Timing of power deal suspicious, say critics

The Yukon Energy Corporation appears to be manoeuvring the government into accepting a sweetheart power deal for the Minto copper mine, says watchdog…

The Yukon Energy Corporation appears to be manoeuvring the government into accepting a sweetheart power deal for the Minto copper mine, says watchdog Peter Percival.

Since March, Vancouver-based Sherwood Copper — owner of the soon-to-be operational Minto mine near Pelly Crossing — has been negotiating with YEC for electricity for the project.

A draft deal was released on December 21.

If the deal’s approved, the corporation would build a $20-million electrical grid extension from Carmacks to Pelly Crossing, and then to the mine by 2008.

Interveners and the Yukon Utilities Board received the draft on December 27. Intervenors had to provide feedback by January 4.

The deal is complex, and many expressed concern about having only eight days to vet the deal.

“I and other interveners find that the timing of YEC’s provision of the power purchase agreement term sheet to the board is highly suspect — indeed manipulative,” reads Percival’s response.

Releasing it during the holidays when the legislature isn’t sitting and on the verge of the utilities board’s advisory report to Energy, Mines and Resources Minister Archie Lang, appears to be engineered, he writes.

“(H)ow smooth for YEC; how inconvenient for the rest of us!

“I have deep concerns that YEC and, or possibly the mine, are manoeuvring the board, the minister and the Yukon government into positions from which they will be unable to make fair and reasonable determinations on the appropriateness of a finalized power purchase agreement,” writes Percival.

If YEC or the mine argues the utilities board examination of the draft deal amounts to its full endorsement, it could then be argued the document is a binding contract, he writes.

So, any changes to the still-incomplete deal could land the government in court.

A YEC official hinted the crown-owned corporation is hoping the utility board considers the draft deal comprehensive enough to stave off a full hearing on the Carmacks to Stewart Crossing grid-extension project, writes Percival.

The strange timing of the draft deal’s release is just the beginning of Percival’s criticisms. He wonders whose interests YEC is promoting.

Several other interveners are more guarded in their criticism of the draft deal, but most consider it weighed towards Minto’s interests, not electrical ratepayers.

To connect Minto to the $31-million grid extension, Sherwood would eventually pay the YEC $7.2 million.

But, for the first four years after that extension was built, Sherwood would only pay the interest on the investment.

The full $7.2 million would be due over the next three years, meaning the company would have seven years to pay back the utility’s advance.

As security for Yukon ratepayers, the deal includes a minimum “take or pay” power purchase agreement.

Under it, Sherwood would have to buy $24 million in electricity, or pay that amount within the first eight years of the link being built.

A new $0.10 per kilowatt-hour electricity price for Minto is proposed, as well as a secondary electricity price of $0.06 per kilowatt-hour when the mine is processing ore with less than one per cent copper.

The agreement also includes a commitment by YEC to purchase four diesel generators from Sherwood for $2.2 million after the spur power line to the mine is complete.

The deal asserts that it will have “No adverse rate impacts on other ratepayers.”

But Percival isn’t so sure.

He’s pushing for hearings for the Carmacks to Stewart Crossing grid extension and a hearing examining the final power purchase agreement.

Several others are echoing Percival’s demands.

The Utilities Consumers’ Group chides YEC in its submission for the lack of time given to examine the draft agreement.

It argues that YEC’s assertions electricity rates won’t be affected don’t amount to a firm guarantee.

But most strikingly, the group alleges that under the deal, Minto could jump ship after a few years and escape the $24-million “take or pay agreement.”

“There appears to be nothing preventing the mine from limiting its payment to YEC in the early years and then abandoning operations prior to the requirement to pay the remainder of the $24 million,” it writes.

The utilities group is pushing to have YEC’s final power deal include a precondition that the entire Carmacks to Stewart Crossing project is approved by the Yukon Utilities Board, not just the power purchase agreement.

Whitehorse is concerned the deal forces Minto to only pay interest on the spur during the first four years of the proposed deal.

“The city suggests that Minto should, during the first four years of operation, be required to pay more,” it writes in its submission.

The city also worries the deal sets a secondary power rate for Minto lower than that currently being charged to existing customers.

“Further, there is no established process on prioritizing the use of available secondary power between the users.”

The term sheet released by YEC is the first step towards a finalized draft of a power purchase agreement, expected by the end of January, said YEC president David Morrison.

That power purchase agreement will be the first of two phases in building the proposed Carmacks to Stewart Crossing grid extension, he said.

The final deal will be given to the Yukon Utilities Board for oversight.

“We will submit it to them for approval, so there will be a review of some kind — I don’t know what that process will be exactly,” said Morrison.

Percival’s claims that YEC is trying to force the government into accepting the deal are “specious,” and sourced from a personal agenda, he said.

He noted the recent hearings into YEC’s 20-year plan included discussions about the Carmacks to Stewart Crossing extension, and that the new draft deal is just part of that overall project.

He also noted Percival was absent from those meetings.

“Nobody’s maneuvering; if there’s anything underhanded going on, it must be him (Percival) because we don’t do things like that,” he said.

Worries about priority being given to the mine for YEC’s secondary power over other customers are similarly unfounded, he added.

“We either have secondary power or we don’t,” he said.

The one-per-cent copper stipulation simply addresses YEC’s concern that Minto won’t be allowed to use the secondary rate for its primary copper work.

And Minto’s diesel generators will either be used by YEC or sold.

“We think we can use them in the system, otherwise we wouldn’t be buying them,” said Morrison.

“This isn’t a deal to make Minto happy. This is a business deal, a good deal from our perspective, an absolutely good deal for the ratepayers, and as it turns out, it’s good for Minto,” he said.

YEC must respond to the intervenors by today.