By Gordon L. Weil

Both New Brunswick and Quebec have clear objectives in proposing the sale of NB Power to Hydro Quebec.

The New Brunswick government wants to get out from under $4.75 billion in utility debt and to protect the province’s electric customers from impending rate increases.

Hydro-Québec wants to increase its market power in both the Maritimes and the northeastern United States.

NB Power could have been saved by promoting its pivotal role in eastern Canada and the northeastern U.S. It is ironic that Hydro-Québec is now trumpeting New Brunswick as an “energy hub,” when NB Power ignored the opportunity for so long.

Instead it looked inward, subsidizing residential electric heat and unwisely attempting to refurbish the Lepreau nuclear unit. New Brunswick finds itself in the position where it cannot raise electric rates and can no longer afford to subsidize them with borrowed money.

NB Power customers are not supposed to even notice the effects of the sale, except their rates will be frozen for five years or, in the case of industrials, they will get a long-deserved reduction.

But Energy Minister Jack Kier acknowledges that NB will have to foot some costs associated with the Lepreau nuclear unit – at least $125 million – without getting anything for it except the cold comfort that the costs could have been higher. And there will be other charges for shutting down generators.

A troublesome provision of the MOU calls for N.B. utility regulation to conform to Quebec’s. Looking at similar acquisitions across state lines in the U.S., no such provision has ever been part of the deal. It is a question of sovereignty, a concept not unknown to Quebec.

The NB Energy and Utilities Board (EUB) should keep its own authority under provincial law. It should make an independent determination that the promised $5 billion in rate savings are real. The deal leaves N.B. customers with some risk, so the EUB will need to regulate rates after the five year rate cap, when increases may well exceed inflation.

Hydro-Québec has to be happy with what it got. It can manage the debt it has assumed, especially at a time of relatively low interest rates. And it gains both a Maritime market and excellent access to New England, though it should try to improve its reputation as a difficult neighbour.

It wants even more. It is seeking to acquire P.E.I.’s Maritime Electric and is thought to be pursuing Nova Scotia Power. It seems to be following the model of American giants, Southern Company and Exelon, in extending the trend toward huge, multi-jurisdiction utilities.

But Hydro-Québec may have gone too far. Certainly Newfoundland and Labrador Premier Danny Williams and Nova Scotia Premier Darrell Dexter think so. They feel their utilities will be trapped when they seek access to the U.S. market.

Hydro-Québec answers that its transmission will be open to all. Yet it could reserve virtually all the space on the lines for itself, shutting out others. The New Brunswick EUB, not Hydro-Québec, must ensure that the province’s transmission system is open to all. Transmission rates should be based on NB Power costs and not reflect the higher Hydro-Québec costs.

In the end, the reality of the Hydro-Québec march across the Maritimes may be determined in Washington. The Federal Energy Regulatory Commission (FERC) is likely to be asked to look at Hydro-Québec’s market power, resulting from owning so many transmission lines into the U.S. and so many generators eager to exploit the U.S. market.

The FERC review may be the best hope for Newfoundland-Labrador and Nova Scotia. They could demand dedicated transmission corridors at decent prices. Such paths for them could reduce concerns about Hydro-Québec’s market power.

This proposed sale may be the only deal for New Brunswick, but it cannot trade away its continuing responsibility to NB Power customers and taxpayers. It may be a good deal for Quebec, but there may need to be some concessions to make the deal fair to New Brunswick and make the energy hub a real possibility.

Gordon L. Weil, a Maine-based consultant, played key roles in the creation of the New England transmission arrangements and has advised utility customers in both the Maritimes and throughout the U.S. He has written several papers on energy policy for the Atlantic Institute for Market Studies, an independent public policy think-tank based in Halifax. Weil was chair of the U.S. organization of state energy agencies and is the author of Blackout, a book which takes a critical look at industry restructuring.