Electricity outside the Heritage Pool

I think this is an issue for discussion.  It’s not a deal breaker, in my opinion, but clarification would be helpful.

If New Brunswick’s need for additional electricity goes outside the heritage pool (basically the current demand), additional power will need to be purchased through a competitive bid process.  Because this incremental power will be on the margin, it is the government’s position that any increased cost will be spread across the full 14 TW of usage and therefore will have a minimal impact.
Last week the North American Electric Reliability Corp. (NERC), said demand on the electricity system in Ontario will fall an average of .7 per cent a year between 2009 and 2018. That’s a 9.5 per cent drop in annual consumption, or the equivalent shutting down two Candu 6 nuclear reactors.

This could be the case in New Brunswick as well if we continue to deploy energy efficiency efforts and we don’t see a spike in new large industrial users.

But I think in order to alleviate concerns, the government should release scenarios on this going out 40 years or more.  Project out a reasonable model for power usage – maybe 2-3 scenarios: low, medium and high, and give us a clear picture of what this model Heritage Pool + Outside would look like.

One of the valid criticisms of this deal has been the uncertainty beyond the five year initial period.  It would behoove the government to bring clarity to that issue by releasing forecasts.  They must have completed this type of work while working up the deal.

Quite frankly, I hope this gets debated and put to bed one way or the other.  I am getting tired of screening out some very nasty posts to this blog.  There are punks out there who will say anything behind the veil of IP secrecy.  I talked this week to two other columnist/bloggers who are also having to put up with this kind of crap up to and including threats (it hasn’t gone this far with me – yet).   Maybe we will get back to a civilized debate about issues that don’t bring out the worst in people.

Just to be clear I have posted 80% of the comments – the only ones being screened include foul language or ridiculous personal character assasination (mostly mine).  Again, there is nothing we are talking about here that should engender this kind of visceral response.  I want to hear both sides.  I want to see facets of this issue that I haven’t looked at before but if you keep the comments to things you would say to my face over coffee – then I’ll post them all.

34 thoughts on “Electricity outside the Heritage Pool

  1. Yes, that is the unfortunate part about this, however, this is a VERY serious issue, and like I’ve said, people now are of the opinion that government simply doesn’t listen to them. Plus, of course, they may need their help in the future for a job or they may find their comments passed on to security or police. So the nasty comments are at least understandable. Heck though, Charles gets those kinds of comments all the time even WITHOUT talking about NBPower:)

    As for the heritage pool there are issues BEFORE five years are up. Keep in mind that Quebec is saying they won’t purchase dirty power from the three thermal polluters, and those right now provide almost HALF of NB’s energy needs. There are lots of comments in the MOU about ‘reasonable fees’ and other costs. There is also semantics-they say ‘rates’ won’t go up, but they won’t say whether that includes ALL costs. As I’ve said, here in ontario we pay a ‘debt retirement fee’ that is set to increase, the liberals said our taxes wouldn’t go up, but we got a ‘health premium’ tacked on that pretty much equates with a 5% increase in tax (but we never got our eye examinations back).

    Somebody elsewhere posted that Quebec Hydro is shedding 250 jobs. They make a point of saying they will respect CURRENT collective agreements, but as mentioned here, what about 10 years from now? 20?

    IF the big pulp mills close NB will see a further drop, and IF gas prices level out a lot of people, particularly in cities, will switch to natural gas. So definitely the use of hydro will go down, the problem there is that those are customers-fewer customers makes it harder to make a profit and pay down debt.

    I DO think a ‘visceral’ reaction to this IS justified, but for people making such comments they should be at the facebook group and going to the two protests planned for November 14 and 17. David certainly didn’t make this decision and like any issue, is perfectly justified to his own opinion.

    If you are angry at somebody-go tell them that on the 14 and 17 and give your ‘visceral reaction’ to your MLA.

