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B.C. Hydro’s Integrated Resource Plan, EPA Renewals other key developments in B.C.’s power sector in 2022

This article forms part of our Power Perspectives 2023 publication. Download the full publication here. 

Several developments relating to BC Hydro continue to lay the groundwork for BC’s energy future, including the completion of Phase 2 of the province’s comprehensive review of the provincial utility and the submission by BC Hydro of its first integrated resource plan (IRP) in almost a decade.

While BC Hydro’s new IRP works its way through regulatory review, the utility continued to advance construction of its Site C hydroelectric facility (Site C) while reaching an important settlement with litigants challenging the project.

BC Hydro expects to have sufficient energy and capacity until the early 2030s, and accordingly there continues to be no new material procurement opportunities for independent power producers (IPPs) in BC.  However, BC Hydro does intend to renew existing electricity purchase agreements (EPAs”) for clean or renewable projects set to expire before April 1, 2026 to ensure that these facilities continue to be available if their generation is required to meet domestic needs in the future.

BC Hydro Integrated Resource Plan Update

As we reported in last year’s publication, in December 2021 BC Hydro filed an application with the BC Utilities Commission (the “BCUC”) requesting acceptance of the IRP. The IRP was informed by the consultation activities that made up BC Hydro’s Clean Power 2040 engagement and details BC Hydro’s plan to meet the province’s projected electricity needs over the next 20 years. In the IRP, BC Hydro emphasized its commitment to:

  • continuing the use and implementation of customer-based solutions through demand-side measures (such as energy efficiency and conservation programs);
  • ensuring preparedness for future electricity needs—higher electricity demand due to electrification or lower demand resulting from economic downturns; and
  • incorporating the United Nations Declaration on the Rights of Indigenous Peoples and the Truth and Reconciliation Calls to Action in its plan.

The IRP currently remains under review by the BCUC, with the review timeline set to continue into mid-2023.

As detailed below, 2022 saw notable advances in the British Columbia liquefied natural gas (LNG) industry. In the IRP, BC Hydro indicated that new industrial activity by LNG customers is likely to bring about changes in Provincial electricity consumption. Consequently, the IRP outlines a resource plan that takes into consideration potential LNG loads that may materialize, particularly on the North coast of the province, based on the premise that several of the LNG facilities in the region will proceed into operation within the next decade. According to Reuters, there are currently 18 proposed LNG projects in Canada, with the majority situated on the West Coast. As the new LNG facilities in British Columbia will be powered by hydroelectricity from BC Hydro, an increased need for energy and capacity is likely to be realized. In detailing BC Hydro’s preparedness for an increased LNG load, the IRP focuses on the continuation of the Prince George to Terrace Capacitor Project, which has an earliest in-service date of fiscal 2028. However, with companies redirecting their focus to smaller West Coast LNG projects that are expected to be completed in quick succession, it is unclear whether the LNG contingency plan contained in the IRP will be sufficient to accommodate the increasing demands for hydroelectricity from the industry. This may be a scenario that BC Hydro will need to revisit in the short term in order to keep pace with the recent revival of the LNG industry in the province.

Site C Update

BC Hydro’s Site C Clean Energy Project will be the third dam and hydroelectric generating station on the Peace River in Northeastern BC.  Once complete, Site C will provide 1,100 MW of capacity and produce approximately 5,100 GW hours of energy per year.  Construction of Site C began in July 2015 and, as of June 2022, Site C was more than 65% complete and on track for a 2025 in-service date, with a total budget of $16 billion, nearly double the original $8.775 billion budget approved in 2014. According to the BC government, between $3 billion and $4 billion of the cost overruns are attributable to geotechnical delays and construction slowdowns caused by the COVID-19 pandemic.

Key construction milestones in 2022 included the placement of the final penstock segment, completing the project’s six penstock units; ongoing placement of materials at the earthfill dam; approach channel excavations; right bank foundation enhancements; and the realignment of Highway 29.  Consistent with this increased activity, the total Site C project workforce reached a new project high of 5,209 workers in June 2022.

According to BC Hydro, key challenges faced by the project as it proceeds toward completion include attracting and retaining sufficient skilled craft labour; inflationary pressures and interest rate increases; potential additional mitigation measures for acid-generating rock; the potential re-emergency of COVID-19 cases on site; commercial negotiations with contractors; possible design changes due to unknown field conditions; and obtaining all of the remaining permits required for project completion.

