Introduction

2020 marked a year of unprecedented challenges for the BC power sector. The Province continued to review and assess the longer-term structure of its energy sector amid the immediate impacts of the COVID-19 pandemic, uncertainty regarding the Province’s last large-scale hydroelectric project, and a surprise fall provincial election. With substantially all power procurement activities suspended indefinitely, independent power producers (“IPPs”) and other industry participants await a number of key developments, including the completion by the provincial government of Phase 2 of its comprehensive review of BC Hydro, public consultations for the preparation of BC Hydro’s long-awaited integrated resource plan, now due in late 2021, and the outcome of a review of the Site C hydroelectric project following concerns raised by BC Hydro regarding project risks, construction delays and rising costs. In the face of these developments, the provincial government continued to pursue its CleanBC climate strategy while facing criticism of its efforts to achieve related emission-reduction targets.

BC GOVERNMENT UPDATE

British Columbia’s New Democratic Party (“BC NDP”) started 2020 with a minority government and ended the year with a strong majority following BC NDP Premier John Horgan’s controversial decision to call a snap election several months ahead of schedule in the fall of 2020 despite the ongoing COVID-19 pandemic. The gamble paid off, with the BC NDP winning 57 seats over the B.C. Liberal Party’s 28 and the two seats retained by the B.C. Green Party (“BC Greens”).

The election outcome ended the occasionally strained minority government alliance between the BC NDP and the BC Greens, in place since 2017, just a few weeks after the BC Greens named Sonia Furstenau as the party’s new leader, replacing Andrew Weaver. In the wake of the B.C. Liberals’ weak results in the election, party leader Andrew Wilkinson resigned, setting the stage for a party leadership contest early in 2021.

Despite the change in the provincial balance of power, CleanBC remains a key component of the BC NDP’s plans. Clean BC is British Columbia’s ambitious climate action plan to reduce provincial greenhouse gas emissions to 40% below 2007 levels by 2030 and was launched in 2018 with significant input and pressure from the BC Greens. The 2021 annual mandate letter from Premier Horgan to Minister Bruce Ralston, who leads B.C.’s newly renamed Ministry of Energy, Mines and Low-Carbon Innovation, foregrounds a number of CleanBC-focused initiatives, including, among others:

" Despite this continued commitment, the provincial government faces ongoing criticism that it has not produced credible plans to achieve CleanBC’s targets. "

In December 2020, B.C. released its first annual Climate Change Accountability Report (“CCA Report”) mandated under the Climate Change Accountability Act (British Columbia). Following its release, the B.C. Government acknowledged that the CCA Report confirms that finalizing the roadmap to CleanBC’s ambitious emissions targets (which also include a 60% reduction in emissions over 2007 levels by 2040 and an 80% reduction by 2050) has been more challenging than anticipated.

The CCA Report indicates that greenhouse gas emissions (“GHGs”) actually rose 3% in 2018 over the preceding year as a result of increased fuel consumption, particularly from heavy-duty trucks, oil and gas exploration, and offroad industrial transport. The Province reports that the apparent backslide is attributable in part to changes in the way the federal government requires marine GHGs to be reported, which reduced the 2007 baseline against which B.C.’s future reduction targets are to be measured.

Bright spots in the CCA Report included indications of strong uptake of light-duty electric vehicles in B.C.; nearly 9% of light-duty vehicles sold in B.C. in 2019 were zero-emission vehicles, almost meeting the Province’s goal of 10% by 2025 (six years early). B.C. also saw a 55% increase in public fast-charging sites for electric vehicles over 2018. Meanwhile, reported fugitive and vented methane emissions in the upstream oil and gas sector decreased 11% between 2014 and 2019.

While acknowledging that its plan to reach its 2030 GHG reduction target is still in progress, the Province has set a new interim target of 16% below 2007 levels by 2025 for GHGs in B.C. The Province has also stated that it will set sectoral targets by March 31, 2021, and will develop legislation to ensure B.C. reaches net-zero emissions by 2050.

