B.C. Hydro won't appeal utilities commission ruling on Alcan power sale

VANCOUVER - B.C. Hydro and Alcan Inc. have withdrawn their notices of intent to appeal a B.C. Utilities Commission decision to reject Hydro's power-purchase agreement with Alcan.

Both say they discussions to revamp the deal are going well and an Alcan spokeswoman said Monday a new agreement could be just weeks away. The provincial regulator turned down the proposed power deal with Alcan (TSX:AL) in December, saying the utility made a mistake in its calculations and failed to prove the benefits would offset the costs.

The Crown-owned utility said in a news release Monday that since the ruling, it has undertaken a review of the structure and value of the agreement and begun talks with Alcan to determine whether a new deal could be reached.

In light of the positive nature of those discussions, Hydro said it decided to drop its appeal and focus on completing talks with Alcan in the coming weeks.

"From the very beginning we had stated we felt this was a good agreement for B.C. in terms of having a made-in-B.C. clean-energy supply that'll help us meet the gap that's growing between supply and demand," Hydro spokeswoman Elisha Moreno told reporters.

Alcan spokeswoman Colleen Nyce echoed the view that talks were going well.

"We are expecting that we are about a few weeks away from signing a new agreement and the new agreement will be again filed with the (B.C. Utilities Commission)," she said from Kitimat, B.C.

Monday was the deadline for the companies to appeal the commission's decision to the B.C. Court of Appeal.

Moreno said a fresh agreement would address both the issues raised by the commission and self-sufficiency guidelines that are outlined in the B.C. government's provincial energy plan, announced in February.

Alcan had made regulatory approval of the power-sale agreement one of the conditions for proceeding with a $2-billion upgrade of its smelter in Kitimat, on the northern B.C. coast.

The power would come from an Alcan-built Kemano hydroelectric plant on the Nechako River constructed 50 years ago under an agreement with the B.C. government that allows the company to sell only surplus power.

The District of Kitimat, the north-coast community built largely to house the Alcan workforce, tried unsuccessfully in court to block the power sale, arguing it was an abuse of the company's agreement with the province.

Alcan has steadily downsized its Kitimat workforce to the current 1,550 from 2,500. While boosting aluminum production, the upgrade project would have cut the number of employees down to 1,000.

The tribunal said in reasons for its ruling that B.C. Hydro made a mistake in the price used as a benchmark to establish the cost effectiveness of the agreement and failed to show the benefits of the deal would offset additional costs.

"The commission panel is of the view that an energy supply contract may, in unique circumstances, include terms, conditions and/or pricing provisions that provide incentives for industrial development,"' the commission said.

"However, the commission will need to consider and weigh ratepayer interests and other public interests in the context of a specific energy supply contract."

The plan's critics said the power-sale agreement with Hydro provided a windfall to Alcan because the company would receive the same rates for its electricity from its old dam as newly constructed power projects selling to Hydro.

Moreno said the structure and value of the agreement was being discussed and "so far the discussions that we're having are quite positive."

Nyce said the upgrading project is still contingent on successful negotiation of the power deal, as well as environmental approval and a new labour contract with its Kitimat employees.

The project, which would increase aluminum production to 400,000 tonnes a year from 245,000 tonnes, is already behind schedule because of the commission's decision.