We advised The City of Edmundston, through its wholly-owned electric utility Énergie Edmundston, on the purchase of hydroelectric generation assets belonging to Fraser Papers Inc. The dam and hydroelectric facility were built in 1917 on the Madawaska River in the City of Edmundston, near the confluence of the Madawaska River with the Saint John River. The headpond is the water source for Fraser’s Mill, vital to its operation. The aging facility had benefited from significant investment in recent years, but required substantial additional refurbishing to continue to produce power reliably.

We assisted with the preparation of an offer to purchase by determining the present value of the assets to the client if the required repairs were undertaken. A number of repair scenarios were examined, from minimal expenditures to maintain current below-design capacity output, to investment in increasing the capacity and performance of the assets. The value of power output was estimated by reference to current power costs faced by the client, and judgments as to the direction of prices under the Province of New Brunswick’s newly-liberalized wholesale market.

This assignment consisted of:

• designing a financial valuation model suitable for calculating net cash flows for up to 10 investment scenarios, including repairs, replacement and upgrades of one or more units
• conducting research on the current state and future evolution of the power market in New Brunswick
• estimating the book value of the assets
• estimating the replacement value of the assets
• estimating future cash flows from the perspective of both buyer and seller
• estimating the opportunity value of maintaining the reservoir at levels required for optimal mill operation after the transfer of ownership
• making recommendations as to an initial offer price, and a not-to-exceed negotiated price.