  2. Although I see many positives to this deal
    I do have some concerns
    1. The 14 TWh base is too low as it is determined at a time when our consumption is at an all time low due to closures of many mills etc
    2. All emission allowances relating to Belledune and coleson cove will accrue to Hydro Quebec yet they are not purchasing theses assets
    3. Granting Crown Corporation status with the resulting tax nenefits is completely unacceptable for a non provincially owned company
    4.Lack of an independent valuation of the company that considers present and future revenue streams
    5. The sense that we are really selling the shares of this corporation for a penny. ie they assume ownership of all asets and liabilites with no premium paid for large guareened customer base and future revenue streams but real and potential

    having said that I think citizens need to be fully informed so that the debate can be based upon facts and not on politics, language or fear mongering

  3. While I agree with the marketing angle discussed in the article, the caveat would be that it would need to be seen in the context of what other regions have to offer. While New Brunswick may be more attractive than it had been, would it be attractive in a competitive sense? Hopefully, it would.

  4. Too bad about the personal attacks. They are unwarranted and cheapen the argument. As an opponent to the deal, I hate to be lumped in a group of radicals.

    There is no justification for such measures, however, it speaks to the frustration and negative emotion with modern era politics. Party politics are completely blurred. For example, Liberals, known in part for taxing and having excellent social programs have done the opposite. Now, specific and significant promises are being broken.

    There is growing support for an election or referendum on the NBP issue. On CBC today, I caught a portion of a commentary suggesting it was ridiculous to have an election on every issue and we have to empower our politicians to make decisions or we would never have progress. Normally, I would agree with this. However, the Graham platform clearly and specifically committed not to sell NBP. This was not a suggestion or an opinion, it was a promise and one that took an opposing stand to his political counterpart.

    Initially, Graham confessed the promise not to sell NBP was his “opinion” but what he really meant was that he would only sell it if it was a really, really good deal (Austin Power vision there). Steve Murphy shredded this weak argument and now that the big shot PR firm of Hill & Knowlton is on the payroll (complements of us taxpayers) Graham now claims he has negotiated an unimaginably good deal and has changed his mind.

    Well, these things happen. Obviously Graham believes this is a good deal. However, when you have been elected on a platform that includes a clear promise on such an important and controversial policy, then you propose an action that is the complete opposite of that policy,
    you have to get a mandate from the electorate.

    This “deal” is not only monumental in the sense it turns over our power utility to another government. It is monumental in New Brunswick politics. Voter confidence and respect for politicians was already at all time lows. If the deal that is exactly opposite of the policy that our Premier was elected to execute is forced upon us without an election or referendum, this is a monumental step backwards for democracy.

  5. Yeah..someone just left a piece of your latest comment in my blog.

    You’re 100% right!!!

    Many cowards have a lot of hatred towards other cultures.

    They were upset that I wouldn’t post their comments.

    I wrote – Come and meet me over a coffee and I’ll take your name. My God? I might even take a picture of you to go with your comment.

    To this day, I never received one invite!!!

    I wonder why???


  6. People are weird. I worked in a call center for a couple of years and there are lots of ignorant people out there, even in the real world. Its all part of this new economy thing….don’t worry, its all good for business.

    As for some excellent questions, this editorial, http://thechronicleherald.ca/Editorial/1151194.html, asks some interesting questions.

  7. The quality of comments here is high at any time, and especially on this issue it’s so nice to read posts with actual facts and reasoning behind them, on both sides.

    Sorry you’ve attracted some wingnuts. The price of fame 🙂

  8. “If new industry comes to the province and pushes consumption beyond the 4.5 TWh, the province’s Energy and Utilities Board will issue a request for proposals from energy companies to provide the required new energy. The cost for providing the extra power will be shared among all industrial users.”

    That’s from the article you cited, David. And to me, it underlines one of the perceived problems with the deal. The MOU appears to undercut the ability of the EUB to regulate such matters, or at least regulate them in the interests of NBers. We need some clarification on how the proposal affects the EUB, in particular how power from other sources (internal or external to NB) would be admitted into the grid, both for local consumption and transmission into other jurisdictions. One way in which the clarification could be offered is through the release of draft legislation; that would be a major improvement over reassuring statments from GNB ministers.

  9. Let me bring a perspective on the substantive issue raised by David. The “heritage pool” concept was suggested back in 2000 in a Merril Lynch study commissioned by the Quebec government in order to open up the generation market to competition.

    In Quebec, the 165 TWh pool has had positive impacts.

    1) First, HQ Distribution division was given an incentive to devise aggressive energy efficiency programs in order to keep consumption as low as possible.

    2) HQ has an obligation to release a 10-year supply plan every three years with three scenarios (low, medium and high). The scenarios are updated every year (the latest one, was released last week).

