Does NB Power deal serve Canada?

- On October 29, a Memorandum of Understanding was signed by the Premiers of New Brunswick and Quebec for the sale of all the assets of NB Power to Hydro-Québec. The MOU is to lead to "definitive agreements" which would be the subject of legislation to be approved by the New Brunswick legislature before March 31, 2010.

The debate, which has engaged New Brunswickers to an extent seldom before seen there or anywhere, is not comparable to controversies such as the privatization of a publicly-owned utility, which in the fairly recent past has been debated and resolved one way or the other in several provinces. Nor is it an ordinary interprovincial agreement or a mere commercial transaction.

What is proposed is the acquisition, management and control by one province of a Crown corporation presently owned by another province. NB Power is to become a subsidiary of Hydro-Québec. If there are precedents for this in Canada I have not heard of any.

It is not my purpose to intrude on the debate among New Brunswickers as to where the interests of their province lie in this matter; rather I want to submit that there are aspects of this proposed transaction to which the government and Parliament of Canada cannot be indifferent. We have an interest and a responsibility.

There is the obvious interest of Atomic Energy of Canada Ltd. in the future of the Point Lepreau nuclear facility — one of the key provisions of the MOU — and of course Parliament's exclusive jurisdiction over atomic energy, which we obtained by invoking our constitutional declaratory power many years before any of us came to this place. However, there are at least three other elements of more general concern to us here.

First there is the question of interprovincial trade; second that of international trade; third, the broad constitutional issue whether New Brunswick is in effect transferring legislative jurisdiction to Quebec and whether this is an appropriate thing to do.

With regard to interprovincial trade, the governments of Newfoundland/Labrador and of Nova Scotia have already flagged potential barriers to the transmission of their electricity through New Brunswick if the MOU is implemented. At present, open access through New Brunswick is ensured by an independent operator, the New Brunswick System Operator, which has its own governing board and is outside the control of NB Power.

Under the MOU, this independent operator will disappear and its role will be assumed by a transmission subsidiary of Hydro-Québec. The future "neutral" operation of the transmission systems is, to understate the case, an open question.

On this issue, permit me to take a moment to draw to your attention the one amendment made by the authors of the 1982 Constitution to the division of powers provisions of what we used to call the BNA Act, now the Constitution Act, 1867....

The amendment of which I speak is now known as section 92A of our Constitution. It reinforced provincial jurisdiction over natural resources.... Subsection (2) of the new section 92A stipulated that a province may make laws for the export of electric energy but that such laws may not authorize or provide for discrimination in prices or in supplies exported to another part of Canada.

As the negotiations went on, Ontario and the federal government continued to fret about possible discrimination and so a compromise was reached that led to subsection (3) of 92A: "Nothing in subsection (2) derogates from the authority of Parliament to enact laws in relation to the matters referred to in that subsection and, where a law of Parliament and a law of a province conflict, the law of Parliament prevails to the extent of the conflict."

In other words, the "Fathers" of 1982 created a new concurrent field of jurisdiction with federal paramountcy. This is noteworthy in the context of the proposed New Brunswick-Quebec transaction: Parliament has full authority to legislate, if necessary, to remedy any abuse of power by a province.

I don't know whether section 92A is of any comfort to Newfoundland/Labrador and Nova Scotia as they contemplate the future operation of the Maritime and Québec transmission systems, or indeed to Ontario, which has been silent so far but whose officials and ministers must surely be following these matters closely.

Newfoundland/Labrador and Nova Scotia earlier this month asked New Brunswick for a commitment to negotiate an agreement with them, before the transaction with Quebec is completed, to construct a new interprovincial transmission line through New Brunswick to the border with the State of Maine and in the meantime to ensure that the independent New Brunswick System Operator will remain in charge of open access applications. So far, New Brunswick seems to have brushed off these representations, arguing that nothing will have changed under the proposed deal with Quebec and anyway that the U.S. authorities will enforce non-discriminatory access in the interests of its northeastern importers of electricity.

