04 April 2012

Credit rater gives Emera “negative” outlook #nlpoli

The Chronicle Herald reported Tuesday that credit rating agency Standard & Poor’s had changed its rating for Emera from “stable’ to “negative”.

The problem is the capital requirement in order to meet the Nova Scotia government’s green targets.  CH quoted Standard & Poor’s analyst Nicole Martin:

Meeting that renewables goal will require a “meaningful capital expenditure program,” according to Martin. The upshot: Nova Scotia Power’s ability to cover a growing debt load will depend upon the timing and size of rate increases granted by the Nova Scotia Utility and Review Board, which sets power rates in the province.

That heightens what Martin calls “regulatory risk due to the potential for rate shock.” Last November, the board granted Nova Scotia Power an average rate increase of approximately 5.1 per cent for all customers effective Jan. 1.

The rating means the company will have to pay more in order to raise the cash for all those transmission lines it would have to build as part of any deal with Nalcor for Muskrat Falls.

Some observations:

  • Odds are this is why Emera and Nalcor haven’t signed a deal for Muskrat Falls yet.
  • This also explains why the companies gave themselves an indefinite deadline for finishing talks even though they were supposedly so close to getting one done two months ago.
  • If Emera drops out, expect the chances of a federal loan guarantee to head to zero. 
  • The Tories in Newfoundland and Labrador might still push ahead with the project – they are just that wacky – but it would be a much more convenient excuse to cut their political losses.
  • Don’t forget that Emera will have to run its part of the Muskrat deal through their utilities regulator.  If rate increases are stressing Emera already, watch out when the Muskrat risk hits.

- srbp -

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