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Quebec 2010-2011 Budget Unveiled: Key Energy Announcements

Québec's Minister of Finance, Raymond Bachand, today tabled the province's 2010-2011 Budget. Among the measures that should be of interest to those in the energy world are the following:

Setting the tone for his energy-related announcements, Minister Bachand declared that: "the rates Quebecers pay for their electricity are lower than almost anywhere else in North America. Electricity prices in New York and Boston are at least three times higher than in Québec. In Toronto, the price of electricity is 66% higher than in Québec. The low rate has caused Québec consumers to undervalue this precious resource. There is little incentive for Quebecers to improve their energy efficiency,"

In this context, and to mitigate the impact of announced higher prices for so-called "heritage pool electricity" (i.e. a block of up to 165 terawatt-hours of energy at a set price of 2.79¢ per kilowatt-hour) discussed further, the government announced that it would require Hydro-Québec to establish enhanced energy efficiency objectives in the coming months. According to the minister, greater energy efficiency will mean savings for consumers.

On building a green economy in Québec, Minister Bachand then declared that "Sustainable development will be an important thrust and a signature feature of our economy for the next 20 years at least. It is important to continue the green shift initiated by our government in 2006. Tackling climate change will provide Québec with new opportunities and openings for developing a green economy,"

In that regard, the government announced a series of measures, namely:

• the implementation of the Industrial Policy for the Development of an Electric Vehicle Sector;
• the introduction of financial assistance of $24 million over 3 years to encourage the commercialization of products made in Québec that have obtained carbon footprint certification;
• $57 million over 3 years for the Northern Plan to ensure the smooth functioning of the current process and encourage initiatives that will meet the needs expressed by local communities;
• the introduction, as of January 1, 2011, of a royalty on water used as an input or in production processes;
• the implementation of a temporary financial assistance program for wind energy projects that must be implemented between 2010 and 2012;
• sustainable funding for the road and public transit infrastructure fund through an increase in the fuel tax;
• a gradual increase, as of 2014, in the price of heritage pool electricity supplied by Hydro-Québec.

As for the last measure regarding the gradual increase in the price of heritage pool electricity supplied by Hydro-Québec, such additional funds would constitute a new source of funding to the Generations Fund, which had been created in 2006 to ensure that the province's children and grandchildren would only assume their fair share of the province's indebtedness. The minister noted that although part of that indebtedness represents quality assets, that the economy is diversified and that there are abundant natural resources, there was indeed cause for concern, as Québec's indebtedness is the highest of all the Canadian provinces.

Going into the details of the rate hike, the Minister explained that as of 2014, i.e. once public finances will have been balanced, the government would gradually raise the price of heritage pool electricity supplied by Hydro-Québec to reach an increase of 1 cent per kilowatt hour in 2018. The increase would result in an average rate increase of 3.7% a year for almost all of Hydro-Québec's customers, with commercial consumers to absorb approximately half the impact of the increase. Less affluent households are to be shielded from the impact of the rate increases as a result of a new solidarity tax credit, which would be adjusted to account for the higher rates.

Minister Bachand was quoted as saying "Quebecers are proud of the hydroelectric development carried on in Québec [...] it has played a major role in developing our economy, our regions and our society. It is a source of wealth that we will rely on to pay down our debt. When fully implemented, in 2018, the increase in the price of heritage pool electricity will represent additional revenues of $1.6 billion annually. All of these revenues will go directly into the Generations Fund to pay down the debt. They will enable us to attain our indebtedness objectives. By agreeing to pay a little more for electricity, which will remain exceptionally cheap, Quebecers and Québec businesses will discharge their responsibility to future generations."

Minister Bachand was careful to add that maintaining the province's competitiveness would remain a priority. therefore, he explained that industrial customers paying the large-power rate (the "L" tariff) would be exempt from the increase in the price of heritage pool electricity, but not from Hydro-Québec's normal rate increases so that they continue to pay a competitive rate.

For these customers, which include 150 large industrial companies, electricity accounts for a large portion of production costs. Many of these companies are located in the regions, where their contribution to the economy and employment is vital. Higher electricity costs would considerably reduce their profitability and could even cause some of them to close. The minister explained that several energy-intensive companies concluded special supply contracts with Hydro-Québec in the 1980s and that many of these contracts expire between 2014 and 2016. The Minister announced that these contracts would not be renewed and that as a result thereof, Hydro-Québec expects to be able to bring in an additional $160 million a year.

