Lawyers in Canada: Davis LLP - Legal Advisors Since 1892

BC Green Agenda Hits Big Bump

British Columbia's Energy Plan: A Vision for Clean Energy Leadership hit a bit of a wall yesterday when it was rejected by the BC Utilities Commission as being "not in the public interest" - in other words, it's going to cost a lot of money and we're not interested. British Columbia, which is a member of the U.S. based Western Climate Initiative, had set aggressive GHG emissions reductions targets of 33% below 2007 levels by 2020. The Globe and Mail reported that "[s]ome analysts say the ruling - which shocked the government and the stock market - indicates B.C. has been over-estimating the amount of power the province needs in order to justify the development of independent power projects". A spokeswoman for the Canadian Office of Provincial Employees Union, COPE, stated "[w]e have a very flawed energy plan in this province ... the government cannot continue to exaggerate the need for power".

The BC Energy Plan claimed to put British Columbia at the forefront of environmental and economic leadership, by looking to all forms of clean, alternative energy in meeting British Columbians' needs in the provincial economy. The Plan called for a number of green initiatives, including:

• Zero greenhouse gas emissions from coal fired electricity generation
• All new electricity generation projects will have zero net greenhouse gas emissions
• Ensure clean or renewable electricity generation continues to account for at least 90 per cent of total generation
• Achieve electricity self-sufficiency by 2016
• Generate electricity from mountain pine beetle wood by turning wood waste into energy
• Invest $89 million for fuelling stations and the world's first fleet of 20 fuel cell buses through a federal-provincial partnership

What the report doesn't say is that a massive capital (read: expensive) outlay is going to have to be made in order to implement the plan. But before the plan could be truly put into action, the BC Utilities Commission had to essentially approve it. The Utilities Commission Decision includes a refusal "to allow BC Hydro to downgrade the Burrard Generating Station. Burrard is a conventional thermal plant fuelled by natural gas that supplements hydroelectric generation in years of low water flows". As part of its Energy Plan, BC Hydro wanted to rate that station as capable of producing a maximum of 3,000 gigawatt hours annually. The Utilities Commission disagreed, concluding said the figure should be 5,000 GWh. If the Burrard potential is rated 2,000 GWh higher, then the need for private power would have to drop by the same amount.

It wasn't all bad news for the BC Government. The Commission approved all but $2 million of the $630 million spend requested by BC Hydro, including $418-million on demand side management. The Energy Minister downplayed the significance of the decision and confirmed that the province is committed to producing clean, renewable energy through independent power producers.

However, the decision raises a couple of issues:

1. BC is going to have to take a long look at its targets, whether they are reasonable and whether the need for power is as stated.

2. What does the Utilities Commission's rejection of the clean energy call mean for the future of green energy in BC? What is the tolerance level of British Columbians in terms of the spend? The Utilities Commission doesn't think it's as high as the government does.

3. What's more important - reducing emissions and using "clean" energy or ensuing the economy is stable and humming (no pun intended) along? Not to mention that sustainable/renewable/clean energy projects don't come without their own high environmental cost.

We'll keep you posted on how this is all playing out.

UK to launch feed-in tariff program

The UK appears to be following in the footsteps of Ontario. The UK's Energy Act 2008 provided the Department of Energy and Climate Change ("DECC") with broad enabling powers for the introduction of FITs for small-scale low-carbon electricity generation, up to a maximum limit of 5 megawatts (MW) capacity (50 kilowatts (KW) in the case of fossil fuelled combined heat and power). DECC has now commenced public consultations on a proposed feed-in tariff ("FIT") regime.

The proposal is detailed here, an is supported by an impact assessment, quantitative analysis and qualitative analysis. Paul Gipe, long time advocate for FITs, provides his take on the proposal here.

