But now, as oil prices bounce between numbers that seemed impossible even last summer, the question of why that same logic can’t pull down power rates persists.
Energy Minister Jack Keir said he understands the frustration, but he doesn’t share the enthusiasm for buying up stockpiles of cheap oil.
“When oil was $35 a barrel it would have been nice to buy all you need for the next 20 years,” Keir said yesterday.
“It doesn’t work that way.”
NB Power CEO David Hay says there are two good reasons why the utility can’t stockpile cheap oil in order to pass on the savings more swiftly to customers.
On a regulatory level, the province’s energy regulator would have to approve the change.
On a more basic level, he says the tank is already full.
Indeed, Hay said the utility already has its fill of oil due to its purchasing policy of buying oil 19 months in advance.
“Our next 18 months requirement for oil are already purchased, therefore there is no ability to buy $40 oil today because we have already filled our gas tank,” said Hay.
Hay said ratepayers will get the benefit of the low price of oil in 18 months, just as NB Power expects to post a deficit of $60 million next year because of last summer’s sky-high price that reached as high as $147 per barrel.
Yesterday, the price of oil pushed up by more than $2 to US$48 a barrel on the New York Mercantile Exchange based on unrest in
“It’s easy to look backwards and figure out whether or not you should have or should not have done some purchasing policy,” said Hay.
“We do not have purchasing policy. We do not try to time the markets to win or lose against the markets. All we have done is adjust the timing.”
To those who have asked NB Power to review its purchasing policies, Hay points out few complained last summer when the purchasing option was delaying the pain of sky-high oil prices.
“Last July instead of paying $147, we were paying in the $90’s and nobody complained about it,” said Hay.
“Now you’re saying why can’t we get cheap oil now, well the fact of the matter is that you haven’t paid for the $147 dollar barrel of oil yet.”
Even if NB Power was in a position to buy oil in bulk, Hay said the utility could have lost money if it had decided to speculate and buy oil at $90 per barrel before prices dropped lower than $40 per barrel.
“There were many people who felt that when oil fell to 90 dollars, that was the right time to buy. So if we bought everything forward for the next five years at 90 dollars, what would you be saying?”
Hay admits that prices will likely be rising more dramatically than they fall in the next months, but he said that doesn’t mean NB Power is any more interested in moving to a portfolio buying policy similar to what is used at Nova Scotia Power.
Nova Scotia Power purchases oil on long-term and medium term-contracts, and it buys oil from spot markets on a day-to-day basis.
Conservative energy critic Paul Robichaud, and the public intervener who represented ratepayers during the most recent Energy and Utilities Board rate increase hearings, have encouraged the Liberal government to consider moving to a portfolio approach in order to pass savings on more quickly.
Keir says the portfolio approach can be tempting, but he says it is still risky.
“There could be some that would say it’s worth the risk,” said Keir.
“But you can’t turn that on a dime. You can’t just one day decide ‘now we are going to buy a whole bunch,’ because they have already bought a whole bunch for the next 18 months.” Keir says NB Power would need to use the oil it has currently secured on contract before it can change its purchasing policy, and he says prices could be anywhere at that point.
“You need to use that and expend that for the next 18 months,” said Keir.
“Then you start playing poker with the price of a barrel of oil. I don’t think we want to do that to the ratepayers.”
Charles Cirtwill, of the Atlantic Institute for Market Studies, said it is hard to determine what purchasing policy works best when rates are increasing simultaneously in
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“The bottom line for the consumer is it hasn’t been working out for either side.”
Cirtwill said the province could build infrastructure to actually store oil if it really wanted to take advantage of low prices, but he noted that would cost money.
“Oil is not something you can put in your back pocket and hold onto it,” he said.
“I think it’s one of those situations where they are going to get burned either way.”