BC Introduces Zero Net Deforestation Act to Encourage Carbon Storage Offsets

The BC Minister of Forests and Range, Pat Bell, has introduced Bill 5 to establish the Zero Net Deforestation Act to assist the government's climate change objectives (see its June 2008 Climate Action Plan). The purpose of the Act is to enshrine in legislation the govenrment's goal of zero net deforestation (ZND) in BC. The goal is to achieve ZND by December 31, 2015 to help reduce greenhouse gas emissions. (The government passed the Greenhouse Gas Reduction Targets Act (GGRTA) in November 2007, legislating its target to reduce GHG emissions by at least 33 percent by 2020. Subsequently, in December 2008 it brought into force the Emissions Offets Regulation, which sets out requirements for GHGG reductions and removals from projects or actions to be recognized as emission offsets).

The Act defines deforestation, provides for reporting on net deforestation and allows for regulations establishing: the timing, form and content of reports and records; scientifically-based methodology for calculating deforestation and afforestation and other matters.

According to a Ministry news release, dated March 22, 2010 the focus of the proposed Act is on future forests and the afforestation of suitable non-forest land. It "meets government's commitment in the 2008 speech from the throne to pursue the goal of zero net deforestation , which will be achieved when the area of newly created forest land in BC is equal to or greater than the area of deforestation." The three keys to achieving zero net deforestation are: "avoid, minimize and mitigate deforestation."

While BC's forests and forest land are recognized as "important allies" in absorbing and storing carbon and fighting climate change, the definition of deforestation in the Act does not include timber harvesting. The reason stated is that "Timber harvesting in B.C. is sustainably managed, and not considered to be deforestation." Arguably, under the province's current GHGRTA initiative, the principle of additionality would oust many existing reforestation projects or actions on forested land as they are already required and managed under stringent regulations.

The intent behind the legislation is to encourage the reforestion of approximately 6,200 hectares of land that was deforested in BC in 2007 by various industrial activities. Its meant to address some of the cummulative impacts from these activities and to encourage voluntary action to help achieve ZND. Existing incentives such as business expense deductions, charitable donations and revitalization tax exemptions may be used to help to achieve emissions targets and, provide for carbon storage offsets.

Current issues affecting BC's forests and forest industry such as MPB recovery, restocking NSR areas, carbon sequestration (and associated carbon credits) and, encouraging investment in BC's forest industry are to be addressed by other government initiatives. Its expected however, that reforestation as described under the Act, will generate approximately 75 silviculture jobs per year.

New Brunswick and Hydro-Québec reach impasse and cancel acquisition of NB Power

New Brunswick Premier Shawn Graham announced today that his province will no longer be proceeding with the sale of NB Power's assets to Hydro-Québec. The parties were unable to agree on the allocation of new risks identified by Hydro-Québec. The announcement caps months of back and forth negotiation between the province and its neighbour's dominant utility and of vocal opposition to the deal from rate payers and other provinces.

The original deal announced last October would have seen virtually all of NB Power assets sold to Hydro-Québec for $4.8 billion. Critics were quick to object. Danny Williams, the Premier of Newfoundland (who does not hestitate to criticize Hydro-Québec) was particularly vocal, warning NB that the deal would cost the province the ability to control access to the lucratice power markets of the Northeast U.S. Members of the public in New Brunswick expressed concern ceding control over rates to a utility outside of the province. Members of Premier Graham's cabinet and other MLAs joined the fray, threatening earlier this year to block the deal.

In light of the heavy criticism, Premier Graham went back to the table with Hydro-Québec. A new memorandum of understanding was annouced in January under which Hydro-Québec would acquire most of the generating assets of NB Power for $3.2 billion. It would also provide power to the province on a long-term wholesale basis at prices intended to diffuse the concerns of rate payers. NB Power would retain ownership of the transmission and distribution infrastructure, allowing it to serve as a gateway for Canadian power sales to the U.S.

Converting the memorandum of understanding to a definitive agreement apparently proved impossible. Hydro-Québec discovered previously unaccounted for risks during its due diligence. The changes it proposed to the deal to account for these new risks proved to be unacceptable to NB Power. Having reached an impasse, the parties decided to walk from the deal.

Quebec Premier Jean Charest was circumspect. "The deal didn't work out, and that's too bad, we hoped it would, and I think we all were in this with good faith." Premier Graham quickly put the emphasis on the future, acknowledging, that New Brunswick "may have closed the door on an energy agreement with Hydro-Québec. But I know that new doors of opportunity have opened before us."

