Maritime Electric technical specialist Paul Cyr holds a cable inspection detection device being used by divers to assess the condition of the submarine power cables between Prince Edward Island and New Brunswick. Kim Griffin displays a portion of the cable that is used to carry power between the two provinces. Guardian photo by Mike Carson
In what seems to be an annual spring event, there is renewed talk of running a new power cable to the mainland (New Brunswick). We are told about how old and deteriorated the present two existing lines are, how they are nearing the end of their lives, how much it will cost to run a new submarine cable and how this will improve energy security for the Island. Yet as every year passes, it never gets done.
Maritime Electric used to be a locally owned and controlled corporation, until Fortis, which according to its website is “the largest investor-owned gas and electric distribution utility in Canada with total assets of approximately $18 billion and fiscal 2013 revenue exceeding $4 billion,” purchased the struggling firm in 1994. This led me to ask the following question: If Maritime Electric is owned and operated by a private, for-profit company, why is it the government’s responsibility to pay for the new power line to New Brunswick?
In my quest to find the answer, I decided to read the P.E.I. Energy Accord and the P.E.I. Energy Commission Report, which was completed in 2012. They were very informative to say the least. They also enlightened me as to what the government gave Fortis in exchange for our 14 per cent rate decrease for two years.
Maritime Electric generates only one per cent of our power. The rest is acquired primarily from New Brunswick through a PPA contract (Purchase Power Agreement), which is commercially confidential and government helped negotiate.
After Fortis bought Maritime Electric, it started to complain that it couldn’t make a profit. So, in 2004, the government enacted the Electric Power Act to help guarantee the company a profit (9.75 per cent of equity).
However, in the Commission’s report, it opined “Under N.B. Power-plus-10, (if N.B charges $1, ME charges $1.10) Maritime Electric paid market-based prices for electricity. In theory, this approach should have enabled Maritime Electric to continue operating in a financially sustainable manner…”
I guess corporations are not allowed to lose money anymore, just the people living on pensions.
The government accepted over $100 million of Maritime Electric’s debt and, according to premier Ghiz (State of Province address, YouTube) financed it at four per cent for our “14 per cent rate decrease.”
The cost of the third power cable to the mainland is roughly $80 million. And while Maritime Electric is a private corporation, there is no discussion about it taking on this expenditure. Furthermore, Maritime Electric has a lease agreement with the province to use the current cables and will have another when the new cable is completed.
For 2011, on total revenue of $165.4 million, Maritime Electric paid $6 million (3.65 per cent) in taxes. Furthermore, it had total earnings, after taxes, of $23.5 million. And remember: This was during our “14 per cent rate decrease.”
The Energy Accord now completed, M.E. /Fortis is no longer obligated to spend a penny on renewable energy creation on P.E.I. At the same time, it is only contractually obligated to use 30 per cent of its power from the farms, at a cost of $78 per hour (The provincially-owned wind farms operate at a profit).
If we are taking on and financing Fortis’ debts, helping them negotiate contracts, accepting the cost of a new mainland cable, the responsibility for renewable energy (wind) and changing laws to guarantee it a profit (9.75 per cent of equity), why did the government sell Maritime Electric in the first place?
The Summerside utility is municipally owned, turns a profit and had none of the above benefits given to Fortis. However, government is forcing its customers to foot the bill for Maritime Electric.
I say get rid of the middleman and take back what should never have been sold to begin with.
David A. McGregor (BA, UPEI) of Charlottetown lived in South Korea for 11 years trading with Daishin and Hana Securities. He is a graduate of IFSE Institute Mutual Fund Dealers Program.