Despite calls to prohibit expansion of liquefied natural gas (“LNG”) initiatives as a result of the CCA Report’s findings, which commentators project would leave the Province with 2030 GHG emissions significantly above CleanBC’s targets, the B.C. government has indicated it does not plan to do so as long as any proposed LNG expansion falls within CleanBC targets.

The pandemic has also posed challenges for the implementation of some of B.C.’s climate policy plans, with the Province delaying a scheduled April 2020 increase of B.C.’s carbon tax from $40 to $45 per tonne of carbon dioxide equivalent (tCO2e) until April 2021. Meanwhile, the Province has doubled CleanBC retrofit rebates for certain home-heating and energyefficiency upgrades in an effort to support B.C.’s economic recovery from the impact of COVID-19.

COMPREHENSIVE REVIEW OF BC HYDRO

The provincial government’s Comprehensive Review of BC Hydro, initiated in 2018, remains ongoing. The Review is currently in its second phase, with a mandate to evaluate broad, transformational changes that are likely to impact the energy sector in coming years. The Phase 2 Final Report is expected to set out recommendations for how BC Hydro can accomplish the provincial policy objectives laid out in the CleanBC plan, as well as consider the impact of factors such as emerging technologies, energy market trends, and the changing needs of BC Hydro customers. Phase 2 of the Review is intended to support the development of BC Hydro’s long-anticipated integrated resource plan (“IRP”), its first such plan since 2013.

The (since renamed) Ministry of Energy, Mines and Petroleum Resources released a high-level Phase 2 Interim Report (the “Interim Report”) for comment in early March 2020, with a final report (the “Final Report”) intended to follow within two months. The Interim Report pointed to a number of potential significant changes to BC Hydro. For example, it indicated that:

- it may be time to reconsider BC Hydro’s current conservation-focused tiered rate structure, whereby ratepayers pay more for electricity over a certain amount of usage, in favour of optional rates designed to encourage use of the cleanest form of energy available and shape demand to capacity (for example, by implementing variable rates based on time of use for consumers and flattening the two-tier rate for industry);

- BC Hydro is looking at developing an internal carbon price for use in valuing its GHG reductions;

- an economic development rate for energy-intensive low-carbon industries and changes to BC Hydro’s interconnection tariffs could reduce time and cost barriers to electrification of industry, particularly in the upstream oil and natural gas industry; and

- the self-sufficiency provision in the Clean Energy Act (B.C.), which restricts BC Hydro from purchasing energy from outside jurisdictions in favour of selfsufficiency even where clean and renewable resources in other jurisdictions may be more affordable, may be a source of undue constraint, and the Final Report will look at the impact of eliminating this restriction, opening the way for greater importation of energy.

Following the release of the Interim Report, however, the COVID-19 pandemic altered energy consumption and production in the Province, and both industry and other stakeholder groups commented during the feedback period that assumptions underpinning the Interim Report had been disrupted. Furthermore, a number of groups were critical of the discussion-paper format of the Interim Report and the lack of draft recommendations and policy details on which to comment.

" The Final Report has not yet been released. Given the change in circumstances since the release of the Interim Report, it is probable that the Ministry will release a draft version of the Final Report for stakeholder feedback, though no timeline or inform "

The Comprehensive Review process is closely intertwined with the IRP process, which as noted below is currently engaged in ongoing consultations with the public and Indigenous groups, as well as technical consultations.

The B.C. Government has not waited for the Final Report to implement one measure hinted at in the Interim Report. On December 21, 2020, an Order of the Lieutenant Governor in Council of B.C. was issued directing the British Columbia Utilities Commission (“BCUC”), on application, to approve new CleanBC industrial electrification rates consisting of subsidized industrial energy rates for a fixed seven-year term, available to new customers and customers undertaking certain electrification projects, subject to certain limitations. The order also directs the BCUC, on application, to consent to the rescission of Tariff Supplement No. 37 – Northwest Transmission Line Supplemental Charge, a supplemental charge applicable to certain customers as a condition of BC Hydro providing electricity to the customer by means of the Northwest Transmission Line or providing generator interconnection service to the interconnection customer to enable delivery of its generating facility output by means of the Northwest Transmission Line, a 344-kilometre, 287-kilovolt transmission line that originates near Terrace, B.C. and that ends at a substation near Bob Quinn Lake in the northwestern part of the Province.

