at least one-third of the energy of the 80 per cent that is currently produced by fossil fuels will in fact be renewable. We don't have a choice on how we need to go forward. How prepared are you to be aggressive so that Nova Scotians can at least see a little bit of stability in their future?

MR. HUSKILSON: I certainly thank you for that question. It's a very important question. It's a very important thing for Nova Scotia. I absolutely agree with you that Nova Scotia has a very strong wind resource. The infancy I spoke of earlier was about electrical wind; certainly there are lots of other forms of wind energy that are not in any way in their infancy, and I certainly take that point. There's no question that our customers have said to us that they want us to do more. Today we have about 10 per cent of our energy produced from renewables. And that's a combination of hydro, biomass and wind power. So that's a very good start.

[10:45 a.m.]

The question of whether or not we could have 30 per cent of our energy produced by 2020, I think that's a very good question. I think it's very possible. I don't think it's the kind of thing that is out of the realm of possibilities at all. It really depends on how Nova Scotians see wind as it develops. That's really going to be the biggest challenge. As you say, the resource is there. How will this industry develop? We believe that it's going to be an important source of energy for the province for the future. We will play a very strong role in developing that resource, and we think that it's going to move forward. Over the next five years, I can see at least another 10 per cent of the energy coming from renewables.

MR. GLAVINE: I'll try to make this quick. This is why, I think, Mr. Taylor and Mr. Dooks presented the concept of why Nova Scotians are very skeptical and have lost a lot of faith in Nova Scotia Power. Here's an example, Aylesford Lake has to have its dam repaired this year. The planned drawdown process to arrive at August 15^th certainly is a great example of bad faith. They were told in February that they would have to do this work; March 23^rd they held a public meeting with the association; then in April they were notified that in fact the later date of August 15^th would be the start of the drawdown.

Now, they knew very well that the Department of Environment and Labour would be saying that you had to be out of there by September 30^th because of DFO regulations and so forth. They received a letter from the Department of Environment and Labour on June 8^th, and they waited until June 27^th to inform customers that they would now have to do the drawdown starting August 1^st, basically wiping out half the Summer use on the lake.

I've been working with Nova Scotia Power, trying to go back to August 15^th; however, the 280 residents, full-time and cottage people, now see that in fact it's very easy to get the extension from the Department of Environment and Labour. The Department of Agriculture and Fisheries said that they were led to believe that in fact they were replacing the dam, and that's why they needed this early date of July. But it's all about getting two drawdowns of the water. It's not about consideration for the 25,000 people who will use Aylesford beach, it's not about the seniors who will go out there, it's not about the Summer yachting program that the province put up money to run.

Nova Scotia Power does not take into consideration that human element very often. Here's a great example, Nova Scotia Power people tell me - that's where I go for advice, former employees who did this work - they can put in the cofferdam, they can do the work within seven weeks. So why not give the residents there their usual drawdown on the lake starting on the Labour Day weekend? They would even be willing to say August 29^th. Then you have seven weeks until October 12^th, when they could be out of there and in compliance with the Department of Environment and Labour, and also DFO.

So, in other words, this Summer, with their program, they've made some good faith move in my riding with the work that they have done. Now the thousands of people from Kings County who use that lake see that Nova Scotia Power has been somewhat devious in the way they've gone about this work.

MR. HUSKILSON: In fact, certainly Nova Scotia Power's intent was to work with the users of the lake and the facilities there, and to get the best use that the customers and the users could have. I do know there has been a regulatory issue with that, and I guess I don't know beyond that. I would be happy to take that off-line with you.

MR. CHAIRMAN: For the final eight minutes, Mr. Taylor.

MR. TAYLOR: I guess Nova Scotians are saying, here we go again, why should we believe you now? I think we've established that here at the committee level, and have said perhaps enough about that. We are very concerned that the 16 per cent doesn't accurately reflect the increase that the utility feels it needs. Mr. Huskilson, I ask this question with respect, why don't you, perhaps keeping in mind how your pay scale is structured, I believe as President and CEO that leadership does start at the top and there's been all kinds of suggestions going around, enough going around here for everybody, but I think it would send a good message to Nova Scotians that you are sincere about restoring credibility to the utility

and helping Nova Scotians regain some of the lost confidence they have in the utility, that you, in fact, would start by taking a reduction in your quite lucrative pay scale - again, I say that, Mr. Chairman, with respect - what are your thoughts on that?

