Hydro-Québec is proposing to purchase 56 per cent of New
Brunswick Power's electricity generating capacity, as well as
its transmission system and other assets, for $4.75 billion.
But the public cannot adequately judge the merits and drawbacks
of the proposed sale because the asset value has not been
appraised by a competitive bidding process in the open market.
Therefore, the public interest is not served by what amounts to
a backroom political deal.
The acquisition of N.B. Power's nuclear, hydro, and
petroleum-fired power plants would increase Hydro-Québec's
capacity for generating electricity by 6 per cent (2,166
megawatts). Hydro-Québec also would gain control over the
transmission network connecting New Brunswick to the New
England power market, a portion of which the company currently
leases from N.B. Power. Hydro-Québec would also acquire the
valuable carbon emissions allowances from the thermal
generation facilities at Coleson Cove and Belledune, in the
event N.B. Power ceases operations there.
For its part, N.B. Power would collect enough cash to pay
off some $4 billion in debt for which the taxpayers of New
Brunswick currently are responsible. The proposed deal also
calls for a five-year freeze of residential rates, and
discounts for New Brunswick industrial and commercial
But New Brunswick taxpayers can only wonder whether
Hydro-Québec's offer reflects the true worth of N.B. Power's
assets. Moreover, the actual value of the rate freeze and rate
cut provisions will depend entirely upon future prices of
electricity, which routinely fluctuate based upon the costs of
fuels, the demand for energy, the operating levels of the power
plants, and a variety of other factors. Consequently, what
might seem to be an attractive deal-at least politically-may
not necessarily be economically sound.
According to N.B. Power's latest annual report, the net book
value of its transmission system, terminals, and substations is
$413 million. Applying that figure to the proposed purchase
price means Hydro-Québec would be paying about $2 million per
megawatt of electricity for N.B. Power's generating capacity.
How that compares to N.B. Power's production costs is unknown.
But that is essential information for evaluating the purchase
Québec residents also should wonder whether the proposed
purchase by Hydro-Québec would be to their benefit or
detriment. For example, will the debt load from financing the
acquisition affect their rates? What are the benefits of
additional capacity in another province, and are those benefits
commensurate with the costs?
If the New Brunswick government is serious about getting out
of the electricity business, officials should strive to
maximize the value of N.B. Power's assets through a public and
competitive bidding process. That requires an independent
appraisal of the assets to determine a reserve price. Moreover,
the province should declare government-owned utilities such as
Hydro-Québec as ineligible to bid in order to promote
privatization of the system.
Neither Hydro-Quebéc, N.B. Power, nor their regulators have
adequately performed due-diligence on this deal. Absent
competitive bidding and thorough cost-benefit analyses,
taxpayers in both provinces should oppose it.