Hydro-Québec, U.S. utilities lock horns over non-payment after deliveries temporarily halted last winter

A potentially explosive legal battle has flared up between Hydro-Québec and utilities in New England after the Canadian hydropower producer suspended deliveries of electricity to the region during an extreme cold spell last winter.

Three electric utilities in Massachusetts – Eversource, National Grid and Unitil – filed a lawsuit against Hydro-Québec in U.S. federal court Sept. 8 over its decision to stop sending clean energy south over two periods totalling 12 days this past January and February. Hydro-Québec has countersued, claiming non-payment after talks between the two sides failed to yield a resolution.

Deliveries were halted a little more than a week after they started under a 20-year supply contract between the utilities and the provincial Crown corporation, one of the world’s biggest producers of hydroelectricity. Quebec was dealing with its own cold snap at the time.

The dispute threatens to undermine the relationship between Quebec and neighbouring U.S. states and weaken the increasingly closer ties forged with over the years as governments seek cleaner and more reliable sources of power. It also comes amid a wider trade conflict between the two countries – one in which energy has been floated as a potential weapon.

Hydro-Québec says it pulled back power deliveries, flowing on a transmission line known as the New England Clean Energy Connect, under “emergency reliability curtailments” to protect the safety and reliability of the grid. It says the prolonged and life-threatening cold weather at the time amounted to a “force majeure” event that suspended its obligations under the U.S. contract.

The Massachusetts utilities counter that Hydro-Québec is under an obligation to deliver “firm” and “uninterrupted” power under the pact, which it failed to do. “Most troubling,” they say in their lawsuit, “the interruptions were imposed in a discriminatory, discretionary and non-transparent manner.”

Hydro-Québec’s conduct and public statements in the months since the interruptions signal that it “will continue interrupting service” under the power purchase agreements as it sees fit, the utilities charge. They’re claiming US$40-million in damages and offsets, which include costs incurred having to buy higher-priced electricity generated from oil-fired operations.

Hydro-Québec doesn’t deny the service interruptions, but says they’re legal. It says it delivered more than one million megawatt-hours of power to the three energy companies in January and February in all – US$50-million worth of power the utilities haven’t paid for. Instead, the company says they’ve “deliberately withheld” the funds they owe as a form of compensation for the costs they incurred when the Quebec power was not available, calling the tactics “an inappropriate form of self-help.”

“Hydro-Québec’s position is straightforward: The electricity was delivered and received and therefore must be paid for,” Lynn St-Laurent, a company spokesperson, said in an e-mail. “Hydro-Québec is asking the courts to enforce the parties’ contractual obligations.”

Power deliveries to New England continue as normal, Ms. St-Laurent said. Hydro-Québec remains “a reliable supplier” of renewable energy and a long-term partner in the Northeastern United States, she said.

The contract with the Massachusetts utilities is one of three long-term supply agreements Hydro-Québec has with U.S. states. The utility also supplies Vermont and New York, the latter under a new transmission line called the Champlain Hudson Power Express that went live for commercial operations in May.

Critics have questioned whether Hydro-Québec, and by extension the Quebec government, made the right move in signing these long-term export pacts given it faces increasing demand in its home market and pressure on its power-generation resources. The utility is dealing with a drop in its northern water reservoirs that it hasn’t experienced since the 1960s.