On industry subsidies, again

One of the top opponents of the NB Power deal wrote a commentary in the newspaper this weekend in which he reiterates his them that government should not be “providing across-the-board energy subsidies to industries” (although as a side point no one has yet convinced me that resetting NB Power’s generation model to a lower cost structure is a subsidy). 

Then with a seamless act of hubris – in the very next breath, he makes a rousing case that New Brunswick should be providing across-the-board subsidies to the green energy industry.

What continues to bug me (well beyond the NB Power debate) is that these intellectuals all ‘hate’ subsidizing industry – unless it is the industries for which they are advocating subsidies.  Western Canadian think tank Phds will roll out endless arguments against subsidizing industries in Atlantic Canada and at the same time support massive subsidies to the agriculture industry.

All I am asking for is intellectual honesty.  Admit you like subsidies when it is your pet industries and then we can start the debate about which pet industries are more valuable.

But this kind of double talk even confuses me – I can only imagine what it does to the average guy on the street trying to make sense of it.

It’s a bit like the U.S. tea partiers demanding the government keep its grubby hands of their Medicare.  Everyone is against big government unless it’s the part of big government they are benefitting from.

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13 Responses to On industry subsidies, again

  1. richard says:

    “he makes a rousing case that New Brunswick should be providing across-the-board subsidies to the green energy industry.”

    Isn’t also the case that the collapse of the asset sale to HQ decreases the likelihood that NB Power will be investing much money in green energy? With much of its debt erased, NB Power would have been in a much stronger fiscal position to invest in alternate energy developments. As interest rates rise, NB Power will instead be spending more of its revenue on debt servicing.

  2. mikel says:

    But they were also getting rid of the main revenue generators, so that doesn’t really follow.
    For David, your logic circuits are a bit skewed here. I didn’t read the article, but ‘green energy industry’ is clearly a subset of ‘industry’. The author is saying NOT to apply across the board subsidies to ALL industries, only the ones THEY like, namely the green energy industry. What’s so hard to understand about that?
    Clearly the author doesn’t hate subsidies, just wants them on the GOOD projects (or at least ones they support). So this definitely isn’t the same category as the critics mentioned later in the post. Again, my absolute favourite is to read the ‘underground royal commmission’ from the late nineties when the liberals had all the clout and the westerners were bemoaning ‘big government’. There is about six chapters on the success of the meat processing industry in Alberta and how it was all done without subsidies. Then came ‘mad cow’ and the US cut off the border and suddenly these western farmers were telling everybody to ‘buy canadian’ and billions in subsidies went to Alberta (and ironically to american processors who had bought out all the local industries).
    It all reminds me of a Bloom County cartoon where a character wants to become a farmer and so needs to say the two following lines without cracking up: “Keep them flat footed goombahs from Washington outta my hair” and then “hurry up with my federal bail out cheque”.

  3. Rob says:

    I don’t think Dr Gagnon was against the concept of a subsidy. He just believes that government money should be spent in one area rather than another. Like I mentioned in the previous post, it all depends on what we believe our energy goals are in NB:

    1) Cheap power for industry
    2) Cheap power for homes
    3) Clean power for the province
    4) Large surpluses of power to sell to the Americans
    or 4) some unholy mix of the four.

    There’s only so much cash to go around, so we’re truly playing a zero-sum game here. Every dollar spent artificially lowering the price of electricity for a large mill is a dollar NOT spent artificially raising the feed-in tariff for a wind turbine.

    So I don’t bemoan Dr Gagnon’s advocation for the latter. That’s why the op-ed pages exist. Let’s just hope some of the political parties pick up some of these ideas, and let the people vote on which approach they prefer.

  4. richard says:

    “But they were also getting rid of the main revenue generators, so that doesn’t really follow.”

    I think that the relief of debt service payments on several billions of debt will outweigh any loss in revenue. Not there would have been a signifcant decline in revenue – power sold generates revenue whether that power comes from HQ or its own assets. NB Power lacks the income to invest in green energy to any significant extent; only by reducing debt can it re-enter the debt market at a reasonable cost.

