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Wednesday, January 06, 2010

Hydro Quebec / NB Power Sale – Debunking the Myths

Shades of Churchill Falls

Much like the Upper Churchill Contract, it appears New Brunswick is about to enter into a one sided deal with the devil, Hydro-Quebec. Unlike the Churchill this deal is forever and again unlike the Churchill, this one is being signed in spite of mass protests and opposition.

In October New Brunswick Premier, Shawn Graham, announced his intention to sell NB Power to Hydro Quebec after being elected on a platform that promised the corporation would not be sold. Opposition to this unexpected move was swift and has grown with each passing day. Currently 10’s of thousands of people have joined a group opposing the deal and, according to NB Power sources, even the CEO of utility has encouraged employees to write their MLA demanding the sale be stopped.

Since the surprise announcement much has been said on both sides of the debate, often making it difficult for the average person to know what the truth really is. This problem was only exacerbated when the Graham government hired an international Public Relations firm, at taxpayer expense, to “sell” the deal to voters.

Coincidentally, this is the same firm the former Bush administration hired to sell the Iraq war to the people there. Enough said.

It isn't just the people of New Brunswick who stand to suffer from their government's short sighted actions. Newfoundland and Labrador will also come out on the losing end of yet another Hydro-Quebec contract by losing any hope of accessing markets for Lower Churchill power through New Brunswick. The deal may also kill any chance Newfoundland and labrador has of dealing with anyone but Quebec when the Upper Churchill contract finally expires in 2041.

The problems this agreement bring with it are far too many in number to present in a single commentary but to uncover the truth about the "deal", at least from the perspective of New Brunswickers, all one really has to do is look to that provincial government’s literature on the subject. No, not to find the answers but to understand some of the Myths and spin the government is attempting to “sell” to the New Brunswick public.

With that approach in mind, I’d like to offer up the same 10 key points the Graham government recently sent out in brochures to the voters of New Brunswick as well as an analysis of those points, without the political spin.

Point 1: The $4.75 billion dollars received from HQ (for the purchase) would reduce the provincial debt by 40%!

Not true.

New Brunswick’s Auditor General, Mike Ferguson, clearly stated “…there will be no impact on the provinces net debt…”

In fact NB Power’s debt is held, maintained and paid separately from the provincial debt. NB Power has a debt to assets ratio similar to other utilities in Canada, including Hydro Quebec, and is quite capable of paying down those debts through customer revenues.

Not only would removal of that debt not impact the province’s overall exposure it has been clearly stated that the payment it (or not) has no impact on the province’s credit rating and in fact selling the corporation would decrease government revenues (from the utility’s profits, taxes and fees) by hundreds of millions of dollars that could be used to pay down the province’s actual debt.Instead those profits will accrue to the government of Quebec.

As an aside, Hydro Quebec plans to borrow the 4.75 billion dollar purchase price, in effect simply transferring NB Power’s dept to Hydro Quebec. Either way the rate payers of New Brunswick will end up paying those costs off through their power bills. It’s like buying a house vs. renting. It’s just a matter of whether you prefer to pay off your own home or someone else’s.

Point 2: The average household heating with electricity would save nearly $1,400 over the next five years.

Not True.

Government’s numbers are based on households using far more power than the average homeowner might expect to use. While a 5 year rate freeze may seem attractive the real savings, even accepting government’s highly inflated numbers, are close to .35 cents per day during the 5 year period, but that’s not the end of the story.

After the 5 year “grace” period rates will begin to rise with the rate of inflation and any power used beyond the so called “heritage pool” during the 5 year holiday (barely enough power to meet provincial needs today) will be calculated and those overruns plus all interest charges will be tacked onto the bills of every rate payer going forward. In addition, those increases don’t take into account additional charges for such things as system upgrades, new power sources, new transmission costs and the like which will also be added to bills.

The Auditor General noted “ordinary rate payers have been told that their rates will be frozen for five years and will only increase by the Consumer Price Index after that.” He continued to say, “The province needs to be clear about whether NB Power customers might face higher bills through other charges.”

As one individual recently put it, are a few pennies a day worth our future and the future of untold generations to come? This deal is forever.

Point 3: Don’t worry, after five years your rate increases are tied to inflation. Independent expert forecasts inflation should remain under two percent over the next 20 years.

The question here is just how accurate those forecasts really are. Most economists can’t predict when we’ll come out of the current recession let alone what the CPI will be in 20 years! Looking back through history is of little help (though it shows that using strictly CPI as a guideline rates would now be far higher they currently are) and no educated guess on the rate of inflation will be of any help going forward if oil reaches $140.00 a barrel driving up the cost of all the goods and services and taking inflation to entirely new levels.

Point 4: Hydro Quebec will not have control over our future rates. These will be controlled by the New Brunswick Energy and Utilities Board.

This appears to say that selling NB Power will not mean relinquishing regulatory control. Under normal circumstances one might expect this to be true, however in this case it may not be.

The MOU clearly states (section 3.1) that “the Government of New Brunswick will change the regulatory framework governing the generation, transmission and distribution in New Brunswick to conform to the framework currently in effect in Quebec.

