New Brunswick consumers will see at least a three per cent increase on their power rates in the near future as the first fall out of the failure of the NB Power deal.
The utility’s interim president, Gaetan Thomas, says a three per cent increase was what was forecast, but all figures will have to be reviewed.
“We’re going to look at all of our operations to make sure that we’ve covered everything and within a few weeks I’ll be back with figures and I’ll present them to the minister,” he says, adding the premier has asked him to take into account things like the extra costs associated with the Point Lepreau refurbishment to make sure he is not creating a financial burden for the future.
“We are conscious of the fact that we have to have enough money to meet all of our current costs and future costs.”
Daniel Thériault, who acts as the public intervenor before the Energy and Utilities Board, believes three per cent is just the tip of the iceberg.
“What I heard the minister (of energy) say today is he gave NB Power two weeks to make a business case for three per cent. I feel if NB Power makes a business case, it will be for much higher than three per cent,” he says. “For them to be at levels to operate without creating more debt, it would need to be more than three per cent.”
Thériault says the utility’s biggest expense is the cost of fuel, which it buys 18 months in advance. He says by the end of 2008-2009, fuel was the cheapest it had been for some time, but costs began increasing after that. The impact of those increasing costs will start to be felt this summer and that too will have to be taken into consideration.
Thériault says, depending on the cost of fuel, New Brunswickers could see increases of up to 15 per cent, if not this year, then next.
Thomas says the utility will look hard to find efficiencies and improvements to save money.
“We’re going to put a plan (together) for the short-term,” he says. “The long-term is a little more difficult. Actually quite more difficult, because this deal… was the greatest deal that we could have come up with at this point in time. A lot of those risks were being transferred to Hydro-Quebec. Those risks are now back here and we have to figure out how to mitigate them. But I can assure you we will work hard to continue to serve our customers. When our customers are suffering, we need to change. We will continue to serve our customers well within the means we have. That may include going to the regulator, but again, I have a couple of weeks to come up with some creative solutions short-term and we will continue on a long-term basis to look for innovative and creative solutions with all our great workforce in New Brunswick.”
Thériault says the major challenge NB Power faces isn’t waste _– it’s its generation mix.
“They need to find ways to supply power using different generation mixes at a reasonable cost,” he says.
Université de Moncton economist Pierre-Marcel Desjardins agrees the province’s power plants are its biggest challenge.
“The orimulsion agreement with Venezuela will come to an end and that means we have to look at other sources and fossil fuel is going to be increasing in value,” he says. “That means if we keep producing significant amounts of electricity, like we are today, from fossil fuel sources, it is surely going to translate into hefty increases in rates in the coming years.”
Exacerbating the situation is the looming threat of a carbon tax. Desjardins says no one can predict when such a tax will be put in place, but it is a pretty safe bet that one is coming.
“For consumers it is going to be our pocket book (that is affected), but for businesses it will be their competitive position that will be harmed,” he says. “We have to have a strategy to decrease our dependency on fossil fuels.”
Desjardins says the province needs to move quickly to find an alternate solution as he expects consumers will be harder hit by electricity rate increases over the medium-term.
Desjardins says a credible plan to manage NB Power’s debt needs to be found and we need to look into purchasing electricity from elsewhere at a lower rate that we can produce it at ourselves.
“It doesn’t mean we must have a formal, integrated partnership, but what we’ve seen is there is a potential to purchase electricity from other jurisdictions like Quebec, but not necessarily only Quebec, that produces electricity at a lower rate than we do,” he says.
Desjardins says Newfoundland and Labrador might offer another option, though the challenge there is in getting the power to New Brunswick.
Charles Cirtwill, president and CEO of the Atlantic Institute for Market Studies, says Premier Shawn Graham listened to the people of New Brunswick in not moving ahead with the deal, but that doesn’t make the problem go away.
“The challenge for all the people who said this isn’t the solution, now they need to answer the question, ‘What is?’ and in the meantime, consumers are going to pay more for electricity while you figure that out,” he says.
Cirtwill wasn’t one bit surprised to see the deal fall through.
“I’ve been betting on it since December,” he says, when an analysis by a Montreal think-tank suggested Quebec was getting a raw deal.
“It was only a matter of time before they asked for something New Brunswick couldn’t give.”
Cirtwill says the quickest solution going forward is a long-term supply agreement with Hydro-Quebec, but he says New Brunswickers may not go for that.
“If you buy cheap green energy, you don’t need your dirty coal plants anymore and that means New Brunswickers are unemployed,” he says. “It’s a good thing for the environment, a good thing for consumers, but it is probably not a good thing for those workers.”
Cirtwill says a long-term power supply deal would likely have to be done with Quebec because Newfoundland simply doesn’t have any power for sale.