Like the Ontario program, the UK proposal places a lot of emphasis on small scale projects, particularly solar PV. Unlike Ontario's program, however, the UK proposal caps all projects at 5 MW. If passed, the UK program may therefore create competing demand for services and equipment for small scale generation. The UK has already created competing demand for services and equipment for utility-scale projects through its Renewable Obligation program.

The CCEMC and the administration of the Climate Change and Emissions Management Fund

We introduced you to the Climate Change and Emissions Management (CCEMC) Corporation in May. Since then the CCEMC has announced its Board and has received $43,000,000.00 from the Climate Change and Emissions Management Fund.

As we reported in our bulletin, the CCEMC is an independent, arm's length, not for profit organization which is tasked with administering the Climate Change and Emissions Management Fund, to which industry contributes as a compliance option under the Climate Change and Emissions Management Act. Compliance monies have been received into the Fund for 2 periods - the "stub" period for 2007/2008 and the 2008/2009 year, ending March 31, 2009. Alberta Environment reports that the Fund now sits at $122.4 million.

We predicted back in May that the establishment of the CCEMC means that the monies the Fund will begin to be used for the purposes set forth in the Act - for reducing emissions of specified gases or improving Alberta's ability to adapt to climate change. The Fund is the first of its kind anywhere in the world - it is unique for a variety of reasons, not the least of which is that the monies have been specifically from general revenue of the Government of Alberta and segregated to address climate change. The CCEMC has been tasked with its administration - not a small feat.

What's the next step for the CCEMC? We should know very soon. The CCEMC will call for expressions of interest in the coming days - there will be more on the expressions of interest process to follow.

Whatever the next step looks like, one thing is clear. Because the Fund's purposes are set forth in legislation, the projects the CCEMC funds must provide for the reduction of emissions of specified gases or improve Alberta's ability to adapt to climate change. And what is particularly important is that it's not just the promise of reduction, but measurable change that is required of these projects - projects will require clear accountability on performance metrics in order that the monies from the Fund are meaningful.

Provinces, Canada, other countries - frankly the world - are watching the CCEMC and how the CCEMC works to measurably address climate change. They are watching now and they will be watching in December in Copenhagen. Stay tuned to our blog - we'll have much more information for you in the coming days.

Directors of Canadian Hydro urge shareholders to reject TransAlta bid

As reported yesterday, TransAlta has initiated a hostile takeover of Canadian Hydro Developers. The board of Canadian Hydro issued a statement today urging shareholders to reject TransAlta's offer.

The board characterized as being inadequate for a number of reasons, including that it did not reflect the value of Canadian Hydro's development pipeline, the future value of carbon credits and renewable energy credits, and the value of the company's tax assets. Significantly, the $654 million cash offer is well below the company's market capitalization (which at the time of posting was $725 million, according to Google Finance).

The board also described the offer as being opportunistic. Kent Brown, Chief Executive Officer of Canadian Hydro, had this to say:

"We're at a key inflection point in our Company's 20-year history as we begin to reap the financial rewards of our significant development investments. We are well positioned financially to weather the current economic downturn and to capitalize on future growth opportunities. This offer does not represent compelling value, and we believe we can do better for our Company and our shareholders through any one of a number of alternatives."

More in-depth support for the board's recommendations are expected in the pending director's circular.

TransAlta wasted no time in responding to the recommendation. Steve Snyder, TransAlta's Chief Executive Officer, said "Canadian Hydro Developers' news release lists several factors, all of which are well known to the market and were considered by us in making our offer. We continue to believe that our offer provides Canadian Hydro Developers shareholders with significant, immediate and certain value for their shares."

TransAlta launches hostile bid for Canadian Hydro Developers

TransAlta Corporation (TA) has launched a bid to take over Canadian Hydro Developers Inc. (KHD), Canada's largest public renewable power developer. The bid signals a big move for TransAlta into the renewable power market. It also follows a prolonged effort by TransAlta to get Canadian Hydro to consider a friendly business combination.

