Question re: Energy supply and demand – March 26, 2013

Mr. Silver: I have a question for the Minister of Energy, Mines and Resources. There has been a great deal of discussion about the situation we find ourselves in with respect to a looming power supply shortage in the Yukon. We are fast approaching a power-supply cliff. Even the minister will acknowledge that. A decision by a major mine to go into production would likely push Yukon Energy beyond its current generating capacity, leaving us no choice but to burn diesel to meet the increased demand. Currently the Public Utilities Act obligates the government to allow these large industrial customers to be hooked up to the grid. It doesn’t have to be that way. To get around this obligation to serve, the government could simply amend the Public Utilities Act.

Has the government considered this idea and, if not, why not?

Hon. Mr. Cathers: I would be pleased to inform the Member for Klondike that, in fact, the obligation to serve in the Public Utilities Act is not an absolute. It does leave government sufficient discretion around large customers. We have taken a look at it. We have legal advice on that basis and if further adjustments are needed we would, of course, make those as well.

The answer, clear and simply, is that when it comes to a large customer like a mine, there is discretion for government to determine that it’s not in the public’s interest or ratepayers’ interest to hook up that customer and I have made it clear to the boards of the Yukon Development Corporation and Yukon Energy Corporation that the government’s perspective is that we need to carefully evaluate adding new mines to the system to determine whether it’s in the public’s interest and ensure that we are not placing a burden on the taxpayer or ratepayers as a result of that.

Mr. Silver: Mr. Speaker, any new large industrial customer hooking up to this grid is going to cause Yukon Energy to burn significantly more fossil fuels and likely raise rates and bills for our taxpayers. The additional electricity will also cost significantly more than the cost of our present generation. We are close to an energy cliff and we need to act before the ratepayers end up falling off into much higher bills. The task before the Yukon Energy Corporation is a challenging one, dealing with multiple potential customers, all with uncertain start and end dates. Last fall, the minister said, and I quote: “… we want the corporations to be very much focused on minimizing the financial risk to ratepayers and taxpayers …”

An obvious way to reduce this risk to taxpayers or the ratepayers is to say “no” to large industrial customers unless the terms of the deal make sense for us.

Right now we are obligated to hook up, even if it means higher rates for everyone else. Will the government minimize the risk to the taxpayers by eliminating the obligation to serve altogether?

Hon. Mr. Cathers: I appreciate the Member for Klondike repeating my words from last fall. As I indicated earlier, the obligation to serve under the Public Utilities Act is not an absolute. We have legal advice from Justice that indicates there is sufficient discretion for government and the utilities and their boards, not to mention the Yukon Utilities Board, which actually reviews any proposed energy project, including power lines over a certain size. There is discretion to determine that hooking up a large industrial customer is not in the best interests of taxpayers and ratepayers. We look at that in considering whether that should occur — it must be in the best interests of taxpayers and ratepayers.

A couple of things I would draw to the member’s attention. The current consultation on the gas processing regulations is very relevant to this discussion. I would encourage the member to look at it and encourage the member and members of the public to review this, because it does very much apply to any mine or to utilities that might choose to use liquefied natural gas as a generation solution.

At this point in time it looks like the operating costs are probably roughly one-third that of diesel and the capital cost is roughly the same. So there is certainly some sense to it, particularly for an interim solution and additional capacity on the system. I understand that you’re indicating my time is running out, Mr. Speaker, so I will add more comments later.

Mr. Silver: This Yukon Party government has had years to plan for the industrial expansion that is on the way. This expansion is bringing with it increased demands on electricity. Unfortunately, ratepayers are going to be on the hook for increased costs of burning more diesel because of the lack of planning from this government. We hear about liquefied natural gas, but that’s all we’re doing so far — just hearing about it. They knew the demand was coming and didn’t prepare for it. They have spent a lot of money on projects that have not moved much further past the drawing board. The result is the cliff we face today.

The corporation keeps signing agreements with mining companies to supply power without that supply being in place. That means more diesel. I will ask the minister once again to examine the idea of eliminating the obligation to serve these customers. At the same time, I will encourage him to move ahead on an independent power policy that will allow some of these mines to supply their own power.

Will the minister agree to examine these options?

Hon. Mr. Cathers: Of course. First of all, the member made a misstatement in suggesting the government has not done anything on planning for liquefied natural gas generation, if the member would focus his attention on the gas processing regulations currently up for consultation.

If the member recalls last fall during debate on the Yukon’s Oil and Gas Act, I mentioned the amendment in that act specifically aimed at allowing us to develop these regulations and mentioned the timeliness of this. Of course, both the Yukon Electrical Corporation in Watson Lake — is looking at a buy-fuel solution, that being to burn liquefied natural gas in its current diesel generation system — and the Yukon Energy Corporation is looking at the potential for replacing the diesels that — particularly ones that are becoming time-expired in their lifetime as units — with liquefied natural gas generation units. That decision has not been finalized, but is in the process of being considered.

What I would point out again to the member is the regulation out there is very relevant to this, as far as the duty to serve goes. As I’ve said before to the member, the duty to serve is not absolute and, in the case of all potential major industrial customers, there are a number of steps before any mine would be given the ability to hook up to the grid. We will evaluate that very carefully before making a decision.