The Definitive Cooperation and Implementation Agreement (DCIA) contains Strong Disincentives for the Construction of the Gull Island Project
On September 17, 2026 the Government of Newfoundland and Labrador sealed the future of Churchill Falls (CF) for next 51 years to 2077. As a direct consequence of Premier Wakeham’s government, and its endorsement of the DCIA, also referred to as MOU2, Hydro Quebec (HQ) and the people of Quebec will remain the principal beneficiaries of the CF plant for another half century. This is a first.
Wakeham gives away Churchill Falls
People generally believe that a former Premier and government signed away CF initially. That is not true, Premier Smallwood was not a signatory to the 1969 contract, nor was any agency of our government. The 1969 contract was a private agreement between Brinco and Hydro Quebec. Newfoundland and Labrador did not become a significant owner of CF until the Moores administration acquired the ownership of Brinco through a share purchase in June, 1974 for $160 million.
History will record that Premier Wakeham, his PC colleagues and independent MHA Eddie Joyce were the first and only members of a government of Newfoundland and Labrador to transfer control of the rights and benefits of Churchill Falls to the people of Quebec.
What has NL secured?
NL has secured from the DCIA:
- a pre-determined annual payment for a volume of capacity and energy being sold to HQ through CF(L)co for the 51-year term of the agreement;
- an increase in CF energy of 300 MWs from its current allocation of 525 MWs to 825 MWs. This CF additional energy amounts to 125 MWs from 2033, a further 75MWs in 2053, and an additional 100 MWs in 2063. The energy will be purchased at the same average price HQ pays CF(L)co over;
- enough energy (125MWs) to potentially supply the development of a new mine in Labrador west after 2033;
- 100 MWs of additional CF capacity from the 1275 MW expansion of the CF plant through the upgrade project for its 65.8% investment in the project. The additional energy and capacity from the CF upgrades will be purchased at its cost of production including an agreed return on deemed equity;
- $1.3 billion in payments for providing HQ with the exclusive option to develop the Gull Island site for a period of 12 years; and
- a $1 billion grant from the federal Government for the construction of a transmission line from CF to Labrador west to increase the delivery of additional energy from CF.
What has HQ Secured?
HQ has secured from the DCIA:
- access to the majority of the energy from CF for agreed fixed annual payments. Note: the volumes of energy from the existing CF plant are dependent on whether HQ decides to construct Gull Island. HQ’s decision to develop Gull Island will result in its energy allocation being in the range of 4765MWs (in 2027) declining to 3660MWs (in 2061). In the event HQ decides not to proceed with Gull Island then its range of energy allocation from CF will be 4765 MWs (in 2027) down to only 4465 MWs (in 2063);
- CF energy for prescribed annual payments that are subject to adjustment a cumulative CPI index that guarantees no material change in the payments over the 51- year term of the contract;
- CF energy for 51 years with no relationship to changes in the electricity market over time;
- CF energy that employs the existing 1961 lease which determines the rates for water rent and royalty with no change to 2077;
- 1175MWs, or 92%, of new capacity and energy from the CF upgrades. Note: these upgrades will be financed solely through CF(L)co. As majority owner, NL finances 65.8% of the $4.8 capital cost. The capacity and energy is then sold to HQ at cost for 50 years; and
- the exclusive option to develop the Gull Island site for a period of 12 years from date of signing definitive agreements for an option price of $1.3 billion paid to NL
What hinges on Gull Island
All of the additional allocations of energy from CF and the CF upgrades to NL depend on HQ proceeding with the development of Gull Island. In addition, all the other benefits such as premium pricing and transmission access, that are portrayed as achieved benefits under the DCIA by GNL, NL Hydro (NLH) and its team of negotiators/experts are all subject to HQ’s decision to build Gull Island.
Dependent on HQ’s Gull Island decision are:
- the additional energy and capacity to NLH:
- 805 MWs from the existing CF plant;
- 188 MWs from the CF upgrades; and
- 266 MWs from Gull Island.
