Last year, the power purchase agreement between Yukon Energy Corporation and Sherwood Copper seemed a bad idea.
Today, there’s no doubt. Yukoners were fleeced.
Sherwood’s Minto mine, a darling of the current government, is guaranteed hydroelectric power at 10 cents a kilowatt hour (with a possible inflation increase after a year) until 2012.
A year ago, that rate seemed ridiculously low.
Today, well… it looks like ratepayers were robbed.
It’s very likely that everybody except the Minto mine will pay more for power in a few months.
Why are residential rates rising?
There is a shortage of hydro power on the grid.
Why?
The Minto mine is using it.
As a result, the utility will probably have to burn diesel.
In fact, the power supply is so tight right now that Willard Phelps, who oversees the Energy Corp., has told residential customers they shouldn’t use electrical heat in their homes.
And, by increasing the cost to people who use more than 1,000 kilowatt hours, he’s essentially forcing people to burn oil, propane or wood.
So, though Whitehorse has a guaranteed supply of benign hydro power flowing past its doors every day, people are encouraged to use hydrocarbon-producing fuel.
Make sense?
This wasn’t supposed to happen.
In the runup to the power purchase agreement, Yukon Energy pitched the power-purchase agreement as a way of making money off hydro power that was “surplus” to the territory’s needs.
Clearly, that wasn’t the case.
So what was at play?
Buying hydro from the expanded grid benefitted Sherwood shareholders, lowering the cost of operating the Minto mine by $3 million a year, or more.
As a result of the deal, the Vancouver-based company will make more money.
In exchange, Sherwood paid $7.2 million towards Yukon Energy’s expanded hydro grid, which was estimated to cost $27.8 million. And it promised to buy $3 million of power a year.
So the utility has spent a lot of money expanding the grid, which largely benefits the mine, and is charging ratepayers for that capital project.
That is driving up the rates charged to Yukon electrical consumers.
The mine has taken up all the surplus hydro power, and is receiving it at a discounted rate.
However, the utility benefits from a guaranteed $3-million sale a year.
Unfortunately, it’s not clear how that benefits ratepayers.
In its recent application to the Yukon Utilities Board, Yukon Energy suggests less than half this money will be applied to reduce the cost to other ratepayers, according to the watchdog Yukon Utilities Group.
So, once again, the benefits are not what the average ratepayer expected.
Bottom line, one mine has significantly cut its operating costs.
The rest of the territory’s power users are paying the lion’s share to provide that access.
They will also have to cover the cost of the diesel fuel that will be burned this year.
Those air-polluting diesel generators are located near Riverdale and Faro, not Minto.
Those who have installed electrical heat, to tap the surplus hydro Yukon Energy talked about last year, will be penalized for using it.
Residential customers will have to buy oil — the same fuel Sherwood Copper was happy to ditch because it was so expensive.
And, as mentioned, Yukon Energy will probably have to burn diesel to meet demand. Why? Because the mine is now drawing the utility’s surplus hydro capacity.
A Sherwood release said the Yukon will benefit from employment and royalties.
But the mine was operating without hydro power. So the territory would have received those benefits anyway.
Now the power-purchase agreement is signed, the territory’s ratepayers are stuck with it until at least 2012.
Sherwood Copper and its shareholders are profiting.
The rest of us?
Well, we’re subsidizing those profits.