13 December 2010

The joys of monopoly

From Dan Leger at the Chronicle Herald comes a simple description of how taxpayers get shafted in any scheme of regulated monopolies:

Emera now pays an annual dividend of $1.30 per share. An investor who has held the stock since it went public has collected $14 in dividends for every share in the portfolio. In 2010, Emera shares have returned 40 per cent, including dividends and stock price appreciation. And at very little risk, because of that whole regulated monopoly thing.

The company also keeps some cash for shopping sprees. Emera owns a hydro company in Maine and is expanding in California and the sunny Caribbean, with investments in St. Lucia, the Bahamas and Barbados. And it’s doing that with profits spun off from its most lucrative market: good old monopolized Nova Scotia.

It’s beautiful when you think about it. Emera gets 95 per cent of its revenues from captive, regulated markets and most of that comes from Nova Scotia and its guaranteed return. The company uses that money to diversify into new markets and new industries, like Labrador hydro, an energy brokerage, a pipeline, wind, tidal and natural gas. And it’s all subsidized by the Nova Scotia ratepayers.

And there’s nothing requiring any of those new businesses to soften the high rates here. For shareholders, that’s sweet. For the rest of us, not so much.

Things don’t promise to get any better for Nova Scotia ratepayers if, by some chance, Danny Williams’ retirement excuse announcement turns into an actual deal.  Emera will be able to buy power for a mere $95 per megawatt hour.  Even at the end of the 35 year deal, the company would only pay $125 per megawatt hour and that’s for the very small payment up front of $1.2 billion for a line between Sydney and Port aux Basques.

Do the math.  That’s considerably below current electricity rate sin Nova Scotia, even 35 years out.  Are Nova Scotian ratepayers likely to get the full benefit of that?  Only time might tell.

Consider, by contrast, the position Newfoundland and Labrador ratepayers will face, guaranteed by Danny Williams and his successor.  They anticipate that,by the time electricity starts flowing from Muskrat Falls, rates on the island will be 40% higher than they are currently. That works out to a bit over 13 cents a kilowatt hour in St. John’s.

And that point, Muskrat Falls cuts in.

Premier Kathy Dunderdale recently estimated it will cost about 14 cents a kilowatt hour to produce power at Muskrat.  On the face of it that looks like rates in Newfoundland would  - at the very least - double from what they are in 2017.  And that would be on top of the 40% increase expected to happen in the meantime.

Nova Scotians would be getting a pretty sweet discount, by comparison, at a mere nine or nine and a half cents.

But if Dan Leger thinks that Nova Scotians have been screwed by bungling politicians and a failed energy policy, he should look across the Cabot Straits.  Newfoundlanders could teach them a few lessons after 40-odd years of politicians who wanted to be energy magnates but who wound up giving rate payers a shock.

The upside, though, is that the most recent example of lousy energy policy is just rancid enough to rouse a few people slough from their torpor and ask a few questions. When Randy Simms and the Telegram editorial board start questioning things, you know it’s got to be pretty bad.

For her part, Premier Kathy Dunderdale seems incapable of answering even the simplest of simple questions. Asked why the proposed dams at Muskrat falls would be connected to Churchill Falls, all Dunderdale would say is this:

As I said last week, Mr. Speaker, we were happy to provide members of the Opposition with a briefing when we did an announcement of this project. I have offered again, because it is a large, complex piece of work, Mr. Speaker. To offer further briefings to the Acting Leader of the Opposition and members of his party, I make that offer again, Mr. Speaker, so he understands the nuances of this deal in a very particular way. Perhaps we can have a more enlightened discussion here on the floor of the House.

Dunderdale is not famous for understanding very much of anything.  At least when Danny was around, people could have some comfort that there was someone around with a clue. Now Dunderdale is in charge. She’s Danny hand-picked successor even if she is just a caretaker until someone else takes the helm.

But the odds are that if Danny’s successor’s successor keeps pushing the Danny Legacy Option for the Lower Churchill,  Dan leger and his fellow Nova Scotians will be in a much sweeter place than anyone in Newfoundland or Labrador.

Leger is right:  political bungling in energy policy tends to leave taxpayers the poorer, but Nova Scotia isn’t the best example of that situation.