Low and Stable Energy Prices

Importance to New Brunswick
The Energy Commission identified low and stable prices or rates as one of five key energy objectives for New Brunswick. Low and stable energy prices have a direct impact on total energy costs, which have a dramatic effect on business and personal finances. They influence the competitiveness of businesses and determine the amount of disposable income for consumers to invest, save or spend on other goods and services. Energy costs are determined by the price per unit (including delivery charges) and the quantity consumed. Thus to reduce energy costs, one can either reduce the price per unit or minimize consumption.

We are exposed to the price component of the cost of energy directly through the prices we pay for electricity, natural gas or gasoline.We are also exposed indirectly through the prices we pay for all other goods and services, each of which has an energy cost component that is passed on to the consumer.

Fuels such as oil, coal and natural gas are free market commodities, actively traded on continental and global markets. As a result, Government has little or no ability to control these prices. The costs of these inputs are in turn reflected in the price of petroleum products, natural gas and in much of our thermally generated electricity. Imported electricity is also a market-traded commodity, and its price is also based on supply and demand, or economic conditions in jurisdictions other than our own.

There are areas, however, where government can affect the end price of energy. In the case of NB Power, a Crown corporation, Government can ensure that it is run efficiently under the right structure and with the proper mandates in order to reduce the cost of electricity to customers. Utilities such as Enbridge Gas New Brunswick – which holds the natural gas distribution franchise in New Brunswick – and NB Power must appear before the New Brunswick Energy and Utilities Board (EUB) to justify distribution rates to customers and ensure they are fair and reasonable. The EUB also administers weekly petroleum price regulation to ensure price stability and fairness. The objectives of government policy, therefore, are to keep energy prices as low as possible over time, to act as a buffer, where possible, to avoid price shock from volatile commodity prices, and to maintain competitive rates as compared with peer jurisdictions.

Although it is impossible to isolate New Brunswickers from the impacts of variable energy prices and global energy market dynamics, our Government remains committed to implementing energy policies that add efficiency to our Crown electric utility and electricity market, and add transparency to consumer petroleum product prices. Our Government's commitment to low and stable energy prices will have a particularly favourable impact on low and fixed income New Brunswickers, where energy costs account for a much higher proportion of household expenditures.

 
Current Progress
Electricity – NB Power is well-positioned to continue to serve our province reliably and cost-effectively for many years to come. No significant capital expenditures to replace or refurbish our current electricity infrastructure are expected for the next decade. The diverse nature of our generating assets and our efforts to find efficiencies and other ways to reduce costs will help to keep future rates stable. NB Power operates a diverse mix of generating stations that draw energy from a variety of sources, including hydro, nuclear, coal and oil. In addition, NB Power has supply contracts with other generators in our province who provide electricity from natural gas, wind, biomass, bio-gas (primarily from landfills) and solar energy. Electricity is also available to New Brunswickers from neighbouring jurisdictions through a number of interconnections with Quebec, Nova Scotia, PEI and New England.

This diversity of supply allows NB Power to use less expensive sources of energy when other fuels or supplies experience price increases. For example, when the price of oil escalates, more energy can be generated from coal or hydro, or even purchased from our neighbours. This helps to keep costs down and rates stable.

NB Power’s diverse generating fleet will allow it to procure an increasing amount of our electricity from generators powered by nuclear, hydro, wind, biomass and other clean energy sources. When the Point Lepreau Nuclear Generating Station returns to service in 2012, as much as 65 percent of the electricity used in New Brunswick will come from these and other clean, renewable or non-emitting sources. The benefit is that the cost of production will not be as dependent on volatile fossil fuel prices, but rather on relatively stable and, in the case of certain renewables, no-cost fuel sources.

Petroleum Products – New Brunswick has enjoyed consistently low gasoline prices, compared to Canadian average prices. This is mainly due to our relatively low provincial gasoline taxes, but studies have also shown that price regulation has had a moderating effect on prices.

