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While N.L. is reluctant to start Churchill Falls talks with Quebec, experts say it’s inevitable

It’s very rare for a Quebec premier to show so much interest in Newfoundland and Labrador.

But over the last month François Legault has frequently talked about how keen he is to sit down with Andrew Furey

“In the next few months we have to negotiate the contract with Newfoundland and Labrador for Churchill Falls,” he told reporters in January.

For 50 years Quebec has enjoyed cheap plentiful power from Churchill Falls. One estimate suggests that as of 2019 Quebec had reaped $28 billion from the deal, with Newfoundland and Labrador getting only $2 billion.

Quebec is buying electricity for just 0.2 cents a kilowatt-hour and selling it to its customers for 7.3 cents.

But in 18 years the deal runs out and Legault is determined to make sure Quebec doesn’t lose access to 15 per cent of its power.

Quebec’s energy problem

People who’ve met with Legault say he’s motivated by two things: protecting the French language and building Quebec’s economy.

Much of the province’s industry has been built on access to cheap electricity, and the push to decarbonize only means the demand for other sources of energy is going to grow.

Quebec’s analysis says by 2050 the province will need an additional 100 terawatt-hours, or three times the total output of Churchill Falls, in additional power.

while n l is reluctant to start churchill falls talks with quebec experts say its inevitable
Nearly all of the electricity generated at Churchill Falls is sold under contract at a rock-bottom price to Hydro-Québec. That contract expires on Aug. 31, 2041. (Nalcor Energy)

That’s going to be difficult enough without losing access to the power from Churchill Falls, which would be a huge setback.

Eighteen years may seem like a long time but Hydro-Québec needs to plan. If it’s going to lose Churchill Falls power, then it needs time to build other power generation, new dams, wind farms and other sources of power.

That’s why Legault wants to try to work out a deal now. He knows Newfoundland and Labrador has a strong position heading into negotiations, especially if Quebec doesn’t have a backup plan.

That’s why he’s been pressuring Hydro-Québec to start planning for new hydro projects.

Five people sit around a long boardroom table, a single Quebec flag sits in the background
Legault and Quebec Energy Minister Pierre Fitzgibbon meet with officials from Hydro-Québec to discuss negotiations with Newfoundland and Labrador for Churchill Falls power. (François Legault/Twitter)

Right now it has no new dams in development, and he’s been pushing them to change that.

“I don’t want to have no B plan in my pocket and be obliged to accept whatever the tariff Andrew Furey is proposing me,” he told reporters in January.

Quebec if necessary but not necessarily Quebec

Legault has offered to come to Newfoundland to meet Furey. He’d like it to happen in the coming weeks, but so far Furey hasn’t agreed to any talks.

Furey is still doing his homework; this week he’s received a report from a committee setup last year to examine what’s in the best interests of the province.

He won’t say what’s in the report but says he might not do a deal with Quebec. He said he’s “not convinced” just yet the right course of action is to come to an agreement with Hydro-Québec.

“We haven’t had a chance to fully dissect the 2041 panels,” said Furey. “Once I have the ability to do that, we’ll have a strategy in place and then we’ll see where it goes from there.”

Furey’s options could include finding new industry in Newfoundland and Labrador to use that power, or selling it to other customers.

But the coolness to Quebec could be a negotiation strategy. Furey has said the Churchill Falls asset grows more valuable by the day, showing he’s willing to wait.

“I think he is very clear in his public position that they need a deal, they want a deal,” Furey told CBC News.

“We’re in the luxurious position of, you know, perhaps wanting a deal but not needing a deal, and there’s a very different, very different strategy that will play out as a result of that.”

Quebec the logical partner: experts

Several energy experts CBC News talked to said the most logical option, for a couple of reasons, would be to reach a deal with Quebec.

First, Churchill Falls produces a lot of power, enough to power all of Newfoundland and Labrador three times over, so will need a big customer.

Second, the infrastructure is already there.

Selling that power to New England, the Maritimes or Ontario would mean building new transmission lines.

“As Newfoundland has demonstrated with its efforts at the Muskrat development, long-distance transmission of power is a very difficult,” said Tom Adams, a retired energy analyst based in Ontario.

The Labrador-Island Link is a 1,100-kilometre high-power line connecting the Muskrat Falls dam to Newfoundland. Six years after construction was completed, it’s still not commissioned because of software problems, making it unable to carry its full power potential.

Even Quebec has struggled to build a power line to sell energy to New York, facing opposition alone the route through the United States.

A lot of money but N.L. has to share

Any deal is expected to result in a much higher price than the 0.2 cents Quebec currently pays.

The latest dam built by Quebec, La Romaine 4, is producing power for more than 10 cents a kilowatt-hour.

If Newfoundland and Labrador could get six cents, still likely cheaper than new dams, it could lead to about $1.8 billion a year in revenue for the Churchill Falls (Labrador) Corporation, of CFLco, the company that owns and operates Churchill Falls.

A large dam holds back water on a river
The La Romaine 4 dam is the latest to be built by Hydro-Québec. The power costs more than 10 cents a kilowatt-hour. ( LAMBERT GAGNÉ-COULOMBE/Radio-Canada)

Newfoundland and Labrador owns only about two-thirds of the company, Quebec owns the other third, meaning that province’s cut would be about $1.2 billion.

That’s enough to pay for K-12 education in Newfoundland and Labrador.

The joint ownership limits Newfoundland and Labrador’s options; it can’t just decide to sell the power on the cheap to customers within the province but has to try to get the best price.

An agreement signed in 1999 also limits the ability for CFLco to make some big changes without Quebec agreeing as well.

A man stands with his hands in his pockets in front of a display of books
University of Ottawa economics professor Jean-Thomas Bernard says Quebec is likely to offer the best price for electricity because other customers would require expensive transmission lines. (Submitted by Jean-Thomas Bernard)

Jean Thomas Berdard, an economics professor at the University of Ottawa, expects a deal between the two provinces, because the alternatives for both sides will be more expensive

“Quebec will be willing to pay, I think, next to the cost they will have to bear if this power is not available to them, and that’s huge, but basically that will be their maximum price,” he said in an interview.

“Newfoundland will not be able to get a better price either, in the sense that any deal with someone else will involve more in terms of transmission costs.”

Eloise Edom, a research associate with an energy institute at École Polytechnique in Montreal, says there is time for Newfoundland and Labrador to shop this power around to new industries.

“Newfoundland and Labrador will be able develop some new project, with some new industries. For example they’re looking for hydrogen.”

A woman in a white shirt smiles for the camera
Energy researcher Éloïse Edom says there may be some opportunity for Newfoundland and Labrador to develop some new industry to use the power from Churchill Falls, given the 18-year lead time before the current contract expires. (Émilie Ferguson/Submitted by Éloïse Edom)

So far most of the projects to generate hydrogen have been building their own wind power, but a source of green cheap power could be attractive.

But Adams, warning that hydrogen is still an uncertain business, says it’s only a matter of time before Legault and Furey sit down.

“I don’t see any rational basis for for Newfoundland to walk away from the table. That just sounds crazy to me,” he said.

Read more from CBC Newfoundland and Labrador

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