Description and Background
The Province of New Brunswick will review our electricitymarket policies and implement appropriate structural and operational changes, including the dissolution of the NBSO andmigration of systemoperator functions back to NB Power.
In the early 2000s, the United States Federal Energy Regulatory Commission (FERC) encouraged the formation of regional independent system operators in order to encourage and facilitate the expansion of competitive electricitymarkets. A number of Canadian electricity exporting jurisdictions that were anxious tomaintain access to the U.S.market responded by establishing independent systemoperators, including New Brunswick.
Historically, New Brunswick’s bulk electricity system operation functions were performed by NB Power. In April 2003, the New Brunswick legislature passed the Electricity Act, which provided for the restructuring of NB Power and the creation of the New Brunswick System Operator (NBSO) that was mandated to take over these system operation functions. In October 2004 the Act became law.
Utilities now have a better understanding of FERC requirements. The primary requirement for Canadian jurisdictions is to provide open, nondiscriminatory transmission access that meets the FERC reciprocity requirements. This can be done through either a vertically integrated model or through an independent system operator.
Three of Canada’s four largest exporters of electricity – Quebec, Manitoba and British Columbia – operate integrated utilities with functionally separate (but not independent) system operations. These jurisdictions have concluded that all the FERC requirements for open access transmission can be met without the system operator being an independent organization. In fact, BC Hydro recently reintegrated its independent system operator back into its Crown utility, achieving benefits in system optimization, compliance with regulatory requirements and significant cost savings to its ratepayers. The government of New Brunswick proposes to follow a similar path with the NBSO.
As the NBSO has transitioned from a direct carve-out of NB Power into a fully staffed, independent organization striving to carry out its legislated mandate, its costs have increased accordingly. In fact, the NBSO’s operating costs have increased by approximately 150 percent in the seven years since its incorporation.
By establishing and enforcing proper functional separation and codes of conduct within the organization, a fully integrated utility (including system operator functions) canmaintain the adequacy and reliability of the integrated electricity systemandmeet NERC/FERC requirements relating to reliability and open, non-discriminatory transmission access and reciprocity, thereby preserving our access to U.S. electricity exportmarkets.
Recognizing that itmay not be desirable for NB Power to take over certain functions that the NBSO currently carries out – such asmonitoring and enforcing reliability standards – these responsibilities will bemoved to, or independently reviewed by, appropriate organizations outside of NB Power.
In addition to taking over the system operation function, NB Power will become the sole developer and owner of the transmission system in New Brunswick, thus maximizing our geographic advantage in the international northeast region. Reserving the right for NB Power to provide new interconnection transmission capacity, rather than market participants from outside New Brunswick, will maximize the benefits to New Brunswick on energy deals being transacted through the province. This will not however inhibit NB Power from seeking partners in the construction of new transmission lines.
Further, NB Power will be permitted to seek a higher rate of return on transmission facilities that are built for interconnections, similar to what FERC has allowed in the United States to stimulate inter-state transmission construction.
Key Objectives Served by this Action
Low and Stable Energy Prices – Dissolving the NBSO and reintegrating the system operation function into NB Power, altering our ineffective competitive electricity market model to reflect the reality of New Brunswick’s limited market potential, and restricting future development and ownership of transmission system assets to NB Power will reduce costs, reduce in and out-of-province revenue leakages and maximize efficiencies. This will assist with maintaining low and stable electricity rates into the future.