Introduction

Last week, the British Columbia government introduced Bill 17 (2010), the Clean Energy Act (the "Act"). The Act implements many of the recommendations of the Clean Energy Task Force as well as policy initiatives announced in the 2010 Throne Speech. The Act expands upon and creates the legislative framework for increased electricity self-sufficiency in the province, establishes a clear policy direction to develop and increase energy exports, and purports to stimulate job creation and reduce greenhouse gas emissions. In particular, the Act identifies 16 specific energy objectives for the province, including but not limited to expanding and expediting clean energy investment in the province, protecting B.C. ratepayers, ensuring electricity rates remain competitive, encouraging energy conservation, strengthening environmental protection, and promoting regional job creation and First Nations involvement in clean electricity development opportunities.

BC Transmission Corporation and BC Hydro Consolidated

The Act reverses an earlier government decision to create the BC Transmission Corporation ("BCTC") to operate, construct and maintain the high voltage transmission lines by consolidating BC Hydro and BCTC into a single entity. The consolidated BC Hydro will have a single board of directors and executive team and will assume the assets, liabilities and employees of BCTC. BC Hydro will continue to be owned by the province and public ownership of BC Hydro’s assets is protected by legislation.

Minister of Energy to Approve Integrated Resource Plan

Within 18 months, BC Hydro is to provide the Minister of Energy, Mines and Petroleum Resources with its long-term Integrated Resource Plan ("IRP") for review and approval. The IRP is to clearly set out how BC Hydro intends to implement the government’s energy objectives and meet the province’s future electricity needs for the next 30 years. BC Hydro is to develop its IRP with input from the public, stakeholders and First Nations; however, the Act does not establish the process for how BC Hydro will obtain, or how stakeholders, ratepayers, First Nations and others might provide this input or be involved in the process. Once the government approves the IRP, the BC Utilities Commission (the “BCUC”), the independent regulatory agency for public utilities, will be required to consider and be guided by the government’s approval of the IRP in any proceedings involving BC Hydro.

Standing Offer Program and Feed-in-Tariffs

BC Hydro is currently reviewing its Standing Offer Program and the Act signals that there will be changes to this program. BC Hydro is to provide updated terms and conditions for the Standing Offer Program in consultation with industry. The Act enables, but does not necessarily require, BC Hydro to introduce Feed-In Tariff programs to promote the development of emerging technologies in renewable power production.

Changing Role of BC Utilities Commission

The Act modernizes the role of the BCUC, as well as its relationship to the provincial government’s energy policy objectives. Under the Act, BC Hydro is required to recover its costs through its rates and the BCUC remains charged with the responsibility of reviewing and approving BC Hydro’s rates.

The government identifies and exempts a number of strategic projects that traditionally would have been subject to a review and oversight by the BCUC. These projects include Site C, the additional turbines at the Mica and Revelstoke dams, the Northwest Transmission Line, the Clean Power and Biomass Phase II Calls for Power, the Standing Offer and the Feed-in-Tariffs. Although the cost of these future projects will undoubtedly be recovered through BC Hydro’s rates, it is not clear whether the BCUC will have the authority to undertake prudency reviews or whether BC Hydro will be permitted to recover all cost overruns through its rates. It is also not clear for proponents intending to submit, or that have submitted projects under the Standing Offer or Feed-in-Tariff programs, how the rates paid for power will be established. The Act provides that the Standing Offer contracts will be priced based on the pricing obtained from the Clean Power Call, but since those contracts are now exempt from BCUC oversight it is unclear whether the rate offered will be reviewable.

Projects being developed for export energy markets are also exempted from BCUC review. This is not surprising given that the Act expressly precludes ratepayers from the risk of subsidizing export power sales and requires the BCUC to ensure that any expenditures associated with exports are not included in domestic rates. What is not yet clear is how BC Hydro will account for and identify export specific projects in its IRP and in any proceedings before the BCUC.

Although exempted from BCUC oversight, these projects remain subject to the requisite environmental assessment processes. Background documents released with the new Act indicate that the government intends to implement legislation and regulations to require the environmental assessment process to consider the ‘cumulative impact’ of energy projects within the province.

