A controversial proposal to sell N.B. Power’s generating stations to Hydro-Québec represents a big shift in how the province views the electricity business. Now, it’s all about cheap rates.
J.D. Irving Ltd. is the one of the last financially solvent pulp-and-paper producers in New Brunswick, surviving the past decade as four competitors closed mills and one filed for bankruptcy protection.
With an annual electricity bill of $73-million – fully 25 per cent of the paper division’s costs the iconic New Brunswick company is a major supporter of Premier Shawn Graham’s plan to drive down rates by selling the bulk of the province’s power utility to Hydro-Québec.
Despite efforts to modernize its economy, New Brunswick remains heavily dependent on power-hungry, resource-oriented companies. And yet it has some of the highest industrial electricity rates in the country nearly 50 per cent more than neighbour Quebec.
Mr. Graham’s controversial proposal to sell New Brunswick Power Corp.’s generating stations to Hydro-Québec is all about improving competitiveness and, the government hopes, spurring job creation that will result from lower energy costs.
“It’s a significant step forward,” Mark Mosher, vice-president of pulp and paper for J.D. Irving, said in an interview in his Saint John office. We believe that if we don’t do something, we’re never going to be able to have competitive industrial rates in this province.
The proposed $3.2-billion deal represents a dramatic shift in how New Brunswickers view the electricity business. For decades, successive governments wielded the provincially owned utility as a tool of industrial development not only to deliver competitively priced electricity, but as a major employer itself and as a key instrument in the province’s ambition to be an export-oriented energy hub.
From his corner office on the 11th floor, Mr. Mosher has a commanding view of Saint John harbour and the concentration of the industry that underpins that ambition. Hugging the shoreline are the Irving Oil refinery; the Canaport liquefied natural gas terminal; J.D. Irving’s sprawling paper mill; and two oil-fired N.B. Power generating stations that help power them.
But the impression of industrial strength fails to convey the critical challenges New Brunswick faces. Since 2000, the power utility has seen its costs go through the roof. That has forced a fundamental re-evaluation of N.B. Power’s province-building role, and is ultimately what caused the government to strike a bargain with Hydro-Québec.
“Instead of using N.B. Power as an economic driver to create jobs and opportunity, let’s make it cheap electricity rates that generate that economic development and opportunities,” Energy Minister Jack Keir said.
The Graham government is struggling with three often-competing demands on the power sector: Keeping power prices reasonable, providing local economic development, and meeting the growing political demand for an increasingly green grid. With its nearly unlimited supply of cheap hydro power, Quebec is one of the few jurisdictions that can address all three simultaneously.
But New Brunswick serves as a cautionary tale for Ontario on the dangers of building high-cost electricity to stimulate local employment. Ontario is now offering to pay hugely inflated prices to solar energy providers in the pursuit of green energy development and new jobs, but at the cost of higher power rates.
For New Brunswick, cost control has become the overriding objective, though the government is still pursuing renewable power development and export by the private sector.
N.B. Power relies on oil, coal and nuclear power for 75 per cent of its generating capacity. While fossil fuel prices have climbed, the utility also had to spend $1.4-billion to refurbish its Point Lepreau nuclear generating station, a project that has been plagued by costly delays.
As a result, the utility’s debt has soared to $4.8-billion from $2.9-billion in 2004, and it would have faced an additional $10-billion in costs to replace and refurbish existing plants.
Without the Quebec deal, New Brunswick’s electricity rates were on pace to increase by 65 per cent between 2000 and 2015. In a province where more than six in 10 homes rely on electricity for space heating, industry isn’t alone in facing staggering increases in their energy costs.
“We can’t duck this one any more,” Mr. Keir says. “Successive governments have ducked it. But industry is at a state in New Brunswick where we can’t duck it any more.”
Critics in New Brunswick have slammed the deal, saying the government is reneging on a campaign promise to never sell the utility. And they accused the government of providing a sweetheart deal to industry, and notably to the powerful Irving family, separate branches of which control J.D. Irving and Irving Oil Ltd.
As part of Hydro-Québec agreement, 50 large industrial customers including 14 belonging to the Irving clan will pay rates significantly below what N.B. Power will pay to the Quebec utility.
Large industrial customers will get a 23-per-cent reduction in their power rates, while residential and small business users will get a five-year freeze at current levels.
Mr. Keir hasn’t given up on the ambition that New Brunswick expand its role as an energy hub for the transportation of power, national gas and refined petroleum products to U.S. markets.
The province may even try to expand its exports of clean power to the U.S. northeast. But it won’t be a government-owned utility that supplies the electricity for that effort. It will have to be the private sector, or other provinces transmitting through the New Brunswick grid.
But the New England market has lost some of its allure as the recession drove down demand for electricity, and forecasters predict a long, slow recovery.
“It isn’t a market that is short on power and needs Canada to come to the rescue,” says Gord Weil, a Maine-based industry veteran who has analyzed the New Brunswick-Quebec deal for the Atlantic Institute for Market Studies.
But after years of lobbying, New Brunswick industry has persuaded the Graham government to focus on the domestic market.
In addition to the rate cuts, Hydro-Québec will pay off $3.2-billion of the utility’s $4.8-billion debt. The debt relief should ease pressure for rate increases in the future, says J.D. Irving’s Mr. Mosher.
He notes that one in five New Brunswick jobs depend on competitive energy rates, and that these industrial workers earn 40 per cent more than the average wage in the province.
“We have always said the energy vision for New Brunswick should be about New Brunswick,” the forestry executive said.