The new Churchill Falls MOU begins with a commitment to transparent communication. Sadly, it fails to deliver truth and transparency. The August 17, 2026, Definitive Cooperation and Implementation Agreement (DCIE, the New MOU) fails to deliver the exaggerated claims that were advertised. Instead, it misleads the public.
The new MOU arose because the independent review committee (IRC) appointed by Premier Wakeham found that the December 2024 MOU, negotiated by former Premier Andrew Furey, was not in the public interest. This led to renewed and accelerated negotiations which resulted in the new MOU. Unfortunately, the alleged improvements on the Furey MOU announced on August 17th do not merit the hyperbole heaped upon them.
Quebec maintains the highly advantageous position it obtained in the 2024 MOU. The chief enhancement is related to proposed investments and financing guarantees for Gull Island by the Federal government, should it be built. While the wind component was presented as an integral part of the development, the only commitment is to a feasibility study. The actual commitments are limited to the upgrades, now costing $4.8 billion and supplying 1,275 MW, up from 550 MW.
Major Weaknesses Remain
Major weaknesses of the 2024 MOU remain unchanged. The new MOU:
- Fails to recognize the true value of our Churchill River resources. It reflects failure to undertake the market research necessary for valuation of this renewable, dispatchable resource.
- Was contrived with undue haste and reflects failure to undertake the preparation urged by the Independent Review Committee (IRC). It lacks focus on the centerpiece, the Upper Churchill plant, by bundling too many projects together.
- Relies upon the Lower Churchill Hydroelectric Generation Project joint environmental report of August 2011 despite the change in scale and configuration, raising into question the impact upon Labrador, the mitigation of adverse impacts and the need for advance planning to maximize local benefits.
- Cedes management control to Hydro Quebec particularly with respect to Gull Island.
- Lacks an adjustment formula establishing market prices for all projects, the Upper Churchill, the upgrades and the Gull Island project.
- Maintains excessively long terms for its power purchase agreements and includes no termination clause.
- Fails to deliver the promised wheeling rights which would allow us to market our energy to customers other than Quebec.
- Delivers no more capacity for Newfoundland and Labrador from the existing plant than the 2024 MOU. The IRC report had recommended more power for industrial expansion, but the 1,630 MW from the Upper Churchill remains the same. If Gull Island does not go ahead then the added capacity rises only by 300 MW, taking the total from 525 MW to 825 MW.
- Imposes pricing arrangements based on costs (cost of service rates) rather than market price, which penalize our province and reduce our revenues, both our royalty revenues and our dividends.
- Fails to make us the principal beneficiary of our resources. Our share should be more than 75% but the old MOU and the new one supply only a fraction of net market value.
- Restricts our right to change the fiscal regime under which we receive revenues after definitive agreements are signed. This restriction was not part of the 2024 MOU. Along with the 51-year term with no exit ramp, it locks the province in a fiscal vice the same as the infamous 1969 power contract!
Hyperbolic Announcement
The hyperbole surrounding the announcement of August 17th disguises its failures. The negotiations began with a focus on obtaining higher revenues to the province from the existing plant. The December 2024 MOU bundled a number of projects, including Gull Island, upgrades of the existing turbines and the creation of a new powerhouse at CF2, with the existing plant. The August 17th MOU adds 2,000 MW of wind to the mix as well as a major federal role in financing the new developments. This bundling will not deliver maximum value from the plant at Churchill Falls, the Jewel in our Crown. Instead, it dissipates our return from the Upper Churchill.
In measuring the scale of the bundled projects at a total of 14,000 MW, valued at almost $70 billion, the new MOU includes the existing plant, by far the largest component, rated at 5,428 MW (5,190 MW after site service). It also includes projects which have yet to be committed because they remain in the feasibility study phase. These include the new powerhouse at CF2, the Gull Island project, the associated new transmission lines and the major new wind project. This is part of the hyperbole. In essence the August 17th announcement included only one project, namely the upgrades, which will be financed by CFLCo, without creating a special purpose vehicle.
Photo Credit: Radio Canada
Gull Island
A federal loan guarantee will support the financing of the Gull Island project if Hydro Quebec exercises its right to develop the project. Hydro Quebec will decide whether Gull Island will be built but the project remains at the feasibility stage. The capacity of the Gull Island project has been increased from 2250 MW to 2,700 MW, but the amount of energy it will produce will remain the same. Despite the new reservoir which would come with Gull Island, the amount of water on the Churchill River remains unchanged.
More capacity for the same water and energy increases the cost and dissipates economic rent. It reduces revenue flows into the Treasury, which must be the major focus in determining whether our province gets its fair share and is the principal beneficiary of our own resources. The higher capacity adds to the hyperbole and detracts from any semblance of transparency. It denies the fundamental fact that the amount of energy is limited by the amount of water in the watershed and the tributaries leading into the Churchill River.