  5. Samonymous says:

    Western Canadian think tank Phds will roll out endless arguments against subsidizing industries in Atlantic Canada and at the same time support massive subsidies to the agriculture industry.

    Agricultural subsidies have always been a tough nut to crack, even for those south of the border, like Ronald Reagan, who advocated for both small government and the privatization of the Dept. of Agriculture. Unfortunately the Ag lobby won the fight wherein Reagan cut the real budget of the Department of Agriculture by 24 percent during his second term in office. A crushing blow to Libertarians.

    It’s funny b/c Agricultural subsidies were originally implemented as a rescue measure for farmers struggling during the Great Depression, when 25 percent of Americans lived on farms. At the time, Secretary of Agriculture Henry Wallace called them “a temporary solution to deal with an emergency.”

    But just as we found income taxes to be permanent after the two world wars, Ag subsidies are also still in place today, even though less than 1 percent of Americans currently live on farms that are larger, more efficient, and more productive than ever before. Make you wonder.

  6. mikel says:

    The reason debt accumulated so prolifically is because at the provincial level it is dirt cheap. Revenues can vary highly, so it really doesn’t matter what one ‘thinks’ will occur.
    NBPower doesn’t lack the income, it paid down debt over the past eight years, it can easily increase debt. If you look at what energy critics are worried about, it is lack of equity to back up the debt. This will only get worse as NBPower, and the government, increases the use of public private partnerships and gets out of the energy production game. There will be feed in tariffs that will go to Albertan companies, which will increase debt for NO equity positions.

    As I’ve said before, wind turbines pay for themselves VERY quickly so short term debt for infrastructure that creates some jobs right now when needed, isn’t something to get excited about. A wind turbine set up now will last 25 to 30 years, perhaps more, and only about one third of that will be needed to set up the infrastructure. And again, as critics have noted, it is LEAST efficient to offer feed in tariffs to foreign companies-it makes more sense to OWN the facilities outright. That kind of payoff is similar to a dam.

    As mentioned above, theres only a certain amount of dollars. And whether you don’t like to call them subsidies but prefer some other term, the result is still the same-less money coming into NBPower, which in turn exacerbates the NBPower problems (and I’m not denying they exist).

    Tonight I was listening to an old episode of The Agenda focusing on northern ontario, and one of the things they mentioned was that with an increased reliance on resources, the north was at a disadvantage-partly due to energy costs. One mine recently closed and moved its facilities to Quebec, and they made a point of mentioning that they weren’t in competition with the states-energy prices are quite competitive with them-but rather with Manitoba and Quebec.

    One critic mentioned some growth in New York state thanks to what was called “Power for Jobs” program. In this, power rates were directly attached to jobs, so decreases in energy rates meant more jobs. This was one of the problems with the NBPower deal-even when put on the hot seat, Irving made no guarantees that jobs wouldn’t be lost, they just said “this would help”. Thats a LOT of faith to put in the Irvings or other companies, particularly when most were industries which were seeing declines for numerous other factors. So people rightly suspected that even with the deal, they’d lose jobs anyway. That’s a good part of the problem with MOST NB initiatives, while they CLAIM they are to support jobs, they are always reliant on the ‘goodwill’ of owners to provide those jobs. Again, thats indicative of a province which is essentially run by corporate interests. Since Irving doesn’t HAVE to make concessions, they of course won’t.

  7. richard says:

    “The reason debt accumulated so prolifically is because at the provincial level it is dirt cheap.”

    But is controlled largely by prevailing interest rates. These are very low right now, and that has encouraged debt accumulation. Rates are starting to rise and will have a growing impact on the finances of both NB Power and GNB. That means funds will be taken from service programs and used for debt servicing. Some of the leaders of the No Sale campaign are now at least starting to talk again about the issue of NB Power debt; apparently some of the troops have not got the message yet.

