Power play

Power play

It is an iron cold, late January afternoon in Newfoundland and Labrador’s capital city, where the fog perches like an omen over one of Canada’s most outspoken political leaders. Premier Danny Williams has spent the better part of the morning reviewing news reports about a revised deal to sell most of New Brunswick’s power generating assets to Quebec by March 31 in return for cheap hydro-electric energy. The more he reads, the more concerned he becomes, now drumming out his objections over the phone. “When I talked to New Brunswick Premier Shawn Graham last Sunday,” he says, “he gave me a quick overview of this new deal. He told me that he was going to get his power rate agreement, sell some of his generation capacity, and retain his transmission and distribution system. Of course, I haven’t seen the actual agreement. And the devil is in the details. But…”

Williams pauses as the speaker-linkup crackles. “But,” he continues, “at no time during that conversation was there any mention of transferring New Brunswick’s transmission rights to Quebec. And from what I read in the newspapers, this seems to be the case. From what I read, Hydro-Quebec will actually control 97 per cent of New Brunswick’s transmission lines once this deal goes through.”

In fact, it’s hard to discern what worries Williams most about the current circumstance. Is it that Graham may have withheld certain crucial elements of the deal with Quebec in order to secure his titular support? Or is it that New Brunswick’s premier had the temerity to make an arrangement with a jurisdiction whose dominance over a key Maritime transmission system could ruin, or at least savagely curtail, Newfoundland and Labrador’s access to lucrative energy markets in the American Northeast? At this point, there may not be much difference.

Since news of a tentative understanding between New Brunswick and Quebec broke like a tidal wave over the Atlantic region last fall, Williams has led a loud and ready charge against any arrangement that would transfer ownership of the former’s power transmission infrastructure to the latter. At that time, the deal would, indeed, have sold nearly all of NB Power to Hydro-Quebec: generating stations, including the Point Lepreau nuclear plant, distribution cables, transformers, poles, wires. But after a display of popular outrage rarely seen in New Brunswick (which was at least partly inspired by Williams’ public speeches and media interviews), with opponents from almost every quarter screaming about lost “energy sovereignty” and “jurisdictional poaching” of taxpayer-owned assets, Graham backtracked. In January, he announced an amended version that would see the province keep its transmission capacity. And he placed a call to Williams to both assuage his concerns and soothe his savage breast.

But somehow during that discussion, the phrase “priority access”, with respect to Hydro-Quebec’s advantageous relationship with New Brunswick’s transmission system throughout the province and, crucially, across the border and into Maine was never fully plumbed for meaning.

To Graham, granting priority access to Quebec is a mere technicality; nothing for Newfoundland and Labrador to worry about. For Williams, however, it is a serious mistake. And from his St. John’s office, he makes his point articulately, if bluntly.
“What really strikes home to me is Quebec Premier Jean Charest coming out now and saying this revised deal is actually better than the first one for his province,” he observes. “Coincidentally, Hydro-Quebec president Thierry Vandal says that Hydro-Quebec will now hold a guaranteed, unlimited access to distribution in New Brunswick. So, in essence, they will now control transmission rights in that province without actually having to buy the lines, which were the terms of the original deal. Does this make any sense whatsoever?”

To hear Williams vent spleen on what might have been, in another time and at another place, a minor scuffle among eastern premiers, you’d think civilization teeters at the precipice. In fact, you’d not be entirely wrong.

Over the past few years, nothing has become more crucial to the steady progress of the Atlantic Provinces, or a more hotly debated issue, than energy self-sufficiency. Williams’ objections to both the current and original deals with Quebec are rooted in his deep mistrust of it and its energy mandarins over a power purchase agreement signed in 1969. Not scheduled to grandfather until 2041, the deal sees Newfoundland and Labrador’s Upper Churchill hydroelectricity sold to La belle province at bargain basement prices, costing the former billions of dollars off current market prices. Exacerbating this is what he describes as that jurisdiction’s obstructionist, intractable attitude toward developing the 2,800 megawatts of sustainable, continuous, environmentally friendly hydroelectric power from the Lower Churchill River. The proposed development has stalled over Quebec’s apparent unwillingness to negotiate an agreement to carry this Newfoundland energy, bound for Ontario and American markets, through its lines. How can New Brunswick, he wonders, reasonably expect any better treatment?

