CANADA

COWBOY CAPITALIST

An American energy czar confounds Quebec authorities

BARRY CAME May 2 1994
CANADA

COWBOY CAPITALIST

An American energy czar confounds Quebec authorities

BARRY CAME May 2 1994

COWBOY CAPITALIST

CANADA

BARRY CAME

An American energy czar confounds Quebec authorities

On a clear day, David Freeman can look deep into neighboring New Jersey from the windows of his 22nd-floor office in midtown Manhattan. Trouble is, on most days the air hanging over New York City is so rank with pollutants that the newly installed president of the New York Power Authority (NYPA) sometimes finds it difficult to catch a glimpse of the Hudson River right below. “It’s a mess,” the utility’s 68-year-old chief executive drawls in an accent as rolling as the hills of his native Tennessee. “We’ve just about cleaned out nature’s store down here in the United States, and it’s precisely because we’ve done such a bad job with our own environment that we think we’re in a position to warn you folks up in Canada about some of the mistakes we’ve made.” Pausing to lift a pair of tooled leather cowboy boots onto a coffee table, he adds: “I’m perplexed why that should ruffle anybody’s feathers.”

Perplexed or not, Freeman has been ruffling Canadian—especially Quebec—feathers almost from the moment he took on the job on March 1 as head of the public company that supplies a quarter of the electricity used in New York state. On his first day in office, he upset Quebec authorities by opposing a 20-year, $5-billion contract with Hydro Quebec, citing lack of demand for power in New York, high prices and “unresolved” environmental concerns in Canada. Soon after, he traded barbed remarks in public with the head of Quebec’s permanent trade delegation in New York, prompting a letter of protest from the Canadian Consulate. Undeterred, Freeman has kept up the pressure, presiding over the subsequent cancellation of the lucrative deal with Hydro Quebec. He has even gone so far as to call into question the Quebec utility’s long-standing and often extremely cozy relationship with the New York Power Authority, a relationship that has served to reinforce Hydro Quebec’s historic role as the engine of Quebec development and the muscular symbol of nationalist aspirations.

The performance has won Freeman few friends

among those who tend Quebec’s interests in the United States. “What’s he trying to do?” grumbles the province’s New York delegate-general, Reed Scowen, before promptly answering his own question with an exasperated: “Nobody knows.” But while Freeman may have irked Quebec officials, his actions have buoyed the hopes of native groups in Quebec and environmentalists on both sides of the border who have been battling Hydro Quebec’s ambitious plans to further harness the power potential of the province’s northern rivers, as it has already done with the multibillion-dollar La Grande River projects near James Bay. More significantly, Freeman has added a radical new voice to the simmering debate about the future of the entire energy industry in the northeastern part of North America—including both New York and Quebec as well as New England and Ontario.

Conservation is Freeman’s guiding principle, honed during a long, often controversial career as an energy adviser to former president Richard Nixon, research chief of the Ford Foundation and hands-on head of a string of some of the largest public power agencies in the United States. He was one of the first energy experts to warn, more than 20 years ago when demand for power seemed insatiable, that electricity consumption was bound to level off eventually. During a seven-year stint as chairman of the Tennessee Valley Authority, he shut down eight nuclear reactors, focusing instead on smaller-scale, more environmentally friendly projects.

An unassuming man, Freeman clearly delights in cultivating a folksy, down-home manner. His habitual headgear is a large, milk-white Stetson, which nicely complements the cowboy boots and southern drawl. But the image is deceptive, as Quebec’s energy lobby has so recently discovered to its dismay. ‘This guy has really caught the people at Hydro Quebec off guard,” says New York investment banker Robert Blohm, an outspoken critic of the provincially owned corporation. “He’s changed the whole nature of the debate. By moving so quickly to open up channels of communication with the natives and the environmentalists, he’s created the impression that Hydro Quebec’s biggest foreign customer—NYPA—has suddenly switched sides.”

That may not be entirely true. Certainly, Freeman himself rejects the notion. “I’m not trying to pick a fight with anybody,” he asserts, claiming that he cancelled the deal with Hydro Quebec for “strictly business reasons.” Negotiated in 1989, it would have provided for the transmission through NYPA’s grid of up to 780 megawatts of electricity every summer between 1999 and 2018 from Hydro Quebec’s facilities to those of New York City’s Consolidated Edison. It would also have required New York to buy three billion kilowatt hours of power a year from Quebec. “Conditions have changed dramatically since that deal was cut,” says Freeman. “There’s been a sharp decline in demand. The net result is that we’re awash in power right now and we’re likely to remain that way for the foreseeable future. We simply don’t need any more of the stuff.”