    “If you look at what energy critics are worried about, it is lack of equity to back up the debt.”

    Do you even know what that means? I think it has been pointed out recently on this blog the consequences of NB Power being so indebted that it lacks equity in its assets. When you face selling assets, not to make a profit but to pay down debt, you have a signficant problem. You lack the fiscal capacity to enter into large capital investments and are forced to partner with others, whether that is a good long-term strategy or not. The collapse of the deal to sell HQ some assets will likely decrease NBers control over energy generation, not increase it.

  8. mikel says:

    No, its NOT controlled by prevailing interest rates as NBPower’s debt is long term debentures that have fixed interest rates between 4 and 10%, paid out to 2034.

    For increasing debt, that can be done in a variety of ways. The govenrment is currently allowing municipalities and non profits to enter into energy co-operatives, which pay at the feed in tariff rate. NBPower would increase debt during the initial feed in rate, but as the windmills or biomass or solar equipment ages, the feed in rate decreases. And that’s with a VERY half assed approach to renewables, imagine an energy policy that is really intended to deal with the problem.

    So why cancelling the deal would decrease NBers control over generation, rather than selling ALL that generation to somebody else, is beyond me. That’s a skewed kind of logic I just can’t fathom. Even with debt ownership is ownership. HQ certainly wasn’t buying all the generation with an implicit recognition that NBers would have MORE control over them than they would with their own utility.

  9. richard says:

    “No, its NOT controlled by prevailing interest rates as NBPower’s debt is long term debentures that have fixed interest rates between 4 and 10%, paid out to 2034. ”

    Those bonds were sold at prevailing interest rates; any new debt (which is accumulated as we type) is also purchased at prevailing rates.

    ” NBPower would increase debt during the initial feed in rate, but as the windmills or biomass or solar equipment ages, the feed in rate decreases. ”

    That is not really debt; the feed-in tariff is passed along to rate payers and mixed into the meter rate. The feed-in tariff would ‘decline’ when power rates from other sources goes up. The result is overall higher rates at the meter. Green is not necessarily cheap.

    The deal with HQ would have given NBP the fiscal capacity to invest in new generation capacity. Now that is not going to happen, at least not to anywhere near the same extent. As I said above, some of the leaders of the No Sale campaign are starting to get that message, but some of the troops still have not got the memo.

  10. mikel says:

    That’s assuming there IS new debt, and if rates increase more debt isn’t a necessity. Only IF there is new debt does interest rates play a part. The feed in tariff rates PROBABLY will increase debt because its doubtful that rates will rise that high. They may be covered by lepreau if that gets going on track but thats nothing definite. Again, rates don’t HAVE to increase if the utility is subsidized.

    I don’t know who are considered ‘leaders’, or even what the ‘message’ is. NBPower’s debt was CERTAINLY known by most of the people who were fighting against the deal, and even ‘the troops’ are well aware of it. Virtually every time there was a report it outlined both the cost price AND the outstanding debt, so it certainly isn’t true that people had their head in the sand and weren’t aware of NBPower’s debt.

  11. richard says:

    “That’s assuming there IS new debt”

    There is new debt already; the Lepreau deferral acct is still added to yearly – its partly the use of the deferral acct that allows NBP to claim its making a profit when actually its running a loss. Plus they have forecasted a loss for 2010, even if the 3% rate hike is obtained. So yes, there is going to be more debt. It’s no use pretending.

    “Again, rates don’t HAVE to increase if the utility is subsidized.”

    The sad truth is GNB can not afford to subsidize NBP. After the next election, we are going to see tax hikes and program cuts; there will be no appetite to subsidize NBP.

    “NBPower’s debt was CERTAINLY known”

    These would be the same people who claimed that NBP has 48 billion in assets? Denial of the extent of the problem doesn’t help; it just delays a solution.

