HYDRO-QUEBEC, thwarted in its plans to build a mega-project in northern Quebec, is close to doing a deal with Newfoundland that would produce just as much power, or maybe even more.And it would be as much as $2.6 billion (Canadian; US$2.3 billion) cheaper than the proposed C$12.6 billion project at Great Whale in northern Quebec. The Great Whale project, already put on hold for one year by the Quebec government when environmental criticism discouraged customers in the northeastern United States from committing to more power, was stalled even further last week. Canada's Federal Court of Appeal ordered an environmental review to be carried out by the federal government. That review, requested by Cree Indians living in the area, will be in addition to another study being done by environment officials in Ottawa. "The Crees' right to an independent parallel federal review ... must be honored," wrote Justice Paul Rouleau. He ruled that the hydro-electric project cannot proceed until the review is completed. Experts anticipate fewer environmental problems in largely unpopulated Labrador, which is part of the province of Newfoundland. There Newfoundland and Quebec plan two dams to produce 3,088 megawatts of electricity. The Great Whale project would produce 3,060 megawatts. "If we came to an agreement within the next three to nine months, we could start construction in 1994 and be delivering power in the year 2000," says Don Barrett, of Newfoundland-Labrador Hydro, the provincial government utility and counterpart of Hydro-Quebec. The hydro-electric project takes advantage of a drop in the Churchill River from the high inland Labrador Plateau to the Atlantic Ocean. The first dam would be built along that river at Gull Island, producing 2,264 megawatts of electricity. The second at Muskrat Falls would turn out 824 megawatts. There already is a giant hydro-electric site in Labrador at Churchill Falls. It takes advantage of a huge drop - 1,025 feet, more than three times the height of Niagara Falls - to produce 5,428 megawatts of electricity. The project was completed in the late 60's and all of the power is sold to Hydro-Quebec, at what now seem to be ridiculously low rates. Hydro-Quebec pays Newfoundland 2.2 cents per kilowatt hour for electricity under a contract that runs until 2020; the rate then drops to 1.6 cents per kilowatt hour until 2040. When the contract was signed it seemed a good deal for Newfoundland; that was when oil was about $1 per barrel; today Quebec sells that power to New York State and the New England States for as much as 10 cents a kilowatt hour. And a ruling by the Supreme Court of Canada says the contract is valid until 2040. The new deal is much more favorable to Newfoundland. Quebec would take about 2,000 megawatts but the island of Newfoundland would receive 800 megawatts of power through a 650 miles power line across Labrador and under the Strait of Belle Isle to the island and then on to St. John's, the capital. The cost of the entire power line would be $1.5 billion. Just getting it under the 11-mile-wide Strait of Belle Isle would cost $600 million. Icebergs, floating down from Greenland, pose a problem. They sometimes scrape the bottom of the ocean floor in the Strait of Belle Isle. Hydro-Quebec is aware of the sensitivities of the Newfoundlanders who still smart over the cheap Churchill Falls power. But both provinces want the electricity. "The Newfoundlanders want to make a deal they could be prouder of than that of the 5428 megawatts from Churchill Falls," said Pierre Bolduc, vice president of external markets at Hydro-Quebec. He is part of the team negotiating the deal and says an agreement is close. "The difference between what we're demanding and what Newfoundland is offering is in the order of 15 to 20 percent." It is estimated by Hydro-Quebec that the cost per kilowatt hour would be around 3.1 cents, compared with 4.4 cents a kilowatt hour for power from the Great Whale project. One reason is that transmission lines and power corridors from Labrador to Quebec are already in place. Mr. Bolduc emphasizes that the negotiations are all business; there is no grudge politics involved either over the old Churchill Falls deal or over the Meech Lake Constitutional Accord, which Quebec wanted but which was killed in June 1990 by Newfoundland Premier Clyde Wells. Newfoundland, Canada's poorest province, is keen to attract industries that provide jobs outside traditional areas of fishing and pulp and paper. "With a sizable amount of power Newfoundland would become an attractive place to do business," says Mr. Barrett of Newfoundland-Labrador Hydro. "With our unemployment rate we could use some of the jobs created by aluminum smelters and other industries which have located in Quebec because of low cost power." Barrett would not say whether the project is a certain deal. But he did say that Nefoundland-Labrador was "cautiously optimistic" that it would go ahead. Bolduc said an agreement could be reached in six to 12 months.