In other words New Brunswick’s regulator must conform to Quebec’s regulations regardless of what those might be, in effect putting Quebec in control of regulations in New Brunswick, not the local regulators who will serve as little more than a rubber stamp.

Point 5: New generation needs won’t mean larger rate increases because these will be controlled by the EUB.

The MOU limits the amount of power available in the so called heritage pool to 14 TWh for both residential and industrial customers. According to NB Power’s 2007-2008 financial report the province used 14.25 TWh during that period, exceeding the heritage pool allowance being put in place for the next 5 years and almost guaranteeing that the pool is too small to meet existing needs, let alone any future growth. This will mean any new industries hoping to move into the province will not be able to compete on an even playing field with existing industry, impeding all future growth.

As for the pool being too small to start with, according to the MOU section 2.2(b)ii the incremental cost of any power used over the allotted heritage pool will be deferred or set aside until the 5th anniversary when all costs plus interest will be recovered by Hydro Quebec through rate adjustments. This is over and above the annual rate increase based on the Consumer Price Index or other costs to be passed along to consumers.

Point 6: It’s OK to rely on another province for our energy needs because we have a long history of co-operation with the Province of Quebec.

In truth Quebec has no reason to look out for the interests of New Brunswick citizens and this is clear in the MOU. Creation of an artificially low heritage pool will prohibit new industries from accessing favourable power rates and seriously impede new growth.

There is also much reason for concern among exiting companies in New Brunswick that have supplied equipment, tools, vehicles and other necessities to NB Power for decades. Hydro Quebec already has relationships with suppliers outside of New Brunswick and will likely continue to leverage those suppliers that they are comfortable with going forward. In this regard the future for those local companies looks bleak.

Point 7: Don’t worry, New Brunswick would continue to have absolute control over energy policies and the agreement identifies New Brunswick as an energy hub.

In reality “New Brunswick’s” energy hub will be owned by Quebec, not New Brunswick, as will the 20,030 km of transmission lines and the crown lands they sit on.

While Hydro Quebec will indeed have to face the New Brunswick EUB when seeking rate increases several increases are built into the MOU (see previous points) and according to the MOU the New Brunswick regulator, far from being independent, will be obligated to conform to Quebec’s regulations.

So much any guarantees of total control over energy policies.

Point 8: This agreement is beneficial because Hydro Quebec is responsible for such costs as upgrading and maintaining aging NB Power facilities.

Not true.

Section 2.5 of the MOU ensures a fair return (fair being open to interpretation) through a contractual or a legislative guarantee to the owner of the assets (Hydro Quebec) through transmission and distribution rates! This is over and above the CPI rate increase and heritage pool overruns.

In addition, within 12 months of Hydro Quebec issuing the demand, New Brunswick is obligated to shut down and pay all decommissioning costs for Belldune, Coleson Cove and possibly Mactquac and the Lepreau generating stations, none of which Hydro Quebec is financially responsible for and all of which will be paid for by New Brunswick taxpayers, adding to the provincial debt. The bill is for this effort is potentially several billions of dollars which will have to be borrowed and paid back.

Point 9: We are told not to worry our power supply is secure and our NB Power employee’s jobs are secure.

This is difficult to believe since Union leaders have raised concerns that the MOU hasn’t convinced them that existing job or labour agreements are safe at all.

As for power security, when New Brunswick’s thermal power plants (see previous point) are shut down, power will need to be imported from Quebec’s James Bay or Newfoundland and Labradors Churchill Falls plants. Those plants are more than 1250 km from Fredericton. One doesn’t have to go too far into the past to see that greater distances mean greater risk of supply or that putting all dependence on a single supplier, one the province has no control over, is far from what most thinking people would consider energy security.

Liberal Point 10: Will New Brunswicker’s be consulted? Yes your government is listening and urges you to join the conversation on the government’s website www.lowerratesnb.ca

This is doubtful. To date an overwhelming number of complaints, questions and concerns have been raised with government and the result (as is clear to see from the preceding points issued by government) is little more than lip service and spin being offered up.

Citizen’s are demanding a delay of the sale until after the September election so they can decide for themselves but the Graham government is refusing this and has gone so far as to say publicly that the citizens of New Brunswick are not capable of making a decision of this magnitude.

Apparently the New Brunswick government believes the electorate is not intelligent enough to understand what’s going on. One can only assume they arrived at that conclusion after this same electorate supported their platform which included a promise NOT TO SELL NB Power.


Anonymous said...

Great piece! An eye opener.

Reluctant NL Ex-Pat said...

This is a very well written piece. I am sick and tired of hearing about NL getting the shaft again. The solution to all of NL s problems is to separate from Canada. Quebec would be forced to renegotiate the Churchill Falls agreement right away if NL was now their own country. NL can easily make it on their own if all the offshore oil revenues and most of the hydro revenue now goes to NL. I have been forced away from NL, as many Nflders have been, for the last 30 years to work. I will be happy to come home this summer, and I am wondering how many fighting Nflders are there out there who want to mount a populist movement to force the NL govt to hold a referendum on self-determination. In case you think otherwise, none of the major political parties in NL, including the present premier, are interested in changing the status quo. All of the huffing and puffing in pretending to fight Ottawa on issues will accomplish nothing.