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 EXECUTIVE SUMMARY

With the imminent arrival of Sable Island natural gas in the province, New Brunswick earlier this year embarked on a process to determine how it could best benefit from this fuel, which can be used for industrial, residential and power generation purposes. After holding public hearings, a Select Committee on Energy, appointed by the New Brunswick Legislative Assembly, has produced this report, which examines the implications of natural gas for the province and makes recommendations to the provincial government on how the gas should be regulated and distributed. Throughout the report, the theme is to encourage the proper and expeditious development of natural gas in New Brunswick, and to do it in such a way as to make gas available in the province to the widest extent possible, and to the maximum benefit of its people.

The committee recognizes that construction of lateral transmission lines off the main pipeline is fundamental to extending natural gas throughout the province. In the event that markets for Northeastern and Northwestern New Brunswick are inadequate to meet the economic threshold test for lateral construction under the National Energy Board's lateral policy, the committee recommends that the provincial government provide a contribution in aid of construction to enable the laterals to be built. In addition, access to natural gas for all of New Brunswick, including the Northeastern and Northwestern parts of the province, should be a key criterion in evaluating proposals for any distribution franchise. It is recognized that some subsidies or incentives may be necessary for laterals that may not otherwise be economically justified. We do recommend that the New Brunswick Government aggressively seek financial support from the federal government to extend gas availability in the province. The committee does not, however, recommend a broad policy of government subsidies or incentives.

The committee recommends that all consumption of natural gas in the province should be regulated under a broad definition of gas distribution and under provincial jurisdiction. Prospective "anchor load" customers should be granted a single end-user franchise for a term of 20 years, or for the term of their firm service agreement with the pipeline company, whichever is less. For this, they would pay an annual fixed franchise fee, part of which would be used to support the increased activities of the regulatory Public Utilities Board.

In the committee's view, creation of the single end-user franchise makes it possible for the pipeline company, Maritimes & Northeast, to proceed with building lateral gas transmission lines off the main pipeline. In addition to the "single-user" and "general" classes of franchise, the committee also recommends establishing a "local producer" class, recognizing that there appears to be real potential for developing indigenous supplies of natural gas in New Brunswick in the future.

An important role in achieving maximum benefits of natural gas for the province will be played by the Public Utilities Board, which will require increased staff and additional technical expertise. The committee recommends the PUB be given flexibility in the methods it uses to determine a distribution company's charges to consumers. The board should also have authority over such matters as revenue cycle services, supplier of last resort, load balancing, and the possible use of incentives in regulation.

Concerning the matter of market power, the committee is aware that the potential exists for exercising undue influence on the market if a holder of a distribution franchise is also involved in another segment of the energy business. To ensure this does not happen, and in the interest of encouraging rapid development of a competitive market for natural gas and other forms of energy in New Brunswick, the committee recommends the regulatory authority establish comprehensive standards of conduct for the industry, including non-discriminatory access to distribution services.

During its hearings, the committee heard from New Brunswick municipalities, who, while welcoming the possibility of natural gas in their midst, expressed concerns about the financial implications for them resulting from such things as pipeline construction, utility cuts, and emergency response training. The committee is sympathetic to these concerns and recommends that existing legislation be amended to protect municipal interests. Municipalities should be allowed to recover their additional costs and to offer cost-effective services to the local distribution companies.

Because natural gas is the cleanest fossil fuel available, its use will result in substantially lower emissions of sulphur dioxide, carbon dioxide and nitrous oxides from industries and electrical generating stations. Lower air emissions will provide the entire province with environmental benefits.

To pave the way for natural gas distribution, various provincial statutes will have to be amended, and these are listed in the report, along with a recommendation that a comprehensive review be undertaken. To keep abreast of changes in the natural gas industry, especially technological ones, establishment of a Centre for Excellence is proposed, to be located in New Brunswick and to serve the province and adjacent jurisdictions. Potential funding sources for the centre are listed.

With completion of this preliminary stage in developing a natural gas industry in New Brunswick, it is recommended the government proceed to Stage II, in which a Request for Proposals is issued, and bidders are invited to formally seek distribution franchises. This report reviews some of the matters related to Stage II, including the length of terms for franchises, the number of franchises that might be awarded, whether "bundled" or "unbundled" service is preferable, and the required contents of development proposals.

The Select Committee on Energy will next begin hearings and deliberations on restructuring the electric industry in New Brunswick. As the report notes, natural gas will be a highly relevant component of these discussions.




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