Electrical transmission cables to Quebec at the Churchill Falls hydroelectric project in Labrador. The governments of Quebec and Newfoundland and Labrador have reached a new agreement over the hydroelectric station.Greg Locke/Reuters
Quebec and Newfoundland and Labrador are vowing to put aside decades of bad blood over the Churchill Falls hydropower station, cementing what they’re calling a historic deal that will see them invest and work together on future electricity development worth tens of billions of dollars.
Under an agreement in principle that was unveiled Thursday in St. John’s by premiers François Legault and Andrew Furey, Quebec would secure a key source of power. Newfoundland would win significantly more revenue for its existing power generation and clinch a partner with deep pockets and technical know-how for three new production projects along Labrador’s Churchill River.
The provinces have agreed on a new contract for power generated in Labrador for 50 years to 2075, including increasing the price of energy from the existing Churchill Falls station to 5.9 cents per kilowatt hour from the current 0.2 cents (Quebec would pay 4 cents on a net basis). That means Newfoundland, as majority owner of the station, would obtain a far fairer price compared with the current fixed-price contract, according to deal documents.
“This changes everything,” Mr. Furey said. “With this agreement in place, we will have a generational impact on the growth and the prosperity of Newfoundland and Labrador.”
“It was urgent for us,” to find a solution ahead of the current agreement’s expiry in 2041, Mr. Legault said. “It’s an extraordinary opportunity we have here, both provinces together.”
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The pact, hammered out over roughly 15 months of intense negotiations, reflects a desire by both provinces to move past the bitterness that has often characterized their relationship.
Quebec is betting that having to pay more for what is now a ridiculously cheap chunk of power is worth it because it gives the province a guaranteed quantity of supply for five decades at a time other jurisdictions like Norway are paying more than $1 per kw/h. The province also gains access to new power in the process.
Newfoundland is wagering that giving that access will generate billions for the province at little risk, because Quebec will build and pay for the bulk of the new infrastructure and assume most project cost overruns. To some extent, say analysts, any new deal would be better for Newfoundland than the existing one.
Mr. Legault is the first Quebec premier who’s been open to renegotiate the Churchill Falls deal, which he acknowledged is lopsided in Quebec’s favour. In exchange, he’s won long-term supply certainty at a time that the province badly needs more electricity.
The province is facing mounting pressure on its power supply, most of which is generated by Hydro-Québec’s network of dams and hydroelectric stations in the province’s north that were built decades ago. It is predicting an end to its electricity surpluses by 2026.
The Churchill Falls contract was originally signed in 1969. Under the current contract, Quebec purchases about 4,800 megawatts of power from the station at 0.2 cents a kilowatt-hour. That’s a fraction of the energy’s market value, which Hydro-Québec resells for multiple times more.
Newfoundland launched a legal bid to reopen the contract but the Supreme Court of Canada rejected the challenge in 2018.
The value of the power to be generated at the existing Churchill Falls site under the new 50-year pact is $33.8-billion, as measured in 2024 dollars. There will be no change to the current shareholding of the company that controls the Churchill Falls station, with Newfoundland and Labrador Hydro holding 65.8 per cent and Hydro-Québec holding 34.2 per cent.
The provinces have also agreed to launch three new hydropower generation projects at an estimated cost of $25-billion. Under the deal, Hydro-Québec would buy 90 per cent of the new power the projects yield, and pay a share of construction costs proportional to those volumes, the deal documents show.
The biggest among the three projects is a long-talked-about facility downstream from the Churchill Falls station at Gull Island, which the partners want to get into service by 2035. Hydro-Québec has agreed to make $3.5-billion in payments over 10 years to Newfoundland to gain access to Gull Island, as “an incentive” for its neighbour.
The two provinces also want to develop a new generation station at the Churchill Falls site. And they plan to increase turbine capacity at the existing site. The Churchill Falls station currently has a generating capacity of about 5,400 megawatts, enough to power about 1 million homes.
With the new pact, Quebec would get access to 7,200 MW of power in all at a lower price than any other renewable option in North America, according to Hydro-Québec’s documents. It would pay a price for the current and future power from Labrador – an average of 6 cents per kilowatt hour – that’s half that of all comparable alternatives, according to Hydro-Québec.
The utility says the deal would allow it to limit electricity rate increases to 3 per cent for household consumers and to between 4 and 5 per cent for commercial and industrial customers. About 15 per cent of Quebec’s power currently comes from the Churchill Falls site.
The new agreement is preliminary and non-binding at this stage, serving to guide future talks. That means current contracts remain in effect. Months of additional work needs to be done toward a final deal, said Hydro-Québec chief executive officer Michael Sabia. That includes obtaining backing from First Nations communities, he said.
Tony Wakeham, leader of the Official Opposition in Newfoundland, said the proposed deal sounds like a lot of money that will benefit the province, but it’s important to dig deep into the details before entering another such long-term deal with Quebec.
Mr. Furey said the legislature would open for a special session to debate the deal in January, but Mr. Wakeman said he expects the Premier to follow through on an earlier promise to allow independent experts to weigh in.
He said the timing of the deal is raising questions. “Why are we rushing this at the moment? We have the power. Quebec has the need. The whole issue is let’s make sure we get this right.”
The next election in Newfoundland has to take place on or before Nov. 24, 2025.
The province’s experience in undertaking on its own the 824-megawatt Muskrat Falls hydro development, which has gone billions of dollars over budget and led to a federal bailout, has underscored the need for the government to attract outside partners to proceed with any other development. That includes the much larger 2,250 megawatt Gull Island hydro project.
“Premiers Furey and Legault have laid out a detailed road map for a global scale mega project,” said former Newfoundland premier Brian Tobin, who’s now vice-chair of BMO Financial Group. “It is a win/win in that it provides badly needed power for Quebec and long overdue prosperity for Newfoundland and Labrador.”
Mr. Furey made a show of ripping up the old agreement at Thursday’s news conference, setting himself up as a salesperson for the pact, said Russell Williams, a professor of political science at Memorial University. “In a sense it almost feels like he’s suggesting this is his legacy – he’s the premier of the province that got this done,” he said.
Mr. Legault, who faces re-election in 2026, is framing things in much the same way. “I want that in 50 years, our grandchildren are happy about this deal,” the premier said. “This is a historic day for future generations.”
With reports from Robert Fife.
Editor’s note: (Dec. 13, 2024): Due to an editing error, the full identification of Memorial University political science professor Russell Williams was missing from a previous version of this article. This version has been updated.
Editor’s note: The story has been clarified to reflect that Quebec will pay 4 cents per kw/h of power on a net basis, factoring in the dividends it earns from its minority ownership stake in the Churchill Falls station.