Viewing cable 04MONTREAL1435, HYDRO QUEBEC CHANGES COURSE, AFTER SUROIT

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UNCLAS SECTION 01 OF 03 MONTREAL 001435 
 
SIPDIS 
 
SECSTATE FOR WHA/CAN, EB/ESC/ISC, OES/EGC 
USDOC FOR ITA/MAC - OFFICE OF NAFTA 
DOE FOR INT'L AND POLICY AND IE-141 - DEUTSCH 
DEPT PASS INTERIOR FOR INT'L AFFAIRS 
DEPT PASS FERC FOR KELLY, LONGENECKER AND LEKANG 
 
E.O. 12958: N/A 
TAGS: ENRG TRGY ETRD CA
SUBJECT: HYDRO QUEBEC CHANGES COURSE, AFTER SUROIT 
SETBACK 
 
REFERENCE: MONTREAL 451; CALGARY 547 
 
¶1. SUMMARY: Environmental NGOs and community 
activists have drawn sufficient negative attention to 
Hydro Quebec's proposal to build the Suroit natural gas 
plant near Montreal that the utility appears to have 
shelved the project. The provincial legislative 
commission that had been tasked to consider the Suroit 
plant in view of Quebec's future energy needs will hold 
hearings in the next several months. However, Hydro 
Quebec has already changed course, selling off its gas 
assets, promoting energy consumption savings, investing 
in wind power projects, revising its forecasts of 
Quebec's energy supply, and above all, counting on 
other big hydro projects, expected to come on line in 
the next decade. Quebec Premier Jean Charest, on recent 
trips to northern Quebec and Boston, has been 
supportive of HQ's approach. END SUMMARY. 
 
PUBLIC TRUST IN HYDRO QUEBEC FALTERS 
 
¶2. For decades, Hydro Quebec (HQ) was a shining symbol 
of Quebec pride in the province's economic advancement 
through engineering and business expertise and 
political vision. But the utility's public image began 
declining in the late 1980s following the failure of 
the Great Whale project, a proposed dam project in 
northern Quebec that would have flooded an area almost 
the size of New Jersey on Cree land. Other factors 
which combined to shake public trust in Hydro Quebec, 
whose sole shareholder is the Quebec government, 
included negative reaction to cheap energy deals given 
to aluminum companies, a series of black outs 
culminating in the 1998 ice storm, and growing 
environmental awareness and activism. 
 
¶3. HQ said last Spring that its plan to build Le 
Suroit, an 850 MW gas power plant, was necessary in 
order to help bridge a projected provincial energy 
shortage which would be most acute during the 2005-2007 
period but which could resurface any time water levels 
diminish. But in the wake of a bruising campaign 
against the plant by Greenpeace and other environmental 
and community activists and a fence-sitting report from 
Quebec's independent energy regulatory commission, the 
Regie de l'energie, which deemed the Suroit "not 
indispensable," HQ appears to have shelved the project, 
despite the Regie's conclusion that the decision to go 
forward should be the provincial government's. While 
preparing for the provincial legislative commission 
hearings that have been tasked to evaluate the project 
in light of Quebec's future energy needs, HQ has 
discreetly embarked on a campaign to regain its public 
standing, and continues to shore up other energy 
capacity building projects. 
 
MOVING TO "CLEANER" ENERGIES 
 
¶4. Coinciding with the release of the Regie report, HQ 
announced last June that it was selling for $C900 
million its 50.4 percent stake in Noverco (an oil and 
gas holding company) to a consortium headed by Quebec's 
pension fund manager, the Caisse de depot et placement. 
HQ said that the sale would reduce its involvement in 
energies considered less "clean" than hydro, but it 
also enabled the utility to increase income in a year 
when export sales were down. 
 
¶5. As part of its overall move to "cleaner" energy, in 
early October, HQ announced it would be buying 990 MW 
in wind-generated electricity (Calgary reftel). The 
projects, which will generate $1.9 billion in 
investments, will make HQ Canada's largest wind power 
purchaser and provide much needed employment in the 
Gaspe peninsula and Magdelen Islands, Quebec's poorest 
region. HQ confirmed to post that the decision to 
locate all the wind farms in Gaspe was political. The 
Gaspe's economy has been almost completely resource- 
based but fish catches, forests and mines have all been 
depleted. 
 