Steve Snyder, CEO of TransAlta, anticipates that "this transaction accelerates our current strategy and extends our leadership position to become the largest publicly traded provider of renewable energy in Canada. We believe the combination of Canadian Hydro Developers' portfolio and our operational and development capabilities and strong balance sheet, creates a company well-positioned to succeed in a world in which both capital and carbon are constrained."

Details of the offer are provided in the information circular, available here. According to a press release issued today, "the offer is to acquire all of the issued and outstanding common shares of Canadian Hydro Developers for $4.55 per share in cash. The offer price represents a premium of approximately 30 per cent over the volume weighted average trading price of the common shares over the 10 trading days immediately prior to July 20, 2009 and approximately 25 per cent over the closing price on July 17, 2009, the last trading day before TransAlta disclosed its intention to make the offer."

TransAlta has been interested in Canadian Hydro for some time. In its cover letter to shareholders, available here, TransAlta describes its history with Canadian Hydro as follows:

"We first approached Canadian Hydro in December 2008 with the aim of reaching a negotiated transaction. In correspondence and meetings with Canadian Hydro over the next seven months, we articulated our interest in combining the two companies and outlined the potential benefits of the transaction. Despite our efforts, Canadian Hydro would not engage in substantive discussions or allow us to perform due diligence. Over time, it became clear that a negotiated transaction could not be achieved. As a result, we felt compelled to make this offer directly to you, as Canadian Hydro's shareholders."

Canadian Hydro has been restrained in its response to the hostile offer. For now, Canadian Hydro advises shareholders "not to take any action concerning the proposal until shareholders have received further communications from the Board of Directors", which will come in the form of a Directors' Circular.

Stay tuned for more details.

BC Hydro Stakeholder Session - Bioenergy Call for Power Phase II - Community Based Biomass Projects RFQ (CBB)

On Tuesday July 14, 2009 BC Hydro held an introductory stakeholder session pertaining to the Bioenergy Call for Power Phase II - Community Based Biomass Projects (CBB) Request for Qualifications (RFQ). More information on this CBB RFQ can be found on the BC Hydro website.

Through this RFQ, BC Hydro is looking to source power from community-based biomass projects no larger than 5 Mw. The biomass can be any form of biomass that meets BC Clean or Renewable Electricity definitions.

Regarding Timing for the RFQ, the deadline for submissions of proposals is currently set for November 2009, with the RFQ process complete in early 2010. BC Hydro seeks to qualify at least two projects to engage in negotiations after this RFQ process is complete, which may result in Electricity Purchase Agreements being awarded with respect to the qualified proposals.

Feedback on this RFQ can be submitted through the BC Hydro website by filling out and submitting the Draft RFQ Comment Form, and this opportunity is open until July 31, 2009.

Evaluation Criteria is based on: 1) economic viability; 2) development risk; 3) Distribution-system benefits (addressing reliability issues); 4) community benefits; 5) First Nations involvement; and 6) innovation (unproven or near-commercial technology is not excluded). James Grant, the project manager for the CBB commented that these carried equal weight, and that not all were needed but having them all would make a proposal submission stronger.

For development risk, BC Hydro would consider fuel availability for the length of the contract, adverse impacts and community and First Nations engagement and support. Mr. Grant stressed the importance of having the community "onside", and having a First Nations consultation plan. However, some IPP and First Nations attendees questioned the fast approaching time deadlines of the RFQ, the vagueness of it as it is currently drafted (including what constitutes First Nations consultation, and on price signals), and whether it met today's competitive procurement environment.

Other attendees questioned why this was not an ongoing process, while many questioned BC Hydro on "environmental attributes'. Mr. Grant commented that there is some flexibility there in terms of ownership of environmental attributes, but stated that "we want those", and proposed that attendees should submit feedback on this point, and all other points raised through the comment form.

Overall it appeared that many in attendance were not satisfied that this RFQ would lead to competitive opportunities, particularly in light of the upper project size limit of 5 Mw and the fact that BC Hydro foresees only selecting a small number of proposals for bi-lateral negotiations.

