Research Report 2008

A torrent of debate with a waterfall of possibility

The Churchill Falls electricity agreement between Newfoundland and Quebec is one of the most controversial issues in the history of Newfoundland and Labrador. Most of us look forward to its expiry in 2016. But when economics professor Dr. James Feehan sat down to contemplate what the termination of the contract might mean for Newfoundland, he was shocked.

Seems he’s stumbled upon a possible legal or ethical loophole that just may change the future of the deal.

Dr. Feehan partnered with historian Dr. Melvin Baker, and together they’ve traced the social, political, economic and historic roots of the contract, debunking some of the myths that have surrounded the debate. The researchers contend that the pre-set price during the renewal period is extraordinarily low, even by 1960s standards when the deal was originally signed, and that the gap between received revenue and the wholesale value of electricity could amount to billions of dollars per year. Their paper, “The Origins of a Coming Crisis: Renewal of the Churchill Falls Contract”, is the first systematic investigation of the agreement in its 39-year history.

The current contract allows for automatic renewal at the 2016 expiry date for a future 25-year period. The authors contend that the pre-set price during this renewal period is extraordinarily low, to the point where it is “barely distinguishable from being free” and that the gap between received revenue and the wholesale value of electricity could amount to “billions of dollars per year” for each of the 25 years of the renewal period.

Dr. Feehan, the paper’s primary author and a professor of economics, says the main contribution of the paper is to explain the dramatic change in the renewal clause from its initial form, which provided for negotiation and mutual agreement on the terms of renewal, to one that requires that practically all the power be sold to Hydro-Quebec at a price that would have been considered extraordinary low even in 1968.

The authors drew on primary sources for their 50-page paper, including correspondence between CFLCo and Hydro-Quebec, and upon previously unknown documents, some obtained through freedom-of-information requests. The process led to the original contract has been put into the historical context of the late 1960s – this context is crucial to understanding Churchill Falls, says Dr. Baker.

Ultimately, Drs. Feehan and Baker conclude that immense consequences are inevitable as the renewal date approaches in 2016. They predict that the Churchill Falls Contract will once again be a matter of serious dispute that may involve both political and legal dimensions. Their paper was recently published in the Dalhousie Law Journal.

Copyright © 2008 Memorial University of Newfoundland