General

Take my power utility, please

Some complain that New Brunswick’s sovereignty has been compromised, though it’s hard to see how

Take my power utility, pleaseIn the wake of Hydro-Québec’s astonishing $4.8-billion deal to take over New Brunswick’s electric power utility, I have just one question: would Hydro-Québec please take over Ontario’s next? As long as elephantine, debt-ridden provincial power utilities are taking over other elephantine, debt-ridden provincial power utilities, why should New Brunswick have all the fun? If the taxpayers of Quebec are generous enough to underwrite another province’s expensive energy policy mistakes alongside their own, then I say Ontario should be next in line.

NB Power got itself into trouble for much the same reason Ontario Hydro did, before its breakup a decade ago, as indeed did Hydro-Québec: it overexpanded, over-invested in capital plant, overpaid its over-manned workforce, and financed it all by over-borrowing—and undercharging consumers, effectively subsidizing demand to justify its own expansion. The combination of political ownership and monopoly control of the market proved all too prone to abuse, as it always does, the scale of the folly obscured by the usual cowboy accounting. It is, in short, a costly, politicized mess: $4.8 billion in debt, and groaning under the weight of its very own rundown, over-budget, behind-schedule nuclear fiasco, the Point Lepreau plant, beside which the Darlington disaster looks almost economic.

So you would think the deal would be popular among New Brunswickers. In return for the distribution grid, the transmission lines, and most (though not all) of its generating capacity, Hydro-Québec will assume responsibility for all of the utility’s debts, and freeze residential and commercial electricity rates for five years in the bargain (they had previously been scheduled to increase by three per cent annually). Industrial rates would be cut to levels comparable with those in Quebec. And with the utility’s liabilities erased from its balance sheet, the province’s debt would be reduced at a stroke by 40 per cent.

Yet the deal is proving hugely controversial in the province. For one thing, there’s the matter of Liberal Premier Shawn Graham’s 2006 election promise that the utility would be maintained in public ownership, though that is easily answered: NB Power will, in fact, remain publicly owned—just by another province’s public. Others complain that the province’s sovereignty has been compromised, though it’s hard to see how. Yes, the utility will no longer be owned by the province, but it will continue to be regulated by it, the same as any corporation, domestic or foreign, that operates within its borders. If anything, that ought to mean more effective regulation, since the province will no longer be in the conflict of interest of regulating itself.

If the deal is controversial in New Brunswick, it is simply toxic in Newfoundland, whose premier, Danny Williams, smells a plot to block power exports from the planned Lower Churchill hydroelectric project from reaching their intended markets in the American northeast, with Hydro-Québec instead using its newly acquired New Brunswick lines to deliver its own. With not only NB Power but possibly other provincial utilities in its clutches, he warns, Quebec would have a “stranglehold” on the region’s energy supply.

Again, these fears seem overblown. Perhaps Williams is disinclined to accept the government of New Brunswick’s assurances that it will maintain open access to its transmission lines, in its continuing role as the regulator of the utility. But he doesn’t have to believe them. If Hydro-Québec wants to sell into the U.S. market, it is required to abide by U.S. Federal Energy Regulatory Commission rules requiring the owners of power lines to give equal access to competing power suppliers. (Newfoundland would have to pay the going rate to wheel its power through New Brunswick, but it could not be discriminated against.) One might prefer that the Canadian common market were safeguarded from provincial conspiracies in restraint of trade by Canadian authorities, but in the absence of that merest expression of national will, the Americans will suffice.

If anyone ought to be leery of the deal, rather, it would seem to be Quebecers. Hydro-Québec has a history of ill-advised mega-projects spurred by grandiose visions of export riches, James Bay among them. It’s not at all clear that those northeastern states are thirsting for megawatts of imported hydroelectric power, given declining demand and plummeting natural gas prices. As the energy policy analyst Tom Adams has observed, Newfoundlanders may come to be thankful their own provincial power utility is not in the same position, trying to unload great whacks of additional power on an already saturated market.

Indeed, it’s still not clear this is a great deal even for New Brunswick. Yes, it has found a buyer for its bloated, listing power utility. But is Hydro-Québec the right buyer? Could it have fetched a higher price from a competitive bidding process? Rather than accepting payment in the form of the promised rate freeze—the province estimates the savings to consumers at $5 billion—why not demand the cash equivalent, and let rates float where they may, that is, according to the laws of economics, rather than politics? And rather than simply transfer control of the province’s electricity generation from one monopoly to another, whatever happened to opening the market to competition, promised in 2004 but never delivered?

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