Clarification from Premier McGuinty: Ontario has only suspended procurement of new nukes

Premier Dalton McGuinty clarified that the procurement of new reactors for the Darlington Generating Station has been delayed, not cancelled outright. However, no indication was given as to when negotiations with private sector vendors might resume.

Premier McGuinty said that a softening in demand for power in the province as a result of the economic downturn has given the province "more breathing space than we originally thought." However, he acknowledged that renewables and conservation alone will not address Ontario's long term demand for electricity. New nuclear capacity will therefore likely still be required.

McGuinty also confirmed that Atomic Energy of Canada Ltd. ("AECL") was "the front-runner but definitely not the clear-cut winner based on the price." The province had earlier indicated that AECL submitted the only compliant bid under the RFP process. However, its bid must have been substantially higher than the anticipated $20 billion budget for the project. Minister Smitherman advised AECL to "sharpen their pencils substantially."

Ontario cancels new nukes, but what will fill their place?

On June 29, the Government of Ontario suspended the Request for Proposal process to procure two replacement nuclear reactors for the Darlington generating site. While Energy and Infrastructure Minister George Smitherman declared that "emission-free nuclear power remains a crucial aspect of Ontario's supply mix," questions are being raised as to what type of generation will fill the 2,000-3,5000 MW capacity gap that the new reactors were to provide.

RFP responses were received from AREVA NP, Atomic Energy of Canada Limited ("AECL") and Westinghouse Electric Company on February 27, 2009. According to the Ministry of Energy and Infrastructure, only AECL's bid complied with the terms of the RFP. However, Minister Smitherman indicated that AECL's bid was many billions too high. He also expressed concern over AECL future, given that the Canadian government recently announced its intention in late May to sell the beleaguered company.

Amir Shalaby, vice-president of power system planning at the Ontario Power Authority, was quick to point out that "the lights will stay on", even if new reactors are not built at Darlington. Such reactors would not have been operational for about 10 years. However, Mr. Shalaby noted that Ontario's most significant capacity crunch will occur 5 years earlier. Ontario has committed to phasing out its 6,400 MW of coal fired generation by 2014. It may also retire Pickering B nuclear station, which provides 2,100 MW of capacity, around the same time (although OPG has begun a refurbishment study).

Questions are being raised as to how Ontario will address the capacity crunch in 2014 and what, if anything, will be done to add capacity in place of the Darlington new nuclear project. Environmental advocates hope that the capacity gap will be alleviated by improved conservation and filled by renewable generation. Ontario's Green Energy and Green Economy Act, 2009 (see here , here , and here ) is intended to pave the way to a greener energy future. However, it is unclear that renewables, many of which provide power intermittently, can completely fill the shoes of nuclear power, which provides a significant majority of the steady baseload required in the province.

There is therefore a chance that coal may continue to be a part of Ontario's supply mix. For example, Sarnia-Lambton MPP Bob Bailey was quoted as saying "bad news for Darlington is good news for us." Mr. Bailey was referring to the possibility that the coal-fired Lambton Generating station may have to be kept in service beyond 2014. Keeping any coal-fired plants in service would likely be a major political blow for the McGuinty government, which has already had to delay (first to 2009 and then to 2014) its promise to phase out coal.

Mr. Shalaby is confident that Ontario has time to develop other options, which could include using more natural gas-fired generation, increasing imports of power, reducing exports, and encouraging combined heat and power projects in urban areas.

Canada's GHG system to be "comparable" to that of US

In an interview with the Globe and Mail, Canadian Envrionment Minister Jim Prentice said that Ottawa will be very mindful of Washington when enacting Canadian greenhouse gas emissions management regulations. The U.S. intends to establish a cap-and-trade system pursuant to the American Clean Energy and Security Act (more commonly known as the Waxman-Markey Bill, discussed in our recent bulletin), if enacted into law. Mr. Prentice said that Canada's system "will not be identical to the United States...but it will be comparable."

