Power costs matter

Most people were fatigued about the discussion around power rates after the collapse of the NB Power deal and articles and op/eds about the issue have all but disappeared in New Brunswick but the issue will not be going away anytime soon.

I see that NS Power is looking for an 11% increase in its industrial electricity rates to help mitigate the high costs associated with migrating from coal-based electricity generation to renewable generation.  NS is still the most reliant on coal-based electricity generation of any province in Canada.  It’s no wonder Dexter is talking about Newfoundland and/or Quebec hydro.  The only consolation for NS is that the province is less dependent on large power users than New Brunswick and they have done what appears to be side deals with some of their largest users (i.e. biomass/NewPage) to keep their power costs relatively low.

Ontario is also looking to cut power costs for the largest industrial users even at the cost of shifting higher costs to residential users.    Ontario’s electricity rates were destined to go up after McGuinty put in the most aggressive green energy strategy in North America but it came with a carrot for Ontario voters – thousands of new jobs in the green energy sector. 

It looks like McGuinty is gambling that retaining thousands of industrial jobs and creating thousands of jobs in the green energy sector will compensate for higher electricity rates in the minds of consumers.  In addition, New Brunswickers need to realize that very few Ontarioians use electricity to heat their houses so the higher costs are really on the margin compared to this province.  A 20% increase in electricity prices when you pay $1,000/year in electricity bills is not as painful as a 10% increase in electricty prices when you pay $2,5000/year as in New Brunswick.

The smartest guy in the room on this is actually Gaetan Thomas who knows full well if he loses the large industrial customers, power rates for the rest of us are going to skyrocket.  As I have pointed out here before it’s basic accounting.  He generates hundreds of millions in revenue from the large users that go against fixed and relatively fixed costs.  If he loses some or all of that revenue he cannot reduce his cost base so those costs have to be shifted to the smaller users. 

It’s a complicated business to be sure but unless places like Ontario, Nova Scotia and New Brunswick figure it out over time all energy intensive business will move to BC, Quebec and Manitoba – provinces will lots of cheap and clean hydro that have all three committed to keeping industrial rates among the lowest in North America.

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One Response to Power costs matter

  1. richard says:

    If you haven’t seen it yet, there is a good overview of NB’s dreary energy picture at this site:
    http://www.unb.ca/AVS/galleries/0610/EnergySymposium/energySymbosium.html

    This is the video of the UNB Energy Symposium held in June of this year. Some of your data are presented, David. Two depressing highlights: the appallingly superficial grasp of the issues held by a certain CBC reporter, and the questions from the audience (hilarious yet simultaneously depressing).

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