BACKING ENERGY EFFICIENCIES 
 
¶6. Also in October, HQ announced an energy efficiency 
plan, which still has to be approved by the Regie, 
containing $1 billion in energy efficiency investments. 
HQ estimates that the new plan, to be announced in 
detail in mid-November, will save 3 TWh of energy by 
¶2010. President Andre Caille said HQ intends to 
continuing asking for rate increases of two to three 
percent a year, raising over time the price that 
Quebecers pay for their energy. The energy efficiency 
plan will include rebates for home renovations and 
purchase of certain energy-saving appliances. 
 
REVISION OF PROJECTED ENERGY NEEDS 
 
¶7. The wind power contracts and the plan to achieve 
increased energy efficiencies enabled HQ to adjust its 
August 2003 Electricity Supply projections. On 
November 1, HQ announced the adjustment, acknowledging 
that industrial demand for energy has also declined. 
HQ was able to recuperate up to 175 MW over the next 25 
years, thanks to Premier Charest's decision to renege 
on the promise made by his predecessor to help Alcoa 
expand its Baie-Comeau plant. One other factor 
contributing to the utility's adjustment of supply 
projections was the record rainfall in northern Quebec 
during the summer that replenished water levels in HQ 
reservoirs to unprecedented levels. HQ evaluated its 
new capacity gains at 0.7 TWh for wind power, 1.5 TWH 
for energy savings and 2.9 TWh for reduced industrial 
demands. 
 
CLEARING THE ROAD FOR MORE HYDRO PROJECTS 
 
¶8. Hydro General Manager for Communications and 
Environment Pierre-Luc Desgagnes told post that HQ is 
hoping its recent decisions will clear the road for the 
next series of big hydro projects, such as the 1500 MW 
La Romaine Complex on Quebec's Lower North Shore 
region, construction for which could start in 2008 if 
government authorizations are granted according to 
plan. HQ is hoping those authorizations will be 
facilitated by the upcoming parliamentary commission. 
 
¶9. NGOs are already gearing up for battle, however, 
maintaining that the consensus established by the last 
parliamentary commission in 1995-96 should be 
maintained. That commission, held in the wake of the 
Great Whale project fiasco, was in large part 
responsible for a decade during which HQ's dam builders 
(so-called castors in French or beavers) were kept 
idle. On October 26, the Coalition Quebec-Vert-Kyoto 
(CQVK) an umbrella group of 60 NGOs, held a press 
conference during which it asked the Charest government 
to impose a moratorium on all thermal power plants 
(including co-generation), oil and gas exploration or 
pipeline building, and the building of an LNG port 
anywhere along the Gulf of St-Lawrence. 
 
PREMIER CHAREST'S ENERGY VISION 
 
¶10. On October 29, Premier Charest flew for the first 
time to northern Quebec, where he participated in an HQ- 
organized commemoration of the 25th anniversary of the 
La Grande 2 dam complex, in its day the largest 
hydropower development in the world. Charest praised 
the foresight of his Liberal parti predecessor Robert 
Bourassa, after whom the complex is named, for 
supporting and promoting the development of hydropower 
in Quebec. A week later in Boston, Charest was again 
quoting Bourassa and affirming his own will to make 
northern Quebec the spearhead of Quebec electricity 
exports to the U.S. According to press accounts, 
before a group of 300 energy specialists at the U.S.- 
Canada Energy Trade and Technology Conference, Charest 
said that "in the short term, Quebec faces restrained 
supplies until 2007," but that in 2008-2009, when a 
series of dam projects are expected to start coming on 
line, Quebec will be in a much better position to 
export. Charest also met with Massachusetts Governor 
Mitt Romney, with whom he reportedly discussed both 
border and energy security issues. 
 
¶11. Charest told the energy conference that 
diversification is becoming essential but "that 
hydroelectricity will always be our first choice." 
According to La Presse, Charest also affirmed that his 
government's priority is the Quebec market and keeping 
electricity prices, which he said are "300 percent less 
in Quebec than in the State of New York," as low as 
possible. 
 
¶12. Comment: Opinions differ at the upper echelons of 
HQ on whether or not the Quebec public is ready to 
accept new large-scale hydro projects. Recent rate 
hikes may temper public receptiveness to environmental 
activism against non-wind, non-solar capacity building 
projects. But the final decision on whether to build 
more hydro projects will rest with the provincial 
government. Charest has been supportive of big hydro 
development in his remarks to audiences in Boston and 
in northern Quebec but he will need to support HQ's 
agenda closer to home if the utility is going to put 
its beavers back to work. End Comment. 
 
ALLEN