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Pawning the family jewels

Do we detect the pungent smell of panic from the Cabinet Office, just as the smoke is clearing from computers fried in the latest power outage? The resignation of four Yukon Energy board members, several of them Yukon Party stalwarts, has sent Premier Den

Do we detect the pungent smell of panic from the Cabinet Office, just as the smoke is clearing from computers fried in the latest power outage? The resignation of four Yukon Energy board members, several of them Yukon Party stalwarts, has sent Premier Dennis Fentie into hiding from the media, and political observers into a tizzy.

But let’s take a step back and look dispassionately at the issues around Yukon Energy and our electrical system in general.

There are four interconnected issues at play.

1) Capacity. As Yukon Energy’s former board members pointed out back in 2006 in the government-owned corporation’s 20-Year Resource Plan, demand for electricity grows automatically each year while our generating capacity does not.

2) Carbon dioxide reduction. The Yukon government has recently been trying to formulate plans to deal with climate change and reduce our carbon dioxide emissions. One aspect of this is a goal to increase renewable energy by 20 per cent by 2020. There has been lots of talk about geothermal energy, heat pumps and electric vehicles, all of which save oil but need electricity to run.

Note that this goal is not particularly ambitious. The already planned Mayo B project will increase renewable capacity by 10 per cent, leaving just another eight megawatts needed. And since population and energy usage will be about 50 per cent higher than today in 2020 if the trend from 1967-2004 continues, the Yukon government’s plan actually implies an increase in our reliance on fossil-fuel energy.

3) Financing the Mayo B project. This will add a welcome additional eight megawatts of capacity to the system’s current 131 megawatts and link the Mayo and Whitehorse grids. But it will be an expensive project.

Willard Phelps, the former chair of Yukon Energy, has pointed out that cheaper options might have been possible if planning had begun earlier. Yukon Energy’s Resource Plan data shows other projects might generate similar amounts of power for as little as half the capital cost. But Mayo B’s main advantage is that it is “shovel-ready” for federal infrastructure money that is burning a hole in Ottawa’s pocket.

4) Governance. There is also the complicated tangle of issues around the management and ownership of Yukon Energy and Yukon Electrical. Government-owned Yukon Energy generates most of the electricity in the Yukon. Yukon Electrical was founded by Phelps’ pioneering forebears and sold to Alberta-based ATCO years ago. It generates some power of its own, but mostly delivers power generated by Yukon Energy.

Until 1997, Yukon Energy was essentially a shell company that was managed under contract by Yukon Electrical. But concerns about the cost of Yukon Electrical’s management contract, its effectiveness and its ability to plan for the future of the Yukon’s electrical system led to the separation of the two companies. Now, in contrast, there are concerns that the Yukon is too small to support two electrical companies and their management structures.

Which brings us to today’s controversy. The immediate problem is No. 3: finding the Yukon’s $71-million share for Mayo B. The Yukon had $151 million in cash in its rainy day fund as of April 1. But $36 million is tied up in dodgy asset-backed commercial paper and Fentie plans to run a $30-million cash deficit this year. If the Yukon government pays the $71 million itself, then that leaves just $14 million in the kitty, which raises the risk that the government will have to cut budgets in the run-up to the next election.

Hence the Yukon government’s secret discussions—revealed by the resignation of Yukon Energy board members—with First Nations and ATCO, both of which are relatively cash rich.

The big risk here is that, in its hurry to solve problem No. 3, the government will do something foolish on the other three problems. Which is exactly what it appears to be doing, if Phelps’ recent media interviews are any guide.

Phelps referred to an inside deal potentially giving ATCO a new management contract over generation assets as well as a privileged position on future hydro development in the Yukon. We don’t really know the details because it remains secret. The Yukon government appears also to have kept the Yukon Energy board in the dark, thus prompting the resignations.

A hasty deal now to get $71 million fast risks jeopardizing our ability to do the right thing in the longer term. Perhaps the Yukon should push much harder to build new hydro-generation capacity. This would meet our needs at home and also for any new mines. And it would help us shift from oil to electricity, saving money and reducing carbon dioxide emissions before Ottawa (or President Obama) introduces new carbon taxes or cap-and-trade systems. But would the proposed ATCO deal make us reliant on ATCO or block us from pursuing our plans independently?

And maybe a more thoughtful approach to changing the governance of Yukon Energy and Yukon Electrical is needed. Maybe the Yukon should buy ATCO’s Yukon assets. Or maybe the cost duplication isn’t too bad and we should keep the status quo.

In any case, these are big decisions and the government should move more carefully and more openly.

Premier Fentie already has a legacy of $36 million in public money tied up for years in asset-backed commercial paper. He won’t want to also be the premier who mortgaged our energy future to fund an eight-megawatt dam expansion in Mayo.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels. His next book Game On Yukon! appears shortly.