C3

John Pollack
For the Telegraph-Journal

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New Brunswick will soon have a new player in the energy field - other than Hydro-Quebec - if a purchase deal goes through as planned.

Oakville, Ont.-based Algonquin Power & Utilities Corp. (TSX:AQN) has agreed to buy the Tinker hydroelectric dam located on the Aroostook River about 15 kilometres north-west of Perth-Andover.

The company's chief financial officer David Bronicheski said all employees at the dam will be kept on staff and all electricity supply contracts will be honoured.

The 34.5-megawatt dam is currently owned by Chicago-based Integrys Energy Group, Inc. (NYSE:TEG) and run by one of its subsidiaries WPS Power Development LLC.

Algonquin Power owns 41 hydroelectric generation stations throughout New York, the New England states, Quebec, Ontario and Alberta, but this will be its first asset in New Brunswick.

Bronicheski said spanning a wide geographical area is important for a hydroelectric business, and the New Brunswick dam will extend the company's reach.

"If it's raining in one area it might not be raining in another area," he said.

Algonquin Power doesn't plan to change much about the facility. Bronicheski said the electric generation station can't be expanded under the environmental regulations.

The power from the dam is sold to Perth-Andover Electric Light Commission, which provides the village residents with lower rates than NB Power.

"The local residents shouldn't see any difference," Bronicheski said. "From their perspective they'll continue to be serviced in the same manner that they've grown accustomed to."

The contract between the village and the current dam owners lasts until the end of 2011, at which point the deal will likely be renegotiated, Bronicheski said.

"The natural market forces I'm sure will work to ensure the local rate payers continue to get the benefit of some of the lowest hydro rates around," he said of future negotiations.

Integrys' vice-president of investor relations Steven Eschbach said that while the dam is profitable it doesn't fit in with the diversified energy company's future plans.

"It got to the point where we were growing very well, but a little too rapidly," he said. "We decided selling it would be the best strategic step."

The province doesn't regulate the sale price for electricity generated from the Tinker dam, but Integrys is trying to get out of unregulated areas.

"Regulated jurisdictions are more predictable," Eschbach said because they are not as subject to market forces.

But that's the main reason the Perth-Andover utility is able to offer lower rates, Bronicheski said

"One of the reasons the local residents have benefited from low rates is because of a fairly robust market for electricity," he said. Algonquin Power expects the facility to have a 70 per cent operating margin.

The price tag for the deal, which also saw Algonquin agreeing to buy two smaller dams on the Maine side of the border, was not revealed due to a confidentiality clause. But Algonquin paired the announcement with an offer of $55 million in common shares and $20 million in bonds that could be converted into shares.

Bronicheski said the planed sale of NB Power to Hydro-Quebec isn't a concern for his company, and Eschbach said it wasn't part of Integrys' decision to sell the dam.

In April Algonquin Power announced it had formed a deal with Atlantic Canadian energy Giant Emera Inc. (TSX:EMA) to buy California Pacific Electric Company. If the deal closes as planned in 2010 the two firms will be full and equal owners of the Californian utility. Emera also has the option to buy a 10 per cent stake in Algonquin Power.