NB Power Sale - NERC, FERC, NPSS, NBOS - Making sense of it all
I was just on the Facebook group that opposes the sale of NB Power. While I was unimpressed with quite a few participants on the radio shows on this topic, I was equally unimpressed with the quality of comments on the Facebook group. They boast of 27,000 members but the quality of dialogue leaves a lot to be desired. Again very few intelligent discussions on the topic. It appears that politicians are whipping up an already disgruntled public into a frenzy over the deal. I am not sure as to why the Shawn Graham and his New Brunswick liberals make a rookie project mistake (or is it?) of not involving all stakeholders early on during the negotiations with Hydro Quebec. But I am not here to discuss politics. I am trying to determine if the proposed MOU is favorable to all parties involved. I made a case for the sale of NB Power in my previous post. Before we go about dissecting the MOU, it helps to understand the context in which this deal is about to be consummated. It is strange that none of the participants and media have attempted to educate the masses on the electricity industry. Here is a brief analysis of the power generation, transmission and distribution industry in North America.
A reminder: Any opinion on this subject of NB Power sale is solely my own based on my research and information I could gather online. My commentary on this topic does not reflect the opinions of any organization I am involved with.
North American Electric Reliability Corporation - NERC
Let’s start with the North American Electric Reliability Corporation or in short NERC. NERC ensures reliability of the bulk power system in North America. It develops and enforces reliability standards, and monitors the bulk power systems. NERC is self regulatory and is subject to oversight by the U.S. Federal Energy Regulatory Commission (FERC) and government authorities in Canada.
NERC works with eight regional entities across North America to improve the reliability of the bulk power system. These eight entities account for virtually all the electricity supplied in the U.S., Canada and a portion of Mexico.
Northeast Power Coordinating Council - NPCC
The entity responsible for New Brunswick, Nova Scotia, PEI, Newfoundland & Labrador, Ontario, Quebec, New York state, and the six New England states is Northeast Power Coordinating Council (NPCC). NPCC delegates authority from the U.S. Federal Energy Regulatory Commission (FERC) and by a Memorandum of Understanding with Canadian Provincial regulatory and government authorities. One of the goals of NPCC is to facilitate attainment of fair, effective and efficient competitive markets.
Bulk Power System
Bulk power system refers to an interconnected electrical system comprising of generation and transmission facilities across large distances. Transmission companies deliver power from the generating stations to a geographic location. Bulk power systems differs from local power systems in the sense that the local systems are the transmission lines that deliver power to your house or business. Distribution companies deliver power to your residence and place of business. The adjacent image shows the breakdown of power generation capacity by the type of fuel used in North America.
Today, the bulk power systems are designed to meet customer demand in real time power cannot be stored. As power is generation 24/7, it is consumed. This means that as power demand fluctuates throughout the day, variable power needs to be brought onto the grid when demand rises and taken off the grid when demand falls. Think for electricity generation as fixed power plus variable power. Typically, the fixed generation plants will be hydro, natural gas (at today’s rates) or nuclear since they are the cheapest to operate. If demand increases and the fixed plants cannot meet the demand, the variable power stations are fired up. Variable plants are typically use fossil fuels (oil and coal) since they are the most expensive plants to operate. (check out Efficiency NB site for more information)
Back to NPCC. NPCC is a membership driven organization. It has two types of membership: General and Full. General membership is voluntary and is open to any organization that has an interest in the reliable operation of the Northeastern North American bulk power system. On the other hand, Independent System Operators, Regional Transmission Organizations and Transcos are expected to be Full members of the NPCC. Full members are subject to compliance from the NPCC.
There are five Reliability Coordinators within NPCC:
- Hydro-Quebec TransEnergie
- Independent Electricity System Operator
- ISO-New England Inc.
- New Brunswick System Operator
- New York Independent System Operator
Some of the Transmission Owners are (as it relates to our region):
- Hydro-Quebec TransEnergie
- Nova Scotia Power Inc.
- New Brunswick Power Transmission Corp.
Hydro Quebec and NB Power are also players in the generation and distribution business. This brings us to NBSO.
New Brunswick System Operator - NBSO
New Brunswick System Operator (NBSO) is a non-profit organization whose primary responsibilities are to ensure reliability of the electrical system and to facilitate the development and operation of a competitive electricity market in New Brunswick. Here is what NBSO’s mission is:
To plan, direct and operate an effective integrated electric power system by:
- Maintaining reliability and adequacy of electric power to the Maritimes area
- Achieving an open competitive market that optimizes net economic benefit
Being members of NPCC also means that, they have to follow the following:
“The Federal Energy Regulatory Commission (FERC) has required that each U.S. public utility that owns, controls or operators facilities used for the transmission of electric energy in interstate commerce create or participate in an Open Access Same-time Information System (OASIS). The purpose of OASIS is to provide access Transmission Customers through an electronic medium with relevant information regarding available transmission capability, prices, and other matters to enable them to obtain open access non-discriminatory transmission services from transmitting facilities. FERC regulations also require each utility to implement standards of conduct to functionally separate transmission and wholesale merchant functions…”
What this all means is that all electric companies’ (NB Power, NS Power, Maritime Electric, etc.) in this region falls under the supervision of NBSO.
Here is some additional reading on NBSO’s activities:
- Open Access Transmission Tarriff - OATT is an important concept to understand.
- Standards of Conduct
- NB Electricity Market Participants - This page has a good graphic representation of all the players in the NB electricity market. You may also want to follow the additional links on the page for more understanding.
So the summarize, the NB Power transmission grid is one of the most important grids in the Northeastern North American sector. It ensures power can be distributed from/to Newfoundland, PEI, Nova Scotia, Maine and Quebec, and further along to the New England States. Additionally, the transmission companies are regulated to ensure that any generating company will have access to transmit the power at prevailing fair market rates without discrimination. This means that if you and I decide to start a power generation company, NB Power will have to grant me access to its transmission lines at prevailing market prices.
Armed with this background, you should be in a better position to understand the implications of the terms and conditions outlined in the MOU. We’ll talk about the specific terms and conditions on the MOU in my next post.
Finance, Strategy categories.