Think Global, Act Local

BC Utilities Commission gives direction on need for fair and balanced terms

Think Global, Act Local

At the Paris climate conference (“COP21”) in December 2015, 195 countries, including Canada, adopted the first ever universal, legally binding global climate deal. In British Columbia, provincial and municipal levels of government have used a number of tools to pursue greenhouse-gas (“GHG”) reductions, including encouraging development of district energy systems (“DES”) designed to reduce GHG emissions from building stock. Numerous DES systems have been implemented with the approval of the British Columbia Utilities Commission (the “Commission”) in recent years and there are likely more to come.

The Commission is responsible for approving privately owned DES systems. On December 8, 2015, the Commission issued a decision on the public interest criteria that the Commission will apply in assessing a DES application (the “Decision”), which should help lawyers representing municipal governments, DES developers and building developers.

Creative Energy Inc. (“Creative”) filed an application with the Commission for a certificate of public convenience and necessity to allow a heat and hot water DES in Vancouver’s Northeast False Creek (“NEFC”). Initially the plan was to connect to Creative’s existing natural gas-fuelled steam system. The plan envisioned a second phase whereby the hot water system was to be switched to a “clean fuel” system emitting less greenhouse gas than the natural gas-fired steam system. The application pertained primarily to phase one and identification of what the “clean fuel” system would be in the second phase remains to be seen. The Commission approved parts of the application but refused to approve key aspects, emphasizing that the public interest objective of fairness to ratepayers who would be obligated to pay and developers who would be obligated to interconnect must be taken into account.

Central to Creative’s application was a Neighbourhood Energy Agreement between Creative and the City of Vancouver and a proposed Connection Agreement where, through bylaws, Creative received from the City of Vancouver exclusive rights to supply a DES in the NEFC area. Additional terms included a mandatory connection requirement and other problematic clauses for developers in NEFC and the creation of a “carbon reduction rider” to be paid by ratepayers. The Commission declined to ratify these requests in its decision, while nonetheless approving the construction of the DES and directing Creative to resubmit an amended Connection Agreement.

The Commission was not prepared to ratify what was, in effect, a municipal “carbon tax” to fund a future phase of the DES system. A further direction from the Commission, of value to lawyers representing municipalities and DES developers, is that while there may be a temptation to draft preferable terms and conditions for interconnection of a DES, the Commission has an overriding jurisdiction to ensure that the terms and conditions offered are fair and reasonable, particularly where terms and conditions were not subject to prior negotiation with impacted parties.

While policy makers at all levels seek to effect GHG reductions, and can often adopt a moral high ground to support aggressive actions, parties need to consider pragmatism and fairness when operating in the regulated utility environment implementing DES projects. In this proceeding, the “overreach” of the applicant and the City of Vancouver resulted in a refusal to ratify key components of their proposal. The Commission’s well-reasoned, balanced decision got it right in this case.

Think global, act local, but be reasonable.

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