The Gull Island project will be jointly owned by NL Hydro and Hydro Quebec and its power purchase agreement will have a 50-year term. Hydro Quebec’s equity participation of 40% will continue beyond the 50-year term. Control of the entire development, now including the construction of transmission within Labrador, will be undertaken by Hydro Quebec. The energy from Gull Island is mainly for use by Hydro Quebec, as it was under the earlier MOU. HQ remains in control of all decisions related to the GI development including the decision as to if, and when, it will ever get built. The plan to add more capacity will produce more peak energy when required to backstop wind developments that were planned in Quebec and now also proposed for Labrador.
The cost-based price of Gull Island energy will be fixed over the entire 50-year term of its initial power purchase agreement. There will be no escalation in energy prices over 50 years. All of the upside benefits, as market prices increase over the 50-year term, will be for the benefit of HQ which will be taking 84% of the energy. While NL puts up 60% of the investment cost, HQ will take 84%% of the energy at a fixed cost. It is a deal exactly like the original 1969 contract, with no reopeners and no provisions for price change due to increased market value over time.
Access to Upper Churchill Power
The independent review committee had recommended higher allocations for industrial expansion, particularly in the mining sector. The allocations from the existing plant remain the same in the new agreement, namely 1,630 MW (the original recapture rights to 525 MW + another 1,105). If Hydro Quebec decides against commissioning the Gull Island project, the allocation will be reduced from 1,105 MW to only 300 MW, as in the 2024 agreement. The IRC report said this poses an “unacceptable risk”.
Transmission Access
The Premier said that the new MOU would deliver transmission access. We had understood this to mean that we could market and sell our power to third parties in other jurisdictions, using Hydro Quebec’s transmission lines, on a non-discriminatory, cost recoverable basis. The new MOU offers no such rights to sell to third parties other than the rights afforded under an extension of the existing transmission services agreement to carry 265 MW of power to export customers of NL Hydro. It offers the opportunity to sell power to customers of Hydro Quebec but it does not allow us to negotiate with new customers and establish rates for power purchase agreement through a competitive bidding process. It retains an existing transmission services agreement for 265 MW and allows power assigned to NLH to be sold to Hydro Quebec and its customers in the US.
Electric power rate escalation
The new agreement introduces rate adjustments based on the consumer price index but does not establish an adjustment formula linked with energy prices for the sale of power by CFLCo to Hydro Quebec. The proposed escalation factors in the 2024 MOU have vanished and have been replaced by a CPI inflator using 2.06% as a base rate, well below recent inflation trends. Rates will be adjusted if the CPI falls outside a deadband from 1.66% to 2.46%.
The only reference to linkages with market rates is for “synthetic export pricing” surrounding 280 MW of exports. (280 MW at synthetic export pricing – a blend of Ontario, New York and New England spot markets (energy and capacity) for CF/Gull Island/CFU). This suggests we are going backward, not ahead. Remember, it was the the lack of price escalation in the face of rising energy prices which was the single biggest regret from the 1969 power contract.
House of Assembly vs. Public Inquiry + Referendum
The Wakeham government committed to a referendum. Instead, what we now have is a debate in the House of Assembly. We need to know if critics will be given an opportunity to present to the House or whether the only witnesses will be NL Hydro and its hired experts. The Furey MOU was scrutinised by an independent review because Premier Wakeham did not accept that a debate in the House of Assembly was sufficient. To his credit he commissioned an independent review. Will he now afford the new MOU a full transparent inquiry?
As Justice Louis D. Brandeis said, sunlight is the best disinfectant. Accordingly, a full, open public inquiry is the best way to shine the light on the new MOU. All witnesses should give sworn testimony under the scrutiny of a Supreme Court Judge and should be questioned in the full light of televised cross-examination.
Premier Wakeham told the province that there would be no rush. We would not negotiate on Hydro Quebec’s timetable. Churchill Falls will not become a stranded power plant but will become increasingly valuable as 2041 approaches. Now he has changed his tune. There is a big rush and the House will be brought into emergency session with less than a month’s notice. The new MOU will not be subject to an open public review. This is a violation of the public trust which was integral to the election of the Wakeham government.
There should be both a public inquiry as well as a referendum. The public inquiry, with open public hearings, should be chaired by a Supreme Court Judge who would ensure that testimony is presented by a range of expert witnesses and not just by acolytes of the proponent. The special session of the House of Assembly which debated the 2024 MOU in January of 2025 heard only from NL Hydro and its consultants. It shed no sunlight on the 2024 MOU.
The referendum would be informed by the information supplied to the inquiry by the proponents as well as by independent experts. The public should be encouraged to engage and participate in the public Inquiry. Once the public has been informed through the public inquiry, government should hold a referendum before deciding on whether to endorse the new MOU or reject it. The final decision should be left to government. The impact of the MOU will be of such a scale as to demand a full inquiry and a referendum.
