NB Power: A Random Thought

I know people are getting fatigued about this but it does continue to dominant the low level conversation around here because it was one of those once-every-10-years policy debates.

My random thought is this.   Why did they announce what customer rate classes would get which rate arrangement?  In hindsight it seems to me that added another layer of complexity to the debate.   Why not announce the following at the end of October 2009:

We have entered into an MOU with Hydro-Quebec to explore HQ buying substantially all of NB Power, eliminating all debt, migrating our power needs to 100% carbon free power within 10 years, providing rate relief to all user classes for five years and guaranteeing competiting electricity costs for the future.

Let’s have a debate about that.

The problem with cutting industrial rates and freezing residential rates is that additional layer of complexity.  Not only is the public required to think about the deal but also the fairness of the rates.

The reason I raise is comes from a story in one of Malcolm Gladwell’s books (Blink, I think, but I can’t remember).  In it he talks about a study that was done where researchers sat two people down at a table across from each other and then they gave one person $100.  That person was to decide how much of the $100 he would keep and how much the other guy would get.  The catch was that both had to agree to the arrangement or neither got anything.

Rational economy theory would say that a $99 – $1 split would be accepted because for the second person $1 dollar is better than zero dollars.  However, when they did this experiment over and over they found (as I recall) it was closer to $50/$50.  In other words, I would rather lose $30 and deprive the other guy of $70 because his decision didn’t see fair or moral.

To tie this back to the NB Power debate, announcing a 23% cut for industrial users and a rate freeze for everyone else put us in a Gladwellian conundrum.  Not only do I (as Joe Q. Public) have to evaluate the merits of selling the utility but I also have to evaluate the fairness of me only getting a rate freeze while someone else gets a 23% cut.

I am not saying the 23% cut was wrong – but that could be discussed and negotiated after the original issue was resolved.

It may have not had a material impact on the deal.  I still think the water was poisoned in the early days by various media and punditry that didn’t want to give it a fair hearing. 

I still have this sinking feeling we missed an opportunity to address an important issue and I think it was never really debated in a fair way. Emotion trumped reason.

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6 Responses to NB Power: A Random Thought

  1. richard says:

    That approach might have helped, but I guess they wanted the industrial users onside and thought that the freeze for the rest of us would balance out the rate cut for industrial users. Graham under-estimated the deep-seated resentment towards the Irvings et al, and he under-estimated the suspicion around doing a deal with Quebec.

    I think they should have started with some frank presentations re the finances of NB Power, in a way that caught people’s attention and generated some discussion. Instead, they started with a ‘solution’ to a problem (the impact of the debt) that many believed (and still believe) did not exist.

  2. RKA says:

    “I still think the water was poisoned in the early days by various media and punditry that didn’t want to give it a fair hearing. ”

    I think the water was poisoned by Graham not being up front about the whole deal and his chronic failure to include the public in major policy change. He failed to lay the groundwork which would have made the difference. Even a few days before they made the official announcement he wouldn’t admit to a deal being in the works. If Danny Williams hadn’t said anything, I don’t think the announcement would have even been made when it was. It seemed to me like a hastily concocted event put together because the cat was clawing it’s way out of the bag.

    And hiring Hill & Knowlton was like putting up razor wire to prepare for a church supper. The whole Hill & Knowlton “don’t be so emotional” campaign (ironically) got people’s backs up, they got suspicious and dug in their heels. They were selling this as a “too good to be true” deal and Graham came off looking like a used car salesman. I recall an interview where he actually said “I can sell this”. I for one don’t like to be “sold” anything – I “buy” stuff. If what I’m being told doesn’t ring true (ie. a rate freeze is not lower rates) – I’ll walk away. After MOU 2 they started saying “but we’re not selling NB Power” – totally ignoring the fact that they had TRIED to sell it.

    I did a lot of research and reading in the fall including the Hay – Savoie and other reports and I thought at the time one of the main reasons for this deal was to get around the exit fees/stranded debt issue – which is why no industries have left the system even though they’re free to do so.

    I think there were a lot of good aspects to the deal and a truly open and transparent process could have resulted in some form of beneficial deal. But overall the perception was that public assets were being sold, the bulk of the money was going to Big Industry and deferred costs would end up on taxpayers shoulders – long after the Government was safely out of office and the Premier was cruising a boardroom somewhere.

    “I still have this sinking feeling we missed an opportunity to address an important issue and I think it was never really debated in a fair way. Emotion trumped reason.”

    If this truly was a missed opportunity – Graham blew it through gross mismanagement.

    And I have to admit I get “emotional(pissed off)” when I’m treated like an idiot by my government.

  3. Robert McCready says:

    The government really screwed this up royally. First they manufactured a crisis wher none existed. They then proposed a solution that was instead a giveaway of the best assets of NBP.
    We got to keep the fossil fueled plants, and were being paid less than refurb costs for Pt Lepreau assuming we could get it running again.
    Had they proposed selling all of NBP for a price that was reasonable based on real world calculations, instead of giving it away for what we owed, they might have pulled it off.

  4. Dave Prebble says:

    “Why did they announce what customer rate classes would get which rate arrangement?”
    ===
    Why were customer rate classes even part of the agreement? At one point it was stated that a reason behind MoU2 was because Quebec did not want NB industries to have the same rates as theirs. If that is correct, then was not the whole rate deal being set by Quebec? What kind of wholesale purchase allows the seller to tell the buyer what to do at the retail sale level? Concerns like that probably bothered NB citizens more than the actual numbers.

  5. richard says:

    “Had they proposed selling all of NBP for a price that was reasonable based on real world calculations..”

    I wonder what ‘real world calculations’ means in terms of the value of NB Power’s assets? I don’t see much real world value in those assets. But I guess we will find out in due course, around fire-sale time.

  6. Robert McCready says:

    Our would be Savior in the failed deal, HQ has a nuclear generating station that is the twin of PLGS. Their estimation of the value of their Gentilly station after refurb was $10 billion.
    This was based on the earning capacity of their plant over the next 30 years. Most of the NBP infrastructure is in good to excellent condition. For example, Belledune is relatively new, and Colson cove was recently completely refurbished and the latest in environmental technology was installed at the time.
    Even Mactaquac is estimated to be 10-15 years away from needing to be refurbished. The transmission and distribution grids are in far better condition than the grids in neighboring provinces such as NS.
    It was estimated during the debate that the “wires” alone were worth $3 billion.
    The HQ deal would have seen this sold for $3.2 billion including Lepreau after we spent nearly $2 billion refurbishing it. This wasn’t a deal, it was a steal.

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