YEC and Sherwood forced back to the drawing board

The Yukon Utilities Board has rejected a $24-million deal between Yukon Energy Corporation and Vancouver-based Sherwood Copper, owner of the Minto…

The Yukon Utilities Board has rejected a $24-million deal between Yukon Energy Corporation and Vancouver-based Sherwood Copper, owner of the Minto mine.

The agreement was supposed to guarantee YEC a large electricity customer along a proposed $20-million transmission line extension from Carmacks to Pelly Crossing.

But on Monday, the board rejected the deal and called on Yukon Energy and Sherwood to make drastic changes and re-submit it by May 9 if they hope to keep the pact alive.

Energy, Mines and Resources Minister Archie Lang refused to comment after question period on Tuesday.

It isn’t known what happens next.

Energy Corp. president David Morrison is in Vancouver and not available for comment, said corporation spokesperson Janet Patterson.

Sherwood president Stephen Quin is away in Europe, said company officials.

In its 27-page decision — which follows more than four months of arguments to the board from YEC and several intervenors — the board outlines why it is denying the agreement.

The rejected deal saw YEC offer to build and pay for the transmission line extension and “spur” connection to Minto, estimated to cost about $24 million.

The Energy Corp. also offered Minto a fixed power price, a cheaper price when it buys surplus power and a commitment to buy four refurbished diesel generators currently in use at the mine for $2.24 million.

In exchange, Sherwood agreed to pay $7.2 million towards YEC construction costs of the main line extension over four years, about $4 million for the spur connection over seven years and to buy $24 million in electricity by 2016.

If it didn’t buy that much electricity, Sherwood pledged to simply pay YEC the same amount.

But the board found the deal unacceptable.

The Energy Corp. offered Minto a fixed electricity rate in contrast to the floating price other Yukon electrical consumers pay.

Without a fixed price, Minto wouldn’t have “certainty” and wasn’t willing to commit to the deal, said YEC.

But several intervenors argued Minto should face price fluctuations like everyone else.

The utilities board agreed.

The Energy Corp. proposed to sell Minto unmetered surplus electricity.

That also came under scrutiny.

Yukon Energy argued the agreement would see less water wasted at its hydroelectric dams and increased revenues.

Intervenors thought otherwise.

All electricity customers should have “equal opportunity” to purchase cheaper surplus power on a “non-discriminatory and non-favoured basis,” argued energy watchdog Peter Percival.

Because the deal left it up to Minto to report its usage, Percival also questioned how the mine’s consumption of power would be accurately monitored.

While it approved the cheaper surplus power price for Minto on an interim basis, the board cited a lack of complete electricity cost data from YEC and ordered comprehensive monitoring before it will approve the clause.

The amount of money exchanging hands for the power lines saw the most intense scrutiny.

Under the rejected deal, YEC and Sherwood agreed the company would pay $7.2 million towards YEC’s costs to build the transmission line extension and $4 million for the spur connection.

But the agreement would see YEC front the costs and Sherwood repay them over several years.

“(I)t was apparent that without YEC financing for the customer capital cost contribution, the mine would not connect to the grid,” argued YEC.

Sherwood’s costs were also fixed and would not rise if YEC’s costs did.

Intervenors suggested this would expose Yukon electricity customers to financial risk.

They argued the cost of the transmission and spur lines are only estimates and that Sherwood should pay actual costs.

And the board agreed.

“(T)he economics for this project are driven by new load, namely the addition of Minto,” reads the board’s ruling. “If a connection to Minto was not to happen, the project would not proceed.”

The board ruled the Carmacks-to-Pelly transmission line is a “hybrid” project.

Sherwood’s contribution to the main line must be indexed to a detailed cost estimate, it ruled.

If the final cost goes up, so must Sherwood’s contribution.

“While this could increase the contribution from Minto, any increase is expected to be significantly less than the $18 million in benefits Minto will receive from grid connection,” reads the board’s ruling.

The Energy Corp. should not finance Sherwood’s costs, and YEC should not assume such an arrangement will be approved in the future, reads the ruling.

Any losses incurred will also have to come out of YEC’s profits to protect Yukon electrical customers, it stated.

The Energy Corp.’s pledge to buy Minto’s diesel generators was also rejected.

While the prices seem reasonable, “the board is not convinced the units are needed.”

Speaking for Morrison, Patterson expressed “shock” at the ruling.

“We’re very disappointed with the decision,” she said on Tuesday. “Now we need to take some time to digest what the board has told us and figure out what we do now.”

But Percival expressed satisfaction the board has responded to most concerns of watchdogs.

“It’s a step in the right direction — I wouldn’t consider it a bold step, but it’s certainly in the right direction,” he said on Tuesday.

But his main concern with the deal —YEC’s proposal to finance Sherwood’s costs — has “only partially” been addressed in the ruling, he said.

“I don’t think they’ll have any trouble making the adjustments the board has either ordered or suggested,” said Percival.

Liberal energy critic Gary McRobb is also pleased.

“I’m very satisfied the utilities board made a decision in the public interest,” said McRobb.

“It will send Archie Lang and his officials back to the drawing board.”

He noted that Morrison is in Vancouver and hadn’t briefed Lang — as well as the eight remaining days the duo have to come up with a new deal.

Lang should have demanded Morrison be at his desk providing answers immediately, he said.

“I think it shows a lack of leadership right at the top,” said McRobb.

“It’s up to the minister to ensure officials are at hand and fully capable of responding to orders that are coming out on a date well known in advance.”