By Tom Adams and Brian Lee Crowley
Premier Danny Williams is trying to whip up opposition against the proposed takeover of NB Power by Hydro Quebec. He derides Quebec’s intention as a “despicable power grab”. He reserves his most vicious vituperation for New Brunswick¡¯s government, which he accuses of “complete capitulation” in having “agreed to sell away their future.” We beg to differ.
The power deal Premier Williams decries brightens New Brunswick¡¯s future. Consumers and taxpayers would reap huge savings. The sale would transform over night the beleaguered province¡¯s public finances. Industrial users would immediately move to rate parity with comparable users in Quebec, where power prices are among the lowest in the world. Households, small businesses and institutional customers, for whom NB Power was planning rate increases of 3% per year out into the future, would get rates frozen for five years and regulated rates after that.
NB Power¡¯s debt, which Hydro Quebec is taking over, is about $12,600 per customer. NB Power¡¯s operating costs and rates are some of the highest of any utility in Canada and both are under severe upward pressure. In most years New Brunswickers are lucky if the utility breaks even; punishing losses are frequent.
Despite guaranteeing rate decreases and freezes, Hydro Quebec says the transaction will be profitable from year one, with an astounding expected return on equity of more than 10 per cent – well above the average return for Canadian utilities. Given the vagaries of energy markets, the road to recovery for Quebec¡¯s huge investment may include some bumps.
Hydro Quebec¡¯s decision to take over NB Power is obviously based on Quebec¡¯s assessment that it will have surplus electricity at rock bottom cost well into the future. Hydro Quebec¡¯s sharply declining export revenues, declining load across the region, persistent negative prices in Ontario¡¯s wholesale power market this year, and low market prices in New England, support the view that power will remain cheap for a while.
A directly analogous development in natural gas has turned the North American marketplace upside down in the last year and a half. One of many casualties has been the proposed Mackenzie Valley natural gas pipeline from the Beaufort Sea to Alberta. That project is now recognized as uneconomic for the foreseeable future. The good news is that only limited funds have been invested so far and no pipe has actually been committed so the investment losses are not terrible. Had construction actually started, the pain would have been much worse.
The lesson for Newfoundlanders and Labradoreans is inescapable. They should learn from the Mackenzie gas experience before supporting Premier Williams¡¯ ephemeral dream to press ahead with hydro-electric development on the Lower Churchill in a glutted market. Taxpayers should be relieved, not outraged, that Nalcor, Newfoundland¡¯s Crown energy company, is not out in the market the trying to sell costly power right now.
In the long term the economics of Lower Churchill development may well turn around, particularly if the market for its environmental characteristics becomes sufficiently rich to overcome the costs of remoteness. But that¡¯s for another day.
Rather than denigrating neighbours for their success, a success that costs his province nothing, Premier Williams should instead turn the Quebec – New Brunswick deal to his long-term advantage. How? By negotiating a transmission access agreement with Quebec to be activated in the future, when Lower Churchill power becomes competitive. Such a deal would cost Quebec little but would help to remove suspicion of their intentions while creating a constructive relationship with a potentially important business partner.
If the Newfoundland government could find the will to be constructive, it would set out terms for the design for a future transmission tolling agreement that allocates costs fairly, moves new Labrador power to market most efficiently, permits Quebec to earn a reasonable return on any prudent investment it makes, enshrines Newfoundland¡¯s right to market access, and establishes an arm¡¯s length dispute resolution mechanism. An excellent model for a deal would be to follow the lead of the transmission access requirements of the U.S. Federal Energy Regulatory Commission that already governs Quebec¡¯s exports. If and when the economics of Labrador power development turn around, the challenging transmission riddle would already be solved.
Rather than ranting about a disputable version of ancient history, Premier Williams ought instead to put forward a solution based on reasonable commercial terms that benefit both sides.
When neighbouring provinces find creative solutions making both sides much better off, it is corrosive of our federation and antithetical to the essence of Canada for another province to take a bitter, beggar-thy-neighbour position. Instead of fostering acrimony, Premier Williams should position Newfoundland to get into the power trading game on reasonable terms when the time is ripe.
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Tom Adams is a Toronto-based energy and environmental advisor and researcher who wrote several reports on NB Power for the Atlantic Institute for Market Studies (AIMS). He blogs at
Brian Lee Crowley is Senior Fellow at AIMS
and author of Fearful Symmetry: the fall and rise of Canada¡¯s founding values.
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(for NB Audience) N.B. Power Deal: Good News Not Bad
By Tom Adams and Brian Lee Crowley
The proposed deal between NB Power and Hydro-Quebec brightens New Brunswick¡¯s future. Consumers and taxpayers would reap huge savings while the province¡¯s public finances would be transformed for the better overnight. Industrial users would immediately move to rate parity with comparable users in Quebec, where power prices are among the lowest in the world. Households, small businesses and institutional customers, for whom NB Power was planning rate increases of 3% per year out into the future, would get rates frozen for five years and regulated rates after that.
