Date: October 2, 2025
The people of our province deserve adequate support for Newfoundland and Labrador Hydro (NLH)’s claim that “the price for power will increase from 0.2 cents to an “effective average of 5.9 cents per kWh (in 2024 dollars)”. I believe this claim to be inaccurate and misleading as explained below.
During the January 6, 2025 Extraordinary Debate in the House of Assembly, Premier Hogan in reference to the 5.9 cents stated “ I think it’s important for the public to understand how those sales work and, I think that can be discussed, probably by you, a little bit more thoroughly about what that price means, how that price is calculated over the course of a number of years and how it rolls out of Schedule F”. Note the reference to Schedule “F” not Schedule “G”, the only number on Schedule F is $33.8 billion (pv). Premier Hogan’s and Ms. Williams full exchange is set out in Appendix A.
As a result of the proposed pricing structure for the Churchill Falls (CF) power purchase agreement (PPA) the estimated transfer of wealth to Hydro Quebec (HQ) amounts to a minimum of $131 billion.This amount relates only to the proposed CF PPA. To be clear, this estimate does not include the additional transfer of wealth related to providing power from the new developments to HQ at cost without any link to market price now or in the future or of granting HQ a 40% perpetual equity interest in the Gull Island Joint Venture (GIJV).
The MOU results in an outrageous transfer of wealth to HQ and is an outright betrayal of the people of this province and all future generations.
Significant revision required to my September 21, 2025, commentary and analysis
I am compelled to provide a revision to my September 21, 2025 commentary and analysis due to an invalid assumption which was recently brought to my attention. My goal was and still is to provide accurate and complete information to the public as best I can. Unfortunately, based upon misleading information on the nlhydro.ca website, I made an invalid assumption in preparing Table 1 attached to my previous analysis. In attempting to demonstrate the potential impact of an inadequate inflation risk premium, I inadvertently revealed a much more significant finding concerning the effective average price per kWh for the power from the existing CF facility – 5.9 cents.This finding has a significant impact on the anticipated outcomes of the MOU and specifically the order of magnitude of the transfer of wealth to HQ. I do not intend to revise my previous commentary as the additional comments and analysis herein should suffice.
In preparing my recent analysis I relied upon information provided by NLH in their document titled “The Churchill Falls MOU: Just the Facts” dated September 9, 2025 (see nlhydro.ca).
The “Just the Facts” document states: – FACT: This agreement secures a fair, market-based price for power increasing the price 30-fold. This “FACT” is supported by the statement “the price for power will increase from 0.2 cents to an effective average of 5.9 cents per kWh (in 2024 dollars)”– see schedule F.
Based upon this information I assumed that by dividing the $33.8 billion (pv) amount by the effective average price of 5.9 cents (pv) per kWh I could determine the total energy units allocated to HQ throughout the contract. I did not compare the result with the total energy units allocated to HQ stated on the Government of Newfoundland and Labrador (GNL) website ourchapter.ca in a document dated January 21, 2025. If I had done so I would have realized the discrepancy and pursued the matter further.
REALITY: Schedule F makes no mention of an effective average of 5.9 cents (pv), but it does state HQ will pay a total of $33.8 billion (pv) in respect of the volumes of electricity from the existing CF plant. This volume allocation underpins the estimated number of energy units provided to HQ throughout the contract amounting to 1,267.6 TWh as per the energy allocation information noted above. This translates into 1,267.6 billion kWh. See Appendix B.
The effective average price per kWh may then be determined by dividing the value of $33.8 billion (pv) by 1,267.6 billion which amounts to 2.7 cents per kWh (pv). The resulting price of 2.7 cents (pv) is virtually the same as the inflation adjusted initial 1969 price of 2.6 cents. It is also 3.2 cents less per kWh than the effective average of 5.9 cents per kWh (in 2024 dollars) stated in the aforementioned “Just the Facts” document.
The significance of this is that the minimum benefit accruing to HQ over the term of the contract by avoiding replacement cost alternatives is the spread between the effective average price of 2.7 cents and 13 cents (HQ’s current replacement cost which some estimate to be 16 cents), or 10.3 cents per kWh. In total, the minimum estimated savings provided to HQ from the proposed new CF PPA alone amounts to 10.3 cents x 1,267.6 billion kWh = $131 billion. The 5.9 cents effective average claim is both inaccurate and misleading.
What was the origin of the effective average price of 5.9 cents per kWh (in 2024 dollars)?
The term “effective average” is a synonym for “weighted average” which is a much more common term. In this case the present value calculation of $33.8 billion is weighted by both the annual volume allocation and annual price per kWh.
