Quebec, N.B. strike $4.8B deal for NB Power

COMMENT: The increasing role of private generation in BC is one thing. Selling BC Hydro and the heritage assets is something else. (Though some would say the role of IPPs is just an incrementalist shift in the same direction.)

CBC News
October 29, 2009

New Brunswick Premier Shawn Graham explains why his government wants to sell a majority of NB Power's assets to Hydro-Québec. (CBC)

New Brunswick Premier Shawn Graham and Quebec Premier Jean Charest announced the historic deal in Fredericton on Thursday, concluding a week of speculation.

The deal is contingent on legislative approval in New Brunswick.

It stipulates that Hydro-Québec would take over the majority of New Brunswick's generating stations for $4.8 billion, which represents the equivalent of NB Power's debt.

Additionally, Hydro-Québec would freeze residential power rates in New Brunswick for five years. During the same time, large industrial rates would be lowered to the power prices offered to the same customers in Quebec, but they would not be frozen. That component of the deal is worth an estimated $5 billion to NB Power customers.

'Big winners'

Quebec Premier Jean Charest says his province's interest in purchasing NB Power is to gain better access to the lucrative U.S. electricity market. (CBC)

"And ratepayers would see reduced rates to an extent that would have been impossible for NB Power as a stand-alone entity."

Charest said at the news conference that the region's geography made the deal make sense considering the desire to tap into the power-starved U.S. market.

Both premiers used the news conference to address the criticism of Newfoundland and Labrador Premier Danny Williams, who said the deal could hinder his province's ability to transmit its hydro power into the United States.

Charest said he supports open markets and Quebec is eager to work with other provinces.

"The real question for Canadians is this, it isn't whether or not one [province] is succeeding better than the other," he said. "The real issue, if we have our eyes on the ball, is to the south of us, that is where things are going to happen.

"The Americans need clean, renewable energy and they need a lot of it. And guess what? We in Canada are the ones that can supply it. And by doing that, we can make our environment better and we can enrich our respective societies by doing so. There is a condition though: We have to learn to work together."

Now that the proposed deal with New Brunswick has been struck, Charest said his province is negotiating with Prince Edward Island to sign a similar agreement.

Charest said there is no timeline on obtaining a deal with P.E.I.

No impact on Quebec power rates

After the five-year rate freeze is lifted, rates would rise based on New Brunswick's consumer price index. However, the price of any new generation needed in the province could be added by Hydro-Québec.

Under the agreement, Hydro-Québec gains access to more than 370,000 customers and expects a return on equity of more than 10 per cent starting in the first year. The proposed deal will not have any impact on Quebec's power rates.

The proposed deal will wipe out NB Power's $4.8-billion debt, which is 40 per cent of the province's total debt. That debt will stand at $8.2 billion after the deal is approved.

New Brunswick will have to make legislative changes early in the new year as the agreement is designed to take effect on March 31, 2010.

Graham said if the deal is not concluded by March 31, 2010, then NB Power will boost electricity rates by three per cent as originally planned.

Opposition Leader David Alward is demanding Graham call an election over the proposed NB Power sale.

3 stations retained by NB Power

Hydro-Québec will not buy Coleson Cove or two other thermal generating stations as part of the tentative deal with New Brunswick. The three plants will continue to be owned by NB Power, which will sell the electricity back to the Quebec utility. (CBC)

The Dalhousie Generating Station will be shut down next year under the agreement, a decision that will be another blow to the northern town that has been reeling after a series of other closures in recent years.

"It's also very important for me to speak to the community of Dalhousie, which will see its generating station phased out," Graham said.

"We will stand by your community and we are already hard at work to find a variety of new opportunities for you."

David Hay, the president and chief executive officer of NB Power, is expected to be in Dalhousie later on Thursday to discuss the impact of the deal with workers in the northern community.

New Brunswick will retain control of Coleson Cove and Belledune, and will sell the power back to Hydro-Québec.

Under the proposed agreement, the Point Lepreau nuclear generating station, Atlantic Canada's only nuclear reactor, will remain under NB Power's control until its $1.4-billion refurbishment project is concluded in February 2011.

The reactor refurbishment project is 16 months behind schedule. However, if the energy pact is approved, it could lessen the financial burden.

Instead of purchasing replacement power on the open market, Hydro-Québec will supply cheaper hydro power to the province.

Also under the proposed agreement, New Brunswick's Independent System Operation will be rolled into Hydro-Québec. That will give control over the transmission lines in New Brunswick to Hydro-Québec.

