Wednesday, March 10, 2004
Moncton Times & Transcript.

Orimulsion revulsion: AIMS on NB Power’s Coleson Cove fiasco

By Brian Lee Crowley

Pity poor David Hay.

David is a very smart and able guy who has just agreed to turn those formidable talents to the thorniest problem in New Brunswick: fixing the scandalous mess at NB Power. But no matter how good Hay is, he’ll need the unwavering backing of the political establishment to bring an out-of-control and essentially bankrupt Crown corporation to heel. Unfortunately, that establishment is still in denial about the utility’s dire condition, so I see little cause for optimism that Hay’s taking over as the new CEO will result in much other than his blood on the floor.

Nothing sums up NB Power’s problems better than the Coleson Cove fiasco.

Coleson Cove is a vital part of the province’s generation capacity, especially in view of the on-again, off-again performance of the Point Lepreau nuclear station. With Lepreau coming to the end of its useful life and both the provincial regulator and the province sceptical about the utility’s grandiose but uneconomic refit plans, generation shortages loom.

Already one of North America’s most oil-dependent utilities, one which has suffered serious financial harm since the late 1990s with oil prices hovering at persistently high levels, even NB Power executives recognized that they should diversify away from oil. So the question became, what fuel should take oil’s place at Coleson Cove?

The utility’s dire economic condition was a key driver in the decision. NB Power is supposed to finance its operations on the basis of eighty percent debt, and twenty percent equity, but today the utility acknowledges that its equity has been totally wiped out by past poor management. Part of the recovery strategy was to wring more economic value out of Coleson Cove by using the lowest cost fuel.

Enter Orimulsion, a slurry of bitumen and water. NB Power, overseen by the Public Utilities Board, looked at alternative fuels for Coleson Cove. Except in some very limited circumstances, Orimulsion consistently came through as the cheapest. NB Power therefore embarked on a $747-million conversion of Coleson Cove to burn Orimulsion. The vast bulk of the money has already been spent.

There is just one tiny little catch. There is only one place you can buy Orimulsion: the state oil company of Venezuela. And while it has not always been the case, these days Venezuela is a synonym for “unstable banana republic.” The country teeters on the brink of civil unrest and authoritarian rule by a military strongman.

Risky? You bet. During the winter of 2002-03, a massive strike pitted the state oil workers against the government of President Hugo Chavez. During this supply interruption, NB Power had to spend tens of millions of dollars to modify their Dalhousie facility so that it could burn heavy fuel oils instead. This made a major contribution to NB Power’s $77-million loss that year.

Other OPEC oil cartel members have complained that Venezuela was avoiding OPEC production limits by selling Orimulsion. They want Orimulsion counted in Venezuela’s oil production quota. The South American country is therefore seeking to move to higher value added products. And NB Power appears never to have had a firm supply contract with Venezuela, but only a much weaker memorandum of understanding.

Yet when the regulator and the province questioned NB Power about the risks inherent in reliance on a single fuel source, their response was complacent nonsense. This was no different, they claimed, than being dependent on the single source of Sable Island offshore natural gas.

I must have been out of town the day they had a general strike in Nova Scotia and a military strongman and former coup leader came to power. And I guess no one told NB Power that the Maritimes and Northeast pipeline now connects this region to the huge supplies of natural gas now on the market throughout North America. If ever the offshore gas ran out in Nova Scotia, the gas in the pipeline would simply flow the other way. Not to mention the Irvings’ plan to build a liquefied natural gas facility in Saint John, making an even more secure and diversified natural gas supply.

No one denies that natural gas is too expensive these days for conventional, low-efficiency electricity generation like Coleson Cove. Nova Scotia Power sells natural gas in the US and burns lower cost fuels for exactly that reason. The point is rather different: NB Power failed to appreciate the political risks to which it was exposing the ratepayers of New Brunswick, and its own inapt analogy to Sable gas shows just how little they understood those risks. And that is only a tiny piece of the myriad problems facing NB Power. The only solutions the corporation seems to come up with involve expanding its already unbearable level of debt.

Wish David Hay all the luck in the world. He, and New Brunswickers, are going to need that and more before NB Power is through with them.