Fear and self-loathing in N.B.

David Campbell Post in Uncategorized

A couple of points tonight just to keep the ball rolling.  First, I’d like to tackle this issue of benefit to residential customers.  It remains a curiosity how opponents of the HQ purchase of NSP can just dismiss this with a quick flip of the hand (or mouse).  So, let’s crunch some numbers.

The first table shows that New Brunswick residents are very dependent on electricity.  We spend more on electricity than all other provinces in Canada – by a wide margin with the exception of Newfoundland and Labrador.  This is not because our rates are higher – it’s because we use electricity to heat our houses more than any other province in Canada (with the possible exception of NL). The point here is that NBers should be even more interested in electricity rates than our fellow Canadians in other provinces.  Note the 28% increase over the five year period (2007 is the most recent data we have available).

Electricity for principal accommodation
Average expenditure (dollars)

 

2003

2004

2005

2006

2007

  

03 to 07

NL

1,504

1,555

1,640

1,726

1,883

  

25%

PEI

1,014

1,046

1,029

1,073

1,179

  

16%

NS

1,124

1,135

1,148

1,229

1,253

  

11%

NB

1,569

1,660

1,727

1,808

2,002

  

28%

QC

1,140

1,190

1,221

1,240

1,267

  

11%

ON

1,012

977

1,032

1,060

1,106

  

9%

MN

854

889

946

934

1,085

  

27%

SK

1,002

1,065

1,106

1,155

1,137

  

13%

AB

929

964

971

1,088

1,090

  

17%

BC

786

821

778

836

832

  

6%

Table 203-0003 – Survey of household spending (SHS), household spending on shelter, by province and territory, annual(1,2,8,10)

Rate Increase Scenarios (Status Quo assumes 3% per year increase, HQ model assumes zero for five and inflation rate increase after five (1.9% per the conference board forecast) and the HQ Alward model assumes HQ is going to somehow screw us anyway and charge twice the rate of inflation going forward.

Even if the esteemed leader of the opposition is right and Hydro-Quebec is able to charge double what the MOU says after year five, the average NB household is still better off until well into the late 2030s (the breakeven point is 2029 but the accrued savings from the previous years have to be considered).  There is no way NB Power’s rate increases will be 3% under status quo.  The government forced them to accept these rates.  Their real costs are well above and David Hay, despite the 3% forced cap, said just two months ago that the Lepreau situation would force higher rates on NBers.  Remember the average increase has been 5.5% from 2003 to 2007.  These means that the status quo is underestimated.  If you assume the last five year trend in rate increases continues (status quo), the HQ Alward model would have to assume that HQ would be able to charge 6% increase per year and even at that the break even year would be 2061.

The bottom line here is that there does not seem to be any model where NB residents lose from the HQ model unless somehow someone could get NB Power’s rate increases to drop significantly or Hydro-Quebec was allowed to charge increases after Year 5 that would be unprecedented in Canada.

Year:

Status Quo

HQ Model

HQ Alward Model

2009

$2,002

$2,002

$2,002

2010

2,062

2,002

2,002

2011

2,124

2,002

2,002

2012

2,188

2,002

2,002

2013

2,253

2,002

2,002

2014

2,321

2,040

2,078

2015

2,390

2,079

2,157

2016

2,462

2,118

2,239

2017

2,536

2,159

2,324

2018

2,612

2,200

2,412

2019

2,691

2,241

2,504

2020

2,771

2,284

2,599

2021

2,854

2,327

2,698

2022

2,940

2,372

2,801

2023

3,028

2,417

2,907

2024

3,119

2,463

3,017

2025

3,213

2,509

3,132

2026

3,309

2,557

3,251

2027

3,408

2,606

3,375

2028

3,511

2,655

3,503

2029

3,616

2,706

3,636

2030

3,724

2,757

3,774

2031

3,836

2,809

3,918

2032

3,951

2,863

4,066

2033

4,070

2,917

4,221

 

Now to all my friends and colleagues that will still disagree with me no matter what, don’t worry, we won’t let this get between us.  I still think, as I said above, you can be against this deal on other grounds – but I don’t think there is much evidence that the residential electricity rate argument is in your favour.

