The changing tune

During the Hydro-Quebec debate, many of the opponents of the deal that I talked with were adamant that this was a deal cooked up just for the large industrial users and that NB Power should not be sold just to keep these large users happy.  When I asked what should be done about the escalating cost of power for large industrials some took the hard line – they should leave the province if their power costs are too high – in fact, several (including one I debated in public) suggested these firms were a problem and the government should not support “sunset industries”.   Others with a little more sensitivity to economic development suggested to me these large industrials should be encouraged to do deals with Hydro-Quebec themselves and the government should help them – rather than sell NB Power outright.

Now that the deal has been scrapped, we are stuck with this very real problem of uncompetitive power rates for large industrials and a viable option would be to let them do more self-generation or find other mechanisms to lower their rates or at least keep them from escalating further.

But as the new CEO of NB Power has said multiple times – he absolutely needs these customers.    The loss of revenue from the large users (including PEI) could seriously screw up the utilities business model.  There might be some marginal savings from lower fuel purchase costs during peak times but across the year the loses – in his words – would be consequential.

So the gordian knot remains.  At power rates 40%-70% more than other competitive jursidictions like Quebec and BC, how long can these large users remain reasonably competitive here?

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3 Responses to The changing tune

  1. Robert McCready says:

    Currently NBP sells to large industrial customers at below the cost of delivery of the power. This practice has been subsidised by the residential and small commercial customers. Kindly explain how losing these customers would hurt the balance sheet of NBP?

  2. It sells to the large industrial customers below the full cost of delivery of power but not the marginal cost. The CEO of NB Power described it better than I could be essentially if you lose the $500 million in revenue from large customers (or whatever that number is) you have to spead all the overhead costs, debt service costs etc. over half the kWh sold. You either have to shift all that cost on to the remaining rate payers or slash hundreds of employees and other overhead. For example, NB Power has several hundred people that work on lines, do installations, fix problems, etc. across NB Power’s 200,000+ customers. If they lose the 40 large industrials, they still need the several hundred people to work on lines, do installations, fix problems, etc. across NB Power’s 199,960+ customers.

    As I said in the post, the only cost advantage from losing the $500 million worth of customer revenue would be the reduction in fuel purchase costs during peak load times – middle of winter but that would be a pittance compared to the lost revenue.

  3. richard says:

    The ‘corporations are subsidized’ argument also fails to note that some residential users are subsidising other residential users. Compare the meters of power line per user in rural areas vs that for urban areas, for example.

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