Hydro Quebec

Is the NS – NB tie line the best use of NB Power money? / Es-ce-que la deuxième ligne entre le N-E et le N-B le meilleur choix pour EnergieNB?

Posted on by roymacmullin

The Liberal government of Shawn Graham has proposed a transmission tie project between New Brunswick and Nova Scotia, which will provide little benefit to New Brunswick.  It’s a magic trick to distract voters from the failed Liberal attempt to sell NB Power.  With their credibility gone, they can’t do the right thing, what Vermont did – Just buy energy from Quebec.

An SNC Lavalin report on the Nova Scotia electrical system suggests that “another intertie with New Brunswick would be very desirable to assure reliability and continuity of the supply.”  But the cost for New Brunswick may be as high as $250 million depending on the level of reinforcement required within the province.  We could see an increase in power rates of 2%.

NS Power’s system is presently susceptible to outages if the NB Power line disconnects during a time in which power flow is in the direction of Nova Scotia.  The proposed line would provide a parallel path that corrects the weakness of their system.

All three Maritime Provinces are increasing their wind power portfolios and while a stronger connection may allow easier balancing of wind power variability, these short-term load transfers do not make a business case for this line.

The first priority for New Brunswick, PEI, and Nova Scotia must be to jointly negotiate a power purchase deal with Quebec, and to support the associated strengthening of transmission capacity from the Quebec / NB border eastward into Nova Scotia and PEI.

This Atlantic Canada link could be part of a national “East-West” program of High Voltage Direct Current (HVDC) transmission links to move hydro power from areas of surplus to provinces trying to reduce their carbon footprint.

Ideally, the federal government would show leadership in this area by providing green loans to provinces for the construction of renewable energy generation and transmission initiatives like this.  We would see significant reduction in Greenhouse gases, and provide an alternative for some of the nearly 400,000 homes in Atlantic Canada that are heated by fuel oil, using 1.4 billion liters a year.

Our dependence on fossil fuels is a national security issue.  We require urgent action to retrofit our homes, to build renewable energy, to transmit hydro and many other initiatives.  We will see increased oil prices by 2012 and into the future.  If we do nothing, it will cost Canadians annually billions of dollars above today’s costs.

This HVDC electrical transmission line would allow Newfoundland to connect its Lower Churchill project and send power to the Maritime Provinces when its project is completed.

Reference documents:

http://www.nbso.ca/Public/_private/10-Year%20Outlook%202010.pdf

http://www.gov.ns.ca/energy/resources/EM/renewable/NS-Transmission-SO-Options.pdf

http://www.acad-eng-gen.ca/documents/VolumeI-Eng.pdf

http://www.acad-eng-gen.ca/documents/VolumeII.pdf

http://www.nrcan-rncan.gc.ca/eneene/sources/petpet/reprap/2008-11/supoff-eng.php

 

Telegraph Journal censors opinion piece “Lessons learned from the NB Power – Hydro Quebec deal”

Posted on by roymacmullin

I’ve been writing articles on energy and politics for the past four years.  This is the op-ed article that the Telegraph Journal wouldn’t publish.  It is the 8th on the deal between  NB Power and Hydro Quebec.

I sent this article to my opinion page editor on March 8, 2010.  Some communication followed.  On the 15th, I wrote indicating that I would interpret no response as a negative to publication.  I included my thanks for the opportunity to have published articles in the past (more than 80, I think) but will not be writing again for the TJ under these conditions.

I have not heard back that they would or would not publish.   Sadly, we have a problem of media concentration that is unparalleled in the free world, when virtually all of the print media in New Brunswick is owned by one industrialist family, the Irvings.  This concentration affects the politics of the province and the level of democratic communication.

To be fair to the paper, they have published letters  and op-ed pieces against the deal.  However, that doesn’t really compare to the constant barrage of editorials and front page news articles that trumpeted the public relations framework of the government.  One can expect a newspaper to exhibit a bias at times, but where it becomes problematic to society is when the owners of the papers are the beneficiaries of the government deal they are promoting through their media.   That’s what we call a conflict of interest that is beyond acceptable levels to our democracy.    On Wednesday, the 24th of March, Premier Graham announce the end of the deal.

