CSIS Simon Chair Blog
April 1, 2010
by Christopher Sands
On Wednesday, March 24 a deal that had been touted as a major boost to U.S. energy security and a smart response to climate change fell through. The implications are international, but the causes of the deal’s collapse are essentially local.
Hydro Quebec had offered $3.1 billion ($3.2 billion Canadian) for the electrical generation facilities of New Brunswick’s public utility, NB Power. The deal, first announced in October 2009, also included access for Hydro Quebec to 670 megawatts of transmission capacity to U.S. markets in New England, connecting through Maine. New transmission infrastructure can take years to site, permit and build; with this deal, Hydro Quebec would have gained access to existing power lines and could have expanded electricity exports immediately. Moreover, hydroelectricity is particularly coveted because it operates with zero carbon emissions and meets the renewable energy portfolio standards for many U.S. states.
Hydro Quebec withdrew its offer, explaining that some of NB Power’s generating assets were not in good working order, and would need additional investments to continue operating that the Quebec utility was unprepared to make. Quebec Premier Jean Charest was quoted in the Montreal Gazette, saying “It was out of the question to buy assets that did not meet our expectations.”
Charest’s matter of fact explanation that the investment case for making the deal didn’t make sense was politically prudent; his opposition critics in the Parti Québécois claimed that anti-Quebec feelings in New Brunswick were the real reason.
New Brunswick Premier Shawn Graham was criticized for his early support for the deal by his political opponents, who argued that NB Power was giving up assets and access to its transmission grid too cheaply. For many in New Brunswick, the shadow of a deal made decades earlier between Newfoundland and Hydro Quebec was worrisome.
The provincial government of Newfoundland and Labrador signed a contract with Hydro Quebec in 1969 to provide electricity from the Churchill Falls hydroelectric dam (completed in 1974) for a set price. The contract term was 72 years, to 2041. As electricity prices rose, the province sought a rate increase by Hydro Quebec refused to renegotiate, pressing its advantage for a considerable profit.
Newfoundland’s current Premier Danny Williams was a vocal critic of NB Power’s deal with Hydro Quebec, and businesses in Nova Scotia, which is closely connected to the NB Power grid, also expressed concern that New Brunswick might end up locked in to a disadvantageous situation if the deal went through. Premier Graham’s approval rating in recent polls had been dropping, and the business community in New Brunswick was split on the issue.
As a result, Graham also focused on the need for an investor willing to accept responsibility for New Brunswick’s energy generation infrastructure upkeep, and not just focus on short-term profit taking. Few in the province would disagree.
The lesson in this small episode is one for all those looking to energy trade in North America as a path to meeting rising demand as well as climate goals. As with the intractable politics surrounding foreign investment in Mexico’s Pemex and the opposition to the development of the oil sands in Alberta and Saskatchewan, the electricity economy is fraught with politics too. Global climate goals and national energy strategies notwithstanding, all energy politics tend to have local components that must be understood in order to be overcome.
Christopher Sands is a Senior Fellow at Hudson Institute.
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