On August 28, 2013, the Government of Québec published, in the Gazette officielle du Québec, the Projet de Règlement sur un bloc de 450 mégawatts d’énergie éolienne (Draft Regulation on a Block of 450 MW of Wind Power) (the “Draft Regulation”). The publication of the Draft Regulation follows the announcement made by the Premiere of Quebec, Pauline Marois, regarding the development of an additional 800 MW of wind power, of which 450 MW are from community projects. It is this block of 450 MW which is subject to the Draft Regulation which determines, other than the target capacity, the maximum price for the supply of electricity, the level of control by the local community over the wind power project, the delivery delays and Hydro-Québec’s delay to proceed to the call for tender.

Key elements of the Draft Regulation

  • Maximum Price

The Draft Regulation states that the price for the supply of electricity cannot exceed 9.5¢/kWh in 2014 dollars and indexed at the consumer price index (the “Maximum Price”). The Maximum Price includes the balancing service and supplementary capacity. It should be noted that said price reflects an important reduction in comparison with the terms of the previous call for tender (“A/O 2009-02”), which provided a maximum price of 12.5¢/kWh and excluded the transmission costs, as well as the costs for the balancing service and supplementary capacity. According to recent statements from the Minister of Natural Resources, the reduction of the Maximum Price aims to respond to certain critics regarding the cost associated with wind power1.

  • Control by the local community

According to the provisions of the Draft Regulation, participation in the call for tender will be limited to all electricity suppliers demonstrating that the local community holds over 50 percent of control of the project. Please note that aboriginal communities, in addition to municipalities, regional county municipalities and intermunicipal management boards, are included in the definition of “local community”. Unlike A/O 2009-02, the Draft Regulation does not include cooperatives of which the majority of members have their domicile in the administrative region of the project, nor a grouping of physical persons detained and controlled by the members or shareholders having their domicile predominantly in the administrative region where the project is situated.

  • Delivery delays

Finally, the Draft Regulation provides that, out of the 450 MW referred to under the terms of the upcoming call for tender, 225 MW shall be connected to Hydro-Québec’s main network on December 1, 2017, at the latest, and that the second block of 225 MW shall be connected at the latest on December 1, 2018.

  • Hydro-Québec's call for tender

Following the publication of the Regulation in the Gazette officielle du Québec, Hydro-Québec Distribution shall be required to proceed, within a 90-day- period of said publication, to the undertaking of a public tender.

Issues

A few aspects are worth discussing:

  • Sustainability of the wind power industry in Quebec

By publishing the Draft Regulation, the Government of Quebec wishes to secure the sustainability of the wind power manufacturing industry in Quebec. However, it will be interesting to monitor the reaction of the manufacturing industry regarding the Draft Regulation and Quebec’s wind power development, considering that, a priori, there seems to be a gap in the delivery schedule of the projects. In theory, two years will elapse between the commencement of deliveries of the projects selected according to the A/O 2009-02 and the ones of the following call for tender. This is due to the fact that the delivery schedule stated in the Draft Regulation anticipates that the connection of the projects selected shall be effective by December 1, 2017, whereas the projects selected according to A/O 2009-02 must be connected before December 1, 2015.

  • Potential consequences of control by the local community

The aspect of control of the electricity supplier by the local community included in the Draft Regulation will require thoughtful planning of the selected projects’ property structure.

In this regard, if the aspect of control (which will need to be further defined in the call for tender documents) is identical to the one used by Hydro-Québec Distribution during A/O 2009-02, the local community shall be required to demonstrate that it holds the control over the key decisions related to the projects. Thus, the supplier shall be required to demonstrate that the local community has control over the decisions affecting said projects. One may think that an exclusive power over the key decisions of the project held by a partner from the local community would be considered contrary to the spirit and the requirements of the Draft Regulation.

Also, according to the Municipal Powers Act (RSQ, c C-47.1), certain provisions of the Cities and Towns Act (RSQ, c C-19) and of the Municipal Code of Québec (RSQ, c C-27.1) are applicable to the enterprises of wind power generation controlled by a municipality or a regional county municipality. Thus, it appears that the electricity suppliers controlled by a municipality or a regional county municipality will have to submit the granting of certain contracts of a value over $100,000 to the requests process for public tenders provided by those laws. This subjection to the public tendering mechanisms will also force any person wanting to conclude a contract of a value of over $40 million (amount that will likely be reduced to $10 million this fall) with the electricity supplier controlled by a municipality or a regional county municipality to obtain an accreditation from the Autorité des marchés financiers. Considering the fact that within the four entities covered by the definition of “local community”, as mentioned above, the municipalities and the regional county municipalities are the only two entities subject to the public tendering mechanisms, the ownership of the projects by aboriginal communities or by groupings of entities included in the definition of “local community” may be favoured, in order to avoid the application of the aforementioned legal provisions.

  • Economic benefits for the local community

Despite the Draft Regulation requirement that the eligible projects be controlled by the local community, its provisions provide no requirement of minimal capitalization by the local communities in the projects or any requirement of minimal participation in the project’s benefits. Should a local control implicate an equal investment by the local community? One may wonder if said requirement of control by the local communities for the projects truly reflects municipal goals, and if it will favour local participation, here essential to the tender for wind power supply that will follow. Indeed, by associating themselves with private sponsors for the development of the wind power projects on their territories, the local communities are probably looking to maximize the socio-economic benefits of a project on their community or their territory. This is achieved, in particular, by favouring access to job and business opportunities for workers and companies on their territory, instead of acquiring the control over the projects for which they may not have the expertise, the financial resources nor the necessary manpower to manage, develop and carry out.

  • Economic, social and environmental concerns

It is a safe bet that the Government of Quebec will adopt, at the time of the enactment of the Regulation, a decree in accordance with article 49(10) of the Act Respecting the Régie de l’Énergie (RSQ, c R-6.01) to indicate to the Régie de l’Énergie the economic, social and environmental concerns of the Government regarding said block of 450 MW. Certain tender requirements will probably be better defined at the time of the decree, in particular regarding the inclusion (or non-inclusion) of particular tender requirements regarding secured regional and provincial content, which are currently missing from the Draft Regulation and are being requested, in particular by the Fédération québécoise des municipalités2.

Consultation period

Any interested party having comments to submit regarding the Draft Regulation may do so until October 12, 2013, after which, the Government of Quebec may adopt the Regulation.