22 July 2011

Containing Ottawa’s Skyrocketing Power Bill

by Tom Adams and Brian Lee Crowley

[Note:  the authors prepared the following commentary to coincide with the recent energy ministers meeting.  It has appeared in other publications across the country.]

Federal taxpayers are exposed to an explosion of liabilities to fund provincial electricity misadventures, the worst of which are undermining Canada’s international trading reputation. A federal-provincial energy conference in Kananaskis, Alberta running until July 19th threatens to up the ante.

Last week, Texas energy titan T. Boone Pickens launched a $775-million
NAFTA challenge alleging the Ontario government has discriminated against his privately owned wind energy company. Pickens is demanding that the federal government pay up.

The federal government is also defending protectionist elements of Ontario’s controversial Green Energy Act against a challenge Japan has launched with the support of the United States and European Union at the World Trade Organization.

Ontario is not the only province with electricity initiatives undermining Canada’s trading reputation and sending the bill to Ottawa.

Last August, a NAFTA dispute panel obliged federal taxpayers to pay the industrial firm Abitibi-Bowater $130 million after the government of Newfoundland and Labrador confiscated electricity generation assets. Far from holding the Newfoundland government responsible for shafting federal taxpayers, Prime Minister Stephen Harper instead promised loan guarantees for submarine transmission connections
required by a Labrador power megaproject with very dubious economics.

With the subsidy offer, Harper effectively rewarded Newfoundland’s government and further impaired Canada’s trade reputation in an unsuccessful bid to win seats on the Rock (although the Conservatives did pick up a seat in Labrador).

Newfoundland justifies its power scheme on the basis that provincial power costs are going to soar anyway, eventually making pricey Labrador power relatively cheap by comparison. Most of the new Labrador power, however, is earmarked for the Maritimes and potentially New England. Unlike Newfoundland, those markets have access to North America’s glut of natural gas, a key factor driving down average power rates across the U.S.

Any subsidies to Labrador power are likely to attract yet more trade complaints from generators in New England, particularly those now selling significant amounts of power into the Maritimes. International competitors of export industries in Atlantic Canada may also complain.

The Newfoundland government estimates that a federal subsidy for the Labrador power project in the form of a loan guarantee will cut local power costs by 6 or 7 per cent. Likely cost over-runs could push the value of the federal guarantee much higher.

The Kananaskis meeting provides a platform for provincial governments and lobby groups to push the federal government deeper into provincial electricity matters. Many, including the governments of Ontario and Newfoundland & Labrador, have demanded federal subsidies to interprovincial transmission projects. Ontario also demands federal subsidies for its nuclear expansion ambitions.

The federal track record in the electricity business is dubious, as illustrated by its recent cut-the-losses exit from nuclear power development and marketing. Even if the federal record in the electricity business was solid, using the federal spending power to buy its way into provincial energy affairs now will annoy our trading partners, promote inefficiency and create jurisdictional confusion.

The federal government should focus its electricity sector involvement first on its core constitutional responsibility for interprovincial trade and commerce. The best way to make Labrador power truly competitive against abundant natural gas is to avoid hugely expensive long distance submarine transmission and to instead achieve the best possible economies of scale with more affordable transmission over land.

To reach markets in Ontario or the U.S. Northeast, Labrador power must transit Quebec, which has its own electricity export ambitions. If those provinces cannot negotiate a mutually agreeable solution, the federal government should act to ensure the constitutionally-guaranteed freedom of interprovincial trade. Ontario and Newfoundland should not require Quebec’s approval to move electricity any more than Alberta needs Saskatchewan’s permission to move natural gas to Manitoba, Ontario and Quebec.

Naturally, Quebec does not welcome another big hydro-power competitor, particularly while market prices are low. However, to maintain its access to electricity markets in the United States, Quebec already accepts the U.S. Federal Energy Regulatory Commission’s non-negotiable rules compelling them to open their market to electricity imports. The constitutional powers that the U.S. relies upon to promote highly successful inter-state trading are similar to our own federal
government’s constitutional authority, which Ottawa has always been reluctant to exercise in the electricity sector.

Canadians too should be entitled to an open national electricity system, where no province can hold its neighbours hostage and Canadians can buy and sell power freely. The federal government should keep federal tax dollars out of the electricity sector. Any subsidies to the sector create unfairness to taxpayers across the county and harm Canada's trading reputation, vital to our long term economic interests. Instead Ottawa should use its legitimate powers to create an open national electricity market that treats everyone transparently and fairly.

- srbp -

Tom Adams is an independent energy and environmental advisor. He has held a variety of senior responsibilities including Executive Director of Energy Probe from 1996 until September 2007, membership on the Ontario Independent Electricity Market Operator Board of Directors, and membership on the Ontario Centre for Excellence for Energy Board of Management. His guest columns have appeared in many major Canadian newspapers. He has been a media commentator for 20 years and a lecturer in energy studies at University of Toronto. He has presented expert testimony before many regulatory tribunals in Canada on a wide variety of energy subjects. He has made presentations to Legislative Committees in Ontario and New Brunswick, academic, regulatory and trade conferences, the Atomic Energy Control Board, and the Canadian Nuclear Safety Commission.

Brian Lee Crowley has headed up the Macdonald-Laurier Institute (MLI) in Ottawa since its inception in March of 2010, but he has a long and distinguished record in the think tank world. He was the founder of the Atlantic Institute for Market Studies (AIMS) in Halifax, one of the country’s leading regional think tanks. He is a former Salvatori Fellow at the Heritage Foundation in Washington DC and is a Senior Fellow at the Galen Institute in Washington. In addition, he advises several think tanks in Canada, France and Nigeria.

Crowley’s published numerous books include two bestsellers: Fearful Symmetry: the fall and rise of Canada’s founding values (2009) and MLI’s first book, The Canadian Century; Moving Out of America’s Shadow, which he co-authored with Jason Clemens and Niels Veldhuis.

Crowley twice won the Sir Antony Fisher Award for excellence in think tank publications. From 2006-08 Crowley was the Clifford Clark Visiting Economist with the federal Department of Finance. He has also headed the Atlantic Provinces Economic Council (APEC), taught politics, economics and philosophy at various universities in Canada and Europe.

Crowley is a frequent commentator on political and economic issues across all media. He holds degrees from McGill and the London School of Economics, including a doctorate in political economy from the latter.