The price (and the revenue) that NL will get from the sale of the Churchill River’s energy is determined not by the seller (NL) as such, but by the MOU’s so-called ‘market-based’ block pricing formula — a formula that will produce prices that are directly or indirectly 90% controlled by Quebec.
Generally speaking, the intent behind “market-based” pricing is to ensure that the price of electricity reflects current market conditions rather than being fixed at a historical rate.
Such a decision should be one that would not only avoid the inequities of the 1969 contract but would also benefit Quebec — a province that by far already has the lowest electricity rates in Canada.
While a true market-based electricity pricing model would reflect real-time supply and demand conditions (prices that are dynamic and responsive to current market conditions), and while the MOU ensures that Quebec’s ‘market-based’ pricing will be the determining factor in the Churchill River pricing structure, Quebec’s history has been and continues to be one that has significant government/regulatory intervention.
For decades Quebec’s energy market price has been and continues to be unduly and increasingly influenced by a complex interplay between Quebec’s actual market conditions and the provincial government’s intrusion into its so-called “market-based” pricing process.
While Quebec’s energy board, the Régie de l’énergie, plays a significant role in setting electricity rates and its decisions are influenced by factors such as demand growth and inflation, the Quebec Government’s intervention and the province’s regulatory board both influence/reinforce the market conditions and are influenced by them, leading to a complex feedback loop that benefits only Quebec and keeps the Quebec ‘market-based’ price low [https://www.cbc.ca/news/canada/montreal/quebec-energy-board-hikes-up-rates-by-3-6-per-cent-1.7477352].
For the last 25 years electricity rates in Quebec have been consistently and increasingly below Canada’s inflation rate. Given Quebec’s historical record of keeping rates below the inflation rate, how effective then will the MOU’s fixed 2% escalator clause be? The Quebec/NL MOU pricing formula will ensure that Quebec’s government/regulatory intervention will continue [https://www.hydroquebec.com/residential/customer-space/rates/comparison-electricity-prices.html?form=MG0AV3&form=MG0AV3].
Quebec’s “Bill 69 enacts a financial assistance program (administered by Hydro Quebec) to limit the impact of electric power distribution rate increases on the domestic ratepayers and establishing the Fonds d’aide à la clientèle domestique d’Hydro-Québec. This enacted legislation provides, among other things, that the government will establish the terms and conditions of a financial assistance program, that the program is administered by Hydro-Québec, and that a fund will be established…” [https://www.fasken.com/en/knowledge/2024/06/comment-le-nouveau-projet-de-loi-vous-affectera?form=MG0AV3].
The creation of the Fonds d’aide à la clientèle domestique under Bill 69 can have a significant impact on the MOU’s market-based block price calculation by providing financial assistance to domestic customers, influencing market dynamics, and stabilizing prices. The government’s role in establishing and overseeing the program adds an additional layer of influence on how block prices are set and adjusted.
In essence, the fact that Quebec’s regulatory decisions are based on “controlled” market conditions, which in turn, are shaped by those very decisions, such a circular interplay makes it challenging if not impossible to disentangle the effects of market forces from regulatory actions, leading to a complex and opaque MOU pricing structure.
The term “market-based” price is misleading if the market in question is heavily influenced by one party—in this case, Quebec. It creates a complex situation where the pricing model is circular, as the price is influenced by the very entity that is purchasing the power. Essentially, it becomes a closed-loop system where the price can be self-determined.
David Vardy recently wrote that the MOU “leaves us without a formula which can redress the inequities of the past and, more importantly, correct them for the future”. He went on to state that the MOU instead gives us “a formula, as reported by Francis Vailla of La Presse, which places the greatest weight on the rates paid by residents (of Quebec), of which Churchill Falls is already a big part”. He correctly and very importantly points out that — “This is circular reasoning … (and that)… We are left with no floor or minimum price…The adjustment formula must be renegotiated” [https://unclegnarley.ca/2025/02/revenues-strangled-by-mou-formula-favours-quebec/].
Quebec government policies limiting the impact of rate increases can indirectly influence the block price calculation by encouraging Hydro-Québec to adopt pricing strategies that align with policy goals. Financial assistance can stabilize demand, reduce the need for significant price adjustments, impact market dynamics and pricing strategies and lead to more moderate and even lower block price increases to remain competitive.
Lower block prices resulting from the financial assistance program can lead to reduced revenues for NL. In short, the financial assistance program can create downward pressure on block prices through subsidization, government influence, market dynamics and economic factors. This can lead to reduced revenues for NL.
Make no mistake, the MOU pricing formula will ensure that Quebec can and will keep rates low — the kind of low that will prevent Newfoundland and Labrador, our children, grand-children and great grand-children from ever receiving the kind of revenues that they rightly deserve.
Editor’s Note: Maurice Adams is retired after more than 30 years with the Canadian Coast Guard, NL Region. During his career he was engaged in the planning and development phase of a variety of technical, marine navigation, and related special projects in support of maritime safety and protection of the environment.