Saturday, December 12, 2009

On the NB Power Sale

I am in broad agreement with the argument presented in this article.

The crux is the following: NB has no internal energy resources except wind, a limited amount of hydro, and a very limited amount of gas. If we're lucky, we'll discover uranium and have the argument about whther to mine it.

The current generating capacity using coal and oil is (a) environmentally unsustainable, and (b) increasingly expensive. In short, we cannot rely on it.

Wind is a viable alternative. However, wind power capacity costs on average at least a million dollars per megawatt. It's a fantastic investment, and we should make it, over time, but the cost to generate 4000 megawatts is 4 billion dollars, which we cannot afford carrying existing NB Power debt and provincial debt.

I agree that there are concerns about the proposed deal. That's why it is important to remember that it is an MOU, not a signed contract, and that during this period of consultation before the final signature it is important to highlight areas for improvement.

LePreau is LePreau and we are going to encounter huge costs no matter which way we go on that.

NB power rates are roughly twice Quebec rates. The five year freeze should equalize that a bit, but then the inflation clause kicks in. There should be a condition linking NB rates to Quebec rates, so that power costs cannot be used to create a competitive advantage. Ideally, we should push for parity (absent transmission costs).

Additionally, we need to be clear about our capacity to build and manage parallel infrastructure. This includes the wind, which we will build, and the thermal, which we will eventually decommission, but also transmission lines, which we could build for Newfoundland and Nova Scotia.

But these are minor factors, and should not be seen as over-riding reasons to reject the agreement. They are conditions that can be negotiated. There will be a cost to them, but we may be willing to bear that cost in order to ensure energy independence.

Delaying the agreement also has a cost. There is an expected price increase, the latest in the series of steep and annual increases from NB Power as it tries to dig itself out of debt and fiasco (orimulsion, LePreau).

And there is the ongoing cost - more than $400 million annually to service the NB Power debt, increases in the costs of raw materials, the ongoing need to refurbish ageing infrastructure, the continual loss of industry to cheaper energy markets like Ontario, Quebec and B.C.

The status quo means, simply, that we will continue to overpay for power, and that there will be no industrial development in NB, and that the industry we have will become less and less competitive as costs rise. It's not acceptable.

The opposition is saying that we should hold a provincial vote on the matter. That is why they advocate for a delay on the issue.

But what they really seem to hope for, I think, is a repetition of the highway toll case, where a single issue topples the government. We should not link NB Power with an election, for two reasons:

1. We may be replacing what is a reasonably competent government with one which, up to this issue, failed to demonstrate the capacity to even be an effective opposition, much less a government.

2. On the issue of selling NB Power there is actually no distinction between the two major parties. The Conservatives also wanted to sell NB Power, and made structural changes to enable this sale, but were unable to find a buyer. The odds are excellent that, even if they were to win power on this issue, they would turn around and sell NP Power, and possibly for terms substantially weaker than the present deal.

In contrast, I would support a provincial referendum on the sale, as it is a huge issue, and believe we could hold one before the march deadline. For me, a referendum is a win-win.

First, because if the sale is approved, then we have a substantial improvement in our energy security and stability in our energy costs.

Second, because if the sale is rejected, then the government can stake out an alternative course for managing the utility as a provincial entity, and the election can be fought on the basis of that, or other issues.

Most of all, it prevents what I would consider the worst case scenario: outright privatization as a stand-alone entity, at much worst terms than to Quebec. This is what Nova Scotia got, and the results have been disastrous.

Despite Nova Scotia's energy resources, the price of electricity is actually higher in Halifax than in Moncton. Moreover, the NS infrastructure is in tatters; every storm there are long outages.

To summarize, then, we need to look at the NB Power deal, not just from the perspective of the terms of the deal, but also considering what happens if the deal is not signed.

- if the deal is not signed, then we have no way to generate clean power other than an outlay of $4 billion to generate wind capacity (probably the plan before the sale, and would have been bridged via market-rate purchases of power from Hydro Quebec - the 'million dollar a day' situation we are in now).

- worse, if the deal is not signed, or if the government falls as a result of the deal before it is signed, then we face a worst-case scenario of outright privatization of the utility, which would leave us with rapidly increasing costs and no clean energy sources

- otherwise, it's status quo: an increasing NB Power debt, rapidly increasing energy costs, uncertain supply, and expenses of a million a day until LePreau is finished.

None of these is better than the sale, and should not be accepted.