Losing power

Tom Adams
National Post
April 15, 2005

Federal taxpayers are on the verge of acquiring a new and potentially massive burden – paying electricity bills for consumers in provinces with the country’s most mismanaged power systems.

New Brunswick Premier Bernard Lord, who oversees Canada’s biggest electricity embarrassment, NB Power, is today trolling Ottawa, seeking subsidies for renovating the trouble-prone Point Lepreau nuclear station. According to press reports, he has obtained qualified support from the prime minister and the endorsement of key figures in the Conservative caucus, including environment critic Bob Mills and MP John Duncan.

NB Power has grossly mismanaged its nuclear program, under-collecting the costs of operations and waste management from consumers. Nuclear headaches are only part of the province’s growing power crisis. NB Power just completed a billion-dollar renovation of an inefficient oil-fired station, only to discover that it had no signed contract with the sole-source supplier, Venezuela, for the exotic fuel the station was refitted to burn. Venezuela is now refusing to supply the fuel. With the nuclear station suffering premature ageing and its utility drowning in debt, Mr. Lord is telling consumers that without a federal bailout they face a rate shock.

Ontario’s experience with nuclear renovations show what a bottomless pit they are. The Pickering A station was renovated in the 1980s, was shut down for safety and financial reasons in the 1990s and is being renovated again. The cost overrun for the current renovation is about 340% and counting.

New Brunswick’s estimate for renovating its nuclear station has almost tripled to $1.4-billion, although the renovation is not scheduled to start for a couple of years. Mr. Lord has admitted the nuclear renovation can’t pay for itself – hence his plea to Ottawa.

Does Paul Martin think that Ontarians will deserve the same subsidies if he caves to New Brunswick? Even though Ontario has 16 reactors lined up to get the same renovations New Brunswick’s needs, he isn’t likely to say no, not now, when a federal election is in the offing and he stands to lose Ontario because of the sponsorship scandal. Neither is he likely to say no to Quebec, which likewise faces the same massive renovation at its reactor, and which is also critical to Mr. Martin’s reelection hopes. How could he deny Quebecers the right to equal subsidies in our federation?

The Liberal government’s recently announced Kyoto compliance plan proposes federal investment in an East-West electricity transmission grid. The arguments offered by the federal government show how far Ottawa will stretch to find a new excuse for spending. The government’s Kyoto plan points to the 1993 blackout that struck Ontario as justification for a national East-West grid without understanding the major lesson of the blackout: Its scale was caused by undue reliance on remote generating plants. Instead of relying more on local production and less on remote generators, however, a federal transmission initiative would have us increase our vulnerability to supply disruptions by making us more reliant on ever-more-distant power sources.

The most outspoken proponent of federal subsidies is the minister in charge of Ontario’s ongoing electricity crisis, Dwight Duncan. His solution to Ontario’s crisis is to develop new bureaucracies to administer the electricity whims of cabinet. With his announced bureaucracies and centralized power plans already slipping far behind schedule, he knows he is headed for blackouts and needs to have another level of government to blame when it happens.

Constitutionally, electricity is a provincial responsibility. The federal government has a legitimate role in policing the international environmental rules to which it agrees, but no legitimate role in redesigning power systems. A national electricity grid would be an unneeded, unwieldy and counterproductive creation of desperate politicians operating in the dark. It would also undermine fairness to federal taxpayers. Why should taxpayers in Alberta or Saskatchewan subsidize consumers in Ontario?

A minimum condition for an efficient power system is prices to consumers that reflect the full cost of production. If consumers don’t pay their own way, they will certainly consume more than they should. Federal subsidies to electricity thus artificially raise power consumption and force us to scramble to find new supplies. These are now coming from megaprojects that have historically tended to be financially risky and often unnecessary.

To make matters worse, these subsidies also reduce political accountability at the same time as they undermine the economy. Adding an additional layer of government involvement only further muddies the job that taxpayers have of figuring out who is responsible for what. When New Brunswickers have a problem with their power system in future, which level of government should they blame? You can be sure the federal and provincial governments will each be pointing the finger at the other.

Provincial power systems need competition, not subsidies. Competition would sort out the efficient producers from the inefficient and provide the dynamism needed to respond to changing business conditions. But instead of encouraging competition by allowing new entrants with fresh ideas into the electricity marketplace, the subsidies will have the opposite effect. They will all go to existing players, entrenching inefficient monopolies, keeping innovative, cheaper and often cleaner decentralized solutions out of the market, and all at taxpayers’ expense.

 

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