(Disclosure: the Province of Quebec and Hydro-Quebec were either unwilling or unavailable to comment for this story.)

Beyond this, both Williams and former Nova Scotia Premier Rodney MacDonald have fought pitched battles with the federal government over offshore rights. And, again, the scars earned at the cost of billions of dollars have not yet healed. Meanwhile, Ottawa has constantly yakked about “energy gateways” and “transmission points” into the increasingly power-hungry United States and has worked, futilely, to secure these. Throughout, only Quebec and New Brunswick have possessed the transmission infrastructure to paint the big picture for the rest.

All of which has transformed New Brunswick, if only for the time being, into a nexus where all things seem simultaneously possible and impossible: A battleground for the strong of arm; a chess board for the nimble of mind; a tableau on which to redraft the traditional conventions of Atlantic Canadian energy cooperation and development; a political theatre in which to workshop the very principles, if not the facts, of the constitutional understanding that is the core of the Canadian Confederation. As is sometimes the case in the fragile world of inter-provincial relations, where even the most innocuous move can be seen, not illegitimately as the gravest miscalculation, it all began with a first-term premier’s desire to save his electorate a few bucks.

Shawn Graham sits in his Fredericton office, pondering the rollercoaster ride of the past few weeks. It’s been two days since he unveiled the details of his “new, improved” agreement with Hydro-Quebec, and the wringing of hands and gnashing of teeth in his home province and elsewhere has hardly abated. “Look, it’s simple,” he says almost mirthfully. “When we made the first formalized framework public in late October of last year, I specifically announced that I was determined to engage New Brunswickers in the discussion. At that time, I didn’t think I’d also have to engage my fellow premiers.”
Now, his tone turns and he becomes deadly serious. “Danny Williams became involved in a debate that was primarily designed to drive the New Brunswick agenda,” he says. “So, I’ve worked to try to alleviate some of [his] concerns. He wants to see more of the details, and I can respect that. He will see more details, as will all New Brunswickers, when the finalized document is completed by the end of March. But, this week, we’ve dealt with the objections by retaining ownership of NB Power and of the New Brunswick System Operator, which controls the transmission system.”

His demeanour suggests a certain, rising impatience. Why, he seems to wonder, don’t more people appreciate the impending economic peril in New Brunswick which motivated both the first and second rounds of negotiations with Quebec? Why aren’t more better informed about international energy politics, the province’s crushing debt load, and the consequences of continued reliance on fossil fuels for power generation? “We are taking a giant leap forward in reaching our key objectives,” he says. “And these are to lock in power rates for homeowners, to reduce the rates for large and medium-sized businesses, to create a more competitive economy that’s going to create jobs, and to lower our debt load. What’s more, we’re going to reduce our greenhouse gases.”

Ironically, the original deal might have done a better job of achieving all of these objectives than the revised version. According to the memorandum of understanding signed in October, Hydro-Quebec stood to gain virtually all of NB Power’s assets, which included seven hydroelectric generating stations, the Point Lepreau nuclear power plant outside Saint John, and the utility’s 6,700-kilometres of transmission lines connected to systems in the Maritimes and New England. As well, under the agreement, three of five fossil-fuel-fired plants in New Brunswick would be shut down. The remaining two would wheel power into the Quebec grid, under contract, making CO2 emissions that Province’s problem if and when a carbon cap-and-trade regime descends on the nation.

The purchase price of $4.8-billion would have, theoretically, eradicated NB Power’s accumulated debt load (in the process, eliminating 40 per cent of the province’s systemic $13-billion shortfall). Even more attractive to Graham, perhaps, was the stipulation that Hydro-Quebec would provide New Brunswick with cheap, green energy in the form of a14-terrawatt heritage pool of power – a pool, valued at $5-billion, which would have permanently cut industrial customer rates by 30 per cent, frozen levies on residential consumers to current levels over five years, and fixed annual increases after 2015 to the province’s typical 1.8 per cent consumer price index, compared with NB Power’s historical 3.2 per cent yearly hikes.

