Nova Scotia's privately owned electric utility, bruised by a public backlash over rising rates and employee bonuses, has reduced its request for a power rate increase and partially scrapped an employee incentive program.

Nova Scotia Power Inc. (TSX:NSI.PR.D), owned by Emera Inc. (TSX:EMA), made the announcement Monday as rate hearings started before the province's utility review board.

The utility confirmed it had reached a settlement with customer groups that will see the company asking for an average rate increase of about five per cent for all customers in 2012, instead of the 7.2 per cent it previously requested.

The settlement, if approved by the board, would see the average residential customer paying an additional $6 on each monthly bill, the utility said.

The company also said it will lower its regulated return on equity -- a measure of profitability -- to 9.2 per cent. In its original application, Nova Scotia Power had asked for 9.6 per cent, up from 9.35 per cent.

The utility's original requests prompted the usual protests from consumer and business groups, but simmering public anger boiled over when the utility confirmed ratepayers were also on the hook for $2.75 million in bonuses for non-unionized staff.

Under the company's revamped application, ratepayers will no longer contribute to bonuses for executives, but they will still pay 50 per cent of the bonuses for other non-unionized staff.

Conservative Leader Jamie Baillie said the utility did the right thing.

"For once, Nova Scotians can claim a small victory over rising power costs," he said in an interview. "Once in a while, when public pressure rises, common sense can come into play."

The utility's original plan endured weeks of pummelling on radio call-in shows, social media and in letters to the editor and editorials.

At one point, Premier Darrell Dexter weighed in, saying the company's profit expectations were inappropriate.

The NDP premier took aim at Nova Scotia Power after one of the utility's largest customers, the NewPage paper mill in southern Cape Breton, announced it would be shutting down indefinitely in part because of electricity costs, throwing 1,000 people out of work.

John Merrick, Nova Scotia's consumer advocate, said the utility had to do something to assuage public outrage.

"The unprecedented ... negative reaction from the public ... I believe had an impact on motivating Nova Scotia Power to come to this recommendation," Merrick said.

Dexter said the utility has taken a few steps in the right direction.

"I think people will be relieved that (the proposed rate increase) was not what it was projected to be, but anything that increases the cost of power will be hard on families in the province," he said in an interview.

Liberal Leader Stephen McNeil took a harder line, saying the utility did not go far enough.

"They say, 'We're doing you a favour because we're asking for a little bit less," McNeil said. "That's not good enough anymore. We are in tough times and Nova Scotians are suffering."

McNeil also criticized the company's bid to squelch the controversy over bonuses. He noted ratepayers covered 50 per cent of the $5.5 million paid in employee bonuses last year, but the company has decided to exclude only the bonuses paid to executives, which amounts to a $250,000 reduction for ratepayers.

"What we're talking about is a very small amount," he said, adding that the company should be subjected to an independent performance audit to ensure it is keeping its costs in line.

The utility's CEO, Rob Bennett, said the company has been subjected to independent performance audits in the past, including one conducted for the review board in 2008 by Kaiser Associates.

However, that review found Nova Scotia Power paid its top two executives 41 per cent more than the industry average in 2007.

Bennett confirmed that the latest changes were in response to the public outcry.

"I've heard those concerns, and by working with customer representatives, we've been able to address those concerns," he said.

The CEO said the biggest challenge the utility faces is the rising cost of coal, which is used to produce about 90 per cent of Nova Scotia's electricity.

Dexter agreed, noting that the cost has jumped 75 per cent in the past six years.

The premier applauded the company's decision on executive compensation, but he said the utility faces much bigger challenges.

"That's something that I had indicated was not acceptable to Nova Scotians, as was the return on equity," he said. "They are symbols of what people see as unfair to place on their backs ... (but) that's not how you're going to fix the question of power rate increases."

Both Dexter and Bennett said the long-term solution was to invest in renewable energy sources, such as wind, tidal and biomass projects.

Last month, Emera reported that Nova Scotia Power had contributed $16.7 million towards the parent company's $29.9 million quarterly profit.