On December 21, 2023, the BCUC recommended that more commercial thermal energy systems should be exempt from active regulation.
The BCUC’s current “Stream A” thermal energy systems have been exempt from active regulation since 2014. Stream A thermal energy systems must reside on a single site and require less than $15 million in capital to construct. Thermal energy systems not meeting the eligibility criteria for an exemption must seek a Certificate of Public Convenience and Necessity (CPCN) from the BCUC prior to starting construction, and approval of rates prior to charging customers for for their thermal energy services.
Now, the BCUC is proposing that Stream A thermal energy systems no longer be limited to $15 million in capital or to a single site, so long as the owner / operator has permission from any municipalities whose land the system uses. The BCUC requires the approval of the provincial government before granting the amended exemption.
The BCUC reasoned that the thermal energy systems market in BC remains competitive, and that the public interest would be served without active BCUC regulation of larger and more complex thermal energy utilities. The BCUC did, however, reinforce the existing conditions that apply to Stream A thermal energy systems, including the need for customers to have long-term contracts that specify prices, terms and conditions.
The expansion of the eligibility criteria for the Stream A exemption should reduce the number of thermal energy utilities that need to apply to the BCUC for a CPCN or for rates. All else being equal, this should encourage thermal energy system providers by reducing their “regulatory burden.” And to the extent that thermal energy systems are an efficient way to deliver heating and cooling, this could expand the choices available to building owners and operators.
There is, however, one new condition that a thermal energy utility must meet to qualify for the Stream A exemption: in future, there must be no conflict of interest between the utility and its customer(s). The rationale for this new condition is that the BCUC cannot assume the price for thermal energy is a competitive market price unless the two parties negotiating it are independent of each other.
The BCUC cited the example of a property developer executing a thermal energy services contract on behalf of a future strata corporation that is under its control, and possibly installing inadequate facilities “to present an artificially low initial rate to customers, which would require upgrading after customers have purchased their strata units.”
It is not clear what effect this requirement for an arm’s length arrangement between thermal energy systems providers and their customers will have. Assuming the government approves the BCUC’s recommendations, there will still be nothing preventing a property developer applying to the BCUC to build a thermal energy system and sell its services to a strata corporation under its control. But this change will add a regulatory burden in some situations where presently the Stream A exemption applies.
It is possible this change will make creating a public utility less attractive to property developers, and encourage them instead to outsource the development / operation of their thermal energy systems to third parties. After all, it was Corix Multi-Utility Services Inc., a thermal energy systems provider, who argued in this proceeding that conflict of interest could be a problem, and Creative Energy Vancouver Platforms Inc., which has connections to Westbank, a property developer, who argued against it.
The devil will be in the details. The definition of what constitutes a conflict of interest will be determined by the BCUC in the next phase of the proceeding, and we don’t know yet whether the government will approve the BCUC’s recommendations.