The revised agreement is similar, but for one substantial difference. In lieu of New Brunswick formally retaining ownership of its transmission infrastructure (including its 1,000-megawatt export capacity into the United States), the adjusted price tag to Hydro-Quebec is only $3.2-billion. As for the touchy business of “priority access”, the System Operator explains it comes bundled and provided to whichever entity owns the generating assets located in the province, as it always has. Since such reserved capacity rarely rises above 25 per cent of the total on any given day, however, nothing prevents another power supplier – either within the province or without – from negotiating its own transmission arrangements with the reserve holder. As New Brunswick retains full regulatory control, the chance of any corporate behemoth monopolising the system is slim to none.

It sounds reasonable. It seems reasonable. Except that for many opponents, the basic premise of the argument to sell out doesn’t support the logic of the deal. If NB Power is such a cash drain, then why is Hydro-Quebec prepared to bail it out? And if the utility’s assets are so undervalued, then why is the Province of Quebec willing to cover its operating losses? And there are other questions. When, for example, did New Brunswick’s premier decide, after witnessing years of underwhelming financial performance, that NB Power was finally, fatally insupportable? How, precisely, did he throw in the towel? There must be something else, something nefarious, unfolding behind the curtain: Something about greed and Machiavellian manipulation on the one hand, and fear and political capitulation on the other.

Williams, for his part, doesn’t subscribe to such alarmist dream-weaving. And he is at pains to point out he has no interest in interfering in the affairs of another province. For him, the issue is strictly about the constitutional right of his province – indeed, the rights of all provinces – to develop their resources without fear of hindrance. This is, after all, a cornerstone of national unity. Despite assurances from the New Brunswick System Operator, a Hydro-Quebec monopoly on transmission could easily undermine Newfoundland and Labrador’s hope to export energy within and beyond the Maritimes simply because the rates HQ would charge would be prohibitively expensive. History makes his case.

“I would issue a word of caution to New Brunswickers and to the Government of New Brunswick, in a friendly way, as a neighbour who has been burned by Quebec,” he says. “We’re in a situation now as a result of the Upper Churchill deal where we’re losing anywhere from $1.7-billion to $2-billion a year. This is an enormous number, obviously, for an Atlantic Canadian province. Spread out over 70-odd years, the cost has been to us, and will be to us, anywhere from $75-billion to $100-billion. With New Brunswick’s population, you can extrapolate what that kind of relationship [with Hydro-Quebec] would mean on a per capita basis.”

A related worry is what this deal does to the concept of an Atlantic Energy Grid, which has topped the agenda of every Council of Atlantic Premiers meeting for years. Prince Edward Island Premier Robert Ghiz endorses the agreement. But, until the revised deal, Nova Scotia Premier Darryl Dexter concurred, in large measure, with Williams. Now, he supports the effort. So, then, have the negotiations with Quebec fatally fractured the slow, commodious, progress towards Atlantic energy cooperation?

Graham doesn’t buy any of these arguments. His more immediate concern has been the reaction to the deal within his own province. “Okay,” he says, “if I stood up today and said that I was going to lock in the price of gasoline at the pump for the next five years, New Brunswickers would be ecstatic. But, that’s what we’re doing with their electricity rates right now, today. The advantage of this will only be seen through time. Other jurisdictions, like Ontario and Nova Scotia, will see dramatic increases in their electricity costs due to their reliance on fossil fuels for power generation.”

Sure, but what about the sovereign right of every New Brunswicker to chart the course of his or her own energy future, even if that future is fatally compromised by escalating energy costs and massive debt?

“Think of it this way,” Graham sighs. “I’ve always alluded to NB Power as your little, kid brother. You hate him. And then, all of a sudden, when someone’s going to pick on him, you’re going to stand up and defend him. Well, that’s what has been going on in New Brunswick.”

It’s a revealing choice of words. If New Brunswickers have spied a bully on the playground, it’s only because the provincial government has failed to allay their concerns with enough facts. This, more than anything else, fuels the controversy. Simply put, despite the roughly sketched details about both the original and revised deals released to the public, not enough is known about the implications of the final framework. This is what keeps the critics up late at night, spinning conspiracy theories and doomsday scenarios. After all, it’s only human nature to abhor a vacuum.