BC HYDRO INTEGRATED RESOURCE PLAN

As we noted in last year’s publication, BC Hydro was expected to release its integrated resource plan, the utility’s 20-year projection of electricity demand and its plan to meet this need, in February 2021. Due in part to COVID-19 impacting BC Hydro’s workload and consultation process, filing of the IRP has been further delayed. In July 2020, the BCUC ordered BC Hydro to conduct public consultations in connection with the IRP, noting that the last time it reviewed BC Hydro’s long-term planning forecast was in 2010 (BC Hydro’s subsequent 2013 IRP was exempted from BCUC review), and that the lack of a more recent plan impedes the BCUC’s ability to efficiently discharge its regulatory responsibilities in relation to the review of BC Hydro and related regulatory applications (including in relation to the renewal of electricity purchase agreements (“EPAs”), as discussed below). Following this, BC Hydro confirmed that the IRP would be filed September 2021 following consultations with Indigenous nations, a newly established Technical Advisory Committee, and both customers and the broader public.

BC HYDRO RATE APPLICATION

On October 2, 2020, the BCUC issued its final decision on BC Hydro’s fiscal 2020 and fiscal 2021 revenue requirements application (“RRA”). As part of the RRA, the BCUC found BC Hydro’s forecast revenue requirement to be reasonable with the exception of certain items identified in the decision, and approved BC Hydro’s application for a permanent reduction from 5% to 0% of the Deferral Account Rate Rider, a surcharge on ratepayers’ bills used to pay down BC Hydro’s energy deferral accounts.

The BCUC also directed BC Hydro to file its fiscal 2022 RRA by December 2020, for expedited review. Provided there are no delays, it is expected the BCUC will issue its final decision in summer 2021. This expedited review of BC Hydro’s RRA is intended to align with BC Hydro’s next multi-year RRA timing.

EPA RENEWALS

The BCUC has underscored in recent decisions that it is unable to determine whether long-term EPA renewals are in the public interest until BC Hydro files a new IRP. Accordingly, applications for EPA renewals in 2020 have generally been limited to three-year renewal terms.

As we noted in last year’s publication, BC Hydro filed applications to renew three EPAs entered in respect of hydroelectric projects—Sechelt Creek Hydro, Brown Lake Hydro and Walden North Hydro—to extend the terms by 40 years. The BCUC adjourned the proceeding to allow BC Hydro and the counterparties to restructure and resubmit the EPA renewals (not to exceed three years) to allow BC Hydro to complete its IRP. In February 2020, BC Hydro resubmitted the EPA renewals with three-year terms in respect of Sechelt Creek Hydro and Brown Lake Hydro, which were accepted for filing.

However, BC Hydro issued a notice of termination for the EPA renewal in respect of Walden North Hydro, relying instead on its original EPA and related forbearance agreement (the “Forbearance Agreement”) whereby BC Hydro agreed to forebear its right to terminate the original EPA in exchange for compensation from the IPP.

In response, the BCUC requested submissions on the Forbearance Agreement, which had never been filed with the BCUC, and concluded that it constituted an amendment to the original EPA required to be filed with the BCUC under section 71 of the Utilities Commission Act (the “UCA”). The BCUC also directed BC Hydro to, among other things, file all unfiled agreements associated with and materially affecting any other existing EPAs as separate amending agreements.