“I want to point out in the strongest possible terms to those that say, ‘Now we can get power from Newfoundland,’ Newfoundland doesn’t have any power to sell you. Churchill is a concept, not a project,” he says. “Newfoundland has power coming out of the existing Churchill, but almost all of it is on long-term supply to the U.S., so they have buyers for that power. Hydro-Quebec was the only one kicking around with excess capacity to sell.”
Industrial users had the most to gain from the deal going forward, but they also had the most to lose.
“This was a very bold move to deal with longer-term challenges that are facing not only industry but the utility and we view this with a great deal of disappointment,” says David Plante, vice-president of the Canadian Manufacturers and Exporters’ New Brunswick division. “It is very unfortunate that we couldn’t move forward with the deal.”
Both Plante and Mark Arsenault, president and CEO of the New Brunswick Forest Products Association, say they fear job losses and closures in their industry. Though both acknowledge electricity rates aren’t the only factor negatively affecting them at the moment, the hope that it was one, at least, that was going to be resolved was a big encouragement to industry.
Arsenault they’ve seen rate increases of more than 26 per cent in over the last five years and conservative estimates have suggested at least 20 per cent in increases over the next five.
“This deal was, as far as I have seen, the first time we actually had a potential solution to rising costs and so for our industry there was some significant savings and reductions in energy costs,” he says.
Plante says his association has been telling government since 1995 that something needs to be done about power rates.
“Our position has always been that we have to take a longer-term approach to dealing with issues such as aging infrastructure and rising oil prices which are exerting an upward pressure on electricity rates,” he says, adding industry has asked for a long-term rate forecast in order to help them with their business planning, as well as a long-term plan to ensure security of supply and a long-term plan for dealing with NB Power’s debt.
He says their fear is not of the three per cent increase this year, but the possible double-digit increases in the future.
“We’re basically back to where we started and one concern that I know I have is that there hasn’t been a clearly delineated Plan B should this deal fail,” he says.
Yves Gagnon, the K.C. Irving chair in sustainable development at Université de Moncton, says the deal has raised people’s consciousness of the importance of the energy sector to the economic prosperity of the province.
“The current government or the government formed in September, no matter what party it is, it is important for them to build on this momentum,” he says. “We need some changes in the energy sector.”
First and foremost, Gagnon says the province needs to develop an energy policy.
“All of this deal was done in a void of an energy policy in New Brunswick. All of this was done without a long-term vision for the energy sector in New Brunswick,” he says.
That’s a view Gagnon shares with David Ganong, the chairman of the independent advisory panel that studied the deal and unanimously supported it.
Ganong was out of the province on business yesterday and not available for interviews, but he did issue a statement on behalf of the panel.
“We are deeply disappointed with the news that the proposed New Brunswick-Quebec Electricity Transaction will not be going forward, but are in agreement that if New Brunswick was being asked to assume additional risk or if the rewards for our province were not as substantial as were proposed, it is the right decision to terminate negotiations,” he writes.
“This remains a major issue for the Province of New Brunswick and all electricity users and we strongly encourage and support the government in developing a new solution to this challenge. The starting place, in our opinion, is the development of a new energy policy for the province that incorporates energy efficiency as a fundamental aspect of the policy.”
Desjardins says if there is one thing the NB Power-Hydro-Quebec deal has done is opened people’s eyes to the fact that something needs to be done.
“The status quo is not an option, the question is, ‘Where do we go?’ That debate of what are the options and what should we do, that debate has to take place,” he says.
Desjardins says that debate must include all New Brunswickers — an omission he feels was partially to blame for the downfall of the NB Power-Hydro-Quebec agreement.
“We found a solution to a problem the population didn’t know we had and we saw what was the price for that,” he says. “People in New Brunswick aren’t stupid. When we present facts, people will take a look at it and decide if there is a need for change and what the possibilities are, but they want to be part of that process. They don’t want a deal negotiated behind closed doors where the perception is only big business is the winner. The process was at the centre of the problem.”
Desjardins says the debate needs to look at all the options open to the province.
“It could be that Hydro-Quebec is the best option, but not having had that debate, it is tough to arrive at a conclusion,” he says.
Arsenault says a new solution is needed, and quickly.
“It can’t be in two years, we need to deal with it right away,” he says.
Desjardins says that is unlikely.
He doesn’t expect the debate on the province’s power future to take place before the Sept. 27 provincial election, but says it needs to take place as soon as possible as the province doesn’t really have time on its side.
Cirtwill agrees a solution before the next election is unlikely and says the province shouldn’t aim for a made-in-New Brunswick solution.
“The real potential for a sustainable green energy option that delivers value to consumers and jobs to the region as a whole is a collaborative exercise,” he says.
“I think we’ll see Fort Reliance step to the table, talks with Maine is a good start, Danny Williams and Darrell Dexter, let’s see what you got…”