Is the NB Power–HQ deal a little clearer now that four months have slipped by?   Are we getting answers?  A parallel might be drawn between the changing reasons given for the Iraq war and this humble deal.

Initial spin suggested that the Iraq war was about weapons of mass destruction, or bringing democracy to people formerly living under a dictator.  That changed as journalists woke up and realized the inconsistencies.  Actually, the Iraq war was about oil, the geopolitics of the Middle East – control of which countries get a share of the diminishing oil supply in coming years.  American soldiers aren’t leaving the Middle East in the near future.

Logically, the NB Power sale was never about the debt of NB Power, and it wasn’t about reducing carbon based electricity and its pollution.  The Premier is selectively worried about debt, abandoning the debt reduction work of Bernard Lord, and becoming the deficit king of New Brunswick.  Further deficits are promised until 2014 including Mr. Graham’s plan to waste a billion dollars twinning Route 11 in the twilight of the petroleum age.

If the goal was to reduce our use of carbon fuel in our electricity mix and stabilize the volatility of fuel in our expenses, then a simple power purchase agreement with Quebec for roughly 7 TWh per year would have sufficed.  But that isn’t what happened.  The deal was exceptionally complicated, and to make matters worse, the public relations campaign purposely did not release much information or answer questions leading to a frenzy of concern among a large number of New Brunswick residents.

The government’s handling of the deal isn’t getting much better but the newspapers of the province are ensuring that proponents of the deal are given excellent coverage in all papers.  A quick guess is that 9 out of 10 stories covering the deal have been favourable.

The Irving family owns virtually all of the daily and weekly newspapers in the province and most of the largest industries.  They will benefit the most from this deal, to the tune of roughly $40 million a year.  Is the favourable media coverage given related to the benefits obtained from this deal?  Perhaps this is just a coincidence.

Many are questioning the independence of the media and searching for ways to create an independent media who ask the right questions.  Are the interests of the Irvings aligned with the interests of the province? On a recent CBC panel on media concentration, three political parties acknowledged the problem, calling for a review and changes to the ownership of media in New Brunswick.  According to host Terry Seguin, “The Liberal party declined our invitation to participate”.

The media campaign has had some success in promoting panic about NB Power’s debt.  As well, the tactic of the PR campaign has been to always compare the proposed deal to doing nothing.  Alternative ideas aren’t to be discussed.

Some of the basic questions that are not being asked or answered are:  Why is there no cap on inflation in this deal?  After all, HQ’s costs are largely immune to inflation, being largely long-term debt on power dams.   Does the lesson that Newfoundland is painfully learning with their contract until 2041 mean nothing to us?  Professor Donald Savoie is worried about inflation, but Jack Keir isn’t concerned.  In fact, why would we use a CPI based price adjustment mechanism at all?  Cost based regulation plus a profit is a much more responsible method.

Why are large industries being given a permanent untargeted subsidy on rates without EUB consideration and approval?  For example, why do profitable businesses like Molson-Coors, among others, require lower rates?

What will be the role of the public regulator who can’t examine 80% of the cost structure of the utility and can’t address industrial rates?  I suppose that they will still be able to calculate the rate for gas and fuel oil each week, so it may keep someone busy.

When changes are made to the deal but benefits to industry remain, it indicates clearly what is the central part of the deal.  The size of the bailout is close to two Atcons per year.  The 41 industrials get the savings up front and when the deal goes sour, they are given an exit ramp to find other sources, while the citizens of New Brunswick are on the hook forever.

Based on public opposition, legislative hearings are now scheduled but no changes in the deal are planned.   We should remember that although Quebec has ten times our population, it has 100 times the political clout in Ottawa.  As Newfoundland found out, there will be no political salvation for New Brunswick if any error exists in the deal.

There’s a better deal out there

Posted on by roymacmullin

Locked in the grasp of winter, the snow is crisp underfoot and the cold air concentrates our minds. And with the sun reflecting off the pure white snow, there’s enough light to clarify any problem.