BC HYDRO FORCE MAJEURE CLAIMS

In early May 2020, BC Hydro announced that it would reduce purchases of power under certain EPAs with IPPs, citing the COVID-19 pandemic, and related governmental measures in response to it as constituting a force majeure event under the terms of the applicable EPAs. While the number of EPAs under which BC Hydro declared force majeure was not publicly released by BC Hydro, a press release from at least one IPP stated that BC Hydro delivered notices temporarily halting the purchase of power from May to July under at least six EPAs.

BC Hydro’s standard EPA terms include confidentiality and arbitration provisions, so additional public information regarding the force majeure claims is unlikely to become available unless released by BC Hydro or as part of the disclosure requirements of any affected IPP that is a public company.

In conjunction with the delivery of the force majeure notices, BC Hydro issued a report titled “Demand Dilemma: How BC Hydro is responding to declining load and operational challenges resulting from COVID-19”, in which BC Hydro provided an overview of the declining load and operational challenges it faced due to the COVID-19 pandemic, attempting to support its claim that it was necessary to invoke force majeure under the EPAs. In particular, BC Hydro noted that:

In addition to invoking force majeure under its EPAs, BC Hydro noted that other measures being taken to reduce environmental risks arising from increased spillage at its facilities as a result of reduced load included shutting down operations at certain of its smaller plants to reduce generation and increasing the export of electricity to other jurisdictions through its trading subsidiary, Powerex.

At least one IPP has publicly disclosed its intention to dispute BC Hydro’s force majeure claim, noting that while BC Hydro retains “turn-down” rights under its EPAs that enable it to require the operator to turn down or shut off its facilities in certain circumstances, including in order to avoid a safety or stability risk, BC Hydro is required to compensate the operator for energy that would have been produced at the facilities in the absence of the curtailment.

In September 2020, BC Hydro released a subsequent report, titled “Powering through uncertainty: Shifting habits since COVID-19 restrictions were eased and what that means for future electricity demand in B.C.”, in which it provided updated data with respect to power consumption and forecast load growth following the Province’s economic restart after the first wave of the COVID-19 pandemic.

" BC Hydro’s results showed that with more British Columbians back at work and spending less time at home, provincial electricity use steadily increased from mid-June as many businesses reopened, with overall demand in August increasing to 7% below BC Hydro "

BC Hydro’s results showed that with more British Columbians back at work and spending less time at home, provincial electricity use steadily increased from mid-June as many businesses reopened, with overall demand in August increasing to 7% below BC Hydro’s pre-COVID-19 load forecast. BC Hydro stated that while overall electricity load is expected to remain lower than previously forecast over the next one to two years, it is expected to rebound in the long term due to population growth, fuel switching and the electrification of transportation, home heating, and industries that are dependent on fossil fuels.

SITE C PROJECT UPDATE

The COVID-19 pandemic significantly impacted progress on the 1,100 MW Site C project on the Peace River in northeastern B.C. On March 18, 2020, BC Hydro announced that work would be scaled back in response to the pandemic. Essential services and work critical to achieving river diversion were prioritized. In May 2020, construction activities at the site began to gradually increase. The most recently released employment figures show that the project employed 5,181 people in October 2020, approximately 72% of whom were workers from B.C. The diversion of the Peace River, an important project milestone, was completed in October 2020. However, the COVID-19 pandemic continues to add uncertainty to the remainder of the project schedule, and BC Hydro has not yet confirmed its impact on the previous target in-service date for the project of November 2024. On December 29, 2020, B.C.’s public health officer issued a new order limiting the number of workers on site at the project.

In addition to challenges posed by the COVID-19 pandemic, the Site C project is also grappling with previously identified geological risks requiring foundational enhancements to increase stability under core areas of the right bank of the Peace River. BC Hydro continues to work with the independent Site C Technical Advisory Board and the Project Assurance Board to determine appropriate enhancement measures. The impact on cost and schedule is anticipated to be more substantial than initially expected and will be better understood once enhancement measures are finalized.

