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Muskrat Falls, on the Churchill River in Labrador

Paul Daly/Paul Daly/The Globe and Mail

Newfoundland and Labrador Premier Danny Williams is celebrating his government's $6.2-billion deal to develop Labrador hydroelectric power as a declaration of independence from Quebec's domination in an economically critical, historically controversial industry.

Provincially-owned Nalcor Energy and Halifax-based Emera announced Thursday they have agreed to proceed with the long-delayed development of the Lower Churchill hydro project, as Mr. Williams and Nova Scotia Premier Darrell Dexter trumpeted a new era of economic co-operation in Atlantic Canada.

The move by Atlantic provinces toward increasing integration of their power plans is expected to create opportunities to co-ordinate on clean energy production and establish new export markets.

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"Today we sign an agreement on our own terms with another great partner, Emera, which is free of the geographic stranglehold which Quebec has had for far too long on us," Mr. Williams told a news conference in St. John's. "Today, we are saying that Quebec will no longer determine the fate of Newfoundland and Labrador, and one of the most attractive clean energy projects in North America."

Mr. Dexter was scheduled to visit New Brunswick Premier David Alward on Friday to sign an agreement to expand transmission links between their two provinces, a deal that could result in the sale of Lower Churchill power in New Brunswick. The newly elected Mr. Alward - who last week signed a power agreement with Prince Edward Island - rode to power on his opposition to the former Liberal government's ill-fated deal to sell New Brunswick Power Corp. to Hydro-Québec.

For Mr. Williams, the Lower Churchill announcement was particularly sweet, giving him an end run around Quebec's transmission system. He has been battling Quebec Premier Jean Charest for years over Hydro-Québec's refusal to transmit power from the Lower Churchill project through its existing transmission grid to markets in Ontario and the United States.

Under the agreement with Emera, Nalcor will build the first phase of the Lower Churchill project, an 800-megawatt site at Muskrat Falls in Labrador, and the two companies will transmit the electricity to the island of Newfoundland and to Nova Scotia by subsea cable. However, the federal government must first reach a deal with Labrador Innu, who have vowed to block the development unless their land claims are settled. The province has concluded a benefits package with the Innu but needs Ottawa to settle its dispute.

Mr. Dexter said the hydro power from Labrador will allow his province to reduce its dependence on aging coal- and oil-fired power generation from 90 per cent to 60 per cent in 2020, resulting in a dramatic reduction of greenhouse gas emissions. Nova Scotia Power - a subsidiary of Emera - will purchase some 20 per cent of Muskrat Falls' output for 35 years at a firm price.

The Nova Scotia Premier said the Lower Churchill project will spur regional co-operation in Atlantic Canada's power sector, and allow the provinces to work together to export electricity to the United States.

"This will be transformational for the Atlantic region," Mr. Dexter said in an interview. "It will mean the same to the Atlantic region as the CPR [railroad]meant to the country."

Nalcor chief executive officer Ed Martin said the Muskrat Falls project represents the lowest-cost alternative for the province to meet its growing power needs - even without the link to Nova Scotia - when it is completed in 2017.

He said the company is committed to eventually building a 2,200-megawatt station at Gull Island on the Lower Churchill and continues to work for transmission access through Quebec, which would give it access to key markets.

However, it may be many years before additional power from Lower Churchill is needed in the northeastern U.S. market, where the recent recession and the boom in low-cost natural gas generation has reduced the expected demand from Canada. Hydro-Québec currently has put on hold a project to expand export capacity into New England due to poor market conditions.

The Lower Churchill deal has added another layer to the long-running dispute between Mr. Williams and Mr. Charest over hydro power, as Newfoundland and Nova Scotia asked for $375-million in federal infrastructure assistance for the subsea transmission cables to carry power from Labrador to the island of Newfoundland, and then on to Nova Scotia.

Such funding would "amount to creating an unfair trade advantage on the open market and result in a government subsidy for each kilowatt hour of electricity transported to Nova Scotia," Quebec Minister of Natural Resources Nathalie Normandeau said.

Mr. Charest said he warned the Atlantic premiers that any financial involvement by Ottawa in the construction of a transportation line would violate international trade agreements. Quebec also sent Prime Minister Harper a letter objecting to the Atlantic provinces' request for federal funding.

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Ottawa sought to distance itself from the dispute on Thursday. A spokesman for Finance Minister Jim Flaherty said the application for infrastructure funding is being handled by PPP Canada, a Crown corporation that operates "in an objective, arms-length manner."

Throughout his career, Mr. Williams has railed against Quebec's dominance in the power market and defended his controversial policy of resource nationalism as necessary for the province to escape that legacy. He bitterly opposed Quebec's refusal to renegotiate a 1969 deal that developed the original Churchill Falls hydroelectric plant, and has resulted in a windfall for Hydro-Québec.

Mr. Williams and Nalcor have demanded for years that Hydro-Québec make available transmission capacity for the Lower Churchill project; Quebec's refusal is being appealed by Newfoundland.

Some analysts question how much demand there is for Canadian hydro power in New England. Gordon Weil, a Maine-based consultant who has worked in Atlantic Canada, said it is a widely held myth that there is lucrative, undersupplied market hungry for the power produced in Eastern Canada.

But he added that it makes sense for the small provincial markets of Atlantic Canada to band together to develop the cleanest, lowest-cost sources of power, rather than each trying to be self sufficient.

With files from reporter Rhéal Séguin in Quebec City

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