Want to understand Hydro-Québec's Mactaquac plan? Look south of the border

It's back.

A decade after Hydro-Québec's plan to buy NB Power collapsed, the giant utility next door is once again turning its ambitious gaze toward New Brunswick's energy grid. 

Its commitment to help refurbish the Mactaquac Dam near Fredericton, and to sell more electricity to New Brunswick, grabbed the most attention earlier this month.

But a third deal, a promise to look at building new transmission links, is the real breakthrough for the Quebec utility, analysts say.

Hydro-Québec has more electricity than residents of that province can use. It built four new large dams over the last 11 years, leaving it with an unexpected supply of excess electricity it must sell to avoid the dams becoming white elephants.

"We have both new supply of electricity, and the demand in Quebec for the last 10 years mostly remained stable," says Pierre-Olivier Pineau, the research chair in energy sector management at HEC Montreal, a graduate-level business university.

"There's a lot of water in Hydro-Québec's reservoirs." 

Going to America?

New Brunswick represents a convenient nearby buyer for that cheap, clean electricity, but also a potential path to even larger, more lucrative markets.

NB Power has two transmission connections to Maine it already uses to sell power into New England, and there's enough room on those lines to carry more electricity, from here or from Quebec, than is being exported now.

For Jack Keir, the former Liberal energy minister who promoted the 2009 sale agreement to a reluctant public, the same logic underlying that deal is driving the new negotiations.

"I believed in 2009 when we started looking at it, as I do today, [that] it's the right thing to do that we get our electricity as cheaply as we can, and that New Brunswick is located in the perfect spot to feed all of Atlantic Canada and the northeastern United States," he said.

"I applaud the Higgs government for looking at it."

NB Power and Hydro-Québec announced three agreements on Jan. 10.

The Quebec utility will advise NB Power on how to refurbish the Mactaquac Dam and sell New Brunswick 47 terawatt-hours of electricity between now and 2040, extending an existing supply deal. A terawatt is one trillion watts.

The third agreement, to explore the new transmission links, opens new paths for Quebec's surplus electricity to the Maritimes and beyond, according to Hydro-Québec CEO Éric Martel.

"We have some surplus, we have some capability, and together with this interconnection, we will definitely offer more opportunity to the Maritimes but also to the U.S. market," he said.

Acquiring New Brunswick's transmission links to New England were widely seen as Hydro-Québec's primary strategic goal when it tried to buy NB Power 10 years ago.

Newfoundland and Labrador Premier Danny Williams accused Quebec of trying to block his province's future electricity exports from the proposed Muskrat Falls dam to the U.S.

Quebec was seeking "energy control of the entire Maritime provinces" and "attempting to strand Newfoundland and Labrador," he said at the time. 

The sale agreement fell apart, but a decade later, Hydro-Québec's push for more export sales is more urgent than ever. 

High supply, stagnant demand

Three of the massive dams have gone into service in the past five years. A fourth begins operating next year.

They were approved when energy prices were high and demand within Quebec was expected to grow. But prices are down and demand in the province has flatlined.

"We've plateaued," Martel told the Financial Post in 2018. "This is putting a lot of pressure on our financials."

The solution: more exports.

"At this point Hydro-Québec is pursuing export projects in all directions, to Ontario, to New York, to New England and all the Atlantic provinces," Pineau said.

"They know that maybe not all the contracts will work, so they try to develop as much as they can."

The U.S. northeast is the biggest potential market.

Politicians and regulators don't want energy that emits carbon dioxide.

A bill in the Massachusetts legislature would require 100 per cent renewable power in the state by 2045.

But getting more Quebec electricity there has not been straightforward. 

A proposed Hydro-Québec transmission link through New Hampshire called the Northern Pass was blocked by state regulators over concern towers and cables would cross the White Mountains National Forest.

In Maine, another route called Clean Energy Connect will be put to voters in a referendum in November.

Pineau isn't convinced these obstacles to the New England market are Hydro-Québec's main reason for cozying up to New Brunswick again.