In July 2020, B.C.’s energy minister appointed former deputy finance minister Peter Milburn as a special advisor to conduct an independent review of the Site C project after BC Hydro reported the above concerns about project risks, construction delays and rising project costs. His report is expected to be discussed with cabinet and made public in the first quarter of 2021. More recently, the B.C. Government announced that it has also commissioned two dam-safety experts to review BC Hydro’s proposed solution to the project’s geotechnical problems.

In an ongoing civil action, West Moberly First Nations allege that the Site C project unjustifiably infringes their Treaty 8 rights. In a parallel civil action, Prophet River First Nation similarly alleged infringement of its Treaty 8 rights. In 2019, the B.C. Government, BC Hydro, West Moberly and Prophet River entered into confidential discussions to seek alternatives to litigation. In August 2019, West Moberly withdrew from such discussions and expanded their original action to focus on the cumulative impacts of all three Peace River facilities, not just the Site C project. West Moberly are seeking an injunction against operating the Site C dam, an order to remove the dam, and damages, including the payment of all revenues earned on the existing Peace River dams. The trial is expected to occur in 2022. In August 2020, Prophet River reached two agreements with the Province of British Columbia and BC Hydro regarding, among other things, land management and naming rights that resulted in the discontinuation of its civil action.

LNG UPDATE

The natural gas tax credit announced in March 2019 to encourage development of the LNG industry in B.C. went into effect on January 1, 2020. This credit can reduce the applicable corporate tax rate from 12% to 9% for qualifying corporations.

LNG Canada – a joint venture between Shell Canada, PETRONAS, PetroChina, Mitsubishi Corporation, and KOGAS and the only active LNG project in B.C. – continues construction of its LNG facility in Kitimat, B.C. Despite delays caused by the COVID-19 pandemic, major work is underway, including site preparation, dredging, and construction of a marine terminal. In 2020, the first group of residents moved in to Cedar Valley Lodge, LNG Canada’s long-term workforce accommodation centre and facilities, which will provide accommodation for up to 4,500 workers. LNG Canada is now targeting a 2025 completion date. When constructed, LNG Canada’s $40 billion facility will consist of two trains with a total capacity to produce 14 million tonnes of LNG per year.

In May 2020, TC Energy (formerly TransCanada Corporation) announced it had completed the sale of a 65% equity interest in the 670 km Coastal GasLink Pipeline to private equity firm KKR and Alberta Investment Management Corporation. The first segments of this project were laid in the ground in July 2020 following highprofile protests in February in support of the Wet’suwet’en hereditary chiefs, whose traditional territories are crossed by the pipeline. These protests have temporarily ceased under the terms of a memorandum of understanding between the hereditary leadership and the provincial and federal governments. For now, construction of the pipeline continues and, when complete, it will deliver natural gas from the area near Dawson Creek, B.C. to LNG Canada. It will be built to carry 2.1 billion cubic feet per day, with the potential for expansion to carry up to 5 billion cubic feet per day.

In December 2019, Chevron Canada announced its intention to exit its investment in Kitimat LNG, a 50/50 joint venture between Chevron Canada and Woodside Energy that includes a natural gas liquefaction facility at Bish Cove near Kitimat, upstream resources in the Liard and Horn River Basins in northeast British Columbia, and the proposed 480 km Pacific Trail Pipeline. However, Chevron Canada has not yet sold its 50% stake in Kitimat LNG. In February 2020, Woodside Energy announced it was reducing the book value of Kitimat LNG by $1 billion due to uncertainty in the timing of the development of its Liard natural gas fields. When complete, the Kitimat LNG plant would include three LNG trains with a capacity of 18 million tonnes per year and be powered entirely by electricity.

Tilbury LNG, located in Delta, B.C., and owned and operated by FortisBC, continued its Phase 1 expansion and has proposed a Phase 2 expansion. The Phase 1 expansion would bring Tilbury LNG’s liquefaction capacity to up to 0.65 million tonnes of LNG per year, and is expected to be complete in 2023.

