24 October 2009

$10 billion for NB Power

A deal is close according to the Globe and Mail that would see Hydro-Quebec buy all of NB Power for $10 billion.

But the Globe story contains some of its characteristic shit reporting in the sub-head: “blocking access of other provinces' utilities to U.S. markets”.

There’s more the same drivel farther down the story but don’t buy most of it because it just isn’t true.

This sale can’t block access for anyone to NB’s power grid.  It can’t, not if NB Power and HQ want to keep selling power into the US.

And from the looks of it at least one statement could be completely false:  “Newfoundland and Labrador Hydro has complained to regulators in Quebec and the United States that Hydro-Qu├ębec's transmission arm is not providing it fair access to U.S. markets.”

You see Danny Williams has bitched alright, but he was bitching because he couldn’t get HQ to buy into the Lower Churchill. 


According to Ed Martin, Williams right-hand on any of a number of issues, there is no problem whatsoever with Hydro-Quebec.  Thus it would be very odd if the company Martin runs was doing things – as the Globe reports -  like filing formal complaints alleging some pretty serious unfair market practices against HQ. 

All they have actually done is pursue a tariff through Quebec which they duly got.  Your see – Shawn and Rheal take note – NL Hydro has already been wheeling power into the United States across lines in Quebec in a deal touted by none other than …wait for it…Danny Williams Hisself.

Notice there is no further detail on that in the Globe story.  That’s a pretty good clue that Rheal Seguin and and Shawn McCarthy just didn’t do their homework.   Instead, they seem to have opted for a half-backed paraphrase of an equally a half-baked version of the old Danny story and not rely on what Danny’s energy minister said. 

In the process, the bitching morphed into a complaint filed with a Canadian or American utility regulator.  Look farther on in the story and that’s exactly what they do, and as you can see they got the bitching story and the bit about the alternate transmission line wrong too.  That’s what you get for quoting Liz’s thumbs and not doing any real research.

There’s also another completely asinine comment about HQ getting greater access to the US as a result.  If the guys at the Globe even bothered to check their facts, they’d know that HQ already owns capacity on the grid through New Brunswick. The story has been out there since the spring. That’s definitely not the motivation for this deal.

The upside to this story is that New Brunswickers will shed a 90-year-old chronic debt pig and retire in the process what the Globe describes as 40% of public debt in one fell swoop.

Let’s just hope that while about half the story appears to be complete fiction, the bit about New Brunswickers shedding their debt burden turns out to be true.



Anonymous said...

You are miassing the point. They would also get the NB system operator who controls mkt access.

Edward G. Hollett said...

No, you're missing the law and some other pesky bits of detail.

First, the transmission system operator is controlled by the NB utility regulator, not NB Trasmission or whatever it's called.

HQ is not buying the regulator because the regulator isn't for sale.

Second, as you will see if you actually follow one of the links there, HQ has already leased up capacity on the NB grid. They wouldn't need to buy NB Power to dominate the transmission market.

Third, if they block or restrict access as you claim they will, HQ runs afoul of the US regulators and stand to lose their access to the market they are actually concerned about.

And lastly, if all that wasn't true, the magical underwater transmission route method everyone likes to talk about would still let power go from NS to Maine underwater.

There is no HQ demon in move aimed at NL in this, no matter how much you may want there to be one or no matter how much pure shite gets generated from the local fantasy factories now and in the days ahead.

herringchoker said...

Actually Ed, from the sound of the Globe story, what's being propsed is a "no cash" deal. HQ takes over NB Power's debt and provides cheaper power for some (as yet) unspecified peiod into the future. (How much cheaper? - we don't know - but rates are not likely to be below HQ's domestic rates which will be hiked soon to clear off some of the debt it accumulated when the PQ froze rates for five years.) It sounds like a good deal for the Irvings forestry operations but I doubt it will be a salvation for the mining sector - lack of accessible ore, not hydro rates is the biggest threat to that sector. (As an aside, the proposed deal would pretty well kill renewable energy in NB.) As for the current shareholders, you know, the citizens of NB, they get nothing for their long-nurtured assets. Essentially its a giveaway so that Irving can enjoy cheaper power for a decade or so. Not quite what I would define as "good for the public interest."

Mark said...

More importantly, should we rename the "Anglo-Saxon" route?

Edward G. Hollett said...

Unloading $10 billion of debt is good no matter how it is structured.

I am not sure why you think that NB taxpayers should subsidise the Irvings but apparently you do. That's really another issue though.

The current shareholders get rid of millstone debt plus the system that generates the debt. Again, I am not sure why you believe taxpayers should carry around huge amounts of debt and drain that money from supporting much needed public services, but apparently you do.

Before anyone starts raising boogeyman stories about price changes, you might want to check the domestic Quebec rates versus what others pay. Right now, the average Quebec user would have to see their rates double to pay what i am paying and commerical users are getting dinging nothing like users in this province. I suspect NB is about the same.

