Yukon Development Corp. assumes power line risk

The Yukon Energy Corporation and Sherwood Copper have a deal. But it’s a far different agreement than the one scrutinized by energy critics…

The Yukon Energy Corporation and Sherwood Copper have a deal.

But it’s a far different agreement than the one scrutinized by energy critics and the Yukon Utilities Board for the past five months.

Yukon Energy and Sherwood — owner of the Minto mine — have a $12-million pact that, if approved, will see the Yukon Development Corporation and the government front an estimated $23 million to build a grid extension from Carmacks to Pelly Crossing and a “spur” line to the mine itself.

And despite being told by the board that they aren’t needed, YEC still intends to buy Minto’s diesel generators for $2.24 million.

In exchange, Sherwood will repay the Development Corp. at least $7.2 million for the main line and the full cost of the spur line over several years, pay a set electricity rate of 10 cents per kilowatt hour that has a cost-of-living escalator attached to it (beginning in 2010) and buy $12 million of electricity over four years or simply pay that amount if it doesn’t.

The new deal addresses “most” of the concerns raised by the board, which rejected the previous $24-million agreement between YEC and Sherwood because it exposed ratepayers to too much risk, said energy corporation president David Morrison.

“It’s taken several days, nearly two weeks, and a great deal of work, and we think we’ve got a deal that now works again for everybody,” said Morrison on Monday.

To get around the utility board’s concerns, the Development Corp. — the parent corporation of YEC — will assume all financial risk of building the infrastructure needed to sell power to Sherwood.

Concessions to Sherwood are big: both the amount of time and money the Vancouver-based company has committed has been halved — from eight years to four and from $24 million to $12 million.

And the government has guaranteed Minto power at 10 cents a kilowatt hour for four years, which the utilities board only approved in the “interim.”

“I think we still have an excellent deal for ratepayers,” said Morrison. “Remembering that what ratepayers are getting is based on the current estimate that we’re using, of $23 million asset, for no investment by ratepayers.”

The Energy Corp. expects up to $4 million a year from the sale of power to Minto, said Morrison.

That will be passed on as savings to consumers.

However, that must first pass a general rate hearing anticipated by next February, he said.

And it appears the mine’s power consumption — estimated to be 35-40 gigawatts annually — will only increase, he said.

Still, the package of goodies coming from Sherwood appears to be significantly smaller.

The take-or-pay portion of the deal has been cut by 50 per cent.

That’s a result of Sherwood agreeing to a fixed price of 10 cents with a cost of living escalator — without an actual cost of service study being completed, said Morrison.

“It cost us in the negotiations. It’s security they have to put up; they wanted to put up less security. We didn’t have a lot of room to wiggle.”

Will the halved timeframe for the take-or-pay clause also see Minto close down sooner than the old deal?

“Yes, I would have liked to have kept the take-or-pay at a higher rate, but I don’t think it really influences the mining company,” said Morrison. “If they are looking at a decision to mine or not mine, it’s going to be based strictly on economics.”

Morrison expects the mine will buy more than $12 million worth of power over its lifespan.

Because the company has sold four years of its copper production at a high price, he expects the mine to run a full eight years, if not more, he said.

With the development corporation building the line, does the risk simply shift to taxpayers from ratepayers?

“We have done exactly what the YUB asked us to do, shift that risk,” said Morrison. “We had to go make a deal, yes, we did shift the risk.”

So who’s protecting taxpayers?

“Well, the government,” said Morrison.

The government supports the deal, he said.

If approved — and if recommendations from the Yukon Environmental and Socio-Economic Assessment Board come through soon — construction of the power line could begin in the fall, he said.

Minto’s scheduled to receive hydro by late 2008.

But ratepayers will still be fronting money for the transmission and spur lines, said energy critics.

“It’s smoke and mirrors — they’ve found a way to pay for it regardless,” said Utilities’ Consumers Group president Roger Rondeau.

The government’s cancellation of the Rate Stabilization Fund, which was announced at the same time as the new deal, is his proof.

The fund will be halved on July 1 and eliminated entirely one year later.

That means, if you’re using 1,000 kilowatt hours you’ll be paying $37 more within a year, said Rondeau.

The increase to commercial customers and municipalities will be immediate, he said.

All that money will go directly into YDC because they’re the ones who pay it, he said.

The stabilization fund cost the development corp. about $5 million a year since 2003, when it assumed control of the fund from the Yukon government.

The government is paying the remaining $10.4 million for the power line.

The problem is not the line, it’s giving Minto a free ride, said Rondeau.

Because the Yukon Development Corporation is covering the costs, the line and the deal are now “totally beyond” the regulation of the utilities board, he said.

The utilities board won’t even set Minto’s electricity rate. The government will set it, he added.

“It’s a good deal that this line is going to go,” said Rondeau. “We just want to make sure everybody’s paying their share, including the mine.”

The deal won’t increase the cost of power, said Energy, Mines and Resources Minister Archie Lang on Monday.

“This is a business arrangement between the corporation and the mining company,” he said. “They’ve done their homework, the mining company has done their homework, and the corporation has come up with an arrangement with security.

“It’s not a sweetheart deal for anybody. The mining company is responsible for paying off its commitment.”