Nova Scotia and Newfoundland/Labrador would then be in the odd position of depending on the U.S. to protect their interests in Canadian interprovincial trade. If these interests are imperiled, it is surely the role of the federal government to protect them.

The question of international trade is intimately bound up with the interprovincial considerations I have just mentioned. Canada has a lot of generating capacity, existing and potential, and the United States is a big market. The two countries have an integrated system, the Maritimes component of which is the responsibility of the independent New Brunswick System Operator, now destined to be replaced by the Hydro-Québec subsidiary. The disappearance of the New Brunswick System Operator sends an ominous signal. I will say as objectively as I can that Nova Scotia and Newfoundland/Labrador have every reason to be concerned.

Under the MOU, Hydro-Québec will own and control all present and future interconnections with New England as well as important links with New York. It would be an understatement to say that Québec will have increased its market power very significantly.

Concerns about the use of that increased market power were expressed by New England importers of Canadian electricity as soon as the MOU was signed. While the Minister of International Trade may be reluctant to take a position on the potential consequences of a sale of NB Power to Hydro-Québec for New England and New York importers of electricity, the government of the United States will have every interest in protecting the potential access of its importers to electric power generated in Nova Scotia and Newfoundland and Labrador and to the competitive pricing regime for Quebec and New Brunswick power such access supports.

The implications of the MOU for international trade thus cannot be evaded by the federal government, and it should begin now to consider how it will act to prevent perceived abuse of this enhanced market power, or, at least, how it will respond if the U.S.A. government raises concerns about the potential for such abuse.

For example, the Minister of International Trade could simply state that the MOU, if it proceeds, must explicitly reaffirm the historic principle and practice of open access that is quantifiable and rules-based, both for international and inter-provincial electric power exports. A policy of continued silence would be an implicit delegation of the federal government's jurisdiction in this area of interprovincial and international trade to the U.S.A. Federal Energy Regulatory Commission and the government of Quebec.

With regard to New Brunswick's legislative authority, I acknowledge article 7.5 of the MOU. This article is headed "Sovereignty Unaffected" and reads as follows: "Nothing in this MOU or in the proposed transactions is intended to limit the exercise by each of New Brunswick and Quebec of its sovereignty or constrain its ability to establish or modify independent energy and industrial policies and regulations, provided that each of the parties will comply with those commitments specifically agreed as part of this MOU and the definitive agreements".

One of those commitments in the MOU is that "the regulatory framework governing the generation, transmission and distribution of electricity in New Brunswick will be altered to conform to the framework currently in effect in Quebec." Under an act of the New Brunswick legislature, regulation of NB Power is delegated to an independent crown agency, the New Brunswick Energy and Utilities Board, known as the EUB. When, under the MOU, the regulatory framework in New Brunswick is made to conform to that of Quebec, what discretion or authority in this field will remain to the EUB, or even to the government and legislature of New Brunswick?

What the MOU seems to be saying is that New Brunswick's sovereignty will be intact, except that it is eliminated when it comes to the ability to regulate the generation, transmission and distribution of electricity. Further, it would seem that Hydro-Québec, once it takes control, can do whatever it wants to do with those assets in the future. It appears that New Brunswick has indentured itself indefinitely to Hydro-Québec.

The government may and probably does prefer to be silent on these issues, regarding them as hypothetical, at least until the MOU is given concrete form in an agreement and legislation. But such a course would be simply an evasion of responsibility and an untenable evasion at that. As I have attempted to demonstrate, one or more of the following events is highly likely to demand some response from the federal government if the MOU proceeds to the stage of definitive agreements: a demand for intervention from frustrated neighbouring provinces, action by the United States government or a court challenge to one or more issues raised by the MOU and subsequent definitive agreements.

If such a fait accompli or something like it is lobbed into the lap of an unprepared federal government, possibly at a very politically inconvenient time, ministers and their advisors may wish they had thought through and staked out a responsible federal government position much earlier in the process.