My last point tonight – if you made it this far – has to do with the self-loathing part.  I talked with someone today who has been listening to the Radio Canada every morning on the way to work and they tell me that it has been 99% negative on the deal – experts, callers even announcers.  This person’s take on it was that the subtext of the whole thing is that people can’t actually get their head around the concept that this could actually be a good deal for New Brunswickers.   They don’t trust Quebec and HQ without even reading the document and the experts that have read it are pulling out the occasional conditional clause and waving it around like a gotcha moment and saying it means that HQ has carte blance to put the screws to New Brunswickers.

To these folks and yes to Radio-Canada it is theoretically possible for the New Brunswick government to strike a good deal.  I realize that’s hard to believe but there are rare occassions when two jursidictions can derive mutual benefit from an arrangement such as this.  Get beyond the fear and loathing and look at it objectively.

20 thoughts on “Fear and self-loathing in N.B.”

  1. David, You’re looking at the weeds! Of course there are savings, to rate payers! The question is how can they do that and still source power from NB Power’s existing assets? Remember, they won’t be able to import any major amount of power from HQ until the infrastructure is upgraded some years from now. So in the meantime, their cost base remains roughly the same. The rate reductions need a subsidy. But their own regulator wouldn’t let them do that so it’s coming from the difference between the $4.7 billion debt and NB Power’s market value (taxpayers’ equity). As M. Vandal said, he’s paying $10 billion for NB Power. $4.7 billion in cash to NB Power and $5 billion in [subsidies to] reduced rates. They’re using NB Power equity, David. These rate reductions are being financed with our own money. So yes of course there are savings, to rate payers…paid for by NB tax payers! Where’s the logic in that David????

  2. David Campbell’s insult to reticent New Brunswickers: “Get beyond the fear and loathing and look at it objectively.” Oh we have David!
    In fact New Brunswickers wouldn’t recognize a good deal, having not seen one for years from our governments.
    Although there is one case, that brought down the last liberal government! The Insurance scheme! So be assured, we recognize a ripoff very clearly!

    NB hydro and the mckenna government, PAID people to switch to electric heat!!
    They are now paying to switch to other alternatives, and the people are. The people with money that is! Pellet stoves are expensive, as is heat from underground.
    This whatever, selling out to Quebec has nothing to do with the people of NB!

    NUMBER ONE! More complaints are heard from NB’ers about the price of liquor and gasoline, then about the cost of Electricity! New Brunswicks killing problems are well smoke screened by this whatever!

  5. “The question is how can they do that and still source power from NB Power’s existing assets?”

    That’s the whole point of the deal. They are placing a value on the strategic access that NB Power gives them into the U.S. market. That’s the only way they can justify this deal. It’s not NB Power’s equity, M, in accounting terms this is called ‘goodwill. And, as has been pointed out countless times, they are the only company (HQ) that would value this strategic access. Emera would have no interest – it has no power to transmit on those lines. It is possible that somewhere down the road Nalcor (lower Churchill) might need the access but is Danny Williams going to buy NB Power?

  6. David you have fallen into to the trap of comparing whatever deal might be on the table to the status quo NB Power.

    The government has removed the political handcuffs for HQ allowing to have a NB generation model that excludes the fossil facilities that have been a burden on NBP. This will allow HQ to have a 10% net profit in year 1.

    So, where is the NBP operating projection with these handcuffs removed? Why is the organization apprently being prevented from presenting their version of the revised NB generation model? How would NBP look with the benefits that we are willing to extend HQ such as selective generation facilities, no government management fees and no taxes? We already know this allows HQ to be very profitable. Why is the Chairman of NBP not fighting to present the case for his organization? (You don’t really need to answer that one)

  7. @David Campbell
    David, you really don’t get it or you don’t want to get it… Regardless of what it’s called, “goodwill” or equity in any form. We could have taken this in cash rather than subsidized rates. The province opted for the break on rates. But it’s still our money subsidizing those lower rates. What could we have done with that $5 billion? We could have payed down the provincial debt and given everyone a tax break. But no this deal opted for throwing it away for a short term fix!