Yet Conservative David Alward, Leader of the Opposition, opines, “This deal is outrageous. If you are an ordinary New Brunswicker, you¡¯re being sold down the river.” MLA Jeannot Volpé, former energy minister in the Bernard Lord government, called it, “a very stupid, stupid deal.”
In this the Opposition is taking their lead from Premier Danny Williams of Newfoundland and Labrador. He derides Quebec¡¯s intention as a “despicable power grab”. He reserves his most vicious vituperation for New Brunswick¡¯s government, which he accuses of “complete capitulation” in having “agreed to sell away their future.”
What does the future hold for New Brunswickers under this deal? Mr. Volp¨¦ complains that rates for non-industrial customers after the rate freeze expires will increase at inflation and that potential future growth in demand will be served by power at market prices. Of course, NB Power¡¯s rates have been rising faster than inflation and will continue this pace if the deal does not go through. NB Power¡¯s recently acquired new supplies of generation are priced well above market.
NB Power¡¯s government-guaranteed debt, which Hydro Quebec is taking over, is about $12,600 per customer. That monkey will be off New Brunswick¡¯s back. NB Power¡¯s operating costs and rates are some of the highest of any utility in Canada and both are under severe upward pressure. In most years New Brunswickers are lucky if the utility breaks even; punishing losses are frequent. Those losses will no longer be backstopped by provincial taxpayers.
Notwithstanding guaranteeing rate decreases and freezes, Hydro Quebec says the transaction will be profitable from year one, with an astounding expected return on equity of more than 10 per cent ¨C well above the average return for Canadian utilities.
Hydro Quebec¡¯s decision to take over NB Power is obviously based on Quebec¡¯s assessment that it will have surplus electricity at rock bottom cost well into the future. Hydro Quebec¡¯s sharply declining export revenues, declining load across the region, persistent negative prices in Ontario¡¯s wholesale power market this year, and low market prices in New England, support the view that power will remain cheap for a while. New Brunswickers will benefit from those cheap prices under the proposed deal. Where is Mr. Alward¡¯s proposal for bringing those cheap prices to New Brunswick while servicing NB Power¡¯s debt?
Premier Williams¡¯ opposition actually comes from another source that has nothing to do with New Brunswickers or their interests; the politicians in Fredericton should make sure they know what they¡¯re getting into before following this pied piper.
Premier Williams wants to build a big hydro project on the Lower Churchill in Labrador and sell the power for top dollar. He fears that anything that reinforces Quebec Hydro¡¯s dominant position in eastern North America makes that project less likely. But Premier Williams¡¯ ephemeral dream to press ahead with Lower Churchill cannot proceed in today¡¯s circumstances. This is not because of opposition from Quebec, but precisely because power prices are low and will stay that way for a while. Whatever other virtues Lower Churchill has, its power once delivered to paying customers would be very dear. Taxpayers in that province should be relieved, not outraged, that Nalcor, Newfoundland¡¯s Crown energy company, is not out in the market the trying to sell costly power right now.
Rather than denigrating neighbours for their success, a success that costs his province nothing, Premier Williams should instead turn the Quebec – New Brunswick deal to his long-term advantage. How? By negotiating a transmission access agreement with Quebec to be activated in the future, when Lower Churchill power becomes competitive. Such a deal would cost Quebec little but would help to remove suspicion of their intentions while creating a constructive relationship with a potentially important business partner.
If the Newfoundland government could find the will to be constructive, it would set out terms for the design for a future transmission tolling agreement that allocates costs fairly, moves new Labrador power to market most efficiently, permits Quebec to earn a reasonable return on any prudent investment it makes, enshrines Newfoundland¡¯s right to market access, and establishes an arm¡¯s length dispute resolution mechanism. An excellent model for a deal would be to follow the lead of the transmission access requirements of the U.S. Federal Energy Regulatory Commission that already governs Quebec¡¯s exports. If and when the economics of Labrador power development turn around, the challenging transmission riddle would then be solved.
When neighbouring provinces find creative solutions making both sides much better off, it is corrosive of our federation and antithetical to the essence of Canada for another province to take a bitter, beggar-thy-neighbour position. Instead of fostering acrimony, Premier Williams should butt out of the Quebec-New Brunswick deal and position Newfoundland to get into the power trading game on reasonable terms when the time is ripe.
-30-
Tom Adams is a Toronto-based energy and environmental advisor and researcher who wrote several reports on NB Power for the Atlantic Institute for Market Studies (AIMS).
Brian Lee Crowley is Senior Fellow and past president of AIMS.
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