Certainly, almost no one outside his privileged circle knew what was on Graham’s mind when, in January 2009, he approached Quebec Premier Jean Charest with a proposal. “I told him that we were going to have some major challenges in New Brunswick,” Graham recounts. “I said there were going to be some dramatic spikes in our power rates, and that there were going to be some major upgrades to our existing generating [plants] that will increase the debt of NB Power dramatically. I also said we need to look at ways to maximize the value of each other’s assets.”

Even in those early days, the notion of selling New Brunswick’s utility was viable. “I said we were willing to consider every option,” Graham later told the Saint John Telegraph-Journal. “But I also said I wouldn’t sell off the assets of NB Power unless we could get a benefit for New Brunswickers in return – and that meant rate relief and debt reduction.”

Serious negotiations commenced in February as Graham’s team (Chief of Staff Bernard Theriault, Deputy Minister of Strategic Priorities and Deputy Minister of Finance John Mallory) met with Charest’s hand-picked group of bureaucrats. By June, the talks had proceeded well enough to announce that the two provinces were in “discussions”. But, crucially, there was little or no acknowledgement of a possible sale on the near horizon.
In fact, Danny Williams remembers that period well. “At the time,” he says, “the premier of New Brunswick indicated that he wanted to explore opportunities for collaboration with Quebec with regard to clean, renewable energy. Well, that sounded fine to me. What I didn’t realize and what I didn’t know was that while we were talking to New Brunswick, Nova Scotia and PEI in a collaborative, cordial manner about a possible Atlantic energy framework, New Brunswick was pursuing this much larger deal with Quebec. And when the announcement was made in the fall, we were completely blindsided. It seemed that the national reporters knew more about it than we did.”
Williams’ alarm only deepened when Quebec premier Charest trumpeted his delight to Canwest News Service. Referring to access to the U.S., through New Brunswick’s transmission lines, his province would obtain once a final deal was reached, he declared: “We see in front of us a unique opportunity with what is happening in the United States. The Americans need clean, renewable energy, and they need a lot of it. And guess what? We in Canada are the ones who can supply it.”

Williams immediately hit the warpath, providing startlingly candid commentary to a rapt media. “It’s a despicable power grab,” he told The National Post in October. “If, in fact, New Brunswick gets acquired and if, in fact, Nova Scotia and PEI get acquired, then Quebec will be in a position, as a province, to direct the economic direction of these three provinces, as well as to have a stranglehold on the future of industrial development in Ontario. That’s dangerous.”

Sometime later, the premier elaborated his concerns in an interview for this magazine. “Newfoundland and Labrador has experience dealing with Hydro-Quebec,” he said. “They are very strategic. They are long-term thinkers. What happens if [Quebec] separates? What happens if we have the nation of Quebec, all of a sudden, in the middle of Canada with this kind of stranglehold and economic leverage on all four Atlantic Provinces, plus Ontario. I am very, very concerned about where all this is going.”

So, too, were many New Brunswickers. Though the business community (noting the attractive rate reductions) largely supported the measures in the draft memorandum of understanding, labour leaders, citizens groups, environmental lobbies and the average Joe on the street did not. The question of the province’s sovereignty fired the imaginations of people from nearly all walks of life. And once lit, the blaze burned hot and fast. Demonstrations of placard waving protestors became an almost daily occurrence outside the provincial legislature. Nearly 25,000 individuals joined the Facebook group, “Say No Sale of NB Power.” A coordinated letter-writing campaign filled the Op-Ed pages of New Brunswick’s daily and weekly newspapers.

Even some sober experts fanned the flames with their careful analyses, and less than ringing endorsements, of the tentative agreement. “NB Power customers will receive significant rate relief in the initial five-year period,” wrote Gordon Weil, president of Maine-based Standard Energy Company, in a report for the Atlantic Institute for Market Studies. “But the promised additional benefits are considerably more speculative and will be received over a period extending more than 30 years.”
Moreover, he observed, “The size of the HQ power supply and its control of an extensive transmission system may cause anti-competitive concerns for entities outside of the two provinces. Utility regulation in New Brunswick will be required to follow the Quebec regulatory system and be subject to specific legal requirements limiting its discretion. Such a transfer of regulatory control is unprecedented.”

