On Enbridge

Someone sent me an email asking why I wasn’t blogging or writing columns on the current high natural gas prices for industrial users.  I do mention the high cost of gas in my column today

A few months ago I wrote a fairly scathing analysis of natural gas pricing in New Brunswick and the Alice in Wonderland world we live in where industrial customers pay as much for gas as residential users.  The latest rate filing would see residential users that change from electricity to gas pay $8.85/GJ and large volume industrial users would pay $8.86/GJ.  As far as I know there is no place in the world where industrial clients would pay more per GJ than residential users.  But I am not a gas expert – someone else may be able to weigh in on this.

After my column, I was invited to meet with the Enbridge folks and they made some interesting points.  The system that is set up today – was set up and is regulated by government.  Enbridge is essentially just the contractor.  Bernard Lord’s government determined that it wanted a wide ranging roll out of natural gas into places like Fredericton where there wasn’t a market-based reason to go and put in a system that allowed Enbridge to make a guaranteed return on their investment and acheive this wide roll out into uneconomic areas.  The deferral account and the significant cross-subsidization of residential customers by industrial customers were two tools put in place by government to allow Enbridge to complete this wide roll out and make its guaranteed ROI.

After a false start, Nova Scotia went is an entirely different direction and now is rolling out natural gas on a straight economic model.  New areas get gas infrastructure when there is a clear model that justifies the investment.  You get much slower roll out but much better prices.  That is why Halifax can offer natural gas at less than half the rate as New Brunswick.

I don’t want to be the one to point it out but the troubles with NB Power started just about the same time back in the early 2000s.  And, I don’t want to be the one to point it out it was also around the time that any meaningful discussion about using NB’s local supply of natural gas for local economic development was squashed.

If it seems to you there is a kind of Jekyll and Hyde thing going on you are right.    Some people wanted natural gas to be brought on with a full market based approach (including more competition at the retail end) and only roll out as the market dictated.  Others wanted natural gas to be treated like electricity or telecom and be rolled out pervasively – in the south and the north – even if the public had to pay for the infrastructure (interestingly, it was decades before NB was fully electrified).

Some people wanted the government to look at the natural gas in Sussex and try to look at ways that the owner of the reserve could make its return on investment and at the same time the gas could be used for economic development (instead of shipping it to the U.S.).  Others wanted it put in a pipe and shipped to the U.S. as quickly as possible.

I could make a similar argument with electricity.  The language of the new energy legislation in New Brunswick under Bernie stripped out any reference to economic development. 

My opinion on energy policy is that it must have an economic development dimension.  Setting up a natural gas model so that industrial users pay three times as much (compared to other jurisdictions) so that residential users can be enticed to use natural gas doesn’t seem to fit the definition of an ‘economic development dimension’.

David Hay telling me in private (I can say it now that he is gone) that we should let Northern New Brunswick just decline and focus on the south – doesn’t seem to me like the former head of NB Power felt he had any type of economic development mandate.

And government officials refusing to even consider the possibility that Corridor Resources could make a profitable wellhead price for gas and it could simultaneously be used for economic development purposes doesn’t seem like an economic development dimension either.   Although, ironically, the potash mine has an ownership stake in the natural gas out there and gets it at a real cheap price.  Thinking about how we could extend this idea beyond the Potash corp. was ignored by government.

I agree, however; that it is a complex issue.  When I talk about ‘economic development’ that implies government intervention and that can lead to weird outcomes like industrial users of gas paying more than residential users.    There are people that say government should just completely stay out of energy altogether to avoid this politicization but I keep comign back to the same issue.  Most of this is about monopolies or quasi-monopolies and you can’t – almost by definition – have a competitive market in a monopolistic situtation.

That means government is in whether we like it or not and it seems to me that means economic development should be in.  I don’t care if residents in my neighbourhood have access to natural gas and I don’t want Enbridge building pipes to Fredericton if they aren’t warranted.  I do want our industries – again based on some reasonable formula – to have access to competitive gas if possible.

We are living in an Alice in Wonderland world right now.  Up is down and down is up.  It’s happy unbirthday to us all.

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11 Responses to On Enbridge

  1. Are you suggesting that the same policy – and the same people – supporting the natural gas rollout also caused the disastrous management at NB Power starting in 2000?

    This would be a significant accusation, if it can be substantiated. Particularly if it was the result of any consideration from the gas company to the government of the day.

    But it doesn’t escape my notice that the third party in the mix, the prominent oil company in the region, benefits from both the fiasco at NB Power and the policy keeping natural gas prices high to subsidize a wider rollout.

    So, yes, it is complex. But also, it seems to be, very unsavoury. I really wonder what mechanations took place behind the scenes that we will never see reported in the local press.

  2. Anonymous says:

    “David Hay telling me in private (I can say it now that he is gone) that we should let Northern New Brunswick just decline and focus on the south – doesn’t seem to me like the former head of NB Power felt he had any type of economic development mandate.”
    > I beg to (strongly) differ. I believe (and fortunately I am not the only one) that anybody who takes seriously his/her economic development mandate cannot disagree with David Hay. Anything else is just playing politics.

  3. Anonymous says:

    But, by the way, I entirely agree with your statement that “setting up a natural gas model so that industrial users pay three times as much (compared to other jurisdictions) so that residential users can be enticed to use natural gas doesn’t seem to fit the definition of an ‘economic development dimension’”.

  4. mikel says:

    This should really be a month long series, or at least a week. There are simply too many issues in this one blog to get a handle on. I disagree that ‘abandoning the north’ is ‘playing politics’. When there is a completely free market in the world-and the province, and the south is NATURALLY (whatever that means) outpacing the north, then it may hold water. When industrial users are given tax incentives to set up in Moncton, then its a different story entirely.

