Now that’s a bright idea

So I see where the citizens of New Brunswick may have woken up to what seemed like a Halloween nightmare with the purchase by Hydro-Quebec (HQ) of their provincial electric utility. Au contraire, my provincial frère, this is a “win-win” on so many levels that a bigger question is why this wasn’t contemplated years earlier. Now I have never made any secret of my feelings that governments should get out of the way and allow private enterprise to do what they do best, but admittedly, HQ is not the SAQ, I can’t cross provincial lines and get cheaper electricity, the fact is that HQ already provides some of the cheapest electricity on the continent. HQ is one of the only exceptions to my Crown corporation rule, we do electrical power incredibly well in Quebec, there I said it.

New Brunswick Power (“NB Power”), on the other hand, is a clear example of government planning and management gone terribly wrong, from betting on coal, oil and nuclear to provide their future energy needs to running some of the least efficient facilities in North America. While NB Power generated a net return of five percent over the last year, HQ earned almost 25 percent during the same period. It was a mess; NB Power ran its utility as well as the City of Montreal runs its road allocation system plagued by cost overruns and mismanagement. If this had been a private enterprise, another company would have swooped in and purchased NB Power’s assets long ago. Fortunately for the smaller province, as a result of the deal, its residents will see a marked reduction in their energy rates and businesses in that province will receive a 20 percent electrical subsidy by virtue of the deal. Let’s see if the McCain family is going to pass that savings on to consumers by providing cheaper Superfries, not likely. Best of all for New Brunswick, $4.75 billion in debt from the utility will now be assumed by Quebec taxpayers.

The environment is a huge winner as well. HQ was far behind in wind technology, New Brunswick produces 48 times as much energy from wind as HQ, so let’s hope that in addition to the assets, HQ is purchasing know-how including R&D in this area. Apparently, the Gaspé region is one of the windiest corridors on the planet and if harnessed properly, it could be the answer to our energy independence for the next century, especially if we continue our conversion away from oil and into electric vehicle technologies. This new energy technology could not have come at a moment too soon, because as part of this deal NB Power will maintain control over their coal and oil plants as they will be responsible for winding them down. Quebec didn’t want these greenhouse-emitting entities as part of the deal, HQ is now going to have to replace the energy that was previously produced by these means. Wow, a good financial and environmental deal, that doesn’t happen often.

HQ, and in turn, Quebec taxpayers, in addition to being saddled with debt, will now have access to the Atlantic Canadian market, but more importantly to the U.S. power grid, thus ensuring that HQ will continue to feed the insatiable appetite of the U.S. energy consumer with a diet of renewable energy generated by the pristine rivers of Northern Quebec. The export potential is limitless. In fact, HQ is already in negotiations to supply P.E.I. with its energy requirements.

All in all, it is believed that the deal will generate a double-digit return for its stakeholders, namely you and me, I’ll take it! Hey, maybe we can get the guys from HQ to run the Caisse as well!

David owns a significant position in AAER Inc., a producer of wind turbines.

David Lisbona is the Chief Investment and Taxation Officer at Nellie Capital Corp., a Montreal private equity firm and can be reached at investing@thesuburban.com .The opinions expressed herein are those of the author and are provided for informational purposes only. They are meant to stimulate and challenge your financial advisor/broker/lawyer and/or accountant to examine the issues raised and to determine whether they can be used in your best interest.