  12. mikel says:

    What I’m saying is that there isn’t NECESSARILY debt in the future so interest rates don’t NECESSARILY determine much. Lepreau was scheduled to be online by now, and ‘forecasting’ isn’t the same as actual debt.

    Actually, GNB can EASILY afford to subsidize NBPower. Richard likes to pretend he knows the future, but crystal balls have been out of fashion for quite some time. Again, if you don’t think raising taxes on the wealthy ‘has no appetite’ in NB, well, just keep clinging to that.

    Even people that got outlandish information about NBPower were aware of the debt, if they followed it AT ALL. So yes, this WOULD be partly those people, however, I should point out that BOTH sides had people who held on to outlandish comments, in fact the government was coming up with some of its own.

    However, thats all semantics, since interest rates certainly aren’t predicted to skyrocket, thats the one area federal regulators can control and right now nobody in their right mind would let interest rates climb, not for years.

    As for after the next election, again, thats more political than economic. No matter how much deficit there is, we will probably see the usual cycle-for at least TWO years the new government will blame all its economic problems on the previous government. The tory party is not like the liberal party, for a party that constantly touts ‘lower taxes’, to see Alward turn around and raise them would have him burned in effigy. I would expect to see NBLiquor privatized before I see any big moves in other areas. Nothing personal against Alward, but he’s clearly an ‘old school’ tory with not too many new ideas.

    If EVER there was a time to subsidize NBPower now would be it as the appetite is clearly there. The question is, how do you do it sensibly and cost effectively. How do you make it transparant? Those are all problems with the ‘bureaucracy’ of NBPower which will have to be targeted first, and again, that depends on a lot of factors, like what the various lobby groups do. I don’t know what leaders Richard has in mind, but they clearly aren’t from the facebook group, who right now are mostly satisfied that their main aim has been accomplished. Some have been trying to translate the energy into other areas, but haven’t been very successful. So far its administrators simply pointing out CBC stories that aren’t relevant to NBPower.

    One thing I’ve noticed is that NBers seem to be happier as critical followers rather than ‘leaders’. I would have thought some real new standouts would have come out of this that would have gotten public attention. The guy from the Green Party has a little more notoriety, but not much. As I’ve said before, the biggest failing of the protest will come NOW, if that energy can’t be harnessed. But nothing about the future is ever set in stone, so we’ll have to wait and see.

  13. richard says:

    “Actually, GNB can EASILY afford to subsidize NBPower.”

    That easy for someone who does not live here or pay taxes here to say. GNB has a substantial deficit now and is scrambling for revenue. Happy talk about subsidizing NBP to keep rates low is simply not going to fly. I don’t think you appreciate the magnitude of the fiscal shortfall and how much extra revenue is going to be required over the next decade to keep the ship afloat. Selling NB Liquor? A great idea from my point of view, but that won’t help GNBs bottom line; NB Liquor hands over significant profits to GNB every year. Taxes will have to go up, with the HST the most likely candidate.

    “What I’m saying is that there isn’t NECESSARILY debt in the future so interest rates don’t NECESSARILY determine much”

    Debt is being added daily. NBP is running at a loss. You don’t need a crystal ball to see that interest rates are rising. Are you suggesting we plan for lower interest rates? Get serious.

    “I don’t know what leaders Richard has in mind, but they clearly aren’t from the facebook group”

    That at least is correct. No leadership from the Facebook mob is to be expected.

    “I would have thought some real new standouts would have come out of this ”

    That simply reflects the intellectual poverty of the No Sale campaign. You won’t get any thoughtful leadership from angry mobs, self-promoting uni profs, or ‘non-partisan’ groups that have used the issue to raise their own profiles. That’s why we have seen little in the way of real alternatives that deal with NBPs fiscal problems; there is just a dawning understanding that it is a problem.

    The ‘angry mob’ syndrome in NB is a result of the lack of engagement of the public in the public policy development process. A huge swath of the province lacks even local governments and is governed instead by remote provincial overseers. That is hardly a good environment to encourage the public’s engagement in policy development.

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