With his polling figures at record lows (something he still insists doesn’t worry him), Graham recognized he had a serious problem. “Hydro-Quebec president Thierry Vandal knew that the issue of sovereignty and ownership had become the top concern,” the Premier now says. “So, just before Christmas we began discussions to see how we could address that issue. But, you know, we specifically asked New Brunswickers to become engaged. And that’s exactly what they did. And I must say the debate, while passionate, has been civil. I wanted to hear what New Brunswickers had to say, and they’ve clearly said we respect the end objectives you’ve laid out. But they’ve also said we’ve got to find a mechanism to maintain ownership of NB Power while still achieving those same objectives. And that’s what we’ve been able to do today.”

Notwithstanding Shawn Graham’s cheerful confidence, the essential problem remains: There is still enough uncertainty about the revised deal’s potential impact on New Brunswick’s control over its energy apparatus, and on the future of new energy development in the region, that many both inside and outside the province remain sceptical. Certainly, Gordon Weil appears unconvinced. In his review of the second deal, he writes: “The essence of the deal remains the same and the use of the transmission system, for the almost exclusive benefit of Hydro-Quebec, is also unchanged. From Quebec’s perspective, there was virtually no loss of what it had gained, but an immediate saving of the $1.55-billion that been assigned to acquiring the transmission system.”

Nor is he particularly impressed with the rate provisions. “As with any other rate cap that has been applied in the period since electric industry restructuring began in 1992,” he observes, “it is certain that at the end of the freeze there will be a significant amount of deferred costs to be recovered from customers.”

Beyond the studied, measured demurrals, there is some evidence to suggest resistance to the overall approach within Graham’s own cabinet. Prior to the announced amendments in January, a handful of high-profile ministers indicated that they could not, in good conscience, vote in favour of (for lack of a better term) Plan A. The Premier, however, dismisses any discussion of a threatened cabinet revolt. “There is a lot if misinformation out there,” he says. “What I asked Cabinet to do was go out and listen to the people and bring that back to caucus. Look, I’m not being distracted by all the rabbit tracks. I’m remaining focussed on the end goal.”

None of which explains the sudden and mysterious departure in late January of NB Power’s president and CEO David Hay, who reportedly abstained from voting on the matter at the board level. About this Energy Minister Jack Keir told reporters, “David Hay retires having turned around the utility and made it a great place to work. His counsel leading up to the period of transition has been invaluable, and I thank him for his services to New Brunswickers… This is David Hay’s decision. He saw that NB Power is headed in a new direction and he saw this as an opportune time to pass the torch.”
In all of this, the studied ambivalence of the federal government continues to raise questions. Ottawa has clear jurisdiction in any circumstance where barriers to inter-provincial or international trade could arise – a point Ontario Senator Lowell Murray articulated prior to the revised deal when he said, “I am motivated by a responsibility on the part of Parliament. We’re still in early days here and we only have an M.O.U. There are going to definitive agreements and legislation and all the rest of it. But Ottawa has to get interest in this and get into the game.”

But apart from some early criticism by Nova Scotia MP and Defence Minister Peter MacKay, the federal government’s official reaction has been. . .well, no reaction.
For Danny Williams, at any rate, the saga is far from over. New Brunswick’s deal has much broader repercussions for those who embrace the concept of Atlantic energy independence. “You know,” he says, “if I want to go out and secure a cheaper deal on feedstock, I don’t go out and sell the farm. I just go and get a cheaper deal on feedstock. I think this revised deal may be better than the first in some ways – notably about retaining regulatory control. But I’m still very concerned about New Brunswick selling away its future. And we do have a vested interest in Atlantic energy cooperation.”

In the absence of a final framework, there’s little he or anybody else can do except review the constantly changing reports, and read between the lines about a deal which could permanently alter the economic landscape of the region, but which is – to the frustration and chagrin of just about everyone – still in motion.


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