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