Halifax – The Atlantic Institute for Market Studies (AIMS) today released, “Power Trip: Stumbling toward a policy for NB Power”. It not only provides an in-depth analysis and explanation of NB Power’s poor financial performance, but also of the government’s response to the utility’s crisis – a proposed restructuring of the company and of the electricity market. “Power Trip” also addresses and debunks the conventional wisdom regarding the superiority of Crown owned utilities over those privately owned.

According to the paper’s author, Dr. Thomas L. Tucker, AIMS Fellow Natural Resource Policy, there are five top myths about fixing NB Power that must be dispelled if sensible policy is to prevail. Those myths are:

  • Splitting one Crown Corporation into five will solve the problem of high operating costs.
  • Moving debt to province’s books will improve NB Power’s performance
  • Taxpayers will not be on the hook for NB Power’s debt.
  • Borrowing more money can solve the problem of high debt.
  • All New Brunswickers will benefit from limiting competition in the wholesale market.

Dr. Tucker says the proposed restructuring of NB Power will do nothing to address the problems of high operating costs and high debts. “Shifting the debt from the corporation to the government does nothing to address the fundamental problems which prevent the corporation from generating sufficient cash to retire debt. Turning the business units of NB Power into separate Crowns is nothing more than symbolism over substance.”

NB Power has one of the highest operating costs and carries one of the highest debts of any Canadian utility its size, $3 billion. The company is proposing to borrow another $1.6 billion. The province’s proposed solution to this obviously unsustainable situation is to split NB Power into 5 Crown corporations, move $1.5 billion of NB Power’s debt from the company’s books to the government’s, and then to expect that the new Crown corporations will be able to generate enough revenue to service all of the debt on both the corporations’ and the government’s books.

Yet neither the government nor the utility have given any credible argument to show how these proposed changes represent anything like a sound solution to these pressing problems. Virtually the only proposal that offers any prospect of improving the lot of taxpayers and consumers in New Brunswick is the modest restructuring of the electricity market allowed for in the new Electricity Act.

The author recommends a completely alternative approach that faces up to the realities facing New Brunswick Power and the electricity industry in the province. Among the key recommendations of the paper are:

  1. Privatize New Brunswick Power, ensuring:
    • Future debts never become a public liability;
    • Investments are based upon market factors, not political expediency; and
    • The system’s assets are used to produce the desired amount of electricity at the lowest cost.
  2. The Province should assume the least amount of NB Power’s debt necessary to accommodate or attract investors.
  3. Electricity rates should be allowed to rise so costs are reflected in utility bills, not hidden in provincial taxes. Rate increases should be phased in.
  4. The government should open the retail and wholesale electrical market and segments of the generation and marketing of electricity to competition and choice. In Maine, opening up both markets to competition is producing lower prices than allowing competition only in wholesale.

  5. The region should be one market. This will allow a sufficient number of producers and customers for competition to flourish.

Competition and market discipline in the generation and marketing of electricity will supply New Brunswickers electricity at the lowest possible price. Competition, however, cannot guarantee prices won’t fluctuate, only that the system will be more efficient. Therefore, the New Brunswick government must resist politicizing the regulatory process to interfere with the price mechanism, and resist setting or maintaining a low ceiling-price, as has been done in Ontario. The distortions caused by such interventions will in the long run jeopardize the viability of the entire system, and certainly exacerbate looming supply shortages as old generation capacity is retired.

For further information, contact:

Jordi Morgan
Director of Communications and Development
Atlantic Institute for Market Studies
2000 Barrington Street
Suite 1006, Cogswell Tower
Halifax, NS B3J 3K1
jordimorgan@aims.ca
Direct 902 446-3532
Cell 902 452-1172
Fax 902 425-1393