The purchasing agreement for the planned Atlin hydro expansion project could raise rates higher than necessary, says a Yukon Utilities Board (YUB) report.

Its findings have stirred up more debate about the hydro facility in question period in the legislature this week.

The report to the Department of Justice, dated Oct. 18, is critical of how the Yukon Energy Corp. (YEC) negotiated the proposed purchasing agreement that would set terms for the YEC to buy hydropower from Tlingit Energy Homeland Ltd. Partnership (THELP) – the owner and operator of the northern B.C. hydro facility. 

The YUB said the purchasing agreement is necessary – helping YEC meet its capacity shortfall, reduce its need for diesel and reach its production target of 93 per cent renewable energy by 2030.

However, the board was critical of YEC for starting its negotiations too high.

The price YEC will pay for dependable capacity ($200 per kW) is set to escalate annually at 50 per cent of the Consumer Price Index (CPI) after 2024.

“In the Board’s view,” the report reads, “YEC started its negotiation high with this CPI term, and therefore, customer rates are likely adversely affected by the approach to this term.”

The YUB is the independent regulator that sets rates for public utilities. It said YEC should have reviewed the purchasing agreement for a similar project in Atlin County, the Pine Creek project, which set its payment escalation at 12.5 per cent of the CPI.

The Atlin hydro expansion project is a key component of YEC’s 10-year renewable electricity plan.

Though work on the project hasn’t started due to funding issues, once completed, it will add a 9.3 MW hydro facility to the existing 2.1-MW facility. It will provide the Yukon with 8.75 MW of dependable winter energy.

That would displace up to five rented diesel generators YEC uses to fill energy gaps in the winter, when demand is at its highest.

The territory currently rents 17 diesel generators to deal with energy shortfalls in the winter, and Atlin is one of several projects planned to help phase them out.

The YUB report said, however, that any extra energy received from the hydro plant beyond what would displace the five diesel generators is a “phantom benefit,” and can’t be integrated into the Yukon’s grid. 

Andrew Hall, YEC’s president and CEO, told the Star Tuesday he isn’t overly concerned with the YUB’s criticisms.

He’s said he’s happy the report found the purchasing agreement necessary.

The CPI number was based off two previous projects that used the same figure as a starting point – though the YUB said those projects aren’t comparable to Atlin – and any impact it might have on rates won’t lead to higher prices than Yukoners are paying now, Hall said.

“Worst case, it’s the same,” he said. “It’ll be the same cost to ratepayers. If we didn’t find the deal and we just generated the additional energy we need using thermal (like diesel).

“So ratepayers are definitely not worse off. And there’s definitely scenarios where they would be better off than if we use thermal sources.”

Energy, Mines and Resources Minister John Streicker has repeatedly told media and the legislature that the rates from this project are expected to be 13.5 cents a kW hour.

He’s said the cost of electricity from diesel and liquefied natural gas are currently above 20 cents per kW hour.

As for the “phantom benefit” mentioned in the report, Hall also said that YEC doesn’t pay for any energy that doesn’t displace thermal sources like diesel.

That extra energy, he said, won’t cost anything, and could be sold to the Minto and Victoria Gold mines.

Both companies are looking to extend the life of their mines in the territory, which would have high electricity demands through the end of the decade, if not beyond.

“It’s not a phantom benefit,” Hall said of any excess electricity from the project. “It’s a real benefit.”

Although Hall said he’s not worried about the YUB’s concerns, the Yukon Party has taken them more seriously, grilling the government on the purchasing agreement this week. 

“When we see that kind of language from the board, we get concerned,” Yukon Party Leader Currie Dixon told reporters after question period Monday.

“Last week, we highlighted the concerns that we had around the project being over budget, late and underfunded.

“And now we’re learning that it’s also going to cause rates to go up. So that’s a concern for us.”

The project’s budget was a hot topic in question period last week.

About $255 million in funding has been secured between loans and the federal, B.C. and Yukon governments – the Yukon has committed $50 million.

However, increased costs caused by inflation and supply chain delays have put the projected budget for the project at $310 million, THELP told the Star in an email last week. THELP said the projected cost was $230 million at the start of 2022.

That leaves a funding gap of approximately $60 million.

THELP and the Yukon government have said all partners on the project are working to secure the rest of that funding, and must do so before any work on the project can begin.

That’s imperative, as inflation could further raise costs, and the project is already a year behind schedule, now slated for completion in 2025.

Streicker told media this week that representatives from THELP are heading to Ottawa soon to try to find more federal funding. The Yukon government may need to re-evaluate its contribution to ensure the project goes forward, he added.

Dixon and the Yukon Party have also hammered the government for renting diesel generators in the interim, instead of buying them outright to ensure energy gaps are covered while the territory waits to shift to more hydroelectricity.

The YUB report, Dixon has noted, says some level of thermal energy will be required long-term to complement renewable sources and ensure energy is available in the winter should renewable sources be interrupted. 

But Streicker has said the government will keep renting diesel generators until they can be phased out.

“If you build a plant, you’re committed to it for the long term,” he told reporters Monday.

“We do not want to be committed to fossil fuels; we need to move in a different direction completely.

“We’re lucky to have hydro. This is another good hydro project. Yes, the costs have been going up, we need to look at it again. But generally speaking, 13 1/2 cents a kilowatt hour is a great price.”

NDP Leader Kate White echoed that sentiment when speaking with reporters Monday.

“If we buy (diesel generators), we’re saddling a whole other generation with paying these off in the future. And we’re tied to purchasing diesel fuel. It’s unacceptable.”

Streicker said Tuesday the government is using infrastructure dollars to keep costs from this project down for ratepayers.

He told reporters the long-term benefits of hydroelectricity will provide the territory with cheaper, cleaner energy than diesel or LNG in the long run, and the environmental benefits should be weighed heavily alongside financial concerns.

The YUB notes that it does not take societal concerns around the environment and climate change into account when it reviews purchasing agreements.

Streicker told reporters Monday the government is considering changing the YUB’s mandate to include environmental impacts when reviewing applications.