As Canada’s electricity sector continues to decarbonize and transition toward more sustainable energy sources, the need for government financial support has grown significantly. With legislated net-zero emissions targets and ambitious green energy initiatives, federal and provincial governments are increasingly being called upon to mitigate the economic pressures placed on ratepayers to modernize and decarbonize the electricity grid. This evolving landscape has brought concepts such as cooperative federalism and the beneficiary-pays principle to the forefront of utility regulation in Canada.

In Nova Scotia, a series of recent decisions by the Nova Scotia Utility and Review Board, now the Nova Scotia Energy Board (each referred to as the “Board”) illustrate the roles of both governments and the utility regulator in balancing customer and utility interests. The backdrop to these decisions is the delay associated with delivery of renewable energy to Nova Scotia from Muskrat Falls hydroelectric generating station in Labrador via overland transmission and two subsea cables, the Labrador Island Link and the Maritime Link (the “Maritime Link” and collectively, the “Maritime Link Project”).

BACKGROUND

The Maritime Link Project was originally expected to be operational and deliver reliable renewable hydro-electric energy by 2018. The in-service dates of the Maritime Link itself and the overall interconnected Maritime Link Project became disconnected, in large part because of delays on the Newfoundland and Labrador side. Accordingly, the Maritime Link Project failed to meet its energy delivery targets.

During this period, Nova Scotia Power Incorporated (“NS Power”) accrued substantial debt under its Fuel Adjustment Mechanism (“FAM”) — a deferral account which tracks the difference between NS Power’s forecasted and actual cost of fuel and purchased power. The deferred balance is then applied as a credit or debit against rates though a FAM rate rider, as approved by the Board^[1]. The growth in the FAM balance was largely due to a sharp increase in global fuel and natural gas prices. These rising commodity costs, coupled with the delayed availability of forecasted clean energy from the Maritime Link, which necessitated the purchase of additional alternative costly fuel sources, all placed significant unanticipated financial burdens on electricity ratepayers.

PROVINCIAL SUPPORT

In response, NS Power sought financial assistance from both the provincial and federal governments. In 2024, an agreement was reached between NS Power and the Province of Nova Scotia. Invest Nova Scotia, a Crown corporation whose mandate is economic development and innovation, agreed to purchase $117 million of NS Power’s FAM-related debt. As part of NS Power’s application to set the FAM rate rider, approval was sought and granted by the Board in April 2024 to sell this debt as a “regulatory asset”.^[2] Under the arrangement, repayment to Invest Nova Scotia will occur over a ten-year period at a more favourable interest rate than the carrying cost of NS Power’s FAM account.

Despite this support, NS Power’s ratepayers remained burdened with approximately $280 million in FAM-related debt, which continued to grow.

FEDERAL SUPPORT

NS Power and the Project-focused entity, Nova Scotia Power Maritime Link (“NSPML”), continued to engage in negotiations with both levels of government to secure further relief. These efforts culminated in a commercial agreement with the Government of Canada, under which NSPML would issue $500 million in debt, backed-stopped by a second federal loan guarantee (“FLG2”). This arrangement mirrored the structure of the original loan guarantee (“FLG1”), which funded the initial Maritime Link construction. Approval of this arrangement was required from the Board and was pursued throughout 2024 and 2025.

The regulatory process to approve the FLG2 arrangement, and the required repayment obligations by ratepayers, has resulted in a series of decisions issued by the Board which collectively underscore the importance of governmental support in the transition to clean energy. The decisions also reflect a regulatory approach that recognizes the complexities of cooperative federalism as a practical tool for addressing climate change related debt and striking a balance between the interests of utilities, governments, and ratepayers.

NSP MARITIME LINK INCORPORATED (RE), 2024 NSUARB 199

NSPML recovers its revenue requirement by way of a cost assessment to NS Power, which, in turn, is recovered in rates. The test-year cost assessment is the amount required to finance the Maritime Link, and pay for depreciation, sustaining capital costs, operating and maintenance expenses. On July 4, 2024, NSPML applied in the usual course for its 2025 assessment. Partway through that process, NS Power and the Federal Government negotiated a deal related to the FLG2 arrangement. As a result, on September 25, 2024, NSPML filed a supplemental request related to the FLG2 arrangement to recover an increased cost assessment associated with issuing the federally guaranteed debt.

The NSPML assessment application was combined with NS Power’s application to set the FAM rate rider for 2025 but was decided separately due to the timing of FLG2 negotiations.

By the end of 2024, NS Power’s FAM-related debt was projected to reach $412 million. This was too significant to be resolved through a single-year true-up in the following year’s FAM rate rider. Given that the accumulation of this debt was partly attributable to delays in Maritime Link energy delivery, and corresponding need to acquire more expensive alternative fuel sources, the proposed solution was to pay down the FAM balance through debt issued to NSPML. This would allow the costs to be amortized over the remaining 28-year term of the original Maritime Link FLG1, shifting and spreading out payment obligations to the future period.

