Connecting two bodies of water for the occasional organism that wants to pass through is a distinct thing from disconnecting two bodies of water for say large numbers of fish that would otherwise swim up a river. The latter is a usual criticism of hydro power, which seems like it doesn't apply to Niagara because it's such a big waterfall.

I wasn't aware of the treaty, that makes sense.

The link about turning off the American side of the falls doesn't really support the implication that there is enough hydroelectric capacity to use up the entire flow of the river. The simplest explanation is that the flow was diverted over to the Canadian falls.