    3) A low ceiling is good, because it leaves room for competition. The province has the power to force the issuance of RFPs for new generation from the private sector to meet requirements over and above the heritage pool. The province can also exclude HQ from the tendering process and choose the preferred method of generation (wind, biomass, natural gas, small hydro, etc), target prices and regional spinoffs. So the province retains its power to set the energy policy by setting when, where and how to meet demand while setting optimal quantities and target prices over the long run.

    Bottom line: it works! Over the last 10 years, Quebec has issued RFPs for 5,000 MW of new generation (3,500 MW wind, 500 MW natural gas, 250 MW small hydro, 125 MW biomass and 600 MW of cyclical power).

  10. Yes, but I lived in New Brunswick (5 years in F’ton, 1 year in Moncton and 6 years in the Acadian Peninsula) for 12 years between 1990 and 2003.

  11. A point that is getting little consideration is the devasting loss of business the NB engineering and construction industry will experience with the loss of NBP.

    If we think for a minute that business relationships will just transfer over to QH, we are wrong. Quebec has their own set of regulations, policies and requirements desiged to protect Quebec workers. Talk to a NB construction company who has tried to get trades work from Quebec and you will hear that it is impossible. However, we freely recognize their credentials and Quebec companies frequently win jobs in NB. It is this type of protectionism that will cause the loss of work for many NB firms.

    The deal has been analyzed to basically show big savings for our pulp mills. Is it worth the hurt in engineering and construction to help the profits of pulp mills? I think not.

  12. “Quebec has issued RFPs for 5,000 MW of new generation (3,500 MW wind, 500 MW natural gas, 250 MW small hydro, 125 MW biomass and 600 MW of cyclical power).”

    Those are RFPs, but what about actual delivery into the grid?

    If the RFPs are being translated into actual projects, it sounds like, with the proper regulatory structure (i.e. with legislation in place to safeguard or enhance the authority of the EUB), there is no real impediment to non-HQ power being generated in NB.

  13. “A point that is getting little consideration is the devasting loss of business the NB engineering and construction industry will experience with the loss of NBP. ”

    There is no reason to believe that will occur. You could equally well hypothesize that lower power rates will attract industry that needs engineering and construction expertise. In any event, you have to ask whether the debt being incurred by NBP is worth those jobs.

  14. @Paul

    Just another point regarding who I am. I follow this debate with great interest because I currently study economics at Laval (increasing your human capital is good when the business cycle is down) and my favorite topic is… you guessed it: energy policy. I certainly hope my interventions in this forum will be helpful in fostering a fact-based debate on the pros and cons of the sale, but I want to reassure you. I’m not paid by anyone to sell the deal.

  15. @richard

    See the above-mentioned 2008-2017 supply plan: tables 5.1 (page 28) for energy deliveries and 5.2 (page 31) for capacity.

    Contracts were signed for the cyclical power in 2003, for natural gas (TCE) in 2004, wind-phase I in 2005, Wind-phase II in 2008 and deliveries are progressively phased in between 2006 and 2015. Of the dozens of contracts awarded in the RFP process, only 3 were canceled, due to local opposition or adverse financial conditions.

    I am not saying it is perfect (the 500 MW TransCanada plant has been on standby since 2008 because of softer sales, particularly in the industrial market where demand is much more elastic) because of the inherent difficulty of forecasting long-term demand (it’s an art form, not a science), but it is much better than the ad hoc process that passes for policy in New Brunswick.

  16. Hey, I’m not in New Brunswick anymore either, but I was born there and for more than half my life paid the taxes that built up NBPower. I WOULD be tempted to live there again, but with this emphasis on natural resources there is simply no scientific industry which my wife is employed in (heck even here in southern ontario its starting to dry up thanks to Harpers freeze on R&D).

    People may not appreciate talk from an ‘outsider’, I don’t particularly care and I encourage Claude to keep posting, because I for one really appreciate the information. As this drags on the ‘visceral’ reactions will dry up, and people will want as much information as possible.

    As for the heritage pool, the ‘it works’ claim isn’t quite the point. IF the point of the heritage pool is to drive conservation, that can certainly be mandated in other equally effective ways. If this is just a manouver to try to get NBers to conserve power, there are just as effective ways of doing it.

