On December 22, 2023, the BCUC rejected Fortis Energy Inc.’s (FEI’s) application to expand its pipeline capacity in the Okanagan.
FEI had requested approval from the BCUC for approximately 30 km of new pipeline because the capacity of its existing pipeline serving the central and north Okanagan regions of BC, including the urban centres of Vernon, West Kelowna and Penticton, will reach its maximum capacity no later than winter of 2026/2027, when the gas system reaches its peak demand for the year.
The BCUC agreed with FEI that there is an “imminent” shortfall in capacity in these regions which must be addressed. Despite this conclusion, the BCUC rejected the application because the pipeline is “not necessary for the public convenience and does not conserve the public interest.” Also, the estimated cost of $327.4 million is sufficiently significant that the BCUC requires greater certainty that the pipeline is “fully required” before it can be approved.
According to the BCUC, the proposed new pipeline is not the “optimal solution” to address the capacity shortfall. The BCUC criticized FEI’s “business as usual” approach to forecasting future demand because it did not consider the potential of gas demand flattening or declining as a result of provincial government and municipal initiatives to reduce greenhouse gas emissions.
The BCUC conceded, however, that there might be “little variance in the trajectory of FEI’s longer-term peak demand forecast” if renewable natural gas is accepted as a fuel for zero-carbon buildings. This might happen if the BCUC approves FEI’s request for a permanent 100 percent renewable natural gas rate for new buildings and the BC Building Code approves the use of renewable natural gas as a “compliance pathway (to zero-carbon construction)”.
Having rejected FEI’s application to solve the imminent capacity shortfall in the Okanagan with a new pipeline, the BCUC directed FEI to examine short-term alternatives so that residential and commercial customers do not have their gas supply cut off on the coldest days of the year. For example, the BCUC noted that compressed natural gas can be trucked to an area when pressure in its existing pipeline is low.
This is probably the first time the BCUC has rejected an infrastructure application from a gas utility on the ground that the government’s greenhouse gas emission reduction plans might reduce demand for gas. The natural gas distribution system in the lower mainland has continued to expand since it was first approved in the 1950’s, to the point that FEI had just over one million customers in 2021.
The BCUC is, quite reasonably, concerned that FEI might be investing in a “white elephant”. Utilities have an economic incentive to invest in capital because they earn a return on the amount invested. It is the job of the BCUC to determine whether a proposed investment is really necessary, as the cost of over-investment is generally picked up by ratepayers.
Approving FEI’s Okanagan pipeline now would commit ratepayers to funding assets with a 65-year life. The BCUC is concerned that demand for gas may start to decline within 20 years if government initiatives to reduce greenhouse gas emissions gain traction and new buildings stop using gas for space heating and hot water. If this happens, the new pipeline may never be fully utilized, so the BCUC has directed FEI to find a short-term fix while the future of the gas distribution system in BC becomes clearer. If demand for gas does start to decline within 20 years, the cost of the pipeline will have been avoided.
However, as the BCUC itself noted, there is an alterative future in which FEI’s distribution system transitions to clean fuels suitable for zero carbon buildings, and customer demand continues to grow. FEI’s short-term fix to serve the central and north Okanagan may eventually have to be replaced by a new pipeline, which could be considerably more expensive than the one the BCUC just rejected. The utility estimates that the cost of the land rights alone have already increased between 20 and 40 percent since they were signed in 2020/21. Only time will tell whether the BCUC’s rejection of the current proposal was a good deal for ratepayers.
Two upcoming BCUC decisions may shed some light on the future for FEI’s distribution system in BC: the utility’s application for a permanent 100 percent renewable natural gas rate, and its long-term resource plan.
A decision is now pending on FEI’s application for a permanent 100 percent renewable natural gas rate; this decision could be issued by the end of March, 2024. If approved, this rate would enable FEI to offer new building customers a renewable natural gas service, generally considered to be close to zero carbon, guaranteed for the life of the building. While the BC Building Code does not currently recognize this as zero carbon, it might in future. If the BCUC rejects this application, it will limit FEI’s ability to provide zero-carbon energy to new buildings, which the government has indicated will eventually become a requirement.
A decision on FEI’s long-term resource plan could be issued by the end of April, 2024. The utility’s position is that its customers’ demand for gas will continue to grow, and it will deliver ever-cleaner gas as it increases its supply of renewable natural gas and introduces hydrogen into the mix. If the BCUC accepts FEI’s long-term resource plan, it would signal that the gas distribution network is going to be a part of the decarbonized future of energy in the province, at least for the 20-year horizon of the plan. At the other extreme, if FEI’s long-term resource plan were rejected entirely, it is hard to see the BCUC accepting future applications to expand its network.
These BCUC decisions, and how the provincial government pursues its greenhouse gas reduction policies for new building construction, will help determine the future for the natural gas sector in BC. If this transition is not well managed, there is a risk that customers start abandoning natural gas faster than BC Hydro is able to replace it with electricity. Then we may have a real problem on our hands!
As an aside, section 46 (3.1) of the Utilities Commission Act states that the BCUC “must” consider both BC’s energy objectives, set out in the Clean Energy Act, and a utility’s most recently filed long-term resource plan when considering an application for new infrastructure such as this new pipeline. There is no indication in the Okanagan pipeline decision that the BCUC has met either of these legal obligations (FEI’s most recent long-term resource plan was filed on May 9, 2022). This is quite ironic, because on November 20, 2023, the Ministry of Energy, Mines and Low Carbon Innovation wrote to remind the BCUC of its obligation to do just that. This could be ground for a legal challenge to the decision.