A regulator's decision to reject a power sales agreement between aluminium giant Alcan Inc. and Crown-owned British Columbia Hydro and Power Authority has elated those who fought against the deal, but raises questions about whether Alcan will go ahead with a planned $2-billion smelter upgrade in Kitimat.
"That's obviously one concern," Mike Morton, press secretary for B.C. Premier Gordon Campbell, said yesterday, adding that the province is "disappointed" with the regulator's decision.
"But we're going to look at the decision and give full consideration to what our options are."
The British Columbia Utilities Commission said on Friday that it would not approve a long-term power agreement between Alcan and B.C. Hydro, saying the deal was not in the public interest and that B.C. Hydro should not have accepted the pricing provisions of the proposed agreement, which would have seen Alcan sell surplus electricity to the province.
B.C. Hydro and Alcan said Friday they were disappointed with the utility commission's decision but would not be making any decisions until the commission released its reasons, likely early this year.
When they filed the proposed deal with the regulator, B.C. Hydro and Alcan initially tried to keep some terms confidential for competitive reasons, but gave up that request after critics argued the deal should get a full hearing.
The proposed agreement included $111-million in lump sum payments to Alcan, to be paid in two instalments.
The power deal is an integral part of an upgrade that Alcan announced last August, when it said it would spend about $1.8-billion (U.S.) to boost capacity at its Kitimat plant in northwestern B.C.
At the time, Alcan said the project was conditional on several factors, including an agreement with B.C. Hydro.
Over the past few years, Kitimat Mayor Richard Wozney has spearheaded a fight against Alcan over the issue of power sales, maintaining that Alcan is selling surplus electricity at the expense of aluminium production and, in the process, breaking its agreement with the province over water rights.
In an interview yesterday, Mr. Wozney said there is a risk that Alcan could take its investment dollars elsewhere, but argued that the risks of the proposed power sales agreement were far greater.
"The bigger risk would have been if the [B.C. Utilities Commission] had approved the agreement. It would have meant a bigger disaster for our community because it was basically a power sales agreement," Mr. Wozney said.
The increased volume of electricity sales permitted under the deal, compared with a previous agreement, would have meant "the death knell for the aluminium industry in British Columbia and in particular in Kitimat," Mr. Wozney said.
Critics of the deal said it was negotiated without a competitive bidding process and gave Alcan an unfair advantage because it used prices based on new power projects, even though Alcan's generating plant in nearby Kemano – operating since the 1950s – churns out electricity at a much lower cost.
The cost of producing power at Kemano is about $5 (Canadian) a megawatt hour. The proposed agreement would have seen B.C. Hydro pay an average rate of $71 a megawatt hour.
B.C. Hydro argued the deal was a good one for ratepayers because it provided reliable power at fixed, competitive prices.
The utility currently has to import some power to meet the province's needs.
But one intervener in the case maintained the deal was a heavy-handed attempt by the province to use ratepayers' money to encourage industrial development.
"This was an initiative that was driven by the Premier's office and was an industrial development strategy for the Kitimat area," said James Quail, executive director for the B.C. Public Interest Advocacy Centre, which represented ratepayers at the hearing before the commission.
"And it's simply not appropr
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