Footnotes
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¹The wholesale market involves the production of electricity by competitive generators and its sale to and by marketers, traders and/or aggregators for resale to customers served by the distribution system whereas, the retail market focuses only on the sale of electricity directly to end-use customers. Within the context of New Brunswick, customers in the wholesale market include the three municipal electric utilities and, potentially, the Crown utility’s distribution and marketing operations.

² Statistics Canada figures indicate that New Brunswick’s exports to this region account for 56% of its total exports. Exports are critical to the New Brunswick economy, with 66% of New Brunswick’s GDP dependent on foreign and inter-provincial exports. Furthermore, electricity is a significant cost for many of New Brunswick’s export-based industries. For example, for the pulp and paper industry, which is New Brunswick’s fourth largest source of exports to the United States, fuel and electricity represent 13% of total costs (Annual Census of Manufacturers, Principal Statistics of New Brunswick’s Manufacturing Industries).

³ FERC is the U.S. federal regulatory agency responsible for overseeing the wholesale power trade including transmission pricing in the U.S.

⁴ RTOs are independent organisations that have operational responsibility and authority for regional transmission facilities. While RTOs are voluntary organizations and considerable discretion is left to applicants in structuring the RTO, FERC has established four minimum criteria and eight minimum functions to ensure that RTOs are able to carry out their desired role. New Brunswick is participating in discussions to promote the creation of an Eastern Canadian RTO. One of the primary objectives of these discussions is to expand the scope of these markets and by so doing, enhance their competitiveness.

⁵ New highly efficient electric generating facilities equivalent to approximately 20% of the region’s existing generation (and representing a total investment of over $2.5 billion) have recently begun commercial operation or are under construction. These new generating facilities are expected to result in lower electricity prices as evidenced by the lower forward prices being quoted by traders.

⁶ A reduction in New Brunswick’s competitiveness from failing to institute reforms does not imply that electricity rates in New Brunswick would become higher than those in New England, just that the magnitude of the differences in electricity prices between the regions would be reduced. Therefore, there would be a reduced competitive benefit from lower electricity prices that could be used to offset any other competitive disadvantages, e.g., higher transportation costs.

⁷ When assessing the potential competitiveness of the New Brunswick wholesale power market relative to this five-firm standard, one must recognize that the market to be evaluated is framed in terms of the customers with choice. Furthermore, competitors in the market include those that can supply customers through the tie lines with other jurisdictions.

⁸ This is the standard that is often used by the Competition Bureau to evaluate whether a proposed merger should be challenged as potentially being uncompetitive.

⁹ Navigant Consulting, Inc. prepared a report that evaluated the conditions for achieving a competitive wholesale power market in New Brunswick. The report indicated that all of the five following conditions would need to be met if a competitive market is to be achieved within New Brunswick: (1) An RTO is established that encompasses New Brunswick, New York, New England, and Quebec and this RTO reduces the pancaking of transmission tariffs and minimizes wheeling through tariffs. (Transmission rate pancaking is the layering of additional transmission tariffs for each transmission system that is crossed from generation to end-use customer); (2) Electricity generation and transmission are separated, either corporately or through an RTO structure, and operated independently; (3) A second 345 kV transmission tie line with New England is developed to increase New Brunswick’s integration into the greater Northeast power market; (4) The Crown utility’s non-utility generation contracts and entitlements to the Courtenay Bay project are conveyed to a distribution company or the contracts are restructured so that these resources participate as competitive suppliers in the greater Northeast power market; (5) If all New Brunswick fossil and hydro generation units are owned by one party, then the hydro resources must not be price setting and there must be restrictions that prevent the owner of these hydro units from using them to physically withhold energy. In addition, the market would be more workably competitive, with less volatility, if the competition were limited to bilateral contracts and the Crown utility required to serve its distribution customer load through an entitlement contract.