Development of Export Energy Market

Traditionally, BC Hydro has been required to serve domestic electricity demand as well as conduct short-term export trade. Under the new Act, energy exports are one of the government’s 16 energy objectives and BC Hydro (and its subsidiary Powerex) will now be permitted to enter into long-term export power agreements to make the best use of BC’s clean energy. The new Act expands the role BC Hydro and its subsidiaries play in supplying domestic energy requirements and requires BC Hydro to work in partnership with renewable power producers to actively seek and promote opportunities to sell clean, reliable electricity to neighbours in Canada and the US. To achieve this, BC Hydro must seek economically viable long term export contracts and partner with renewable power producers to market BC’s clean energy. What is not clear in the Act is how the government’s objectives of achieving energy self-sufficiency, (assuming a critical water year) by 2016, and having an additional 3,000 GWh/year of additional “insurance” energy available by 2020 reconciles with the objective of developing a viable export market for renewable power producers. The objectives of achieving energy self-sufficiency and having surplus energy available to serve domestic needs could result in over 10,000 GWh/year of energy being available in any given year to service the export market (albeit some of which will be on a short term basis) before accounting for new renewable energy projects being developed for export markets.

Renewable Power

The Act provides that BC Hydro is to proceed with acquiring 1,000 GWh/year of energy through the Phase II Biomass Call for Power, as well as through its recently introduced standing offer program for biomass projects of 5MW or less. BC Hydro is to work with pulp and paper mills in the province eligible to receive funding under Natural Resources Pulp and Paper Green Transformation Funding Program and develop projects to optimize energy efficiency, demand side responses and distributed generation projects. In addition, BC Hydro is to award the Energy Purchase Agreements (EPA) remaining under the Clean Energy Call. The Act expressly exempts BC Hydro from seeking the BCUC’s approval of these EPAs.

Flexible Domestic Contracts

The Act requires BC Hydro to develop new programs to permit prescribed ratepayers the option to contract with BC Hydro for long-term electricity purchases at set prices for limited volumes of power over defined periods of time. It is anticipated that these programs will provide rate certainty and stability for customers while providing BC Hydro with more certainty for electrical planning purposes. Since these programs will undoubtedly involve rates and cost recovery, it is reasonable to expect that they will be subject to BCUC approval.

Smart Metering

The Act requires that BC Hydro implement a $1B smart metering initiative as a means of encouraging energy conservation through progressive rates structures and to increase energy awareness in consumers. Energy conservation is clearly a key principle under the Act. In fact, through the Act, BC Hydro is required to obtain 66% of the increase in power demand through demand side management and conservation programs (up from 50% under the Demand Side Regulation implemented under the Utilities Commission Act) rather than by acquiring new supplies of energy. Smart meters are also expected to provide residential and commercial customers, who make investments to produce their own power, (e.g. through solar or combined heat and power projects) with the ability to sell their excess power back to BC Hydro for use in the electricity grid, or to store power for personal use during higher-rate periods.

First Nations Clean Energy Business Fund

The Act creates a $5 million fund called the “First Nations Clean Energy Business Fund” available to all First Nations in B.C. The Fund is intended to provide First Nations with an opportunity to make investments and create jobs in renewable energy projects. The Act contemplates revenue sharing with First Nations by providing that the Fund can be increased by a percentage of prescribed land and water revenues that the government derives from the power projects. The Act states that the Minister may, in accordance with a spending report prepared by the Treasury Board, pay money out of the Fund for profit sharing with one or more First Nations, to facilitate the participation of First Nations and aboriginal people in the clean energy sector and to pay the costs of administering the Fund.

Of interest to First Nations will be the removal of many of the projects and EPAs from regulatory oversight and approval of the BCUC. Many First Nations viewed the BCUC proceedings as a possible forum to address the adequacy of consultation for current projects. Nothing in the Act exempts energy projects, including those removed from BCUC oversight from the need to undergo the requisite environmental assessments and reviews. In addition, nothing in the Act changes the requirements for Crown consultation and accommodation and the need for proponents to continue to engage and consult with First Nations with respect to their specific project as well as negotiate the appropriate agreements.

Conclusion

The Act attempts to balance competing interests within the province by developing a framework that recognizes the need for energy self-sufficiency as well as the contribution that long term energy exports can provide to the economy. The Act provides that BC Hydro will remain publicly owned, and expands the role of BC Hydro to become the aggregator and seller of energy in both the domestic and the export market. There is also a commitment to present and future commercial and industrial consumers that energy will remain priced to ensure that BC remains competitive. There is a clear policy direction and commitment to encouraging energy conservation and reducing greenhouse gas emissions. There is also a clear signal to encourage independent power producers that renewable energy generated within BC can and will be exported, based on prevailing market conditions. There is also a commitment that ratepayers will not subsidize exports. However, how all of these requirements and directions will be implemented remains to be seen. As the saying goes, “the devil is in the details” and ratepayers, stakeholders, IPPs, First Nations and investors would be wise to review the Act and the ensuing regulations carefully.