Sunday, November 8, 2009

Teck Resources gets $825 million from B.C. Hydro for less than 1/3 of the Waneta Dam

Now for something a little off topic - but still well in line with my interest in sustainable power and economics...

As an appetizer, the news that the estimate for economic impact of the 2010 Olympics has gone from $10.7 B to $4 Bil...:^O

I may be an apologist for the Olympics as a great - if flawed - institution, but give me a break. OK, it's still peanuts compared to the discrepancy in the Reform-Conservatives' budgeting over the past 15 months... but no one expects them to get anything right... just as long as they loosen up the gun laws...

Then there is the little-known case of B.C. Hydro buying into the Waneta Dam, owned by Teck Resources Ltd., in southern B.C. near Trail.

Campbell's government paid $825 million for a ONE-THIRD share of EXCESS power going forward.

OK these just look like numbers... that is until you stop to consider that Hydro Quebec just bought an entire utility, NB Power, lock, stock and barrel, for $4.75 B. That deal included 15 hydro, coal and diesel power generating stations, and a full-blown nuclear station currently getting a $1.5 billion refurbishing job from Atomic Energy of Canada. BTW - I have seen the cost of a new reactor pegged at $5-8 Bil.

So let's total it up - HQ gets 3,324 MW of installed generating capacity - in a deal widely described as a win - win, for $4.75 Bil. $1.43 million per MW

B.C. gets one-third of the excess power produced by a dam whose total capacity is 450 MW. Excess means that first the power to run the Cominco Smelter in Trail comes off the top... I dunno how much this smelter takes to run - let's just ignore it for the sake of argument. Let's just say B.C. gets 1/3 of the full capacity. OK 150 MW, for $825 Mil $5.5 million per MW - without allowing for whatever it takes to run the smelter.

What happened to Teck's stock price?

The difference is that Teck has been selling its excess power for some ridiculous sums to the U.S., whereas Hydro Quebec is locked into providing power to NB residents with no rate hikes for 5 years. Anyway, by disregarding whatever power it's going to take to run the smelter, we should be able to safely assume we're erring on the side of making the deal look better for B.C. Hydro than it really is.

But B.C. Hydro isn't guaranteed anything. Who knows? there could be years with minimal excess power to sell if the water is low. The price in the U.S. could also fall. The U.S. prices are all artificially inflated a la Enron anyway - they could easily fall.

I don't know what has happened to the deal since the announcement. There is supposed to be a utilities commission looking into it. There is precious little about the deal on either B.C. Hydro's or Teck's website.

Oh yeah... so in and around the same time period that Teck made the deal to sell what maybe $200-400 million of power to B.C. Hydro for $825 million ...there is the little matter of the price of Teck's stock going up from $3.90 to $33 over a period of months! Hmm hmmm, sure would be cool if a person had a way to tell when these sweetheart deals were in the works! I would love to see what Jon Stewart would do with this one...

But despite how it looks, it would be only fair to mention that Teck is a large company with a market cap of $19 billion (ok, as little as $3 billion several months ago) and all types of things influence its stock price. Not the least of which - coal sales to China, the commodity crash and the credit squeeze.

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