When I asked last week for people to put forward serious alternatives for NB Power that would keep rates competitive, orderly pay down debt and allow for the phasing out of oil/coal electricity generation, there were no takers. In fact, I haven’t heard any serious options in the wider media either.
So last week I asked three people that I know have had close dealings either with NB Power or energy policy in New Brunswick. All three concluded that the model NB Power was operating was unsustainable if the vision for the utility was as I outlined in the first paragraph. All three said NB Power could remain a stand alone utility for a number of years but rate increases would need to be well above average.
This observation is not a revelation. Electricity costs have gone up in New Brunswick since 2002 at twice the rate of overall inflation and the were projected to rise even faster until the government capped rate increases to 3%. That’s a nice card trick but, like Enbridge, you are just pushing those costs to future rate payers. If costs are increasing at 5% and you cap rate increases at 3%, somewhere down the road someone will have to pay the piper.
So I asked my panel (separately) to give me a serious alternative to the HQ deal.
All three said the likely outcome for NB Power would be a sale to Emera. Not now but in a few years when the situation was more desperate, the NB government would unload the utility to Emera as part of that company’s plan to be a large privately owned power utility in the Maritime Provinces and New England.
But Emera wouldn’t take NB Power’s debt – not all of it. The government would likely have to absorb at least a couple of billion of debt. In addition, there would be no rate freezes for residential or declines for industry.
The reality is that right now NB Power is in a relative position of strength. HQ wants to dramatically increase its U.S. business and could benefit from NB Power’s strategic position – and is willing to pay for it – to the tune of several billion dollars. If this deal is scuttled, NB Power will end up negotiating with potential suitors from a position of weakness and that could cost us billions. The point is that Emera doesn’t really see NB as a strategic channel to ship cheap hydro to the U.S. It has none – so it certainly won’t assign billions worth of value to the province.
I’ll close with this. Two of the three people I talked to said they were surprised that the government went through with the deal (MOU) because the political hit was going to be heavy no matter what. Even if you like the deal, one said, for a resident or business it is a bit like “kissing your sister” – even if you like it you would never admit it. Very few people are going to admit to like selling of NB Power to Hydro-Quebec even if they realize it is the best option out there.
Good Morning David. I was thrilled to find your column back on the front page of the TJ Business section today (and even above the fold). Unfortunately, it became clear why when I read your support for the HQ deal.
You raise an excellent point; we should be far more supportive of big business, including the Irvings who are a valuable part of the NB economy. However, your argument is flawed with respect to connecting big business with heavy power users.
The businesses you present as examples are not heavy power users and, while the province has so far refused to release a list of the companies that would enjoy 30% rate reductions (from their already subsidized rates) we know that this list is very small and includes the pulp mills (not sure who else, maybe the refinery and McCains) but it would be nice to know. The list has to be small as we do not generate enough power to have an extensive list of super users.
As Vandal explained on CBC last night, the configuration of the $9.7B deal was dictated by the PNB to take $4.7B in cash and $5B in rate relief. It is fair to ask what alternatives to the the $5B in rate relief were possible. If we took it all in cash, we could pay off all our debt and still have over a billion to invest in economic development (I would suggest a targeted area with a bright future). A billion would attract some serious business. Instead, without us having a choice, a substantial amount of the $5B (figure refused to be released so far) has been invested in the pulp mills and a few others yet to be identified.
This is where a lot of the emotion comes from. It is no great feat to sell off assets and use it to pay down debt. Hell, we could sell many provincial assets and pay debt. What could we get for the Beaverbrook Art Gallery, Grand Mannan Island, Mount Carleton Provincial Park? These might fetch handsome amounts but would it be fair to direct the proceeds to the heavy power users without a debate or mandate to do so?
From my perspective, I agree we need to invest in economic development. What irritates me is there has been a choice made to make perhaps the most substantial economic development investment in our history in the heavy power users, mainly pulp mills. This is being done without debate, without a strategy, without a task force, without a public consultation, or any of the other public input opportunities that have been afforded for the most trivial of decisions. Maybe we would arrive at the same decision but I for one do not see the future prosperity of our province in pulp mills and I am not comfortable betting the farm on them.
Regarding your call for alternatives, I missed this but here is three:
1) Open negotiations with Newfoundland who are developing major hydro resources and need both a customer base and a transmission path
2) Consider privatizing NB Power as has been done in Nova Scotia
3) make the deal as proposed but take $9.7B in cash and properly vet and debate where we invest it
“Very few people are going to admit to like selling of NB Power to Hydro-Quebec even if they realize it is the best option out there.”
That’s a good point. There is more mileage in opposing the deal than supporting it. Look at the Conservation Council’s about face for example.
I think that part of the reason pundits and others are getting away with criticism w/o offering alternatives is that the fiscal situation that NB Power is in has never been clearly outlined to residents of NB. The cards have never been laid on the table. In fact, we have had the opposite – Graham et al were saying everything was fine until recently. Who would believe them now when the sad truth is told?
Having some independent analyses of NB Power’s fiscal situation would help at this point in getting the message across.
