New Brunswick Premier Shawn Graham explains why his government wants to sell a majority of NB Power's assets to Hydro-Québec. (CBC)Quebec and New Brunswick have reached a proposed deal that would see Hydro-Québec buy the majority of NB Power's assets for $4.8 billion.

New Brunswick Premier Shawn Graham and Quebec Premier Jean Charest announced the historic deal in Fredericton on Thursday, concluding a week of speculation.

The deal is contingent on legislative approval in New Brunswick.

It stipulates that Hydro-Québec would take over the majority of New Brunswick's generating stations for $4.8 billion, which represents the equivalent of NB Power's debt.

Additionally, Hydro-Québec would freeze residential power rates in New Brunswick for five years. During the same time, large industrial rates would be lowered to the power prices offered to the same customers in Quebec, but they would not be frozen. That component of the deal is worth an estimated $5 billion to NB Power customers.

'Big winners'

Quebec Premier Jean Charest says his province's interest in purchasing NB Power is to gain better access to the lucrative U.S. electricity market. (CBC)"Taxpayers and ratepayers are the big winners today," Graham said in a prepared statement. "NB Power's $4.8-billion debt will no longer be a risk for our future generations.

"And ratepayers would see reduced rates to an extent that would have been impossible for NB Power as a stand-alone entity."

Charest said at the news conference that the region's geography made the deal make sense considering the desire to tap into the power-starved U.S. market.

Both premiers used the news conference to address the criticism of Newfoundland and Labrador Premier Danny Williams, who said the deal could hinder his province's ability to transmit its hydro power into the United States.

Charest said he supports open markets and Quebec is eager to work with other provinces.

"The real question for Canadians is this, it isn't whether or not one [province] is succeeding better than the other," he said. "The real issue, if we have our eyes on the ball, is to the south of us, that is where things are going to happen.

"The Americans need clean, renewable energy and they need a lot of it. And guess what? We in Canada are the ones that can supply it. And by doing that, we can make our environment better and we can enrich our respective societies by doing so. There is a condition though: We have to learn to work together."

Now that the proposed deal with New Brunswick has been struck, Charest said his province is negotiating with Prince Edward Island to sign a similar agreement.

Charest said there is no timeline on obtaining a deal with P.E.I.

No impact on Quebec power rates

After the five-year rate freeze is lifted, rates would rise based on New Brunswick's consumer price index. However, the price of any new generation needed in the province could be added by Hydro-Québec.

Under the agreement, Hydro-Québec gains access to more than 370,000 customers and expects a return on equity of more than 10 per cent starting in the first year. The proposed deal will not have any impact on Quebec's power rates.

The proposed deal will wipe out NB Power's $4.8-billion debt, which is 40 per cent of the province's total debt. That debt will stand at $8.2 billion after the deal is approved.

New Brunswick will have to make legislative changes early in the new year as the agreement is designed to take effect on March 31, 2010.

Graham said if the deal is not concluded by March 31, 2010, then NB Power will boost electricity rates by three per cent as originally planned.

Opposition Leader David Alward is demanding Graham call an election over the proposed NB Power sale.

3 stations retained by NB Power

Hydro-Québec will not buy Coleson Cove or two other thermal generating stations as part of the tentative deal with New Brunswick. The three plants will continue to be owned by NB Power, which will sell the electricity back to the Quebec utility. (CBC)Hydro-Québec will not take possession of three thermal generation stations: Coleson Cove, Dalhousie and Belledune.

The Dalhousie Generating Station will be shut down next year under the agreement, a decision that will be another blow to the northern town that has been reeling after a series of other closures in recent years.

"It's also very important for me to speak to the community of Dalhousie, which will see its generating station phased out," Graham said.

"We will stand by your community and we are already hard at work to find a variety of new opportunities for you."

David Hay, the president and chief executive officer of NB Power, is expected to be in Dalhousie later on Thursday to discuss the impact of the deal with workers in the northern community.

New Brunswick will retain control of Coleson Cove and Belledune, and will sell the power back to Hydro-Québec.

Under the proposed agreement, the Point Lepreau nuclear generating station, Atlantic Canada's only nuclear reactor, will remain under NB Power's control until its $1.4-billion refurbishment project is concluded in February 2011.

The reactor refurbishment project is 16 months behind schedule. However, if the energy pact is approved, it could lessen the financial burden.

Instead of purchasing replacement power on the open market, Hydro-Québec will supply cheaper hydro power to the province.

Also under the proposed agreement, New Brunswick's Independent System Operation will be rolled into Hydro-Québec. That will give control over the transmission lines in New Brunswick to Hydro-Québec.

However, any utility or company that wants to use the transmission lines must bid for it in an open auction.