A total of 1259MWs, or 76%, of NL’s energy allocations depend on the HQ Gull Island decision;
- the balance of the $3.5 billion ($2.2 billion) in equity committed by HQ to be paid to NL;
- the transmission access to HQ’s existing New England, New York and Ontario market contract pricing; and
- the premium pricing options for CF energy.
The Disincentives to Gull Island
The DCIA contains many disincentives for HQ regarding Gull Island that strategically work against NL. As you read this, keep in mind how this will impact the job creation promise of Premier Wakeham.
The DCIA clearly demonstrates the total lack of strategic planning by GNL, NLH, and its negotiators. The conclusions and recommendations of the Independent Review Commission were explicit, their report having stated “…unacceptable risk allocation for NLH” regarding the low energy allocations from the CF plant, if HQ decides against developing the Gull Island site. Our negotiators failed to address the 2024 MOU’s most serious weaknesses or follow the IRC report.
While the GNL, NLH and its negotiators have included the financial additions, the jobs, and extra energy allocations as achievements, these benefits are directly dependent on HQ’s decision regarding Gull Island. Nothing in the DCIA obligates HQ to provide any of these benefits. The fact is that the DCIA only secures the items noted above, no more. All other pronouncements are blatant misrepresentations. To put it another way, the people of NL have been misled by the governing elected officials and the people chosen by the Premier to represent them.
One should ask why, after two rounds of negotiations, has NL failed to lock-in the Gull Island Project? Even despite federal loan guarantees and tax credits, HQ has maintained its sole discretion over the development with no commitment to build. The only change in the DCIA from 2024 MOU is a reduction in the exclusive option timeframe to 12 years, from about 20 years. The answer to that question becomes rather obvious to informed observers – Gull Island is not an economic proposition for HQ. That is worth repeating — Gull Island is not an economic proposition for HQ.
The following summary review of the cost of the Gull Island project highlights the inherent disincentives in the DCIA to its development for HQ .
- Extra Energy Capacity – If HQ decides to build Gull Island it has to relinquish a lot of energy and capacity from CF. In total, HQ has to give up 993MWs of very low-cost CF energy/capacity to NLH. HQ relinquishes an additional 805MWs from the existing CF plant and it gives up a further 188MWs from the CF upgrades. This represents over 50% of HQ’s Gull Island share of 1984 MWs (88.2% HQ’s share of total 2250 MW energy/capacity) at Gull Island. HQ is faced with a decision to gain only 991MWs in total from the development of Gull Island. It is this incremental energy which will decide whether it is feasible for HQ to build Gull Island and it will be the focus of the analysis that follows.
- Cost of Gull Island- The capital cost of the generation plant at the Gull Island site is currently estimated at $29.1 billion. The cost of related NLH transmission in Labrador is estimated at $5.9 billion (to be built by HQ). The cost of HQ transmission within Quebec is unknown and has not been disclosed. However, it would be reasonable to estimate that its cost will be as much or more than that required by NLH. Therefore, the total capital cost of Gull Island and its related high voltage transmission is approximately $40.9 billion (assumes HQ’s transmission cost is the same as in Labrador). Consequently, HQ’s incremental cost (88.2% HQ’s share of $40.9 billion, or $36.1 billion, deducting $6.5 billion in federal incentive grants nets the cost to $29.6 billion), for the additional Gull Island energy/capacity of 991 MWs, is extraordinarily high and totally beyond reason. On an incremental basis it is a cost of $29.9 million/MW, or $29,900/kW (see comparison of this cost to other energy sources appended).
- 3. Gull Island Stand Alone Cost – Considering the capital costs of Gull Island on its own also raises many questions as to the project’s economics. The initial MOU estimated the Gull Island capital cost at $24.9 billion with Labrador based transmission estimated at $3.6 billion, or a total, excluding HQ transmission, of $28.5 billion. The DCIA now estimates these costs at $35 billion.
The high capital cost of Gull Island has always depicted a highly questionable economic picture. By comparison, the Muskrat Falls project was completed at a cost of $13.5 billion and it is totally uneconomic. Its direct comparison to Gull Island from a capital cost perspective is as follows:
The table above demonstrates how economically challenging the development of Gull Island will be even with federal loan guarantees. The costs on a unit basis per MW, or per terawatt, are well beyond the costs incurred to construct Muskrat Falls. These estimates do not account for the loss of 993 MW to HQ as a result of the DCIA.
