US embassy cable - 04QUEBEC225

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, Energy 
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