  8. M. Edwards, it would have been hard to take it as cash because it would be the present value of the future savings – but you are right it might be worth let’s say $3b in cash value (like Elton John selling all the future rights to his music for a lump sum payment) and that $3b could have been used for a variety of uses but:

    -industry would be still facing an uncompetitive rate structure and

    -you would be even more livid because residents would have their rates going up by a low of 3% per year and a high (current trend) of 5.5% per year.

  9. “The government has removed the political handcuffs for HQ allowing to have a NB generation model that excludes the fossil facilities that have been a burden on NBP. This will allow HQ to have a 10% net profit in year 1.”

    They are paying around $5 b to get that 10% net profit so it comes with a price, Ugarte.

  10. “So, where is the NBP operating projection with these handcuffs removed?”

    If you add those fees, etc back in to NBP what do end up with? Its my understanding that NBP is forecasting a loss for next year; those fees might turn a loss into a small profit. Would that be enough to stave off significant power rate increases? Would it free up enough capital to re-invest in new generation capacity?

  11. @David Campbell
    What I mean David is that we could have taken the deal all in cash for the market valuation placed on it of $10 billion, We then could have paid off NB Power’s debt and paid the remainder down on the province’s debt. You are right we then wouldn’t be subsidizing rates for our industry. But David there is NO future for industry that consumes large amounts of energy to produce a low value commodity. Surely you can see that future energy costs are going to be astronomical. We can’t afford to support dinosaurs through some misbegotten notion of social economics.

  12. Yes David, you are correct, it comes at a price. And they are raising that $5 billion with a planned bond issue, the interest of which will be placed in an account, with interest accumulating then charged back to us after year 5.

    We have every capability of doing that right now if a 5 year rate freeze is so critical to you. The government can legislative a freeze and NB Power can accumulate the costs of that freeze then charge it back in the future.

  13. NB Power ratepayers could eventually be left holding the bag if Hydro-Québec has to dismantle the Mactaquac Dam, CBC has learned.

    The hydroelectric dam, which is part of a controversial agreement that will see New Brunswick sell most of NB Power to Hydro-Québec, will need to be rebuilt or replaced within the next two decades, at a cost of $2 billion or more.

    Under the proposed deal, Hydro-Québec will pay for any upgrade to the facility, about 20 km up the St. John River from Fredericton.

    But if federal environmental regulations make it impossible to rebuild or replace the dam, the cost of dismantling it will be added to power rates in New Brunswick.

  14. Neat another M Edwards, I don’t get to meet a lot of other people with my name.

    M Edwards :
    @David Campbell
    What could we have done with that $5 billion? We could have payed down the provincial debt and given everyone a tax break. But no this deal opted for throwing it away for a short term fix!

    I’m not saying the deal is good or bad, but I do not think that lower industrial rates in this province is a short-term fix. If anything it would be considered a medium- to long- term fix. It will help our rural areas transition away from declining industries and will help new industries come to our province (because we now have one less barrier to locating here). If we took the cash we would get a much lower economic benefit and it would be shorter lived.

    One thing to consider is that doing this deal is political suicide and will likely change the government. Shawn Graham still feels strongly enough that it is in our best interest that he is going ahead with it. I think this means that he knows things we don’t. So I suggest everyone asks their MLAs to make public all information the government has on the deal. That way NBers will be able to make informed decisions on the subject.

  15. @Anonymous

    In fairness, the following statement would be equally true: “NB Power ratepayers could eventually be left holding the bag if the provincial utility (regardless of its corporate parent) has to dismantle the Mactaquac Dam.” This is not a serious argument against the deal, because Ottawa could decide against a rebuild.