While HQ’s network is well positioned to absorb high-cost capital additions, its alternatives for energy and capacity within its own jurisdiction are likely much more economically attractive (see appended comparison costs for alternatives).
When analyzed from an incremental perspective i.e. the energy and capacity achieved by adding Gull Island as compared to its alternative energy and capacity guaranteed from CF under the DCIA, the economics clearly dictate that the Gull Island option is without question – a long shot! On an incremental basis Gull Island costs HQ a staggering $29.9 million/MW of capacity, or 1.9 times as much as what Muskrat Falls capacity cost on a comparative basis.
On the basis of additional energy Gull Island would provide HQ with 10.581 TWh annually (12 TWh X 88.2% HQ’s percentage allocation of 2250MWs). If HQ builds Gull Island it relinquishes to NLH 4.934TWh of existing inexpensive CF energy and 0.147TWh from the CF upgrades. The total energy HQ foregoes by building Gull Island from CF is 5.082 TWh annually, or 48% of its gains from developing Gull Island. On the basis of capital cost per unit of energy HQ pays $29.9 billion for an extra 5.5 TWh annually, or $5.4 billion/TWh.
Under the cost- of-service pricing model, publicly stated to start at $0.17/kWh, this cost will effectively be much higher at approximately $0.28/kWh for HQ because it is incrementally only obtaining half the Gull Island (GI) energy for its huge investment cost.
4. CF Premium Pricing – The DCIA includes an option for NLH to sell back its CF energy to HQ at a premium price of 150% of the agreed fixed price in the agreement. HQ will avoid this option by not building Gull Island. Therefore, HQ’s decision to build Gull Island will have to take into account the potential additional cost it will have to pay NLH in the event it decides to build the project because deciding against development means HQ maintains the CF energy and avoids NLH price option. This will be another economic factor that works against NL and favours a decision that prolongs or avoids any Gull Island development by HQ.
Labrador Wind Comparison
The Labrador wind development offers much more favourable economic prospects than the Gull Island development. While it is another development under study at this stage (not unlike Gull Island), the project forecasts 2000MWs of energy at a cost of $8 billion. This is a comparative cost of $4million/MW recognizing that unlike GI, it is not dispatchable. At this cost wind energy appears much more feasible for both HQ and NLH as an attractive comparison to Gull Island, particularly with the CF reservoir and capacity available to back it up . From HQ’s perspective the wind development offers a MW of new capacity/energy for only 11% of its incremental cost for GI energy/capacity. It is not clear whether the wind cost estimate includes transmission links to CF which would be required.
Summary
The DCIA is structured to:
- provide HQ with security for most all the energy from the existing CF plant for a term of 51 years;
- provide HQ with CF energy for fixed annual agreed payments that are not in any way tied to electricity markets, nor to a firm unit price per kWh. And, the fixed annual payments are a fraction of the market value of the CF energy;
- provide NL with a marginal increment – 300MWs of CF energy for the next five decades;
- provide HQ with 1175MWs of new capacity from CF upgrades
- burden NL with 65.8% of the $4.8 billion cost; and
- provide NL with 100MWs from the CF upgrades.
The probability that HQ will construct Gull Island is very low because it is highly uneconomic for HQ to spend $29.6 billion for less than 1000MWs of energy.
Hence, it is highly unlikely that the Wakeham promise of more – jobs, energy, HQ transmission/market access and value from Gull Island will be realized before the 12-year option is up, or ever. GNL is gambling that the giveaway of the CF plant will produce many benefits none of which are secured in the DCIA. The Wakeham promises are being repeated and extolled by NLH officials as well as a host of hired hands being paid by taxpayers. The public interest for truth, openness and transparency in the meantime is not being served.
The DCIA is a subterfuge, or in more ordinary words – a scam – deception.
As Einstein stated: “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe” Einstein’s phrase is not meant to characterize the people of Newfoundland and Labrador or the people of Quebec but the GNL, officials of NLH, and the negotiators/experts representing NL.
Gabe Gregory