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Shawn Graham, the Premier of New Brunswick, and his counterpart Jean Charest of Quebec announced on Oct. 29 a deal that would lower electricity rates in New Brunswick and transfer most of NB Power's ominous liabilities to Hydro-Québec. For its part, Hydro-Québec says the takeover is a good investment.

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The agreement has whipped up a storm of controversy. Premier Danny Williams of Newfoundland and Labrador promptly spoke up against it. He condemned Quebec's "despicable power grab" and attacked Mr. Graham for what he called "complete capitulation," having "agreed to sell away" his province's future. New Brunswick's Conservative opposition leader, David Alward, has accused the Liberal Premier of having "sabotaged the interests of its fellow Atlantic provinces so viciously in this transaction." A cabinet minister in Mr. Graham's Liberal government waffled when asked by Radio-Canada whether he supports the deal. Nova Scotia's Premier Darrell Dexter has joined with Mr. Williams in demanding written guarantees that power exports through New Brunswick will be unaffected.

Protests against the sale of NB Power have broken out at the legislature, at MLAs' offices, on Facebook and on news websites. Prominent in the protests are union groups, perhaps motivated by the realization that Hydro-Québec's labour productivity compared with NB Power's is more than 50 per cent better with respect to generation and 20 per cent better with respect to customer service.

A Léger Marketing survey released this week found that 60 per cent of New Brunswickers view the deal unfavourably, while 22 per cent say they view it favourably. The rest don't know or are undecided.

Prince Edward Island Premier Robert Ghiz, bucking the wave of hysteria, is negotiating with Hydro-Québec to find ways of bring down his province's sky-high power rates.

What is behind all this controversy?

THE DEAL

Under the agreement, Hydro-Québec would take over NB Power's $4.75-billion debt, as well as its current obligations. In return, Hydro-Québec would receive NB Power's hydroelectric stations, and its transmission and distribution assets. Upon completion of the refurbishment of the Point Lepreau nuclear generating station, expected now in late 2011, Hydro-Québec would take over the nuclear operation. New Brunswick would see its coal- and oil-fired generation downsized.

Consumers would benefit. Residential, small-business and institutional consumers would get a five-year rate-freeze, followed by regulated rates adjusted by the rate of inflation and the market cost of any additional supply needed to meet load growth. New Brunswickers concerned about long-term residential rates might note that in recent years, Hydro-Québec's rates have risen faster than inflation. New Brunswick's large industrial users, key employers in the province, would enjoy a rate reduction of about 30 per cent.

The deal stipulates open access to the transmission network in New Brunswick and market competition for future electricity supply in excess of a guaranteed block of power that Quebec would provide in perpetuity.

THE BACKGROUND

NB Power has blundered from crisis to crisis for a decade and a half. Bad technology choices, propping up losing operations and catastrophic contracting failures have left a huge per-customer debt, rates among the highest in Canada and very high operating costs, with prospects of rising even higher.

As the most oil-dependent large utility on the North American continent, NB Power and its customers have been pounded by fluctuating world oil prices. Recognizing this weakness, NB Power announced in 2001 a plan to convert its largest oil-fired station to an alternative fuel called Orimulsion, which comes solely from Venezuela. As $1-billion was being spent to ready the plant for this fuel, a massive strike pitted Venezuelan state oil workers against President Hugo Chavez's government. The resulting supply interruption forced NB Power into the red. Heedless of this danger signal, the utility continued to pour money into the Orimulsion scheme. In 2003, Venezuela announced it would not sign any new sales contracts. NB Power had only a memorandum of understanding with Venezuela, not a binding contract. To his great credit, the CEO who inherited this mess, David Hay, eventually negotiated a deal rescuing about half of the money sunk into the refurbishment.

When NB Power's nuclear reactor, Point Lepreau, succumbed to premature aging, NB Power turned to Atomic Energy of Canada Ltd., the federal Crown corporation, to refurbish it. The project ought to be nearing completion; it will take another 18 months or more, with costs mounting rapidly. Replacing the foregone power caused by this delay could cost as much as $1,000 per customer; Hydro-Québec would absorb some of that cost. New Brunswick is pleading with the federal government for money to compensate for AECL's poor performance, but the prospects of that are uncertain.

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