  16. “But if federal environmental regulations make it impossible to rebuild or replace the dam, the cost of dismantling it will be added to power rates in New Brunswick.”

    On the other hand, if NB Power remains as is, the cost of dismantling Mac will be paid by who exactly? NB Power ratepayers will pay regardless of who owns NB Power.

    So what’s your point?

  17. “What I mean David is that we could have taken the deal all in cash for the market valuation placed on it of $10 billion”

    Has anyone made us that offer?

    Perhaps we should turn down the proposed deal on the basis that, if we wait, something good will happen.

  18. Mr. Campbell is correct with this. Under the ‘projections’ its hard to see a case where residences won’t save SOME money, at least as long as the status quo remains in effect.

    That IS correct, which is why I’ve seen almost NO opposition based on those grounds. The chief objections have been that the status quo COULD change, that the ‘projections’ contain far too many loopholes to be halfway believable, that it limits (or gets rid of) the ability of New Brunswick to set its own energy policy, that too many other assets are included, that other options are available, that NBPower is not so badly off as is repeatedly stated, and my favourite, that it is a grotesque attack on what little democracy Canada has that a politician can make a blatant election promise and then complete reverse it to sell a publicly owned entity which is not HIS to sell.

    In any debate that is the central principle, and in disagreeing people have to avoid the ‘straw man’ to get their point across. Its true that IF you accept the conditions that government sets out and the ‘projections’ it offers that this particular aspect of the debate can’t be refuted. Thats true,but nobody has agreed on the projections OR the conditions, let alone put much trust in governments statement.

    And it DOES come down to faith in what the government is telling you. Those who are FOR the agreement have to ante up and admit that they are putting their faith in what government is telling them, and that it knows best, and that its ‘supposed’ outcome will indeed be the result. That’s fine to do that, but with THIS government, let alone MOST, thats simply a hard pill to swallow.

  19. The flaw in David’s rate projections is this.

    The status quo includes increases to cover debt service costs, maintenance and increased generation costs (this is why rates go up). We recently learned about taxes and fees that NBP paid to PNB which they are waiving for HQ so these fees are out of the HQ model but deducted from the PNB revenue streams.

    The HQ model correctly freezes the rates for 5 years and adds the CPI after that. It fails to include the maintenance and transmission fees that are accumulated and charged to us starting year 6.

    I don’t think HQ has any magical way to avoid the increased costs NBP would encounter so you cannot include them in one model and exclude them from the other if you are making a fair comparrison.

    The rhertoric about HQ ripping us off is overshadowing what is clear in the MOU. Where there are cost increases, HQ, just like NBP, will be charging us for them. Only difference is for NBP we pay as we go and for HQ we start paying after 5 years.

    David, for an accurate model add the maintenance and increased generation costs plus interest over 5 years to the HQ column and then you would have a fair comparrison.

  20. David, I think that’s a very unfair comparison table. You are simply taking the HQ rate and adding the projected inflation rate of 1.9%. However, from what I read in the MOU, our power rates after year 5 are calculated more like the following:

    Previous year’s power generation rate [Section 2.3] +

    Cost of inflation [Section 2.3] +

    Recovery cost (plus interest) of going over power usage cap in previous 5 years [Section 2.2(b)(ii)] +

    Cost of any new additional power needed over and above the usage cap (which must be bought at market price) [Section 2.4] +

    Power distribution costs (plus fair and reasonable return for HQ) [Section 2.5] +

    Power transmission costs (plus fair and reasonable return for HQ) [Section 2.5] +

    Recovery costs of shutting down our old plants that Quebec does not want [Section 3.1(b)(vi)] +

    Costs to use our own power grid (”tolling fees”) should any of our old plants continue to operate [Section 4.1(c)]

    On top of that, the Auditor General on CBC last night warned that the debt situation will not get any better with this sale, and arguments exist that the debt situation may actually worsen with this sale. That “cost” won’t get rolled into our power rates, but we’ll probably end up paying for it in another way.

    http://bit.ly/4lKqXx (skip to the 7:00 mark)

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