    And this IS one country, so I think people from across canada should be welcome in the debate. As David has so often said, the federal government has lately been increasing its equalization and other investments. In Bolivia we had an international organization that helped out when Bechtel was jilting the public on its water. That , like this, was an example of people’s human rights being infringed on. While this isn’t that severe NOW (whose to say hydro quebec can’t override NB Powers policy of no cutting off power during the winter? Heck, even NB power has been breaking that legislation), that doesnt mean it couldn’t be.

  17. Thanks, Claude. It looks like the regulatory process in Quebec does provide for non-HQ sources of power, which are then distributed through HQ’s grid. It wasn’t clear to me from that doc (although I have not read it all, just the pages you cited) whether the Regie 1) directed HQ to develop contracts for those power sources, and 2) has a policy of encouraging non-traditional (eg wind) power).

    That underlines for me the importance of the impact of the proposed sale on the EUB. Clarifying the powers that the EUB will have in regulating power sourcing, pricing, access to and additions to the grid, etc might help reduce my concerns over the proposal.

    Debt reduction is great, and encouraging conservation is great, but we do not want to place ourselves in a situation where we lose all control over power generation and power distribution. Effective regulation would go a long way addressing those problems (and others that are being raised, even if they seem a bit unlikely). I’d like to see Graham release draft legislation asap.

  18. @mikel

    David, I hope you’ll forgive me to hog so much of the comment space on this thread, but THIS is interesting for an energy geek like me 🙂

    Mike, there are two ways to reduce the cost of electricity for the average customer. Reduce the price, or reduce the quantities at price P. What this policy does is this: you, the incumbent, will maintain your market share and reduce your wholesale power purchase bills if and only if you slow down demand growth. The utility has a vested interest in this.

    Believe me, they will find ways to reduce your bills by implementing programs such as big discounts on electronic thermostats, the “old beer fridge in the basement” buyback program (HQ bought, picked up and recycled 100,000 inefficient fridges @ $60 a pop in the last year), subsidies to municipalities to replace their traffic lights by LED (a 90% saving since the old traffic lights use 110 W and the new ones use only 10 W) to name a few.

    And for the incumbent, it’s good business as long as the efficiency improvements cost less than buying power wholesale, now or 10 years from now. It also reduces the need for added capacity on the grid to handle increase loads, money that could be better spent on maintenance and increased reliability. As for Efficiency NB, their efforts could be focused on reducing the dependence on other imported sources of energy (such as transportation) or energy-agnostic programs (home and commercial insulation and heating).

  19. Please don’t assume that my question was meant to dismiss or try and call out Claude B as some sort of paid infiltrator or had a bias one way or the other.

    My impression is all are welcome here as long as you keep on topic and not call people names like “idiot” or “consultant”. (It’s a joke David!)

    I asked because I saw his name in the comment section of the TJ, and I though it was relevant and wanted to make sure it was the same Claude B. In fact, I am happy I asked the question, because we know more about his expertise, and it will help us all understand better.

    I already knew mikel was not from New Bruwnswick, cause he has mentioned it before.

  20. Right Claude, the only distinction is the problem that while it may cost more NOW to introduce such a program, than it is to purchase the energy, it is unknown what the energy price will be in the future. It’s that unknown variable that makes switching away from fossil fuels so ‘essential’. That seems to always be the catch 22-whenever oil goes through the roof, tons of new programs get introduced to try to deal with it, then oil drops back down, and all those programs get put on the back burner because they are no longer ‘cost effective’. Oil prices COULD stay fine, could drop, massive new discoveries could be found-we don’t KNOW, but the consensus is that they are ‘bad’ so we should get away from them anyway.
    For hydro itself, we don’t know what the future may bring, what if electric car sales take off? What if global warming makes for much shorter winters? Those are the problems David has mentioned for decades down the road, which is why I say that the biggest concern about this is the anti democratic nature of it. Shawn Graham may not even live in NB, Frank certainly seems to spend little time there. This should be a public decision that people should be able to vote on-not just whether its ‘public’ or ‘private’ but general questions of ‘where should we get power’ or even ‘how much should be spent on R&D for tidal’ etc. When people and communities are involved in making actual decisions, they tend to take a more active interest in resolving problems.