The Waxman-Markey Bill contemplates the imposition of "border adjustment charges" on energy-intensive goods imported from countries without emissions caps that are comparable to the U.S. cap. When asked about the risk that such carbon tariffs posed for Canadian businesses, Mr. Prentice replied that "[t]he trade implications only apply if Canada does not have a commensurate system and, in fact, everything we are doing is to ensure we do have a commensurate system."

However, harmonizing Canadian regulations with those of the U.S. could prove to be a major political challenge for the federal Conservatives. Alberta in particular is concerned that the U.S. approach will result in huge additional costs for the emission-intensive oil sands sector. Albertans have a deep-seated suspicion of any federal energy policy that places a disproportionate burden on Alberta. Despite an avowedly great working relationship between Mr. Prentice and Alberta Environment Minister Rob Renner, Ottawa and Alberta are likely to find themselves increasingly at odds over the issue of climate change.

The U.S. is cognizant of the issue. President Barack Obama articulated it as follows: "What we know is that oilsands creates a big carbon footprint. So the dilemma that Canada faces, the United States faces, and China and the entire world faces is, how do we obtain the energy that we need to grow our economies in a way that is not rapidly accelerating climate change?" Stay tuned to find out.

Alberta selects 3 projects to receive $2 billion in carbon capture and storage funding

On June 30, the Alberta's Ministry of Energy took a major step forward in its $2 billion capbon capture and storage initiative. The Ministry announced that the following three projects had been selected for funding:

• Enhance/Northwest for The Alberta Carbon Trunk Line, to incorporate gasification, CO2 capture, transportation, enhanced oil recovery and storage from the Agrium fertilizer plant and the Northwest upgrader;
• EPCOR/Enbridge for an integrated gasification combined-cycle carbon capture power generation facility adjacent to EPCOR'S existing Genesee power plant, west of Edmonton; and
• Shell Canada Energy/Chevron Canada Ltd./Marathon Oil Sands L.P. for a fully integrated carbon capture and storage project at the Scotford Upgrader.

Details of the projects have not yet been made public.

The Ministry expects to negotiate letters of intent with each of the winning proponents by the end of this month.

The press release leaves open the possibility that other projects would be considered if negotiations with the winning proponents fail. A list of the 11 projects that were considered in the final round may be found here. Recall from our previous posting that 20 companies originally applied for funding, but 9 withdrew their applications because they believed the projects could never be economically viable.

In the RFP package, the Ministry had described the purpose of the funding as follows:

"The ultimate goal of the CCSF is to encourage the development of three to five large scale integrated CCS facilities that will capture and permanently store up to five million tonnes of carbon dioxide per year by 2015, for a period of at least 10 years. This initiative is an important first step in the broader adoption of CCS in the province and will create the momentum for private sector investment in CCS. By encouraging CCS in Alberta, the CCSF will contribute to the solution for climate change and GHG emission reductions while maintaining Albertans' quality of life and allowing continued economic growth. In reaching this goal, GHG emissions at facilities such as coal-fired electricity plants, oil sands extraction sites, upgraders, and other large scale industrial facilities will be reduced."

Canada's climate change credibility suffers on world stage

In recent weeks, Canada has been repeatedly criticised abroad for the position it is taking with respect to climate change.

First, WWF and Allianz, a global insurer and financial institution, released a report ranking Canada's climate change performance last amongst the G8 countries. An interactive version of the report summarizes Canada's performance as follows:

"Canada ranks last of all G8 countries. The country's total greenhouse has emissions are steadily increasing, and would now need to drop by over 32% to meet Canada's emissions reduction target of 6% [from 1990 levels] by 2012 set by the Kyoto Protocol. Canada's per capita emissions are among the highest in the world. A plan to curb emissions was developed last year, but has bot been implemented. Largely due to Canada's use of hydro power, the country's CO2 emission per kWh are the lowest in the G8."