Well… maybe not. We’re still in the dark when it comes to the case of NB Power’s proposed deal with Hydro-Québec.

Reading a story from journalist Hélène Baril in the newspaper La Presse helps out a little. She suggests that the complaints of Quebec’s large industries, which wanted to keep a competitive advantage, forced a reduction in the discount to New Brunswick large industries. It seems Quebec has already more influence on New Brunswick rates than our own Energy and Utilities Board.

Reports were released last week by two different citizen panels. One was from the advisory panel appointed by the Liberal government with the mandate to examine “whether the proposal would represent the best interests of New Brunswickers.” We should thank the six members of the panel for their participation while working under some major handicaps. The mandate that they were given was extremely narrow, the witnesses appearing before the panel were generally proponents of the deal, and the testimony of the experts was not released to the public. As with other parts of this deal, the process was flawed.

Despite this, some of the positive aspects were its recommendations in favour of a provincial energy policy, that energy conservation measures be greatly augmented, that rates not be frozen for five years to absorb the cost of the deferral account from Lepreau replacement electricity, and that the EUB be strengthened.

What is particularly ironic is the rates of a power purchase agreement being arbitrarily set in the back room by the crudest power politics we have seen in this province. Has the government purposely avoided the EUB because they understand that the 23-per-cent rate subsidy to large industrials is unjust public policy? The EUB has historically pushed for rate equity among differing classes of customers. But luckily, we are told that the EUB will be strengthened (after this stab in the back). It’s just too funny for words.

The idea of a long-term power purchase agreement from Quebec is certainly a win-win situation for both parties. The major benefits to New Brunswick in the areas of carbon emission mitigation, fuel risk, pollution control and financial stability all flow from the power purchase agreement.

We should be considering a 7 TWh block of power, as Point Lepreau Nuclear Generating Station and the hydroelectric plants (in our hands) would provide close to 8 TWh. One concept that might be interesting to discuss with Quebec is a wholesale contract with time-of-use pricing. Customers using off-peak power would benefit from even lower rates.

The Ganong panel did not address whether annual increases to the contract tied to the Consumer Price Index should have a cap to protect against times of high inflation, which is a real possibility.

The sale of power plants adds considerable complexity to this deal but little benefit.

Without the release of documents that support the fairness of the sale prices, doubts will remain.

For example, a rebuilt Point Lepreau will have cost us close to $2 billion to refurbish. We have a special discount on today for $1.4 billion, and we will be giving Quebec the $400 million decommissioning fund, so the net gain to us from the sale will be just $1 billion. The cost of a kWh from Hydro-Québec-owned Lepreau would be roughly 5 cents, given synergies with Gentilly, their nuclear plant. They will sell it back to us at 7.35 cents.

There could be an argument made for the sale of Lepreau, given its size related to our power system, but only if the price is right.

The second report released last week was from a coalition of 20 prominent New Brunswickers of varying professions. This group believes that a power purchase agreement is necessary but rejects the transfer of generation facilities to Hydro-Québec and the subsequent lack of control over our power system. We should also thank this group for adding to the quality of discussion on the deal.

Many believe there is an alternative path instead of the memorandum of understanding or the status quo that will solve the problems that the government has highlighted. These New Brunswickers are not prepared to follow Premier Shawn Graham beyond a simple power purchase agreement.

While Premier Graham is free to choose his destiny, perhaps this deal should be referred to the EUB for analysis and recommendations prior to signing?

We all want to find the best solution, so asking the right questions may ensure that our future is indeed bright.

The sale of power assets and The anatomy of a debt

Posted on by roymacmullin

Just when I think I’ve heard it all. It’s hard to imagine a stranger scenario than the present storyline. NB Power was originally being sold to pay down its $4.75 billion debt, but now the sale will be for $3.2 billion. At the same time, Premier Shawn Graham has been running provincial budget deficits consistently and intends to do so until 2014 for a grand total of $3.8 billion. These figures can be found in the public accounts 2009 and the budget speech 2010 on the government’s website.

So, it’s pay down debt and then incur larger debt? What doesn’t make sense here? What most people may not understand is that replacing a funded debt with an unfunded debt is a small distinction that will cost them dearly.

