Churchill Falls contract countdown hits milestone, as leaders try to temper expectations ahead of 2041 - Action News
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Churchill Falls contract countdown hits milestone, as leaders try to temper expectations ahead of 2041

The contentious Churchill Falls contract that requires almost all of the electricity to be sold to Hydro-Qubec at an extremely low price will expire on Aug. 31, 2041, but those eager for a big windfall in 20 years are being encouraged to temper their expectations.

Energy minister says expert panel expected to be announced within weeks to help province prepare

The countdown to the termination of the controversial Churchill Falls contract has now reached 20 years. The 1969 contract, which was automatically renewed five years ago, will expire on Aug. 31, 2041. (CBC)

The contentious contract that requires almost all of the 5,428 megawatts of electricity generated at Churchill Falls be sold to Hydro-Qubec at an extremely low price will expire on Aug. 31, 2041, but Newfoundlanders and Labradorians hoping for a big windfall in 20 years are being encouraged to temper their expectations.

"I don't think 2041 is going to be all of a sudden bags of cash sitting there waiting for us to exploit. That's not how this works," Energy Minister Andrew Parsons said this week.

Political leaders and pundits in Newfoundland and Labrador are also emphasizingthe important role that Quebec will likely playbeyond 2041, as they look to this province's neighbour to ensure a healthy marketfor the vast amount of hydroelectricity produced by the iconic generating station on the Churchill River in Labrador.

"Quebec is not an obstacle. Quebec is a potential partner," said Ed Hollett, a public policy commentator who's been writing a blog about energy and political issues in Newfoundland and Labrador for many years.

No more 'drug-addled' thinking

"We have to get away from that crazy, 1970s drug-addled thinking that continues to haunt us," Hollett said."That's the stuff that led us into the mess of Muskrat Falls, and it continues to cloud our thinking. Hydro-Qubec may wind up being the most lucrative way to make Churchill Falls work in the long run."

Nearly all of the electricity generated at Churchill Falls is sold under contract at a rock-bottom price to Hydro-Qubec. That contract expires on Aug. 31, 2041. (Nalcor Energy)

St. John's lawyer John Samms agrees. Like most lawyers in the province, he's been captivated by the political and legal turmoil that has characterized the Churchill Falls issue since the original contract with Hydro-Qubec was signed in 1969.

"We share a border with Quebec. In my view we're going to have to work with them," said Samms, who worked as an advisor to former premier Dwight Ball from 2015 to 2019.

Few care to wish time away, but for many in the province, the year 2041 cannot come fast enough.

It will mark the expiry of a contract that has deeply scarred the province as billions in revenue flow to Hydro-Qubec, which purchases Churchill Falls electricity at a price barely distinguishable from free: $2 per megawatt-hour.

In the past, Hydro-Qubec has reported earning up to $85 per megawatt-hour for its electricity exports.

'We got ripped off'

"One of the reasons why I'm so passionate about it when I learned about it as a kid is because we got ripped off," said Samms.

"We did a bad deal. Time to get over it. Time to make it a better deal now," Samms added.

Repeated court challenges have ruled in favour of Hydro-Qubec, saying the government-owned utility assumed the majority of the financial risk to allow for the construction of the station, and has a contractual right to stable, low-priced energy from Churchill Falls.

Ed Hollett is a St. John's-based public policy commentator and blogger who has been writing about energy and political matters for many years. (Gary Locke/CBC)

The original contract expired in 2016, but a 25-year renewal clause automatically kicked in that allowed Hydro-Qubec to acquire energy at an even lower price.

But with the calendar slowly moving closer to the end date for the contract, there's increasing buzz about what the future holds for all that non-carbon-emitting energy, in an era of climate change and a gradual shift away from fossil fuels.

$20Basset

Just how much value is at stake?

In one court document from 2016, a former CEO with Hydro-Qubec valued the Churchill Falls generating station at $20 billion.

Predicting energy prices two decades into the future is far from an exact science, but by his calculations, Hollett believes nearly $800 million in annual profits could be on the table.

All that money won't flow into the province's treasury, however.

The generating station is owned by a company called Churchill Falls (Labrador) Corporation, which is a subsidiary of Newfoundland and Labrador Hydro.

N.L. Hydro owns 65.8 per cent of CFLCo on behalf of the government of Newfoundland and Labrador.

The remaining 34.2 per cent? It's owned by Hydro-Qubec.

The Churchill River in Labrador is one of the worlds most significant sources of hydroelectric power. The massive underground power station at Churchill Falls is carved out of solid granite, and has a generating capacity of more than 5,400 megawatts. (Nalcor Energy)

That's why politicians like Andrew Parsons are careful to remind people that Quebec will have a voice in how Churchill Falls operates in the post-2041 era.

Geographical reality, too, means Churchill Falls power will have to transit through Quebec in order to reach export markets beyond that province, which means costly transmission charges.

Parsons said he's sure a more balanced arrangement will emerge, one that protects the interests of Newfoundlanders and Labradorians, but just what that arrangement will look like remains to be seen.

"I don't think you'll see the power sold at the same level that it has been, which resulted in the historical wrongs, but at the same time it's not automatic," said Parsons.

"There's certain things that are going to go in our favour, but it's also going to require negotiation, it's going to require collaboration and co-operation."

Energy Minister Andrew Parsons says he expects to reveal details on an expert panel that will help determine the best path forward for hydro assets on the Churchill River in the coming weeks. (Mike Simms/CBC)

John Samms added that any financial windfall"will be will be a matter of negotiation.So that means there's got to be a win on ourside, and a win on Quebec's side."

When asked whether a new contract could be negotiated before 2041, one that might include Muskrat Falls and the undeveloped Gull Island prospect, Parsons said it's too early to say.

A new chapter in the Churchill Falls saga

But when it comes to hydroelectric contracts, 20 years is not a long time, and there are growing signs that the province is preparing the groundwork for a new chapter in the Churchill Falls saga.

For example, the political optics in recent years between the two provinces have changed dramatically. Friendly meetings like the one this week in Montreal between N.L. Premier Andrew Furey and his Quebec counterpart, Franois Legault,have replaced years of rancour as N.L. politicians unsuccessfully explored every possible option including legal challenges to the country's highest court to reopen the lopsided Churchill Falls contract.

An inability to reach a deal more than a decade ago that would see electricity from the Lower Churchill transmitted through Quebec resulted in Muskrat Falls, a troubled hydro project that is years behind schedule, billions over budget, and has pushed the province to the financial brink.

The Muskrat scenario, which bypasses Quebec by sending power to Newfoundland and Nova Scotia, was meant to avoid the Quebec "stranglehold" over energy transmission, former premier Danny Williams argued at the time.

But the rhetoric has cooled.

John Samms is a St. John's lawyer who has closely followed the political and legal turmoil related to the controversial Churchill Falls contract, which requires that nearly all of the energy be sold to Hydro-Quebec at an extremely low price. (Terry Roberts/CBC)

Furey described his first one-on-one meeting with Legault as "a healthy exchange of ideas," but saidthey didn't get into the specificsof the Churchill Falls contract.

An expert panel in the works

The Muskrat Falls debacle was the focus of a public inquiry, and one of the recommendations by commissioner Richard LeBlanc is that the province establish an expert panel with a mandate to ensure the province receives the maximum long-term benefits from Churchill Falls and other hydro assets on the river.

LeBlanc has said the panel should be non-political and include experts who can help the government negotiate a new arrangement with Quebec.

Andrew Parsons said process is underway.

"I expect you'll see within the coming weeks the announcement of our panel," he said.

Read more from CBC Newfoundland and Labrador