Behind the Power Cut at Power Corp

A high-level shakeup in the Northwest Territories Power Corporation yesterday saw the entire board of directors dismissed and replaced by GNWT deputy ministers. The move is expected to save NTPC around $1 million in annual expenses, due to a reduction in honorariums, travel budgets and support services for board members. But the decision effectively ends NTPC’s life (at least for now) as an organization operating at arm’s-length from the GNWT — a change which began earlier this year when NTPC was reclassified from a “government business enterprise” to an “other government organization.”

This isn’t the first time the board has been fired wholesale and replaced by deputy ministers. In 2001, a disagreement between the NTPC and the GNWT over a proposed single rate for the whole territory led to the entire board’s dismissal.

This time around, however, things are different, says Dave Nightingale, director of energy policy and planning with Public Works and Services: “The government is very appreciative [of the board], and it’s not a reflection of whether the current board was following direction or anything like that. This [has to do with] the changing nature of the crown corporation.”

The shakeup comes on the heels of an application by NTPC to increase power rates by 4.8 percent next year; this sparked an internal review of the organization by the GNWT that determined NTPC could save $1 million by ditching the board. The larger issue at stake, however, is that the two organizations have been growing much closer in recent years as the GNWT has increasingly funnelled money to NTPC to prevent dramatic rate hikes.

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Last year alone, the GNWT gave NTPC $45 million — of which around $40 million is expected to be spent — to deal with low water in the Snare hydro system. Furthermore, since 2012, the government has given $34 million to NTPC to mitigate the impact of year-over-year rate increases of around seven percent.  And this is all on top of the $5.7 million the GNWT gives NTPC each year to reduce the cost of electricity in the small communities.

“The power corp takes in probably about $110 or $112 million each year… Through electricity rates, through all the government facilities, through the support of the health and education and all of that, ultimately the government pays probably about $45 million of that $112 million,” says Nightingale. “I don’t think [the leadership change is] going to dramatically lower the cost of power. It’s about accountability. If the government is investing a lot of money in the Power Corporation, all members of the legislative assembly are very interested in that, obviously.”

Why all the government investment?

In most cases, Crown Corporations are self-sustaining — i.e. they work like businesses, with revenues covering expenses. Technically, NTPC is meant to operate on a full-cost recovery basis. However, given the territory’s size and dearth of population, it would be impossible to supply power without major subsidies unless the government was willing to let power rates skyrocket in a business-busting manner.

“If you go down into Manitoba and Quebec and B.C. they have some of the lowest electricity rates, not just in Canada, but in the world, so their governments are not investing substantial amounts into their power corporations to manage the cost of living,” Nightingale explains. “They have very big hydro developments, they have economies of scale, selling power into the big cities that reduces the cost per unit for everyone.”

Along with the issues of geography, both physical and human, NTPC is saddled with aging infrastructure, much of it from the 1940s and ‘50s, which it does not have the revenue generation capacity to replace.

“Historically for NTPC, the average capital investment was about $18 million. When you look in recent years, we have aging infrastructure, a number of challenges around infrastructure, the actual investment has been higher, at $27 million, $23 million, $31 million,” says Nightingale.

And there’s the final issue of declining revenue due to lower sales. In Yellowknife, for example, people are expected to buy 3.2 gigawatt hours less in 2017 than in 2014, meaning a reduction of $600,000 in revenue for NTPC.

These reductions in energy consumption may be due to positive developments like increased use of energy-saving appliances and solar panels. However, as Nightingale explains, the cost of producing power in a hydro community like Yellowknife is fixed — the cost of building and operating dams and distribution lines — so “if you have an electricity sales decline in a hydro zone… that comes right off the bottom line.”

Across the territory, “you got about a $4 million decline in revenue from what was forecasted, and that has an impact on rates.”

Does government involvement mean things will change?

A cosier relationship between the GNWT and NTPC won’t change the economics of power distribution, but it may mean ministers and MLAs will have more say over what happens to the buckets of money they’re pouring into NTPC.

The new governance structure has yet to be determined. As Nightingale muses: “Should you continue to have a board of deputy ministers? Should you go and reappoint a new independent board of directors?… [Or] you could have a president and CEO reporting directly to a minister, somewhat as deputy ministers do now.”

All this will be determined in the coming months and years. In the meantime, outgoing board chair David Tucker isn’t too heartbroken.

“We serve at the pleasure of the minister and it’s a business decision,” he says, adding that despite the change, things look relatively positive for ratepayers in the coming years: “absent major unforeseen things, another low water season, a forest fire destroying a plant, a high decrease in population… we should be looking at inflationary type increases.”


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