A controversial energy deal has sparked concerns among experts, leaving many questions unanswered. The Churchill Falls memorandum of understanding (MOU), a potential game-changer for Newfoundland and Labrador's energy landscape, has been met with skepticism. An American energy expert, Robert McCullough, with decades of experience monitoring Hydro-Québec's dealings, warns that key details are still unclear.
The Promise and the Reality
The MOU aims to replace the 1969 Churchill Falls contract, a long-standing agreement that has been criticized for its lack of an escalator clause and opportunity for renegotiation. Under the old contract, Quebec purchased most of Churchill Falls' power at rock-bottom prices, reselling it for substantial profits.
Newfoundland and Labrador Hydro, along with the former Liberal provincial government, promised a "future-proof" deal, with the new Churchill agreement projected to generate $227 billion in revenue for the province by 2075. This deal includes an immediate price spike for Churchill Falls power, a significant win for the province, according to the Liberals.
However, McCullough highlights a critical issue: the absence of defined "exit ramps" and adjustment clauses. He emphasizes that these details are not minor, given the billions of dollars at stake.
The Price Conundrum
The price of power at the existing 5,428-megawatt Churchill Falls plant is a central concern. Officials at N.L. Hydro state that the price will be based on a "basket of measures" to ensure future-proofing and price increases over time. These measures include Quebec's power supply price, the market price of power in the northeastern United States, and the replacement cost of power in Quebec, referring to the cost of new generation or expansion projects.
But the final formula remains a subject of ongoing negotiations. In a 2025 article, La Presse reported that the indexing formula for existing Churchill Falls power was primarily based on Hydro-Québec's power supply price, with a smaller portion tied to the market price in the northeastern American states.
McCullough, who has supported First Nations in legal battles against Quebec energy projects, finds this arrangement comparable to other Hydro-Québec deals. However, he raises doubts about the future of Gull Island, a project slated for construction downriver from Churchill Falls, with a price tag of $24.9 billion.
Gull Island's Uncertainty
Despite the promise of a massive 2,250-megawatt block of power at Gull Island, McCullough suggests that less risky alternatives within Quebec could be considered, involving upgrades to existing Hydro-Québec plants and the addition of new wind assets. He argues that the price formula for existing Churchill Falls power, which considers Quebec's total energy supply and replacement costs, directly impacts the final bill for Gull Island, influencing the price of electricity produced upstream.
Both Hydro-Québec and N.L. Hydro have remained tight-lipped about current cost estimates for Gull Island, citing an independent review of the MOU underway in Newfoundland and Labrador. The review panel's findings are due by the end of April, after which these questions can be better addressed.
A Controversial Legacy
The 1969 contract has been a thorn in the side of Newfoundland and Labrador premiers for generations, with repeated failed attempts to renegotiate. The current deal locks in a bargain-basheet price of 0.2 cents per kilowatt-hour for most of Churchill Falls' power, but Quebec agreed to negotiate a new agreement to secure access to new generation on the Churchill River.
Supporters of the MOU believe it will transform the province's finances, paying off debts, subsidizing energy bills, funding new infrastructure, and boosting the local construction sector. Detractors argue that it still undervalues Churchill Falls' power, the deal's duration is excessive, and it may not withstand the test of time.
David Vardy, a former Public Utilities Board chair and vocal critic of the deal, echoes McCullough's concerns about announcing the MOU without finalizing the mechanism for increasing Churchill Falls' power price, stating, "That is my exact view."
The controversy surrounding the Churchill Falls MOU highlights the complexities of energy agreements and the need for thorough consideration of all details to ensure a fair and beneficial outcome for all parties involved.
