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Chris Morris
Telegraph-Journal

FREDERICTON - The proposed $3.2-billion energy deal with Hydro-Québec - hailed by some as a "golden opportunity" for New Brunswick and condemned by others as a secretive sellout - is dead.

Premier Shawn Graham said Wednesday the deal fell apart after Hydro-Québec decided there was too much risk associated with some of NB Power's generating assets, particularly the Mactaquac dam and the Point Lepreau nuclear generating station.

Graham made no effort to hide his disappointment over the failure of the agreement which he said would have led to transformative change in New Brunswick and provided energy security for the future.

"We believed in this deal," Graham told reporters after announcing that talks with Quebec had ended.

"We believed in the benefits that it was going to bring for every single citizen."

The impact on New Brunswick will be almost immediate - power rate increases are looming for everyone in the wake of the failed agreement.

Graham has asked NB Power president Gaëtan Thomas to take two weeks to assess the financial situation of the debt-ridden utility and see if there is some way to mitigate anticipated rate increases.

The utility has said it needs at least a three per cent rate increase in April to break even this year.

"The savings we were going to be able to give to New Brunswickers cannot be achieved now because Hydro-Québec is not moving forward," Graham told the Telegraph-Journal editorial board.

"The irony in all of this is that after so many people saying that we weren't going to get the best deal possible, the reality is that we're going to be losing enormous benefits for generations to come."

Thomas, who attended the news conference with Graham, said the utility will search for efficiencies and improvements to operations that might save money.

But Thomas made it clear nothing will match what he called "the golden opportunity" of the deal with Hydro-Québec.

"We'll develop a plan for the short-term," Thomas said.

"The long-term is a little more difficult, quite a bit more difficult, because this deal was the greatest deal we could have come up with at this point in time. A lot of those risks were being transferred to Hydro-Québec and those risks are now back here and we have to figure out how to mitigate them."

The Quebec government said the deal fell through because due diligence showed some assets would have required bigger investments than previously planned and Hydro-Québec was not willing to take more risks.

"It was out of question to buy assets that didn't meet our expectations," Premier Jean Charest told reporters in Quebec City.

"For example, in the case of certain infrastructures we ended up with civil responsibilities that were not directly linked to energy and that's not the core business in which Hydro-Québec is involved."

Flooding and ice damage to homes along the river were potential liabilities that Hydro-Québec was uncomfortable with and did not want to assume, Graham said.

As well, Hydro-Québec said the Mataquac dam, built in the 1960s, likely will have to be replaced in about 10 years. The dam's relatively short life span would limit its ability to offset costs associated with the Lepreau generating station.

Charest met with Graham on Tuesday night and said both came to the conclusion an agreement could not be reached.

"We always thought that this was good for both sides at the outset, but we've come to a conclusion today that it is not what we expected," Charest added.

The proposed deal called for Hydro-Québec to pay $3.2 billion for most of NB Power's power generation assets and 670 megawatts of transmission rights to energy-hungry markets in the northeastern United States.

Opposition to the agreement was fierce in New Brunswick, prompting massive demonstrations and forcing one cabinet minister - Stuart Jamieson - to resign.

While Graham acknowledged that he was under growing political pressure, he said he called off the deal because Hydro-Québec was seeking "unacceptable" changes.

"For this deal to proceed, they (Hydro-Québec and Charest) wanted us taking on ownership of some of these assets and carrying the risk associated such as the decommissioning of Point Lepreau," Graham said. "As a government, we weren't prepared to lessen the benefits and risk we had been able to achieve in the original memorandum of understanding."

Graham made the announcement about the failed negotiations in the legislature, where he was given loud applause by the Liberal MLAs and cabinet ministers flanking him.

Opposition Tory leader David Alward said the Liberals should be thanking the many people in New Brunswick who had the courage to stand against a deal that he accused the Liberals of trying to ram through without public debate.

Alward said the defeat of the Hydro-Québec agreement was a victory for democracy.

"What was so unfortunate and disappointing along the way was that the Liberal caucus members the premier's team were not prepared to stand up and listen to their own constituents," Alward said.

"They were not prepared to stand up and be counted like New Brunswickers who stood up and were counted by the thousands. Today, this is a victory for the people of New Brunswick."

Graham said that Quebec's last-minute effort to off-load risk back to New Brunswick showed that under the proposed agreement, New Brunswick would have been the big winner.

Charles Cirtwill of the Atlantic Institute for Market Studies agreed with that view.

"So we have a dead deal," Cirtwill writes in an opinion piece today in the Telegraph Journal.

"Dead because New Brunswick originally managed to get Quebec to offer far more then they should have. Dead because Quebec cottoned on before the final agreement was signed, and dead because the New Brunswick government for all its hinting couldn't convince their fellow New Brunswickers that they really had outmanoeuvred, at least for a few days, Quebec."

Graham said he is extremely disappointed that he will not be able to offer industry in New Brunswick the competitive edge of significantly lower power rates. Under the agreement, industrial power rates would have been cut by about 23 per cent.

Listing a litany of plants and mills that have shut across the province in recent months, Graham said he fears for the future of industry in the province.

"Every single day that we lose a job in this province to another jurisdiction - you're darn right I'm concerned," he said.

"That's why we did this. That's why we brought forward solutions to keep our families here in the province of New Brunswick. That's why we put forward solutions to deal with these challenges and, as I say today, it was a unique opportunity that would have truly transformed this province. I respect why Hydro-Québec made the decision but I'm disappointed that decision was made."

Peter Gordon, CEO of Fraser Papers - a papermaker with operations in New Brunswick trying to emerge from bankruptcy protection - said his company was banking on $6 million in savings associated with the lower power rates promised in the deal.

The executive had spoken out more than once in favour of the proposal to sell NB Power assets to Quebec in exchange for cheaper power over the long haul.

Gordon said his firm's restructuring plan was not dependent on the deal, but that higher rates will now continue to add risk to the company, which has pulp operations in Edmundston and sawmills in Plaster Rock and Juniper.

"For us it means we remain disadvantaged to our competitors," Gordon said in an interview.

"The fact that we don't have that benefit any longer is something you've got to factor in."

New Brunswick businessman David Ganong, who chaired an advisory panel on the Hydro-Québec deal, said in a statement that he is disappointed the deal collapsed, but understands that New Brunswick could not have accepted the changes proposed by Quebec.

He said the province will have to move on and develop new options.

"The starting place, in our opinion, is the development of a new energy policy for the province that incorporates energy efficiency as a fundamental aspect of the policy."

Asked about his political future, Graham said he has no intention to resign.

"I'm going to stay premier, and I will be fighting the next election,'' Graham said, speaking in French.

The deal strained relations with the premiers of Nova Scotia and Newfoundland and Labrador, who expressed concerns that it could detrimentally affect their energy plans.

In St. John's, Premier Danny Williams said he was pleased for the people and government of New Brunswick.

"I think they walked away from what would have been, in the long term, a bad deal for them,'' Williams said. "My advice, from day one, was beware of Hydro-Québec. Anybody who deals with Hydro-Québec, in my opinion, deals with them at their peril.''

Premier Darrell Dexter said the deal's collapse will renew the opportunity for co-operation between New Brunswick and Nova Scotia to increase transmission capacity to export power to the energy-hungry markets in the northeastern United States.

- with files from Canwest News Service, The Canadian Press, Rebecca Penty