Newfoundland and Labrador has for decades lacked the capital, transmission access and bargaining power needed to fully control one of North America’s largest hydroelectric resources in Churchill Falls , with a 1969 deal struck with Quebec becoming a regional symbol of lost leverage and missed opportunity. But some economists are beginning to question whether the province has more leverage than conventional wisdom suggests as it reconsiders a memorandum of understanding (MOU) signed with Quebec in late 2024 that was intended to govern Churchill Falls after the current contract expires in 2041. The proposed deal would establish a new pricing framework for the site’s existing power and pave the way for roughly $25 billion in new hydroelectric development in Labrador, including the Gull Island project and a Churchill Falls expansion. The province estimated the broader agreement could generate roughly $225 billion in benefits over its lifetime. But critics said those figures are projections, not guarantees, and depend on assumptions about electricity prices and market conditions stretching decades into the future. After an independent review commissioned by Premier Tony Wakeham concluded the agreement negotiated by his predecessor was not in the province’s best interests, the government reopened negotiations with Quebec. Much of the debate has focused on the terms of the proposed deal, but some economists say a more fundamental question deserves attention: whether rapid changes in electricity markets have increased the value of Churchill Falls enough to strengthen the province’s bargaining position. “There are a number of things that have changed since the original MOU was negotiated, including data centres that now seem to be much more prominent in ongoing discussions, especially given the emergence of AI,” Wade Locke, an economist and professor emeritus at Memorial University in St. John’s, NL, said. He said the debate extends beyond simply calculating future cash flows from electricity sales. “We can look at this particular exercise as a flow of revenues from one entity to another entity,” he said. “We can look at it as the ability to facilitate resource exploitation in Labrador. We can look at how much employment might be created or business activity might be created.” Doug May, an economist at Memorial University, said the growing corporate demand for power is increasing the value of large hydroelectric assets, so resources such as Churchill Falls are “becoming much more valuable.” He points to artificial intelligence, data centres, industrial electrification and broader decarbonization efforts as key drivers and, unlike wind and solar, hydroelectric reservoirs can store energy and respond to changing demands. The sheer scale of Churchill Falls and its proposed expansion underscores its value. The facility has an installed capacity of roughly 5,428 megawatts and generates more than 34 terawatt-hours of electricity annually — enough to power several million homes. At wholesale electricity prices of roughly $75 to $100 per megawatt-hour, that’s worth about $2.5 billion to $3.4 billion per year. The proposed MOU goes even further, establishing a framework for approximately 3,900 megawatts of additional generating capacity through the 2,250-megawatt Gull Island project, a 1,100-megawatt expansion at Churchill Falls and upgrades to existing generating units. As demand for reliable electricity grows, May said the market is placing a higher premium on exactly the type of resource Churchill Falls represents. “It’s pretty humongous,” he said of the projected demand for power tied to artificial intelligence and data centres. There’s also the electrification of buildings, industrial green transitions and the slowly growing adoption of electric vehicles putting stress on existing grids. Historically, Hydro-Québec has signed lucrative, long-term export contracts with the northeastern United States, but it now faces a tightening supply picture as rising domestic demand leaves less surplus power available. Quebec’s monthly electricity trade balance has shifted markedly in recent years, according to Statistics Canada data. The province regularly posted monthly surpluses of more than one million megawatt-hours earlier in the decade, but it’s been in a deficit position in most months since October 2023, with the shortfall reaching as high as 4.5 million megawatt-hours. As a result, Quebec’s power exports to the U.S. have sharply fallen while imports, particularly from U.S. suppliers, have increased. “Hydro-Québec is looking at a major shortfall,” David Vardy, a former chair of the Newfoundland and Labrador Public Utilities Board and a former clerk of the province’s executive council, said. “They’re becoming dependent on imports from the United States, and not the other way around.” He is among a group of prominent Newfoundlanders and Labradorians who recently urged the province to reject the current MOU and pursue a different approach. He said the province’s position has strengthened because demand for electricity is rising and because the geography of the customer base has fundamentally shifted. They said energy-intensive industries, data centres and resource projects no longer require power to be sent to them across thousands of miles of wire; they can increasingly build their facilities directly next to major power sources, he said. “We don’t have to go to Quebec,” Vardy said. “The world has fundamentally changed because the power demand could come to us.” Not everyone agrees that the leverage has entirely shifted to Newfoundland and Labrador, especially since Quebec remains the primary transmission route connecting Churchill Falls to major export markets in the U.S. and Ontario. The province also faces intense pressure to secure stable, immediate sources of revenue. The province carries more than $20 billion in net debt and possesses the highest ratio of net debt to gross domestic product in Canada. There is also no guarantee that future electricity markets will evolve exactly as current forecasts suggest. Supporters of the MOU also say Hydro-Québec remains the most logical partner to help finance and develop future projects such as Gull Island. The utility has deep financial resources, an existing transmission network and decades of experience building large-scale northern hydro projects. But the debate over Churchill Falls is increasingly about more than correcting the perceived mistakes of 1969 or debating the line items of a single memorandum of understanding. Opinion: Hydro won’t hack it much longer to feed our energy needsPolitics vs. Power: Newfoundland and Labrador's partisan fight puts historic Churchill Falls hydro deal at risk At its core, May said, it is a debate about value. Des Sullivan, a former executive assistant to premiers Frank Moores and Brian Peckford, said Newfoundland and Labrador should resist the pressure to negotiate quickly and take more time to assess the value of Churchill Falls in a changing energy market. “We should be rushing nowhere,” he said. “Churchill Falls is Newfoundland’s crown jewel.” With Quebec pushing for a deal in the coming weeks, May said Newfoundland and Labrador should step back and ask what other options exist before committing one of the province’s most important energy assets for decades to come. Rather than negotiating on Quebec’s timetable, he said, the province should take time to assess alternative opportunities, especially given the ongoing discussions to establish a more interconnected national grid, including potential partnerships elsewhere in Atlantic Canada and the northeastern U.S. “You want to stand back,” he said. “If you’re prepared to do your homework, then you can do a lot better.” • Email: arankin@postmedia.com