The Selling of NB Power – Part 1 – Your Wallet

This is a commentary on the Memorandum of Understanding (MOU) between New Brunswick and Hydro-Quebec regarding the sale of NB Power.

Note #1 - Restructuring

The Hydro Quebec (HQ)-owned subsidiary body that will be operating in New Brunswick will be considered, for all intents and purposes, a New Brunswick Crown Corporation. That is, it pays no income taxes, capital taxes, is exempt from certain private sector regulations, etc.

Note #2 - The New Brunswick Energy & Utilities Board

The NB EUB will remain active. They will be responsible for: approving rate increases proposed by HQ and approving transmission and distribution rates in conjunction with HQ (these rates being guaranteed by law or contract to be “fair and reasonable” [i.e. in HQ’s favour to the detriment of NB’ers]).

Also, how much power do you think a New Brunswick board has over a Quebec Crown Power Corporation that also functions as a Crown corporation in NB? The EUB is completely toothless – it’s for show only. It’s an attempt to lull NB’ers into believing they have some say in what HQ does. The EUB has no recourse in the face of an abusive HQ as it’s unable to sanction or threaten with fees or taxes. All it can do is ask nicely.

Speaking of fees, on with the show.

Rates

Currently, the New Brunswick Government is faced with introducing a rate increase of 3% per year. The proposed Hydro Quebec deal will freeze the current power rates at their present-day level for 5 years - an attractive proposal. However;

New Brunswick’s demand for electricity in 2010 is estimated to be at least 17TWh. Roughly 38% of that is “Industry” and the rest “Residential”, leaving us with a projected 6.5TWh industrial consumption and 10.5TWh for residential. We’re only interested in Residential.

For ease of example, let’s assume the Residential consumption doesn’t budge and remains firm at 10.5TWh over the next 5 years (wishful thinking – it won’t). If NB Power remains in the hands of New Brunswickers and has to institute the rate increase of 3% per year compounding, the cost of Residential power consumption will be about $5.7 billion (based on the bulk rate of $495 per 5000KWh).

Alternatively, if we capitulate to Quebec and the rates are frozen, the cost of power over the next 5 years will be about $5.2 billion.

That’s $500 million, you exclaim! What a savings! Er, wait, there’s a catch – well, more like a pitfall.

HQ felt the need to place a “cap” on the total amount of power the Residential sector can consume per year at the frozen rate. The Residential Cap is set at 9.5 TWh.

“But wait,” you say, “that isn’t enough to cover the projected consumption, how will we make up the difference?” Well, NB will simply buy the excess at “market-based competitive prices”!

Now, who are the local Energy merchants. Well, there’s Nova Scotia, but its power is supplied by a private company – can’t have that. Danny up in Newfoundland has a few watts to spare, but he makes too much noise, so he’s out. Oh, wait – Quebec! And by Quebec, I mean the excess power produced by our (now Quebec owned) NB power plants – brilliant.

And there won’t be much trouble getting the EUB to approve a ‘competitive market price’ for Quebec power. Heck, there will probably be a former HQ employee or former Quebec politician or two appointed to the board. Anyway, you get the idea – another sham.

Continuing on with our example, the energy deficit will be at least 1TWh per year. Now, do you think NB’s HQ overlords are going to just charge us whatever preferential “market rate” they receive for the excess power? Yeah right; we’ll likely get a retail price.

Let’s assume we are charged the “frozen” rate for the excess power consumption (wishful thinking again). At that rate, over 5 years, the cost will be $495,000,000. That number seems awfully close to the one above, doesn’t it? Well, we will still save $5,000,000, right? Wrong.

We also pay compounding interest on all total excess power consumption due at the end of the 5-year freeze, which is then averaged into the new power rate!

“Well, what about those famously low Quebec power rates we’ll get after the 5-year term expires”, you say. A humbug, is the retort.

Once the 5-year term is up, the new price is rated to the New Brunswick Consumer Price Index. That means when the NB CPI goes up (which it does every year by 1-3% [sound familiar?]) the power rate follows suit. Due to the poor economy and the low price of oil, the current CPI is actually negative, which is likely why HQ didn’t index the power rate immediately. Well, costs do go up over time, so that’s reasonable right? Wait, there’s more!

NB Power was divided into a number of different entities some years ago, each controlling a separate aspect of the business. One division was Distribution, another Transmission. Together they controlled: the power lines, stations, towers and the people and infrastructure to connect and serve consumers – the “power grid”.

Well, we’ve offered to sell that too. As a result, NB’ers will be charged a “transmission and distribution fee” to use the very same power grid our blood, sweat and tax dollars have built over the last few decades. But the EUB will protect us, right? Well, we’ve already covered that one – a resounding “no”.

Are you on the floor yet? Here’s another kick while you’re down. In addition, the rates may (read this as: “are certain to in the near future”) include any costs associated with the dismantling and/or clean-up of unwanted NB Power Generating sites and any unforeseen costs in bringing Point Lepreau into compliance with Federal requirements. Lepreau has already gone over expected costs by how many hundreds of millions?

So basically, any cost related to anything they don’t want or need and any unforeseen budget overruns for anything they have to fix is dumped on the rate payers.

Let’s recap. New Brunswick power rates following the 5-year freeze will:

1) Be set by Hydro Quebec with the hollow “oversight” of the NB Energy & Utilities Board

2) Be subject to CPI increases (inflation)

3) Include the deferred costs (with interest) stemming from the estimated minimum excess power consumption of 1TWH per year

4) Include an additional fee for “transmission and distribution” on our own grid

5) Include costs associated with dismantling, repairing or upgrading Generating sites.

Outlook for achieving the vaunted “Quebec rates”, or even rates significantly lower than if NB Power stays in the hands New Brunswickers: not good.