MILLINOCKET – Looking to increase generating capacity and enhance its ability to sell power in the North American energy markets, Brascan Corp. will spend $156.5 million to purchase Great Northern Paper Co.’s hydroelectric system, located on the West Branch of the Penobscot River.
Officials estimate the Toronto-based company could spend an additional $100 million in the next 20 years to improve and upgrade its newly acquired hydroelectric facilities in Maine. Brascan is purchasing six hydroelectric power stations and 11 dams, which have a generating capacity of 130 megawatts.
The sale, which was announced Thursday and is expected to be final in January, completes Great Northern Paper’s financing for its $150 million paper mill modernization project.
Brascan owns both Great Lakes Power and Trilon Financial Corp., which is providing part of Great Northern’s financing for modernization. Terms of the loan were not released.
The purchase by the multinational conglomerate’s energy subsidiary, Great Lakes Power Inc., will increase Brascan’s total power generating capacity from nearly 1,000 to 1,114 megawatts. The company says the sale also provides opportunities to upgrade the generating facilities and expand connections between the New England Power Pool and Quebec.
“This acquisition – operated in conjunction with Brascan’s existing interconnections between Quebec and Ontario and a planned interconnection between Ontario and Michigan – will enhance the opportunities to market power from our low-cost Canadian power production base within the increasingly integrated North American energy markets,” said Robert J. Harding, chairman of Brascan’s board of directors, in a prepared statement issued Friday.
Richard Legault, Brascan’s senior vice president and chief financial officer, said the acquisition was a key component for enhancing the company’s current initiatives in the New England power market by adding low-cost generation with direct access to NEPOOL.
Brascan plans to upgrade the transmission line that ties Great Northern to NEPOOL. The line has the capacity to carry only 20 megawatts and will be increased to 130 megawatts. It is common for industrial facilities the size of Great Northern to have a much larger interconnection line, according to officials.
By upgrading the transmission line to NEPOOL, Legault said Great Northern’s mills are assured of having an adequate backup supply of power.
Great Northern is not selling all of its power generating facilities. It will retain ownership of its steam generating plants, which are fueled by bark and oil and produce about 150 megawatts of power.
Legault said Great Lakes and Great Northern have entered into an agreement to combine and to coordinate the combined resources of both to supply the paper mills.
“We feel we can reduce the cost of supplying [power] to the mills and at the same time sell surplus power into the market,” Legault said. The agreements include a sharing arrangement, which means profits from the sale of surplus power will provide Great Northern with revenue.
Legault said upgrading the 20-megawatt transmission line will require regulatory approvals and significant investments by Brascan. He declined to disclose the amount of investments until plans were final.
Brascan and Great Northern will jointly study the development of a new transmission line connecting Quebec with NEPOOL using Great Northern’s rights of way along its Golden Road that extend to the Quebec border.
“What we have agreed is if there is an opportunity that would benefit both parties, then we would at least like to take a look at it. We need to look at it in terms of what the benefits would be,” said Legault. He said Quebec is a low-cost area in terms of power production.
Legault, who also is the executive vice president of the Toronto-headquartered Great Lakes Power, said about 88 percent of the company’s nearly 1,000 megawatts of power is generated from hydroelectric facilities.
“We are a fairly experienced operator serving industrial customers for more than 80 years,” said Legault. “We operate very similar facilities to those we have just acquired.”
Brascan also owns Nexfor Inc., a Canadian forest products company that manufactures paper products and building materials. Nexfor owns Fraser Paper in Madawaska.
Legault said the company has a lot of experience with forest products and with pulp and paper mills similar to Great Northern. “We are a very good fit for Great Northern. We basically understand the industry and the power business,” he said. “Our goal here is consistent with our plans to grow the power generation business. We have an emphasis on environmentally preferred generation. [Hydroelectric power] is clean energy.”
The Brascan and Great Lakes official said the company operates a small distribution network in northern Ontario, serving 11,000 residential customers. But it mainly provides whole sale power to pulp and paper companies, such as St. Mary’s Paper in northern Ontario, Papier Masson in Masson-Angers, Quebec, and Pacific and Papers in British Columbia.
“We are an experienced provider of electricity to these sort of companies. Great Northern, in effect, gets capital to reinvest in its core business and also gets an experienced partner to help in the supply of the mills’ energy needs and to make sure the hydro assets continue to produce reliable power over the next 20 to 30 years. We think this is a win-win for both parties,” Legault said.
Legault said the company would develop a 20-year capital investment program to maintain the facilities. He estimated the annual average investments could be $5 million a year.
Legault said the company plans to operate its newly acquired hydroelectric facilities from Millinocket. “We intend on hiring Great Northern Paper employees to operate the facilities. The people who are involved in operating the facilities will continue to do so and ultimately, they will be hired by us,” he said.
Brascan owns and operates real estate, power generating, natural resource and financial businesses located principally in North America and South America. It has a combined asset base of $53 billion and employs more than 50,000 people. It has ownership and operating interests in other power generating facilities in Canada and the United States. Once the deal is complete, Great Lakes will operate 28 electricity-generating power plants, which are located in Ontario, Quebec, British Columbia and in Maine.