Perhaps the most significant development in 2022 occurred on June 24, when the BC government and BC Hydro announced a full and final settlement with West Moberly First Nations regarding their treaty infringement claims in relation to Site C. Key elements of the settlement include:

  • an impact benefit agreement between BC Hydro and West Moberly;
  • two agreements between BC Hydro and West Moberly that provide West Moberly certain contracting opportunities;
  • a tripartite land agreement between the BC government, BC Hydro and West Moberly;
  • an agreement providing for the release of West Moberly’s claims against the Site C project; and
  • a separate settlement agreement between the Canadian federal government and West Moberly.

In the remainder of its civil claim, West Moberly has asserted that the existing hydroelectric dams on the Peace River and the cumulative impacts of resource development in their territory are an infringement of their Treaty rights. The parties have agreed to pause the remainder of the civil claim and place it in abeyance, and the BC government and West Moberly have agreed to enter into confidential government-to-government discussions to resolve the remaining matters in the litigation.

EPA Renewals

As proposed in its IRP, BC Hydro is developing an electricity purchase agreement renewal program for IPPs that have EPAs for clean or renewable projects set to expire prior to April 1, 2026.  According to BC Hydro’s website, there are 19 such IPPs, ranging in size from 0.2 MW to 50 MW in nameplate capacity, with an aggregate of over 200 MW in nameplate capacity and over 900 GWh in annual generation. The projects are comprised of 16 run-of-river projects, one storage hydro project and two biogas projects.

Under the EPA renewal program, these projects will be offered EPA renewals at market-based prices, based on the terms set out in the final draft term sheet published on BC Hydro’s website.  Key commercial terms set out in the final draft term sheet include the following:

  • A term of either five or 20 years.
  • In the case of EPAs with a five-year term, an energy price for delivered energy which is based on the applicable Mid-C price at the time of delivery, to a maximum of $80/MWh (USD), adjusted depending on whether net aggregate power flows from both the British Columbia-United States and British Columbia-Alberta interties are in a net export or a net import position.
  • In the case of EPAs with a 20-year term, an energy price for delivered energy of $58/MWh, adjusted annually for CPI, subject to a deduction for line losses based on the project’s location within BC, and adjusted by a time-of-delivery factor ranging from 50% to 150% depending on the month of delivery and whether the delivery is during on-peak or off-peak hours.
  • A seller may choose not to generate during the freshet season if EPA prices are uneconomic.
  • All environmental attributes for delivered energy are transferred to BC Hydro.
  • No liquidated damages are payable by the seller for non-delivery.

Based on the other terms set out in the final draft term sheet, it appears that the form of the renewal EPA will be similar to the EPA previously utilized by BC Hydro for its discontinued Standing Offer Program (“SOP”).  However, there are certain terms in the final draft term sheet which, if incorporated into the final form of renewal EPA, will be a departure from the last EPA used in the SOP, namely:

  • BC Hydro may curtail deliveries for safety or system security or reliability issues at any time (i.e., an emergency condition), and the seller must comply with BC Hydro’s directions, with no payments being made to the seller during the emergency condition.
  • BC Hydro has the right to curtail deliveries for any reason other than an emergency condition, provided BC Hydro will pay for deemed energy that could have been delivered by the seller during a curtailment due to a BC Hydro system constraint after the first 72 continuous hours of the system constraint. This is similar to the provisions in the last SOP EPA, however in that case BC Hydro would pay for deemed energy after the first 24 hours of curtailment in the aggregate in any month.
  • If the seller is in material default and BC Hydro exercises its termination right, the seller must pay a termination payment equal to the greater of:
    • an amount equal to the positive amount, if any, by which BC Hydro’s economic losses and costs exceed the aggregate of BC Hydro’s gains from the termination; and
    • $4,000 x plant capacity x years remaining before the EPA expires.
  • No payment is owing by BC Hydro if the seller terminates for any reason.

The above provisions will likely be concerning to sellers considering entering into a renewal EPA, particularly those provisions that provide BC Hydro with the discretionary right to suspend delivery and payments to a seller, given the recent experience of some sellers with BC Hydro’s unprecedented invocation of force majeure during the early days of the COVID-19 pandemic in May 2020.  However, given the regulatory hurdles and economic challenges that face sellers seeking to sell to a third party other than BC Hydro, we expect that sellers with expiring EPAs will be motivated to enter into a renewal EPA even if the terms are more favourable for BC Hydro than under prior EPAs.

In May 2022, BC Hydro announced that it had entered into a short-term EPA with Capital Power for the Island Generation facility on Vancouver Island to provide back-up electricity support while repairs are made to undersea transmission cables.  This short-term EPA, whose term is 4.5 years, was approved by the BCUC in November 2022.  BC Hydro’s long-term EPA with Island Generation expired in April 2022, and BC Hydro indicated in its IRP that a further long-term agreement is not required to meet BC Hydro’s system planning requirements.



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