ENERGY ISSUES IN QUEBEC SEEN FROM JAMES BAY

C O N F I D E N T I A L SECTION 01 OF 02 QUEBEC 000225

SIPDIS

STATE FOR WHA/CAN AND EB/ESC/IEC
DOE FOR INTL AFFAIRS: PUMPHREY, DEVITO, DEUTSCH

E.O. 12958: DECL: 12/20/2014
TAGS: ENRG PGOV TRGY CA
SUBJECT: ENERGY ISSUES IN QUEBEC SEEN FROM JAMES BAY

REF: MONTREAL 1435


CLASSIFIED BY: Abigail Friedman, CG, QUEBEC CITY, STATE.
REASON: 1.4 (b),(d)




1. (C) Summary: Hydro-Quebec (HQ) President for Production
Thierry Vandal outlined his company's ambitious growth plans for
hydroelectric power during a tour of James Bay Radisson
generating plant. He stressed HQ's growing energy capacity and
need for diversification while emphasizing that the company
consults with both aboriginal and environmental groups early on
in the design phase so as to avoid controversial delays which
have plagued previous project proposals. With an eye fixed on
the market and improved revenues for HQ, Vandal indicated their
plans include boosting exports of this cheap, secure, and clean
energy source to New England. To do so, the Government of
Quebec will need to win over a Quebec public increasingly
sensitive to the environmental and social impact of energy
development. A senior Quebec Ministry of Energy official told
CG the next day that January parliamentary hearings on Quebec's
future energy development are the first step in getting there.
End Summary.


2. (U) DCM, CG Quebec City, ESTOFF and Pol/Econ Asst flew north
with Thierry Vandal on December 15 to visit James Bay. The La
Grande Riviere hydroelectric project is located at Radisson in
the James Bay Territory, which extends over some 350,000 square
km between the 49th and 55th parallels and represents one fifth
of the province of Quebec. This is mainly Cree territory and
taiga, where the forest is sparse, composed mainly of
century-old black spruce, jack pine and larch. The boreal trees
are too small in diameter for commercial lumbering. The complex
is 1,000 km north of Montreal, a 16-hour drive away, but still
only halfway to Quebec's northernmost point.


3. (C) Total La Grande annual production is about 62.2 TWh (one
billion kilowatt hours),or a bit less than half that in all
Quebec. At the Robert-Bourassa substation (one of eight
installations along the La Grande river),the generating units
provide the HQ power system with a total installed capacity of
over 5,000 MW, about one-third of the La Grande complex's
capacity and equivalent to the peak winter demand of around
250,000 homes. A dedicated 450 Kv (kilovolt) direct current
line runs from the substation to Sandy Point, Massachusetts,
with a capacity to supply 3,600 MW to the New England market.
Vandal was confident that the HQ system can respond quickly and
efficiently to both natural disasters and deliberate sabotage.


4. (C) Vandal said HQ could deliver more electricity to the
U.S., but two things are holding it back: (1) the need for the
ten U.S. utilities in the northeast that might benefit from
Quebec's hydro-energy to upgrade their transmission lines and
(2) the need to send some of Radisson's electricity to Quebec
consumers. With respect to the latter, Vandal said HQ is
looking for ways to increase production from other Quebec
sources to free up electricity on the Radisson grid for delivery
to the U.S. HQ's interest in the export market is
understandable: HQ makes more money selling to the U.S. than to
Quebecers. New York consumers pay 15 cents/KWh for electricity
whereas Quebec prices are presently fixed at 2.79 cents/KWh (the
result of the government-owned HQ's commitment to reconciling
profitability with the public interest). Quebecers' electricity
bills remain among the lowest in North America.


