The Atlantic Institute for Market Studies says reaction by NB Power and the New Brunswick government to its latest paper is defensive and disappointing. Power Trip: Stumbling toward a policy for NB Power, is the latest paper prepared for AIMS in a series on the electricity industry beginning in 1996. Power Trip provides in-depth analysis of the current restructuring and details NB Power’s historically poor performance in spite of advice offered in two AIMS papers seven years ago. Had that advice been followed, New Brunswick would be enjoying a sound and sustainable electricity market today.
This most recent paper is critical of the new Electricity Act, which will convert NB Power into NB Power Holding Company and break up the existing corporation into four stand-alone subsidiaries. About half of NB Power’s current $3 billion debt will be apportioned to the subsidiaries. Contrary to the assertions of the electricity establishment, all of NB Power’s current debt and liabilities, which are huge and unsustainable, are backstopped by New Brunswick taxpayers and no one else. It is a fiction to pretend that the new New Brunswick Electric Finance Corporation will ultimately be responsible for the debt and not taxpayers.
The response from the government upon release of the paper did not deal substantively with the issues facing New Brunswickers – namely expanding debt, declining value of existing generating assets, high operating costs and limited competition in the retail marketplace.
“NB Power and the New Brunswick government are obscuring these important issues for taxpayers and ratepayers with red herrings.” AIMS president Brian Lee Crowley said in a statement today. “Seven years ago AIMS first raised the issue of the alarming financial position of NB Power and virtually every one of the predictions made then regarding the deterioration of the financial and asset position of the utility has come to pass. We have been forced to issue yet another warning about the exposure of New Brunswickers to unacceptable and unjustified risk.
The only reaction of the power establishment in the province is to hide its head in the sand. New Brunswickers deserve to have these vital matters demystified so that they can decide if they wish to pursue the risky policies being promoted by the utility and the government. ‘Just trust us’ is no policy at all.
Tom Adams, the author of the two earlier AIMS papers on NB Power, says the current financial restructuring in New Brunswick is strikingly similar to the path taken in Ontario. “In Ontario, first came write downs of phoney assets, then came the collapse of Ontario Hydro, then came a massive government bailout in 1999. Because the bailed out Crown corporations remained unaccountable and were permitted to expand, Ontario is now in a second collapse/bailout phase. NB Power has gone through a massive write-down. The old NB Power is now effectively insolvent, which is why government is bailing it out to the tune of $1.5 billion. Unless New Brunswick learns the lesson of Ontario and freezes taxpayer liabilities, another bailout will be required in just a few years.” Mr. Adams was appointed by the Ontario Government to the Ontario Market Design Committee, charged with developing the initial rules for Ontario’s electricity market. He is a former director of Ontario’s Independent Electricity Market Operator, responsible for managing the integrated operation of Ontario’s power system, and was the author of an AIMS paper on the lessons this region could learn from Ontario’s electricity deregulation, From Promise to Crisis.
In their media release NB Power responds to the paper saying the Province of New Brunswick is charting a course that will bring significant changes in what they call a “measured and moderate” approach.
“Half measures” replied the author of the paper, Thomas L. Tucker, PhD. “It is unfathomable that both the provincial government and NB Power are still choosing not to deal with the substance of this important issue facing New Brunswick taxpayers. There is no way these new Crown corporations will be able to generate enough revenue to service the existing debt, any more than their predecessor corporation has been able to do. When the foreseeable collapse of this house of cards occurs, it is the taxpayers of New Brunswick and no one else who will be on the hook for the entire existing debt.”
“For now, the status quo is unaltered,” continued Tucker, “playing a shell game with NB Power’s debt burden will do nothing about high operating costs, the high reserve capacity, the deterioration of generating assets, or electricity rates that fail to reflect the cost of service, all of which led to NB Power’s inability to manage its debt in the first place. There is no reason to believe that, without fundamental management and operational changes, the new crown corporations will be able to pay fees in lieu of taxes, or pay dividends sufficient to service debt.”
Dr. Crowley added, “The utility has chosen to deal with this out of control debt by borrowing more money. The reforms now being instituted are not solutions at all — they are wishful thinking. Canadian and international experience shows that better and less risky policies are available that would better serve the interests of taxpayers and electricity consumers. We invite NB Power and the government to engage with us in a constructive dialogue on the right approach to a policy with powerful implications for New Brunswick’s future.”
A complete version of Power Trip: Stumbling toward a policy for NB Power is available on-line.
For further information, contact:
Director of Communications and Development
AIMS (902) 429-1143
Direct (902) 446-3532
Cell (902) 452-1172
Fax (902) 425-1393