How the sale of NB Power affects residential customers

What will residential or commercial customers get from this deal? Will anybody really notice a freeze in prices as gas and food rise? Perhaps over time. Here’s a quick way to determine your five year theoretical savings from the sale of NB Power. Just take your total electric bill for the year and multiply by 47%.

The 47% comes from avoiding compounding increases of 3% per year for five years. We all received in the mail the example of a house that uses roughly 29,000 kWh per year, who will save $1,392 over the five year period as compared to NB Power remaining owned by us.

In contrast, an apartment dweller like me, heated by natural gas, would save $327 over the same five years on an annual bill of $700. I’ve been able to control my excitement over this potential $65 a year bonanza? That’s maybe two tanks of gas or 5 bottles of cheap wine.

Before I get overwrought with our good fortune, consider how much the average Quebec resident will pay less than our frozen rates – $4,000 less over five years.
The deal is being presented as a money saver but if our goal is to save a lot of money on our power bills, then the logical step would be to get real Quebec rates for residential power. That, however, would only happen if we were citizens of Quebec. Wait now, don’t laugh, there’s big money savings here! No nasty contracts to worry about! Just one big happy family.

OK, if you’re not buying that amalgamation thing right now, what are the residential contract terms being offered to us by Premier Graham?

The proposed deal freezes NB Power residential and commercial rates for five years. Starting in year six, the energy portion of the bill (roughly 65%) would be increased at the level of the NB consumer price index. The other 35% of the bill, costs related to the transmission and distribution networks, would be regulated by the EUB, include a rate of return on investment, and be passed on to customers. Lepreau replacement energy cost deferral would fall into distribution costs and raise rates in year 6, perhaps substantially. If the deferral is $500 million, then we are talking about a 5% rate increase. As well, any costs of supply due to usage above the 9.5 TWh heritage power would accumulate and be charged in year six.

This contract is for eternity, and must conceive of unknown future conditions. Newfoundland now receives less than ¼ of a cent for each kWh they sell from Churchill Falls. Not so good a deal for them. We are going to pay roughly 8.3 cents after the deal (average of all customers)

World oil production will decline and will stress the contract in ways not considered. Although the Minister of Energy Jack Keir indicates that the heritage pool has a small margin for growth of load (I’m guessing 5% if distribution losses are included). He may not be considering the plight of oil heated homes, whose owners were starting to panic in 2008 as light fuel oil price skyrocketed. Only the fall of the economy and oil prices prevented a disaster towards wintertime.

New Brunswickers use 282 million liters of furnace oil annually as compared to the Atlantic Provinces total of 1.4 billion. As oil prices rise, about 25% of NB Power customers could turn to electric heat, and that’s 2.5 TWh of possible new load. Because this oil is used over five months of winter, conversion would require a high capacity that we would need to meet. (700 MW of peaking power, or more) Not a lot of those customers can migrate to gas due to lack of pipes in their street and we don’t have an energy plan or even a real “conversion to wood” plan.

As Claude, a reader from Quebec, quite rightly points out, the peaking character of electric heat presents a serious problem for power suppliers to meet. NB Power’s peak summer load is 1600 MW and 3200 MW in the winter. The difference is electric heat. Electric Thermal storage units (ETS) are a device that can work for residential or commercial customers and Time of Use (TOU) meters to store heat from off peak times and use it during the day but little interest has been shown by this province. We haven’t seen the need to adapt.

So we don’t want to be driving electric heat onto fossil fuel plants like Coleson Cove which has an efficiency of less than 40%, and very high fuel costs. But that is exactly what will happen without a plan. And we will go over the heritage pool limit and it will cost more than we are told.

For those who don’t believe oil prices will rise again, consider this article in the English newspaper, the Guardian: a second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organization was that it was “imperative not to anger the Americans” but the fact was that there was not as much oil in the world as had been admitted. “We have [already] entered the ‘peak oil’ zone. I think that the situation is really bad.”

Really bad? I don’t hear a word from our government about these problems.

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8 comments

  1. Don · December 16, 2009

    It would appear that you have “bought” into the hype and spin that Hill and Knowlton has been well paid for.