BC Supreme Court Finds a Failure to Meaningfully Consult and Accommodate Warrants a Stay of a Mines Act Permit and Suspension of a Licence to Cut

The BC Supreme Court stayed the effect of First Coal Corporation's Mines Act Permit Amendment for Advanced Exploration and suspended its forestry Licence to Cut last Friday on finding that the provincial Crown failed to meaningfully consult and properly accommodate the petitioner's, West Moberly First Nations, traditional right to hunt caribou in its treaty territory (see West Moberly First Nations v. British Columbia (Chief Inspector of Mines), 2010 BCSC 359). The remedy follows the jurisdiction of the court "when considering a constitutional right...to stay the effect of the impugned decisions for a determined period and to give directions as to the accommodation which should be put in place within that time," (per Platinex Inc. v. Kitchenuhmaykoosib Inninuwug First Nation (2006), 272 D.L.R. (4th) 727)

The West Moberly First Nations filed a petition for judicial review in Supreme Court seeking to quash three statutory decisions permitting (1) an amendment to an existing Mines Act permit to obtain a bulk sample of coal; (2) an amendment to a second Mines Act permit to conduct drilling as part of its advanced exploration program on the same lands; and, (3) a Licence to Cut. The First Nation claimed that the statutory decision makers failed to consult adequately and meaningfully and, failed to reasonably accommodate their hunting rights guaranteed by Treaty No. 8. At issue was a population of caribou in the area of the proponent's operations, which has been red-listed as threatened (near extinction) under the federal Species At Risk Act. Also, the First Nation claimed that the District Manager for the Ministry of Forests and Range improperly fettered his discretion in permitting the Licence to Cut.

The First Nation led evidence that while they regularly communicated with various Crown officials regarding their hunting rights, the Crown was unresponsive or responded with "standard form referral letters." Also, they provided evidence that other employees of the Crown raised concerns about the status of the threatened herd, but those were largely ignored. The Crown and the proponent denied the petitioner's claims and submitted that deep consultation had occured and that the First Nation's concerns were accommodated by: reducing the proponent's Bulk Sampling program; implenting the proponent's mitigation and monitoring plan; closing an access road; and, by adopting a less destructive method of mining (the ADDCAR system). However, Justice Williamson rejected these assertions as most of the accommodation put in place did not directly respond to the First Nation's concerns.

Justice Williamson found that while the Crown did consult, consultation was not meaningful and proper accommodation did not occur on the bases that: the Crown was extremely slow consulting on its inital assessment of the potential adverse affects of proponent's activities on the First Nation's treaty rights; the "standard form referral letters" did not address the real concerns of the First Nations regarding the threatened herd; and, the Crown failed to consider the First Nation's report on the danger to the herd and its relationship to the First Nations protected treaty right. At paragraph 53 " I conclude that a balancing of the treaty rights of Native peoples with the rights of the public generally, including the development of resources for the benefit of the community as a whole, is not achieved if caribou herds in the affected territories are extirpated."And, at paragraph 55, "The honour of the Crown is not satisfied if the Crown delegates its responsibilities to officials who respond to First Nations' concerns by saying the necessary assessment of proposed "taking up" of areas subject to treaty rights is beyond the scope of their authority."

Also, Justice Williamson found that the "Crown's failure to put in place an active plan for the protection and rehabilitation of the Burnt Pine herd is a failure to accommodate reasonably." Citing the Supreme Court of Canada's decision in Mikisew Cree First Nation v. Canada (Minister of Canadian Heritage), 2005 SCC 69 he further found that "a meaningful right to hunt means a right to hunt in "its" (here West Moberly's) traditional territories...It is not an accomodation to say "hunt elsewhere"."

On the second issue, Justice Williamson found that the Minister of Forests did not fetter its discretion. Rather, he found that the Minister has the discretion to determine whether to approve a licence to cut under the Forest Act where the applicant already holds an exploration permit: "It is apparent upon a reading of the above subsections that the object of this particular piece of legislation is to ensure that those who hold permits for the purpose of exploring for and developing a coal mine are entitled to remove timber subject to conditions set out in the occupant's licence to cut."

The parties have 90 days from the date of the decision to consult and put in place an active plan for the protection and augmentation of the Burnt Pine herd that takes into account the view of the West Moberly First Nations.

