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Cablegate: Hydroqu??Bec to Acquire Most of the Assets of Nb Power

VZCZCXRO3955
RR RUEHHA RUEHMT RUEHQU
DE RUEHOT #0828/01 3022020
ZNR UUUUU ZZH
R 292019Z OCT 09
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 0019
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHHA/AMCONSUL HALIFAX 0002
RUEHMT/AMCONSUL MONTREAL 0001
RUEHOT/AMEMBASSY OTTAWA
RUEHQU/AMCONSUL QUEBEC 0001

UNCLAS SECTION 01 OF 02 OTTAWA 000828

SENSITIVE
SIPDIS
DEPARTMENT PLEASE PASS TO FERC

E.O. 12958: N/A
TAGS: ENRG EINV SENV PGOV CA
SUBJECT: HydroQu??bec to acquire most of the assets of NB Power

1. (U) This cable contains an action request, see para 11.

2. (SBU) SUMMARY: On October 29 the Quebec and New Brunswick (NB)
provincial governments announced that HydroQu????bec intends to
purchase the assets of New Brunswick Power (NB Power). The deal is
attractive to HydroQu????bec because it will gain possession of major
electricity transmission lines from NB to Maine and enhance its
electricity export capacity to the United States. Canadian and
American electricity grids are interlinked and Canada, in
particular HydroQu????bec, supplies significant amounts of
electricity
to New England and New York. Premier Charest of Quebec took the
unusual step of calling Ambassador Jacobson ahead of the public
announcement to allay the notion, expressed by some, that the U.S.
Federal Energy Regulatory Commission (FERC) should be concerned by
the proposed acquisition. END SUMMARY.

3. (U) Premier Jean Charest of Qu????bec and Premier Shawn Graham of
New Brunswick (NB) on October 29 signed a Memorandum of
Understanding (MOU) whereby HydroQu????bec would acquire most of the
assets of NB Power. This is the first time in Canada that a crown
corporation from one province will become the owner of a crown
corporation from another province. Under the terms of the MOU,
HydroQu????bec would acquire most of the assets of NB Power for an
amount equivalent to NB Power's debt, C$4.75 billion. The nuclear
generating facility at Point Lepreau (after the completion of the
plant's refurbishment), the hydro facilities, and the transmission
and distribution assets of NB Power are part of the proposed
transaction. HydroQu????bec would not assume any liabilities with
respect to the Point Lepreau refurbishment project. HydroQu????bec
would offer employment to all employees of NB Power at the time of
closing, and respect the collective bargaining agreements in place.


4. (U) According to Hydro-Quebec this transaction would be
profitable for the crown corporation immediately upon
implementation, with an expected annual return on equity of more
than 10 per cent. The MOU sets a closing date for substantially all
the assets involved on or about March 31, 2010 whereas the date for
closing the deal on the Point Lepreau nuclear generating facility
would follow on or about Jan. 1, 2011, after the completion of the
refurbishment project now underway. A package of regulatory
reforms, aimed at harmonizing New Brunswick's electricity
regulatory system with that of Qu????bec, will be presented to the
New
Brunswick Legislature in the upcoming session.

5. (U) NB Power would continue as a separate New Brunswick entity,
headquartered in Fredericton, and use the existing name and
corporate identity; it would retain five fossil-fuel (coal, diesel
or oil) powered plants and would supply electricity to HydroQu????bec
under the terms of tolling agreements. New Brunswick's 350,000+
electricity customers would benefit from lower rates (comparable to
those paid by Quebeckers), and the province will enjoy a vastly
reduced provincial debt exposure (NB Power's debt constituted 40
percent of the province's entire debt-load). Also, the proposed
New Brunswick Energy Hub (a key political branding effort by
Premier Graham) rates a mention in the MoU which notes that
"HydroQu????bec will work with interested parties based in the
Province of New Brunswick to build the energy infrastructure in the
Province (the "Energy Hub") to serve local and North Eastern North
America regional markets...".

6. (U) The MOU is available at:

http://www.hydroquebec.com/media/en/index.htm l

7. (SBU) Newfoundland and Labrador Premier Danny Williams is
opposed to the acquisition because he claims it would give
HydroQu????bec a putative "stranglehold" on electricity
transportation

OTTAWA 00000828 002 OF 002


corridors between Atlantic Canada and the lucrative U.S. market.
Newfoundland and Quebec have been battling over electricity for
decades. Recently, Newfoundland formally complained to various
regulators that HydroQu????bec is not offering it fair tariffs to
ship
power through Quebec from the planned hydro-generating complex on
the Lower Churchill River in Labrador. Newfoundlanders' anger and
distrust toward Quebec is fueled by the 1969 deal involving
shipping power through Quebec from the Upper Churchill complex at
long-term fixed rates that are now well below market prices. In a
letter to Premier Graham dated October 28, Williams wrote "Our
province feels compelled to look into the potential of
anti-competitive behaviour on the part of HydroQu????bec given the
potential monopoly that could exist as the result of an agreement
between them and NB Power". Williams has suggested also that the
U.S. Federal Energy Regulatory Commission (FERC) should have
concerns about the NB Power acquisition.

Premier Charest Calls Ambassador Jacobson

8. (SBU) Qu????bec Premier Jean Charest took the unusual step of
calling Ambassador Jacobson ahead of the public announcement to
brief him on the NB Power deal. Charest explained the terms of the
deal, stating that it is a good deal for both parties with New
Brunswick being relieved of a heavy debt burden and gaining reduced
electricity rates while HydroQu????bec gains additional transmission
capacity for sending electricity to the U.S. market. Charest noted
to the Ambassador that HydroQu????bec will take over NB Power's
nuclear generating plant only once the ongoing rehabilitation is
complete and the plant is recertified - thus leaving any cost and
regulatory risk with New Brunswick.

9. (SBU) Charest acknowledged that Newfoundland Premier Williams
"is having a stroke" about this development. Charest told
Ambassador Jacobson that Newfoundland had wanted to use New
Brunswick's transmission assets "at preferential rates" to directly
access the U.S. market and said Williams claims the U.S. would have
regulatory concerns about subsidized electricity exports. Charest
asserted twice, in direct contrast, that HydroQu????bec always "plays
by FERC rules." Charest also told the Ambassador that HydroQu????bec
is planning to acquire the privately-owned Prince Edward Island
power company. The generating assets involved are quite small, but
Charest said HydroQu????bec would be also acquiring important wind
assets and environmental credits.

10. (SBU) The Ambassador thanked Premier Charest for the call and
noted that we are satisfied customers of Canadian energy; he also
mentioned the positive American relationship with both HydroQu????bec
and NB Power and told the premier that we expect to continue that
positive relationship with the conglomerated company. The
Ambassador told Premier Charest that he would be reporting these
developments back to Washington.

11. (SBU) ACTION REQUEST: Post would appreciate receiving FERC's
perspective on U.S. regulatory concerns, or lack thereof, with
respect to the HQ acquisition of NB Power. END ACTION REQUEST.
JACOBSON

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