The proposal to extend the electrical grid from Carmacks to Stewart Crossing is hanging by a thread.

Sherwood Copper Corp. announced Wednesday it's no longer interested in the power purchase agreement it negotiated with Yukon Energy to buy electricity for its Minto mine, now that the Yukon Utilities Board has called for fundamental changes to it.

Without the agreement, the company and its wholly-owned subsidiary, Minto Explorations Ltd., does not have the financial certainty it was looking for in the business arrangement, Sherwood Copper president Stephen Quin said in a press release.

Quin maintains the changes called for by the utilities board in its 27-page decision released late Monday eliminates the certainty for Sherwood Copper while maintaining the company's obligation to provide Yukon Energy with security.

'This does not represent a reasonable transaction and MintoEx will not be proceeding with the PPA,' Quin says in the press release.

'As a result, significant benefits that would have accrued to YEC, its ratepayers, governments and Selkirk First Nation will not be available. MintoEx will review the YUB's decision in more detail and consider whether it will continue to pursue a grid power option.'

Though there was pointed criticism of the purchase agreement by parties to the process, there is general approval of the project to extend the electrical grid to Pelly Crossing in phase one, and then to Stewart Crossing in phase two.

Yukon Energy would benefit by selling millions of dollars in surplus hydroelectric power. The Minto mine would save millions in diesel fuel costs and the environment would benefit from an absence of greenhouse gas emissions from diesel generators.

Yukon Energy president David Morrison said Wednesday he's hopeful the plan to hook the mine into an extended grid is salvageable.

He told reporters during a late afternoon press conference that he met Tuesday with Sherwood officials in Vancouver. They've agreed to meet again next week to explore options which may be available to reach a new deal.

There are no guarantees, Morrison emphasized, citing Sherwood's insistence that it needs certainty of cost in any arrangement.

'I think there is a way to solve some of these issues,' Morrison said, emphasizing there's just too much at stake to walk away from the proposal. 'My experience is that it is always worth another run at it.'

Morrison is convinced the two main issues revolve around the guaranteed electrical rate that was built into the power purchase agreement, as well as

Sherwood's fixed contribution toward the construction cost.

The agreement provides the mine with a guaranteed rate of 10 cents per kilowatt-hour, about the same as the residential rate after consumers receive the contribution from the Rate Stabilization Fund.

It also fixes the mine's share of the capital construction cost at $7.2 million for phase one of the main extension from Carmacks to Pelly Crossing, and $3.9 million for the 27-kilometre spur line off the Klondike Highway to the mine site.

The ink wasn't even dry on the document in late December 2006 when registered intervenors into the proposal described the power purchase agreement as a serious departure from normal arrangements between utilities and industrial customers.

The board ruled Monday it would allow Yukon Energy to provide the mine with the rate of 10 cents per kwh, though only on a temporary basis, until a new industrial rate was set upon the completion of the Yukon-wide general rate review scheduled to begin this fall.

It also ruled that instead of a fixed contribution toward the capital construction cost, the company would be obligated to pay the minimum $7.2 million for the main line, plus 10 per cent of any cost overruns above the high estimate of $23 million for phase one.

Given that a public hearing into the grid extension is scheduled to begin May 15, Morrison expects he'll need to know by the end of next week whether there's light at the end of the tunnel for a new agreement with Sherwood.

If he can tell the board by the end of next week that there is hope, he expects the hearings can go ahead as scheduled.

Morrison said if he can't provide the board with any type of assurance, there might not be any point to the hearing.

Yukon Energy, he said, has always viewed the grid extension as an obvious step in the overall improvement of the territory's hydroelectric system, given the flexibility that comes with tying the main grid into the new Mayo-Dawson line.

But without a customer like the Minto mine to justify the project, it won't fly, as the utilities board would never let Yukon Energy apply the entire capital cost of the project to the rate base just because it's a wonderful improvement, Morrison explained.

In an interview last week, the Sherwood president emphasized the company negotiated the power purchase agreement on its original business plan that called for a seven-year-mine life, with production going from 1,560 tonnes ore per day to 2,400 in the future. The original business plan also called for the use of diesel generation as the source of energy.

Quin said the purchase agreement provided the company with the certainty it required to invest millions and move away from its original plan to use diesel generation.

But without that certainty, he warned last week, Sherwood would simply return to its original plan. The mine is currently powered by diesel generators, and would have remained on diesel for the next 17 months while the main transmission line and the spur line were under construction. Yukon Energy was to deliver power to the mine site by the end of September 2008.

Sherwood Copper recently announced that promising exploration results from a second ore body Area 2 could extend the mine life by three or four years, and increase production to 3,400 or 3,500 tonnes per day.

Peter Percival is a local engineer and one of the registered intervenors in the process. He said he doesn't see why Sherwood doesn't just get on with reworking the purchase agreement.

The Yukon Utilities Board, he said, agreed with the intervenors about the shortcomings of the agreement because it was flawed. The board, he pointed out, does work with the guidance of a panel of utility experts it hires out of Alberta.

Sherwood notes in its press release that for a savings of what would amount to three per cent a year, it's not worth entering into an agreement that does not have the certainty.

Percival said three per cent is still a significant amount of money, adding into the millions annually. If he was a shareholder of Sherwood Copper, he said, he'd want the company to deliver maximum returns on its investment.

Even with the changes recommended by the board, by participating in the project, the Minto mine would still realize significant savings with very little risk to the company, he said.

Percival suggested with the price of fuel spiking again, and the general uncertainty about fuel costs, it makes that much more sense for Sherwood to see its way clear to a new arrangement.

In the world of business, Percival said, there is risk, just as there is risk in that cost of electricity.

Even the company's press release carries the standard cautionary clause that points out nothing is even certain, and there are inherent risks in the mining business, such as the volatility of metal prices.