NB Power deal stirs debate on energy future

The provinces of New Brunswick and Quebec are closer to negotiating a controversial energy agreement that would sell a large part of NB Power's generation assets to Hydro-Quebec in a deal that is expected to close around March 31 of this year. A memorandum of understanding (MOU) was first signed by the two governments on October 29, 2009, but was amended in January of this year after concerns were raised by New Brunswickers about the impact of the sale on the province's energy future.

The 2009 MOU was a surprise to citizens in New Brunswick, says Tom Mann, executive director of the New Brunswick Union of Public and Private Employees and a steering committee member of the opposition group, New Brunswick Power Not for Sale. "There was no public notice that the New Brunswick deal was transpiring. Only a week before the signing, the cabinet heard about it. The reaction from the public was slow because there was so little information available."

The opposition to the NB Power deal is growing, Mann says, and falls into three categories of concern: the poor governmental process and lack of access to information; analysis by engineers and business specialists that questions whether the deal is a good business decision; and the impact of the deal on the ability of the province to develop a comprehensive energy plan for the future.

"The coordination of the opposition has created some strange bedfellows. There is political opposition from the Green Party, the New Democratic Party, the official opposition party C they're all in agreement that the deal was bad and needed to be stopped." Mann explains that the opposition to the NB Power deal includes businesses, engineers, academics, trade groups, senior citizen groups, churches and the aboriginal community. "It is unprecedented that there is such a collection of voices. The government grossly underestimated the reaction from the public."

The business deal

Under the current MOU, Hydro-Quebec would pay $1.8 billion for seven hydroelectric generating facilities, two diesel peaking units located on the main grid and firm transmission rights associated with the acquired generation assets, including 670 megawatts (MW) of transmission rights with New England. Hydro-Quebec would also acquire the Point Lepreau nuclear facility for an additional $1.4 billion, but only upon its successful refurbishment by New Brunswick. The deferral account associated with the refurbishment would be retained by New Brunswick.

Gordon Weil, president of Standard Energy Company of Maine, analyzed the MOU, both in its original and amended formats, for the Atlantic Institute for Market Studies. The nonprofit organization looks at regional, national and international policy. The mission states, "We help people to understand what governments do well and what they do badly, how to make taxes fair and comprehensible, and how to build our economy so that opportunities are maximized for everyone." About the Lepreau MOU transaction point, Weil notes in his analysis that the risk to New Brunswick is if the nuclear facility is not refurbished. "A significant part of the benefit could be lost if Lepreau did not come back into service. While there is now no indication that it will not return to service, the extensive delays in its refurbishment and the problems encountered by AECL (Atomic Energy of Canada Limited) can justifiably provide grounds for concern."

In exchange for the sale, Hydro-Quebec would enter into a long-term contract to provide NB Power with an annual supply of 14 terrawatt hours (TWh) of electricity. The Liberal government states that this is more than enough for the province's current needs. For the first five years the electricity sold to NB Power would be fixed at a rate of 7.35 cents per killowatt hour (KWh). Two power pools would be created, 4.5 TWh for industrial users and 9.5 TWh for residential, commercial and wholesale customers. Residential rates would be frozen for the first five years, but industrial users could see an increase if consumption exceeds the 4.5 TWh. The added cost would be levied and collected from all industrial users. However, Weil notes in his analysis that the costs to industrial users would still run 23% less for large customers and 15% for small customers, although not at the 30% reduction of the original MOU.

The Graham government is suggesting that by avoiding a planned rate increase of at least 16%, the low rates would help the province recover from the recession and provide a competitive economic environment. Opponents argue that the province has been plagued by years of bad energy decisions, high debt and deferred rate increases, which have exacerbated the problem.

John Farrell, Institute for Local Self-Reliance senior researcher specializing in energy policy developments, says, "There are several reasons why such a deal strikes me as a poor one for New Brunswick. A long-term commitment to buy precludes adding more of your own generation. A long-term commitment to buy power also works against conservation or energy efficiency programs that would be working to reduce load."

Transmission and an energy future

The January amendment to the MOU has a significant change to the original deal C NB Power would retain ownership of the transmission system within the province. Originally that system was to be a part of the deal. Without the transmission system, Quebec has dropped its payment from $4.75 billion to $3.2 billion, although $1.8 billion would be the amount forthcoming until the Lepreau facility was paid for with the remaining $1.4 billion.

