On March 24, Premier Shawn Graham stood in New Brunswick’s legislative assembly and announced the death of a $3.2-billion deal to sell the key assets of NB Power, the province’s electrical utility, to Hydro-Quebec. His statement marked an abrupt end to a saga that had dominated the province’s political conversation for five months, and that has likely reduced Graham’s political future to nothing.
Things began as suddenly as they ended, when on Oct. 29, Graham and Quebec Premier Jean Charest surprised their respective publics with a memorandum of understanding, the result of nine months of secret talks. What had begun as a discussion of regional electricity rates resulted in a deal to sell almost all of NB Power’s assets to Hydro-Quebec. The Quebec utility would in turn provide lower power rates to New Brunswick’s industries and guarantee a five-year rate freeze to the province’s residential and commercial customers.
New Brunswick’s industry analysts and newspaper editorialists raved. They expected the province’s fiscal position to improve through the divestiture of a corporation laden with $4.5 billion in debt, and saw a solution to high power costs that hinder New Brunswick’s competitiveness. Hydro-Quebec, meanwhile, would combine its extensive hydro-based generation assets with NB Power’s thermal-based ones, creating a more efficient and synergistic utility with increased capacity to sell to the lucrative markets in the northeastern United States.
The people of New Brunswick were less than convinced. Opinion polls showed that just 22% of New Brunswickers supported the deal, and a two-month-long diet of protests and loud public outrage convinced five of Graham’s Liberal MLAs, including three cabinet ministers, to tell the premier in early January that they couldn’t support the transaction. So Graham and Charest produced another MOU, scaling back the terms of the agreement. The concessions failed to change many minds, however, so when nine weeks later Graham announced the deal’s death — ostensibly because Hydro-Quebec’s due diligence revealed maintenance costs and civil liabilities that were riskier than it cared to assume — plenty of observers wondered whether New Brunswick politics, with a September provincial election looming, ultimately killed the sale.
“Somehow the government decided that they just didn’t have the stomach to go through with this,” says Don Desserud, a professor of political science at University of New Brunswick’s Saint John campus. “Either they kept poking Quebec until Quebec said, ‘Look, enough of these changes, we’re out,’ or they said, ‘Give us a face-saving way out.'”
Bill Marshall doubts it. A retired former director of strategic planning for NB Power, and now president of WKM Energy Consultants, he worked on some aspects of the agreement, and says that Hydro-Quebec raised an increasing number of issues about the terms as their due diligence progressed. “It was a good deal for New Brunswick because it mitigated a lot of the financial risks that the province and utility faced, and it mitigated the risk from carbon taxes and cap and trade — even though that’s an unknown, everybody in the industry knows it’s coming.” As Quebec asked for concessions that left New Brunswick exposed to those financial risks, though, the deal became less of a win-win. “It just got to the point that New Brunswick said, ‘Well, there’s just not enough benefit left here,'” Marshall says.
Whatever the stumbling block, Graham managed to transform the scenario into lose-lose. “There’s a trust factor when you want to do agreat big thing like that,” Desserud says. That the deal was composed in secret and sprung on the public was a mistake, he believes. It didn’t help that the sale was to Quebec, a province seen by many as having snookered Newfoundland and Labrador over the Churchill Falls power project. NB Power is soon expected to announce another in a series of rate increases in a bid to break even, but the province remains saddled with the utility’s debt and with costly decisions about the future of its generators. As for Premier Shawn Graham, the people of New Brunswick will deliver their verdict in six months.