If 5.9 cents per kWh is not the effective average price per kWh (in 2024 dollars), then what is it? During the January 6, 2025 Extraordinary Debate in the House of Assembly, Ms. Williams explained the 5.9 cents as follows:
“Starting this year at 5.9 cents [in 2024 dollars], you escalate it at 2% a year. All of the revenue over the next 51 years will be a net present value $33.8 billion, or $195 billion”. [should be $125.1 billion].
The calculation Ms. Williams described (the Williams model) is set out in Appendix C. This model confirms the effective average price per kWh to be 2.7 cents (pv). The effective or weighted average price of 5.9 cents per kWh (in 2024 dollars) is not supported by this calculation. Rather, 5.9 cents is the base price in 2024 dollars that when escalated at 2% a year for 51 years and applied to the annual power units allocated to HQ, amounts to a nominal value of $125.1 billion. Each nominal dollar annual payment is then discounted to determine the $33.8 present “value” of all the power to be purchased by HQ throughout the term of the agreement.
How was Schedule G developed?
Once this $33.8 billion “value” was established by using the Williams model, the schedule of annual payments was clearly rejigged to meet the cash flow needs of both parties. This gave rise to the Schedule G model – Appendix B. Under this model payments start in 2025 at a price of 1.6 cents per kWh (not 5.9 cents) and escalates to 37.2 cents per kWh in 2075. The present value of 37.2 cents paid in 2075 is 2.1 cents today; this is half a cent less than inflation adjusted 1969 price of 2.6 cents. The annual price per kWh set out in Schedule G bares no relationship whatsoever to market price. Schedule G payments are structured solely to manage cash flow over a 51-year period to deliver the AGREED present “value” of $33.8 billion. It must be noted that under both models the present value of the average annual payment from HQ to CF(L)Co is $663 million and that due to its shareholding HQ recovers 35%. This leaves NLH with an average of $430 million per year in 2025 dollars. Hardly transformative.
It is shocking to recognize that under the Williams model for 30 years, as highlighted in red, the present value price per kWh is less than the 1969 inflation adjusted price of 2.6 cents. Under the Schedule G model, it is 18 years. It is also quite shocking to recognize the dramatically different negative cash flow implications for the province by rejigging the payment stream set out in the Williams model to the payment stream set in the Schedule G model. For example, in 2025 the payment from HQ under the Williams model would have a present value $1.628 billion versus $449 million in the Schedule G model. The Schedule G model significantly reduces the magnitude of payments to CF(L)Co in the early years, and backloads the payments in the latter years. Besides depriving CF(L)Co/NLH/GNL of larger cash flow payments in the earlier years, this model results in a huge unwarranted inflation risk in the latter years – see Appendix D.
Conclusions
- The commercial terms of the MOU are disastrous for our province and provide a huge transfer of wealth to HQ, $131 billion from the proposed CF PPA alone: it is worse than 1969.
- The effective average price per kWh is 2.7 cents (pv) not 5.9 cents (pv).
- The starting price of 5.9 cents (2024 dollars) in the Williams model is at least 55% lower than HQ’s current replacement cost. It should be much, much higher.
- Schedule G payments are not based on market price per kWh (e.g. 1.6 cents in 2025 etc.) and expose CF(L)Co/NLH/GNL to significant inflation risk.
Appendix A – Extracts from the January 6, 2025 Extraordinary Debate in the House of Assembly
J. WILLIAMS: Thank you, Speaker, for that question.
I will likely start, and I expect I’ll ask my colleague, but I do want to go to the joint news release with both jurisdictions of Newfoundland and Labrador as well as Quebec. If you could bear with me for a moment.
Yes, so this would have been the news release between Quebec and Newfoundland and Labrador on December 12. This was a joint news release that obviously both parties approved the content. I think it’s a really good question because it’s such a complicated deal; there are a lot of numbers out there and it can be very confusing.
But the 5.9 cents you will see contained in the joint press release, that is what is the effective price that Hydro-Québec is going to pay CF(L)Co for the power that it will receive over the pending 51 years. It does not take into account – and it’s in here – it does not take into account any mixing with Gull Island power or any other developments. It is 5.9 cents solely for the existing generation. Now, again, it is an effective price. This is why I’m going to start, but I do ask my colleague, Mr. Parsons, to jump in as necessary.
It is derived on taking the forecasted $33.8 billion payments that Hydro-Québec will pay CF(L)Co, and then putting that into today’s dollars. Then when you take that, today’s dollars, and you change that into a cents per kilowatt hour, it is 5.9 cents. Again, Hydro-Québec have also signed off on that.
There is some confusion in the public that there might be a different number. They are talking about using dividends and ways to mitigate rates, so that’s why there are sometimes different numbers. But this joint press release says very clearly that the effective price to be paid starts at 5.9 cents and it escalates. I don’t know if it says at that point, Walter, but it escalates at a range of about 2 per cent over time.
