Hewers of wood, drawers of water, peddlers of power

The recently announced sale of New Brunswick Power to Hydro Quebec is another alarm bell for the Canadian economy. The sale is aimed at enhancing the transformation of Hydro Quebec into an export industry – selling power into the US market. It’s part of a bigger picture.

One of the under-reported stories of the financial crisis is the fact that the Canadian economy is being hollowed out even more than it was before. The power of the financial sector to allocate capital into totally unproductive investments – hedge funds, derivatives, etc. – means that the production of actual goods and services is starved for money. The profits to be made from doing nothing (except speculating) also sets up a ruthless competition for stock prices. Companies that actually produce stuff have to compete on the stock market with the hyper-profits of the financial sector. One of the ways they have done this since the mid-1990s is to drive down wages and salaries to cuts costs. This creates a vicious cycle: workers with lower pay spend less, putting even more pressure on the productive sectors and driving more out of business.

As a result, Canada is going backwards, and quickly, regarding the amount of value added in its exports and domestic production. We are regressing back into a natural resource economy – the logical conclusion of the “free trade” deals we signed with the US which resulted in the loss of early 300,000 manufacturing jobs.

The transformation of publicly owned power companies (intended to serve their respective publics) into export companies is taking place at both ends of the country – and in the middle. The $15 billion deal (including NBP debt) provides Hydro Quebec with a power transmission corridor to the US. HQ is also rumoured to be negotiating with Nova Scotia Power for a similar deal.

One of the results of these power export strategies is that power in Canada will become more expensive. In BC, which had some of the cheapest power in all of North America, the split up of BC Hydro (a public utility) into several pieces to enhance exports to the US will result in the eventual doubling of electricity prices to BC residents and businesses. The formerly cheap rates were a huge competitive advantage for BC mining and forest industries which use a lot of power. That advantage will disappear with the export strategy. Of course, individuals and public entities like hospitals, schools, municipalities, recreation facilities, etc. will all pay more as well.

NAFTA’s “proportionality” provisions already commit Canada to selling an increasing amount of its oil and gas into the US (it can never reduce the percentage of production going south). That same clause will apply to electricity – as does the provision that states Canada cannot have a different export price. So when BC Hydro and Hydro Quebec price their power to meet the demand in the US, it has to charge its domestic customers the same, higher, price.

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