“The businesses you present as examples are not heavy power users”
Actually this is exactly my point. When people broad-brush “big business” as bad they are hurting New Brunswick’s reputation with all large businesses. If David Alward or TJ Burke or anyone else has specific ‘big business’ they dislike and others they like, they should be more clear.
As for your options, it seems to me that the timing is bad for the NL option and I don’t trust Danny Williams. As I point out the privatization of NB Power, unless you can monetize the value of the strategic position by selling to someone who needs it – you won’t get anywhere near the deal offered by HQ.
As for your third point, it is a very valid point and up to the government to make the case that the goodwill payment used for rate relief is the best use of the money. I have said here – and have not heard any alternatives – that if NB wants to be a forest products manufacturing jurisdiction (paper, sawmills, wood pellets, waferboard, etc.) it has to have competitive industrial power rates. We could ship all our logs for processing out of province but it is a fact of life that the transformation of logs to value added wood products is a power intensive effort. If you don’t like the forest products industry, I won’t argue your position, but you need to tell me how we can replicated the thousands of above average paying jobs.
The government, it seems, values the forest products industry and has attempted to bring power rates in line with other competitors such as Quebec, South Carolina and British Columbia. I should say electricity rates as natural gas costs are still well above average.
“1) Open negotiations with Newfoundland who are developing major hydro resources and need both a customer base and a transmission path
2) Consider privatizing NB Power as has been done in Nova Scotia
3) make the deal as proposed but take $9.7B in cash and properly vet and debate where we invest it”
Please explain how 1) would solve anything. How would that deal with NBP’s debt? How would that keep power rates low? David has already dispensed with 2).
As for 3), why would HQ go for that? Why would anyone go for that?
We need realistic alternatives, based on a realization of NBP’s situation.
“Having some independent analyses of NB Power’s fiscal situation would help at this point in getting the message across.”
I agree, Richard. Politics is a funny business. I have always wondered at how they can be adamantly opposed to something on Thursday and adamantly supportive on Friday. I remember thinking the same thing about BNB. When the Liberals were in opposition they railed against BNB and talked about the need to radically change it and within weeks of being in office Greg Byrne had done a complete about face and was strenuously defending the exact model they had criticized.
Some people have suggested on these pages that they are lying or have no integrity. I can’t go that far. I don’t question their motives. I think most politicians get into politics with a genuine interest in serving the public and doing good things.
I am no fan of this deal but I also love the Habs and they aren’t going to be winning the Stanley Cup anytime soon. What I am saying is you have to put emotion aside and look at the stark realities.
I haven’t completely made up my mind but I am trending to the selling as being in our best interests. I think we’ve gotten what we’ve asked for from NB Power. For too many years it was used as an employment agency, both directly and through the construction of the various fossil fuel power plants. Maybe if we put more effort into Nuclear, maybe if we ALL had a little more vision and put more effort into wind power, maybe if we streamlined the utility years ago, it goes on and on. The fact is there is little in terms of alternatives. Who is going to pay for the maintenance on Mactaquac and Lepreau? What are we going to do with those fossil fuel plants?
Does anyone (politicians and the common man) have the stomach to change NB Power or for that matter any of the bureacractic arms of the government? On this blog alone we have people with all manner of opinions but few have the fearlessness to not post anonymously, now take this fact and ask a politician to innovate. I thinks its called political suicide, so even if you don’t like Graham, he’s taken a chance and you gotta give him credit for it, doing something is better than sticking ones head in the sand.
This deal is like Buckley’s cold medicine, it tastes really bad but it works.
The ‘no alternative’ argument is not valid because David has already made so many presuppositions that any argument is doomed to fail. But really, “I don’t trust Danny WIlliams”, come on David!
David has never proven HIS thesis that ‘NB Power is unsustainable’. In the early nineties it was in similar shape, but it wasn’t ‘unsustainable’. It’s odd that nobody was even TALKING about NB Power before this deal, and all of sudden its on the brink of…what? Bankruptcy?
As I’ve said, if you want to deal with debt and energy that’s easy, Quebec did it up until most of the dams were built-you simply subsidize your energy costs (although its not actually a ‘subsidy’ when you pay for it anyway).
Want NB Power’s debt to disappear? Poof, it’s gone, simply use the provinces general resources to ‘buy it out’. That puts NB Power at carte blanche-although of course it adds to NB’s general debt, and puts it to about 12 billion. Again, thats not unusual, 12 billion is about what Nova Scotia owes, and nowhere near what Newfoundland owes. In NS part of that debt is $2 billion on a utility that they haven’t owned since 1992. It’s also way less than Quebec’s debt, and it looks very much like Ontario is going to be in the big debt per GDP department before things turn around. There are options for dealing with provincial debt as well, but that would make this post way too long.
Not only does that freeze rates, but it puts NBPower in a very attractive position to build up ‘reasonable debt’ through non renewables. As I’ve posted, in Boston a wind turbine was purchased, expecting it to pay for itself in 9 years, it did so in 2!
There is an announcement out of Caraquet on a new CFC plant which will destruct appliances and convert CFC’s to its component parts for use in a new highway de-icing application. The building is being constructed primarily using solar power, and the corporation providing the investment is a solar power leader, meaning good investment here could have other options in future (I’m surprised I haven’t seen that discussed here).
