On media bias – or not

After reading David Alward’s call to arms designed to whip up public sentiment against this NB Power sale, I decided to see if the media was also spending 90% of its effort to hammer the deal – based not on facts but on hypothesis and conjecture.  My first target was Jacques Poitras because a few of his tweets seemed to also be tilted towards fanning the fear of the unknown rather than an objective assessment of facts.

Before I took a strip off Mr. Poitras on this page, I decided to review all of his many, many tweets on this subject and ended up realizing that his is tweeting at least both sides of this of this with relative equality.

A Google search and quick scan of 50 or so stories also indicates a fair mix of reportage.

But back to Alward.  I’ll throw in my usual disclaimer that all my family – close and extended are PCs or Conservatives and have been for generations. 

It’s back to the future all over again.  Bernard Lord did the same thing – on a smaller scale – with the toll highway in 1999 and made a promise that ended up costing New Brunswickers in lost revenue and increased debt payment what is now well into the $200 million and counting range.  And, ironically, most political observers that I talked to during that election told me that he would have won without it.

So now Alward is making this his political crusade in order to tilt the scales in the voting booth.  It is fascinating to me to watch this.  Most of the points being made against the deal amount to hypotheticals. As far as I can tell, when you peel all the “sold down the river” rhetoric, his opposition to the deal is based on these points. You can read them here directly:

If you are an ordinary New Brunswicker, you’re being sold down the river. In all honesty we expected a substantial rate reduction. But no reduction at all, especially while big industry gets a break of 30 to 35% is totally, totally unacceptable. We know the Shawn Graham government always puts big business ahead of people, but usually it’s not as blatant as this. This is outrageous.

According to Statistics Canada, in the last five years, the average New Brunswick household saw a 28% increase in the cost of household electricity – the fastest growth rate among the 10 provinces in Canada.  A five year rate freeze for Alward is “totally unacceptable”.

I knew the Jeannot Volpe was anti-“big business” because some of the comments he made as interim leader really shocked me but I had hoped that the Conservative Party, the party of free enterprise and markets would have reverted to at least a more nuanced view of this.  But to be slamming “big industry” like this is just plain weird.  “Big Industy” employs tens of thousands of New Brunswickers and accounts for 98% of all exports from New Brunswick. 

And while there will be no residential rate change for five years, five years isn’t that long, and after that – look out! Notice there are no restrictions on how high Hydro Quebec will be able to raise rates. And control over our electrical energy will no longer be made at the New Brunswick Legislative Assembly – those decisions will be made at the Assemblee Nationale.

Five years isn’t that long (?).  28% increase in electricity costs from 2003-2007.  At that growth rate, I’d say five years is very long. As for “no restrictions” unless there are extraordinary circumstances the rate increases will be capped to inflation – or in other words far less than the last 10 years of NB Power increases. 

Our public utility has given us control over our energy supply since NB Power was incorporated 90 years ago. It meant we had control over our destiny. To surrender this to another jurisdiction should never be allowed without the consent of the owners – the people of New Brunswick. What this amounts to is giving up our basic constitutional rights.

I guess Alward was equally outraged when Emera (a TSX-listed company) bought Nova Scotia Power or when Fortis (a TSX-listed company) bought Newfoundland Power and Maritime Electric (PEI).  Those basic constitutional rights aren’t what they used to be.

And the capper, of course, is quoting our old friend Danny Williams.  Premier Williams, with all due respect, is in it for Danny Williams.  David Alward should be in it for the people of New Brunswick.

There are a few voices calling on Alward to put his plan forward.  To show people his plan to eliminate the runaway increases in residential and industrial electricity rates.  His plan to deal with the $5 billion in NB Power debt.  His plan to get New Brunswick off carbon-based electricity generation and where the billions in new investment would come from.

Obviously, the Hydro-Quebec deal comes at a cost.  New Brunswick will lose potential future revenue as a transmitter of electricity to the U.S.  but we have been shipping hundreds of millions already to the U.S. and rates are still up 28% in five years.  New Brunswick will lose some control over future electric generation investments in the province.   But, again, what are the alteratives?

