Quebec, N.B. strike $4.8B deal for NB Power
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.
Quebec's NB Power deal cut to $3.2B
Big industrial users get less of a break under new arrangement
The New Brunswick and Quebec governments have unveiled a $3.2-billion, slimmed-down deal to sell most of NB Power's generation assets.
The agreement, announced in Fredericton on Wednesday, is a significant shift from a $4.8-billion sale proposed last October, which would have also bundled the province’s electrical transmission and distribution companies in a deal with Hydro-Québec.
New Brunswick Premier Shawn Graham said at a news conference the revisions were a result of listening to the public after the original memorandum of understanding was announced.
Graham said the revised proposal addresses the concerns of people about keeping the Crown corporation in the province's hands, as well as maintaining control of the transmission system.
But the premier said it also meets the desires of the province to reduce electricity rates, lower NB Power's debt and get access to clean power.
"This is an agreement that removes $3.2 billion of debt from the shoulders of our children and our grandchildren," Graham said.
When the deal is closed around March 31, Hydro-Québec will pay $1.8 billion to the New Brunswick government, which will cover the debts associated with NB Power's generating facilities.
Quebec Premier Jean Charest said on Wednesday that his province is still meeting its goal of getting access to new markets for its power.
"From our perspective we continue to meet our objectives and it is a simpler agreement," Charest said.
Even though the deal is scaled back from the original, Charest said Hydro-Québec will receive a 10 per cent return on investment.
Quebec acquires nuclear plant
Hydro-Québec will take control of the Point Lepreau Nuclear Generating Station when its refurbishment is complete next year. It also takes ownership of the province’s hydro dams and two diesel units.
NB Power will continue to operate the Coleson Cove and Belledune generating stations and sell the electricity back to Quebec, consistent with the original deal.
Thierry Vandal, the president and chief executive officer of Hydro-Québec, said Coleson Cove will be used to produce power during the winter peak periods. He said Belledune will be operated until the future rules regulating greenhouse gas emissions become more clear.
New Brunswick’s residential ratepayers will still get a five-year rate freeze. Medium-sized industries will see a roughly 15 per cent cut in power rates and will have those rates locked in for five years.
Large industrial customers will see their power prices fall by roughly 23 per cent. Under the previous deal, those customers would have seen their rates fall by close to 30 per cent.
After five years, rates will increase with inflation. The Energy and Utilities Board will regulate future rate increases.
Peter Gordon, chief executive officer of Fraser Papers, said the restructured agreement will preserve many of the benefits that the original transaction offered but should address the concerns of the deal's critics.
Gordon said the deal will save his company $6 million a year in energy costs. He said that is $2 million less than Fraser Papers would have saved under the previous agreement.
"But it is still a significant improvement and will go a long way to assisting us restructure our company and exit bankruptcy protection," Gordon said.
Final agreement
The deal announced Wednesday is described as a final agreement and the closing date is intended to be March 31.
Graham said the transmission company is estimated to be worth $425 million and the distribution company $600 million. Neither one will be sold.
Losing the ownership of the transmission system isn't a setback for Quebec's ambitions to export power throughout the region, according to Hydro-Québec's president.
Vandal said the new deal still advances Quebec's agenda of moving the province's renewable power to new markets.
"Those transmission rights, which you don't need to own the transmission network to do that, those transmission rights will be transferred over to Hydro-Québec and that is very positive," Vandal said.
Under the new agreement, the New Brunswick System Operator will remain in the province, independent from NB Power. This change will mean any company looking to wheel power through New Brunswick must apply to the system operator and bid in an open process.
There had been a concern, voiced most strongly by Newfoundland and Labrador Premier Danny Williams, that Hydro-Québec could use control over the system operator to block his province's access to New England markets.
New Brunswick will buy a 14-terawatt-hour "heritage pool" of electricity from Quebec for 7.35 cents per kilowatt hour, which it will then supply to power users.
The two provinces said they will sign a long-term power purchase agreement that requires Quebec to supply the entire heritage pool in perpetuity. But New Brunswick has the right to opt out of 30 per cent of the heritage pool around 2040 when the Point Lepreau nuclear reactor nears the end of its lifespan.
Critics remain
Yves Gagnon, the K.C. Irving chair in sustainable development at the University of Moncton, was a critic of the original deal.
In October there was a text of the memorandum of understanding but without the text of the finalized agreement the energy expert said it will be difficult to properly assess the new deal.
"It's going to be impossible for independent parties to analyze the value and the merits of this second deal with Hydro-Québec," Gagnon said.
Gagnon said the first agreement also sounded good on the day it was announced but that changed as details emerged.
Progressive Conservative Leader David Alward asked the Liberal government to send the new deal to a legislative committee for further examination.
"The reality is with Plan B we already know there are shortcomings. Many of the same problems that existed with the first deal exist in the second deal," Alward said.
NB Power deal collapse could hurt jobs
The collapse of the NB Power deal could leave some of the province's largest employers struggling, according to a political analyst.
New Brunswick's largest power users were anticipating a 23 per cent rate cut if the $3.2 billion deal with Hydro-Quebec went forward.
Don Desserud, a political scientist at the University of New Brunswick in Saint John, said the New Brunswick government still must find a way to address industry's concerns of uncompetitive energy prices now that the deal has fallen apart.
"This is a problem these industries are going to be very, very concerned and rightly so," Desserud said.
"The economic welfare of the province depends upon their viability, so something's going to have to happen there."
Quebec Premier Jean Charest told reporters Wednesday his province pulled out after its power utility found unanticipated risks and costs related to matters like dam security and water levels.
Under the proposed deal, industrial users across New Brunswick would have saved $65 million in the first year. Specifically, J.D. Irving's Saint John pulp and paper mill would have saved $14 million.
No one from the major industrial companies in Saint John, including J.D. Irving, agreed to an interview on the failed power deal on Wednesday.
The energy deal would have also included a rate freeze to the province's municipal utilities in Saint John, Edmundston and Perth-Andover.
Eric Marr, the president of Saint John Energy, said the utility's customers can expect a three per cent rate increase every year starting this May.
"And as a customer of NB Power we'll have to take that rate increase and more or less pass it along to customers," Marr said.
New opportunities
But not everyone thinks the energy deal's demise is negative news.
Tim Curry, the president of the Saint John-based Atlantica Centre for Energy, said new options could be found now that the Hydro-Québec option is off the table.
"This may open up other opportunities for development of other sources of energy either within the province or within the region," Curry said.
David Coon, the executive director of the Conservation Council, said he hopes the deal's failure will cause the Liberal government to invite groups together to chart a new path forward for NB Power.
"Finally this gives us a chance to start over and engage New Brunswickers in a discussion on what our energy future should be like, what do people want it to be, what are our priorities," Coon said.
"We are ready to roll up our sleeves and participate in that."
Green Party Leader Jack MacDougall said the controversy surrounding the energy deal has engaged New Brunswickers in a debate over the province's energy future.
MacDougall said it is now the task of all political parties to harness that and continue the debate.
"I want to see the debate continued and take advantage of the great awareness [of energy issues] in New Brunswick," he said.