One big issue with that is that I wonder WHAT power rate this corporation was given-the lower rate or newer? However, with this new investment, the interest in solar power in miramichi, this deal seems to be getting rushed NOT because NBPower may be unsustainable, but because we are on the brink of cheaper renewable power.
The reality that nobody wants to talk about is how much a persons view is based on ‘faith’. That’s because energy costs are very much at the whim of the good (or bad or non-existent) Lord.
Mactaquac MAY need to be redone in 2015, or it MAY last to its expected date of 2038. We MAY continue to get heavy rains and lots of hydro, or we may get a drought. Hurricanes COULD hit the US and increase their demands for foreign power, or they could increase domestic supply making all these arguments redundant.
As for economic development, here are the arguments again:
1. The reduction in energy costs for large industry is only for CURRENT large industry, not for any future users.
2. Residential rates are going to rise ANYWAY. Quebec has said that it will NOT buy dirty power to resupply NBers, but dirty power currently provides 50% of NB’s usage. That means the difference will come from Quebec. Which means…
3. While its been stated that RATES will rise according to the CPI, the government refuses to state that that is what NBers will ultimately pay. There are distribution costs, there is debt referral costs, and any other costs that Quebec may tack on.
4. If Quebec is going to be supplying the power to NB, then its more likely that NBers will pay closer to the american costs. Why would Quebec sell to NB when it can sell for higher to New York?
5. The power ceiling is set at 14 TW, and current projections already state that NB will need MORE than that. Again, those costs, and others, are to be built into increases AFTER the five year freeze.
I’ll have to do some heavy editing to make that fit on Canadaeast’s comments section!
I agree that a Newfoundland or privatization deal would be difficult to pull off, especially when the government has suddenly declared an emergency after claiming things were fine to this point.
A forth option would be to revamp NB Power. Drop the assets that make NB Power more attractve (as Hydro Quebec is doing) and come up with a revamped operating model. Everything has been fine so far and NB Power has been paying the debt servicing costs and modest amounts on the principal. Since alarm bells are suddenly ringing in the Premier’s office, I am guessing he has access to projections that are not such a pretty picture (or he is taking the focus off the massive debt he has generated himself or HQ has their hand on the buzzer). Let’s see the projections. If HQ can manage NB Power to be attractive, I believe that we can, and should not simply give up on the assumption everyone else is smarter than us. Let’s see what our own model would look like.
Regarding the investment in forestry, this is something that we absolutely need to carefully debate and evaluate. It might be the right decision but I doubt alternatives were even considered. We do not know the exact amount of the investment, but it is something like $2 billion. To my knowledge, New Brunswick has never even contemplated such a massive ED investment (can anyone confirm that?). It is a game changer. We are not talking about attracting a branch office of RIM with that kind of investment, we are talking about moving the entire headquarters to New Brunswick. Consequently, there are not well developed ideas waiting in the wings.
We have made massive investment in the forestry sector already with our forestry management policy adjustments, reduction in corporate tax, subsidized power rates (even without the HQ deal) and forgivable loans for modernization. I support the idea of supporting winners but one has to ask if this sector has a bright future; is it a star returning to shine or a black hole that will continue to suck up all our resources?
For argument sake, lets say we have $2 billion to work with. Why not split it and have $1 billion set up as an ED fund that can be accessed for R&D purposes. The rules are you have to leverage a minimum 3 times in VC and/or federal funding to advance your idea or business. Use the other $ 1 billion to lure some strategically targeted blue chip big businesses here (not struggling start ups). Maybe it is an electric car battery plant, a bio fuel processor, a windmill manufacturer, or a data center (threw that in for you). I am sure there would be lots of ideas to consider but the criteria would be these are not start ups but established, well backed companies that are targeting the new economy. As was recently stated, we would have to seek out the winners else the losers will find us.
Obviously I do not have detailed solutions for you but suggest it is critical to develop a proper strategy rather than just grease the wheels of the squeakiest sector. The money can collect interest in the bank while we take our time to get this right. Wouldn’t it be fun to develop an economic development strategy for New Brunswick with $ 2 billion to fund your plan?
“The ‘no alternative’ argument is not valid because David has already made so many presuppositions that any argument is doomed to fail. But really, “I don’t trust Danny WIlliams”, come on David!”
My presuppositions are actually simple: continued competitive rates for residential and industrial users, pay down debt and migrate to cleaner production. If those presuppositions are unreasonable, then you are agreeing with my position.
As for Danny Williams, I had a talk with my brother on this and he said that would be a huge concern for him. He is a huge supporter of Stephen Harper and thinks that if Williams would try to bring down his own party Federally (the ABC campaign) than he would do anything to serve his own interests. I kind of like his strong stances but I don’t think he would have New Brunwick’s best interest at heart anymore than Jean Charest. That’s my point.
David and Mikel’s points are both valid. A government entity by definition will look out for its own provincial interests first and everyone else second. This is true whether it is Newfoundland, Quebec or whoever and is exactly why we need to be very concerned about selling our assets to another government. We are not privatizing NB Power, we are talking about selling it to another government and there is a big difference.
