Many people in New Brunswick know that the Memorandum of Understanding (MOU) announced last week between the governments of New Brunswick and Quebec could lead to Hydro Quebec’s acquisition of most of NB Power’s assets. Public reaction has been fierce in its opposition but often ill-informed in its rationale. Let’s start with Danny Williams. He warns that we should be wary of Hydro Quebec (HQ) because of what they did to Newfoundland.

In simple terms, the Government of Newfoundland, in 1969, led by Joey Smallwood signed a contract with Hydro Quebec that provided for the sale of approximately 31 billion kilowatt hours per year of electricity from Churchill Falls in Labrador for a period of 40 years with an option to renew for another 25 years. The price, negotiated under financial duress and in return for Hydro Quebec’s participation in the development of Churchill Falls was approximately 3 tenths of a cent per kilowatt-hour for the first 5 years and then declined in stages until it became approximately 2.5 tenths of a cent per kilowatt hour in the last 15 years of the agreement. There was no provision for inflation or price escalation. It can be argued that those prices today are below cost but they persist in compliance with the 1969 contract.

In 1980, following escalation of energy prices, the Newfoundland government passed legislation to recall the water rights from the Churchill Falls Corporation. The effort became the subject of litigation and Newfoundland lost. Various attempts to re-negotiate terms of the contract failed and it remains a matter of considerable resentment in Newfoundland and Labrador. The lesson for New Brunswick - get our agreement with Hydro Quebec right before we sign it.

There are a number of the issues in the MOU with Hydro Quebec that need to be addressed before signing of any agreement. For example, by my calculations, the cost of purchase by Hydro Quebec (including Lepreau) would be fully recovered from New Brunswick residential rates by the end of the fifth year. Logic would suggest that residential rates should fall to some level more equivalent to Quebec rates following the five year freeze and be tied to the lower of either a percentage of Quebec residential rates (e.g. 125%), or New Brunswick’s cost of living index.

Hydro Quebec will not purchase NB Power’s fossil fuel plants at Dalhousie, Belledune or Coleson Cove but they will ultimately benefit from their existence (back-up power) and/or their closure (the sale of replacement power) and transfer of their carbon credits. If these plants are closed prematurely, logic would suggest that Hydro Quebec should participate in the cost of decommissioning.

There also needs to be some clarity in respect to Mactaquac. The MOU contemplates “the rate base inclusion of costs of compliance with any dismantling and make-good requirements imposed by the Government of Canada but only if permission to rebuild is denied by the Government of Canada or if the conditions of rebuild are unacceptable to Hydro Quebec.” This could be a $2 billion job and needs some clarification in terms of cost liability and there needs to be a lockdown of terms so there can be no surprises down the road.

The MOU provides for some degree of harmonization of the regulatory framework governing the generation, transmission and distribution of electricity in New Brunswick with the regulatory framework currently in effect in Quebec. We need to ensure that any harmonization of the regulatory framework with Quebec will not inhibit New Brunswick in its power to regulate and/or to make energy policy.

There is mention in the MOU of HQ assuming all “existing third party power purchase agreements” (co-generation, wind, etc.) but there does not appear to be any mention of future power purchase agreements that might result from additional wind, solar or biomass energy developments. It seems to me that there should be some provision in the final agreement that would guarantee that electricity generated in New Brunswick would have access to the grid and/or would automatically be purchased by Hydro Quebec at fair market prices.

Some people have suggested that closing of the final deal would be an infringement on our sovereignty. The MOU makes it clear that nothing in the MOU or in the proposed transactions is intended to (or would) limit the exercise of New Brunswick’s sovereignty or constrain its ability to establish or modify independent energy or industrial policies and regulations”. NB Power’s debt-holders already own the utility. We have no indigenous energy sources except the St. John River, our salmon rivers, some dirty coal, some natural gas and a few barrels of oil. We import most of the fuels we use to generate electricity. Incidentally, electric utilities in Nova Scotia, Prince Edward Island and Newfoundland were sold years ago (to the private sector) and are owned by non-resident shareholders. They don’t seem to suffer from sovereignty problems.

Some people have accused the Premier of breaking an election promises by selling NB Power. Circumstances have changed dramatically since 2006 and opportunity has presented itself. In the best interests of New Brunswick, he would be wrong to ignore these opportunities and he would be wrong if he didn’t change his mind.

I do have a major concern with what happens if Lepreau can’t be fixed or costs mushroom and Hydro Quebec refuses to take it over? We need to have some form of recourse, at the very least the right to sue the Federal Government or AECL to recover costs and value or even better a guarantee from AECL that they will assume responsibility for both the over-run costs and the sale value of Lepreau. If we get stuck with a terminally ill Lepreau, we would only have half a deal with Hydro Quebec and we would still have a mountain of provincial debt.

The notion of selling our power utility, the primary source of electricity in New Brunswick seems to contradict the notion of self-sufficiency. In this respect, I think it’s important to distinguish economic self-sufficiency from self-sufficiency in electricity. We are not self-sufficient in electricity because, as noted above we import virtually all the fuels we use to generate electricity. Some argue that we could make ourselves self-sufficient if we replaced our fossil fuel generation with wind generation. That would add about $7 billion to our current $4.7 billion debt.

As to the idea of Saint John losing its status as an energy hub, again there is an assumption that if you lose title to your electric utility, you automatically cease to be an energy hub. Energy is more than electricity. It includes oil and gas. So long as there is an oil refinery, an LNG terminal and a Lepreau, Saint John will be an energy hub. The MOU states clearly that Hydro Quebec will work with interested New Brunswick parties “to build the energy infrastructure (the energy hub) to serve local and North Eastern North America regional markets”. Indeed with electricity prices 30% lower for industrials, it’s not hard to image new energy developments locating in Saint John.
The Conservation Council of New Brunswick says NB Power’s distribution network should not be sold, nor should Hydro Quebec be exempt from taxes or levies on the income it earns in New Brunswick. "We need to keep control over the wires and electricity sales to New Brunswickers in order to make a rapid transformation to a sustainable renewable energy future,” says David Coon, Executive Director of the Council. Coon may have a point with taxes but I suspect that the tax-free status of HQ is fundamental to conclusion of the agreement.

Saint John Energy, one of three municipal utilities in the province has a grandfathered privilege that allows it to purchase power directly from NB Power at a wholesale price, which means its customers pay less for electricity than residents elsewhere in the province. Edmundston and Perth-Andover also have municipal utilities. It’s not clear whether they would be able to purchase power from Hydro Quebec at the industrial rate but if they could, savings and rate advantage would be considerable for residents in those municipalities. Moncton might want to consider establishing its own electric utility.

The bottom line is this. Can we afford not to do this deal? My answer is no. We have no choice, we have to move forward but we also have to find a way to ensure that all of the above and perhaps more is addressed in the final agreement.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com