Teck Resources Ltd. (TSX:TECK.B) is selling its two-thirds share of the Waneta dam to Fortis Inc. (TSX:FTS) for $1.2 billion, but will end up paying much more than that over a 20-year period to continue to use power from the dam for its zinc and lead smelter in Trail.
In a deal announced Friday May 12, Fortis will pay Teck $1.2 billion for its share of the dam, plus related transmission infrastructure, and then Teck will buy power from Fortis under a 20-year power purchase agreement, with annual payments starting at $75 million and escalated 2% annually.
That is unless BC Hydro tries to thwart the sale. As a one-third owner of the dam, BC Hydro has a right of first offer to match Fortis’ offer and assume full ownership.
“BC Hydro will carefully evaluate the terms of this opportunity to determine if it is in the best interest of our customers,” BC Hydro said in a press release, in response to the sale’s announcement.
“A decision to move forward would be subject to approval by the BC Utilities Commission and a transaction would need to be completed within 12 months of our decision.”
But as far as FortisBC is concerned, it’s a done deal.
“It is BC Hydro’s prerogative to look into that or take advantage of that is the way it’s written,” said Michael Allison, manager of corporate communications for FortisBC, the B.C. subsidiary of Fortis Inc. “As far as we’re concerned, we’ve signed a deal and we’ve announced it. The deal hasn’t close yet, but we are confident that it will close in the fourth quarter of this year.”
The sale would have no impact on FortisBC’s customers, Alison added, because Fortis’ share of the power will be sold directly to a private customer – Teck – not used for its residential customers.
"This agreement will further strengthen Teck's balance sheet and provide significant new capital that can be reinvested to grow our overall business," Teck CEO Don Lindsay said in a press release.
"We have secured a long-term power supply for Trail Operations at competitive, below-market pricing and will invest in innovative projects to further enhance and modernize this facility."
Teck and BC Hydro co-own the dam, which has a generating capacity of 496 megawatts – a little less than half the generating capacity of Site C dam.
BC Hydro paid more than $800 million in 2009 for its one-third share of the dam. Teck’s share of the power is used for its zinc and lead smelter in Trail.