    Interesting. I didn’t peg you this way.

    • roymacmullin · December 16, 2009

      Hi Don,
      My primary goal is to find the truth about any issue that I am writing about. If there is something specifically in error, (or hype that I have bought into) in my column, let me know and I would be glad to correct it. The full story has not been told so I intend to investigate to the best of my ability and will have other articles on this subject.

      thank you
      Roy

  2. kz1000guy · December 20, 2009

    I like your point of view. It’s an interesting, if not overlooked twist on the whole subject. The province, and I would say Canada, has no real energy policy. Even simple things like the newer air source heat pumps use only half the electricity to heat the same space. Why is there not a policy demanding, or at least encouraging their use in at least new home construction. Keep up the posts. the more people involved, the better. Even if the sale of NB Power goes through, if enough people know some real facts, then at least someday maybe we can say ” I told you so”.

  3. mikel · January 3, 2010

    Very good comments, as ‘objective’ as I’ve seen. It’s unfortunate that the media and government still refuse to discuss the “fair return on investment” issue. How exactly will the EUB decide what is a decent profit for HQ? And WHO will be sitting on the EUB?

  4. mikel · January 3, 2010

    PS I also did not notice any ‘spin’ that was ‘bought into’. The article does not sound particularly supportive of the deal (in fact I found it from the ‘say no to the deal’ website). However, I have noticed that if a person doesn’t come out with caps stating “I do not support this deal…here’s why” then somebody will jump all over them as a sellout and in the governments pocket. I do understand political anger, particularly in cases like this, but come on.

  5. richard · January 14, 2010

    Roy

    Since you are happy to make forecasts of what kind of rate increases we might see after 5 yrs under the deal, what are your forecasts for possible rate increases after 5 yrs without the deal? Lets compare apples with apples.

    • roymacmullin · January 17, 2010

      Hi Richard,
      Sorry to be so slow in responding to your question regarding what is the result of doing nothing (status quo). I post articles here after being published in the paper. My last article took 3 weeks to appear. At this rate, the deal may be signed before I finish the series. LOL… If I was praising the deal, would they appear sooner?

      Seriously, the status quo is not a alternative that a real government would allow. Efficiency at NB Power is horrendous. Wage increases beyond the normal. Bonuses for executives when the company is effectively losing money. No attempt to curb overtime with scheduled shifts. So, effectively, no real management from the top. But this would only save in the 10’s of millions of dollars.

      Something of more value that can be done is a long term power purchase contract with Quebec. Quebec has a requirement to sell power. We have a need for carbon free power. We can both profit. A partnership, not a sell out of our assets for a permanent industrial bailout. The framing (spin) on this deal stinks quite a bit.

      One of the talking points of a Liberal friend is that NB Power is rotten, can’t be corrected. That seems a little strange to me. This government hasn’t had a budget surplus since 2006 and plans continuous deficits until 2014. I have been raising questions and am not receiving any real answers. And I should believe what Premier Graham says? I think a lot of my frustration is due to the way this file has been handled by the government. We get more and more worried about what they won’t say. Now it appears that the wording of the contract will be secret. In the paper this week, HQ wants to charge NFLD $3 billion dollars up front to transport power from Lower Churchill Falls through Quebec. This NB Power deal seems to be step 2 in the blocking of NFLD aspirations and elimination of a commercial competitor. What will a HQNB charge if NFLD wants to pass though NB?

      I really had big hopes when Shawn was elected that he would make some good decisions. Really haven’t seen a lot. Some of the big losers. Lowers the gas tax and then complains that the government is short of revenue. Decides to spend a billion dollars on a four lane highway between Shediac and Miramichi. Doesn’t he understand that peak oil has almost arrived and the end of happy motoring is here. What a waste of opportunity!

      Sorry for the rant. I just regret lost opportunities to build a green and sustainable society. More to follow.

  6. richard · January 18, 2010

    “At this rate, the deal may be signed before I finish the series.”

    No worries there, Roy, as the deal seems to be dead. The people have spoken and now will no doubt return to sleep. Once the dust has settled, I will look forward to your “now what?” column.

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