I’ll put a few alternatives in my TJ column this week but none of them make much sense when put up against this one.

24 thoughts on “On media bias – or not

  1. You Wrote: As for “no restrictions” unless there are extraordinary circumstances the rate increases will be capped to inflation – or in other words far less than the last 10 years of NB Power increases.

    I ask this honestly, not in an attempt to be flippant: did you actually read the Memorandum of Understanding?

    The currently reality of NB Power rate increases is 3% per year for the next 3 years.

    HQ’s post-freeze rates are affected by – in addition to inflation – the following:
    1) Any unforseen cost overruns in the dismantling, repair or clean up of certain generation sites
    2) A new “transmission and distribution” fee
    3) Averaged into the rates will be the costs of the “freeze”. The Freeze comes with a consumption cap, any amount of power consumed over the cap is purchased at a “market rate” which we pay for after the 5-years – with interest.

  2. Not to nitpick, but Newfoundland Power has always been a private company. Newfoundland Hydro, now part of Nalcor, is a Crown corporation that was nearly privatized a few years ago. It’s a bit different than NS Power which actually was a Crown corp until it was privatized and sold to Emera.

  3. This is a sale the Conservatives would normally enthusiastically support. Except that:
    – it’s the Liberals
    – it’s Quebec

    If the news reporting is not calling the Conservatives out on this, they’re being biased. The Tories have to answer the question: why are you opposed to this sale when you were so hot to trot for a sale when you were in power?

    As for the anti-big business angle in the Conservative response: it is, frankly, not believable. Again (an offhand remark by Volpe notwithstanding) when have Conservatives ever opposed big business? Never! They are the Party Of Big Business.

    When questioning the Conservatives, are they asking about what happened to NB-Tel, about how it’s now an arm of Bell, about how it is now just a branch plant? (This is what will happen to our energy too – not that I’m opposed – you don’t become an ‘energy hub’ with no natural energy resources, and any suggestion that you can is fantasy).

    Finally: NB Power can’t generate power cheaper than they can sell it. Why aren’t newspapers reporting this over and over? Why don’t they put the question to Alward: how would you generate energy more cheaply than Hydro Quebec?

    Non-biased coverage? Depends on how you look at it.

  4. Very well put. You might also add that it costs NB Power about $.075/kwh to produce electricity while it costs about $.0475 for Hydro Quebec. We will never have their economies of scale. NB Power has been a financial black hole for decades and so why would we want to continue to own it? This is a great deal for NB.

  5. I am curious. Most people seem to agree that Hydro Quebec would never buy the NB transmission capacity and viable generation assets unless they could be profitable.

    So, why couldn’t New Brunswick do exactly the same thing? Is QH smarter than us? Do we lack the political will to make the changes HQ are forcing in this deal?

  6. Again, there actually doesnt NEED to be alternatives. New Brunswick still has the lowest power rates on the east coast, even for industry. You should check out Irvings coverage if you want to see bias. The Irving reporting is so lousy not only do they get the rates wrong, but they also don’t check basic statements they get from third parties.

    For debt, they quoted $6000 per capita, when actually it is only $4200, which is actually LOWER than the debt per capita that Hydro Quebec is facing. It’s debt is lower than at least half of all utilities in Canada. And in Quebec their fees are now rising faster in two years than in the last five in New Brunswick. Ironic that NBers are complaining that Quebec gets lower rates when it doesn’t look like that will last that long.

    As for Alward, well, what do you expect a politician to do? (First though I don’t remember reading that your family was tory:)

    Second, Alward at first came out supporting the deal ‘under certain conditions’. It’s only now that he’s seen the facebook site go from 1100 to 11000 in three days that he’s changed his tune. So he simply can’t be trusted, although the Carr’s and Margaret Ann Blaney have all said they would vote agaisnt any sale even if their party leader attempted it.

    But when looking at the future all we have is ‘hypotheticals’ and a poster said it here best, what about worst case scenario’s? I’ve been reading the yearly annual reports from NB Power, and the reality is that energy is VERY topsy turvy. It was only two years ago that they were running a surplus, and when conditions are right, its a money maker. With Quebec, we are talking about a province where politics is everything, and we are talking about a crown corporation, so the hypotheticals simply can’t be avoided.

