Inflation would have tripled NB Power rates

New Brunswick is proposing to permanently tie provincial power rates to inflation beginning in 2015 as part of its deal to sell NB Power to Hydro-Québec.

The utility is charging residential customers an average of 11.04 cents per kilowatt hour (kWh) for electricity in 2009-10, according to NB Power filings with the Energy and Utilities Board.

That price is a combination of average residential consumption charges of 9.5 cents/kWh and non-consumption service charges.

The amount is 178 per cent more than the 3.97 cents/kWh NB Power charged consumers in 1959, according to utility records.

Statistics Canada reports that inflation over the same period rose more than 600 per cent.

NB Power's residential rates would have been pushed to more than 29 cents/kWh, if inflation had been used as a trigger for rate increases in the last 50 years.

Energy Minister Jack Keir said that track record is deceptive.

Keir said that inflation is not the problem it used to be and there are few lessons to be learned from looking at historical rates in the province.

"Since 1991, the Bank of Canada has had inflation control as its cornerstone policy," Keir said in a statement released in response to the CBC's 50-year rate review.

"Inflation-targeting aims to keep inflation at the two per cent target, the midpoint of the one to three per cent inflation-control target range. This was not the policy of the central bank prior to 1991 and therefore using inflation prior to 1991 to predict future inflation is an unfair comparison that lacks that important context."

Under the proposed deal to sell the majority of NB Power's assets to Hydro-Québec, residential rates would be frozen for five years and large industrial rates would be cut to Quebec levels.

Once the five-year period is over, rates can rise with the cost of inflation as well as any additional generation or transmission costs that are approved by the province's regulatory board.

New Brunswick government ministers have argued since the proposed power deal was announced in October that the province has suffered a series of power rate increases greater than inflation for six straight years.

Keir has also said the proposal to freeze residential and commercial rates, and lower industrial rates, for five years and then tie them all to inflation is the best long-term solution available.

But critics have charged inflation is too shaky a foundation to build power rates on.

Yves Gagnon, the K.C. Irving chair in sustainable development at the University of Moncton, said the review of New Brunswick power rates back to 1959 should raise a red flag.

"It clearly shows that if you tie rates in the very long term to an economic indicator, what it shows is that the economy can behave differently," Gagnon said.

"In this case we are seeing clearly that if we had our rates tied to the basic economic indicator, the consumer price index, rates for electricity would be huge here in New Brunswick."