Newfoundland and Labrador Premier Andrew Furey needs no reminding that every one of his predecessors, from the mid-1970s onward, tried and failed to get a better deal on the 1969 Churchill Falls hydroelectricity contract that has produced gargantuan profits for Quebec and only tears of bitterness for the citizens of his province.
Like almost all Newfoundlanders, Mr. Furey knows the history of Churchill Falls by heart.
Over the course of more than four decades, and constant litigation, one Newfoundland premier after another was stymied in their attempts to force a renegotiation of the original contract that enables Hydro-Québec to purchase more than 5,000 megawatts of power from the massive Churchill Falls hydroelectric generating station in Labrador at a fraction of its market value.
Newfoundland ran out of legal options in 2018, when the Supreme Court of Canada ruled that neither the “doctrine of unforeseeability” nor the “principles of good faith and equity” required Hydro-Québec to reopen the fixed-price contract to reflect soaring market rates for power. As a result, Hydro-Québec continues to pay only 0.2 cents per kilowatt-hour for power from Churchill Falls that it resells to domestic and foreign customers at 25 to 50 times that rate.
It is now Mr. Furey’s turn to try to correct that imbalance.
The Churchill Falls contract expires in 2041, which, in utility-planning terms, is just around the corner. Mr. Furey must soon decide whether to try to negotiate a new deal with Quebec or to seek alternative customers for Churchill Falls power within his province, such as the fast-growing Labrador mining industry that continues to rely on diesel generators, or beyond its borders in Ontario or New England.
“This is an incredibly emotionally charged topic for Newfoundlanders and Labradorians,” Mr. Furey said in an interview. “That said, there is no mistaking that Newfoundland and Labrador is in the best [negotiating] position it has ever been in, largely because of the disruption in energy markets, climate change and the demands for greening the [North American] electricity grid.”
An expert panel struck last year to advise the government on its options submitted its final report on Monday. Mr. Furey’s government is not making the panel’s report public to avoid weakening the province’s bargaining position. But it is hardly any secret that Mr. Furey has an ace up his sleeve.
Emissions-free power from Churchill Falls is likely critical to Quebec’s economic future, as Premier François Legault seeks to turn his province into a hub for the mining of critical minerals, electric-battery component manufacturing and green hydrogen production.
The Quebec Premier last month said he is considering building “four or five” new hydro projects in his province “to have a Plan B for Churchill Falls” and avoid being “obliged to accept whatever tariff” Mr. Furey might propose.
But opposition to new dams in Quebec could interfere with his strategy. And it would be hard for Quebec to produce enough hydro or wind power on a cost-effective basis to replace the power from Churchill Falls.
“I will say that Plan B would be a difficult one for Quebeckers and for Premier Legault,” Mr. Furey said. “You just have to do the math.”
In a submission last week to Quebec’s National Assembly, Hydro-Québec revealed that it has received requests from industrial users for a total of 23,000 MW of power for future factories, smelters and hydrogen production facilities. Quebec Economy Minister Pierre Fitzgibbon later said the province is likely only to approve requests for between 8,000 MW and 10,000 MW by 2032. Even so, it’s hard to see that happening without Hydro-Québec maintaining access to power from Churchill Falls after 2041.
Mr. Furey insisted a deal on Churchill Falls is possible before his current mandate ends in late 2025. He refused to say whether such a deal might include joint development of a 2,250 MW dam downstream from Churchill Falls at Gull Island.
In 1998, Newfoundland and Quebec reached a tentative deal to jointly develop the site. But the project never moved forward. Newfoundland instead decided to develop the 824 MW Muskrat Falls project in Labrador on its own, with disastrous financial results.
Hydro-Québec currently estimates its marginal cost of production at 11 cents a kWh, suggesting new dams in Quebec would face even higher production costs than that. No potential hydro project in Quebec could likely compete on a cost basis with Gull Island.
Gull Island is widely considered the most attractive undeveloped hydro site in eastern North America. Mr. Furey said any future discussion about developing the site “would be done in consultation with Indigenous partners should we choose to go down that road.” His first priority is addressing the “punitive” Churchill Falls contract.
Luckily for him, he has a much stronger hand to play than any of his predecessors.