Under the approved arrangement, NSPML would issue $500 million in new debt and the monies would be refunded to NS Power (net of fees). NS Power was required to refund ratepayers for prior payments related to principal and interest associated with the existing FLG and apply that refund against its outstanding FAM balance. The allocation of the refund was left to be allocated to customer classes in line with a regulatory framework to be determined within the separate but related FAM riders proceeding.

The debt issuance was guaranteed by the federal government, with an annual 0.5% guarantee fee payable estimated to total approximately $33 million over the amortization period. Despite the added cost, the arrangement was widely supported by intervenors, including the Consumer Advocate, Small Business Advocate, and the Industrial Group, who viewed the financing as the only viable resolution to a significant financial problem. NS Power emphasized — and the Board agreed – that approval would benefit both customers, by mitigating significant near-term rate pressures, and the utility, by improving its credit metrics and particularly its cash flow to debt metrics.

One intervenor, Port Hawkesbury Paper (“PHP”), expressed concern for the FLG2, without directly opposing the arrangement. Instead, during submissions, it sought a declaration that it would not be responsible for repaying any portion of the new debt. The Board directed PHP’s request to be determined in a separate proceeding, 2025 NSEB 2, outlined below.

The Board ultimately approved the creation of a $500 million regulatory asset, and collection of a supplemental 2025 NSPML cost assessment against NS Power related to interest and principal bond repayments and the guarantee fee. The $500 million debt was also excluded for purposes of calculating NSPML’s regulated capital structure.

The Board was satisfied that the commercial arrangement and the proposal benefited customers and the utility. On the issue of intergenerational equity, NS Power’s position was that “because principal and interest expenses for repayment of the project costs will be deferred to the future, the costs will be matched to the customers who will ultimately benefit from Maritime Link energy.”^[3] This rationale later influenced how the $500 million refund was allocated.

RE NOVA SCOTIA POWER INCORPORATED, 2025 NSUARB 33

After approving the commercial arrangements related to the FLG2 and NSPML’s supplemental assessment to repay the FLG2, NS Power needed Board approval to allocate the NSPML refund and the supplemental assessment to customer classes. The vehicle to do this was NS Power’s FAM rate rider.

The allocation of the refund was not without controversy. Some intervenors argued that the refund should be allocated based on each class’s share of the FAM balance rather than the proposed method being based on each class’s share of historic Maritime Link assessment costs. While various rationales were advanced, the proposed allocation resulted in some classes being left with a FAM balance and some placed in a surplus position.

In its decision of February 18, 2025, the Board affirmed that the purpose of FLG2 was to refund Maritime Link-related costs previously assessed, not to eliminate the outstanding FAM balance uniformly. The approved allocation method aligned the $500 million refund with the historical Maritime Link assessments, effectively integrating the repayment into the ongoing Maritime Link cost structure over the future 28-year period. Echoing the arguments of NS Power in the NSPML cost assessment matter, the Board found that this realigned the benefits of the Maritime Link, which are anticipated into the future, with the associated costs.

The Board confirmed that this structure served the public interest by preventing unaffordable rate increases and reinforcing the beneficiary-pays principle. By treating the FLG2 debt as part of the Maritime Link’s long-term cost of service, the Decision ensured that future customers benefiting from the Project would bear their fair share of its costs.

RE PORT HAWKESBURY PAPER LP, 2025 NSEB 2

PHP is an extra-large industrial customer served “below-the-line” under a unique single customer tariff which does not include a FAM rider. PHP is required to pay the incremental costs for fuel and purchased power that NS Power incurs to provide service to it, along with some contribution to fixed costs. PHP is not subject to any adjustments under the FAM rider. Following the above two FLG2 decisions, PHP sought a determination from the Board that it would never be responsible for any part of the repayment of the $500 million regulatory asset as part of any tolls, rates or charges that PHP may pay in future. PHP argued that, as a non-FAM customer over the relevant time between 2018-2024, it had neither contributed to the FAM balance nor received any portion of the benefit of the $500 million refund.

The issue was particularly pertinent as PHP’s tariff is scheduled to expire at the end of 2025 and negotiations with NS Power remain ongoing for a new embedded cost above-the-line tariff which has not yet been filed for approval.

In considering the application, the Board examined the federal commercial arrangement and concluded it was distinguishable from the Invest Nova Scotia $117 million regulatory asset purchase because it was structured as a refund and repayment. This, it reasoned, drives how costs are characterized and allocated. Because of the refund, the previously incurred FAM costs were eliminated.

It found that “[t]here is no obligation on NS Power’s FAM customers to repay the refund provided by NSPML from the proceeds of the new federally guaranteed debt. Rather, the new federally guaranteed debt is being paid as part of the cost of service for the Maritime Link over the next 28 years.”^[4] In other words, going forward, recovery of payments relating to NSPML’s approved $500 million regulatory asset from NS Power’s customers over the next 28 years, are more appropriately associated with future service from the Maritime Link rather than past costs. It is better characterized as costs incurred to provide service and benefits at that future time, rather than as recovery of historically incurred costs.

