by: Gordon L. Weil
The demise in 2010 of the proposal to sell NB Power to Hydro-Quebec left the New Brunswick government with the challenge of reforming its electric utility to operate more efficiently with less debt.
The Progressive Conservative government to which that task fell was new, having been elected in part because of the public’s opposition to the sale and the resulting loss of provincial control. Now that government has announced what it will do in its “Energy Action Plan.”
Most attention has been focused on its decision to reassemble NB Power from the various parts – generation, distribution, transmission, and nuclear – into which it had been broken. The purpose of the separation was to allow for open competition among electricity suppliers on NB Power’s wires, which alone would remain subject to regulation.
In its policy statement, the government concluded that “the competitive electricity market model has not worked for New Brunswick.” But it fails to note that the principal reason is that NB Power was dismantled only in theory not in fact. By capturing almost all transmission rights for itself, the generating company managed to limit any potential competitors. And the separate NB Power companies shared the same board and president.
So there’s less to this reunion than meets the eye. It will make little practical difference other than to signal that the promise of creating competition in electricity has been abandoned. NB Power will own all the generation and all the wires in the province.
How can people be sure that the utility will work to keep rates down? The new plan provides for improved, professional regulation and a permanent public energy advocate. But the government of the day will still be able to override them, so their independence may be limited.
The government cites the lower residential customer rates in the province compared with other areas, though this is partly due to NB Power having borrowed to pay utility costs rather than raising rates. Most customers do not care so much about rates; they care about the size of their bill. And electric bills in New Brunswick are high, because of the use of electric home heating. For example, average household use is almost three times as high as in Maine.
The government’s Energy Commission recommended that, above a certain level of usage, a higher electric rate should be applied to encourage people to shift some of their usage away from electricity. The lower rate would cover “needed use” but would be small enough to encourage conservation. Likely, as a result, less new electric heating would be installed. The government flatly rejected this proposal, thus refusing the measure most likely to promote electric efficiency.
Another reason that rates may not come down is the decision to allow NB Power to use revenues derived from any efficiency improvements in its operations to build up equity and rely somewhat less on debt, accumulated by its excessive use in the past. This should help with the debt problem.
The previous restructuring of NB Power included creating the NB System Operator (NBSO), an independent body with its own board and officers responsible for maintaining system reliability and fairness in the power market.
To sell power into the U.S. market, NB Power must meet certain American requirements. The most important is that it must provide open access to its transmission system for those who want to sell at wholesale – say, to the Saint John or Edmundston municipal utilities – or who want to transmit power across its system. The NBSO was the guarantor that would be possible. The government admits that, with its elimination, somebody other than NB Power may end up having to assure reliability and monitor open access.
The NBSO could also have provided the nucleus of a long-discussed Atlantic Canada regional market. By sharing the use of transmission resources regionally without affecting ownership, it might be possible to realize economies in what is a comparatively small electric market. This idea was gaining some ground, but it will recede because of the loss of the NBSO, one of the few real assets created when NB Power broke up.
Most of the remainder of the new plan with respect to electricity consists of expressions of good intentions about the use of renewable resources, cooperation with other provinces, and appliance and building standards. There is no mention of reducing electric heating.
After turning away from the Hydro-Quebec deal, New Brunswick seems to be turning in on itself. The general message of the plan is that the provincial power policy will be inward looking. The historic NB emphasis on power exports is absent, and regional cooperation is downplayed. The competitive effort is abandoned. NB Power returns to a distant past.
Gordon L. Weil is president of Standard Energy Company of Maine, and author of several studies on the regional electricity grid for the Atlantic Institute for Market Studies.