Principal Beneficiary
The market value of the annual energy from the existing plant is in the $4 to $5 billion range. The 2024 MOU delivered revenues to the provincial Treasury in the amount of about $400 million annually. It is unlikely that the new MOU will deliver materially more.
How much of the economic rent should we target? After 2041, when the 1969 power contract expires, we should receive 100% of the net market value but our immediate goal should be to secure at least 75%. That should be the benchmark or litmus test for the new MOU.
Fettering The Fiscal Sovereignty of the Province
The new MOU appears to fetter the right of the province to raise water rentals and royalties. This fettering would be a big mistake. Changes in our fiscal regime offer an alternative avenue for extracting revenues on behalf of the owners of the resource, an alternative which may be better than dividend revenues, which must be shared with Hydro Quebec.
Exhibit C of the new MOU adds an additional restriction on our constitutional rights and it provides a DEFINITION OF DISCRIMINATORY ACTION. It will likely prevent the Government of NL from adding or amending any Act after the definitive agreements are signed. The public announcement made no reference to this significant concession.
The province should not limit its ability to reap the economic rent from resource development by limiting its fiscal flexibility. The key statute is the 1961 statutory lease which set the framework for developing Churchill Falls. The Supreme Court of Canada determined that the 1969 power contract fettered our freedom to change the statutory lease. When combined with the 51- year term this fettering locks our province into an unacceptable strangle hold by Quebec.
Cost-Based Pricing
The upgrades, the Gull Island project and its associated transmission lines will all be on a cost-of-service basis, which means that tariffs and rates will be based on costs incurred, including return on capital. NL will be the major investor in the Gull Island development. Our equity and debt investment will approach $18 billion but we will only get 16% of the energy. Hydro Quebec, as the principal purchaser of the power (84%), will benefit from rising markets because they will continue to pay the same rate even when market prices are rising. This denies the owner of the resource, namely the people of the province, access to the profits which could flow from rising market prices.
The upgrades to the eleven turbines at Churchill Falls will be carried out by CFLCo of which GNL is the majority owner. Its capacity will be 1275 MW and its cost $4.8 billion. This new capacity will be mostly for the benefit of Quebec but we will bear a majority of the cost as two thirds owner of CFLCo. Quebec will receive power at a stable rate and will be immunized from rising market prices. To ensure we derive full benefit from its development we need to impose royalties and other taxes. Cost-based pricing will limit our revenues both from Gull Island and the upgrades because it denies us access to market value. Instead, the new MOU should deliver competitive market prices.
Our water rentals are based on a net profit tax but cost-based rates will keep profits and revenues very low. Our ability to extract market value depends both upon our ability to charge market prices and our right to impose water rentals and royalties commensurate with the market based profitability of the enterprise. The MOU hits the province with a double whammy. It prevents us from raising the net profit tax and it shifts the profit to Hydro Quebec. The new MOU not only fails to reverse cost-based pricing in the 2024 MOU but it also limits our right to raise water rentals and royalties.
Conclusion
The unmeasured and unmitigated environmental impact, both that of the modified and expanded Gull Island Project, and the cumulative effect of the bundled projects, demands more attention.
Instead of unbundling the existing plant from other developments it now bundles Churchill Falls with wind development in Labrador. It conflates the Upper Churchill with other highly uncertain projects and potentially cross subsidizes them. It diverts public attention from the main agenda item which is the correction of the inequity and iniquity of the 1969 contract. It perpetuates the old 1969 contract by failing to deliver physical and economic access to other North American markets. It does not deliver on the promise of transmission access. It fails to deliver a formula to adjust the value of Churchill Falls power based on changes in the marketplace for electric power. It potentially locks the province into the 1961 statutory lease, perhaps to the end of the lease, which is renewable in 2061 for another 99 years.
The undervaluation of our resource is egregious. If there were periodic renewals there would be some prospect of rectifying the enormity of the shortfall. The 51-year term precludes such an opportunity for redress.
The electricity produced at Churchill Falls would be sold to Quebec at an average price of 6.2 cents per kilowatt-hour, which Premier Christine Fréchette said could lead to savings of $200 billion over the course of the deal. Speaking of the Parti Quebecois, said: “Where will they find the 10,000 megawatts we are bringing to Quebec with that agreement? At what cost will they bring new megawatts? Where will they take them? How will they create 20,000 jobs?” she asked.
In conclusion, the government should reaffirm its commitment to a referendum which should be undertaken only after a public inquiry, chaired by a Judge of the Supreme Court, to determine if the new MOU is in the public interest, delivering full market value. Failure to commission a referendum on the new MOU is a violation of Premier Wakeham’s promise to the electorate of Newfoundland and Labrador. The current MOU proposal also fails to deliver on the promise that any deal would make our Province the principal beneficiary of our Churchill River resources.
The new MOU locks the province in the grip of an unacceptable strangle hold by Quebec. It is not in the interest of the province and must be rejected.