Shawn Graham claims he can regulate the Quebec government to retain control of NB’s energy policy. I cannot accept this; it would certainly be a first. In the CBC interview, did you see Vandal squirm when CBC asked “could you foresee a situation when the citizens of Quebec would accept their energy resources being managed by another government?”. He refused to answer which indicates what the answer was.
We can regulate ourselves and regulate business but I don’t think we can regulate another government.
@David Campbell
Well said. It’s easy to love Danny Williams the NL underdog, but never forget that NB is a completely different underdog – we share some interests with NL but certainly not all.
Yes Tom, The Premier also took a chance on french immersion, Gagetown ferries, UNB SJ, Atcon etc. I respect the willingness to make decisions you believe in even if they are not popular. I do not respect throwing out ill-conceived ideas that create public turmoil.
there needs to be more transparency with regards to rate increases. Ownership, who cares, its the ratepayers who are at risk here, and the gov’t has done very little to put concerns over future rate increases at ease. Yes there will be increases (and theoretically decreases I hope) due to inflation, but how about some explanation with tangible numbers for the other factors that will drive up rates. The added power requirements above the heritage pool. Also the allowance to increase rates for extra transmission costs and aging infratstructure. The gov’t is only touting the inflation increase, but in reality it could easily double that. Also, why is annual consumption being used as a baseline, and not peak production? Also, where is our clause for a decrease in rates should our consumption fall below the heritage pool – anything is possible. More honest information might make it more acceptable.
Imagine! Anyone comparing Danny Williams, a self made everything, and charest, a simple opportunist, very simple. How easily small people looking for a secure niche can succumb! Meanwhile New Brunswick empties of its best. Sells its greatest assets to pay for “the obvious”. Past rulers accept your accolades! And I am not sorry I have a long memory!
@Anonymous
In fairness to Vandal, the two situations are not comparable. One one hand, HQ has netted $3.1B last year while keeping low rates; they sit on a $22B nest egg and they have enough power stored in reservoirs to handle a multi-year drought. On the other hand, NB Power will lose money this year (next year too), its rates are much higher, they have less than $400M in the bank and they rely on a volatile source of energy for half of their supply.
NB Power did the best they could with what they have and Vandal understands that, but he has a much better hand. He has the power (literally) to lower the cost of supply while making a profit on generation, transmission and distribution. HQ can generate power cheaper than anyone else and that power is available today, with completion of the Rupert river diversion on Nov. 7 (5.3 TWh/year @ 5.1¢/kWh).
@David Campbell
David;
Apparently this deal is not about wiping away debt. The debt doesn’t disappear as you know. HQ’s NB sub will borrow from HQ to pay NB Power. So who will pay HQ NB sub to enable it to repay Hydro Quebec, with a nice return? You and I will continue to pay our share of that debt, David, in our residential power rates. HQ will get other revenues including an undetermined amount for environmental credits. (his is ironic given that we’ll be stuck with the assets generating those credits when they are mothballed.) It’s also not about that “crippling” debt. We have the reaction of the Bond Raters on that account. So it is as I think you suggested, David, about providing a bailout to our pulp mills. M. Vandal explained that this deal is $4.7B in cash and $5B in [industrial] rate relief. I agree with anonymous that we need to have a discussion around the wisdom of handing out $5b in subsidies and I would add without ever seeing the books of the companies who have their hands out. Where’s the business case for this? Pulp mills are in trouble everywhere, including Quebec. David, we first should have a debate about why we need the cash out of our equity in NB Power. If there is a compelling case to be made for selling that position, then we can have a debate about how best to get at that value…
New Hampshire, California, and many others have need to buy power also, but they don’t sell their soul! And many places pay way more for power then NB. If NB was going in debt, why did they not do like ANY business, and raise their rates? All poor excuses for “something”!
“HQ can generate power cheaper than anyone else …”
Which is why it boggles my mind that our province didn’t even ASK Quebec for a residential and small business rate cut.
The person posted to TALK to Newfoundland about a partnership, not SELL NBPower to Newfoundland, so the argument about ‘trust’ is misplaced. With HQ you have new owners, with Newfoundland you have a new partner. This is where NB has always fallen short, any student of history knows about the extreme profit to be had by being between two different markets. It’s why there have been continuous wars in the mideast, and why Afghanistan is so important. NB has always had its position dictated to them by the feds or industry-either with natural gas or highways.
I don’t know much about the NFLD talk, but it seems that NFLD are trying to get an access point, so there’s a perfect partnership, or at the VERY least a perfect bidding war. NBPower is already leasing transmission lines to Quebec, if they want more, build more..its a guaranteed win.
That NBPower is some bloated bureaucratic monster is a misnomer. Go look at Emera in Nova Scotia, although privatized for almost two decades, they have as many employees and spend as much on administrative salaries.
That is not what you are presupposing, you are presupposing that they are ‘unsustainable’. I’ve just given you a very clear ‘alternative’ where you CAN pay down debt (on NB Power), keep rates competitive (they can still be raised some to be competitive), and migrate to cheaper, cleaner renewables. So obviously there IS an alternative.
It MAY be true that no politician has the stones to take on NBPower. I doubt that, because given the unpopularity of this, Graham either has ‘stones’ in spades, or like McKenna, has future career options with the various utilities he’s done favours for. He only won his own riding by 800 votes, by all accounts, not only may he no longer have the governing party, he may not even hold his own seat.
