Multimillion-dollar payouts for Peace region energy infrastructure questioned

Victoria signed 20-year, $1.1 billion Peace River Agreement with local governments in 2015


With former B.C. premier Christy Clark’s liquefied natural gas (LNG) dreams severely diminished, critics are questioning why the NDP government isn’t scaling back multimillion-dollar infrastructure payouts to northeastern municipalities.

“Rather than spending money on infrastructure to support the oil and gas industry whose future is very much in doubt given climate change, the provincial government should be looking at communities such as those in the Peace that are facing challenges,” Tim Pearson, spokesman with the Sierra Club BC environmental advocacy group, said Sept. 21.

Pearson said Clark’s LNG dream “has no future.”

Past and present Peace elected officials, though, say the funding, drawn from provincial general revenue, remains necessary due to ongoing industrial growth.

“It’s crazy what’s going on but it’s invisible to the rest of the world because it’s just going on in northeastern B.C.,” said Dawson Creek Mayor Dale Bumstead. “We are still required to build infrastructure – water, sewer – to attract workers.”

The funding, first called Fair Share, began in 1994 under BC NDP premiers Mike Harcourt and Glen Clark.

It continued, relabelled as the Peace River Agreement, under successive Liberal premiers Gordon Campbell and Christy Clark.

The aim has always been to support the area as the oil and gas industry uses local infrastructure.

Since 1994, the province has inked agreements with the Peace area governments to provide a grant equivalent to what they would receive with conventional access to the oil and gas industry tax base, said Ministry of Municipal Affairs and Housing public affairs officer Melanie Kilpatrick.

Those industries are often outside municipal boundaries and not captured in the local tax assessment area.

The program affects the Peace River Regional District (PRRD) municipalities of Chetwynd, Hudson’s Hope, Taylor, Tumbler Ridge, Dawson Creek, Fort St. John and Pouce Coupe.

From 1994 through 2015, Peace River local governments received a total of $489.2 million through a series of agreements, Kilpatrick said, including a $35 million signing bonus in 2005.

In May 2015, Clark’s government signed the 20-year, $1.1 billion Peace River Agreement with local governments – including a $3 million signing bonus – and between 2016 and 2018, local governments have shared $50 million annually, Kilpatrick said.

The 2015 agreement was signed within days of Christy Clark’s government announcing LNG tax measures, provincial environmental assessment approvals and, in particular, an agreement with Pacific NorthWest (PNW) LNG.

The PNW agreement mapped a route toward a final investment decision from the Petronas-led $36-billion project.

That plant was planned for Prince Rupert with gas produced by Progress Energy Canada Ltd. in the Peace region.

However, the Malaysian-led PNW consortium killed the project in July 2017, citing market conditions.

Christy Clark had claimed multiple LNG facilities shipping gas worldwide would wipe out the province’s debt and provide a $100 billion prosperity fund.

While several projects are moving ahead, the boom never happened due to depressed prices and a global gas glut.

However, only a few of the hoped-for projects are now still on the books.

The ministry said in a statement that the Peace River Agreement and Fair Share make no mention of LNG.

“The objective and key considerations of the Peace River Agreement speak of the unique situation in the Peace because its local governments lack access to the region’s unusually high industrial and utility property assessment,” the statement said.

The ministry said of 27 B.C. regional districts, the Peace accounts for nearly half of the rural industrial and utility assessment in the province, virtually all of it outside municipal taxation reach.

“The funding under the Peace River Agreement is designed to address this issue, and not specifically to LNG,” the statement said.

Canadian Association of Petroleum Producers statistics suggest B.C. could produce an average of 5.6 billion cubic feet of gas per day (bcf/d) in 2018, up from 4.4 bcf/d, 4.6 bcf/d and 4.7 bcf/d in 2015, 2016 and 2017 respectively.

However, critics remain wondering why the Peace still needs so much from provincial coffers.

Bill Kusk, who was mayor of Dawson Creek when Fair Share arrived, said the current program is unrealistic.

“It is quite a jump to go from a $20-million grant to a billion, he said. “I would think it needs a revisit.”

Kusk questions if there are any parameters on how the money can be spent.

“I think there was talk from the government to investigate how it was spent some years ago,” Kusk said. “From what I hear, there are still streets that are not paved in Dawson Creek.”

Karen Goodings, who was PRRD vice chair from 1994 to 1998 and chair from 1998 to 2014, is not counting out LNG.

“We expect it will [grow],” Goodings said.

And, she said, other initiatives such as the multibillion-dollar Site C dam on the Peace River will also tax the region’s infrastructure.

“It still means we have an influx of people who need to be served,” Goodings said. “We’re seeing growth that is unprecedented.”

Bumstead said the amount of energy products coming from the Montney shale gas fields straddling the B.C.-Alberta border remains significant with companies still investing hundreds of millions of dollars.

He said that industry impacts local infrastructure.
“We can’t tax that stuff out there,” Bumstead said.

He hasn’t ruled out LNG either, and said there are still gas projects needing infrastructure.

Premier John Horgan told Union of BC Municipalities delegates Sept. 14 that Shell’s $40 billion LNG Canada project is close to realization.

The project includes TransCanada Corp.’s $4.7 billion Coastal GasLink pipeline to Peace region gas fields.

But, in a Sept. 20 letter, Sierra Club BC executive director Hannah Askew told Horgan in a letter that LNG Canada should not proceed.

“Sierra Club BC does not believe that current provincial climate targets can be met if LNG Canada goes ahead, given that this would require GHG cuts that are far too drastic in other sectors of the economy,” Askew wrote.

LNG was an integral part of Christy Clark’s 2013 platform. She said the industry would create $1 trillion in economic activity and create thousands of jobs.

Her dream was to have multiple LNG plants operating on B.C.’s coast, facilities fed by the Peace region’s rich gas fields.

She pitched LNG globally as a bridging fuel, touting it as a method to move China away from coal.

According to the Peace agreement MOU, the agreement is to be reviewed in 2023 and 2031. A new annual payment structure can be initiated April 30, 2035.

However, payment reviews are connected to “the assessed need for additional infrastructure and services within the region related to the growth of the industrial tax base” and “the state of provincial revenue flowing from industrial growth in the region, such as growth in gas royalties and bonuses from the sale or lease of subsurface rights.”

The ministry statement said any amendments require approval of all signatories.

 “This was to ensure funding stability throughout the term of the agreement so local governments could do their long-term planning with confidence of provincial funding,” the statement said.