2ndUPDATE: Hydro-Quebec To Buy New Brunswick Power Assets
30 October 2009 - 8:14AM
Dow Jones News
Hydro-Quebec said Thursday it entered an agreement to buy most
of the assets of New Brunswick Power for C$4.75 billion (US$4.4
billion), a deal that would increase the size of North America's
largest utility company and give it a new transmission corridor
that will double its power exports to the U.S. within two
years.
Hydro-Quebec and New Brunswick Power are both province-owned and
the deal has already drawn criticism from Quebec's provincial
rivals. Newfoundland and Labrador Premier Danny Williams said he'll
fight the deal, saying Hydro-Quebec's market dominance threatens
the interests of all Canadians.
New England energy producers such as Dominion Resources Inc.
(D), Constellation Energy Group Inc. (CEG) and Public Service
Enterprise Group Inc. (PEG) could also be threatened by the
combination, since it would give Hydro-Quebec an improved route to
compete in U.S. markets through New Brunswick's transmission lines
into Maine. A Dominion Resources spokesman declined to comment.
Spokeswomen for Constellation Energy and Public Service Enterprise
Group weren't immediately available to comment.
Hydro-Quebec Chief Executive Thierry Vandal told Dow Jones
Newswires the New Brunswick transmission lines would allow his
company to double the amount of energy it exports to the United
States to between 20 and 25 terawatt hours by 2011. The company
currently exports an average of between 11 and 12 terawatts to the
U.S. each year, or about 80% of its net exports. It exported 11% of
the power it generated last year, generating C$1.5 billion net, and
generates about 95% of its power from 50 large-scale hydroelectric
power plants.
"We've moving into a world where power generation is going to be
carbon-constrained to some extent, due to emissions regulations,
and everybody recognizes that power has to be cleaner," Vandal
said. "There are substantial renewable resources here in Quebec. We
work on bring them online as soon as markets become available, and
that's a function of transmission and market access."
The deal, which is expected to close by March 31, would
eliminate New Brunswick Power's debt of C$4.75 billion.
Hydro-Quebec will pay $750 million from its cash flow and issue C$4
billion in new bonds to finance the transaction. After the deal is
complete, it will have about C$40 billion in debt and C$70 billion
in assets, Hydro-Quebec spokesman Marc-Brian Chamberland said.
Hydro-Quebec would take over New Brunswick's hydroelectric power
assets, peaking power plants, and its transmission and distribution
system, as well as its single nuclear power plant at Point Lepreau
after its repairs are complete in early 2011. New Brunswick Power
would continue as a separate entity, operating an oil power plant
at Coleson Cove and a coal power plant in Belledune, sell energy
generated by those plants solely to Hydro-Quebec through tolling
agreements.
Hydro-Quebec has about 41,000 megawatts of generating capacity,
supplying power to 3.9 million customers in Quebec, including
nearly all of its residents plus the energy-intensive industries
attracted by the province's cheap power. Buying New Brunswick Power
will add about 2,000 megawatts of capacity.
Hydro-Quebec has been providing energy to New England states for
decades - it supplies 30% of Vermont's and a fraction of New York's
energy usage. But the company has been eyeing a bigger share of
U.S. markets for some time, and is currently building or planning
an additional 3,700 megawatts of capacity to serve the U.S.
In addition, the company is in negotiations with the U.S.
Federal Energy Regulatory Commission, or FERC, and U.S. energy
distributors Northeast Utilities (NU) and NStar (NST) to build a
new high-voltage power line to export additional power into New
Hampshire as early as 2014. Vandal said the project was complex and
there were still details to be negotiated, but said that FERC was
supportive of the plan and that he was optimistic a deal would be
reached.
Hydro-Quebec is among the world's cheapest energy producers.
Power rates in Quebec are about six-and-a-half U.S. cents a
kilowatt hour, compared with rates near 20 U.S. cents a kilowatt
hour in New York, said Jean-Thomas Bernard, an economics professor
and expert on Northeastern electricity markets at Universite Laval
in Quebec City.
Bernard said the company typically sells into the U.S. at about
9 U.S. cents per kilowatt hour at a cost of 3 U.S. cents. The two
countries' generating systems complement each other because
Canada's peak electricity usage occurs during the winter, when the
U.S. largely relies on natural gas for heating, while U.S. power
usage peaks during the summer from air-conditioning demand.
- By Edward Welsch, Dow Jones Newswires; 613-237-0669;
edward.welsch@dowjones.com
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