The transmission system would continue to be operated by the New Brunswick System Operator, an independent entity that is also utilized by Eastern Maine Electric Coop (EMEC) and Maine Public Service Company in northern Maine. Both Maine companies are part of the Northern Maine Independent System, says CEO Scott Hallowell of Eastern Maine Electric Coop based out of Calais. He explains that this system is "electrically connected to New Brunswick; we do not have access electrically to ISO New England."

The NB transmission system is a part of any energy future the area decides to develop. It provides a conduit for new forms of renewable energy to reach markets. If New Brunswick and the provinces to the north, Newfoundland and Labrador, P.E.I. and Nova Scotia, were to develop sources of renewable energy, the transmission lines would need to handle the additional loads.

The transmission capacity from New Brunswick to New England is 1,000 MW. Hydro-Quebec would use all but 30 MW of that capacity. Under the deal with Hydro-Quebec, New Brunswick must purchase up to 14 TWh for the province unless: there is a load reduction due to efficiencies or economic factors; industrial customers find a cheaper supply; or the province decides to opt out of an additional Point Lepreau refurbishment at the future date of about 2040.

In an interview, Weil commented on the repercussions if the deal were to go through. "There's no question it would have an adverse impact on New Brunswick's ability to develop renewable energy" both to serve themselves or others.

Farrell also feels that the larger implications of the sale on planning a renewable energy future are more negative than positive. "The greater meaning may be that the only effective strategy for new renewable power generation in New Brunswick or other eastern provinces is to generate for export. Since transmission systems are rarely constructed with lots of excess capacity, I'd imagine that this market will be limited." Weil says that in his opinion the deal would allow Hydro-Quebec "the opportunity to dominate the New England market and more importantly is their hope of controlling the [transmission] ties between Canada and New England C they believe there is a substantial demand for hydro power."

On February 22, the opposition group held an Options Summit in Fredericton. Experts in the energy field assembled to give presentations on renewable and other energy sources. Nuclear, solar, tidal, wind, biomass and smart-grid technologies were explained to the audience. "We hope to refresh the debate by having viable options out in front of New Brunswickers," says Mann.

Transparency and regulation

Those opposed to the NB Power deal are disturbed by the lack of transparency in Shawn Graham's Liberal Party's decision-making process and what Mann describes as a significant lack of balanced media coverage. According to Mann, Irving, a large New Brunswick business presence, owns most of the radio stations, all but two of the weekly newspapers and the only three English daily newspapers in the province. Under the power deal, current large industrial utility users such as Irving would receive significant rate discounts over a five-year period. Mann says that media coverage in the province has been largely in support of the power deal and that the opposition group has not been able to garner media attention that discusses the drawbacks in a serious manner. "We are portrayed as 'noisy protestors.'"

Mann explains that the people of the province are willing to engage in robust discussions about what's important to them, and the unbalanced media coverage has trained the spotlight on the mix of "business and politics as usual." As a result, alternative media groups have sprung up to fill the void, including social networking. "It's been huge for sharing information." New Brunswick Power Not for Sale's website has received 350,000 hits in a province that has a population of 770,000. The weekly hits rival the total broadcast of Irving newspapers, says Mann.

Along with concerns about the lack of transparency, there are also concerns that the deal would change the nature of the province's regulatory environment. Weil notes in his AIMS analysis that the MOU raises a question of regulatory control that is "unprecedented." It is not uncommon for utilities to be owned in multiple jurisdictions by a single owner in both Canada and the United States. "But these owners are not governments," he says. "The MOU provides for one provincially owned utility to acquire another. As a part of the consideration New Brunswick gives to Hydro-Quebec for the transaction, it also permanently cedes some important government authority."

Maine and New England may be affected by the deal. During his interview, Weil said that if the deal were to go through he thinks that the Federal Energy Regulatory Commission would get involved because of Hydro-Quebec's market share position in New England. "It's a gamble for Hydro-Quebec," he says, and of potential harm to Maine. "Unfortunately, Governor Baldacci has seen this at the 50,000' level as being a way to increase transactions with Canada. He's failed to see the harmful impact on northern Maine and that Hydro-Quebec would gain a dominant role in setting prices for New England. I would hope that he would get his energy people to take a closer look."

But given the political turmoil in New Brunswick around the issue, Weil says that it is unclear to him whether the deal would go through, at least in its current form and timeframe.