The construction site of the hydroelectric facility at Muskrat Falls, Newfoundland and Labrador. About a quarter of Newfoundland's 545,000 residents are older than 65.Andrew Vaughan/The Canadian Press
Voters in Newfoundland and Labrador are about to exercise their democratic franchise in the most important election their province has faced since it joined Canada in 1949.
Indeed, the whole country has a big stake in the Oct. 14 election that will determine the fate of a proposed massive energy deal with Quebec, a deal that would go a long way toward addressing Newfoundland’s dire fiscal straits and avert a federal bailout of the province.
The financial reality facing Canada’s most indebted province (relative to the size of its economy) is stark.
Newfoundland has Canada’s oldest population; about a quarter of its 545,000 residents are older than 65. Despite a small increase in recent years, its population is expected to start declining again as Ottawa cuts immigration levels, leaving Newfoundland with fewer taxpayers to fund program spending that, on a per capita basis, is the second-highest in Canada after tiny Prince Edward Island.
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Worse still, offshore oil revenues, which made Newfoundland a “have” province, are falling as the oldest North Atlantic wells approach the end of their productive lives. The government recently announced that the 2025-26 provincial deficit will be 70-per-cent higher than it projected in the April budget because of lower-than-expected oil prices.
Liberal Leader John Hogan, who became premier after Andrew Furey stepped down in May, is campaigning on a pledge to follow through on a December memorandum of understanding (MOU) between Newfoundland and Labrador Hydro (NLH) and Hydro-Québec that would put billions of desperately needed dollars into his province’s coffers.
Crucially, under the MOU, Hydro-Québec would pay almost $20-billion more for power from the Churchill Falls hydroelectric development in Labrador between now and 2041 than it is required to pay under the terms of an existing power-purchase agreement signed in 1969. Those payments would increase exponentially after 2041, and total more than $200-billion by 2075.
In exchange, Hydro-Québec would take the lead on $25-billion in new hydro developments on the Churchill River, including the long-sought-after construction of a 2,250-megawatt dam at Gull Island, in partnership with its Newfoundland counterpart.
The new power would help supply Quebec’s clean-energy needs as it moves to become net-zero by 2050. The developments would also be a boon to the Newfoundland economy, creating thousands of construction jobs.
The MOU is mind-bogglingly complex and, because of the long timelines involved, difficult to evaluate given the uncertainty surrounding future electricity prices. The Furey and Hogan governments did themselves no favours by refusing to submit the MOU for review by the province’s Public Utilities Board, raising concerns about transparency.
Those concerns grew after a member of a panel Mr. Furey created to oversee the MOU resigned, saying last month that the group’s independence had been “impaired” and that it lacked critical information to assess the agreement.
Progressive Conservative Leader Tony Wakeham seized on the resignation, promising to end the “sham” Liberal review and “renegotiate better terms” with Quebec if his party wins the Oct. 14 election.
“It appears the Liberals are trying to lock us into another 50-year deal with Quebec, and the people of our province will again lose out financially,” Mr. Wakeham said this month, adding that he would put any future hydro deal negotiated by a PC government to a referendum.
The risk now is that politics gets in the way of common sense if Newfoundlanders allow their antipathy toward Quebec over the1969 contract (which was lopsided in favour of Hydro-Québec) cloud their judgment. Some critics of the MOU are milking this deep-seated distrust toward Quebec to poison public opinion. And not for first time.
When he was in power, between 2003 and 2010, then-PC premier Danny Williams vowed that Newfoundland would never do another deal with Quebec. His disastrous decision to go it alone on the 824-megawatt Muskrat Falls hydro project nearly bankrupted his province. All Canadian taxpayers are now on the hook for that boondoggle after Ottawa stepped up with $7.9-billion in loan guarantees on Muskrat Falls debt and another $5.2-billion to subsidize electricity rates in Newfoundland.
And all because of bad feelings toward Quebec?
A judicial inquiry into the Muskrat Falls fiasco found that the “frustrations felt by politicians and others in Newfoundland relating to Hydro-Québec, particularly as a result of the 1969 Upper Churchill contract, were leveraged for the purpose of promoting the project.”
Opponents of the MOU are deluding themselves if they think better options will magically appear if the agreement with Hydro-Québec falls through. The prospect of an out-of-province energy company or government partnering with Newfoundland on hydro projects is slim indeed, given the daunting logistics and costs of transporting Labrador power to markets beyond Quebec. And going it alone is a non-starter; neither Newfoundland nor Canada can afford another debacle like Muskrat Falls.
That should give Newfoundlanders a lot to think about before Oct. 14. Or not.