Yukon Energy would like to respond to recent comments in the media regarding costs for the Carmacks-Stewart transmission line.
In a recent letter to the editor, the president of the Utilities Consumers’ Group stated there was a large cost overrun on the line.
This is misleading information and we feel it’s important that you know the facts.
These facts are on the public record of our regulator, the Yukon Utilities Board.
In 2005, Yukon Energy first presented the idea of the Carmacks-Stewart transmission line in our 20-year resource plan.
The plan was reviewed by our regulator the Yukon Utilities Board and it recommended we proceed with the project.
At that time, we provided an early estimate for the line of $32 million, with Stage 1 (from Carmacks to Pelly Crossing) estimated at about $20 million. It was made clear to the utilities board the estimates were prepared before preliminary engineering and would not and could not be relied upon for proceeding with construction.
Engineering is an expensive commitment.
To be prudent, we wanted to hear from the utilities board that it supported the project before we proceeded further.
However, from the very beginning of the project, Yukon Energy clearly committed we would not proceed with building the line until such time as we had firm tendered costs that would ensure the budget for the project was realistic and achievable.
Once we were satisfied we were on the right track (in the spring of 2007), we had engineering consultants prepare Stage 1 preliminary engineering and related cost estimates for us.
Once we had an actual detailed estimate prepared by engineers, and before we made the final decision to build Stage 1 of the line, Yukon Energy secured tendered costs for almost all major elements of the project.
Based on those firm costs, we established a budget of $27.8 million for Stage 1. We then determined that, at that price, the Carmacks-Stewart line was still a viable project that would result in savings for customers, which it has.
In summary, we made a decision in the fall of 2007 to move forward with the Stage 1 project at a budget level of $27.8 million. After our budget was in place, we learned that $1.8 million in additional costs were needed to change the routing of one section of the line as required by the Yukon Environmental and Socio-economic Assessment Board (a cost that was out of our hands but did not affect the overall net savings to ratepayers in any material way).
Apart from this added requirement for the routing change, the Carmacks to Pelly Crossing section of the line was built on time and on budget.
Stage 1 was paid for with a contribution from the Minto mine ($7.2 million), the Yukon government/Yukon Development Corporation ($17.4 million), and $5.1 million by electrical customers.
Because the cost is being spread out over the life of the line, it has not meant any increases in power bills. In fact, revenues from the newly connected Minto mine meant we could ask the utilities board for a rate reduction. It’s because of the new line and the new sales it has provided that Yukoners are now seeing a decrease of 2.47 per cent on their power bills.
In delivering its decision on our most recent general rate application with the utilities board, the regulator said costs for the Carmacks-Stewart line were prudent, and that the line provided a net economic benefit to Yukoners.
During this hearing, the Utilities Consumers’ Group and other intervenors had the opportunity to cross-examine Yukon Energy in detail regarding the budgets and costs for the line.
This detailed review included an extensive review of the timelines and estimates and it is clear that if the YUB did not think the project provided an economic benefit and was managed in a prudent manner in terms of costs and timing, it would not have allowed us to include the project’s costs in rates.
Yukon Energy is now moving forward with Stage 2 of the line, which will extend from Pelly Crossing to Stewart Crossing. Once finished in the spring of 2011, the line will interconnect our two major transmission grids and make it possible to manage all Yukon’s hydro resources as one integrated system.
Stage 2 is estimated to cost approximately $40 million, based on preliminary engineering performed in 2007 and our experience with Stage 1 construction. This estimate for Stage 2 was provided to the YUB and intervenors in April 2009 during the recent General Rate Application hearing and has been used publicly since the spring of 2009. Engineering and tendering for Stage 2 is currently underway.
As Yukon Energy informed the utilities board and intervenors in April 2009, at least $35 million of the costs for Stage 2 will be financed by contributions from governments and/or industry, and no more than $5 million will be recovered through rates charged to electricity customers. Once again, because costs can be spread out over the lifetime of the line, Stage 2 will not result in rate increases.
The record shows that Yukon Energy’s approach has been very transparent in dealing with both stages of the Carmacks-Stewart transmission project. We look at a project, put together a preliminary estimate, and then as we continue to research and review the economics of building the project we make decisions at various separate stages on whether to continue. Yukon Energy does not make final decisions to proceed with a project without firm estimates that include tendered prices for major elements of the project in hand.
We do not rely on project planning estimates that have yet to be subjected to detailed engineering and cost estimating.
We have been absolutely transparent with all of our project decisions before proceeding to construction.
Since 2003 we have not built a major project costing more than $3 million, such as the Carmacks-Stewart line, without both a Yukon Utilities Board and YESAA review and we remain committed to this approach in the future.
It is Yukon Energy’s job to provide Yukoners with a secure supply of clean, affordable energy. We’re committed to doing that with renewable energy initiatives, like the Carmacks-Stewart transmission project, which complement our existing hydro system.
Yukon Energy has constructed the Carmacks-Stewart project in a manner that will not adversely impact ratepayers today or in the future.
Ratepayers will contribute $5 million for Stage 1 and will pay no more than that amount for Stage 2. The YUB’s recent General Rate Application decision confirmed that ratepayers actually secured savings from Stage 1, proving that the benefits were much greater than the $5 million of rate base costs.
The suggestion that the two stages of the Carmacks-Stewart project are over budget is not correct. The projects have been managed properly and all decisions to proceed were made with the best information available at the time. And to be clear, the record shows that the decisions to build these projects are not based on preliminary cost estimates that have not been through a detailed engineering and budgeting process. The record also shows that Stage 1, which is the only stage completed today, was done on budget and on time.
The bottom line is that the Carmacks-Stewart line is a good project that has already resulted in savings and benefits for Yukoners, and will continue to do so into the future.
David Morrison
president and CEO
Yukon Energy Corporation