In an alarming trend, provincial governments in Canada are threatening to curtail electricity exports to the United States, a move that could escalate tensions and result in rising power bills and increased blackouts across North America. Legal and regulatory experts are expressing strong concerns over this potential fallout.

This week, Ontario Premier Doug Ford announced a hefty 25% surcharge on electricity exports to the U.S., set to take effect imminently. Following suit, Manitoba's government has directed Manitoba Hydro to seek cabinet approval before signing any new power contracts with American clients, while also reviewing existing agreements. Quebec has joined the fray, signaling it is contemplating halting specific electricity transfers to American customers altogether.

These measures threaten to upend decades of mutually beneficial electricity-sharing relationships between the two nations. "Electricity exemplifies the risks of fractured trade; we’ become weaker as both sides lose out,” stated Thomas Timmins, a prominent figure in energy law at Gowling WLG. “We can expect higher electricity prices and a less reliable power supply, leading to more frequent outages.”

Recent data from the Canada Energy Regulator reveals that Canada remains a net exporter of electricity, with a remarkable 27.6 terawatt hours exported to the U.S. in 2023, translating to nearly $4.3 billion in revenue. The provinces primarily responsible for these exports include Quebec, Ontario, Manitoba, and British Columbia.

“Power flows back and forth across our shared border seamlessly, as if there were no division at all,” commented Timmins. However, provincial leaders believe that by withholding electricity, they can assert greater control and leverage in trade negotiations with U.S. officials.

Manitoba Premier Wab Kinew emphasized the strategic importance of electricity exports, remarking, “With the ongoing threats from the U.S. administration, this reveals an area of strength for us—something they rely on heavily."

While Canada’s electricity is consumed widely, even reaching as far as the southeastern U.S., any disruption to exports could raise electricity prices significantly within that market. This situation creates a tactical advantage for Canadian provinces.

Electricity can be exported in two main ways: through the spot market for short-term sales or via long-term contracts at fixed prices. While long-term agreements often promise greater financial returns, they come with complex legal ramifications. Timmins expressed confidence that the provinces would uphold their commitment to power delivery. "They will not casually breach their obligations.”

It's worth noting that despite being a net exporter, Canada still imports significant quantities of electricity from the U.S.—18.4 terawatt hours in 2023, representing ten times the electricity sent to Mexico.

British Columbia’s Energy Minister Adrian Dix highlighted the critical nature of this cross-border electricity trade. “Our integrated North American system allows us to manage drought conditions, and our trading arm, Powerex, generates considerable annual profits," he said. Any disruption to this trade could lead to increased pressure on hydro rates in B.C., compelling rates to rise significantly.

Manitoba Hydro has advocated the financial benefits of electricity exports for years, claiming they accounted for over 22% of its sales in the 2010s, allowing for lower domestic rates. Furthermore, the provincial utility aims to leverage surplus energy from the newly completed Keeyask hydroelectric project.

However, the implications of these export restrictions extend beyond finances. The interconnected North American electricity grid, managed across nine jurisdictions, relies heavily on cooperative dynamics to prevent outages. The North American Electric Reliability Corporation (NERC) has consistently recommended expanding transfer capabilities to bolster grid reliability.

While the NERC has opted not to comment on the provincial measures, it plans to release findings from an engineering study later this year that underscores Canada’s crucial role in the larger North American power system.

The broader impact of these provincial measures remains uncertain, as officials in both Ontario and neighboring provinces have not clarified how they will implement new export charges. The Ontario government has hinted at a rapid introduction of these charges without legislative backing, raising numerous questions about legality and feasibility.

Manitoba and British Columbia officials have expressed willingness to consider similar measures but are cautious about collateral damage to their own markets, aiming to minimize self-inflicted harm. As Premier Kinew noted, "Given the stakes—thousands of megawatts and billions of dollars—we need to tread carefully."

As these provinces grapple with their energy policies, the potential for strained Canada-U.S. relations hangs in the balance. The future of North America's energy landscape is precariously poised, and the eyes of regulatory bodies, business leaders, and citizens alike remain focused on how these developments unfold. Stay tuned for more updates on this evolving situation!