Power lines are shown in Quebec City on Sept.27, 2006.JACQUES BOISSINOT
While I have never done any work for any of the utilities involved in today's big deal, I do work in my day job in the energy sector, which is why I typically avoid writing about energy issues in this space.
There are still a number of questions about this deal that need answering for me. Unlike Tim, I don't see selling your utility as "giving up your sovereignty" over energy policy in a province. Sovereignty emanates from the ability to regulate rates and set overall policy direction. It is unclear at this time what regulatory levers the province will maintain as part of this deal but in order for Tim's argument to hold water, you have to buy that Nova Scotia and Alberta have long ago lost control over energy policy in their provinces, which is a ludicrous notion.
First the good about the transaction: this deal allows New Brunswick to pay off 40 per cent of the provincial debt which frees up more fiscal space to implement Premier Shawn Graham's aggressive tax cut policies while investing in health and education.
The New Brunswick debt load was becoming a real issue and cost-overruns at Point Lepreau weren't helping matters.
Therefore, the decision to sell this asset is eminently defensible and I would argue excellent policy.
So on the one hand, I have absolutely no problem with New Brunswick selling their utility. On the other hand, there is something deeply troubling about this deal. A $5-billion purchase price and the assumption of $5-billion or so in debt may be a good deal for the tax payers and rate payers of New Brunswick. It may be a terrible deal. It is of course difficult to answer that question because this is a $10-billion sole sourced contract. There was no competitive process. No opportunity for a higher bid.
I have no doubt that if there had been a competitive process, Hydro-Quebec may very likely have still won. They have strategic reasons for buying the assets that don't apply to other potential buyers (and they start in Newfoundland), they are big enough to easily absorb the relatively small sized New Brunswick company and they have cheap capital compared to many other companies. That having been said, there may have been other companies that could have offered an even more attractive deal.
But of course we will never know now and I just don't understand how a government in 2009 thinks that sole sourcing deals of this magnitude is acceptable government practice.
The other problematic component of the deal is the rate cap that is being put in place for residential and industrial customers for five years. Rate caps are atrocious policies - even if they are politically popular in the short term. They have failed as policy in jurisdictions ranging from California to Ernie Eves's Ontario. There is no indication in the initial stories about the deal how rates will be set once the cap is lifted.
But to the larger point, as Ontario and other provinces consider asset sales as potential solutions to their budgetary problems, on the one hand I am encourage by the boldness of Premier Graham's move and on the other hand, I would be very surprised if you see a repeat of this type of sole-source arrangement. My gut says that if Graham pays a political price, it will be for the problematic nature of how this deal came together rather than the notion of the transaction itself.