Though it might have looked decent enough on paper, Hydro-Québec’s original pitch to buy New Brunswick’s power corporation fell victim to a uniquely Canadian brand of realpolitik rife with governmental hand-wringing, chest-thumping New Brunswick nationalism, and a soupçon of anti-French sentiment. Still, the new deal, announced last week, which would see Hydro-Québec take over New Brunswick’s power generating plants (but not its transmission lines), is hardly a setback for Quebec’s electricity giant. Even under the new agreement, Hydro-Québec has further entrenched itself in Atlantic Canada.
Yet for all the noisy clamour, New Brunswick is only part of Hydro-Québec’s master plan to become a literal power broker for much of Eastern Canada and, more importantly, the Eastern and Midwestern United States. Already, Hydro-Québec powers a sizable portion of New England and New York state. In the next four years, the corporation plans to move further into the American Midwest, a market of over 66 million people where electricity rates are nearly triple those of Quebec’s. The plan is raising concern in the U.S., but promises a huge windfall for the ambitious corporation; buying up NB Power’s generating capacity only gives it more power to throw around.
Hydro-Québec may be on a tear, earning $2.7 billion last year, but it’s also been the recipient of a serendipitous turn in U.S energy policy. This past summer, the U.S. House of Representatives adopted a bill mandating electricity suppliers to increase their renewable energy sources by 20 per cent by 2020. (Currently, roughly 65 per cent of America’s electricity is generated from fossil fuels.) With its vast reserves of clean hydroelectricity, Quebec is arguably the only supplier big enough to meet the demand. “[The bill] is good news for Hydro-Québec and its partners,” the company’s recent strategic plan reads.
“The market, which is very good for Hydro-Québec right now, will continue being very good in the future,” says Pierre-Olivier Pineau, a professor at the Hautes Études Commerciales business school in Montreal. “Any restrictions on greenhouse gases are beneficial for Hydro-Québec.” (Hydro-Québec is also investing heavily in wind power, further burnishing its green image.)
Delivering more power to the American Midwest doesn’t require big modifications to the existing power grid—at least on this side of the border. Hydro-Québec finished a new transmission line in Ontario last fall, most of which is used to then pump electricity over the U.S. border. The network of 13 lines connecting Quebec to its Canadian and American neighbours is extensive and largely unencumbered: according to Pineau’s analysis, the two busiest lines in Quebec, those flowing to New York and New England, operate at only 50 per cent capacity on average.
Moreover, Hydro-Québec sells the bulk of its power in the summer, when domestic demand is low and U.S. rates are high. Its sales to Ontario are just as advantageous. Quebec buys Ontario’s surplus at night, when rates are low. This allows Hydro-Québec to conserve water levels in its dams and ramp up electricity production for sale to Ontario during the day, when demand is high.
Hydro-Québec’s stateside expansion has drawn the ire of certain Americans. Angie O’Connor, president of the New England Power Generators Association, recently said the corporation’s ubiquity in New England was “a monopoly in the purest sense” that would likely hinder the development of smaller renewable energy projects on both sides of the border. In an interview with Maclean’s, O’Connor says the association will continue to lobby against the corporation’s “vertically integrated, government-owned” expansion into the U.S.
Still, it seems the biggest immediate threat to Hydro’s southern swoop is of the bricks-and-mortar variety. Overburdened, bottlenecked and regulated by a veritable fiefdom of state authorities, the U.S. power grid often can’t handle what Quebec is selling once power leaves the main transmission lines. According to a recent North American Electric Reliability Corporation report, instances of power interruptions and equipment failure nearly doubled between 2002 and 2007, usually because of system overloads. (As well, state regulation of electricity transmission makes power more expensive every time it crosses a state line.)
And then there is the matter of what the corporation can’t sell at market rates. Cheap power for Quebecers has been a sacred cow ever since the provincial government nationalized electricity production in 1962. It is obligated to sell power within its borders—about 90 per cent of its output—at a set rate, which is currently at about half the market rate. The result: Quebecers are among the most voracious energy users in the country—second only to Alberta, according to the Calgary-based Centre for Energy. Selling power at drastically reduced rates to its main customers, says HEC’s Pineau, “costs” Hydro-Québec $5 billion a year in lost revenues.
Significantly raising electricity rates within Quebec is politically dicey, and Premier Jean Charest has shied away from his stated intention to do so since taking office in 2003. For Charest, selling Hydro-Québec power outside the province has been a much easier proposition. New Brunswickers and Americans alike might grumble about the source, but these days everyone needs to keep the lights on as cleanly as possible.