October 29, 2009 / 3:14 PM / in 8 years

Hydro-Quebec sees U.S. growth via NB Power assets

TORONTO (Reuters) - Hydro-Quebec said on Thursday it will buy most of the assets of debt-laden New Brunswick Power in a C$4.75 billion ($4.4 billion) deal that will give it better access to power-hungry markets in the U.S. Northeast.

Under the tentative agreement between the provincially owned utilities, Hydro-Quebec will own NB Power’s transmission system, which runs into the state of Maine.

“From Hydro-Quebec’s perspective, this is about geography and access to northeast regional markets in terms of gaining further access to the New England market, but also supplying New Brunswick with power,” Hydro-Quebec Chief Executive Thierry Vandal said in an interview.

Strategically, the deal makes sense as a way for Hydro-Quebec to make bigger inroads into the U.S. market, said Michael Caranci, an energy analyst at DBRS.

“Right now Hydro-Quebec has good connections to New England through Vermont, so this will expand that because they will have some going through New Brunswick into Maine.”

Hydro-Quebec’s Vandal said the new assets will initially add a little more than 500 megawatts transmission access to the New England market.

“In the overall scheme of things in Quebec, we have roughly 5,000 megawatts of interconnections, so this addition, it’s important, but this is something that may grow over time also,” he said.

Currently, Hydro-Quebec has to negotiate access to the New Brunswick transmission system and pay regulated tariffs to NB Power, said Allan McLean, an energy analyst at Moody’s Investors Service in Toronto.

Quebec Premier Jean Charest was optimistic about the deal.

“We have an American neighbor that needs energy, needs clean and renewable energy, and needs to obtain this energy from a reliable source, and that source is here,” Charest said after the agreement was announced.

The proposed deal, however, has drawn the ire of Danny Williams, the premier of Newfoundland and Labrador, who has warned he might raise anti-competitive concerns if the deal means Hydro-Quebec can use its expanded market position to limit his province’s power exports.

The federal government also said it would look into the deal to see if any federal issues arise.

Williams said on Thursday he was alarmed by reports that Hydro-Quebec was looking for similar deals with the nearby Atlantic provinces of Prince Edward Island and Nova Scotia.

Vandal said Hydro-Quebec has initiated talks with P.E.I. about selling power into that province, and hopes to so the same with Nova Scotia. He added that those provinces are very different from New Brunswick, as private companies -- Amron in Nova Scotia and Maritime Electric in P.E.I. -- own the distribution grids.

LONG-STANDING FRICTIONS

Newfoundland and Labrador has accused Quebec for years of unfairly profiting from a deal to export power from the Upper Churchill hydroelectric facility in Labrador.

Williams said New Brunswick would be “selling its future” if it went ahead with the deal. He said the Upper Churchill facility had netted Hydro-Quebec C$1.7 billion last year, compared with C$63 million for his province.

Moody’s McLean said other utilities would still have access to NB Power’s transmission lines if the deal goes through.

Hydro-Quebec has “to provide open access to that transmission system and so there will have to be a tariff that will be paid by anybody utilizing it, so it’s not like it gives them a monopoly on access to that system,” he said.

The deal would also eliminate New Brunswick Power’s C$4.75 billion debt, and the utility would operate as a separate entity, headquartered in Fredericton, New Brunswick’s capital.

McLean said that, given Hydro-Quebec’s size, the deal would be “a relatively small and manageable transaction.”

As of December 31, 2008, Hydro-Quebec’s assets totaled C$66.8 billion while its total debt came to C$36.4 billion.

Hydro-Quebec will profit from the deal from the first year, with an expected return on equity of more than 10 percent, Quebec and New Brunswick said in a joint release.

NB Power’s nuclear facility at Point Lepreau, its hydro facilities, peak-demand power plants, and transmission and distribution assets are part of the proposed transaction.

The closing date for most of the assets is expected to be around March 31, 2010. The closing date for Point Lepreau, will follow on or about January 1, 2011, when a current refurbishment project is complete.

$1=$1.07 Canadian Reporting by John McCrank; editing by Rob Wilson

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