In making this determination, the Board affirmed the regulatory compact and reset the clock to allow NSPML to earn its return of and on its investment, including the new debt issuance related to the Maritime Link:

The arrangement with the Federal Government rolled back NSPML’s recovery of principal and interest payments for the Maritime Link. However, under longstanding regulatory principles enshrined in the Public Utilities Act, NSPML is entitled to the opportunity to recover its prudently incurred costs, including a return of, and on, invested capital. As such, the NSUARB approved a regulatory asset to allow the rolled-back recovery of principal and interest payments for the Maritime Link to be recovered by NSPML over the remaining 28 years of the existing financing arrangement for the Maritime Link (the recovery period was another requirement under the arrangements with the Federal Government). Hence, payments related to the approved regulatory asset are for the recovery of and return on its investment in a capital asset used to serve customers, they are not for the repayment of a debt.^[5]

Addressing the principle that rates should not be unduly discriminatory, it went on to find that PHP would be in the same position as any new customer who joined the system in the future who would be responsible for the costs of using the Maritime Link at that time. As stated:

The Board finds the refund eliminated the existing debt. The recovery of the refunded principal and interest payments for the Maritime Link have been shifted in time to better match costs and benefits over the next 28 years. Therefore, any future payments by PHP associated with NSPML’s recently approved regulatory asset for the new federally guaranteed debt are not payments for costs incurred by other customers, but are payments for the cost of using the Maritime Link at that point in time. In this regard, PHP would be in the same situation as new customers who join the system in the future.

This outcome is not a violation of regulatory norms but is consistent with cost-of-service principles. The Board fully accepts that the arrangement with the Federal Government, and the shifting of Maritime Link costs to a future period to better match costs and benefits, would not have occurred if there was no outstanding FAM balance. However, that motivation cannot turn the remedy that was implemented from a refund to the buyout of a receivable, as was done with Invest Nova Scotia.^[6]

In its decision issued on April 20, 2025, the Board refused to confirm that PHP would not be responsible for the repayment of any of the costs associated with the $500 million regulatory asset as part of a future tariff. It ruled that PHP will be responsible for those payments if it takes service under a tariff that covers those costs.

Postscript – Whether PHP will be responsible for Maritime Link payments under some still-to-be filed tariff is yet to be conclusively determined. In addition, PHP has since appealed this decision to the Nova Scotia Court of Appeal and concurrently filed for judicial review at the Nova Scotia Supreme Court. PHP alleges, among other grounds, that the Board misunderstood and misapplied the legal test for contract interpretation to determine the effect of the loan arrangement and erred in concluding that because it was used to refund NS Power, this had the legal effect of eliminating the underlying debt. It also alleges the Board exceeded its jurisdiction by altering PHP’s approved rate structure to “potentially” include repayments and altering NS Power’s approved cost allocation.

PHP has asked to have the matter remitted back to the Board for reconsideration or the Court of Appeal to issue a decision in its favour. The Appeal is set to be heard on March 10, 2026. The judicial review has been placed in abeyance pending the outcome of the appeal.

CONCLUSION

The FLG2 arrangement reflects a carefully negotiated, multi-governmental response to the economic impacts of the delays associated with decarbonizing electricity systems. In Nova Scotia, this was the Maritime Link.

By treating the $500 million debt issuance back-stopped by the government as a “refund” to FAM customers and integrating future repayment into the long-term cost of service, the regulatory framework not only alleviates near-term rate pressures but also aligns with the principles of intergenerational equity and the beneficiary-pays doctrine. Importantly, the decisions demonstrate how cooperative federalism and government financial aid, when combined with thoughtful regulatory oversight, can facilitate a more equitable and sustainable transition to clean energy in Canada.

• * Nancy G. Rubin, K.C. is a Partner and Brianne E. Rudderham is a Senior Associate at Stewart McKelvey, where they are both members of Stewart McKelvey’s Energy Group.

  ¹ The Board-approved FAM allows NS Power to recover fluctuating fuel and purchased power costs from customers through fuel rate adjustments. Differences between prudently incurred fuel costs and amounts recovered from customers through electricity rates in a given year are deferred to a FAM regulatory asset or liability and recovered from or returned to customers in subsequent periods, as approved by the Board.

• ² Re Nova Scotia Power Incorporated, 2024 CanLII 71 (NSUARB).

• ³ Re NSP Maritime Link Inc., 2024 CanLII 199 (NSUARB) at para 77.

• ⁴ Re Port Hawkesbury Paper LP, 2025 CanLII 2 (NSEB) at para 50.

• ⁵ Ibid at para 51.

• ⁶ Ibid at paras 57–58.