MR. HUSKILSON: Certainly I think when we look at pay scales for the utility, that's something that's extremely important that we do that carefully and that we ensure that we have competitive pay scales. When we look at total executive costs in this most recent application, we see that we've actually reduced that by about 20 per cent. We have reduced the cost of the executive to Nova Scotia Power in this application. When we look at the rest of the way that we look at salaries in the company, we do that through a competitive process. We look in the market, we look at what we should be paying at all levels of the company, whether that be a person who is actually working in a power plant or whether that's the CEO. We do surveys, we use those surveys. The committee of the board is responsible for setting salaries based on those surveys. Then the regulator, as they are doing right now, will review that situation, and make a decision as to whether that's fair. That's how salaries are set. We believe that that is working.

MR. TAYLOR: Again, I think you've tapdanced around the question I posed, quite elegantly, and that's fine if, collectively, there is a reduction in salary. But I really believe that, Mr. Huskilson, one of the reasons that the utility seems to be facing the wrath of Nova Scotians is because of the way the pay scale is structured for the executives at the top, including yourself, quite frankly. I say that with respect, bearing in mind that perhaps other organizations and utilities of similar size pay that type of remuneration to their employees at the top.

I know that a number of linemen, especially over the next two years or so I've been told, are retiring and through attrition. I trust that the utility will not only make sure that they replace each and every lineperson that is going out of the system, out of the service for whatever reason, and that in fact you increase the numbers. The service is clearly, I know we've had abnormal storms, Mr. Chairman, but the service is clearly inferior to what it was perhaps a decade ago, when we had more Nova Scotia linemen. It's nice to say that we can farm it out and other linepeople in other jurisdictions are ready and available to come to work, but I still firmly believe that Nova Scotians are looking for better service.

Granted, Mr. Doig's doing a great job in the communications side of things, as far as informing the political Parties, at least, of some of the steps and progress that the utility is making, and we appreciate that. But, clearly, you have a long way to go. I hope you can get there, and I hope you have some aces up your sleeve to bring this rate down from 16 per cent, like you did the last time. I'll conclude and yield my time.

MR. HUSKILSON: There's no question that the demographics of Nova Scotia and the demographics of our company are such that we do need to start replacing the workforce. We have very skilled workers, and those skilled workers do a very good job for us. So part

of this application that we've put forward just recently actually sees a large number of apprentices coming into the system. It sees continuing to restore the skills, and to make sure that we maintain the skills as we go through the retirements that will ultimately happen over the next number of years.

MR. CHAIRMAN: Mr. Huskilson, that concludes the questions from committee members. If you have any closing comments that you wish to make, I would invite you to do so now.

MR. HUSKILSON: I'd just like to thank the committee very much. It has been a great opportunity for me to hear your comments and your questions. I hope I've been able to answer them in a satisfactory way to you. I would certainly be pleased to come before this committee at any time. Thank you very much, I appreciate it.

MR. CHAIRMAN: Thank you, Mr. Huskilson and Mr. Doig, on behalf of the committee members for making yourselves available in the middle of Summer. We certainly appreciate it, especially in light of the increase and the hearings in the Fall that we're able to have you appear before us at this early stage. It's certainly greatly appreciated by the committee members.

Committee members, I think you all have a copy of the agenda. We do have a busy period ahead of us. We have four meetings that are scheduled, bringing us up to October 4^th. Unless there are any further matters to be dealt with, our next meeting will be August 4^th with the Department of Tourism, Culture and Heritage to discuss some issues around the Halifax Airport and other tourism issues. On September 8^th, we'll have representatives of the Halifax Airport Authority here before us. If there are no further issues, I'd certainly entertain a motion to adjourn.

MR. TAYLOR: So moved.

MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

This committee stands adjourned.

[The committee adjourned at 10:57 a.m.]