The Nova Scotia Utility and Review Board (Board) sets the rates electric utilities can charge customers. The Board is responsible for ensuring customers receive safe and reliable power at fair rates from the utilities it regulates. The Board balances that responsibility with the need to ensure utilities are given a reasonable opportunity to earn a fair return on their investments. Without a reasonable return, investors would not be willing to invest in the utility.
Typically, a utility decides that a change in rates is necessary. The process begins when the utility files an application with the Board. The application usually contains a summary of the utility's request for changes to rates and the regulations which determine their conduct and collections from customers.
Board staff and various participants review the application and supporting documents and request further information from the utility if required. Intervenors and the Board’s legal counsel sometimes use experts to review the application and submit evidence. There may be a person or organization appointed to represent customers, talking on their behalf. By the time the hearing date arrives, much of the case is already on file and can be found on the Board’s eFiling System. More information about the hearing process can be found here.
How are rates set?
The Board determines rates using the cost of service method. This method is intended to set rates at a level that will allow a utility to recover reasonably incurred costs plus a reasonable profit. The total of the costs and profit is referred to as the revenue requirement.
The formula to calculate the amount the utility can recover from various customers is:
revenue requirement = operating costs (fuel, salaries, interest, general expenses) + depreciation + taxes ± any other Board approved costs or deferrals + profit [calculated as the value of the “rate base” x the approved rate of return].
The rate base of a utility is the amount that has been invested in the utility in order to operate. Rate base is mainly made up of the value of all approved property, plant and equipment which is currently “used and useful” by the utility in carrying out its business.
The rate of return is the approved profit which the utility can earn each year. While several factors are involved in setting a fair and reasonable return, generally the Board sets a rate of return equal to the return investors could expect to receive on an investment of comparable risk elsewhere in the economy. This return is not guaranteed. The utility must manage its operations in line with expectations in order to achieve its return.
The last step in the Board’s rate setting process is to ensure there is a reasonable allocation of costs between the various classes of customers (e.g., residential, commercial, industrial, and so on).