Yukon Electrical Co. Ltd. is taking a cautious view of the proposed agreement to finance a new transmission line between Carmacks and Pelly Crossing.

Doug Tenney, general manager of Yukon Electrical, said last Friday the private utility does have some concerns with the power purchase agreement between Yukon Energy and the Minto mine, which is on schedule to be in production this spring.

He emphasized, however, that Yukon Electrical needs to wait until the agreement is finalized at the end of the month to provide a detailed review of the document.

But at first glance, questions do arise in several areas, he said.

'It very much could be a good thing, and that is one of the ways it could turn out,' Tenney acknowledged. 'There are other ways it can turn out, and that may not be so good.'

The publicly-owned Yukon Energy and Sherwood Copper Corp., on behalf of its Minto Explorations Ltd., announced on Dec. 21 a multimillion-dollar arrangement to provide the mine site with power from the Whitehorse-Aishihik-Faro grid. Work to prepare the open-pit copper and gold property is said to be more than 50 per cent complete.

The power purchase agreement calls for the extension of the main line from Carmacks to Pelly Crossing, and eventually Stewart Crossing. The total project cost is estimated at between $31 million and $40 million. The first leg to Pelly Crossing is estimated at $20 million.

Tenney said Yukon Electrical is concerned with the potential risk Yukon ratepayers are being exposed to and the potential impact on rates. There is a concern with the arrangement to provide the mine with a cheaper rate to process lower-grade ore, he said.

Tenney noted that under the purchase agreement, for instance, Yukon Energy will provide all the necessary capital financing to hook up the mine, to the tune of $11 million.

Minto Explorations will be required to pay back the loan over an eight-year period after it's tied into the grid, scheduled for the end of 2008, according to the agreement.

For the first four years, the mine will be required to pay interest only.

Tenney said without requiring the industrial customer to pay up front, as would be Yukon Electrical's position, there is no guarantee the money will be repaid if something goes wrong.

The assets of the mine are being used as collateral, though the Australian bank which is providing the major financing for Minto Explorations will be first in line for the assets if anything does go wrong.

'There is the potential that other ratepayers are left with the full cost of the line,' he said.

Tenney said Yukon Electrical will be providing a written review of its concerns to the Yukon Utilities Board once it has had a chance to see the final agreement.

He does recognize, however, that Yukon Energy is in a tough spot as it does not have any existing industrial arrangements on which to base the purchase agreement.

'So it is not an easy process,' he said, suggesting it was bit of a chicken-and-egg scenario.

There are several conditions contained in the documents circulated by Yukon Energy and Sherwood Copper:

Yukon Energy will pay up front for the installation of both the transmission line and the 27-kilometre spur line running into the mine site from the Klondike Highway. Under the purchase agreement, Minto Explorations will repay $7.2 million as its contribution to the main Carmacks-Stewart line, and the entire $3.8 million estimated for the spur line, over the eight years.

In the same eight-year period, the Minto mine commits to purchase a minimum of $24 million in power.

The mine would also be provided the opportunity to buy power at a reduced rate while milling second-grade ore.

Yukon Energy agrees to purchase the four mobile diesel generators Minto Explorations will use to get the mine into production for $2.4 million, once permanent power is established.

The proposed power purchase agreement must be finalized by the end of January, and approved by the utilities board no later than April 30, according to the agreement.

Yukon Energy president David Morrison explained that Minto's contribution to the main line was calculated using a simple hypothetical method, based on the policy that industrial customers are required to pay for all infrastructure to tie into the main grid.

If Yukon Energy had to build a line from Carmacks to MacGregor Creek along the Klondike Highway to supply the mine, the cost for that section alone would be an estimated $7.2 million, not including the spur line. That $7.2 million was used to arrive at what Minto should pay for its share of the main extension.

Similarly, if Western Silver goes ahead with its Carmacks copper deposit, it will be expected to pay $8 million toward the main extension, over and above the entire cost of the spur line that will be required to hook up that mine site.

Morrison said the proposed purchase agreement is good for the mine, and for Yukon ratepayers in general. They will get to sell surplus power to Minto Explorations.

It's an example of good corporate citizenry on the part of Minto Explorations, he said.

'They are not trying to get a deal on the backs of Yukon ratepayers,' Morrison said in an interview late last week. 'They are just trying to get a fair deal, and I think we have got one for them.'

He said time is tight, and Yukon Energy will be going out to tender for the engineering and design work in the near future.

Quite likely, he said, the construction work for both the main line from Carmacks to Pelly, and the spur line into the mine site, will be tendered at the same time.

To hit the target of having the Minto mine on-line by the end of 2008, construction would have to begin this summer, he said.

Premier Dennis Fentie has committed to holding a hearing into the line extension, though no date has been set.

Yukon Energy maintains that from its point of view, all it needs to proceed is a ruling from the utilities board on the hearings the board held in November into the Crown corporation's 20-year resource plan.

Morrison said again last week, that until he's told otherwise, Yukon Energy will continue advancing the proposal to extend the transmission line.

If the proposal goes ahead, Yukon ratepayers could potentially have the Carmacks-Pelly extension funded without any capital cost to the ratepayers, he noted.

He said the Yukon Development Corp. is expected to contribute $5 million toward the project.

That $5 million, together with the $7.2 million from Minto, and the potential for the $8 million from the Carmacks copper mine, could cover the entire cost for the first section of the extension, Morrison explained.