BC Hydro announces 19 Clean Power Call projects

Submitted by Grant Boyle

BC Hydro announced it has selected 19 projects for an award of an electricity purchase agreement in its Clean Power Call: 14 run-of-river hydro and 5 wind projects representing around 900 MW of capacity. 28 projects are still under consideration.

Following the execution of the contracts, BC Hydro will submit the electricity purchase agreements to the British Columbia Utilities Commission for review. Project details, including the range of electricity prices to be paid, will be available in the Commission filing.

The announcement of the awards comes after a long journey for BC's Clean Power call, including the BC Utilities Commission's rejection of BC Hydro's Long-term Acquisition Plan, uncertainty over the adequacy of First Nations consultations and uncertainty over the size of the Call.

Hydro-Québec, Green Mountain Power and Central Vermont Public Service Corporation announce a 26-year Power Supply and Purchase Agreement

Québec Premier Jean Charest and Vermont Governor Jim Douglas today jointly announced the signing of a Memorandum of Understanding (MOU) for a 26-year power supply and purchase agreement.

Hydro-Québec, who currently provides about one-third of Vermont's electricity pursuant to a contract signed on December 4, 1987 and set to expire in 2016, would continue to do so as a result of the proposed agreement. The contract would take effect in 2012 and run through 2038. Key terms of the deal were not disclosed, however the Vermont utilities would buy up to 225 megawatts and use a "price-smoothing mechanism" that would shield Vermont customers from market price spikes throughout the duration of the contract.

Certainly a key consideration for Hydro-Québec, Vermont lawmakers would enact legislation currently before lawmakers which designates large hydro power, including that produced by Hydro-Québec, as renewable energy, with any resulting credits to be shared by the three corporations.

In a joint news release, Central Vermont Public Service Corporation's President Bob Young, and his counterpart at Green Mountain Power, Mary Powell, were quoted as saying "This agreement sets the stage for a new contract that will help us maintain what is arguably the cleanest power supply in the nation, while ensuring a relatively stable and affordable future for our customers [...] It continues a relationship that has helped us provide competitive rates in the Northeast, with minimal air and greenhouse impacts."

Negotiations had been ongoing for over a year, although Vermont's energy future drew attention in early 2010 following reported tritium leaks in Entergy's Yankee nuclear power plant. Although an application has been made for a 20-year extension, the plant is scheduled to close when its license expires in 2012.

Quebec Mining Sector remains strong in 2009, record investments expected in 2010

The province of Quebec's Statistical Institute ("QSI") today released its 2009 analysis of mining sector data which confirms that notwithstanding diminished investment, the sector remained strong in 2009. The QSI based its analysis on preliminary data gathered from mining companies through Q3 2009. In total, $1.67 billion was invested in the province's mining sector, down 17% from the preceding record year, but in line with 2007.

Quebec's Abitibi-Temiscamingue region led investment with a total of $661million, mostly as a result of Osisko's flagship Canadian Malartic project, as well as Agnico-Eagle's continued work on the LaRonde, Lapa and Goldex projects. The Côte-Nord region followed with $508 million in investments, due to several iron ore projects.

Investments in exploration diminished slightly more during the financial downturn ($370 million), down 34% from 2008, however consistent with the 5-year average. Exploration by juniors slipped from 78% to 64% of the total, with the majors playing a more active role.

At an average price per ounce close to $1100 in 2009, gold remains the main mining play, taking up 61% of the total exploration and extraction investments. Copper, Zinc and Nickel dropped to 16%, slightly ahead of Uranium, at 13% and Lithium, which drew 1.6% of 2009 investments.

Detailed tables showing 2009 mining investment in Quebec are available on the QSI's website (French only).

2010 may very well be a record-breaking year, as mining companies have indicated that they expect to increase overall investment 30% compared to 2009, up to $2.2 billion, of which $467 million will be for exploration activities.

OPA announces a total of 510 FIT contracts

Further to our posting this morning about Loblaw's, the Ontario Power Authority ("OPA") offered a total of 510 Feed-in Tariff ("FIT") contracts today. In its press release, the OPA described the allocation of contracts as follows:

"The 510 projects are to be built in 120 communities across Ontario by farmers, municipalities, local distribution companies, commercial businesses, industrial customers, public institutions, such as schools and hospitals, a winery and even a church. The projects range from 10 kilowatts to 500 kilowatts and have a total generating capacity of 112 megawatts - enough energy to power more than 13,000 homes. About 95 percent of the projects are for solar generation. The remaining projects are biogas (20), water (4), onshore wind (3) and biomass (1)."

A complete list of projects and their proponents is available on the OPA's website.