    I tend to agree that NB Power needs some changes-they have for years. But a sell off of the public utility is simply ludicrous. In fact, for partnerships they have been leasing a transmission line to Quebec for years now, building another transmission line in northern NB would be a surefire money earner. NO energy options have ever been on the table in NB, hopefully this will jar people into paying attention-certainly the 10,000 people at the facebook site are getting educated with some very extensive analysis of energy and this deal.

    The ‘alternatives’ that need to be faced need to be faced anyway. Carbon trading is almost a sure thing with the US, which is already complaining, so the three big polluters in NB will have to be mothballed at some point anyway-and David Coon is right, they SHOULD be mothballed for more reasons than we can get into here.

    But NB has never even seriously looked at conservation or the debt. Like I’ve said, its now a catch 22, IF NB Power supports conservation, then it loses money and goes into more debt. But if they do, then NBers save money. That money COULD be used in taxes in order to pay off the debt. But again, none of that is even DISCUSSED in public policy in NB. Hopefully this will change that.

  7. I’d like to see Mr. Alward’s plan too. I don’t see how the status quo is sustainable in the next decade unless costly investments are made (by the province?) in the NB Power generation fleet.

    Let’s review the supply situation in New Brunswick as it currently stands:

    1) Oil: One third the NB Power current capacity (1,400 MW) are unproductive oil-fired plants built before the 1973 energy crisis (Dalhousie, Coleson Cove and Courtney Bay). Their best days are behind them and the variable costs are killing you. At best, they can be run as peakers, but they’re no use as baseload. And a carbon market will price them out of the market.

    2) Coal: Grand Lake will be closed next June at last. The Belledune plant is new plant (1993), relatively cheap to operate and efficient (for a coal plant), but it is a GHG pig (2.8 Mt CO2) (457 MW – ±3.5 TWh). When a carbon trading market is established, it will cost an extra $85 million a year to operate (2.8M carbon permits @ $30/ton) at the current tempo.

    3) Nuclear: Lepreau is off-line for another 18 months. After 2011 let’s hope it will run reliably for 25-30 years (±550 MW(e) – 4 TWh). Replacement power costs for the delay will cost somewhere between $500 M and $800 M. But it’ll keep the light on until 2040.

    4) Hydro: the biggest one, Mactaquac (672 MW – 2.4 TWh) will probably need a rebuild within a few years because of the alkali-aggregate reaction (AAR) detected almost 30 years ago. Expect a price tag in the billions for this one. And this is a must, since without Mactaquac, you can’t integrate wind.

    According to an NBSO discussion paper released late last year, NB Power has plans for three hydro development for an extra 435 MW (75 at Nepisiguit Falls, Grand Falls (200 MW), Green River (160 MW)). We’re talking a few billions there too.

    5) Wind: the failure rate of wind projects is pretty high (Aulac, Lamèque), but the Caribou farm will be commissioned soon. Kent Hills works, but they lost a turbine to a fire (!).

    In short, fossil-fuel plants will be decommissioned anyway, new and refurbished hydro will increase NB Power’s debt by billions in the next decade (but NB Power has only $340 M in equity) and some wind developers have problems meeting deadlines.

    So, the question is: Can Mr. Alward plan solve the supply issue while keeping the provincial debt at manageable levels? If he can, will he keep the price of electricity relatively stable over 5, 10 or 20 years? But how can he promise that when prices for oil are much more volatile than the CPI? Oh, and if his plan involves the mythical Lower Churchill, where does he get the dineros for the long extension cord, stretching hundreds of kilometers and crossing two stretches of salt water to bring power from Labrador to Salisbury?

    Wouldn’t it be easier to wipe the slate clean and start from scratch with a new NB Power with no debt and an ample supply of electricity?

  8. I think that Claude B has outlined the problems facing NB Power very well – it is not the current debt so much as the future, given rebuilds, GHG charges, and a province with an anemic growth rate. Given this is a political issue, however, Alward can do what politicians do best – just fan the flames. He does not have to offer any alternatives – except promise a better world (details to be provided post-election!).