And again, even if a person has a view toward selling the public utility, thats fine, but certainly accept that its valid to NOT want to sell the utility, and that its not ’emotion’ on one side, but cold hard facts on the other. Both views are perfectly valid. That’s why I agree with that Bethany lady in Sussex who is calling for a plebiscite. Let the best arguments be made, then people VOTE for what they want.
Considering its been buying from them for years!
Personally I think an amended deal may be the best compromise.
With proper management I believe NB Power could be profitable in the long term, but I have yet to hear a suggested alternative that could also provide short term relief.
As for amendments, I believe we should make the Heritage Pool cap negotiable every so many years. A figure like 14TWh per year could be completely irrelevant in 25, 50, or 100 years, and it makes no sense to force ourselves to buy all that extra power at market price. That’s especially true considering that in the future, HQ may further expand, and a competitive market may consist solely of an HQ monopoly.
Secondly, the citizens of NB are opening themselves to being overcharged in half a dozen different ways (additional load costs, recovered decommission costs, transmission costs, distribution costs, etc). Also, HQ has zero reason to charge us a fair price, and if they are given a chance to make a bigger profit, they will. I say we amend the deal so that both RCW and Industry rates remain bundled (generation, transmission, distribution) and become directly tied to Quebec rates, plus a small premium (e.g.: 10%). HQ already makes a tidy profit off their own customers. If they are provided with new customers with an additional 10% profit margin, that’s a lot of extra profit in the long run. At the same time, the deal becomes more balanced for us (concerning RCW vs Industry), and everyone in NB could enjoy a nice rate cut.
Knee jerk reaction due to being bankrupt of ideas. There are a million ways you could rework government (making it smaller and more efficient) while looking at ways to better manage the utility yourself. Starting with getting rid of the bloat in the UD agencies (BNB and Enterprise system) as they have provided very little bang for “our” bucks.
UD: unsustainable development
@Rob
Basic macroeconomics maybe? If you reduce the cost of an input, NB energy-intensive industries will be more competitive, thus increasing their exports. Demand for commodities will be higher and industries are more likely to hire people and invest in their New Brunswick operations.
A higher number of people employed will increase wages, consumption, savings and tax revenues, etc.
Claude, you forgot an important aspect. Your scenario assumes there is a infinite market for your product. The demand for products like newsprint has dropped while supply has increased. It is more than operating costs that have put our paper industry in trouble.
One of the big questions is why the government has decided invest a major portion of the NB Power sales proceeds in rate relief for the pulp mills. We do not know the exact numbers as the government has refused to release them so far, but as major power users, they certainly would get a substantial portion of the $5 billion in rate relief.
I am not convinced that pulp mills are a smart economic development priority and I certainly do not support the sale of of a major provincial asset to subsidize them without some debate. As a minimum, they should have taken all cash then offered rate rebates to heavy power users based on parameters such as number of new hires, investment in modernization etc. To assume these organizations will invest in their plants and in people is a huge leap of faith; it is not necessary to give them the money up front then hope they will do what you want. I suspect some will simply put the rate savings straight to the bottom line and invest nothing.
Again Claude, thats not macroeconomics at all. In fact the forestry industry is a perfect example of how that is NOT true. Bernard Lord handed out massive subsidies to the forestry sector worth more than half a billion. These were technology transfers, which meant machinery replaced manpower. So much so that now even though NB is MUCH more heavily reliant on the forestry sector, it employs the fewest people per square forested acre in Canada.
Irving took that money and became more efficient,but there is no guarantee this will CREATE jobs, in fact you’d have to be a pie in the sky dreamer to think that NB can possibly be competitive with asian and south american markets where trees grow year round and paper is increasingly formed from even cheaper materials like bamboo.
And again, we are talking about only 300 jobs in Irving Pulp and Paper. IRving already blackmailed the province into a low interest loan or else they’d move to quebec. Then they got forestry policy gutted to allow them more access to crown land. Anybody that thinks pulp and paper is a sensible ED strategy, well, good luck with that. Hopefully it won’t be five years from now that even with lower rates and a few more blackmails that the mill is closing or moving anyway.
It would make me feel much better about the deal if the government would allow the AG to do a review and report back the findings before the deal is signed. The handling of how this deal is being communicated to taxpayers is what is creating all the confusion and chaos. When you are signing a 10 billion dollar deal I expect you to have all the figures to back up the claim that it is in fact a “good deal”. I’ve worked in sales for over 8 years and there’s no way I am going to make the sale without having all my facts straight.
Richard, FYI, in a CBC interview last evening, HQ CEO Vandal explained that it was the province of NB who asked for the rate relief. He explained that HQ valued the NB Power assets then deducted the value of the rate relief. He did not specifically say we could have taken the deal all in cash but he did say the rate relief value was deducted from the amount HQ was willing to pay.
This may not be what actually happened. The pulp mills have already commented that the rate reductions in this deal are below what they actually demanded so that makes me wonder why Shawn negotiated further reductions; it was more likely an HQ offer in lieu of cash.
