Power play: Quebec, Atlantic provinces at odds over electricity

Electricity is a major source of government revenue, but also a source of conflict. Each province manages its electrical resources in its own best interests, and this strong regional focus leads to rivalries.
The site of the proposed Lower Churchill Hydro Project on Muskrat Falls in central Labrador. Newfoundland plans on building a long transmission line through Nova Scotia to bypass Quebec, a result of rocky energy relations between the two provinces. (Greg Locke/Reuters)

In Canada, power generation and distribution falls within provincial jurisdiction, which means electricity is a major source of government revenue — as well as a source of conflict.

This fact has been highlighted during the current federal election campaign. While on the hustings in St. John's on March 31, Conservative Leader Stephen Harper pledged that if re-elected, a Conservative government would provide a loan guarantee for a hydroelectric project on the Lower Churchill River in Labrador.

Newfoundland and Labrador Premier Kathy Dunderdale greeted the campaign promise with rousing approval, but Bloc Québécois leader Gilles Duceppe called it "a slap in the face," because Hydro-Quebec has received no such support from Ottawa.

In all but three provinces (Alberta, Prince Edward Island and Nova Scotia), utilities are publicly owned. Each province manages its electrical resources in its own best interests, and this strong regional focus leads to rivalries.

Quebec produces about one third of Canada's power, and its strong position in the electricity arena has caused friction with its neighbours on a number of occasions.

Long and stormy negotiations

The Churchill Falls agreement is one of the most telling examples. In the late 1950s, the Newfoundland government formed a consortium of banks and British companies to build a huge hydroelectric plant on the upper Churchill River in Labrador.

At the same time, the Quebec government nationalized electricity and bought out Shawinigan Engineering’s share of the project. Suddenly Quebec was a shareholder and partner in the Churchill Falls project, to the dismay of Newfoundland.

After long and stormy negotiations, Quebec and Newfoundland signed an agreement whereby Hydro-Québec would purchase almost all of the generating station’s output for 65 years (a 40-year term and then another 25 years).

The agreement stipulated that Quebec would pay between 0.25 and 0.29 cents per kilowatt hour (kWh) throughout the term of the contract — a considerable point of contention considering electricity now sells for between 7 and 10 cents per kilowatt hour.

In return, Quebec agreed to assume some of the risks of the business by becoming a 34-per-cent shareholder in the project.

Underdeveloped market

Although most provinces are interconnected via transmission grids, they exchange relatively little electricity in comparison to what they export to the U.S.

That's because the limited capacity of the transmission lines and the long distances between load centres are not conducive to east-west exchanges of electricity. Instead, much of the excess power — worth about $3.8 billion — is sent south.

According to Statistics Canada, the provinces exchanged 44,700 gigawatt hours (GWh) in 2007. Close to 70 per cent of that is the 30,000 GWh that Newfoundland and Labrador delivers to Quebec each year under the Churchill Falls agreement. That means only about 15,000 GWh is exchanged in the rest of the country. That's not much, considering Quebec and Ontario exported more than 32,000 GWh to the U.S. in 2009.

The amount of power shipped to Quebec is enormous and stands at about 30,000 gigawatt hours (GWh) annually.

The government of Newfoundland, outraged by the extremely disadvantageous nature of the agreement, attempted several times in subsequent years to have it annulled or amended by the courts. Twice, the Supreme Court of Canada has found in favour of Quebec.

According to former Newfoundland Premier Danny Williams, Quebec has made $19 billion over the years, compared to $1 billion for his province.

The Churchill Falls agreement remains in force until 2041, and will weigh heavily on relations between Quebec and Newfoundland for a long time to come.

That controversy is also having an impact on the direction of new projects in the region.

In the recent Lower Churchill hydroelectric development project, about 200 kilometres from Churchill Falls, the Newfoundland government has chosen to connect Labrador and Nova Scotia by way of long and costly overland and undersea transmission lines rather than go through Quebec to export its power to the United States.

Electricity: An election issue

Another litigious project involving Quebec was the aborted purchase of NB Power by Hydro-Québec. In October 2009, the government of New Brunswick created a political shockwave in eastern Canada by announcing the sale of its provincial utility for $10 billion.

Following a public outcry, New Brunswick Premier Shawn Graham pulled the plug on a controversial deal that would have seen NB Power sold to Hydro-Quebec. (David Smith/Canadian Press)

Of that amount, $4.7 billion was to be paid in cash and the rest would come from a five-year freeze on residential rates in New Brunswick and a 30 per cent reduction in industrial rates.

Money from the sale of NB Power would have paid off the huge deficit incurred by the utility over the years.

Quebec, for its part, was getting its hands on a major transmission system to develop its exports to the United States.

In the months that followed, critics from across the country panned the deal, including former Newfoundland Premier Danny Williams, who claimed that Hydro-Québec had expansionist aims in the Atlantic Provinces.

New Brunswickers saw the deal as a loss of sovereignty over their electrical resources. The growing opposition in the media and a public outcry led to a cancellation of the agreement by Shawn Graham’s government in the spring of 2010.

Many voters hadn’t forgiven Graham for putting the province’s electrical independence up for sale. His party lost the election a few months later.

Total electricity output by province, 2007
GWh Percentage of national production  
 British Columbia71,83311.6 
 New Brunswick17,6392.9 
 Nova Scotia 12,574
 Newfoundland and Labrador 41,5836.7 
 Canada 617,470 100
 Source: Statistics Canada, Electric Power Generation, 2009