'A good deal for New Brunswick'
Published Thursday November 12th, 2009
The announcement by Premiers Shawn Graham and Jean Charest represents a bold, courageous act of economic nation-building, and warrants the applause it is getting across Canada. However, New Brunswickers will properly wish to focus on the benefits for our province, and the questions they have will require answers.
As more details of the agreement emerge, it is clear that Premier Graham's government has seized a once-in-a-lifetime opportunity that any farsighted government would find attractive.
Obviously, there will be criticisms about one aspect or another of the deal. However, we shouldn't forget that a negotiation requires some give and take. Otherwise agreements would never be reached. We can't let perfection be the enemy of the good.
Let me explain why I believe this is a good deal for New Brunswick.
First and foremost, lower rates mean greater prosperity. For New Brunswickers, rate savings of approximately $500 per year will free up family budgets in a meaningful way. After the freeze is lifted in the sixth year, this $500 saving continues, and grows only by the rate of inflation, which has been consistently lower than power rate increases. In the last 15 years, annual inflation has averaged 1.86 per cent, while power rate increases have averaged 3.23 per cent. The Conference Board of Canada predicts New Brunswick CPI will grow at an average annual rate of 1.8 per cent over the next 20 years. Without the agreement with Quebec, it would be impossible to keep annual power rate increases lower than that. Simply put, New Brunswickers will have more money in their pocket.
However, the far bigger impact for residents will be felt in job creation. After years of bad news, our forest and resource industries - and their employees - have the best piece of economic news in recent memory. Premier Graham has made a decision that will impact positively on economic development in virtually every community in New Brunswick. Such decisions do not present themselves very often. Combined with the government's decision to create a better taxation climate for business in New Brunswick, the effects on investment will be wide-ranging and positive. As the world emerges from recession, investors will be looking for places to create jobs and opportunity. The government has positioned New Brunswick well for a significant era of new investment.
For taxpayers, a little-discussed feature of this agreement is the transfer of risk from their shoulders. Until this agreement, taxpayers (and ratepayers) were on the hook for any adverse incident that befell NB Power. Don't get me wrong; NB Power, I believe, has been generally well managed. However, it is a small utility and very vulnerable to rate shock.
It is really too small a utility to be exposed to a single nuclear asset. France's EDF is a world leader in nuclear assets. It has 58 reactors in its fleet. This week, one third of those reactors are out of service and France will have to import electricity at peak hours during the winter.
New Brunswick Power produces approximately 4,000 megawatts. Point Lepreau accounts for about 30 per cent of that generation. This creates a huge vulnerability.
Everything about nuclear is expensive, and with a small generation base it is hard to avoid large impacts on budgetary projections.
You will recall that Point Lepreau was grossly over budget when it was originally constructed. Now the refurbishment of Point Lepreau has gone badly off schedule, and replacement power will cost approximately $525 million until March 31, 2010. During my time in office, for example, I was alarmed that the splinters from a broken wood hatch cover at Point Lepreau resulted in a $25 million cost to taxpayers. You can't take chances with a nuclear reactor.
With the proposed agreement, New Brunswickers can look forward to an era of negligible risk. This means that a nuclear outage, a plant upgrading, or, as is anticipated, a $2 billion Mactaquac Dam upgrade, is no longer on the ratepayers' dime. The government, and citizens, can undertake long-term planning safe in the knowledge that our partner, Hydro-Québec, is obligated to provide us with stable, renewable, and cheap power, whatever investments are required to maintain our energy system. Quebec's generating capacity is close to 10 times New Brunswick's - 36,429 MW v. 3,959 MW. Their hydroelectricity is infinitely renewable, and they are able to assume risks that a smaller utility cannot.
Taxpayers should also care that the province's debt will be reduced by close to 40 per cent. This news should cheer us all, but it will mean a better future for our children. Without the risks involved in running a utility, and the costs of a $4.8 billion dollar debt, future generations of New Brunswickers will be freed to plan their own futures, whether in health care, education, the environment, or yes, energy policy.
