A new $50 million stop-gap measure will leave the system at capacity again by 2029. The proposal rejected by the BC Utilities Commission (BCUC) in 2023 is looking more and more like a missed opportunity.
Introduction
FortisBC Energy Inc. (FEI), BC’s largest gas distribution utility, has a problem. Its pipeline serving the Okanagan is close to its maximum capacity and soon will not be capable of providing enough gas to the region on the coldest days of winter, when residents and businesses need it most to heat their buildings.
In fact, the pipeline reached its maximum capacity in 2021, but FEI has since introduced a number of short-term measures allowing it to get through as far as winter 2026/27. After that, FEI will not be able to supply the Okanagan with sufficient gas in extreme winter conditions.
This disturbing scenario should not be a surprise to anyone. As long ago as 2017 FEI submitted a long-term gas resource plan which identified the need to expand what it calls its Interior Transmission System, or ITS, originally built in the 1950s.
Despite this foresight, things have not gone well in meeting the challenge.
Proposed expansion
In November 2020, FEI applied to the BCUC to expand its gas pipeline heading north out of Penticton. The project would have provided sufficient additional capacity to meet peak winter demand in the region well beyond 2039 (the final year of FEI’s analysis).
There was just one problem – in December 2023 the BCUC rejected FEI’s application.
The BCUC agreed there was an “imminent” capacity shortfall coming up in 2026/27, and that demand for natural gas in the Okanagan was continuing to increase. However, it felt that future government actions would ultimately reduce peak demand for natural gas, and that the “very significant expenditure” of $327.4 million on an asset with a long lifespan was not a good investment.
In passing up this opportunity, it looked at the time as though the BCUC was being “penny wise and pound foolish.” We now have some evidence to support this view.
Quick fix
Last month, the BCUC approved FEI’s proposal for a short-term alternative to the pipeline expansion. FEI will build a liquified natural gas (LNG) storage facility in Kelowna from which it will inject gas into its distribution system when the pipeline can’t deliver sufficient volume. The LNG will be delivered to Kelowna by truck before winter starts, when driving conditions are safer.
But this “quick fix” comes at a price – $50 million – and will only be sufficient through the winter of 2028/29. Beyond that date, more investment will be needed. In addition, the BCUC approved FEI collecting the $22 million it had spent designing and planning for the rejected pipeline expansion.
So, the BCUC’s decisions leave ratepayers paying $72 million for a system that will only be good for three more winters and be at capacity again by 2029. Compare that to FEI’s original proposal of $327.4 million, which would have solved the problem for decades.
Sadly, the original pipeline expansion proposal is no longer on the table. Once the BCUC rejected its application, FEI was forced to relinquish the land rights it had acquired for the pipeline expansion. FEI estimated in 2023 that the cost of these rights had already gone up by 20 to 40 percent, no doubt they would be even more expensive to reacquire now. Plus, utilities costs generally have been going up faster than everyday inflation recently.
A lot of other work would have to be restarted too. FEI spent years attempting to obtain consent from the Penticton Indian Band for the project; the BCUC proceeding was even adjourned for fifteen months following “numerous delays and extension requests” to allow the parties to negotiate.
If FEI ends up having to expand the pipeline as it had originally proposed, it’s hard to see doing it for less than $500 million, a far cry from the original estimate of $327.4 million.
Poor decision
This isn’t just an opportunity to say “I told you so” about the pipeline rejection being a bad decision (although it is, and I did). There are other reasons why we may come to regret it.
Natural gas demand in the Okanagan is rising to support a growing population, and customers are continuing to choose gas for building heat despite the availability of alternatives such as electric heat pumps.
Yet the BCUC’s rejection of the long-term solution of a pipeline expansion relied on the assumption that government will restrict the use of natural gas, for example in new building construction, and thus eventually bring down peak demand. It is by no means certain that today’s or future governments will have the political will to do this, as the affordability and availability of electricity become more challenging.
Even if the government does restrict the use of natural gas, there are other uses for today’s pipelines. FEI’s current long-term gas resource plan, approved by the BCUC in March 2024, anticipates replacing natural gas with cleaner renewable natural gas and hydrogen. There are questions about whether FEI will be able to find enough renewable natural gas, but other options such as abated gas (natural gas matched by carbon offsets) have potential. All these options still require pipelines to deliver the gas to customers.
It’s very unlikely that BC Hydro will be able to add enough generation to replace fossil fuels entirely by 2050 – that could require at least trebling its current generation. What is more reasonable is that we start to move to hybrid heating systems where electric heat pumps switch over to gas boilers at times of peak demand (Quebec’s Energir has such a scheme).
The more limited volume of gas used in a hybrid system makes renewable natural gas a more realistic proposition, and avoiding electricity use at peak times protects the grid from overload. But even though the total amount of gas that would go through the pipelines in a year would reduce, the peak amount the pipelines need to deliver in winter might not.
For all these reasons, the decision not to expand the pipeline in the Okanagan looks ill considered, as well as costly.
Rushed job
Last month’s BCUC decision gave FEI six months to look at reducing peak demand for gas in the Okanagan, as an alternative to expanding its facilities. This makes sense in principle, but will do nothing to solve the upcoming problems there. The BCUC acknowledges that peak demand reduction is a “long term” solution, and it’s not likely there’s anything FEI can achieve by 2029. And the critical data to understand how to reduce demand peaks will come from FEI’s automated meters, which won’t be implemented until 2027.
In any case, FEI was already required to submit its next long-term gas resource plan by March 31, 2026, including “non-pipe” alternatives to adding more facilities. It’s not clear how advancing this work by six months now will achieve anything of substance, and may simply result in a shallower analysis.
What now?
Utilities have a legal obligation to provide reliable service, and the BCUC must allow them to make reasonable investments to do this. Whatever ideas FEI comes up with to reduce peak demand in the Okanagan in the long term, it must now find another alternative to deliver sufficient gas by 2029. The $50 million cost to provide three years’ breathing room until then suggests that the next short-term fix won’t be cheap either.
Expanding the Okanagan pipeline is starting to look more and more like a missed opportunity.