It’s really, really important because there’s a lot of confusion out there and we totally appreciate that a number of very interested and intelligent members of the public are trying to pull together publicly available information and coming up with different numbers. But it is 5.9 cents effective per kilowatt hour.
I don’t know, Mr. Parsons, if you would like to add, if that’s okay?
W. PARSONS: Sure.
You can see on the website, the ourchapter.ca, we have published annual pricing based on current forecasts. So each year from 2025 to 2075 is there, laid out by year and you can see there is a ramp-in period where the price starts at 1.6 cents in 2025.
W. PARSONS: Sure. So the pricing does climb to 7.8 cents in 2041 and then up to as far as 37 cents by the end of the contract. The six cents is a way of using today’s dollars to summarize that series of escalating pricing.
SPEAKER: The next speaker.
••••••••••••••••
J. HOGAN: Thank you, Speaker, I’m losing my voice already.
Speaker, I have some questions for Ms. Williams. I think she said earlier she’s looking forward to talking about Schedule F. Schedule F is written in, I would suggest plain English but it’s properly not that plain for a lot of people. But in the course of myself asking questions over the last little while, the number 5.9 cents has come up. I believe that would be the price that is being sold to Hydro-Québec from CF(L)Co, but my understanding, of course, is that that’s not a set price. The 5.9 cents doesn’t really – it’s not a number that’s in the MOU in and of itself, but I think it’s important for the public to understand how those sales work and, I think that can be discussed, probably by you, a little bit more thoroughly about what that price means, how that price is calculated over the course of a number of years and how it rolls out of Schedule F.
J. WILLIAMS: Thank you very much, Mr. Speaker.
I’m pretty sure I’ve got the gist of the question.
The 5.9 cents, I referenced earlier is a number that represents, in today’s dollars, a starting point for what this power will now be paid for by Hydro-Québec for the power it’s going to take, including its financial commitments. If you think about Hydro-Québec for this moment, they are considering is this a project they want to continue with, with regard to their best alternatives, long term. Newfoundland and Labrador Hydro, we’ve talked about this earlier today, with the Churchill River Energy Analysis Team we did a lot of analysis. With the 2041 panel we did a lot of analysis.
Then during negotiations with Hydro-Québec we’ve done a lot of analysis to determine what is a fair price to be paid for this energy, understanding all of its characteristics, as well as its location, the existing partner that we have, the 17 years early, all of those aspects. When we take all of those aspects, and through the negotiating period with Quebec, we believe that on a forecast basis, $33.8 billion for the electricity that Hydro-Québec will take from the existing plant is a fair price that splits the value between us and Hydro-Québec in a manner that we think is fair.
But then we represent that in today’s dollars with the number 5.9 cents. Basically, you take the 5.9 cents, and to get essentially the same number, $33.8 billion, starting this year at 5.9 cents, you escalate it at 2 per cent a year. All of the revenue over the next 51 years will be a net present value of $33.8 billion, or $195 billion. So that’s essentially what that 5.9 cents is.
Appendix B
Appendix C
Appendix D
Inflation Risk Premium
Selection of a discount rate is critical as it converts the stream of future payments set out on Schedule G into today’s value. Some people have suggested that in my analysis I have double counted inflation. I respectfully disagree.
As there has been no explanation offered as to the components of the 5.822% discount rate, we are left to work it out. As discussed in my commentary there are two components to a discount rate: the time value of money component and a market risk premium. The time value of money component itself also has two components: the risk-free real rate of return and an inflation risk premium. For example, the return on 10-year Canada bond reflects the expected rate of inflation. If inflation exceeds expectations, the value of the bond will go down and if inflation goes high enough, the bond will provide a negative return and will be traded at a discount. In long term contracts it is critical to provide a sufficient inflation risk premium as the discount rate once selected is static, the inflation risk premium is locked in. Actual inflation reduces the value of future payments not the estimated inflation rate captured in a discount rate.
The components of the 5.822% discount rate appear to be a 5% market risk premium (as set out in the MOU) and 0.822% return to cover both the real return and inflation risk premium. In my view, the discount rate should be at least 8.6%, comprised of the current bond rate of 3.6% plus the agreed risk premium of 5% = 8.6%. This aligns with the expected cost of capital in the GIJV. However, the current Canada bond rate does not attempt to estimate the average inflation rate over the next 50 years.
In my view, the discount rate does not reflect the significant inflation risk premium associated with a 50-year term, particularly in light of the backend loaded stream of payments. My suggestion is the historical average annual inflation rate since 1969, 3.83% should be considered. A discount rate of 9.65%, (5.822% + 3.83%) may be more appropriate. Obviously, all such risk assumptions impact the discount rate and the present value calculations.