Watt Friends We have

When the lights went out in California last month, cash registers rang up north. In one critical 24-hour period on Jan. 18, British Columbia Hydro supplied more than one-third of the power desperate Californians needed to stave off a statewide blackout. The rescue didn't come cheap: the utility may have earned $3 million from the deal. "It's been a windfall," admits B.C. Hydro spokesman Wayne Cousins.

In the past seven months, B.C. Hydro has earned more than $700 million by selling power to energy-starved U.S. buyers--more than twice the $290 million earned from U.S. sales in the previous fiscal year. But this bounty hasn't come worry free. The intricate Canada-U.S. grid that links energy producers and consumers--and that makes it so profitable for B.C. Hydro to transmit power south--is in growing disarray. The consequences could be even higher prices and more uncertain supplies for Canadians as well as Americans. "We need a stable energy system on the continent," says Ray Hart, deputy director of the Department of California Water Resources. "I don't know if we'll get it." In particular, rising doubts about deregulation could impede Canadian plans to finance increased energy production, which in turn could help the U.S. avoid blackout.

Canada and the U.S. are in a kind of energy symbiosis. In 1999 Canada exported more than 38 million MW hours, but the number has reached as high as 50 million in recent years. In turn, U.S. demand is an important factor in building many Canadian energy projects. The hunger for power in the Western U.S. spurred plans to build more than 4,000 MW of new generating capacity in Alberta over the next five years, and a dedicated transmission line south to capitalize on American demand has also been on the provincial wish list. Similarly, Ontario and Quebec are counting on becoming bigger players in the U.S. market to generate profits needed to build plants at home. "No one can stay aloof from this market," says an Ontario Power Generation official. "You can't just integrate on one level. You have to work out how price, supply and environmental issues fit together." But the goals depend on an upsurge in U.S. power-grid investment that can be assured only by more complete deregulation of energy markets. The aftershocks from California place that prospect in doubt.

The current grid, the result of nearly a century of evolution, was developed to distribute electricity in an age when most production was run by states and provinces. Today a haphazard quilt of regimes governs transmission across thousands of miles of wire. Ontario, still contemplating deregulation, shares power with New York State, which is fully deregulated, and with Michigan, which is not. A huge transmission line from James Bay in northern Quebec can carry 2,000 MW of power south, but when the juice reaches the grid to New England, U.S. wires are capable of transmitting only 1,500 MW. "There's a tremendous need for the U.S. to spend more money on its part of the power grid if we want this market to work," says Thierry Candal, vice president for production at Hydro Quebec.