Tom Adams’ bad mood

This is a stinging critique of the Tory energy policy study by the Toronto-based energy consultant, Tom Adams.  He hammers just about every major theme from natural gas to electricity rates and I don’t agree with much his commentary.  Some of his points are valid but they, in my opinion, get caught up in a broader narrative.

His critique of the Tory plan quickly morphs into a winding screed about the chronic problems and political decisions that have ended up distorting the energy situation in the province.

These guys want to decouple energy policy and economic development.  They always have.  But as I have said a million times – they want New Brunswick to do what virtually all other jurisdictions have not.  Quebec has economic development front and centre in its energy policy.  Ontario’s energy policy for the past few years has been directly and deliberately about economic development (growing a green cluster, cheap power for forest products mills in northern ontario, etc.).    BC’s new energy policy explicitly talks about keeping low industrial electricity rates to support the forest products industry.

I don’t know how we can square the two issues – the need to depoliticize energy decisions and the need to recognize these decisions can dramatically impact economic development.

New York sets aside a large block of electricity for economic development uses and everyone else pays through the nose for electricity.  Tom Adams, et. al. would be disgusted by that but when thousands of jobs disappear because of high power, the comfy consultant can stand on principle.  The rest of us can’t.

I vigorously supported the sale of NB Power to Hydro-Quebec subject to a rational and logical approach to rate escalation and a credible plan for power outside the Heritage Pool. This move would have over a decade resulted in a few hundred jobs lost in electricity generation in New Brunswick but would have fundamentally shifted our electricity cost base much lower.

Now, that is off the table for good and we have to figure out where to go from here. 

We can’t charge too much for energy (electricity and nat gas) that it drives out investment and discourages new investment but at the same time we have to realize that residential customers are already paying among the highest percentage of their income for residential energy of any province in Canada. 

But it’s a death spiral.  If we lose industry or can’t attract new industry, we lose good paying jobs and tax revenue for governments.

I think efficiency is going to have to be a key part of this.  Short term pain for longer term gain.  If we can achieve a 25% or more efficiency in residential electricity usage, then we can absorb increases a lot better. 

What very few people will say publicly but it is the true – winter baseboard heating is killing New Brunswick’s competitiveness in energy costs.  NB Power needs something like 1,500 MW to supply all of the electricity requirements in the summer.  They need to have 3,000 MW of capacity to be able to handle the peak of winter heating in February.  It is very inefficient and beyond, baseboard heating is one of the least efficient ways to heat a house.

If we could snap our fingers and heat every home in New Brunswick with nat gas or some other non-electricity heat source, it would dramatically improve NB Power’s fiscal situation – not including the debt load which is another long and complicated story.

In the end, I think ignoring this is not going to fix anything.  There is no white knight on the horizon (it might have been HQ but that is dead).   No matter what politicians say,  New Brunswickers are going to be paying a lot more for power (per unit – not including efficiency).  The questions are:

-which rate classes will be hurt the most and what will happen to industrial investment?

-will we make an attempt to address NB Power’s debt or will we keep pushing the ball down the road?

-what is the fix for natural gas – is there a fix or are we destined to have the highest rates in Canada for all rate classes?

I’ll end with this.  There are those whispering in the ears of politicians that the solution is to let the ‘sunset industries’ die.  Increase their rates and quietly push them out of the province. 

But ask Gaetan Thomas if he can afford to lose the large industrial clients.  He can’t.  They provide a huge block of his revenue that pays a large chuck of NB Power’s fixed costs.  If NB Power loses large industrials, those fixed costs will be amortized over the rest of us rate payers and we are looking at even higher rates.

This is Accounting 101.  That is why just about every electricity utility in North America offers industrial rates well below residential, small business and commercial rates.  

In the end, we shouldn’t trivialize this issue and we need to view the angry rants of consultants with some skepticism.  Adams makes some good points.  We need to filter and use those but reject the others.

It’ll take Solomon to figure out which to keep and which to scrap.

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3 Responses to Tom Adams’ bad mood

  1. mikel says:

    Actually, I thought it was a well written article, which, much like yours, raises all the pertinent questions but answers none of them. His main thrust is that freezing power rates will be bad. I think it safe to say that most people that WANT frozen rates will certainly WANT to believe that (which explains the comments at the Irving article).
    Here in ontario,that other supposedly ‘badly run’ energy utility (badly run usually means ‘public’ and ‘doesn’t naturally have a lot of cheap energy resources), our rates have increased by about 20%. Of course, IF you only use power on ‘off peak’ times, then you are OK, your rates stay the same.
    However, and this is the biggie, we use almost no hydro. Everything is natural gas, and this is what the problem comes down to. I think in the end it would have been cheaper for NB to tell Enbridge to take a hike and tell NBPower to start laying gas lines. Gas is the cheapest its ever been, I think we actually used our air conditioner this summer. The only thing we use power for is lights and computer.
    But the real problem is that by signing off on gas, NB Power is in a no win situation. In Manitoba the province owns BOTH the hydro AND the gas, so it can push people onto more efficient productions. In NB,they do that and they lose more money than if the industrial users close, which helps explain the horrendously inefficient new homes I saw being built when I was home during the summer.
    As for economic development, I saw almost NO mention of it in the article, so not sure where that comes from.

  2. richard says:

    I’d say we need to start with some more transparency. First by laying out what the fiscal situation of NB Power really is, then by looking at the costing of power supply to various user groups. The best way to do this is thru an EUB with expanded powers to oversee and regulate. Even without those expanded powers, the current set of EUB meeting transcripts are a real eye-opener.

    Once we know where we are, we can get a better grasp on what to do, whether that be industrial policy, subsidized power to low income groups, power conversion support, feed-in tariffs for ‘alternative’ energy, etc. The EUB would be tasked with implementing those policies.

    That’s a good point about electric baseboard heating. Cheap to install (keeps housing purchase costs down) but not so efficient to use. Those who have electric forced air, or electric water boilers for baseboard hot water, can convert to NG or oil w/o too much trouble, but if you have electric baseboards, you are looking at some major retrofit costs. For some a good wood stove can help heat at least part of the house, but for others that is not an option. The lower income groups will suffer the most as power rates rise, because they lack the financial resources to convert to other sources of energy.

    NG, of course, has problems of its own – global prices are low now but are also historically volatile. In NB, we have a monopoly that by govt fiat rolled out pipe too quickly and now needs higher rates to pay for that. I know some who have turned off their new NG furnaces and switched to an electic heat pump in order to reduce heating costs.

  3. We need to change electricity rates to more accurately reflect what it costs either by introducing an escalating block rate or by charging for peak usage.

    Admittedly measuring and charging for peak usage would require investments in smart meters but if we plan to build a smart grid (http://www.cbc.ca/canada/new-brunswick/story/2010/07/23/nb-nbpower-smart-grid-research-253.html) this is a necessary step.

    As a consumer I’m still not convinced that electricity is a bad heating option.
    1) Cheap install costs.
    2) No greenhouse gas produced (directly).
    3) I can only heat the parts of my house that I am in.
    4) No maintenance costs. (stoves or funaces)
    5) No additional connection charges or tank rentals. (NG or propane)
    6) Still Relatively cheap.
    7) Safe

    Until the case against electric heating is stronger, you’ll have a hard time convincing home-owners to change.

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