5. (C) Increased HQ production, according to Vandal, would come
from a number of sources including: a project at Toulnustouc,
on Quebec's North Shore, scheduled to come on line next year;
the commissioning of the SM3 (Ste Marguerite 3) dam located 90
km north of Sept-Iles on the North Shore (originally scheduled
for the spring of 2001 but put off several times due to problems
of water seepage and turbine damage); a 1,000 MW wind power
project in the Gaspi (a total of 660 wind mills representing
$1.9 billion in investments, with an individual capacity of 1.5
MW, in 8 different wind parks); and the possible refurbishing of
the core of Quebec's only operating nuclear power plant,
Gentilly 2.


6. (C) Vandal argued in favor of both raising prices in Quebec
and increasing production. Low prices are encouraging
over-consumption of electricity, he said. In an earlier Dec. 7
meeting, Vandal told CG that a consensus seemed to have been
reached that the province would no longer be cutting cheap
energy deals -that do not make economic sense - to industry
(especially aluminum companies) in order to preserve jobs.
Vandal expected provincial rates to go up 2.5% per annum until
2007, after which a debate over pricing would have to take
place. (Comment: Vandal is a protigi of Hydro-Quebec CEO Andre
Cailli, who made a splash recently by calling for an increase of
basic electricity rates to 7 cents/KWh. Premier Charest swiftly
rejected Cailli's position but the Quebec energy regulatory
board (Regie de l'energie) is considering HQ's third request for
a hike since Charest was elected. End Comment.)

7. (C) Vandal made a strong pitch in defense of HQ's
environmental policies. He noted HQ efforts at La Grande to
deal with environmental concerns and the lengths to which HQ
goes to respect the native Cree and Inuit habitat and way of
life. He negatively cited the Chinese government's massive
displacement of population around the Three Gorges Dam Project,
saying that "only in China" could this be done. HQ boasted that
approximately 1 million caribou roam the James Bay area today,
up from only several thousand in the 1950s. (Comment: Vandal
did not mention the many environmental issues which have
received wide publicity over the years and resonate with the
Quebec public, including mercury poisoning of local populations
and the drowning of 10,000 caribou in 1984 while trying to cross
a swollen river during their migratory trek. The gruesome
front-page coverage of bloated carcasses atop one another along
the river bank is still deeply engrained in the collective
memory of Quebecers. End comment.)


8. (C) Vandal said HQ learned from the Great Whale fiasco
(reftel) to engage native communities and NGO's at the front
end. The Eastmain-1 (EM1) project, an extension of the James
Bay project likely to be completed in 2007, is the result of an
agreement reached between the Grand Council of the Crees and HQ
back in 2002. HQ has also told the Inuit in North Quebec who
want to go forward with the Great Whale project that this simply
will not happen since the Cree are not on board.

Comment
--------------


9. (C) Vandal painted an ambitious energy future for Quebec. He
was confident that the Quebec government would be able to win
public support for increased production, increased exports to
the U.S. and at least a slight increase in the price charged to
Quebec consumers. Vandal's biggest concern, which he raised
with us indirectly but unmistakably, is the possibility of
environmental issues setting back HQ's agenda. When CG asked
Vandal what was the hardest part of his job, he answered,
"Getting Ottawa bureaucrats to sign off on our environmental
impact statements." What Vandal wants from the U.S. also
touches on environmental issues: He regretted that Renewable
Portfolio Standards (RPS) applied in many U.S. states exclude
large-scale hydroelectric plants.


10. (C) Following the trip to James Bay, CG met separately with
Assistant Deputy Minister for Energy Mario Bouchard. Bouchard
provided CG with an additional perspective on how the GOQ hopes
to get the Quebec public on board the myriad decisions that will
have to be made regarding Quebec's future energy direction. The
first step will be month-long parliamentary hearings on charting
an energy course for Quebec for the next ten years. The
hearings begin January 28 and will involve interventions from
over 300 interested parties. After this, the GoQ will draft and
submit for public comment a document on Quebec's energy
orientation. Bouchard hopes the policy document will be
released in final by June. We believe that, for the public to
buy on to HQ's ambitious program, the government will have to
convince Quebecers that increased production and energy export
will not come at too high an environmental and social cost to
Quebec - a tall, but not impossible, order.



FRIEDMAN