Nova Scotia Power’s 2013 rate increase request includes a substantial element arising from serious funding deficiencies in its pension plan. The Nova Scotia Utility and Review Board has been hearing evidence on the request this week. Why is this a problem that customers should pay for?

The utility may be able to successfully argue that its management of the plan assets has been reasonably sound. But of course that is true of most of the pension plans that are in deep difficulty. All have been impacted by poor equity market returns, increased longevity of retirees, and a very low interest rate environment, which increases the present value of future benefit promises.

In response, almost all private sector employers have been making major changes to their plans to reduce the size and cost volatility of their plans and to involve employees more in risk sharing. Likewise, the provincial government has made major changes to the Public Sector Superannuation Plan to reduce and control its cost.

In New Brunswick, a new era has been created for both public and private plans with employers and unions co-operating to control and manage benefit costs.

NSP has a very rich defined benefit plan, more generous than the provincial government plan. The problems leading to this year’s cost increase were clearly identified in URB hearings responding to rate increase applications in prior years. Yet it has made no progress in bringing its plan into line with emerging trends, and limply argues that if it did so the union would not like it. Apparently it does not feel responsible for controlling benefit costs.

But there is an even more important adjacent issue. NSP carries over $2 billion of debt, money used to build power generation and transmission capacity. The vast majority of it is at interest rates much higher than will likely be available when that debt renews.

For example, a $300-million note at 6.09 per cent renewing in 2013 and a $75-million note renewing at 8.43 per cent in 2015 would, if renewed today, require much lower interest rates. Those same low interest rates that hurt its pension plan costs will be an immense help to its cost-of-debt servicing.

Beyond that, the return on equity that NSP has been allowed is based on an estimate of a “risk-free” rate of return, plus a margin for the risks that it takes. Given the major reduction in interest rates (Canada 10-year bonds currently yield well under two per cent, down over 2.5 per cent over the last 60 months), surely a review of the return on equity should be part of the same evaluation.

Unlike most private sector and many public sector employers, NSP has failed to deal with its spiralling pension costs. Its cost of borrowing benefits greatly from the low interest rates that contribute to those pension cost increases. It is not reasonable to ask customers (most of whom have no pension plan at all) to foot the bill.