The $3 billion Phase 2 expansion, if approved and constructed, will increase the liquefaction capacity to 3.5 million tonnes per year by 2026.

The Woodfibre LNG project, located near Squamish, B.C., has been delayed due to the COVID-19 pandemic and a restructuring of McDermott, the project’s main engineering, procurement, and construction contractor. The BC Environmental Assessment Office has granted the project a five-year extension on its environmental approval certificate. Project owner Pacific Oil and Gas Ltd. is now expected to formally approve the project by the third quarter of 2021, with construction to begin shortly thereafter and the production of LNG for export to start by late 2025. When complete, the project will have a production capacity of 2.1 million tonnes per year.

Another major proposed LNG production facility near Kitimat is Cedar LNG. This project, sponsored and proposed by the Haisla Nation, is expected to cost between $1.8 and $2.5 billion and would be one of North America’s first-ever floating LNG terminals. Phase 1 of the project is currently planned for 2022, with operations planned to commence in 2025. When complete, the project would be capable of producing up to 6.4 million tonnes of LNG per year. Like LNG Canada, Cedar LNG plans to receive gas from the Coastal GasLink pipeline. Cedar LNG has already received an export licence from the Canada Energy Regulator, and in January 2020 the federal Minister of Environment and Climate Change approved the Government of British Columbia’s request to substitute British Columbia’s environmental review process for the federal impact assessment process. With the provincial environmental assessment process underway, the Haisla Nation approved two partners for the project in November 2020: Pacific Traverse Energy and Delfin Midstream.

Two other major LNG pipeline projects, Enbridge’s Westcoast Connector Gas Transmission project and TC Energy’s Prince Rupert Gas Transmission project, have obtained the primary regulatory approvals necessary in order for the projects to proceed.

Both pipelines would deliver gas from northeast B.C. to LNG facilities in the Prince Rupert area. While the initial LNG projects to be served by these pipelines are not proceeding, Enbridge and TC Energy continue to evaluate alternatives for the pipelines.

What to Expect in 2021

COMPLETION OF BC HYDRO REVIEW

As noted above, the Phase 2 Final Report is expected to be released in draft form for stakeholder feedback, following which it is expected to be finalized within a timeframe that permits it to inform BC Hydro’s preparation of the IRP before the latter is submitted to the BCUC in September 2021.

AT LAST: 2021 INTEGRATED RESOURCE PLAN

After numerous delays, BC Hydro’s long-overdue integrated resource plan (last prepared in 2013) will finally be submitted in late 2021. The IRP planning process was disrupted by the COVID-19 pandemic but is proceeding and will be informed by the outcome of Phase 2 of the BC Hydro comprehensive review, the Province’s CleanBC energy roadmap, and BCUC-mandated public consultations.

As we noted last year, there are a number of forces that could materially reshape the load-resource balance in the Province, including the large-scale electrification called for under the CleanBC, the potential for additional LNGrelated load and potential shortfalls in the achievement of BC Hydro’s demand-side management initiatives. To these must be added the remote but still real possibility that the Site C project is cancelled in the face of mounting safety and cost issues, which would instantly transform the Province’s load-resource landscape.

SITE C: POINT OF NO RETURN?

The release of the Milburn Report by the B.C. provincial government, expected in the first quarter of 2021, along with the findings of recently commissioned safety experts, will be critical to assessing the projected cost and ultimate fate of the Site C hydroelectric project. An independent analysis by the C.D. Howe Institute in January 2019 concluded that the project may only be “marginally economic” based on its current projected budget of $10.7 billion, and that any meaningful further cost increases would make cancellation of the project a better choice.

LONG-TERM EPA RENEWALS: STILL ON HOLD

Given the BCUC’s decision that it is unable to determine that long-term EPA renewals are in the public interest until updated information is available on BC Hydro’s energy needs and supply alternatives, the fate of long-term EPA renewals continues to be in limbo until the IRP is finally submitted later this year.