    As said, its ridiculous to talk about government keeping out of this, it would actually be more relevant to talk about the private companies keeping out of it. In virtually EVERY province gas suppliers are regulated by government, and even here in southern ontario we really only have TWO choices. Both of whom are essentially contractors who can’t make a ‘profit’, but only a ROI, which magically seems to turn out as a profit.

    There is an energy ‘market’, you may have heard about it in BC, it was similar here, when it was ‘deregulated’, essentially it meant that gas companies sprung up overnight with unscrupulous practices to entice people into getting ‘fixed prices’ for their gas. Somehow these NEVER seemed to pan out in the end, surprise surprise, adding an extra layer of bureaucracy never saved people any money.

    What is most important about this is the gas within NB and the interest in it. Unfortunately at the time this was partly political because PEI had just been taken for a ride by some gas shysters who were telling the government about the tons of gas under their feet. I’ve mentioned before that the energy utility in Manitoba not only handles power but also gas. In NB the ‘upside down’ part isn’t companies paying the same as people (and why shouldn’t they, they already pay taxes at one third the rate), but that the emphasis is getting people onto gas, meaning getting OUT of electricity, at a time when NBPower has a huge debt and needs every customer it can get.

    This should all really be up for public debate, you were talking about this years ago, and its almost always a big topic in the facebook group with people doing considerable research into it (the natural gas in Sussex I mean).

  5. Anonymous says:

    “When industrial users are given tax incentives to set up in Moncton, then its a different story entirely.”
    > Not at all. What David Hay said (according to David Campbell) is that “we should let Northern New Brunswick just decline and focus on the south”. Well, giving tax incentives for industrial users to set up in Moncton is just and example of focusing efforts (and, most importantly, scarce resources) where it really makes economic sense.

  6. richard says:

    Enbridge was essentially given a monopoly to provide gas to NB as per GNB’s rollout policy. I wonder what it would cost to end that, and re-work the policy. The Lord govts rollout policy was perhaps done to encourage a switch by consumers from hydro to gas, to be reinforced by freeing NB Power to raise its rates. Reverting to an NS type of model might open up the gas market, but the costs of doing so might be prohibitive to GNB.

  7. mikel says:

    But it DOESN”T make economic sense-thats why it was so heavily subsidized. That MAKES it political. And because services still have to be offered in rural areas, even if its worse services, then its not necessarily economics that says it makes sense to put all the industrial players in Moncton. Actually, it might make better economic sense to have ONE large industrial park, say around Miramichi, and then have a suburban hub where ALL the population lives around it. Again, none of this is just ‘the economy stupid’, economics is political.

  8. Rob says:

    Once again, it would be nice if we had an updated energy policy guiding our energy decisions. I agree with what Richard said about getting more residential customers onto gas, and off of electric heat. Shifting that residential demand off the grid and onto the pipe should be a provincial goal, given the challenges our electrical monopoly faces.

    NB Power could drive gas expansion to more remote areas of the province by installing natural gas turbines near Belledune or in Miramichi. We could also encourage mill and factory owners to use cogeneration and combined cycle plants in their operations, and provide government subsidies and generous feed-in tariffs for the same. We could build a gas-fired power plant in Penobsquis, fed from the Corridor wellheads. We could do a lot of things, but we don’t seem to know which way to head.

    There’s also the prospect of residential power production using units like the FreeWatt, a gas-fired boiler that also runs a 1.2 kW electric generator. The BloomBox exists on a commercial or industrial scale, and can produce 100 kW of power using 0.7 GJ of gas. That translates to roughly 11 c/kWh using the current General Service rate for gas. It’s not competitive for industrial users, but certainly matches the 11 c/kWh commercial rate. It also frees NB Power from using 300 or more kWh of fuel to provide 100 kWh of electricity over a highly inefficient generating and grid system.

    We can move our energy system any direction we like. It all depends on our goals. Do we want cheap power for industry? Do we want low-carbon energy? Do we want subsidized power for residential customers? What do we want?

  9. Anonymous says:

    “it might make better economic sense to have ONE large industrial park, say around Miramichi, and then (…)”
    >> And the logic of that would be … ??? I agree about your point of having one large industrial park. But in Miramichi??? Why??? What is the comparative advantage of Miramichi? What New Brunswick needs to do is choose between Saint John and Moncton and focus in one of the two cities (and leave Fredericton as the city of government, like it happens in most states south of the border). If you keep pouring money in other parts of the province, the tendency will be to perpetuate mediocrity or even make things worse. Isn’t the pressure from three “cities” enough?

  10. Paul says:

    “David Hay telling me in private (I can say it now that he is gone) that we should let Northern New Brunswick just decline and focus on the south -”

    This same opinion was offered by Francis McQuire several years ago in L’Acadie Nouvelle. I am not sure by Campbell’s comment whether he Hay was commenting on ED in general, or just related to NBPOwer,

    Either way this is the attitude shared by many in ED circles in southern New Brunswick, especially since it was the attitude by many top people, by the sounds of it.

    I am beginning to agree with them, especially if the powers that be, who are in charge of economic development have that same general feeling. Get rid of all the acronyms and Economic developers, and let the place develop without the reluctant help of this bright lights in Southern New Brunswick. It’s obvious that if that then all our problems will be solved and we would become instantly self sufficient. (By the way we’ll keep the revenue from our natural resources.

    As for natural gas, who cares. It will never come to Northern New Brunswick, so I guess, to share the attitude of the southerners, and if its not in my backyard, I don’t care.

  11. mikel says:

    “it might make better economic sense to have ONE large industrial park, say around Miramichi, and then (…)”

    That was a joke because it doesn’t necessarily make economic sense to have ONE industrial park ANYWHERE. That’s not an economic view, but a political one.

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