As for renewable energy, I don't know why you think this will kill any NB wind projects or any other projects.

To the contrary, there is suddenly a new investor in the marketplace with the bags cash to backstop the proposed developments and new ones besides, if they come forward. unless NB is suddenly averse to development as the case seems to be here in NL, this could well be the catalyst for a significant boost in proipspects.

Edward G. Hollett said...

The Bluenoser, Mark?

Jerome said...

"...unless NB is suddenly averse to development as the case seems to be here in NL,".
What development is NL averse to? Wind? I can't think of anything else.

Edward G. Hollett said...

Energy development, generally as laid out in the 2007 energy "plan".


herringchoker said...

Actually Ed, the debt portion of the deal is $4.8 billion, which is currently on the NB Power books but is provincially guaranteed. (The province actually charges the utility a fee for borrowing at the provincial rate.)

Now, how did the utility wind up with such a large debt you ask? By borrowing against future power sales and then undercollecting from certain purchasers, natch.

Which ones? Well this might be helpful. It's clipped from the last NB Power load forecast performed by the PUB prior to its last rate review in 2007 (I've added the percentages):

Direct residential sales represented 34.2% of Disco’s in-province kilowatt-hour sales in 2004/05 and 40.7% of its dollar sales. (119%)

Direct general service sales represented 15.6% of Disco’s in-province kilowatt-hour sales in 2004/05 and 19.4% of its dollar sales. (124%)

Industrial sales represented 41.3% of Disco’s in-province kilowatt-hour sales in 2004/05 and 30.4% of its dollar sales. (73.6%)

Wholesale sales represented 8.4% of Disco’s in-province kilowatt-hour sales in 2004/05 and 7.7% of its dollar sales. (91.7%)


The upshot of this is that industrial users have been underpaying for their power to a considerable extent. (The wholesale class consists of the municipal power companies, that is resellers who are responsible for their own distribution grids.) Who do you think those industrial customers are? I'll give you a hint, the majority of the firms start with an I and end with a G.

Now, according to the Globe story, the other $5 billion or so, will come in the form of reduced power rates for industrial customers: not residential, not commercial; industrial. Who benefits, who loses?

Since the 1960s new generation in New Brunswick has been built to attract/retain/develop industry. That's been the argument for every new plant (the last one was built in the 90s) and I doubt that its any different in NL. Over those decades the utility has added ever larger amounts of debt and then not collected from the very class of customers that benefits most from the power. Even by the most generous accounting the Irving Group (and the few mining companies operating here) should be responsible for 40% of the $4.8 billion taken on by the shareholders (about $2 billion). Instead the proposal is to liquidate the shareholders equity, eliminate that $2 billion debt, and then give the same industrial customers $5 billion in future power discounts. It's a sweet deal for someone, just not the people of NB.

BTW...there's a note on the CBC website that indicates that HQ will be closing some NB Power facilities after the takeover. I have no way to confirm this, but it certainly sounds par for the course.

Edward G. Hollett said...

In the 1960s that was the philsophy used here: use cheap power, subsidised by taxpayers to attract and retain industry.

While it is an absolutely bankrupt strategy (pardon the pun) there are still people who push it around here, especially with respect to Labrador hydro development.

While I am not completely up to speed on NB issues, I'd suspect the plants to be closed would be older thermal generators using coal or diesel.

Sounds to me like the old system (existing system) is designed to screw consumers. So dump it.

The new electricity rates should be set by the utility regulator and should be based on something other than perpetuating the old pricing scheme. There should be bags of power available at a decent price from PEiu and Quebec and eventually from NB sources. If the government opened up the market to competition, consumers could get a break on their power.

But I still go back to my first point: if they are shedding debt that's good. If the government then sets up an energy system that encourages competition and generation development, consumers could win out.

meanwhile, across the Straits, consumers look destined to live with a government that lives in the same era that gave you guys the shaft.

Thanks for the background and detail. I still havem't seen anything that would make me question a deal that gets rid of NB Power.

Anonymous said...

If not control of the grid what could possibly be HQ's interest in this bum asset?

Edward G. Hollett said...

read the post, the comments and the ones rom the previous post on this.

HQ gets the grid as a revenue generator, not for control. Companies are in business to make money. Weird concept. They also get to pay themsevles to wheel power down through NB instead of paying someone else as they currently do.

They can also ship power into NB once they close the thermal plants that are currently there. Again, selling power is good.

Maurice, Rene and Robert said...

But... HQ is not only in business to make money, it's also in business to advance a political agenda. Has been for generations.

Edward G. Hollett said...

Well, Maurice, Rene and Robert, the political agenda is largely one of keeping domestic residential prices in Quebec artifically low, if I understand correctly.

Beyond that, I'd dismiss any suggestion it has anything to do with NL, the Lower Churchill or anything of the sort.