No Easy Way Out: BC Utilities Commission Issues Final Report Following Site C Inquiry Process

Courtesy of McCarthy Tetrault. View original article here.

During BC’s provincial election campaign in May 2017, the NDP promised to send the Site C project for review by the BC Utilities Commission (BCUC) if it was elected. Site C, a multi-billion dollar project to construct a third dam and generating station on the Peace River in northeast BC, had received approval from the previous BC Liberal government to begin construction in December 2014. After taking the reins of provincial government in July 2018, newly sworn in Premier John Horgan made good on his party’s promise and the government issued an Order in Council (OIC) requesting that BCUC undertake an inquiry into certain aspects of Site C.  On November 1, 2017, BCUC’s four-member review panel (the Panel) delivered its final Site C Inquiry Report (the Final Report) to the government.

Scope of Review

As an exempt project under the BC Clean Energy Act, BCUC has no jurisdiction over the project. However, the inquiry was carried out under section 5 of the BC Utilities Commission Act, which enables the Lieutenant Governor in Council to set terms of reference and direct BCUC to inquire into any matter. Pursuant to the OIC, BCUC was asked to advise on the implications of:

  1. completing Site C by 2024, as currently planned;
  2. suspending Site C, while maintaining the option to resume construction until 2024; and
  3. terminating construction and remediating the site.

The government also requested that BCUC address a number of more specific issues such as what, if any, commercially feasible generating projects and demand-side management initiatives (e.g. energy efficiency programs) could provide similar benefits to ratepayers with an equal or lower per-unit energy cost as Site C could provide.

The Site C inquiry process was carried out in two phases. The first phase took place between early August and mid-September 2017, and involved fact gathering from BC Hydro, Deloitte LLP (which produced independent reports on many of the questions set out in the OIC), and members of the public. This data informed a preliminary report issued by BCUC on September 20, 2017. Following the issuance of the preliminary report, BCUC initiated the second phase of the process, which included further information gathering from BC Hydro and a series of community input sessions around the province, including meetings with First Nations. In total, BCUC received 620 written submissions and heard from 304 speakers during 11 community input sessions, with three additional First Nations input sessions and two technical presentation sessions. This information-gathering and consultation process was followed by a review period, which culminated in the publication of the Final Report.

Panel’s Key Findings

The Panel’s nearly 300-page report set out the following key findings:

  • Completion Scenario: The Panel was not persuaded that Site C would remain on schedule for a November 2024 in-service date. Further, the Panel estimated that completion costs may exceed $10 billion and, in the worst case scenario, could exceed the proposed budget of $8.335 billion by 20 to 50%. The Panel also observed that completion could result in other negative consequences, such as potential infringement of First Nation treaty and Aboriginal rights.
  • Suspension Scenario: The Panel found the suspension and potential restart scenario to be the least attractive of the three alternatives posed in the OIC. The Panel concluded that this alternative would be both the most expensive, adding at least an estimated $3.6 billion to final costs, and the most risky because, for example, existing environmental permits would expire and new approvals would be required, introducing uncertainty. The Panel further observed that contracts would have to be retendered and First Nations’ benefit agreements potentially renegotiated. In any event, the Panel added, there would be no guarantee that the project budget would be sufficient to complete the project following remobilization.
  • Termination Scenario: The Panel estimated that termination and remediation costs of the project would reach approximately $1.8 billion, with additional costs of finding alternative energy sources to meet demand.
  • Overly Optimistic Load Forecasts: The Panel found BC Hydro’s load forecasts (i.e., demand projections) to be overly optimistic. The Panel declined to adopt BC Hydro’s mid load forecast, instead adopting the low load forecast in performing its analyses. The Panel added that there remained a risk that demand would not even reach the low load forecast.
  • Disruptive Factors: The Panel noted a number of disruptive factors that, in addition to construction and operating risk, would pose risks during the economic life of Site C and potentially reduce the anticipated benefits of the project. The Panel cited future technological advances in renewable energy and energy storage capacity through utility-scale battery storage, as well as other factors subject to considerable uncertainty such as the effects of climate change.
  • Viable Alternatives: The Panel expressed its view that alternative energy sources such as wind, geothermal, and industrial curtailment could provide similar benefits to ratepayers as Site C, with an equal or lower per-unit energy cost.

The Panel acknowledged that neither completing Site C nor implementing a portfolio of alternative energy sources is without risks, which are explored further in the Final Report.

Fate of Site C is Now in BC Government’s Hands

So what does all of this mean for the future of Site C? It is first important to understand what the Final Report is not: it is not a recommendation as to which of the three alternatives referred to in the OIC should be pursued, nor is it a “decision” on the future of Site C or a “reconsideration” of decisions made in the environmental assessment process or by statutory decision makers or the courts. The Panel’s mandate was more modest, i.e. to provide information requested in the OIC. As clarified in the Final Report, the Panel took no position on which scenario should be pursued. Nonetheless, given the Panel’s concerns expressed in the Final Report, the BC government will need to carefully weigh the options in making a decision on whether to let Site C proceed, or whether to pull the plug on the project.

While the Final Report does not make any particular recommendation on Site C, the BC government has indicated that the future of the project remains uncertain. In a press release issued shortly after the issuance of the Final Report, Minister of Energy, Mines and Petroleum Resources Michelle Mungall outlined the next steps in the Site C saga: “Now it is our turn, as government, to determine whether Site C is in the best interests of British Columbians, after considering the BCUC’s findings and other issues outside the scope of this review.” As Minister Mungall noted, the government is faced with an “extremely difficult decision” as it continues to review the Final Report and meet with First Nations, among other groups. The Minister expects that the government will make a decision on the project by the end of the year.

Courtesy of McCarthy Tetrault. View original article here.