Regarding you asking why Newfoundland might have interest in NB Power, the answer is the exact reasons Quebec was interested. The premier went to Quebec to strike a deal for their power and he got a surprise offer to buy our utility. Don’t you think it is worth setting up a couple more meetings and seeing if anyone else surprises us with an offer?
We are all getting sucked in by propaganda that there is a sense of urgency we have to unload NB Power. Why? Where is the analysis to rationalize this? NB Power has had power increases but so have all power utilities. NB Power has been servicing and paying their debt. They have been recognized nationally, locally and by HQ as a well managed organization. What is the sudden panic to unload them?
“I’ve just given you a very clear ‘alternative’ ”
Nope, sorry, I don’t see a feasible alternative there. Increasing NBs debt load by absorbing NBP debt and then pretending it won’t have a significant effect on the province in nuts. Provinces, corporations and utilities can increase their debt load up to a point, when they have assets that are increasing or expected to increase in value. Otherwise the lenders increase rates charged. NBs debt and future prospects are such that credit ratings have been cut already. The impact of paying down debt or servicing debt affects funds for other programs. Now if you don’t live here, perhaps that does not matter to you, but when programs are cut, it will be the poorer members of society who get hurt, just as they were in the 90s.
As to Nfld hydro – its not there yet. Nothing to transmit across NB, and even if it was there, what revenues would accrue to NB? Would they be enough to keep our power rates down? Seems to me if Danny wanted to make a counter-offer there is nothing preventing him from doing so. In fact he could join forces with NB members of his own party to put something forward. Is he all bluster? If so, he has at least something in common with Alward.
I would not consider supporting a plebiscite or an early election unless some real alternatives and more information were on the table.
@ClaudeB:
“Basic macroeconomics maybe? If you reduce the cost of an input, NB energy-intensive industries will be more competitive…”
Claude, I think you misunderstood my question. I have no problem with the industrial rate cut. That makes perfect sense to me. However, the CEO of Hydro-Quebec says NB didn’t even ask for a residential and commercial rate cut when they first came to the table.
I think the opposition to this deal would be cut in half if the general public in NB were looking at an actual rate cut instead of a freeze. I can understand if Hydro-Quebec refused this request during negotiations, but our government didn’t even attempt it. Why not?
@ClaudeB:
“Basic macroeconomics maybe? If you reduce the cost of an input, NB energy-intensive industries will be more competitive…”
Claude, I think you misunderstood my question. I have no problem with the industrial rate cut. That makes perfect sense to me. However, the CEO of Hydro-Quebec says NB didn’t even ask for a residential and commercial rate cut when they first came to the table.
I think the opposition to this deal would be cut in half if the general public in NB were looking at an actual rate cut instead of a freeze. I can understand if Hydro-Quebec refused this request during negotiations, but our government didn’t even attempt it. Why not?
Again, just because its your OPINION that its not an alternative doesn’t mean its not feasible. I wasn’t going to go into the tax issue, but since there’s no choice…like I said, NB’s debt is no different than Nova Scotia’s, is better than Newfoundland’s and even Quebec’s. The debt is still there, its just aligned with the assets of NBPower (which is better than other places which have no energy utility to back it), so you aren’t ‘increasing the debt’, its still the same.
Credit agencies have been quite clear as to WHY NB’s rating dropped-because of Graham’s bonehead taxation policies. They SAY they like it, but know that it affects the ability to pay for those services Richard mentions. That’s the other issue, namely, its completely insane to have a taxation policy where the poorest keep getting hit with the largest increases. The wealthiest corporations in the province are getting a huge boon, and the wealthiest NBers are having their rates dropped. Now, in this economic climate do you know of ANY other province where taxes are dropping? (and dare I say, who is really speaking for the poor of the province?)
Of course not, even the feds have stopped talking about tax breaks. So you implement a taxation policy that virtually every successful region of the world now has-where those who can afford more taxes pay them. You stop letting banks and insurance companies and Irving and McCains get a free ride.
So with a tax policy that makes sense, there is no fear for those policies Richard mentions. So again, that’s perfectly feasible, now you may not LIKE it, that’s fine, but that doesn’t make it not feasible, it just means you don’t like it. And fortunately theres a pretty active group lobbying now for a plebiscite, and it will be the vocal ones, not the detractors at blogs, that the government is going to pay attention to.
There isn’t much point in Danny Williams making an offer when Graham has already said its a ‘done deal’ and will be ‘selling it’ til the end of March. So there IS something stopping him. As has been said here, Williams looks out for Newfoundland FIRST, so if he’s getting involved then he has a reason to, its not that he’s in love with New Brunswick. That means there’s a potential business opportunity there. As said above, the real emotion has been on the part of those supporting the deal as the rush can only be justified because “NB Power is unsustainable”.
“Credit agencies have been quite clear as to WHY NB’s rating dropped-because of Graham’s bonehead taxation policies. ”
Please don’t make things up – makes you look bad. The tax policies have little to do with the debt load – the debt load is due to poor economic and wage growth over several decades, with little propect of improvement.
“There isn’t much point in Danny Williams making an offer ”
That is ridiculous. Given the vocal opposition, Williams could easily make a counter-offer. If feasible, it would sink Graham politically. We have to conclude that there is no feasible alternative from Nfld. So what are you left with, apart from indignation?
