For one jurisdiction, it's a critical energy infrastructure project. For a neighbour, it's an old-economy idea and environmental menace that threatens the natural beauty of the region.
No, its not an oil pipeline between Alberta and the British Columbia coast. It's the rejection of a transmission line aimed at carrying Quebec hydro power through New Hampshire to Massachusetts that has put the two U.S. states at odds and has Hydro-Québec facing the loss of an estimated $10-billion export contract. Massachusetts has given Hydro-Québec and its partner on the Northern Pass line only days to decide whether to ditch the project or appeal the rejection of the line by New Hampshire authorities, despite long odds of success.
The denial of a permit to Northern Pass by New Hampshire's Site Evaluation Committee "has the potential to significantly impact or render infeasible the project's ability to deliver clean energy within the time frame proposed by the bidder," Judith Judson, commissioner of the Massachusetts Department of Energy Resources, concluded after the committee's Feb. 1 ruling.
Massachusetts needs to secure new energy sources by 2020 to replace electricity from a nuclear power station that will close in 2019. The state sought proposals from renewable-energy producers for 1,200 megawatts of electricity, choosing from more than 40 bids from wind-, solar- and hydro-power producers, including Hydro-Québec and Nova Scotia-based Emera.
Critics of Northern Pass argued that Massachusetts had stacked the deck in favour of Hydro-Québec and the US$1.6-billion transmission line's lead investor, New England-based Eversource Energy. Eversource had a representative on the state committee that chose its bid on Jan. 25.
Opposition in New Hampshire to Northern Pass is at least as strong as opposition in British Columbia to the Trans Mountain pipeline. While New Hampshire's newly elected Republican Governor supports the project, he does not have the final word on the matter. The state's Supreme Court could ultimately decide its fate if Eversource appeals the ruling.
A drawn-out appeals process could make the project moot, however, with Massachusetts forced to turn to other proposals to meet its 2020 deadline to secure new power. Indeed, wind- and solar-power producers are calling on Massachusetts to take another look at their bids that would not require new transmission lines through New Hampshire. Emera has not given up, either, and is still promoting its proposed Atlantic Link to carry wind and hydro power south.
"Our use of a subsea cable allows us to bring power directly to Plymouth, Mass., site of the soon-to-be-retired Pilgrim nuclear plant, bringing power directly to the Boston load centre while avoiding congestion in New England without the need for new terrestrial transmission lines," Emera chief operating officer Scott Carlyle Balfour told analysts on a Monday conference call.
Hydro-Québec could also turn to one of two other proposed transmission projects to transport electricity from Quebec to Massachusetts, including the TDI New England Clean Power Link, backed by private-equity firm Blackstone Group. It would run under Lake Champlain through Vermont. Still, the Quebec government-owned utility has been heavily invested in Northern Pass since it was first proposed in 2010 and it's unclear whether another transmission project would be as financially attractive. Even with the $10-billion over 20 years it estimates it would get from the Massachusetts deal, Hydro-Québec would be selling power for below its marginal cost of production.
Since the utility is sitting on massive surpluses, any revenue is better than no revenue as it seeks to cover its fixed costs and pay a dividend to the government. But its inability to export electricity for more than it costs to produce at its most recently built hydro-generating station on the Romaine River demonstrates the strained economic logic behind that project, launched under former premier Jean Charest.
Were it not for the 1969 Churchill Falls contract, under which Hydro-Québec pays almost nothing for power from the Labrador hydro complex, its cost structure would rise dramatically. The Churchill Falls contract, which accounts for about 15 per cent of Hydro-Québec's supply, is the subject of a Supreme Court of Canada challenge seeking its renegotiation by Newfoundland and Labrador. The court arguments were heard in December and a ruling is expected by June.
The Churchill Falls contract is set to expire in 2041, or a year after Hydro-Québec's 20-year proposed deal to sell power to Massachusetts would end. While that may seem like a long way off, it's just around the corner in hydroelectricity years. Hydro-Québec needs to bank as much profit from Churchill Falls as it can. It faces a far less profitable future without it.