Higher debt means higher taxes at some point. Paying for the new $3.8 billion debt will take about $300 million in additional revenue or service cuts by 2014. That could mean a tax increase of $400 for every resident of New Brunswick or, for a family of 2.2 persons, $880 per year.

Now, are the savings from foregone power rate increases significant enough to counteract the new provincial debt being incurred? Well, the full debt arranged by Premier Graham and the full savings implied by the sale won’t be in place until 2014, so let’s examine at that date. Energy savings for the typical household are 15.92 per cent in year five, or $473, but the additional tax burden for the average family of 2.2 people is $880. So, the net effect of government policy will be an increased tax burden of approximately $407 a year. Not so good an idea. The effect on apartment dwellers is worse, as their energy savings are minimal.

Perhaps you think that large industry, the big winner in the 2010 rate sweepstakes, might contribute towards these taxes. Based on historical precedents, we probably won’t see them at the front of the line to pay any portion.

A previous column mentioned another inconvenient fact – lost revenue streams that could reach as high as $200 million dollars per year would erase the value of this deal, such as NB Power’s “in lieu of taxes” disappearing, reduced jobs at NB Power and related tax revenue. Expressed as dollars per year, that’s another $266 per person ($585 per family).

Politics is the fine art of kicking a problem down the road to the next guy. It is also the art of misdirecting the audience. Lower energy rates here, and nobody notices the higher taxes there.

We have a bad habit of giving a leader two terms. The present occupant plans to get finances under control by 2014, when his second four-year term ends. Any new premier will inherit a fiscal mess to deal with either in 2010 or 2014.

A recent Telegraph-Journal commentary by Toby Couture made an important distinction between energy politics and the larger framework of energy policy. Lacking a rational energy policy, we might be tempted to embrace this deal, and there are indeed attractive elements. However, the numbers don’t support the framing of this deal as a “money saving” experience for residential and commercial customers.

What will likely happen is that the loss of revenue streams will negate the benefits, at least for residential customers. And quite co-incidentally, the premier’s lack of fiscal control will increase net costs to New Brunswickers for taxes and electric energy.

The idea of lowering the cost of energy is fundamentally flawed. Conservation and innovation happens with higher energy prices, and waste occurs with low prices. By choosing this approach, we ignore reducing energy usage for homes, make renewable energy policy next to impossible, and we risk losing control of our energy costs in the long term.

There’s a real alternative out there, and perhaps we can save the best aspect of Shawn’s initiative. More to come..

No information available from Government on sale of NB Power

Posted on by roymacmullin

Weren’t we promised a public debate about the merits of the NB Power sale? So far, the debate is rather stale with questions being spun, or not answered on the government web site.

The Province hired a public relations team called Hill and Knowlton to sell this deal. Are they doing a good job with so many people upset and without answers? Is that the intent?

So far, this deal presentation reminds me of the way that parents, at some point in time, take the easy way out when dealing with their children. You give the child two choices, one terrible and the other becomes the one that you want the child to choose. Then, you pressure the child to decide quickly. That makes the con work better.

Are we seeing that tactic is this case? NB Power – bad, big debt, unmanageable, uncertain future with never – ending power rate increases. On the other hand, sell to HQ – good, lower debt, managed by others, great stable power rates. Oh, and by the way, the deal is closing in March. Why do I feel like I’m being spun like a top?
Here’s three questions I sent to the Energy department over three weeks ago. While I wait, maybe one of my readers can answer me.
Question 1 – Will Saint John Energy be receiving a freeze in the wholesale rate they pay to NB Power? Or some discount to allow them to provide the proposed discounts to their industrial customers. Moosehead, served from the SJE system is not on the list of 41 companies released by the government. Are they going to receive the significant industrial rate discount like their competitor Molson from Moncton?
The MOU qualifies “direct or indirect industrial customers in the Province of New Brunswick who would qualify for the HQ “L” or “M” rates if in the Province of Québec” and class M is for customers above 100 kW demand. One would think there could be hundreds in this province. Are they not included in this deal? Perhaps some clarification is in order.