Canada's scorecard provides additional detail. With respect to the development of the oil sands, the report concludes that "neither provincial nor planned federal regulation will reduce overall emissions." With respect to Canada's stance in international negotiations, the report concludes that Canada has abandoned its Kyoto commitments and is "generally slowing rather than advancing the international negotiation process by introducing a focus on national circumstances."

The latter sentiment was echoed by Sir David King, the UK's former Chief Scientific Adviser, at the World Conference of Science Journalists. The Times reports that he warned that Canada and Japan are blocking a possible deal on climate change at the Copenhagen summit. Sir David lauded the US, saying that the "Americans are now fully engaged" and noting that it is no longer possible "to hide behind the US's intransigence on climate change."

Reuters reports that France recently released a position paper that was equally critical of Canada, calling for Canada to "take on commitments which are at least on a par with the EU's, compared with 1990 levels." As mentioned in the WWF/Allianz report, Canada is currently emitting 26% above 1990 levels, whereas it committed to being 6% below 1990 levels by 2012. The French discussion paper came as a surprise to the Canadian government, which had not had an opportunity to review it before it was released.

Finally, Canada also appears to have passed (for now) on membership in the International Renewable Energy Agency ("IRENA"). On June 29, 22 new states signed on to IRENA, including long-time holdouts Japan and the U.S., bringing the total number of country signatories to 136. Canada did not join, even though a private member's motion to join the IRENA was passed 146 in favour and 141 against on June 17. IRENA's mission is as follows:

"IRENA aspires to become the main driving force for promoting a rapid transition towards the widespread and sustainable use of renewable energy on a global scale. As the global voice for renewable energies, IRENA envisages providing practical advice and support for both industrialised and developing countries, thereby helping to improve frameworks and build capacity. Moreover, the Agency intends to facilitate access to all relevant information, including reliable data on the potentials for renewable energy, best practices, effective financial mechanisms, and state-of-the-art technological expertise."

Clean Energy Dialogue Roundtable Meeting Concludes

The Clean Energy Dialogue between Canada and the United States continued this week as meetings between the two nations wrapped up in Washington.

The public-private meeting, held June 29-30 at the Department of Energy Headquarters in Washington, DC, brought together industry and government leaders to expand bilateral clean energy cooperation.

US Energy Secretary Steven Chu expressed optimism following the talks, stating that "by working together to develop clean energy technologies and combat climate change, the United States and Canada can spark an economic recovery that will benefit both of our nations."

The Clean Energy Dialogue was announced in February 2009 following the first meeting between Prime Minister Stephen Harper and President Barack Obama in Ottawa. Established with the intention of expanding clean energy research and development in the United States and Canada, the Clean Energy Dialogue strives to develop and deploy clean energy technology; and build a more efficient energy grid based on clean and renewable energy in an effort to reduce greenhouse gases and combat climate change.

The meeting marks a significant advancement in implementing Canada's Climate Change Plan and Economic Action Plan, both aimed at supporting a cleaner more sustainable environment. Through promised collaboration on specific areas such as biofuels, clean engines, and energy efficiency, the Clean Energy Dialogue will help Canada meet its greenhouse gas emissions reduction targets and aid its commitment to ensure that 90 percent of electricity be provided by non-emitting sources by 2020.

Discussions at the Roundtable meeting involved the initial development of an Action Plan to be presented to Minister Prentice and Secretary Chu in mid-July. The expected deadline to present a finalized joint Action Plan on Clean Energy to Prime Minister Harper and President Obama is August 2009. Consultation with the provinces and private sector leaders will continue over the next few months to achieve such goal. If all of these milestones are met, momentum towards Copenhagen in December will be at an all time high.

We will continue to monitor the Clean Energy Dialogue and will report back to you regarding the Action Plan and provincial consultations as information becomes available.

With assitance from Corie Flett, Summer Student.