However, any utility or company that wants to use the transmission lines must bid for it in an open auction.

Source

Hydro-Québec eyes N.B. as 'energy hub'

Montreal — Hydro-Québec is committed to making New Brunswick into an “energy hub” with the acquisition of most of the assets of New Brunswick Power Corp., says the head of Quebec's giant hydroelectric utility.

“We want to turn New Brunswick into an energy hub and add value to the assets,” Thierry Vandal, president and chief executive officer of Hydro-Québec, said in an interview.

New Brunswick is strategically located as a transmission gateway between Eastern Canada and the northeastern United States, he said.

And Hydro-Québec is open to doing deals with other provinces, including Newfoundland and Labrador, that would allow them to use its transmission corridors to export to the U.S., he added.

“Hydro-Québec is proposing to acquire [New Brunswick Power's] assets, but the network remains open. It's not because we're acquiring it that we're going to close [access to the network],” he said.

Newfoundland and Labrador Premier Danny Williams has voiced his concerns that Hydro-Québec is only out to secure a stranglehold over access to electricity markets in the U.S.

“From a business perspective, Hydro-Québec will exploit those assets, but through a subsidiary that will continue to be called New Brunswick Power,” said Thierry Vandal, the president and chief executive officer of Hydro-Québec.

“There is a lot of continuity that we want to maintain,” Mr. Vandal said in an interview before the formal announcement to be made Thursday morning in Fredericton.

Industrial, commercial and residential customers of debt-laden New Brunswick Power will get a break on their electricity rates and Hydro-Québec will be able to expand its access to the major markets in the northeastern U.S. markets, he said.

Under terms of the memorandum of understanding between the two power companies, New Brunswick's residential and commercial rates will be frozen for five years, while industrial prices will be rolled back, he said.

At the same time, Hydro-Québec will be in a position to invest in and upgrade New Brunswick Power facilities, help shift it to more environmentally friendly power generation and make the province a strategic location for the export of electricity to the U.S., Mr. Vandal said.

“It's a transaction in which New Brunswick's geography is very interesting for us. Strategically, it opens an additional route to those markets.”

He brushed aside suggestions that Hydro-Québec will have an unfair advantage over rivals, such as Newfoundland and Labrador.

Newfoundland and Labrador Premier Danny Williams has warned that the proposed deal between Quebec and New Brunswick would essentially give Hydro-Québec control of electricity transmission corridors between Atlantic Canada and the U.S. markets.

Mr. Williams has reiterated his threat to take his case to the federal Competition Bureau if a deal between the two provinces goes ahead.

Mr. Williams said in a letter to New Brunswick Premier Shawn Graham – made public yesterday – that Hydro-Québec has a track record of “obstruction and delay” and unfair treatment of third parties that deal with it.

Newfoundland has for decades insisted it was shortchanged in a 1960s deal signed with Quebec to build the Upper Churchill River hydro project. Forced to send the power through Quebec to markets, Newfoundland agreed to fixed prices that are now far below market value, a situation that has been a boon for Hydro-Québec.

Newfoundland Hydro now has plans for a massive hydroelectric project on the Lower Churchill, which includes options for a transmission route bypassing Quebec.

Newfoundland Hydro has also had talks with Nova Scotia and New Brunswick over possible electricity export partnerships. It has, as well, applied for access through Quebec's network for exports. Newfoundland has complained in the past that Hydro-Québec doesn't respect requirements from the U.S. regulator that exporters to the American market provide rivals with “open access” through their systems.

Mr. Vandal said in an interview with The Globe and Mail that Hydro-Québec has always made it a point of pride to keep its system open.

And that will be the case in New Brunswick as well, he added.

“The New Brunswick network will remain absolutely open,” he said.

“All transmission requests will be handled on the basis of absolute respect for the rules of the market and of the regulatory framework.”

The proposed acquisition of New Brunswick Power assets – including seven generating stations producing a total of 950 megawatts of electricity – is valued at $4.75-billion.

Several coal-fired and diesel-powered facilities will be phased out and there are plans to install clean energy such as wind power, Mr. Vandal said.

In a second phase, the Point Lepreau nuclear power station will be taken over, but only after Atomic Energy Canada completes a refurbishment project, expected some time in 2011, he said.

If the acquisition goes ahead as planned, Hydro-Québec will gain about 380,000 new customers or about 10 per cent of its existing customer base, said Mr. Vandal.

Source