  21. Check out the CBC report from Robert Jones. After coaxing, Jack Keir admitted today that in Year 1, heavy industry enjoys 79% of the energy savings. Small and mediuim business divide the remain 21%. The largest energy user in the province is confirmed to be the Irving pulp mill in Saint John.

    This”deal” that gives up control of our energy resources and places it in the hands of another government is basically for a handful of pulp mills. They will not be expanding or driving our economy in the future. They have been controlling wood costs and policies, complaining about the exchange rate and complaining about taxes. We are bending over backwards for them and going way too far. Should we change the name to the Legislative Assembly of Irving?

    Let’s focus on some better economic opportunities.

  22. “It’s that unknown variable”

    Yes tough, isn’t it. All these numbers and everything, and one can never be absolutely certain. What a headache-inducer. Of course, that is true for almost everything in life. We take our best estimate and go with it. With good data and good analysis, most of the time you end up making the right choice. Seems to me PQ has done a pretty good job of developing and implementing its energy strategy.

    “the biggest concern about this is the anti democratic nature of it.”

    Well, the biggest concern to me is the impact of the sale or non-sale on my power bill and on my taxes.

    When does a decision by a democratically-elected government become anti-democratic? When they stated during the previous election campaign that they would do one thing but then did the reverse after the election? Where is the line that is crossed? Do they get to do this once or twice, then an election or referendum is triggered? What is the threshold here?

    Would we get to vote on every issue, or just the above triggers? What is the mechanism for ‘deciding’? Turnout of 50% or more, 75% or more; a majority of 50.0001%?

    ” When people and communities are involved in making actual decisions, they tend to take a more active interest in resolving problems.”

    That’s only true when they are asked once and a while, and the issue is fairly straightforward and local. Otherwise fatigue develops and people start saying ‘gee, lets decide to have Gerry make these decisions for us; we’ll just review his work every once and a while; we’ll call it an ‘election’. Or if he gets too uppity, we’ll form a mob and march on his house.’.

    In NB we do not have a diverse press or any real way to carry on a rational debate on any issue; exactly how would we go about having our ‘discussion’?

  23. I suspect the paper mill in Saint John is a big user of power but I wouldn’t forget AV, Fraser, Flakeboard, and I hear the City of Saint John which I heard is classified as a big user through its power corp. and will pass those savings one to electricity users in Saint John. Some of that 79% is actually the 75k citizens of Saint John if what the SJ mayor is saying is true.

  24. Okay David, you may be correct. So, NB will have their power provided by trheir new provider, Quebec Hydro but NB residents are not treated equal with Quebec residents and pay nearly. double rates atalthough they are frozen for 5 years so the gap may close a 150% premium). Nor are treated fairly with heavy industry who already enjoy perferred rates and will get a major reduction. Nor are we treated equally with the citizens of Saint John who get special pricing. So, that would make us what, forth class citizens. Tell me again why this is a good deal?

  25. It seems to me that it is unreasonable to think that HQ would be able to purchase NB Power with its operating cost structure and drop every rate class down to Quebec rates. The government chose a model that freezes residential rates and reduces industrial rates. I agree with this model because if industrial rates keep going higher we do risk losing more high paying industry jobs. You can mock my position but it is true. I read somewhere that this new rate structure will save Fraser in Edmundston something like $8 million a year. That mill is an anchor for the northwest economy. If the average resident only gets a rate freeze and not a small decline in rates and it saves a major employer like that – I’m in. I know that alot of folks here are out – they say let the forest products players die but I don’t agree. As for Saint John, I suspect that the government has no authority to amalgamate the Saint John power utility into this deal. Therefore it does sit outside the deal and it would be classified as a pretty large user (enough power for the entire city).

  26. Well then a better deal would be to just cut a cheque to Fraser rather than sell off a utility because they MAY save money there. And the problem with that is that the dollar is expected to stay high, so how long before the high dollar or wood supply dwindle makes it inevitable that the mill closes. For years you complained that the government was bending over too much for resource industries and neglecting new industries, but now they are selling an entire utility to save Fraser $8 million a year?
    For St.John we simply don’t know. The mayor made the statements but it really hasn’t been confirmed. I think people’s skepticism that their rates will be going down is justified, and again we have to look at how much they will be going down for the average user.