Question 2 – How does the Quebec regulatory system that we are being asked to install in NB differ from the EUB now in place in New Brunswick. More on this later.

Question 3 – I requested a copy of the background spreadsheet for the NERA report so that I could review some of the assumptions that compose the $5.6 billion rate savings. Later, I read in a news report that it doesn’t exist. We’re talking about big money here. We really should have something other than fifteen pages of words saying it’s a good idea.

One of the bigger questions that we haven’t asked ourselves: What are the economic impacts of having a takeover of a local industry?(NB Power) We are reassured that nothing will change, yet experience tells us differently.

The eventually reductions in personnel of perhaps 1000 employees at NB Power are left unspoken. That’s a normal occurrence with a takeover. Synergies will be found between the nuclear plants at Lepreau and Gentilly, Quebec. Back-office items like accounting, engineering, customer service, accounting may be relocated and about $100 million annually in payroll savings will impact on the New Brunswick economy. With income taxes and spinoffs it could be twice that.
Another stream of revenue that will slowly disappear are some contracts to local companies to provide services to NB Power. Some of these may to migrate to Quebec in-house expertise or contractors from elsewhere. It’s a natural process. Call this figure conservatively $25 million.

A third reduction is “income taxes” of $50 million charged annually to NB Power and the $25 million loan guarantee fee that will no longer be obtained.
Taken together, we could see a reduction of economic activity and revenue in the province of $200 million annually. Over a period of 20 years, the present value of that series of losses is $2.3 billion (at 6%).

Then we could add in a few one-time items like the decommissioning of thermal plants at $125 million (just a guess) and future discounts on oil from Venezuela settlement, valued at $147 million. This gives us a negative impact of roughly $2.5 billion or more.
Since a lot of the $5.6 billion in rate savings is back-end loaded, the proposed benefits of the deal would be erased in the first twenty years by negative economic impacts related to the takeover process. How will we really know if we don’t have a full and open discussion?

The process of answering questions is flawed and prevents serious debate on the bigger issues. There is no forum for serious discussion and eventually public consent to a future path. Without that public consent, Quebec undertakes serious risks related to contract legitimacy that were not present in their Newfoundland deal on Churchill Falls.

UPDATE….
8 hours after this article was published in the Telegraph Journal, I received what I like to call a “non-response” or a “response with little useful information” from a government spokesperson.

1- The background spreadsheet to which you refer is an internal and proprietary financial model which is not available for general consumption or review. However, the report highlighting the conclusions of the spreadsheet is available online. (http://www.lowerratesnb.ca/downloads/Rate_Impacts_of_MOU_en.pdf) ROY’S COMMENT – I GUESS THIS MEANS “TRUST US, WE GOT THE MATH AND ALL OF THE ASSUMPTIONS RIGHT”

2- The possible impact of the proposed agreement as it relates to the municipalities in New Brunswick continues to be under negotiations between the Provinces of Quebec and New Brunswick. ROY’S COMMENT – HERE WE ARE ALMOST A YEAR SINCE THE BEGINNING OF NEGOTIATIONS AND WE DON’T HAVE THE BASIC WHOLESALE RATE FIGURED OUT FOR SAINT JOHN ENERGY?

3- It is important to note that Quebec’s regulatory system is more stringent than ours. For example, Hydro-Quebec must go before its regulatory board if seeking a rate increases, regardless of the amount. In New Brunswick, rates can be increased by three per cent without the approval of the Energy and Utilities Board. ROY’S COMMENTS – MINOR CHANGE

As well, Hydro-Quebec must follow the regulations of the U.S. Federal Energy Regulatory Commission to continue to export energy into the United States. Those regulations require that New Brunswick operate an open transmission system, just as it does now, that allows all jurisdictions to bid for any excess transmission capacity. ROY’S COMMENTS – NO CHANGE FROM OUR PRESENT SYSTEM

For New Brunswick, a heritage pool is a new concept. The regulatory framework in Quebec is designed around a heritage pool which would become an important part of New Brunswick’s electricity system as well therefore our regulatory framework would have to reflect that.

How the sale of NB Power affects residential customers

Posted on by roymacmullin

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.

