What’s next for YEC

Premier Dennis Fentie appears to have backed down on his plans to essentially merge publicly owned Yukon Energy with Yukon Electrical, owned by Alberta-based Atco, thanks to the very public resignations of four Yukon Energy board members.

Premier Dennis Fentie appears to have backed down on his plans to essentially merge publicly owned Yukon Energy with Yukon Electrical, owned by Alberta-based Atco, thanks to the very public resignations of four Yukon Energy board members.

It’s hard to tell, though. Fentie said on Monday in a news release that there would be no “privatization” or “sale” of Yukon Energy assets. But he also said recently that he would “continue to talk to Atco” and Monday’s announcement pointedly refused to rule out “management contracts,”“special purpose entities,” or other complex pseudo-ownership structures.

It was exactly this kind of arrangement which Fentie was personally negotiating with Atco tycoon Nancy Southern.

The leaked YTG-Atco “joint position paper” that recaps negotiations between Fentie and Southern outlines an entity dubbed “Opco” jointly owned by YTG and Atco which would manage Yukon Electrical and Yukon Energy, and receive certain cash payments, while official ownership remained as it is today.

As Conrad Black or Enron executives could relate, these pseudo-ownership structures allow effective ownership (ie., control and cash flows) to go one way while legal ownership goes another.

These structures can be used legitimately, but are complex. They have been at the heart of more than one scandal, often involving insiders using management contracts or clever inter-company pricing to subtly transfer wealth from supposed owners to themselves.

Fentie also announced on Monday that he would take over as the minister responsible for Yukon Energy. With the resignation of four independent-minded Yukon Energy board members, Fentie’s plan seems to be to consolidate his personal control of Yukon Energy and energy policy in the Yukon.

Throughout the recent controversy, where Fentie appeared to some outside observers to be making long-term energy policy up on the fly in as secret a manner as possible, he has been steadfastly supported by his cabinet. Now they have agreed to give him even more power, perhaps with the objective of ending Yukon Energy’s arm’s-length status and putting it under more direct day-to-day political control.

So what does all this mean for the Yukon’s energy future?

The root cause of this controversy is how to find the money to pay for investments in the Yukon’s energy infrastructure.

First we’ll look at how much money these investments might require, then, at where the money might come from.

According to CBC Radio One, the Yukon government’s share of the Mayo B project will be $71 million. But that’s just Mayo B. Using some very rough estimates, the Yukon’s current hydro capacity before Mayo B is about 400 gigawatt-hours per year (GWh). Mayo B will increase that by about 40 GWh.

If we want to keep roughly the same mix of renewable energy and diesel, and if power usage grows at four per cent a year (roughly the trend from 1967 to 2004), then we’ll need an additional 440 GWh on top of Mayo B by 2029.

If we want to reduce carbon dioxide emissions as part of a climate change plan and insulate ourselves a bit from rising global energy prices, we could aim to move our total energy (not just electricity) mix from around 20 per cent renewable and 80 per cent fossil fuel to something more like 50-50. Norway, also rich in hydro potential like the Yukon, has gone even further.

If we did want 50 per cent of our energy from renewables in 2029, we would need an additional 1,750 GWh.

Now for the cost. Prepare to be shocked.

If Mayo B is going to cost around $150 million, that works out to about $4 million per GWh. Fortunately, Yukon Energy has identified other sites where power might be about half as costly or less. Building that additional 440 GWh to maintain our current mix of renewables could cost around $900 million. Getting to a Norwegian 50-50 mix would cost billions.

Now where will this money come from? In the end, it will come from power users. Yukoners already spend more than $100 million per year on fossil fuels and electricity.

But the investment cash has to be found first.

The Yukon government can’t afford investments this large. Neither can Yukon Energy.

The Yukon government has not been accumulating power profits in an infrastructure fund, deciding instead to spend the power company’s profits over the last decade on the Rate Stabilization Fund subsidy for individual power users.

Which leaves third parties.

First Nations have a major opportunity to become investors and possibly builders and owners of power facilities.

Utility companies like Atco and Transalta will also be interested, as well as infrastructure investment funds once the global credit crunch begins to abate.

What this means is that Yukoners will be hearing a lot more about power partnerships and investment projects. It also means that we have to have a careful strategy to develop a series of power deals with multiple partners on various hydro, wind and other power projects.

Otherwise, we’ll be faced with a future where we have to turn increasingly to diesel.

The big risk is that Fentie will cut a hasty and ill-conceived deal to fund the Mayo B project, something he seems to have been trying to do with Atco. Concessions he makes now could make it harder to attract partners for future deals.

It’s not clear what Fentie will do next.

But with him as minister responsible for Yukon Energy, and with senior cabinet ministers like Elaine Taylor, Brad Cathers and Archie Lang supporting his approach to managing the Yukon’s energy system, he can do whatever he wants.

Prepare to be surprised.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels. His latest book Game On Yukon! was just launched.

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