All of the projects qualify as capacity-allocation exempt projects, meaning that they are not subject to the Transmission Availability Test under the FIT rules.

Up next: projects that are not capacity allocation exempt. These will include distribution-connected projects over 250 kW if connected to a less than 15 kV line or 500 kW if connected to a 15 kV or greater line and stand-alone projects as well as transmission connected projects. Proponents of these projects are no doubt anxious to hear from the OPA: not only are these projects bigger, but they are also subject to the Transmission Availability Test. Proponents may have made some big bets on their shovel-readiness under the OPA's FIT program launch rules.

Ontario Power Authority awards first FIT contracts to Loblaw's; more to follow

The Ontario Power Authority ("OPA") awarded its first 100 Feed-in Tariff ("FIT") contracts to Loblaw's this morning. More announcements are expected today and in the coming weeks.

"These projects will create a new source of income for businesses while providing new clean and green electricity in Ontario -- particularly on hot, sunny summer days when demand soars," said Brad Duguid, Ontario Minister of Energy and Infrastructure. "With our new domestic content rules, these projects will also help create new green collar jobs here in Ontario as well as major economic investments in equipment and services here at home." Bob Chant, vice president, corporate affairs, Loblaw Companies Limited added that Loblaw's believes "green energy production using innovative technologies such as these pilot projects, supports our commitment to the environment."

Loblaw's will be working with Northland Power Income Fund to implement the first four projects as a pilot. "We believe that solar energy, especially rooftop solar energy, will play a major role in Ontario's green energy future while dramatically reducing greenhouse gas emissions," said Jim Temerty, Chairman of Northland Power Income Fund. Assuming the pilot is a success, Loblaw's will then roll out the balance of the projects.

The announcement has been eagerly anticipated by prospective renewable power developers. The OPA accepted over 2,000 applications during the launch phase of the FIT, which ran during October and November of last year, and has received over 2,000 more applications since. The OPA awarded 700 microFIT contracts before Christmas, but these very small scale projects only amounted to a total of about 8.6 MW of generating capacity. Applicants who proposed larger scale projects have been waiting for over three months for the OPA to begin awarding FIT contracts.

OPA and MEI enhance stakeholder consultation regarding FIT domestic content requirements

Ontario has been praised internationally for its renewable energy Feed-in Tariff ("FIT"), the first of its kind in North America. If commentators have one reservation, however, it is about the domestic content rules, which require project proponents to source prescribed percentages of equipment and labour in Ontario. With the Ontario Power Authority ("OPA") set to announce the next wave of FIT offers in the coming weeks, proponents are now peppering the OPA and the Ministry of Energy and Infrastructure ("MEI") with questions about the domestic content rules. To their credit, both the OPA and MEI appear committed to continuing the open consultation process that has characterized the development of the FIT.

Beginning last December, the OPA posted interpretations of the domestic content rules online. The OPA announced this week that it will now be undertaking a more transparent and accountable process for issuing guidance on the domestic content rules. The new process will include the following steps:

• stakeholders may submit feedback and questions relating to designated activities for domestic content;
• the OPA and/or MEI will review feedback and questions;
• the MEI/OPA will produce draft interpretations and post them on the FIT Program website;
• stakeholders may provide feedback on the draft interpretations;
• the OPA and/or MEI will review of feedback; and
• they will post the final interpretation on the FIT Program website.

The OPA will announce draft interpretations on its website and by email to FIT email update subscribers.

The first draft interpretation to be developed pursuant to this process concerns designated activities for inverters. The draft interpretation was posted March 3 and is open for comments until March 10.

Canadian Government to invest close to $80 million in Quebec Ethanol Plant

Steven Blaney, Member of Parliament for Lévis-Bellechasse, today announced that the Government of Canada's ecoENERGY for Biofuels program will provide funding of up to $79.75 million over 7 years to GreenField Ethanol's Varennes production facility.

GreenField's Varennes facility will produce about 145 million litres of ethanol a year and is Quebec's first ethanol producer. Compared with gasoline, grain-based ethanol can reduce greenhouse gas (GHG) emissions by up to 40 percent on a life-cycle basis. For biodiesel, the emissions reduction can be as much as 60 percent.

Through the ecoENERGY for Biofuels program, the Government of Canada is to invest up to $1.5 billion in such ventures over nine years. The Government's Economic Action Plan also dedicates $1 billion to the Clean Energy Fund and $1 billion for the Green Infrastructure Fund.