03 June 2007

New Hydro Corp; same problem

While legislation creating a new Crown-owned energy corporation and a new version of Newfoundland and Labrador Hydro were announced last week with the words that "energy investments in non-regulated activities will not affect electricity rates", a closer look at the legislation shows the problem will still exist.

Bond Papers noted last May that changes made to existing legislation at that time created the potential that residents of the province would pay for government's energy policy through electricity rates.

Specifically, Bond Papers pointed out the interaction of two specific changes. First, changes to the Hydro Corporation Act not only allowed Hydro to invest in oil and gas projects but also provided that Hydro may undertake any other activity approved by cabinet. Second, a change to section 24 of the Electrical Power Control Act exempted Hydro from the restriction that, as a utility company, it could only be involved in electricity generation and power delivery.

The new Hydro-electric Corporation Act includes the same fundamental problem. While the oil and gas portions of the existing statute are removed, section 5(2) establishes that
Notwithstanding subsection (1), the corporation may engage in those other activities that the Lieutenant-Governor in Council may approve.
There are no changes to the Electrical Power Control Act. While the 2006 amendment that exempts Hydro from that section of the Act is not in force, it would merely a simple administrative procedure for the section to take effect.

Given that the provincial government is now creating a new energy corporation to take on the non-regulated activities of its energy program, there is no apparent reason to give Hydro the power to engage in any activities other than electricity generation and distribution.

Two new bills in front of the House of Assembly re-organize the Hydro corporation and create a new energy corporation. However, the fundamental problem identified by Bond Papers last May - namely non-electricity investments affecting electricity rates still remains. The current administration may not intend to implement changes to the Electrical Power Control Act enacted last year. However, leaving the legal authority to do so on the statute books may create an unnecessary temptation on some future date.