  9. “Carbon trading is almost a sure thing with the US, which is already complaining, so the three big polluters in NB will have to be mothballed at some point anyway-and David Coon is right, they SHOULD be mothballed for more reasons than we can get into here.”

    Of course, the Memorandum of Understanding states that while NB is responsible for cleaning up and making good the abandoned Dalhouse, Coleson Cove and Belledune sites, Hydro-Quebec gets the carbon credits. When carbon begins to trade for $20 to $40 per tonne, this could be a cash cow for HQ.

    The deal in principle is good, the details however all seem to lean in Quebec’s favour.

  10. @Anonymous
    There are a few reasons why NB Power cannot be as efficient and profitable as HQ, given the same revenues:

    1) The marginal cost of electricity generated by the Generation division of HQ is around 6.5¢/kWh as of 2009. Their hydro plants have small variable costs, a long life ahead of them and HQ can store over 100 TWh of water in reservoirs. The marginal cost of oil-fired plants is probably around 9¢/kWh, variable costs are quite volatile and keep getting higher, and NB Power has no way to store power (most if not all NB Power hydro plants are run-of-the-water).

    2) As owners of NB Power, HQ would import some power from the sister company at marginal cost (because they would collect money on T & D), but as a supplier, they would sell the same power at market prices,

    3) HQ has a much lower debt-to-equity ratio than NB Power. They won’t have to beg the province for money to make the necessary investments in generation, transmission and distribution.

    4) Carbon pricing is coming to New Brunswick in the very near future and it will increase the cost of fossil-fuel generation quite a bit. Hydropower emits no GHG.

  11. Good post Claude, however, ‘projections’ only go so far. Carbon trading is STILL a long way off, that means the big three can continue polluting just as much as most american utilities do.
    Second, with the closing of pulp mills there is less demand for power. And New Brunswickers don’t even get HALF the energy conservation discounts that are available in most provinces. I have friends who have a twenty year old wood stove who adamantly believe that it is highly efficient (it cost them $200, so think about it).
    NB Power still doesn’t even have net metering available in much of the province, and developers are still given carte blanche to build in whatever low efficient fashion they like.
    In short, there are POLITICAL decisions that need to be made, but instead Graham is simply passing it off to Quebec to deal with because he doesn’t have the stones.
    As I also recently found out in reading, proponents talk about all these regulations to ‘control’ energy policy, but what if Hydro Quebec sees NB as too much hassle and simply sells it? NB has ‘first dibs’ but whose to say they will be willing to go back in debt. In fact, if you look at Quebecs economy, I can guarantee you that at least one of the four subsidiaries will be sold within a decade. They want the transmission capabilities, not the generation capabilities.
    There DOES need to be energy policy, but its not all gloom and doom. People have been saying since the mid 90’s that NB Power is ‘bankrupt’ but they are in far better shape than most utilities. It’s been clear that wind farms have been WAY down their priority list, that’s unfortunate but several wind farms are setting up anyway-ironically by private companies who have NO intention of selling to NBPower but just leasing their power lines to go directly to the US (until they have their own set up).
    So I hope there IS an election on this and hopefully people will start asking about energy policy, not just ‘to sell or not’.

  12. No other Province or State is having such Energy problems. Why? And before the 1980’s, New Brunswick had no problems. Why?

  13. You know, a good idea may be here. I am by no means an expert on any of this, and find that the plan to sell is with merit. Saving an estimated $500 million a year in interest payments is also on the table (I don’t know really how much, but heard that figure). Lets say we sell NB power. Create a new entity, IE NB Dynamics Inc. Use the $500 million to help Danny get a power cable to Salisbury, and go in with him on selling electricity to the states? I am sure that deal can be worked out.

    I admit, pretty simple in concept… but…

  14. Thank you all for the feedback. I am fully cognizant of the political and symbolic dimensions involved. In a past life, I covered the rise and fall of the CoR party in the early 90s (I was a reporter for L’Acadie Nouvelle in Fredericton back then) and I know firsthand how touchy the subject of Quebec is.

    That’s why in my first comment on this blog last week, I speculated about the sale of generation assets. This would have kept the appearances while solving most sustainability issues.

