Kevin Bissett, THE CANADIAN PRESS

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FREDERICTON - Hydro - Quebec is swallowing up New Brunswick's public power generator in a multibillion-dollar deal that gives Canada's largest hydroelectricity producer a bigger path to export electricity to energy-hungry U.S. consumers, but leaves other Atlantic provinces worried about the future of their own power companies.

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THE CANADIAN PRESS/Andrew Vaughan

Quebec Premier Jean Charest, left, and New Brunswick Premier Shawn Graham sign a memo of understanding regarding the takeover of NB Power by Hydro-Quebec in Fredericton on Thursday, Oct. 29, 2009.

The tentative agreement would free New Brunswick of its debt-laden utility and put Quebec in an advantageous position to sell electricity to energy-starved markets in the northeastern U.S.

According to a memorandum of understanding, Hydro-Quebec would buy NB Power assets such as transmission lines, offices and most generation facilities, including the Point Lepreau nuclear power plant, for $4.75 billion - an amount equivalent to the utility's debt.

"This agreement ... will also provide Quebec with a strategic geographic position with regards to the markets of Atlantic Canada and New England," Quebec Premier Jean Charest told a news conference after signing the tentative deal Thursday with New Brunswick Premier Shawn Graham.

Graham said the deal would free New Brunswick of a large financial albatross.

"The elimination of NB Power's massive debt will help us attain self-sufficiency and relieve our children and grandchildren of this burden," he said.

"(The deal) creates a true win-win for both provinces, it strengthens the bonds of friendship that unite us, and it will lead to greater economic prosperity in both New Brunswick and Quebec."

But the proposal has sparked opposition from the governments of Newfoundland and Labrador and Nova Scotia, who say it would give Hydro-Quebec a monopoly that could hinder power development elsewhere in Atlantic Canada.

"They have a short-term financial problem and they have to get through that, and I understand that," said Newfoundland and Labrador Premier Danny Williams.

"Newfoundland and Labrador has been in dire financial straits at various points in its existence, but we wouldn't sell off our distribution. ... they've now cut off their future if this in fact goes forward."

Nova Scotia Energy Minister Bill Estabrooks said he was concerned about the potential repercussions the deal would have on Atlantic Canadian efforts to co-operate in selling energy to the U.S., as well as power rates.

"I don't know why New Brunswick would be going down this route - for obvious reasons of politics and finances, but that's not something for me to surmise," Estabrooks said.

Thursday's announcement also triggered fears among Hydro-Quebec's competitors in the United States, with the New England Power Generators Association expressing worries that smaller American utilities would stand little chance in competing against the massive utility.

But Charest tried to assuage such concerns and said he supports the continuation of an open market on the use of transmission lines, adding that he would not stand in the way of other provinces shipping their power to the U.S.

As part of the deal, New Brunswick and Quebec also agreed to a new power rate structure for New Brunswick.

Power rates for NB Power's 370,000 residential customers would be frozen for five years while industrial rates would be reduced as much as 30 per cent to match those in Quebec - a total saving of about $5 billion.

Once the five years are up, future rate increases would be tied to inflation and new generation needs, and would be subject to review by New Brunswick's existing Energy and Utilities Board.

"Ratepayers would see reduced rates to an extent that would have been impossible for NB Power as a stand-alone utility," Graham said.

NB Power was created by New Brunswick's legislature in 1920.

During the 2006 provincial election campaign, Graham promised to maintain the Crown corporation as a publicly owned utility.

David Alward, New Brunswick's Conservative Opposition leader, said the agreement would short-change his province because it would relinquish control of the province's power utility for little in return.

"Delay this deal until after the fixed election date of next September," Alward said. "If not, then go to the people now."

But Graham said there will be opportunity for public debate before the closing date of the deal at the end of March 2010, and a New Brunswick legislature committee will be struck before the end of the year to review the agreement.

Under terms of the memorandum of understanding, New Brunswick would continue to operate fossil fuel plants at Coleson Cove and Belledune, but phase out the facility at Dalhousie.

Hydro-Quebec could also direct the province to shut down two other fossil fuel facilities and earn emission credits in return.

David Coon, policy director for the New Brunswick Conservation Council, said it's a good deal "environmentally."

"By eliminating our fossil fuel plants we will exceed our targets on greenhouse gasses significantly," he said.

But energy analyst Norm Rubin, of the Toronto-based lobby group Energy Probe, has mixed feelings about the deal.

Rubin said all of the borrowing and spending that NB Power has done over the years in hopes of building value has essentially failed.

"They're giving away more or less everything they own and Hydro-Quebec is agreeing to take over the mortgage," Rubin said.

But he said New Brunswickers would benefit from lower power rates and the reduction in industrial rates would make it easier for energy-intensive businesses to set up shop in the province.