A BC Hydro decision to buy the Waneta hydroelectric dam from Teck Resources Ltd. (TSX:TECK.B) for $1.2 billion will end up costing Teck $28 million.
The decision was made late Tuesday afternoon, August 1, though it’s still not clear whether it was strictly a BC Hydro decision or a directive from the new NDP government.
In May, Fortis Inc. (TSX:FTS) announced it had struck a deal to buy Teck’s two-thirds share of the dam, which was built in the 1950s to power Teck’s lead and zinc smelter in Trail.
BC Hydro already owned one-third of the dam, which it bought in 2009 for $800 million.
In the agreement announced in May, Fortis would acquire the other two-thirds of the dam from Teck for $1.2 billion, although the company noted that BC Hydro had the right of first refusal.
Now that BC Hydro plans to exercise that right, Teck will have to pay Fortis a $28 million break fee.
BC Hydro will get no additional power-generating capacity from the dam, though it will get revenue. It’s just not clear how long it will take to pay for the acquisition.
The dam will continue to supply power to the Trail smelter, with Teck paying BC Hydro $75 million in the first year. Annual payments will increase 2% each year over a 20-year period.
The dam has a generating capacity of 480 megawatts – slightly less than half of what the Site C dam would produce.
In a news release, BC Hydro said the purchase is expected to have a net benefit to ratepayers, but provided no estimates on when the acquisition will begin to have a return on investment.
“Our government is committed to making BC Hydro rates more affordable and I’m encouraged that BC Hydro’s analysis indicates this purchase is a step in that direction,” Michelle Mungall, the NDP’s new minister of Energy, Mines and Petroleum Resources, said in a BC Hydro news release.
The BC Hydro plan to acquire the Waneta dam will be reviewed by the BC Utilities Commission.