    If the current MoU doesn’t work out, I wonder if a compromise could still be reached by keeping the Distribution division in the hands of the province, while selling the other divisions to HQ. The price tag would need to be reduced however because NB Power main asset at this time is its customer base.

  15. @mikel

    It’s hard to say how much of a long way it is. If the Obama administration is successful with their health care plan, the next ball is the Waxman-Markey bill (which, by the way, is already at the U.S. Senate). If that piece of legislation passes in its present form, Canadian businesses might quickly be at a disadvantage against their American counterparts.

    It’s all speculation, I know, but I wouldn’t risk saying that “carbon trading is STILL a long way off”.

  16. @richard

    “He does not have to offer any alternatives – except promise a better world (details to be provided post-election!).”

    I would just add: details to be provided two (or three) years after the election, once dozens of studies have been commissioned and a similar number of task forces have been formed.

  17. John, regarding energy only becoming a problem since the 1980s, there are two major factors; 1) people could care less about GHG and we could burn coal (including NB coal)and fossil fuels at will 2) the price of oil in 2008 dollars was $20 for most of that time and were as high as $140 just recently.

  18. John, energy utilities all over the continent are having these ‘troubles’. This is a manufactured problem because NOW they are trying to sell it, and to sell it they have to conjure up a problem. The same thing has been happening since the mid eighties-say the economic world is ending to justify selling public utilities. In ontario Harris tried the same thing, and got a similar response, but if you think NB Power is in bad shape, have a look at Ontario.
    The same is true in Quebec, in fact prior to this Quebec was having FAR bigger problems. They have a far bigger debt and the legislation locking in power rates has now ended. The only difference here is that people are saying “Yeah but they are so BIG that they must be able to absorb all this cost”. Well, just take a look at how the BIG financial companies have been faring. Big is no guarantee of anything.

    The Waxman Markey bill sets future limits for cap and trade at 20%, and NB Power is ALREADY well above that. For ‘interest payments’, NB Power pays 175 million in finance charges, nowhere near the half a billion mentioned above. There are all kinds of ‘interesting ideas’ out there on energy policy, the fact is, none of them have been debated publicly-how often does this blog even talk about energy?

  19. One of the myths about this deal is we will be getting “cheap Quebec hydro”.Not true, unless we (illegally) tap into to the HQ transmission lines carrying the hydro to US markets.

    The majority of the time we will be getting the same power we have now only QH will own the generation facilities. For this we have our rates frozen for 5 years at about 1.8 X current PQ rates. After that we can (and most likely will) be charged 1) a ‘reasonable’ transmission fee 2) an increase up to the CPI and 3) charges associated with increased generation costs.

    Yes, we also get cash that, depending on who’s valuation you use, may be close to the value of our hydro, nuclear and transmission assets. The later is the lucrative aspect with a bright future that is most likely under valued. Less tangible values not factored into the deal is the loss of business and jobs from current NBP suppliers, lost value of future carbon credits and the economic development opportunities with NBP and the energy hub. Yes, Quebec may invest in NB projects but local projects would get priority; this is not an anti-Quebec thing merely a statement of fact. We expect the same from NBP; for example we want them to invest in NB wind and tidal developments not another province. Similarly, taxpayers would be updet if NBP built a new nuclear plant in Quebec or anywhere but NB.

    So, despite the rhetoric, it really does appear only energy hungry industries like pulp mills are at least temporarily really benefitting. I respect David’s defense of these companies and normally support it but just how many of these ultra high energy consumers are there? Maybe 10? Is this an economic development target (pulp mills etc) for growth or should we be targeting jobs of the ‘new economy’?

    I have a tough time seeing how this is ‘a great deal’. We are selling assets but those assets by most accounts have earning potential beyond their value. It is the same as selling your house and paying your mortgage off and saying wow, that was a great deal. Well it might be if you no longer needed a place to live.
    This ‘deal’ is short sighted and misrepresented.

  20. I appreciate a civil tone to the debate. And it is not anti-Quebec to debate concrete issues. However, many of the comments here have been based on wild theories about HydroQuebec screwing New Brunswick even though everyone knows (or should know) that electricity rates are governed by New Brunswick regulation and the EUB.

