A new report says regulation of the Canadian electrical industry must be reformed because it “unfairly discriminates” against three “locked-in” provinces: Newfoundland and Labrador, Prince Edward Island and Nova Scotia.

The plight of those three provinces is not shared by New Brunswick, which enjoys electrical grid connections with its Canadian and American neighbours, notes the report, which is being released today by the Atlantic Institute for Market Studies.

Not boxed in like its Atlantic cousins, New Brunswick should capitalize on its strong position – and boost NB Power’s revenues – by encouraging more inter-provincial electricity flow, argues the document.
Gordon Weil, who penned the 12-page report for AIMS, says the “locked-in” provinces suffer from a basic fact of the Canadian electrical industry: Power cannot be transmitted between two provinces without both agreeing to the transfer.

“They must agree. There is no higher authority that can ensure the transaction takes place,” Weil said in an interview. “As a result, any province that doesn’t want a transaction to take place can block it.”

The result, on the east coast at least, is that Quebec and New Brunswick are left controlling the ability of Nova Scotia, Prince Edward Island and Newfoundland and Labrador to access their Canadian cousins and the American market.

“That is obviously discriminatory against the locked-in provinces. They are at a disadvantage simply because of geography,” continued Weil, a Maine-based consultant who heads the Standard Energy Company.

As an example, Weil points to the Churchill Falls hydro project in Labrador. To complete the project, the Newfoundland and Labrador government signed a controversial supply contract with Hydro-Québec that spans from 1976 to 2041. Successive Newfoundland and Labrador governments have tried – unsuccessfully – to modify the deal, which heavily favours Quebec.

Weil, Maine’s former state energy director, also points to the proposed sale of NB Power to Hydro-Québec in 2009. The original deal, he says, would have given Hydro-Québec full use of the New Brunswick transmission system, and enabled it to become a major supplier of both Nova Scotia and P.E.I.

“Neither the Churchill Falls transaction nor the proposed Quebec-New Brunswick deal was subject to regulatory scrutiny outside of the directly concerned provinces,” he noted in the report.
Weil makes three recommendations aimed at improving regulation of the electricity industry and the flow of power across the eastern provinces.
The first option would see the four Atlantic provinces adopt joint laws governing the regional transmission grid. The provinces could also agree to set up a single system operator to oversee the grid and manage the market for power sales.

Such a setup could involve a “licence plate” system, where generators pay a fee in their home province and are then allowed to ship power across partnering provinces – similar to drivers who pay for a licence in their home province but are allowed to drive on all highways.

Such a system would require a transmission connection between Newfoundland and Labrador and the Maritimes. And coincidently, on Monday, the head of Nalcor Energy said the Newfoundland and Labrador Crown agency plans to wheel hydropower from Lower Churchill through Quebec and through an undersea cable to Nova Scotia.

Weil’s second proposal involves a regional regulatory body or enforcer, which would ensure the power market is operated in a neutral manner.
“You need the regulator to be independent and not subject to changing political attitudes. That way it creates consistency,” he said in an interview. “That way the transmission system users can count on the rules being the same over a relatively long period of time.”

And thirdly, Weil suggests adding “some teeth” to the National Energy Board. Specifically, the federal body would be given mandatory authority over certain power transactions, such as any deal between two provinces that passes over the territory of another province. For example, the board would have jurisdiction over a transaction between Quebec and P.E.I.

“The ‘locked-in’ provinces have no direct access to the American market and, despite the relatively short distances involved, are mainly limited to trade only with contiguous provinces,” Weil stated in the report. “A new form of federal regulation must take these realities into account.”

And Weil argues his recommendations for increased Atlantic Canadian co-operation would greatly benefit New Brunswick, which is not “locked in”.

“There is no doubt that, because of its location, a high volume of transactions in and through the region would have to use its transmission system. These transactions would provide significant revenues to NB Power,” he wrote in the report.
“They would provide substantial offsets as New Brunswick customers, relatively heavy users of electricity, face increasing rates.”