In one fell swoop, the Provincial Government trampled its ‘free-market’ ideology, emasculated the Public Utilities Board (PUB), undermined the management of NB Power, rendered NB Power’s Board of Directors mute, assumed responsibility for management of NB Power and performed a feat of magic. Here’s how they did it.

In 1999, the Lord Government trumpeted Mike Harris’ ideology of free market electricity and open market competition. They restructured NB Power on the pretext that restructuring would facilitate competition. They preached the philosophy of arms-length management for the utility and directed it to operate like a business.

In late 2005, NB Power applied to the Public Utilities Board for an 11.6% (13% for residential customers) rate increase. The Utility claimed that it needs the increase to offset growing fuel costs. This past week, the Premier announced an 8% HST rebate on electricity for residents and industry. Cost to taxpayers about $100 million.

On top of that he capped the rate increase at 8% making a laughing stock of the PUB’s authority to approve or disapprove NB Power’s application for a rate increase.

Next he took responsibility for the management and governance of NB Power by directing the utility to find $20 million in operational savings, to cancel management’s bonus plan, to diversify its fuel sources, to pursue its legal action against Venezuela for loss of Orimulsion fuel savings, to study the feasibility of a second Lepreau and to discontinue the practice of estimating meter readings.

He makes a mockery of the utility’s Board of Directors and renders implicit the Government’s responsibility for the $750 million Coleson Cove/Orimulsion decision.

By capping rate increases and subsidizing the allowable increase with a tax rebate, the Government acknowledges that the electricity market does not work and competition or lack thereof has failed to deliver the promise of lower rates. It also undermines conservationists who would use price to reduce demand for electricity.

That brings us to the “magic” part of the variety show. On Tuesday, the Provincial Minister of Finance introduced his budget for 2006/07. The Minister promised tax cuts, increased spending and a budget surplus. That sounds a bit like George Bush’s voodoo economics.

For the next fiscal year beginning April 1, 2006 (today), the Minister forecasts $3.5 billion in earned income plus $2.4 billion in transfers from the federal governments (41% of his total revenue) in the form of equalization grants, health and social transfers and other grants. That’s total revenue of $5.9 billion.

Estimates tabled in the Provincial Legislature indicate that operating expenditures will be $5.8 billion. With number rounding, that suggests a surplus of close to $100 million. However, attachments to the Minister’s “Budget Speech” suggest that operating expenses will actually be $6.2 billion. That would turn a surplus into a $300 million deficit.

The difference is explained in non-operational expenses for capital, amortization and “special purpose” transactions. It would appear that a $408 million deficit in the Government’s ‘Capital Account’ is the masking (or is that magic) brew that permits claims of a $22 million "operating-surplus”.

If you are into voodoo economics, you’ll love this little ditty.

The HST rebate will cost something in the order of $100 million a year. Guess what, the Minister’s budget shows a year over year loss in HST revenue of only $23.6 million. To make his numbers, he’ll need the provincial economy to throw off an extra billion dollars or more in taxable purchases of non-energy goods and services (a 10% increase year over year).

I suppose it’s possible with the right mix of expansion, inflation and population growth but realistically....

Assuming NB Power’s application for an 11.6% rate increase is legitimate and based on rising fuel costs, the loss of 3.6 points will cost the utility about $42 million. David Hay, CEO of NB Power was hired to run the corporation as a “business” that would return a profit to its shareholders. Derek Burney (Chairman of NB Power’s Board of Directors) was hired to oversee management of the business. Nobody can run a business for profit when the owner sucks it dry.

As a matter of principle, I would think that Mr. Hay and the entire Board of Directors would want to offer their resignations.

One final consideration – did the Provincial Government do the right thing?

It’s hard to argue against a program that helps both consumers and industry, especially the forest industry.

In the past I have contended that sales tax should not be applied to essential purchases of electricity and heating fuels but timing is everything. The problem with rebating the sales tax in response to a price increase for electricity is that it does nothing to encourage more efficient production. It does nothing to encourage conservation and the benefits flow disproportionately to the largest users of electricity.

The good news is that it might save jobs, particularly in the forest industry.

On a political note, I have to give the Government its due. It will be awfully hard for the Opposition to defeat a budget that rolls back an 11.6 % increase in the cost of electricity.

The only problem is what do they do for an encore? What happens when NB Power goes back to the PUB for its next increase? I guess that’s a matter for another day.

In terms of political expediency, the Premier has delivered a coup. His Government has chosen to invest in a Hollywood “makeover”, ideologically speaking. No longer will its members be recognized as clones of Mike Harris Conservatives. They are now true liberals.

This begs the question – whose costume will they don next?

Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and business owner operating his Moncton-based marketing consultancy, Bell Strategic.