Big deal

My comments in the Montreal Gazette this a.m.   While unfortunate, I do think that some people (hopefully not the opposition) will try and whip up anti-Quebec and anti-French rhetoric to try and scuttle the NB Power deal.   I hope there is rigorous debate – but around the real issues. 

I read the MOU and the broad strokes of the deal confirm that I think it is a good opportunity for New Brunswick.  Some of the language around the amount of power at the L and M rates needs to be fleshed out – I don’t know if 4.5 TWh is the right amount for industrial users for example.

The government has calculated that the rate savings to residents and businesses will amount to $5 billion.

One of the funny things about this deal is the hue and cry about ownership of the electricty grid and generation facilities.   

Fortis (a private company) owns Maritime Electric.

Emera (a private company) owns Nova Scotia Power.

Newfoundland Power is owned by Fortis (a private company).

What did you say about public ownership of critical public infrastructure?

Electric utilities will always be under a regulatory environment and the province writes the regulation but I think it is downright weird for anyone in the other three Maritime provinces to lecture us about the government ownership of our utility when they don’t have government ownership.

21 thoughts on “Big deal

  1. I think that would give them a pretty good perspective though, they certainly weren’t policies decided by referendum. I said this at the CBC, do you think Quebec Hydro is going to embark on a deal that they get the short end of the stick on? Sadly, people seem to have forgotten Bernard Lord’s fight with the gas utility (in Alberta) over the problems collecting royalties on the gas ‘infrastructure’ running through the province. Apparantly NB lost hundreds of millions because of the bizarre way royalties are calculated-their response years ago was ‘we’ll study it and get back to you’. That was about five years ago.

    Sorry to say, but this is NOT an economic issue, this is a politcal one. It’s one thing to present an economic agenda and campaign on it, its quite another to suddenly announce selling a crown corporation on a whim. You seem to think that the decision is all economic, but thats RARELY the case in politics, in fact this blog is the perfect foil to the claim that ANY decisions out of Fredericton have been based on economics rather than politics. So why think this is different?

    I’ve contacted a couple of film friends and they are working on a documentary on just how hard it was to build a public utility in New Brunswick and what a benefit it has been. There are only two options here-either energy ownership is a profitable thing, in which case it would be absurd for an energy utility to opt out (imagine how well they’d be doing if they built an LNG terminal instead of trying to ‘update’ Coleson Cove). That its profitable is proof enough because private enterprises keep wanting a piece of it. OR, they are NOT profitable, which is why they were nationalized in the first place, and why any claim that ‘it’ll be regulated’ is just foolish. We’ve seen policies which forced NB Power to keep rates low, we’ve seen policies that refused to supply cheap power to dying industries-those will be things of the past.

    Even on the economics side, as many have pointed out, NBers have ‘frozen’ rates, in other words savings of 3% per year. After that they are indexed to the CPI. Meanwhile Quebecers have FAR lower rates. Talk about crossing the border to get cheap beer, now cross the border to save on power bills. We also saw regulations prohibiting NB Power from cutting off people in the dead of winter. Whose to say Hydro Quebec will continue that, and how effective will NB legislation be in controlling Quebec’s policies? It’s hard enough lobbying NB Power, but Quebec?

    It’s true that this has nothing to do with the french, although its a salient point to ask ‘what if they separate?’ It’s also well known that NB workers are not allowed to do contract work in Quebec, but Quebec workers are constantly coming into NB doing work for everybody from native foresters to Rogers Cable. And if you recall, Jean Charest several years ago essentially said “we’re not discussing it”. So when he talks about how well he gets along with his neighbours, well, not ALL neighbours.

    That’s not even getting into the specifics. The reality is that people need to remember the Charlottetown Accord-the government gave a brief outline for a new constitution and said ‘we’ll fill in the rest later’. This simply comes down to trust, and how much do you trust Shawn Graham to be making the right economic decision? When has he in the past?

  2. From an economic standpoint, the problem is that we are faced with a liquidity trap; that is, under conditions in which conventional monetary policy has lost traction and in which the Bank would set interest rates much lower if it could. Under more normal conditions, the conventional view of stimulus (the NB Power sale can be viewed as a form of stimulus) is more or less correct. But we’re in liquidity-trap conditions now, and will be for considerable period of time if official projections are even remotely correct. That dramatically constrains our options.

    But the overarching issue remains: we are living far beyond our means. Some major correction was required to bring some semblance of stability to the government’s balance sheet. There are only three options: increase taxes, grow the economy to increase revenue, and sell assets. People may not like the third option, but growing the economy is difficult and would not have produced results for years simply because of the size of the problem. Would there have been an appetite to raise taxes?

    And we may not be out of the woods yet.

  3. @Peter Lindfield
    The third option seems to have been implemented with the intention that the result would repaidly stimulate the second option.

    The pervasive NB mentality of “fear the outside” seems to be rampant in this deal. Without even knowing the details, people have been saying that the end is near and that we’ll be held ransom by Quebec. As long as we are getting a re collecting tarrifs for the energy going through our province, we should be just fine. In fact, the province woudl be wise to invest one billion of the proceeds to lure major industry to the area.

