QUEBEC – After months of negotiation, Quebec and New Brunswick announced Wednesday they are calling off a controversial multi-million dollar energy deal after they failed to agree on who would foot the bill for future refurbishment of some facilities.

The proposal called for Hydro-Québec to pay $3.2 billion for most of NB Power’s power generation assets and 670 megawatts of transmission rights to energy-hungry markets in the northeastern United States.

Opposition to the agreement, which had to be finalized by the end of the month, has been consistently fierce in New Brunswick, prompting massive demonstrations and forcing one cabinet minister to resign.

New Brunswick Premier Shawn Graham acknowledged Wednesday he was facing growing political pressure, but said he called the deal off because Hydro-Quebec was seeking “unacceptable” changes.

“That would have unacceptably taken away some of the value and increased some of the risks for New Brunswickers,” Graham said in a statement.

“With Hydro-Québec’s proposed changes, I do not believe New Brunswick receives enough in direct benefits and reduced risks to provide a deal worth signing.”

The Quebec government contended for its part the deal fell through because due diligence showed some assets would have required bigger investments than previously planned and Hydro-Québec was not willing to take more risks.

“It was out of question to buy assets that didn’t meet our expectations,” Quebec Premier Jean Charest told reporters.

“For example, in the case of certain infrastructures we ended up with civil responsibilities that were not directly linked to energy and that’s not the core business in which Hydro-Québec is involved,” he said.

Under the proposed deal, Hydro-Québec would have had to pay for any upgrade of the Mactaquac hydroelectric dam that will need investments estimated at nearly $2 billion in the next two decades.

Quebec was also set to take over the Point Lepreau Nuclear Generating Station that is still undergoing refurbishment.

Quebec Natural Resources minister Nathalie Normandeau refused to say what was the deal breaker.

“For confidentiality reasons I cannot get into the details, but there were infrastructures that needed refurbishment and overall the condition of the assets was not satisfactory,” Normandeau told Canwest.

“So we ended up with benefits that were less interesting than we first anticipated.”

Hydro-Québec declined to make any comment on the abortive deal.

Both premiers met on Tuesday to discuss the agreement and came to the conclusion a win-win agreement could not be reached.

“We always thought that this was good for both sides at the outset, but we’ve come to a conclusion today that it is not what we expected,” Charest said.

He recalled it was New Brunswick that came knocking on Quebec’s door seeking an energy deal.

Graham has said his government was looking for an alternative to prevent major energy rates hike in the province, which is relying on high-cost electricity and fossil fuel that require major investment to update.

The New Brunswick government will now look at other alternatives to address the challenges facing NB Power and the electricity situation in the province, and in doing so, it will look for input from New Brunswickers, Graham said.

“People were not upset with us for taking on the electricity issue; they were angry with us because they wanted to be part of the solution and our process did not let them in.

“I can assure you that, after the debate of the past few months, I have heard loud and clear that New Brunswickers want to help us deal with our energy challenges,” said Graham, who is facing an election in September.

Charles Cirtwill, president of the Atlantic Institute for Market Studies, said the biggest losers of the failed agreements are New Brunswick electricity consumers.

Under the deal, residential and commercial rates would have been be locked at the current level for five years, while industrial users would have received savings of up to 23 per cent.

“Consumers in New Brunswick and quite frankly the taxpayers in New Brunswick lose,” said the head of the Halifax-based economic think-tank.

“They are going to have to find another solution. Something has to be done or New Brunswickers are just going to continue to pay higher and higher rates,” Cirtwill added, noting New Brunswickers were quick to denounce the agreement but very few other options have been put forward to deal with the energy problem.

Cirtwill said Hydro-Québec comes out of the deal unscathed because it will still have access to N.B. transmission lines to export its extra power.

Premier Charest pointed Wednesday to a new transmission line that may soon be approved by U.S. regulators from Quebec into New Hampshire, linking Hydro-Quebec to all New England states.

Yves Gagnon, a University of Moncton professor and a vocal opponent to the proposed energy agreement, said the electricity rates in New Brunswick are still reasonable and now that the deal is off the table the province can go ahead with reforming the energy sector.

“The government did not look at all alternatives and there are other options, that include long-term power purchases agreement, that are much more favourable to New Brunswick,” Gagnon said.

He pointed out to a recent 26-year deal between Hydro-Québec and Vermont that will see the state get electricity at a rumoured rate of 4.5 cents per kilowatt hour – well below than the 7.35 cents per kilowatt hour New Brunswick would have gotten under the proposed deal. Hydro-Québec has so far refused to confirm the actual price of the power Vermont will pay.

In mid-January, the NB deal was watered down so that Hydro-Québec would not take over NB Power’s transmission and distribution system, as originally planned in the initial memorandum of understanding, which unleashed a firestorm of protest in the Atlantic provinces.

The agreement would have seen Quebec acquiring most of NB Power’s generating stations. Hydro-Québec would have owned the Point Lepreau Nuclear Generating Station and the province’s hydro dams and two diesel units.