D5

W.E. (Bill) Belliveau

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The Memorandum of Understanding (MOU) between the governments of New Brunswick and Quebec could lead to the acquisition by Hydro Quebec of "substantially all of the assets" of NB Power except its fossil fuel plants at Belledune, Coleson Cove and Grand Lake.

The MOU appears to have unleashed an emotional tidal wave in New Brunswick. People are angry that this deal was foisted on them without prior consultation. They are angry that New Brunswick would sell its sacred utility to Quebec. They are concerned about a loss of sovereignty. They are concerned that a separated Quebec would starve them of electricity. They are upset by the fact that residential rates will be frozen under the deal while industrial rates will be reduced by some 30 per cent to match industrial rates in Quebec.

I must confess that initially, I shared their concern. On closer examination, I have to urge caution. This could be a great deal for New Brunswick. Here's why:

We don't own NB Power. It's owned by international bond-holders in the United States, Europe and Asia. All the government is planning to do is to transfer ownership from New York, London and Hong Kong to the Canadian province of Quebec. In the process, the Province of New Brunswick would be off the hook for $4.75 billion in debt and off the hook for the restoration of its aging fossil fuel plants while taking a major step towards a 'green' New Brunswick.

It's interesting that many of the people who are complaining about the MOU are the same people who have for years criticized NB Power for its greenhouse gas emissions and ever-increasing power rates.

In my view, most of the emotion attached to the MOU is driven by the fact that government would dare to sell NB Power to the Province of Quebec.

The MOU calls for an industrial rate reduction of about 30 per cent, equalling the rate industrials pay in Quebec. That should make New Brunswick businesses a lot more competitive. People complain that industrials get a rate break but not residential customers. Here's the reality. If we continue with current ownership, New Brunswick's residential customers will face a minimum compounded rate increase of three per cent a year for the next five years. Cumulatively that would translate to a 19.8 per cent increase over five years. Terms of the MOU would freeze rates at the time of closing for five years, shielding residential users from this 19.8 per cent increase. That is a significant saving.

Critics of the MOU suggest that if Hydro Quebec is willing to pay New Brunswick $4.75 billion for "substantially all of the assets" of NB Power, they must be worth a lot more. Not so.

At best there is only one other potential buyer for NB Power and that would be Newfoundland. We have heard nothing from Danny Williams except criticism. If Newfoundland chose to drop its rhetoric and come to the table with a better deal, New Brunswick would have the option of exiting the MOU with Quebec. Section 10-1 of the MOU clearly states as follows "This MOU is a statement of intention to proceed as outlined above, it is not an offer and does not create any legally binding obligations on any party."

Value is created by a willing buyer. Value is increased when there is more than one buyer. The previous government tried to sell all or part of NB Power and could find no buyers. The current value of NB Power for Hydro Quebec is found in NB Power's access to the U.S. market. Hydro Quebec has electricity that it would like to sell to the United States but it cannot get it there because existing transmission lines are plugged. New Brunswick offers an alternative route to the U.S. Some people will say well if that's the case, why doesn't NB Power sell its power to the Americans? There are two reasons: 1. it's saddled with an unsustainable debt ($4.75 billion and counting), and 2. its cost of production using fossil fuels is not competitive with Quebec where the incremental cost of delivering more electricity is near zero.

The MOU may not be perfect. For example NB Power will still be liable for the decommissioning of the Belledune and Coleson Cove plants and payment for Lepreau will be deferred until the refurbishmment is complete and the plant is up and running. The good news is that there will no employee layoffs at NB Power. Pension benefits will be maintained and Hydro Quebec will respect NB Power's collective agreements.

The government of New Brunswick has promised to consult with the legislature and residents of New Brunswick over the next few months before any agreement is consummated. If we don't like the deal we can stop it, but I would suggest that we walk very carefully. This may be our last opportunity to stabilize power rates, get out from under NB Power's debt, future replacement costs and its greenhouse gases.

* W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. His column appears on this page every Saturday. He can be contacted at bill.bellstrategic@nb.aibn.com