The power agreement between New Brunswick and Hydro-Québec could be further revised to produce a sound deal with better results for New Brunswick.
A revised accord would result in a long-term power sale by Hydro-Qu?bec to New Brunswick, the sale or shutdown of generators as planned, and the opportunity for NB Power to operate its grid profitably for the ultimate benefit of its customers.
The deal, as currently proposed, would give New Brunswick some debt relief and rate protection. It would give Hydro-Qu?bec a perpetual guaranteed market and locked-in transmission access to New England.
The key question that has emerged is whether the deal has sufficient value for New Brunswick to be worth accepting.
Proponents say the deal is better than the status quo, suggesting that those are the only two choices.
Opponents say that New Brunswick would make permanent and irreversible concessions and would get too little in return.
Perhaps the correct answer is to find a solution that is not permanent – because NB Power’s problems are not permanent – but which improves on the current situation.
Many of the promised advantages for New Brunswick could be achieved without any agreement. Tougher regulation patterned on Quebec’s R?gie, disposing of generating plants to avoid greenhouse gas costs and inefficiency, and obtaining power supply with known costs for a substantial portion of New Brunswick consumption might all be achieved by New Brunswick itself.
Regulation by the Energy and Utilities Board was weakened in the 1990s. The province could, at its own discretion, restore real regulation, not subject to political override. The EUB would then be able to review independently NB Power spending before any rate increase. It could limit the amount of debt to be assumed by NB Power.
NB Power generating plants scheduled to be shut down when ordered by Hydro-Qu?bec could be either sold or closed by NB Power itself. Either under the terms of the deal or by unilateral NB Power action, New Brunswick customers would foot the bill for closing costs.
Generators that Hydro-Québec expects to continue to operate could be offered for sale in the open market. Hydro-Québec could bid, but so could others. The proceeds would be used to reduce NB Power’s debt.
If NB Power divested itself of generation, where would it get power to serve its customers? Some customers – large industrials and municipal utilities – would be able to purchase power for themselves, just as under the proposed deal.
Smaller customers and those large customers not buying for themselves would get what is called “standard offer service.”
Normally, NB Power might be expected to purchase standard offer supply from the open market. In this case, the New Brunswick-Quebec agreement could be converted into a long-term power supply arrangement, under which Hydro-Québec would provide standard offer supply. While the supply would not be permanent, it could be for as much as 10 years at a guaranteed price.
In short, NB power would take itself out of the power supply business and handle only transmission and distribution, just as currently envisaged by the deal.
The NB Power transmission system offers the opportunity to garner new revenues that can be used to offset rates. Other utilities have found that the wires business, even though regulated, turns out to be quite profitable.
There would be no need to give Hydro-Qu?bec control over transmission links with New England as currently proposed, because Hydro-Qu?bec would not have acquired the generators now associated with the ties. NB Power would operate the system, open to all potential customers. Its net gain would flow back as a credit against the rates charged NB Power customers.
The transmission system could be developed, subject to EUB regulation, to serve as the hub for Atlantic Canada and between it and New England. A regional power market could develop.
To be sure, this approach would reduce but not eliminate NB Power’s debt, but neither would the proposed deal. Will the refurbished Lepreau generator operate? If it doesn’t, Hydro-Qu?bec pays less toward debt reduction. Closing generating plants will impose new costs, which could increase debt.
One of the reasons for NB Power’s debt is its artificially low rates. The rate freeze does not solve the problem; it only delays dealing with it. In fact, it may even add to inevitable rate increases. Creating a system under which NB Power accepts no more generating risks and operates its grid to earn a profit has a good chance of moderating any rate increases.
This approach can be achieved by another revision to the deal. An accord between the two provinces would survive and produce benefit for both. Perhaps most importantly, it would give New Brunswick greater flexibility, both in dealing with current problems and in facing the future with confidence, not fear.
Gordon L. Weil is the president of Standard Energy Company of Maine. He has written several papers for the Atlantic Institute for Market Studies (www.AIMS.ca ) on NB Power, including articles on the original MOU with Hydro Quebec and the updated deal.