¹¹ Additional interconnection capacity is important for competitiveness reasons because it increases the amount of competing generation that can access the New Brunswick market and enhances the value of the Crown utility’s generation by increasing its ability to make export sales in the New England market.

¹² The wholesale customers will have access to other suppliers whenever the Crown utility fully opens up its transmission system.

¹³ This competitive advantage has been estimated to represent a 10% to 20% cost advantage.

¹⁴ Electricity prices in other markets depend in large part on fuel prices. This is particularly true with respect to New England where a significant amount of new, natural gas-fired combined cycle projects are being built. Therefore, an increase in natural gas prices is likely to result in increases in New England power market prices. However, because New Brunswick has a diverse fuel mix and there is relatively limited amount of natural gas-fired generation under development, increases in fuel oil, coal and natural gas prices do not have as dramatic an impact on prices as they do in New England.

¹⁵ Some market designers assert that it is inappropriate for the standard offer service provider, which is often only a distribution company that does not necessarily have any trading or risk management capability, to be providing a fixed price product. Furthermore, some assert that the spot market volatility is necessary to induce customers to move to the competitive retail market.

¹⁶ Standard offer service (SOS) is generally defined as the service that is provided to customers that are eligible to elect a competitive retailer, but remain with their incumbent supplier. However, in New Brunswick, given the phasing of retail access, SOS is defined more broadly to include all customers that are not served by a competitive retailer. Therefore, residential and commercial customers who are not eligible for retail access would be considered SOS customers.

¹⁷ High penetration of electric space heating and water heating among New Brunswick residential customers will exacerbate the impact of eliminating the cross-subsidy in that the bill impact of moving to full cost recovery will be more significant for electric heating customers, who have higher electric heating costs, than for other customers.

¹⁸ Even though its generation costs are below market prices in its primary interconnected markets, the loss of sales by the Crown utility is likely to create stranded costs because there is insufficient transmission capacity to deliver this power to the interconnected markets during all periods.

¹⁹ A lateral is considered to be economic when the annual cost of the lateral pipeline construction divided by the volume of gas throughput is less than the threshold toll test of $0.60/MMBtu.

²⁰ There are 37 gasoline or home heating oil distribution storage tanks that will be required to close and remove their storage tank within 10 years of the Designation Order being issued.

²¹ The federal Competition Act provides the framework for all business activity in Canada. The Competition Act includes provisions for price discrimination, collusion, and predatory pricing, which are all considered criminal activities.

²² Various factors can account for differences in the energy intensity of regional and national economies such as: the specific mix of goods and services produced, climate, housing stock, vehicles in use, equipment in service, transportation infrastructure, energy prices, population and population density, and behavioral factors. These factors make "apples-to-apples" comparisons of energy efficiency between economies rather complicated. One should not necessarily conclude that the energy intensity of an economy is an accurate measure of its degree of energy efficiency.

²³ Despite numerous environmental benefits, some renewable projects have faced strong opposition by host communities on environmental grounds such as impaired viewscapes and harm to birds by wind farms, and harm to spawning fish by hydroelectric facilities.

²⁴ Green power can be defined in a number of different ways, leading industry participants to call for labeling of green power. According to Environment Canada’s Environmental Choice program, "green power" refers to wind, solar, landfill gas, sewage digester gas, small run-of-the-river hydroelectricity, and biomass power sources that have superior environmental performance.

²⁵ Barbara C. Farhar, Ph.D., Willingness to Pay for Electricity from Renewable Resources: A Review of Utility Market Research, National Renewable Energy Laboratory, July 1999.

²⁶ Cap and trade programs are receiving increased application across North America. Under a cap and trade program emissions from sources are limited to a specific level, generally at a level which requires meaningful reductions in emissions. The level of the cap is determined by the amount of emissions that are allocated to existing sources of emissions. These sources are then free to trade their emission allowances such that sources which can implement emission control techniques at relatively low cost can over control and sell their allowances to other sources that have higher control costs.