Is this an offer we can’t refuse?

Posted on by roymacmullin

There is a natural resistance to change that resides deep inside every one of us. Researchers indicate that acceptation of change is easier when the decision is fully explained – how it was made, why it was made, what the alternatives were, and how it will impact the corporation (in this case, province) and individuals. Based on public reaction so far, the information campaign of the government may have been deficient.

It’s been difficult for many to “buy-into” the sale of NB Power due to the change in story. For years, NB Power has been praised as a crown jewel, one that contributes greatly to the well being of the province. Now we have the spectacle of the government turning on the company, suggesting that is mortally debt-ridden, that it has been mismanaged for generations, and we need to sell it off. If the first story is now a lie, then is the present story actually the truth?

The demonization of NB Power may have merit to some extent, or be necessary to provide the “why it was made”, but it is at the political level where the buck should stop. It is the political classes who have insisted that necessary rate increases be rolled back, that their friends be hired, or not generally allowed professional management.

If NB Power is operated as a business, then it cannot respond to political influence and it’s only benefit to the province is via lower rates. On the other hand, if it submits to the chicanery of political influence, then it becomes ineffective and perhaps a burden on the public by its indebtedness. This is the classic conflict of the capitalist versus state-owned enterprise. While either can work, the principal difference is that financial discipline imposed by the state is less rigorous than the private model.

What is interesting is the path of two public utilities. In the 60’s, Quebec Hydro became the sole developer of new hydro facilities, started nationalizing the patchwork of power companies and created a huge state-owned revenue generator for their province. In 2008, HQ paid a dividend of $2.25 billion built on the wealth of hydro power.

Here, in New Brunswick, we have been on the downhill trail financially for the past thirty years for a number of reasons. In a number of instances, starting with integration of Lepreau into the rate base, inadequate rate increases encouraged debt to soar. There is a saying by mechanics that you can pay me now or pay me later. Well, we’re at that “later” time, it seems.

Our government has been negotiating with Quebec for the better part of a year and recently unveiled a framework for an agreement, called a memorandum of understanding (MOU). It is now signed and further discussion will bring forward a detailed agreement for signature in the spring of 2010.
So let’s talk about the deal as it has been presented to us. HQ proposes to pay us $4.75 billion dollars for the assets of NB Power that it wants. This includes the hydro plants such as Mactaquac, among others, the transmission and distribution system but not the thermal plants such as Dalhousie, Grand Lake and Courtenay Bay which will be closed. Coleson Cove (heavy oil) and Belledune (coal) will remain the assets of New Brunswick but be contracted to supply power at the request of HQ when needed. When judged no longer necessary, they will be decommissioned at New Brunswick’s expense.

What brings some real benefit to New Brunswick is that HQ will sign a supply contract to deliver two blocks of power annually – firstly, 4.5 Terrawatt-hours for industrial customers above 100 kW minimum demand (HQ rate M), and above 5000 kW (rate L). The existing rates would drop about 30% upon signing (6.99 cents to 4.79 cents per kWh), and follow HQ increases for the first five years
After five years, the rate increases would be determined by several items. The energy component would rise by the New Brunswick Consumer Price Index (CPI-NB).

Although the CPI has typically run at 1.9% in recent years, it could rise considerably higher in inflationary times. Given the printing presses pumping out US dollars south of the border, we could be in for significant inflation in the near future.

As well, any power usage greater than the 4.5 TWh heritage pool would be supplied by prices bid in a competitive process governed by the EUB, our public regulator. We don’t know much about this process but we can safely assume that the price would tend to increase rates of the original pool. The transmission and distribution component of the rates would be determined by the EUB based on giving HQ a return on its investment in those facilities. How much will this add to the “1.9 %”? Given that we must upgrade the links with HQ, it could be significant.

We do know that the savings in the first year to industries is $91.6 million or roughly 80% of the benefit, according to a CBC report. According to the President of HQ, Thierry Vandal, it was New Brunswick who decided how the division of benefits would be accorded. If we were to consider only the industrial benefits package, this would indeed be an offer quite difficult to refuse. But there is much more to this story.