  4. This amounts to throwing in the towel. Political interference led to bad decisions like Belledune. Incompetency and mismanagement also contributed to NBP’s poor performance. HQ recognizes the value the sensible NBP assets and this deal takes care of the political assets of NBP.

    So, Quebec is willing to do what we could not; either because of lack of competency or lack of will. They will make money on these assets especially with the losers they left for NB to manage.

    So, NB loses the earning potential, loses the supplier revenue, and loses a major economic development opportunity associated with energy. We gain frozen rates for 5 years (read the MOU and there are enough loopholes that any rate prediction beyond that is a guess) and open $5B of credit room.

    Watch for new highways, hockey rinks and golf courses in the north as this would be consistent with current economic development strategy.

  5. > Emera (a private company) owns Nova Scotia Power.

    Yes, well, this is a good case in point. Every time there is a storm – EVERY time – people in Nova Scotia go without power for days, sometimes weeks. Far in excess of what happens in New Brunswick.

    That’s why people worry about private companies running utilities. Costs go up, but investment in infrastructure stops until the utility can convince the government to pay for the upkeep.

    This deal is the exception, I think, that proves the rule. In some cases, divestment of public infrastructure CAN be a good move. But what is key is that it actually be a good move, not a politically motivated kneejerk reaction that puts into place an unresponsive and irresponsible private entity for no real gain to the province.

  6. Peter hits it on the head, and for ages now the NDP (as well as other critics, including myself) have been berating the province for lowering taxes. Even David did the calculations on the ‘savings’ and its paltry. However, people forget lowering of the capital gains tax, and since there is no real public market in NB, the only benefit goes to people with stock-a minute population. By getting rid of two of the tax brackets CBC reported on who the big winners in the recent tax cut are-those making over 80 grand. As well, corporations will be doing VERY well, and as I’ve mentioned numerous times, New Brunswick already gets the lowest proportion of its budget from corporations-and again, in this small province are some of the largest corporations in the world.

    We can also then look at the spending. How about the adding of almost half a billion dollars to the debt while bragging about balancing the budget just to divide a hundred kilometers of highway. This is simply a repeat of the old Reagan trick, spend a fortune on non essentials so that you ‘have’ to sell assets.

    This is not a ‘fear of the outside’, but if you want a fear of the outside scenario I can print off a chart from the 1890’s that showed immediately after confederation was a huge spending spree in New Brunswick to purchase NB companies. In one decade spending went through the roof, then the next decade saw the labour force and number of businesses plummet as corporations ‘realigned’.

    This isn’t a lack of cell phone legislation or even the french immersion debate-it took decades to create NB Power, and if you look at their books, they are in far better shape than the provincial government-how about selling off the Fredericton legislature and letting Quebec run the province? After all, they are much better at getting money from the feds, and have much better health care and other programs, so why not? I think the answer is obvious, once this deal is done, NB Power is gone-for good. You can’t find out later that the numbers turned out to be not so good and so just break apart the contract.

    I can understand the frustration of a lot of people who see no movement in public policy (partly because its rarely reported) and so just ‘cling’ to the hope that this will bring better policies, but that’s a dangerous outlook. As for Peter’s first paragraph, I can’t even understand it, but again, look at NB Power’s balance books, they are in FAR better shape than many of the largest corporations in the world.

  7. With respect to regulation, the NB Public Utilities Board has to approve power rate increases of more than 3%. Is there anything in this proposal that affects the ability of the Board to regulate rates? And how does that match up with the apparent agreement to ‘limit’ rate increases to the level of inflation? What if inflation is 5%? Would the Board then not be able to say “No, sorry you can have only 3% this year”?

  8. Nice work, David! Two quick question: firstly, will Hydro-Quebec be required to pay taxes on profits earned in New Brunswick — similar to a Worldwide Tax system? In other words, will income be subject to double taxation? Once in Quebec and once in New Brunswick? Secondly, if New Brunswick has given away a majority of its power assets to control debt in the short term what leverage does it have in the future? What is the benefit of such a deal in the long-term vision of the province?

  9. “The pervasive NB mentality of “fear the outside” seems to be rampant in this deal. Without even knowing the details, people have been saying that the end is near and that we’ll be held ransom by Quebec.”

    Jon; I think (and this is just an opinion here) that it is not as much a “fear of the outside” by New Brunswick taxpayers and citizens as you say as it is about being shut out, once again, from the political process. Now don’t get me wrong, I am a true believer that some decisions are probably better left solved outside the eye of the public. However, when you are a government that has lacked transparency from the beginning on a host of issues (whether it be the bailing out of a fledgling Caisse to the continued use of studies and reports by unelected appointees to guide important legislative decisions), then you can understand why NBers, on average, get so upset when they see something so important, like the selling of a public utility which they have financed through their taxes for years, happen without even the slightest of public input. Just another day in the autocratic dictatorship that is New Brunswick.