“The tax policies have little to do with the debt load – the debt load is due to poor economic and wage growth over several decades, with little propect of improvement…”
The tax policies removed, and will remove for years ahead, hundreds of millions of dollars from provincial revenues. Whether or not you believe in trickle down economics, that money will need to be replaced. In NB, we’re replacing that lost money by borrowing. We hope that the amount of new business we drum up will make up for the borrowed billions, but that’s far from a certainty.
The tax changes only account for a percentage of the billion dollars we’ll add to the debt this year. Regardless, the change in tax policy does affect our revenues, and will affect our credit worthiness. There are two sides to the government ledger: revenue and spending. Changes to either will affect our fiscal health.
@Anonymous
“Open negotiations with Newfoundland who are developing major hydro resources and need both a customer base and a transmission path”
Really? What on earth are they developing? The fabled Lower Churchill project is no further ahead today than it was in 1980. There isn’t a dollar of capital allocated for the project, let alone the extra several billion that a subsea transmission line would cost.
” Whether or not you believe in trickle down economics, that money will need to be replaced”
I am not disputing that the broad-based tax cuts (corporate and otherwise) were an error. What I am disputing is that they have much effect on NBs fiscal situation. NB is in bad shape because of anemic growth, income growth, wage growth, population growth, etc. The weak growth means less revenue for GNB and leaves us more and more reliant on federal largesse. Its growth we need, and there is little data to show that taxes per se affect that very much.
I’m learning a great deal from the exchanges taking place on this blog as I have to admit most of you know far more than I do. Has any thought been given HQ having a plan ‘B’ if the deal with the NB government does not materialize? After all, HQ did have such an alternative all worked out when it could not come to an agreement with Danny Williams.
@all
I read McKenna’s op-ed this morning, and he was pushing the macro rationale pretty hard. The point I made yesterday was an attempt to understand what was going through the minds of the NB negotiators when they discussed the outline of the deal. Residential customers were not at the top of their agenda. Please don’t shoot the messenger!
@Pierre
What would happen if thing don’t turn out? Well, it would be business as usual for HQ. They would keep on building the Rupert-Eastmain-1-A-Sarcelle and Romaine projects, while preparing the documentation for their next six or seven generation projects.
They would keep selling power through the NB interconnection on the spot market and push 300 MW to New England through the NB tie for the next 15 years. Thierry Vandal would take the corporate jet to Montpellier, Concord and Augusta, rather than Fredericton, to sign deals with Vermont, New Hampshire and Maine.
Transmission priorities would be refocused to speed up the 1200 MW tie to New Hampshire and upgrade the path to New York state to expand sales to Pennsylvania, Ohio and Michigan.
Life would go on.
Richard, you really should READ things before you comment-particularly if you are going to get petty:
..Moody’s said as a result of anticipated borrowing requirements, net direct and indirect debt may increase to over 150% of the province’s revenue over the next four years, from an estimated 106% in 2008-09. This is due to a combination of weak outlook for economic growth and an aggressive tax-cut strategy the New Brunswick government, led by Premier Shawn Graham, outlined in the most recent budget. That tax-cutting plan pushes the province’s corporate income tax rate to the lowest in the country while shedding two brackets from the personal income tax structure.
“While we expect that tax reforms will support long-term economic growth, the tax rate reductions will impair near-term revenue generation, impacting fiscal outcomes and borrowing requirements,” said Sean Marion, Moody’s lead analyst for New Brunswick.
As for Newfoundland, it is still too early to talk about concrete negotiations about Churchhill 2 for reasons mentioned in the above blog. However, in Williams letter to Graham he says that the two provinces were ALREADY discussing partnerships with regard to that energy program, and that next month’s Atlantic Premier’s conference was specifically designed to talk about atlantic energy co-operation. Graham has since said that he will not be attending the premier’s conference. Nalcor Energy was also once in poor financial shape, but now is one of Newfoundlands most productive assets. While NB continues to state that NB transmission lines will continue to be open, they will not be OWNED by NB, but by Quebec, which Newfoundland says continues to delay its power development.
Another possible road:
Immediately halt all work and money pouring into Pt.Lepreau. and instead build new natural gas power plants on the fields in Sussex and Albert County and take advantage of our own resources. Surely the amount of money still required on Pt.Lepreau would be a good start on natural gas plants. Slowly we could climb out of debt using our own natural gas at a discounted rate for power generation. Of course, we would have to have rights to our own resources and currently all our gas is being pumped to the United States. Reorganizing NBP will also be required for future fiscal management to make sure we don’t end up here again. As I see it at this time our choices are to sell to HQ or spend more to make more.
” This is due to a combination of weak outlook for economic growth and an aggressive tax-cut strategy the New Brunswick government”
Thanks for agreeing with me. NB has had weak economic growth for decades; that’s the main reason for the debt (ask Moody’s). That in turn, is the main reason for the debt rating (ask Moody’s and please don’t cherrypick).
“As for Newfoundland, it is still too early to talk about concrete negotiations about Churchhill 2 for reasons mentioned in the above blog.”
