On November 4, 2014, the BC Government enacted the Domestic
Long-Term Sales Contracts Regulation, which requires BC Hydro
to establish a program for long-term sales contracts for
electricity to LNG facilities within six months, and sets the
minimum prices to be paid by LNG facilities for electricity under
such agreements. On the same day, LNG Canada also became the
first of BC's proposed LNG facilities to enter into a long-term
power agreement with BC Hydro for the provision of electricity for
its auxiliary power needs. It is expected approximately 20%
of the site load (about 200 MW) will be served by BC Hydro power,
with the remainder via "direct drive"
The Regulation provides potential investors with an
additional measure of cost certainty and should assist them in
pricing out projects as they move towards final investment
decisions. Under the Regulation, the combined energy
and demand charge for LNG facilities will be $83.02 per megawatt
hour (MWh) for 2014, significantly in excess of the $54.34/MWh
average industrial rate quoted in government news releases.
The choice between self-generation/direct drive and purchasing
BC Hydro power has become more clear as a result of the
Regulation and the recent Greenhouse Gas Industrial
Reporting and Control Act. The latter requires LNG
facilities to maintain a carbon dioxide equivalent intensity of
less than 0.16 or offset or purchase credits for emissions above
that level. It appears, however, that provincial climate
change carbon reduction targets will be put under severe pressure
as a result.
The Regulation sets out the framework for BC
Hydro's program to offer long-term sales contracts to LNG
facilities. To a large extent, it reflects marginal cost
pricing. Offers must include:
firm service at 60kV or higher for the purpose of operating the
customer's facility, including the operation of the
liquefaction, storage and loading components, but not for the
purpose of constructing the facility;
a rate that is the sum of a demand charge and the greater of
(i) the industrial rate set by BC Hydro, or (ii) the amounts set
out in the schedule to the Regulation; and
a requirement for the customer to pay the full cost of
interconnecting with the system and any system upgrades needed to
serve the customer.
The annual "floor" amount set out in the schedule to
the Regulation is given as an energy charge, which for
2015 is set at $73.87/MWh.
For comparison, non-LNG industrial customers would pay the
industrial stepped rate, comprising a demand charge, a "Tier
1" price for 90% of typical annual consumption, and a
significantly more expensive "Tier 2" price for the last
10% of the annual load. The purpose of the Tier 2 rate is to
send a conservation price signal.
While the terms of LNG Canada's agreement with BC Hydro were
not released, based on public government disclosure, the agreement
appears to comply with the requirements of the
Another consideration affecting LNG electrification choices is
the Kitimat airshed, which is currently under scrutiny following
the Kitimat Airshed Emissions Effects Assessment study conducted
earlier this year. It is expected that BC will release new
air quality objectives in the near future, having repealed their
former objectives in 2006. The cost of complying with these
objectives may influence LNG proponents' choice between the
proportion of site load powered by BC Hydro and direct drive
Overall, the Regulation is a positive step forward for
LNG proponents in BC because it reduces cost uncertainty.
While the BC Government has shifted the cost of developing any new
electricity infrastructure required by LNG facilities onto the
facilities themselves, there is continued tacit recognition that
the effects of direct drive liquefaction on climate change
targets (recognizing the new climate fund) are an acceptable
trade-off for LNG development.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In Bank of Montreal v Bumper Development Corporation Ltd, 2016 ABQB 363, the Alberta Court of Queen's Bench enforced the "immediate replacement" provision in the Canadian Association of Petroleum Landmen 2007 Operating Procedure...
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