At the same time, however, other factors are also in play in the ongoing relationship between the NYPA and Hydro Quebec. One nagging concern, which is rarely voiced in public, is the province’s uncertain political future—although independent analysts say that for the

moment it is not a decisive factor. Freeman’s foremost concerns centre on the environment and the welfare of native peoples who might be directly affected by future power projects in northern Quebec. “Sure we’re sensitive about these issues,” Freeman admits. “As customers responsible for our purchases, we have a legitimate right to be.” In Freeman’s view, electricity consumers in New York should not be asked to help encourage the construction of new power dams in northern Quebec, particularly when the environmental impact of those dams is still under review. And by entering into long-term contracts with Hydro Quebec at the moment, that is precisely what might happen.

On the native issue, Freeman is even more blunt. “I’ve seen what happened in the Tennessee Valley, where we built one dam too many,” he says. “We flooded the ancestral lands of the Cherokees, perhaps needlessly. We’ve really done such a poor job, a disgraceful job really, with our own native peoples that most of us probably feel a little guilty about the plight of natives in other countries. I think Canadians should be reminded that it’s not only little countries that are touchy about certain things. Big nations have wounds, too.”

But no matter what the underlying reasons, the cancellation of Hydro Quebec’s contract comes at a particularly difficult time for the corporation, ironically at the moment when the once-mighty utility is celebrating its 50th anniversary. For it is merely the most recent in a number of setbacks. Two years ago, long before Freeman’s emergence on the scene, the NYPA cancelled another, even larger, contract with Hydro Quebec, worth $13 billion. In an effort to bypass Freeman and the NYPA, Hydro Quebec has attempted to enter into a direct relationship with Consolidated Edison. But that, too, has run afoul of both the environmental lobby and economic reality. Earlier this month, Con Ed decided to put off any guaranteed purchase deals with Hydro Quebec for another 18 months. At the same time, the U.S. Securities and Exchange Commission ruled that Con Ed’s shareholders will have to decide, at the company’s annual meeting on May 16, whether the utility should be asked to spell out details of the cost and environmental impact of its involvement with Hydro Quebec projects.

There are irritants on other fronts in the United States. Under pressure from environmentalists, both Dartmouth College in Hanover, N.H., and Tufts University in Medford, Mass., have divested their bond holdings in Hydro Quebec, which were worth a combined $8 million. In Massachusetts, support is growing to introduce a bill in the legislature that would apply state environmental laws to any power projects involved in supplying the state with electricity.

Officials of both the Quebec government and Hydro Quebec dismiss the importance of all these measures. “In 1993, Quebec electricity exports to the United States amounted to about $385 million, about one per cent of our total U.S. exports,” Scowen, the province’s delegategeneral, points out. ‘To put it mildly, selling power to the U.S. is not a matter of life or death for us, either for the Quebec economy or for the health of our public utility.”

Hydro Quebec officials maintain that the current string

of reverses is temporary, largely the result of a depressed economic climate that has lowered demand for power. “Sooner or later, the people at the New York Power Authority are going to have to come back to us when they run out of sources of electricity,” says Jacques Guevremont, Hydro Quebec’s permanent representative in New York and the man who negotiated the contracts that have been annulled. “And when they do, they’ll wish they had terms as generous as those contained in the deals they have pulled out of.”

Others are not so sure. Matthew Coon-Come, Grand Chief of the Grand Council of the Cree of Quebec, sees the beginning of the end of all of Hydro Quebec’s megaprojects in northern Quebec. In New York last week to accept the $80,000 Goldman Environmental Prize for his role in fighting Hydro Quebec’s dam-building program, the 38-year-old native leader said events may finally have reached what he described as “the turning point.” Clad in his trademark moose-skin jacket amid a crowd of chic, environmentally conscious New Yorkers at a garden party in Central Park, he told Macleans: “It’s taken an awful long time and an awful lot of effort, but maybe Hydro Quebec will no longer be able to find the money to go ahead.” Investment banker Robert Blohm agrees. “Without those U.S. sales,” he said, “I don’t see how Hydro Quebec is going to earn enough to service its massive U.S.dollar debt [now about $14 billion], let alone find the investors willing to pump even more funds into all those grand building schemes.” Freeman, too, takes the view that the era of massive hydroelectric megaprojects has passed. If the assessment is correct, it signals an end to the role Hydro Quebec has played for the past 30 years, in which the utility has served as the driving force of the Quebec economy and the provincial government’s key means of promoting industrial development. In the future, Hydro may have to abandon its lofty ambition of growing into North America’s chief supplier of limitless energy, settling instead on exploiting the facilities that now exist. But even that is no cause for lament, according to Freeman. “Frankly, I see a bright future for Hydro Quebec, he says. “What we have to do here in the United States and up there in Canada is join forces. There are three giant utilities in this region—Hydro Quebec, Ontario Hydro and the New York Power Authority. We should all be working in concert to develop alternative sources of energy. There’s plenty of it around in the wind and the sun and the forests. It’s cheap, it’s clean, it’s renewable and it’s a whole lot kinder on the environment that we have abused so badly. Fet’s get togetherbefore it’s too late.” Even Freeman’s critics are unlikely to disagree with that sentiment. BARRY CAME in New York