Analysis Decries 1980s Dealmaking By Quebec's Hydro-Electric Utility

A new estimate by a native group critical of Hydro-Quebec says utility users will pay billions to subsidize metal producers

SLOWLY but surely, Hydro-Quebec's costly secrets are leaking out.

The giant Quebec-owned electric utility has come under heavy fire for 13 still-secret, cut-rate power contracts it signed in the 1980s to lure foreign aluminum and magnesium producers to the province. Yesterday, a financial analysis by a native group critical of the utility added to the criticism, saying the contracts will lose billions of dollars.

In the 1980s, the utility offered long-term deals on electricity to metal producers. In return for the cheap power from Hydro-Quebec's vast network of dams, the companies built new smelters and created thousands of jobs - about 8,430 so far, Hydro-Quebec reports.

But at what cost?

Until about two years ago only top company executives knew, and they still are not saying. Some details, however, have slipped out suggesting the contracts are huge money losers for state-owned Hydro-Quebec. Opposition politicians in Quebec last fall reported a $5 billion (Canadian; US$3.8 billion) loss on the contracts. Other company documents allude to a $3.3 billion revenue shortfall from the contracts.

According to a two-year study by financial analysts hired by the Grand Council of the Crees of Quebec, electricity users will end up paying higher rates to cover the losses caused by the 13 contracts. The analysis says the cost to taxpayers will be at least $6.2 billion, and will likely reach $10.2 billion by 2016, when the contracts end.

Robert McCullough, a former power company executive with Bonneville Power in Washington state and author of the report, says the higher number amounts to a subsidy of approximately $1.2 million for each of the 8,400 jobs created.

``For the amount of money they [Hydro-Quebec] paid in subsidies, they could have purchased the largest aluminum manufacturer in the world and moved the whole thing to Quebec,'' Mr. McCullough said by phone from his home in Portland, Ore.

The report should stir some healthy debate over whether new hydro-electric facilities in northern Quebec are really needed - or affordable, says Bill Namagoose, executive director of the Grand Council of the Crees. The Crees are fighting Hydro-Quebec's planned $13 billion dam project on the Great Whale River, which would flood much of their traditional lands.

``Quebeckers have never seen the economic analysis of these secret contracts,'' the native leader says. ``These contracts subsidize multinationals locating in Quebec at a high cost to the environment and to Quebeckers.''

Hydro-Quebec spokesmen had not seen copies of the report when contacted by the Monitor, but responded to its central charges.

``We do not share the very highly pessimistic view some parties have about these contracts, while acknowledging that they [the contracts] could have been much more profitable,'' says Guy Versailles, a company official. He acknowledges a $300 million loss on the contracts last year.

Public energy advocates, however, say Quebec ratepayers will be shocked when rates are eventually raised to cover the contracts' large costs. ``Unfortunately, there's not the opposition or outcry I think there ought to be,'' says Philippe Dunsky, energy coordinator for Environment Jeunesse, a leading Quebec energy and environment advocacy group.

Unlike the rest of Canada and the United States, he says, rate setting in Quebec is done between Hydro-Quebec and a government committee, without the involvement of any citizens' board. That must change, he says.

Though the level of public resistance is gaining, he adds, the professionalism of citizens' groups in Quebec falls far short of what is needed to overcome lobbying by large companies. ``It's a complex issue and people don't make the correlations,'' Mr. Dunsky says. ``This province is looking at cutting education and health care, and the $300 million a year lost on those contracts represents an awful lot of tuition and health care far into the future.... Once these connections are made, people will understand.''

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