This agreement provides for us to lessen our reliance on fossil fuels, and to constrain our greenhouse gas emissions. In a world which, one day very soon, will move to penalize large emitters, Premier Graham's government is making a decision to relieve our province now of the future risks of a punitive system of carbon pricing.
For many, the public ownership of a utility is equated with sovereignty over energy policy. However, nothing in this agreement diminishes the role of New Brunswickers in debating and setting their own energy policy. In fact, a very positive feature of this agreement is its explicit recognition that New Brunswick will continue to control its own energy policy, and to continue to develop an energy hub. The reality is that power utilities do not make energy policy, governments do. This fact has been recognized in every province that has privatized all or part of their utilities, a list that includes Ontario, Nova Scotia, Alberta, and Newfoundland and Labrador.
In fact, one could argue that, with the addition of Hydro-Québec to our province's energy make-up, New Brunswick has enlisted another positive force in its own energy and economic development. I know that our government would have seized on the job creating possibilities presented by a lower rate structure, and I know Premier Graham will do the same.
Premier Graham has made a farsighted decision that required great courage. It also requires standing up to defend New Brunswick against outside forces who seek to shape our own destiny for us. When our neighbouring Provinces negotiated lucrative resource agreements with Ottawa, they did not negotiate for New Brunswick's interest. Nor should they. We must fight for ourself. That is what Premier Graham is doing. For that, this agreement has my full support.
Frank McKenna is a former Liberal premier of New Brunswick, former Canadian ambassador to the United States and currently deputy chairman of the TD Bank Financial Group. Premier Shawn Graham has said he consulted Mr. McKenna early in the negotiation process with Quebec and updated him on its progress, though Mr. McKenna did not take part in the negotiations.
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The boss said get it done, and Premier Graham said okay, and did it.
This is great news for NB. We have to be responsible for the environment.
Previous year’s power generation [MOU section 2.3] +
Cost of inflation [MOU section 2.3] +
Recovery cost (plus interest) of going over power usage cap in previous 5 years (which we are already over) [MOU 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) [MOU section 2.4] +
Power distribution costs (plus fair and reasonable return for HQ) [MOU section 2.5] +
Power transmission costs (plus fair and reasonable return for HQ) [MOU section 2.5] +
Recovery costs of shutting down our old plants that Quebec does not want [MOU section 3.1(b)(vi)] +
Costs to use our own power grid (”tolling fees”) should any of our old plants continue to operate [MOU section 4.1(c)]
How is that for lack of certainty?
So from what I learned about "negotiations" from the above quote is we "give" big industry a rate drop, and the general public "takes" it in the rear end.
They get a guarantee that they will never have to provide NB with more than 14TWh per year of electricity. The get a guarantee that any amount supplied on top of that they can charge market price for.
They get access to hundreds of thousands of new customers in the form of NB citizens.
They get access to lucrative new markets in the US.
They get a newly refurbished nuclear generating station.
They get long term profits at the expense of the other Atlantic provinces by leasing the use of their transmission lines to the US.
And much, much more...
What do they have to give in return? A one-time payment? They themselves have admitted that they will get a large return on their investment right from year 1.
This deal is a no-brainer. That is if you live in Quebec.
"For taxpayers, a little-discussed feature of this agreement is the transfer of risk from their shoulders. Until this agreement, taxpayers (and ratepayers) were on the hook for any adverse incident that befell NB Power."
And how exactly are we off the hook for this now? If something happens to Lepreau after we sell it and it becomes unusable, the MOU states that our rates will have built into it the cost of new generation of power. Quebec will have to recoup the costs of adverse incidents somehow. Where in the MOU does it state that "somehow" doesn't mean at the expense of NB customers?
It’s these kind of loopholes that scare me. HQ has zero responsibility to be fair to us. They will be out to make a profit. That’s why I propose that we tie our rates directly to the rates of Quebec citizens (plus a premium like 10%, or even more). That way if HQ wants to hike its rates (perhaps to recoup the cost of an adverse incident), then they have to hike everyone’s rates, not just those of its NB customers. We get rate security and a cut in rates, and HQ gets hundreds of thousands of new customers with a built-in extra profit margin of 10%. Everybody wins.