  10. So, a guy known to make big announcements then back down approaches his neighbouring province to discuss cooperation with transmission and rates. They say, have we got a deal for you, we’ll take the good assets off your hands, leave you with the loser assets to deal with (although once we instruct you to shut them down we get the carbon credits) and all this for a rate freeze for 5 years during which time, the gap between what we charge our Quebec customers and what you current pay will narrow but never close. After that, its a free market boys and we’ll fetch the highest rates we can.

    We say wow, even though I was elected on a firm promise to never sell the assets of NB Power, and even though I have not shopped the deal around and compare alternative offers and even though I have a track record of making hasty decisions then backing down, I’ll take this deal. Then I’ll try to force the general public to quickly acccept it with the threat of a 3% power increase April 1.

    This is purely a short sighted decision; yes, the deal can be dressed up to look good in the short term but it may not be good in the long term and we will have no alternatives at that point. Energy strategy is not a short term game.

    Anyone find the fact that the prominent liberal Chairman of the board (fire-ready-aim McGuire) has been (publically) silent on this issue? Anyone seen any comments from him?

  11. I don’t worry about it being Hydro-Quebec. However, I am uncomfortable with it not being a private company. I would think the temptation to use it as political leverage would be quite strong. But I’m largely ignorant of regulations etc., so I don’t really know if it’s a legitimate concern or not.

    I’m curious though about how Americans view this. Granted they don’t often pay attention to what goes on up here, but if there is anything to the rhetoric about the needs of the U.S. market, it seems to me they would be very interested as this deal seems to limit their options (and presumably their ability to minimize the rates they end up paying). Has there been any comments from the other side of the border?

  12. In answer to my own question, all I’ve seen so far is this story from the Boston Herald:

    In part, it reads:

    “Now (Hydro-Quebec) has control over everything — it’s a monopoly in the purest sense and I don’t think that’s supportive of competition,” said Angie O’Connor, president of the the New England power group.

    She said Hydro-Quebec, which supplied more than seven percent of New England’s power last year, already has the advantage of using a limited, less-transparent regulatory process in Canada.

  13. It is this simple folks. Energy is the key to prosperity throughout Canada and the world.

    Energy is the difference between a have province and a have not province. It is the key to a have country and a have not country. This has become true over the past 35 years and is forecast to become an even greater economic factor in the next 50 years. Without question, energy is key to the economy.

    Well, New Brunswick just turned over the key to their economy. We will now be dependent on Quebec. So, has the Premier determined that somehow Quebec will be motivated to look out for New Brunswick’s economy? We would certainly be the first to experience such generosity and compassion.

    I would far prefer to have control of our energy resources. Restructure NB Power and remove the political interference. Work with NBP to leverage its economic development opportunities for developing technology and skills and becoming a corporate-friendly partner for alternate energy generation and conservation technology.

    Energy is arguably the most dominant and influential aspect of economies around the world. I would prefer that we have control of it ourselves.

  14. Miss O’Connor needs to recognize that New England was build on the very injustice she is crying about. Funny thing when the American Dream comes back around to bit you in the ass isn’t it?

  15. Oconner would be on the long list of people who would have no clue as to what dough is ever talking about! In fact he’s on it himself.

  16. “Energy is the difference between a have province and a have not province”

    I’d say that it is access to relatively cheap and clean energy that is the key. That means hydro and other renewable sources of energy, imported or locally produced. There is little advantage to simply producing energy unless you are going to make use of it to attract industry.

    NP Power saddled itself with fossil fuel plants and the costs of nuclear power. Those fossil fuel plants will be a greater and greater liability in the next decade; we will be producing power that no one will want or can afford. They are assets that no one will want – it makes no sense to convert them to other fuel sources (eg gas) given the availability of cheaper power. Consequently NB Power is in a jam at a bad point in the province’s fiscal history. If times were better, then perhaps the storm could be ridden out. As things stand now, NB Power’s debt load is significant. I don’t see the value of keeping NP Power intact, although perhaps arguments can be made for different approaches to the sale.

  17. mikel: Just a couple of points.

    1) First, you seem to fear that Hydro-Québec would discontinue NB Power’s policy regarding winter time disconnections. Are you aware that a similar rule has been in force in Quebec for the last few decades?

    2) As far as crossing the border for power, the price differential has been in place for quite a while; it would be no different after the sale.

    3) I don’t know why many people seem to assume the regulatory regime in Quebec is less stringent than in New Brunswick. If you read French, you should check out the amount of documentation HQ has to release to get a 0.2% rate increase effective next April (Régie de l’énergie docket R-3708-2009). Yes, contrary to New Brunswick, HQ has to do a “full monty” even for the smallest rate increase.

  18. “I don’t see the value of keeping NP Power intact, although perhaps arguments can be made for different approaches to the sale.”

    I think many people agree with the sale in principle, but want to see changes to the memorandum of understanding.

Comments are closed.