Danny Williams: 'We're not forced to just sell it at the border to Quebec at whatever price Quebec wants to pay for it.' (CBC)

A new deal that will see a small amount of Labrador hydroelectric power flow through Quebec to customers in New York will help set the stage for a still undeveloped hydroelectric megaproject, Premier Danny Williams says.

Newfoundland and Labrador announced Thursday that it is now exporting 130 megawatts of power from the Upper Churchill site, through what is called a "wheeling" deal involving the Hydro-Quebec power grid. Until now, Hydro-Quebec had insisted that only it could purchase any power that Newfoundland and Labrador did not want.

The deal is worth between $40 million and $80 million to Nalcor Energy, the province's Crown corporation. Hydro-Quebec is earning $19 million for the use of its transmission lines.

Williams said the deal — which allows Newfoundland and Labrador to export as much as 250 megawatts of power in the summer months, when domestic demand drops but U.S. demand is surging — sets up the Lower Churchill megaproject, which is still in the planning stages.

"It's also good for the Lower Churchill. It enhances our leverage on the Lower Churchill," Williams told a news conference.

The massive Lower Churchill project dwarfs the amount of power involved in Thursday's deal. If developed, the two sites of the Lower Churchill project will generate 2,800 megawatts of electricity, or enough power to supply about 1.5 million households, according to planning documents released by the Newfoundland and Labrador government.

Williams said the wheeling deal gives Newfoundland and Labrador a stronger foothold for development of the Lower Churchill.

"It shows that our power is not stranded power," he said.

"We're not forced to just sell it at the border to Quebec at whatever price Quebec wants to pay for it."

The wheeling deal was made possible through regulatory changes, including a decision by Quebec's energy regulator in favour of Newfoundland and Labrador's application.

Claude Béchard, Quebec's minister of natural resources, said the deal will work for his province, and that it was easier to accommodate another province's request rather than face possible competition.

"We don't want to have a new transmission grid that will be subsidized by the federal government," Béchard said.

"That's the way that we have to work for the future. That's the way we have to work if we want to keep our capacity in our place."

The Lower Churchill is far from a certainty. The province will require federal government involvement for structuring the financing, and it requires regulatory approval.

Moving the power to market is not determined, either. Newfoundland and Labrador has been emphasizing a route that does not involve Quebec, but would instead draw the power from Labrador to Newfoundland and then through the Maritimes.