  27. David, you forget that QH is not buying all of NBP’s assets. They are buying our transmission lines, hydro facilities and our nuclear facility. All the money makers. The money losers, remain with us.

    Is anyone curious to see the NBP projections if they were afforded the political freedom to abandon the fossil facities? I think it would be worth checking out before we hand the keys over to Hydro Quebec.

    Regarding the pulp mills, don’t you think we’d be better off investing our 79% of $5 billion in savings in industry with a strong future? How far would $4 billion go towards converting the digesters for biodisel and developing oil seed crops Might be a brighter future for rural New Brunswick. $4 billion might get you a few electric car plants. Certainly would get you lots of data centers.
    We have to break this cycle of bailing out bad business and instead invest in viable business with a strong future. I don’t have anything against Irving; I just don’t see the future economy of NB based in traditional pulp and paper. We are about to make a major, the biggest, deal in our history and we are betting on pulp and paper?

  28. $4 billion is a significant incentive to be giving to pulp mills. If that were available for investment in new job creation, let’s say at a healthy $20,000 per job ( I think the going rate is $10,000 per job) for 5 years, that would be 40,000 new jobs would it not? Are you sure about betting on pulp mills?

    You can adjust the math to what you think would be attractive to say RIM or another strategic target. How about $25,000 per job for 10 years? Ought to be very attractive and competitive. That would be 16,000 new jobs.

  29. It’s clearly not JUST the pulp mills, but its true that they seem to be major benefactors. It’s odd to see AIMS come out and support this deal, because IF the future status quo is indeed coming then ‘the powers that be’ clearly want privatization to be that status quo. For a functional private market you of course need competition, and just how willing will Quebec hydro be to allow legislation that supports a viable public market?

    Back on paper mills, I went to the pulp and paper website and it turns out that they only employ 330 people. That’s not insignificant, but its relatively small. In a place like St. John it certainly would have less of an effect than the mills in Miramichi closing. So why would they be watching Dalhousie go down the tubes with only claims of “don’t worry, we’re going to help you out”. It would make more sense to do that in St. John. But I suspect just the vagaries of unemployment in that city frequently sees 330 people lose their jobs at various times.

    As well, lets look at opportunity cost. Irving uses hardwood maple as well as softwood to make kraft paper, and thats just a horrible use of hardwood maple. Go down and price hardwood floors if you want to see potential other uses. Mostly they use softwood, but new mills going online worldwide are using bamboo, so once again, how do you compete using slow growing trees vs a GRASS that grows year round? The writing is definitely on the wall. And that doesn’t even include technological upgrades that may chop down those 330 jobs even further. NB already is giving up its forests in exchange for very few jobs, but to tie in energy policies of this magnitude is quite simply insane.

    As for Fraser, I had forgotten completely that they are in bankruptcy protection. I’d like to see some of those people who are always screaming about ‘throwing good money after bad’ on Atlantic Yarns to make similar noise here. At least Atlantic Yarns was never in bankruptcy! So for industry, this is just nuttiness far beyond any of the corporate welfare thats gone before it.

  30. With respect to David’s assertion about the government doing due diligence, people should check out CBC’s website this morning. It appears that the ENergy Minister didn’t even KNOW the dollar numbers for savings in the first five years. When he was given numbers from his own department he stated “I don’t believe you”, and later recanted. Now, if the energy minister doesn’t even know the basic dollar numbers from the deal, can anybody actually state that the government is on the ball?

  31. I am in a state of disbelief about New Brunswick’s economic development strategy.

    It was weak and fragmented to begin with and now, we are actually considering selling the most significant asset we have to subsidize pulp mills. This after we have already extended significant aid. We already subsidize their power, made concessions on stumpage fees and lowered corporate taxes.

    We are now (indirectly) about to make a huge, perhaps the single biggest in NB history, investment in a specific sector and it is pulp mills! The obituaries on this sector have been written over the last 10 years and we are still throwing huge resources at life support costs. Will it result in a job generation machine for the next generation? No way. It will buy a few more years of extention before the realties of dramatically lower costs from emerging countries presents yet another crisis.

    The bright spot is that NB now appears to be prepared to bet the farm on a specific economic sector. The depressing aspect is they selected a sector that has been dying for years.

    We need move ahead and invest in the future.

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