He said it's more likely driven by the business opportunity to export more power here and to Nova Scotia, which has four coal-fired plants.

Defending dead deals

But Keir believes the strategic ambition that drove Hydro-Québec's attempt to buy NB Power 10 years ago is at work again now.

"We're a straight line for them down to New England," Keir said.

Keir still defends that sale agreement, arguing New Brunswick would have acquired more benefits from it than what's on the table now: the elimination of $5 billion in NB Power debt; the cost of refurbishing Mactaquac taken on by Hydro-Québec, and power rates reduced for industry and frozen for residents. 

That wasn't enough to win over New Brunswickers, who mostly opposed the sale.

At this point Hydro-Québec is pursuing export projects in all directions, to Ontario, to New York, to New England and all the Atlantic provinces.- Pierre-Olivier Pineau

This time, Hydro-Québec's incursion hasn't stirred nearly the same emotions.

"Because we've already been through this once, it's somewhat less shocking the second time, and frankly, let's be honest here: they're not selling anything, so folks aren't as passionate," Keir said.

"Back then folks really believed we were giving up our sovereignty and a huge asset that we had. It was very difficult to convince folks otherwise. Now that's not even an argument coming into play here."

There have been other major shifts since a decade ago, the largest being climate change emerging as a major policy priority.

The green dimension

Ottawa has new regulations to limit carbon emissions and "we have to comply," said Louise Comeau, director of the Environment and Sustainable Development Research Centre at the University of New Brunswick. 

The Quebec-New Brunswick deal could be a forerunner of a broader plan to integrate five provincial grids, allowing hydro dams in Quebec and Labrador to displace coal and fuel oil as a source of electricity generation, she said.

"Why don't we work together on a plan, a complete plan to serve 100 per cent of clean energy to all our provinces?" Quebec Premier Francois Legault said last week.

While New Brunswick is looking to sign an equivalency agreement with Ottawa that would allow NB Power's Belledune power plant to continue using some coal past a 2030 federal phase-out, Premier Blaine Higgs raised the possibility the plant could close. 

Keir said the discussion about Belledune is more muted than it was in 2009, a sign of climate change becoming a bigger concern.

"There was a lot of screaming about that at the time and now I don't hear so much, because now everybody I guess believes this is real and it's going to have to close down," he said.

Another change is the role of Newfoundland and Labrador.

Back then, Muskrat Falls was just a dream and then-premier Danny Williams was adamant that Hydro-Québec could not be allowed to block its future export route to New England. 

Now, the Labrador dam is set to go online, "so they're in the market like Quebec is," Keir said.

"So it's important for Newfoundland now to have that capacity to go somewhere. Back then it wasn't."

And to get that electricity to the U.S., "the best path is through Quebec and New Brunswick," NB Power CEO Gaetan Thomas said at the Mactaquac news conference.

Ottawa's climate plan includes funding for exactly the kind of new regional transmission links Hydro-Québec and NB Power want to build, making such projects more affordable.

"They've been pushing the Atlantic provinces to collaborate," Comeau said. "This conversation represents a conversation the federal government's been very interested in encouraging."

Pineau said with four small Atlantic provinces with their own grids, and Quebec next door, co-operation is the best way to build an efficient, zero-emission regional system.

"There are a lot of significant gains to be made, especially in a context where we want to have more clean energy."

Questions remain

There are still major questions about all the potential integration.

Keir points out Quebec would have to bid to use any new transmission line capacity in New Brunswick.  

"It can't just be given to Quebec unless they change that legislation."

Comeau said it's important for New Brunswick to keep generating its own power, including more solar and wind power, with Hydro-Québec acting as more of a backstop. 

"We need to watch that balance between how much we're relying on external sources of energy and our domestic supply," she said.

But with Hydro-Québec's supply agreement with NB Power expiring in 2040, and the Churchill Falls contract with Quebec ending a year later, "we can see an opening here for an opportunity not just regionally in Canada but within the New England system," she said.

"A regional, a truly regional, New England-and-Atlantic system I suspect will likely emerge."