During the last provincial election, a Conservative candidate, Peter Hyslop who had been a public intervener in hearings of the Public Utility Board, called for someone in government to apologize to New Brunswickers for the Orimulsion fiasco. Then Premier Lord denied responsibility and blamed management of NB Power for the boondoggle.

You may recall that in October 2002, Premier Lord and his Cabinet approved a plan by NB Power to convert its Coleson Cove generating facility from heavy oil to Orimulsion. When the approval was announced, there was no signed Fuel-Supply Agreement in place between NB Power and Petroleos de Venezuela, S.A. (PDVSA) or Bitumenes Orinoco S.A. (BITOR), owned and controlled by Petroleos de Venezuela, S.A., wholly owned and controlled by the Venezuelan Government.

Conversion costs for the plant were then estimated at $750 million.

When much of the conversion work had been completed, Venezuela announced that it would no longer be selling Orimulsion (it was the world’s only supplier) but would respect existing contracts with NB Power in respect to its Belledune plant. NB Power claimed it had a contract for supply of the Venezuelan fuel to Coleson Cove even though nothing had been signed by PDVSA, BITOR or the Venezuelan Government.

In February 2004, NB Power sued PDVSA and BITOR claiming damages of $2 billion as representing the cost differential (envisioned in a draft agreement) between Orimulsion and heavy oil, savings that NB Power would have realized over the next twenty years ($100 million a year for twenty years) if Venezuela had lived up to the draft agreement.

The lawsuit was subsequently dropped by NB Power and David Hay, Chief Executive Officer returned to the negotiating table with PDVSA. Negotiations hit a brick wall and in September 2005, NB Power quietly launched a second lawsuit, this time claiming damages of $2.2 billion, an increase of $200 million over the first claim plus $560 million for the Orimulsion conversion costs.

This week, Mr. Hay announced that after two years of negotiation, he had reached a settlement agreement with Petroleos de Venezuela, S.A. worth $338 million. The amount is to be paid in two installments: a $110 million U.S. cash payment and a $228 million fuel cost reduction.

It seems that conditions of settlement require that NB Power not reveal publicly the prices it will pay for future fuel purchases from Venezuela, the length of the payout term or the fuel that it would be based upon. Mr. Hay rationalizes the settlement amount by suggesting the original fuel cost differential was based on a projected (twenty year) spread of only $390 million not the $ 2 billion we were quoted a few years ago. Hmm...

In recognition of the settlement, NB Power has made application to the new Energy and Utilities Board to reduce its latest rate increase from 9.6% to 7.1% and Premier Graham has announced there will no longer be a need to hold a public inquiry into the matter. Jeannot Volpe, Acting Leader of the Opposition claims the settlement proves there was an agreement between NB Power and PVDSA. He also said there was never a need for a public inquiry but that didn’t stop him from criticizing the Government for announcing there will not be one. I guess you just can’t satisfy some people.

On Thursday, the Energy & Utilities Board threw a monkey wrench into the mix when it ruled that NB Power must open its settlement agreement with PVDSA to the public. According to documents that were released on Thursday, the utility will receive its fuel price reductions over the next twenty months.