    To the last person’s specific points, I think it is a false argument to compare New Brunswick’s rates to Quebec’s rates. As you rightly pointed out, HQ does inherit NB Power’s debt and operating model so why should they roll back rates? The government is already saying that the net present value of the savings from rate freezes and lower industrial rates will be $5 billion.

    As for the large industrial clients I do take that seriously. We can’t afford to lose more and if cheaper power helps – bring it on. That is not a theoretical discussion. If Fraser walks, or Irving moves their paper operations out of the province – that would be a huge loss.

    As for the last point, if I had a mortgage on my house that was worth mcuh more than the value of the house and they offered to buy my house outright and let me live in it with zero cost increases for five years and a stable, inflation-based model thereafter, I would ask them where do I sign?

  21. Would you? Your house may be worth about $200,000. Your debt may be $120,000. I’ll give you $120,000 for your house, and then I’ll let you live in it for a ‘cost of living’ increase each year. In two years, if I want, I’ll sell to somebody else for $200,000, but of course you get first option to buy it back-for $200,000. The point is that NB Powers mortgage is NOT worth more than its assets. If it were, Hydro Quebec would be crazy to buy it.

    I agree that the comparison with Quebec’s rates is a red herring. But mainly because they subsidize their energy through taxes, but like I said, Quebec is bleeding red more than NB and they have increased rates in the past two years, and probably will again.

    For the large industrial clients, that is the smoking gun. Irving has said before, and will again, that they will close their pulp mill in St. John. The real question is, how likely is it that mill will be there in 10 years? In 20? Is it worth selling something as valuable as NB Power just to satisfy Irving and Fraser, who have been laying off people for years, and who now have a tiny workforce? And I hate to say it, but how much better off in the long term would St. John be without that eyesore of a pulp mill. To bring up one of David’s favourite arguments, at that point it makes more sense to simply pay those workers at the pulp mills rather than give in to this ‘subsidy’.

    By the way, for Claude, I meant that the WM bill set 20% as the amount from renewables, which NB Power is well above.

  22. @mikel

    No Mike, the law is still in the books (see section 52.2). The debate is around the issue of raising the price of “heritage pool” electricity by a penny (from 2.79¢ to 3,79¢/kWh). This move would increase HQ’s net earnings by $1.8G, and since the shareholder collects a 75% dividend on HQ’s profits, the government would get an extra $1.4G in HQ dividend to reduce the provincial deficit. Anyway, IMHO the heritage pool price should be indexed to the CPI and more closely reflect marginal costs, but that’s another issue. If you’re interested in the issue, this 2004 briefing paper (French) from the Association of Quebec economists has some interesting insights.

    But even at 2.79¢/kWh, HQProduction makes a $2.08G profit (page 2). Don’t believe everything coming from the “Montreal Economic (sic) Institute”…

    The Finance minister, Raymond Bachand, and his colleague at Industry, Clément Gignac are all for it (they’re also for a 2 point increase of the sales tax, $1G per percentage point), but Natural Resources minister Nathalie Normandeau and Charest are more cautious and the two ministers were told shut up.

  23. OK, yes, it wasn’t a ‘law’ but a ‘moratorium’. Since 2003 rates have increased 16%, and as mentioned, in order to combat Quebec’s 4 billion deficit may climb higher. Quebec hydro doesn’t actually ‘make profit’, it is simply subsidized to a higher extent than in NB-ironically now by the Churchill Falls project.
    I’ve never heard of the Montreal Economic Institute til now, I did a search and its interesting to hear a NEW angle, namely selling Hydro Quebec to wipe out Quebec’s debt! It’ll be interesting to see how that goes over in Quebec. I’d suggest it’ll be a hard sell, while in NB the utility sell won’t even cover HALF of NB’s debt.

  24. “hear a NEW angle”

    The Montreal Economic Institute does not do ‘new’. They are Fraser writ small; selling public utilities is an old idea. But you are correct that the idea wouldn’t sell in PQ. Perhaps someday, but not today.

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