Then why do you and others keep raising that as a realistic alternative?
Adam –
What many people fail to understand is the Lepreau refurbishment is a fixed price. Any cost over runs are the responsibility of AECL and the federal government.
New Brunswick does pay for replacement power so delays in completion do cost us that but if we were stop Lepreau construction, we’d be paying for replacement power until new generation facilities were completed.
Certainly one of the attractive features of NB Power is its diversity and your idea to add natural gas to that mix is a good one. This is exactly the type of opportunity we should be exploring with our utility.
Richard richard richard, as a scientist I’m sure that you know how to test the validity of a statement. There are two conditions mentioned for WHY the lowering of the debt rating. 1. Weak economic growth and 2. aggressive tax cuts. They SAY that, there is no ‘cherry picking’ here. You admit yourself that NB has had weak economic growth for DECADES. However, the debt rating was not lowered during those decades. Therefore, it is mainly, as MOODYS says (not me), that it is the aggressive tax policies. Geesh man, what kind of scientist are you anyway?
It is still too early to talk about CONCRETE negotiations because NFLD is currently having trouble with Quebec getting access to US markets. Its NOT too early to talk about negotiations because they’ve ALREADY HAD negotiations. And most importantly, because forever is a long time. Once a public utility is sold, it is VERY difficult to get back, if not impossible. I grew up in the eighties, at that time who would have even thought there’d be such a thing as the internet or half of the technologies of today. People have to think of coming generations when they make such drastic policies.
I just don’t trust Graham since the ATCON debacle. In the beginning when he won the election I was so relieved thinking he would stop the hospital closures, job loses, and the total upheaval that Lord had caused in such a short amount of time in office. Actually, I was never against restructuring but to try to accomplish it in a span of a couple years was far to devastating to the people. Fast forward a couple years and now we are losing NB Power, what is next?
With the bailout money given to Atcon, so many deserving companies had applied for this money and never new they didn’t have a chance. For 2 years in a row, Atcon construction ended up with the bailout money totaling 70 million dollars. It didn’t make sense until I heard that Shawn Grahams father, Alan Graham, is a consultant to Mr Tozer who is the company owner, friend and supporter of Graham and his liberal government. Also Andrew Graham, a brother to the Premier, was employed with this company in the not to distant past. If you want to know more about the dealings this article is a must read! Its hard to trust someone completely when they are pulling the wool over people eyes in this way. Even if the sale of NB power happens to have benefits, abuse of power has always been grounds for dismissal!
http://www.mightygrandfalls.com/blog/labels/ROAD%20RUMOURS.html
“You admit yourself that NB has had weak economic growth for DECADES. ”
Hardley an admission – that is the main point. Debt ratings have not been lowered during those decades? Please do not just makes things up in order to score points. Mikel, mikel, mikel, check the facts before you get on your white charger.
NB is heading into much more difficult fiscal territory. Moodys knows that, Graham knows that. Little to do with tax rates, much to do with poor economic growth and esclating costs for the foreseeable future.
“It is still too early to talk about CONCRETE negotiations because NFLD is currently having trouble with Quebec getting access to US markets.”
You do not live here Mikel. I have a business to run and 3.5% will impact on that business. Further hikes in years that follow will have even greater impacts. I live here, you do not. I need to make a profit; the chattering classes do not.
If 3 % will impact your business then there are numerous things you can do to alleviate a 3% increase. Since 3% increase in operating costs will reduce your tax payable, the actual effect on your bottom line will be almost negligible and I’d suggest spending less time online and more time running the business to earn a profit. I know of people who are retired and on fixed income who oppose this deal who have more riding on rate increases than whether you will buy a new car with your earnings this year or not. Your income tax savings will MORE than cover a minute increase in utilities, so perhaps a little less greed would be a good thing. As David says, sometimes people have to look further than what is in it for them.
I POSTED what Moodys says and you keep arguing as if it were me saying it. Those aren’t my words, those come from Moodys. They didn’t say anything about much more difficult fiscal territory (which is another argument for holding onto a public utility), they SAID the two points I mention.
THey also said this:
“Moody’s is now the third credit rating agency to conclude the proposed transaction will not have a direct impact in improving the province’s credit rating. Both DBRS and Standard & Poor’s drew the same conclusion last week shortly after the Oct. 29 announcement of the pact by Premier Shawn Graham and Quebec Premier Jean Charest.”
For credit ratings, New Brunswick’s credit rating was first raised in 1991. Over the next 12 years the liberals crowed about it, and up until Graham New Brunswick continued to have the best credit rating in the atlantic. Up to 2005 the provinces credit rating was AA3, and interestingly enough, that was also the year that Quebec Hydro had its credit rating lowered. Those are ‘the facts’, I never ride without them (well, usually).
It is indeed refreshing to read such a thoughtful post and some insightful comments on this issue. I was drawn into this debate by a friend and have blogged about my analysis on the NB Power financial status since I did not find much objective analysis on this issue.
If I may digress: Mikel, are you suggesting that providing goods or services for a price and trying to maximize that process is being greedy? What world are we living in! It’s funny when one maximizes an objective function it may be called process improvement, but when one maximizes for profit, it is termed greed.