In Brief: The head of NB Power says that experiments in deregulation have proven that it just doesn’t work. AIMS acting President Charles Cirtwill argues that so-called deregulation schemes in Ontario and California actually created more regulation than they cut. He suggests that true deregulation hasn’t been given a fair shot in North America.
FREDERICTON – The prospect of a deregulated power market in New Brunswick, with different companies competing to supply local electricity, is unlikely, says NB Power head David Hay. The claim comes despite Hay’s past criticism of the public utility’s monopoly over power generation and distribution in the province.
In a recent interview with the Telegraph-Journal, the company’s president and CEO said past optimism surrounding deregulation has largely fizzled. Heady talk in the late 1980s and early 1990s, of opening electricity markets to competition, has faltered thanks to failed experiments in deregulation, he says.
“People have these grand schemes of open, deregulated markets where people are bidding for electricity,” he said. “The grand schemes have just proven not possible in the market place.”
He points to failings in Ontario, where Bruce Power – a private nuclear firm that supplies a fifth of the province’s power – is calling for 20-year purchase contracts with government.
“That just sounds like another Crown corporation to me,” Hay said. “The entire system has collapsed in Ontario.
“The fact of the matter is the market is not working out like people thought it would.”
According to Hay, similar results have been recorded in the areas spanning the United Kingdom, Alberta and California.
“It’s not in my vision,” he said. “All of these systems have collapsed.”
That vision has changed, however. In 1998 Hay co-authored a report on the future of electrical power in New Brunswick. It was critical of the utility’s monopoly status and was hailed as a road map to deregulation. And steps were made down that path under the former Conservative government. In October of 2004, in response to cries for outside competition, the utility was broken up into essentially five different companies to trigger the end of the state monopoly.
As well, the province’s 42 largest customers were allowed to exit the system. But Hay says none of those high-volume users have moved offline.
“Not one of them has left the system,” he said.
“I have not had a single request from a single company or resident saying, ‘Now that we’re free to go, we’d like to go.’ The reason is they’re getting electricity less expensively than they can anywhere else.”
Essentially, don’t count on further progress toward full deregulation under Hay’s tenure, which started in March 2004.
“People took the basics of capitalism and said everywhere there should be a marketplace to drive down prices. But that’s only true when you can pick up your product and move to another market, or keep it in storage “¦ You can’t store electricity,” he said.
“I don’t think there’s a great demand for people to come into the marketplace.
“It’s a theoretically flawed model.”
Charles Cirtwill disputes Hay’s claim that deregulation is not economically feasible. The acting president of the Atlantic Institute for Market Studies, a Halifax-based think-tank, says past forays into the scheme have not been given the chance to flourish. He points to Hay’s California example. According to Cirtwill, California’s revisions included so many conditions and guidelines as to actually increase regulation. Ontario has suffered a similar fate, he said.
“The pro-regulation folks made sure those experiments had so many constraints on them that they came out poorly,” he said.
“I wouldn’t suggest we’ve seen a u-turn, so much as a continuation of the same old debate. I don’t think we can point to an example in North America where a purely deregulated marketplace has been tested.”
Cirtwill also takes issue with Hay’s explanation for why no industrial users have exited the public grid. He notes private or outside supply companies would still have to use the utility’s power lines – at a cost.
“So the question is: did NB Power surreptitiously make it uncompetitive for their competitors to bring in power by charging too high a rate for the use of the line?”
Interim Conservative Leader Jeannot Volpé believes competing power firms would benefit New Brunswickers, who now face a potential 6.4 per cent rate hike.
“I really believe deregulation would provide New Brunswickers a product at a competitive price and they would know that there is someone else competing – which would be good for the consumer,” he said.
According to Volpé, industrial users haven’t left the grid because the size of their required exit payment has yet to be determined.
“I really believe that change has to be made,” he said.
“Having it open (is) the best thing to do “_ but no one will ever know if we don’t go there.”