BUSINESS/ECONOMY

Hydro’s power play

BRUCE WALLACE October 6 1986
BUSINESS/ECONOMY

Hydro’s power play

BRUCE WALLACE October 6 1986

Hydro’s power play

BUSINESS/ECONOMY

Thirty thousand feet above Burlington, Vt., Georges Lafond looked out of the window of the 737 passenger jet and gazed upon the glimmering lights of the city below. Lafond, executive vice-president of external markets for Hydro-Québec, the province’s mammoth power utility, until recently, was returning to Montreal from New York City, where Hydro had announced the creation of an influential advisory committee designed to help promote power sales to the northeastern United States. Turning to his seatmate, Hydro chairman Hervé Hébert, Lafond remarked:

“That is Hydro-Québec power you see down there, my friend.”

With a smile Lafond added,

“And the meter is still running.” Indeed, for the Montrealbased utility and Quebec Premier Robert Bourassa, electricity sales to New England are the crucial component of both Hydro’s and the province’s drive for financial prosperity.

For their part, Hydro’s executives are counting on increased export sales to help boost the Crown corporation’s sagging profits, which declined to $209 million last year from $800 million in 1982. And Bourassa’s ambitious plan for a second, massive Hydro development on James Bay—a $25-billion project that would create thousands of jobs—depends upon signing long-term sales contracts with out-of-province buyers. On Oct. 10 Bourassa is expected to attend an inauguration ceremony in Comerford, N.H., that will mark the opening of the first phase of a new 1,500-km transmission line, which will eventually carry 2,000 megawatts of James Bay power as far south as Boston. But last week Hydro-Québec was still mired in a political controversy that began in late summer, when Guy Coulombe, Hydro’s respected president, tendered his resignation to Bourassa.

Coulombe first clashed with Bourassa in June, 1985, when Bourassa was still in opposition. At a news conference, Coulombe—a career civil servant who served as cabinet secretary during

part of Bourassa’s first administration from 1975 to 1978—publicly criticized the Liberal leader’s ambitious plans for expanding Quebec’s hydro generating capacity.

Still, Coulombe’s resignation—which Hébert denies has been tendered—may ultimately have been triggered by a power struggle with John Ciaccia, Quebec’s energy minister, sources close to Hydro told Maclean's last week. Cou-

lombe apparently complained that Ciaccia was interfering in Hydro’s internal affairs by trying to rid the utility’s executive suites of Parti Québécois (PQ) appointments. Coulombe would not comment on the controversy last week. But Ciaccia told Maclean's, “This government has less of a hands-on approach to Hydro than did the previous [Parti Québécois] government.”

Since it was formed in 1944, HydroQuébec has been the motor of the Quebec economy. With 18,200 employees, last year its revenues totalled $4.5 billion. By offering attractively low energy rates, Hydro has helped the province convince such electricity-intensive industries as aluminum producers to build plants in Quebec.

Because ot the utility’s size and influence, Hydro’s presidents have enjoyed a privileged but uneasy relation-

ship with their political masters. In 1981, president Robert Boyd resigned when the PQ introduced changes to make the utility more accountable to the government, including installation of a government-appointed board of directors and insisting that Hydro pay dividends to the government.

For his part, before taking the Hydro presidency in 1981 Coulombe extracted a promise from then-premier René Lévesque to run the utility free from political interference. Coulombe used that mandate to launch a severe costcutting program. Hydro-Québec built enormous dams in the 1960s and 1970s—including the $15-billion James Bay I project—and currently carries a debt of $21 billion, 40 per cent of the province’s total debt. Besides, Hydro has become particularly vulnerable to every drop in the value of the Canadian dollar because $9.9 billion of that amount was borrowed in the United States.

To reduce the utility’s huge z debt, Coulombe slashed operat§ ing expenses, laying off more I than a third of Hydro’s manx agement staff and postponing 5. $50 billion worth of capital $ expenditures. But Coulombe’s 9 cost-conscious approach collidBourassa: plans for another project in northern Quebec ed with Bourassa’s vision of expanding hydro capacity to serve

the American energy market. Bourassa planned his stunning political comeback and successful 1985 election partly on a pledge to develop more of Quebec’s hydroelectric potential to compete with coal and nuclear power for American energy dollars.

By week’s end, Bourassa had not yet publicly accepted Coulombe’s resignation. But one possible successor was already being discussed by Hydro insiders: Raymond Garneau, the federal Liberal party finance critic and a former Quebec finance minister under Bourassa. Still, Hydro is facing the possibility of a bigger shakeup: the three-year contracts of six of the utility’s executives expire on Dec. 31, and the Liberals are widely expected to replace them with their own appointees. Said one industry observer, who asked not to be named: “Hydro has a strong, protective bureaucracy, and right now

people are scrambling to protect themselves.”

The internal troubles at Hydro come at a time when sales prospects in the United States are beginning to look brighter. Cutbacks in U.S. nuclear plant construction since the Three Mile Island accident in 1979, coupled with strong economic growth in New England since 1982, may force the region’s utilities to turn to Hydro-Québec for a greater share of their energy needs. Said George Mollineaux, an aide to New Hampshire Governor John Sununu: “People don’t realize how close we are to an energy shortfall. Unless we take action soon, we will be reduced to burning candles.”

The opening of the New Hampshire transmission line this month brings Bourassa a step closer to the start of the James Bay II project. The premier, who was instrumental in planning James Bay I, has stated that he intends to sign new long-term export sales contracts totalling 10,000 megawatts during his current mandate. He told Maclean’s, “According to the present situation we could expect to sign contracts of around 4,000 megawatts in the next two years—and that

will enable us to start construction.”

Bourassa has also moved to allay American fears of increased dependency on foreign energy supplies. The advisory committee that Bourassa established last February is chaired by former U.S. energy minister James Schlesinger. It also includes such wellknown Washington figures as former national security adviser William Clark and former treasury secretary William Simon. The group, which met officially for the first time in June, is expected to argue Hydro’s case to the Reagan administration.

The premier also suggested on June 13, at a conference of New England governors and eastern Canadian premiers, that Hydro-Québec be allowed to form subsidiaries to construct the new James Bay II power plants. American utility companies, he said, may be permitted to purchase up to a onethird stake.

Still, there are obstacles to Bourassa’s ambitious plans. Earlier this month, the premier and Hydro found their export scheme under attack from a surprising source. Peter Murphy, who heads the U.S. free trade negotiating team, said that he would exam-

ine Canadian electricity imports to determine if they were unfairly competing with U.S. power producers. For their part, New York State consumers paid 270 per cent more for their domestically generated electricity in 1985 than Quebecers did for theirs.

But Quebec’s Ciaccia denied that Quebec power was subsidized. The province is “not dumping electricity,” he declared. “Hydro is selling its power at fair price.” Last week Hydro leaked a June 5, 1986, internal memo from John Herrington, Washington’s energy secretary, which stated, “Any efforts to impede these imports [of Canadian electricity] would unduly punish U.S. energy consumers [and] would be counter to the free market principle.”

Still, to operate effectively Hydro must resolve its distracting internal conflicts. Last week the controversy over Coulombe’s resignation continued. Said Hydro chairman Hébert: “We do have our problems, but I would not be surprised to see Coulombe stay.” Only when the dispute in the executive suite is settled can Hydro-Québec succeed at its most pressing task: selling more power to the energy-hungry United States.

-BRUCE WALLACE in Montreal