The new Churchill Falls agreement promises to rewrite the economics of one of Canada’s largest hydroelectric developments more than a decade before its notoriously lopsided power contract expires.
Under the agreement in principle announced on Monday, Newfoundland and Labrador will begin receiving substantially more for Churchill Falls electricity starting in 2027, rather than waiting for the existing contract to expire in 2041.
But the agreement goes far beyond that. The province will also gain control of substantially more electricity, secure new ways to benefit from export markets and pursue major new hydroelectric, transmission and wind developments.
The province estimates the overall package is worth $49 billion in today’s dollars, up from $36 billion under the rejected 2024 memorandum of understanding.
Ottawa is backing the deal with up to $10 billion in financing and other support, which the province values at $3.5 billion in today’s dollars, including a federal loan guarantee for Gull Island.
Here’s what you need to know about this large and complex deal and the questions that remain.
Is Newfoundland and Labrador getting fair value for Churchill Falls?
There is little question the province will receive a lot more for Churchill Falls electricity than it does today. Hydro-Québec will pay 1.8 cents per kilowatt-hour beginning in 2027, up from 0.2 cents today, with the price rising to 11.5 cents by 2041.
Hydro-Québec, by comparison, received an average of 14.5 cents per kilowatt-hour on electricity sold outside Quebec in 2025, although that figure reflects a mix of markets, contracts and trading activity, so it isn’t directly comparable to Churchill Falls.
Newfoundland and Labrador estimates the new Churchill Falls contracts alone are worth $38.6 billion in today’s dollars and would extend to 2077.
But David Vardy, a former chair of the province’s Public Utilities Board and a long-time critic of the previous agreement, said comparing the new arrangement with one of the most unfavourable power contracts in Canadian history sets the bar too low.
“What I’m looking for is value,” he said.
He believes the better measure is Newfoundland and Labrador’s share of the “economic rent,” essentially the value left over after the costs of producing and transmitting the electricity and reasonable returns on investment are accounted for.
Vardy and other critics have proposed that the province should receive 75 per cent of that remaining value after 2041, though that is their benchmark rather than an independently established definition of a fair deal.
He also questions how well the agreement protects the province against electricity market changes over its 50-year term. The new pricing includes adjustments tied to inflation, but he said that doesn’t necessarily ensure the price will keep pace with what electricity is worth.
“We needed markets, electric power markets, not the consumer price index ,” he said.
François Bouffard, an associate professor of engineering at McGill University in Montreal who studies electricity systems, takes a broader view.
“They made the pie bigger,” he said.
Newfoundland and Labrador’s allocation from the existing Churchill Falls plant will more than triple to 1,630 megawatts from 525 megawatts, while Hydro-Québec’s share would fall to 3,660 megawatts from 4,765 megawatts.
The province could use that power domestically or sell unused electricity back to Hydro-Québec at 150 per cent of the base contract price, with three years’ notice to change its allocation.
Does the province finally get access to outside markets?
For decades, one of Newfoundland and Labrador’s biggest disadvantages has been geography. Moving large quantities of electricity to customers elsewhere in Canada or the United States generally means going through Quebec.
The government said the new agreement provides 985 megawatts of access to export markets, but that figure requires some unpacking.
Of that amount, 240 megawatts will receive pricing that is equivalent to Hydro-Québec’s New York contract and another 200 megawatts will be priced at an equivalent to its New England contract. A further 280 megawatts would receive a synthetic price based on markets in Ontario, New York and New England.
In those cases, Newfoundland and Labrador only delivers electricity to the Quebec border rather than selling it directly into those markets. The government said the remaining 265 megawatts will be used for direct market access using transmission rights Newfoundland and Labrador Hydro already holds.
Vardy said the crucial test is whether the province can directly negotiate with customers outside Quebec, pay Hydro-Québec a reasonable fee for using its transmission system and retain the remaining value of the sale.
“We’re probably never going to get market price unless we can deal directly with the final customer,” he said.
Why build a bigger Gull Island if it doesn’t produce more electricity?
The proposed Gull Island development would grow to 2,700 megawatts from about 2,250 megawatts, while the expected annual energy production remains around 12 terawatt-hours.
Megawatts measure how much electricity can be produced at a given moment; terawatt-hours measure how much is produced over time.
Vardy questions whether the added value justifies a larger, more expensive plant. Bouffard said the extra turbines could allow Gull Island to produce more electricity when demand — and the value of electricity — is highest.
“Spot on. That’s it,” he said when asked whether that was the benefit of the additional 450 megawatts.
The same principle helps explain the potential value of combining hydroelectricity with wind power, Bouffard said.
Reservoirs can effectively store water when wind generation is plentiful and produce hydroelectricity when the wind isn’t blowing or demand is higher. Bouffard described the combination as producing “premium electrons” that are both low-carbon and reliable.
What does Quebec get?
Why would Hydro-Québec agree to pay substantially more years before its bargain-basement contract expires? Bouffard said the answer is certainty.
Waiting until 2041 would allow Quebec to continue buying Churchill Falls power at extremely low prices for another 15 years. But major dams and transmission lines take years to plan and build, while Quebec is already looking for large amounts of additional electricity.
“The time we’re buying by not waiting too long is an enormous economic value,” Bouffard said.
The alternatives could also be substantially more expensive. He said Hydro-Québec officials indicated that alternatives such as wind and solar backed by energy storage could cost roughly three times as much on average as power under the Churchill Falls agreement.
Quebec is paying more, in other words, but securing a long-term source of relatively inexpensive, reliable electricity. Hydro-Québec will also remain the largest customer by far for the power produced by the existing and proposed developments.
What questions remain?
Most of the agreement is not yet legally binding, with the parties still required to negotiate final contracts. The key terms are already laid out and cannot be substantially changed when the final agreements are drafted.
But some developments also remain uncertain. The proposed 2,500-megawatt second powerhouse at Churchill Falls is only at the feasibility-study stage, while the ultimate costs and economics of Gull Island have yet to be established.
Vardy also points to future shareholder agreements, water management and the precise rights Newfoundland and Labrador will have over transmission and power sales as details that could materially affect the agreement’s value.
Political uncertainty remains as well, with Bouffard pointing to Quebec’s October election and the Parti Québécois’ opposition to the agreement.
Under the terms of the tentative agreement, Newfoundland and Labrador will receive substantially more money, control far more electricity and have greater opportunities to benefit from outside markets than under the existing Churchill Falls arrangement.
Vardy said the harder question is how much those gains are ultimately worth and whether, once the final agreements are signed, they represent a fair division of the value of a resource that will continue producing electricity long after the new contracts expire.
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