BUSINESS/ECONOMY

A surge in hydro power sales

Bruce Wallace April 8 1985
BUSINESS/ECONOMY

A surge in hydro power sales

Bruce Wallace April 8 1985

A surge in hydro power sales

Bruce Wallace

In a glittering display of cross-border camaraderie at New York’s Plaza Hotel on March 21, 400 politicians, entertainment personalities and bankers from Quebec and New York state gathered to celebrate the opening of the first foreign sales office of Hydro-Québec. Over champagne and a roast beef dinner, the Quebec delegation, which included Premier René Lévesque, Montreal Mayor Jean Drapeau and FrenchCanadian singing star Ginette Reno, exchanged pleasantries with New York Mayor Ed Koch and top U.S. investment bankers. But the friendly ambience was only meant to set the stage for Quebec’s aggressive sales pitch for the mammoth $27-billion provincial utility, which ranks as Canada’s largest industrial corporation. Hydro chief executive officer Guy Coulombe told the Americans that by 1990 the company hopes to double its power exports to the northeastern United States, which last year totalled $388 million. Added Claude Descôteaux, who will head Hydro’s New York office: “Our presence in New York is a tangible sign of our interest in the American market.”

Indeed, spurred on by the booming

U.S. economy’s renewed thirst for cheap, reliable power supplies, Canadian utilities, especially those in Quebec and Manitoba, have launched an unprecedented drive to sell hydroelectric power to American utilities. Last summer Hydro-Québec signed a letter of intent with the Boston, Mass.-based New England Power Pool (Nepool), a coalition of 85 northeastern public utilities, to sell $4.5 billion of hydro power over the next 10 years. And New York Gov. Mario Cuomo recently promised to triple the state’s energy purchases from Quebec, which last year were worth $379 million. Manitoba Hydro won National Energy Board approval on March 18 for a $3.2-billion power sale to a Minneapolis utility. Said David Armour, president of the Toronto-based Electrical and Electronic Manufacturers Association of Canada, which builds Canadian hydro utilities: “We can sell our surplus power way below the American market rates for other energy sources.”

At a hearing last week before a Quebec national assembly committee considering Hydro-Québec’s request for a 2.5-per-cent increase in provincial rates, Hydro officials revealed that they already have $10 billion worth of U.S. export contracts on the books covering the next 15 years. Buoyed by that prospect, the utility has decided to speed up by two years the construction date for a

new $1.2-billion “Sixth Line” connecting the giant James Bay hydroelectric power project with the United States. It will be completed by 1990. As well, Hydro officials are again publicly contemplating the construction of new hydro production projects in the province.

For Hydro-Québec, the plans for expansion are a dramatic reversal from the hardship it faced two years ago, when slumping power demand left it with an immense overcapacity of electricity. The situation led Hydro-Québec’s Coulombe to suspend $50 billion worth of planned developments until the 21st century. Hydro also embarked on a corporate austerity campaign, trimming seven per cent of its work force. Despite a bold marketing campaign which resulted in a 15-per-cent jump in sales—the largest gain in 12 years—profits fell by more than 50 per cent, to $301 million.

A major cause of the decline was the falling value of the Canadian dollar against the American currency. HydroQuébec borrowed about 52 per cent of its $19-billion debt load on U.S. money markets, and every one-cent drop in the Canadian dollar against the greenback costs Hydro $29 million. As a result, Hydro has largely avoided borrowing from U.S. lenders. Declared Joseph Bourbeau, Hydro’s chairman: “We did not borrow one red cent from the Americans in 1984.”

Export sales to the northeastern energy markets are crucial to Hydro-Québec’s future financial health. Said Marc Parent, president of the Montreal-based research group Econosuit: “Faced with slow growth in energy demand here in Quebec, the attempt to sell the excess capacity to the United States can only be described as an intelligent, clever move. Otherwise we just watch potential revenues spill over the edge.”

Hydro-Québec’s aggressive export campaign will soon push it ahead of Ontario as the leading supplier of energy to U.S. markets when Hydro-Québec’s New England Power Pool sale takes effect. Last year, Ontario Hydro sold $444 million worth of power to the United States, but the utility expects its U.S. sales to decline in the future as a result of increased competition from other provinces. Indeed, Manitoba is providing some of that competition as a result of its $3.2-billion sale to Midwest utilities.

The Manitoba power deal is a crucial factor in the political aspirations of Howard Pawley’s New Democratic government, which faces an election next year. To deliver the power, the province will build a $3-billion generating station on the Nelson River, 90 km southwest of Hudson Bay. Under the 12-year contract, which takes effect in 1993, Manitoba will export the power to Northern

States Power Co. of Minneapolis, a company serving three million customers in five western states.

For both Quebec and Manitoba the burgeoning export sales will provide a much-needed economic stimulus. Hydro-Québec has always been the locomotive of the Quebec economy, accounting for about 5.5 per cent of the province’s domesticproduct,whichgrewby five per cent last year. In Manitoba, where the economy grew by only 4.2 per cent last year, the first welcome spin-off from the Manitoba project came last week when the government awarded Canadian

General Electric a $101-million contract to provide generators and turbines. As part of the deal the firm has promised to invest over $12 million in Manitoba and purchase at least 15 per cent of its materials from Manitoba companies. The Pawley administration forecasts that the mammoth Nelson River project will produce 6,000 construction jobs and another 11,000 jobs in support industries. Declared Pawley: “When construction commences, tremendous productive forces will be released.”

With Garry Moir in Winnipeg

Garry Moir