But if the deal doesn’t go ahead, will the North Coast Transmission Line be a white elephant paid for by BC Hydro ratepayers?
Introduction
The other day the BC government announced a Memorandum of Understanding between BC Hydro, the provincially-owned electric utility, and Ksi Lisims liquefied natural gas (LNG), a proposed floating export terminal on BC’s north coast. Electricity to Ksi Lisims would be delivered via the proposed North Coast Transmission Line, an expansion of the existing transmission line from Prince George to Terrace.
The government has been energetically promoting the North Coast Transmission Line since the middle of last year, touting its economic and environmental benefits. It has also gone to considerable lengths to avoid any independent scrutiny of the project, leading some cynics (OK, me) to wonder whether there are really enough new customers to justify the project.
Will the Memorandum assuage the doubts?
The announcement
The government’s announcement says:
The MOU provides clarity on how and when BC Hydro will deliver as much as 600 megawatts of clean electricity to the proposed floating LNG facility on Nisga’a Treaty Lands, enabling one of the largest industrial projects in the region.
Well, maybe the Memorandum provides some clarity, but the announcement certainly doesn’t. It’s not clear that either BC Hydro or Ksi Lisims have made any commitments to each other at all. The closest it comes to “clarity” is the quote from the Minister of Energy:
“By taking the next step in securing Ksi Lisims LNG as a major customer and moving forward with the North Coast Transmission Line, we’re delivering the clean power needed to fuel new industries, strengthen communities and create thousands of good-paying jobs,” said Adrian Dix, Minister of Energy and Climate Solutions.
But this only says that Ksi Lisims is “taking the next step” to becoming a BC Hydro customer, it doesn’t say it is a customer yet, or whether either side has committed to buy or sell any electricity or make financial commitments.
No decision yet
This isn’t really a surprise. As the announcement acknowledges, neither party has yet made any final decisions regarding their respective investments. Ksi Lisims investors have not made their final investment decision – the project web site still says this could be in 2025, but that deadline has now passed – and BC Hydro’s board has not yet approved the North Coast Transmission Line project.
The Memorandum could be no more than both sides saying: “we will if you will”. However, it’s also possible that there are inducements to Ksi Lisims investors to encourage them to make their final investment decision. The lack of detail about what’s in the Memorandum could simply be because the government doesn’t want these inducements publicly known.
Federal funds
The other purpose of this Memorandum is probably to encourage the Federal government to provide funding for the North Coast Transmission Line. As the announcement notes, both the new line and the Ksi Lisims LNG facility have been “identified as nationally significant by the federal government”.
Minister Dix said last year that the federal government’s main contribution to the North Coast Transmission Line project would be financial and “we do want the federal government to be involved in cost-sharing” its $6 billion price tag.
The announcement could be timed to keep the dream of federal funding alive despite the 2025 deadline for the Ksi Lisims final investment decision having passed.
What if Ksi Lisims doesn’t bite?
Minister Dix has already confirmed that the cost of the North Coast Transmission Line would be paid for by all ratepayers, rather than just the users of the new line. The Ksi Lisims LNG facility is the only specific customer identified for the new line so far, and if it doesn’t go ahead, BC Hydro could be creating a $6 billion white elephant.
If it had no customers at all, the North Coast Transmission Line could add at least two percent to rates for everyone ($6 billion cost over 50 years is $120 million per year, on top of BC Hydro’s revenue requirement of around $6 billion, and that doesn’t include financing costs).
Of course, if Ksi Lisims doesn’t go ahead, perhaps BC Hydro won’t build the North Coast Transmission Line, even if the Federal government is willing to make a contribution. Ratepayers might be grateful if that were the case.
Other possibilities
Lack of federal funding may not be fatal to the North Coast Transmission Line project. Revenues from Ksi Lisims would cover some proportion of its cost, and the government may be willing to take the risk that other customers, such as mines and port facilities, would sign up to use the power once BC Hydro has committed to provide it. That risk is being underwritten by ratepayers, of course, something I’ve previously argued should be a taxpayer responsibility.
The chances of new businesses signing up have increased somewhat as a result of a recent government directive. Since the 1990’s, new large industrial customers have been required to contribute to the cost of any additional transmission lines and electricity generation that BC Hydro needs to add to serve them. This provision, approved by the BCUC, was overridden by a government order in December, but only for customers using the North Coast Transmission Line. Any additional system costs for them will be socialized across all customers.
Conversely, lack of a North Coast Transmission Line may not be fatal for Ksi Lisims. The LNG operation received its Environmental Assessment Certificate on the basis that it could generate its own electricity from natural gas, using a “power barge” alongside the floating LNG facilities, if BC Hydro couldn’t provide the electricity. The LNG would be “net zero” using BC Hydro’s electricity (assuming that’s clean, of course), but the government only requires the facility to “have a credible plan to be net-zero-ready by 2030”. If BC Hydro can’t deliver the electricity it needs, Ksi Lisims has approval to use its own gas-fueled generation.
Conclusion
All things considered, the recent announcement of the Memorandum doesn’t add up to much. We already knew that Ksi Lisims was the only LNG facility that might use electricity from the North Coast Transmission Line, and that it would require around 600 MW of power. And as of yet there are no final decisions for any of the three parties involved: BC Hydro, Ksi Lisims investors or the Federal government.
The real story here is the amount of risk the government is taking with BC Hydro ratepayers’ money. They should hope that, if the government does proceed with the North Coast Transmission Line, then Ksi Lisims also goes ahead, and that the federal government is feeling generous.