Power rate cap seen as possible
Published Friday November 6th, 2009
FREDERICTON - The door is open to inserting a cap on residential power rates in the proposed deal for NB Power, a Hydro-Québec spokesman says.
"The memorandum of understanding has given us a framework to work with and such details (as a cap on rates) would be worked out in the legislation," Marc-Brian Chamberland said.
The regulatory framework put in place by the New Brunswick government will determine how much electricity rates can rise in a year, he said.
Premier Shawn Graham has called the cap idea "interesting," and suggested he is willing to make changes to the agreement, which is to be completed between the provinces of New Brunswick and Quebec by March 31, 2010.
The proposed deal, which would wipe out NB Power's $4.75-billion debt and provide New Brunswick ratepayers with $5 billion in savings, has been hotly debated since it was announced last week.
A sticking point for one critic has been the risk of steep rate increases for residential customers following a five-year freeze.
Donald Savoie, a public administration and governance expert at the Université de Moncton, has said Hydro-Québec's proposed takeover of NB Power must include caps limiting rate increases for smaller power customers after the rate freeze.
Savoie said pegging rate increases to inflation without a cap exposes New Brunswick ratepayers to runaway inflation.
"The future lasts a long, long time and there needs to be protection against skyrocketing inflation," he said. "New Brunswickers should never pay more than five per cent above Quebec rates. I would say no cap, no deal."
Conservative leader David Alward said future rate hikes could be "devastating."
"Every homeowner in New Brunswick should be appalled with what this government has done," he said. "They have gone forward with a deal that lowers rates for big business but not for small business or residential customers and the risk of rising costs after the five-year freeze is a big hole in this agreement."
Derek Oland, chairman of the New Brunswick Business Council, has also expressed concern with a possible residential rate shock following the five-year freeze.
"My concern going forward is what happens to the rates after five years," he said recently. "And using the consumer price index as a measure of allowable increase I don't think is a good idea. Most power companies should be able to keep their costs below the cost of living."
Energy Minister Jack Keir said the risk of inflation would be an issue, even if there was no deal for NB Power.
"Folks are concerned about what happens in year six," he said. "But NB Power would also need to increase rates to look after inflationary needs."
For the past 15 years, average inflation in the province has been about 1.9 per cent, well below NB Power's average rate increases of 3.2 per cent, Keir said.
"The idea there will be rate shock at the end of the five-year freeze on residential rates is a misconception," Graham said recently. "New Brunswickers will in fact be protected because rates today are going to be tied to inflation, which over time has been much, much lower than NB Power rate increases."
Brian Lee Crowley, former president of the Atlantic Institute for Market Studies, said the risk of inflation is less than the current financial risks posed by NB Power's crippling debt.
"NB Power is not only a debt-laden utility," he said. "It's exposed to market fluctuations in fuel prices, which could be a greater risk than inflation."
Currently in New Brunswick, any power rate increase of three per cent or less does not require a hearing before the provincial energy and utilities board.
Rate increases in Quebec, however, must always go before a full public hearing. For example, Hydro-Québec has requested rates to increase 0.2 per cent in April 2010 - an increase the regulator there must first approve.
Daniel Theriault, public intervener on energy matters for the New Brunswick Energy and Utilities Board, has said that, although the agreement states that rates should be based on cost of service, it does not guarantee "just and reasonable" rates.
"The memorandum of understanding doesn't even reference just and reasonable rates for power customers," he said. "I think the board will still have to look at that and determine whether those are just and reasonable rates"
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These questions are being asked not to score any political points but because they are currently unanswered.
1.Do all the land and easements currently owned by NB Power now become the property of Quebec? Does this include the land along the head ponds and the easements running through private properties and the land occupied by all the transmission lines? Does it include all the real estate currently occupied by all the
offices and power stations around the province. Does Quebec now own all that New Brunswick land to do with what they please? What about the property and resources owned by NB Coal, a subsidiary of NB Power?
2.Does the government realize how much it will cost to decommission the fossil stations? The M.O.U. suggests the government of NB can pass these costs on “through regulatory charges to electricity customers in New Brunswick”. If that’s the case then will rates not have to rise or the debt will higher still?
4.What happens to the employees of NB Power that are not unionized after the sale? And what happens to the ones that are when their agreements expire. I suspect negotiations with Quebec will be a one-sided affair. Here it is, take it or leave it.
The M.O.U. says there will be no immediate job losses, but for how long.
5.What’s the future of “Net Metering” in New Brunswick? I suspect it has no future.
6.Does the government of New Brunswick realize the value of the carbon credits they are giving away to Quebec upon the shutdown of the fossil stations?At current market prices these are valued at around $180 million dollars and this value could easily double or triple in the not too distant future when Quebec decides to sell or use them.
8.Why is the management or union leader of NB Power not speaking out for or against this deal? They must realize that their jobs and their people’s jobs are in jeopardy if this deal goes through. I seem to remember Mr. Hay accepting a letter of support from his employees a while ago. Now it’s his turn to stand up for his company and employees. But I guess a 6 digit salary tends to cloud your vision and make you act irrationally, along with the inevitable “golden handshake”.
9.We are only going to get “one kick at the can” here and once this deal is done there is no turning back. If you have concerns about this deal or more questions now is the time to ask. Insist on some answers.
10.Who really brokered this deal and did they really understand the consequences of it. It appears not.
The way the deal is structured right now, the electricity price is capped to inflation, the distribution portion could double every year.
Past performance does not predict future outcomes. With the situation in the financial world right now, inflation is primed to go sky-high in the next decade.