Retail petroleum product prices (most notably gasoline and heating oil), are determined by a complex set of factors, most of which are market driven. In 2006, the Province introduced the Petroleum Products Pricing Act, which allocates a maximum retail price for gasoline, diesel, heating oil and propane used for heating.

The main purposes of price regulation are to reduce daily pump price volatility and to reassure consumers that regulated prices are based on a transparent and non-discretionary formula. This achieves a fair balance between low, stable prices and ensuring that wholesalers and retailers are able to recover fair margins and delivery costs on their sales.

The other strength of New Brunswick’s price regulatory framework is that it retains the ability of retailers to compete for a share of the consumer market and encourages efficiency and innovation in retail markets. Retailers often price their petroleum below the regulated maximum to attract customers.

Natural Gas – The abundance of natural gas in North America has led to low commodity prices, especially in the past few years. For natural gas consumers in New Brunswick, however, high distribution costs have been a cause for concern.

While there is no doubt that distribution charges in New Brunswick are high and must be addressed, the current rate framework is designed to ensure that natural gas consumers achieve target savings (20%for residential customers) compared to heating oil or electricity. It is also a positive sign that the utility regulator, the New Brunswick Energy and Utilities Board (EUB), has embarked on a series of processes which are intended to bring lower and more cost-relevant distribution rates to the system.

Energy Efficiency – Since 2005, Efficiency NB has been dedicated to advancing energy efficiency by providing opportunities for New Brunswick homeowners and businesses to reduce their energy costs. It has enabled an industry geared towards energy efficiency services including specialized advisors, designers, contractors and trades people.
 

A Vision for the Future
Electricity – NB Power will remain a Crown Corporation owned by the Province of New Brunswick. However, the utility will be renewed and reorganized as a vertically integrated electric utility with a mandate to operate on a commercial basis in a market structure that appropriately reflects New Brunswick’s unique opportunities and limitations. This will ensure it provides reliable service to New Brunswick families and businesses while focusing on debt reduction, efficient operations and stable rates.

Petroleum Products - A comprehensive review of the petroleum-price regulatory framework will result in renewed public and industry confidence in the effectiveness and relevance of price regulation. This will ensure the policy goals of market efficiency and the lowest possible price for consumers, while ensuring price stability. The new regulatory framework will be flexible enough to recognize and adapt to emerging
trends in petroleum marketing.

Natural Gas – An expedited transition from the current market-based rate model towards a cost-based rate model of natural gas distribution
with improved access will be examined. The goal will be a new model that is more comparable with mature natural gas distribution models throughout North America. Low and stable gas distribution rates will be achieved through a combination of adjustments to the regulatory framework, and through system growth by greater adoption of natural gas as a competitive source of energy for consumers, businesses and industry.

Energy Efficiency – A priority will be placed on expanding energy efficiency programs and reducing the demand for energy. More efficient use of current energy sources is generally a less expensive option than building or procuring new supply for future energy demands. Over time, this will lead to a continued improvement in the affordability of energy for residents and the competitiveness of industry.
 

Energy Action Plan Items linked to this Objective
To achieve this objective, New Brunswick will pursue the following Energy Action Plan items:

1. Reintegration of NB Power
2. Electricity Market and New Brunswick System Operator
3. NB Power – Debt Management Plan
4. NB Power – Regulatory Oversight and Integrated Resource Plan
5. Regional Electricity Partnerships
6. Smart Grid Technology and Innovation
7. Large Industrial Renewable Energy Purchase Program
8. Renewable Portfolio Standard
9. Future Development of our Renewable Energy Resources
10. Wood Based Biomass Resources
11. Electricity Efficiency Plan
12. Energy Efficiency Building Code Standards
13. Energy Efficient Appliances and Equipment
14. Natural Gas Distribution Rates
15. Petroleum Products Pricing
16. Office of the Public Energy Advocate
17. Energy Literacy, Education and Skills Development
18. Energy Research and Development