BCUC’s Indigenous Utilities Inquiry Final Report Misses the Mark on UNDRIP and Transformative Regulatory Change

BC Utilities Commission and Indigenous Nations

Many Indigenous Nations view the development of Indigenous-led utilities and Independent Power Producer (“IPP”) projects as a viable means of promoting self-determinism and economic stability and manifesting their Aboriginal rights and title within the utilities sector.

Over the past year, several of our clients participated as interveners in the BC Utilities Commission’s (“BCUC”) Indigenous Utilities Regulation Inquiry (the “Inquiry”). The BCUC is a quasi-judicial body tasked with regulating public utilities under the Utilities Commission Act (the “Act”). Currently under the Act, small-scale electrical, gas, and other utilities owned or operated by First Nations are regulated as public utilities and subject to the same rate criteria as large utilities such as BC Hydro.

This regulatory environment creates significant administrative and economic barriers for Indigenous Nations who wish to operate a utility, including IPP projects. To date, Indigenous Nations that have sought exemption from regulation under the Act have had little success; in 2016, for instance, the BCUC rejected an application for exemption from Beecher Bay First Nation, which sought to distribute electricity to a mixed residential/commercial development on its reserve lands. To further compound the difficulties faced by Indigenous Nations within this regulatory context, the discontinuation of BC Hydro’s Standing Offer Program (“SOP”) in 2017, pursuant to which BC Hydro purchased power produced by IPPs to add capacity to its network, has created significant uncertainty as to the viability of Indigenous utility developments.

The Inquiry

An important purpose of the Inquiry was to consider altering the definition of a public utility under the Act, particularity with regard to:

  1. defining an “Indigenous utility”;
  2. whether Indigenous utilities should be regulated under the Act, or be exempt from the regulation by the BCUC altogether; and
  3. if Indigenous utilities are not regulated by the BCUC, how ratepayers would be protected.

The Inquiry sought broad input from Indigenous Nations and organizations, expert groups, and industry, and held numerous community information sessions and draft report workshops throughout the Province. Some key points raised by Indigenous Nations during the sessions included:

— BCUC’s regulatory structure runs contrary to principles of self-determinism and that an Indigenous utility should not have to meet the same rate criteria as BC Hydro, which enjoys economies of scale and an almost unchallenged monopoly;

— Indigenous utilities should be permitted to use BC Hydro’s transmission grid (known as “wheeling” energy) to distribute energy to customers, including those outside of the Province; and

— Indigenous utilities should not be prevented from developing IPP projects with the purpose of selling power to BC Hydro; and the Province has a responsibility to mitigate the negative impact of controversial mega-projects such as Site C Dam, which has flooded the market and shut many Indigenous Nations out of the utilities sector.

Generally, issues, concerns, and prospects raised by the Indigenous participants were rooted in concerns for sovereignty and self-determination within their respective territories. The proceedings made clear that transformative regulatory change is likely required to meet the minimum standards of self-determination within Indigenous territories mandated by the BC Declaration on the Rights of Indigenous Peoples Act (“DRIPA”), which was passed into BC law in November 2019.

Recommendations: Regulation of Indigenous Utilities on Reserve

On April 30, 2020, the Inquiry Panel released its Final Report with 35 recommendations to the provincial government. Key recommendations include that:

— “Indigenous utility” be defined as a utility over which an Indigenous Nation has de jure or de facto control (at the shareholder or operational level), and that the type of utility service provided may include power generation, transmission, or distribution services;

— An Indigenous Nation may determine the means of regulation of an Indigenous utility providing service on its reserve land, self-government, or modern treaty lands, with the possibility of “opting-out” of BCUC regulation;

— BCUC retain authority as an appeals body for disputes until such time as a province-wide First Nation-run appeals body can be developed and operational;

— the Act be amended to require the BCUC to consider UNDRIP and the economic development needs of an Indigenous Nation applying to operate an Indigenous utility on territory outside of reserve land;

— BCUC modify its regulatory policies and procedures to better reflect the objectives of reconciliation in its proceedings; and

— BC Hydro reconsider the SOP in order to allow Indigenous IPPs to enter into energy purchase agreements.

Additionally, the Panel recommended that the Province review policies such as the retail access prohibition, which prohibits wheeling, and which result in barriers to Indigenous Nations’ pursuit of economic self-determination.

Key Outcomes and Opportunities

I. Opting Out and Self-Regulation

An important finding of the Inquiry is that Indigenous Nations should be able to opt-out of the BCUC regulatory framework on reserve, modern treaty, or self-government lands. In such cases, regulation under the Act would be replaced by a framework designed by the Nation itself, which may vary in scope based on that Nation’s capacity. However, the Inquiry stipulated that a self-regulating Nation must demonstrate sufficient protection for all ratepayers, including a sufficient complaint and dispute resolution process.

Notably, the Inquiry was unwilling to extend the self-regulation to traditional territories beyond reserve lands. This reluctance seems to be rooted in the Inquiry’s reluctance to engage jurisdictional questions between the Crown and Indigenous Nations, and between Indigenous Nations with overlapping claims to land.

Instead, the Inquiry recommended an “incremental approach” to the regulation of utilities by Indigenous Nations within their traditional territories by recommending:

  1. clarification of Indigenous rights through the modern treaty process and/or reconciliation agreements with the Province; and
  2. amendments to the Act requiring that the BCUC factor considerations for UNDRIP and the economic development needs of an Indigenous Nation when considering its application to operate a utility within its traditional territory.

This proposed incremental approach for Indigenous Nations seeking to self-regulate utilities outside of their reserve, modern treaty, or self-government lands will result in little change: it will remain up to each Nation to negotiate utility regulation with the Province or else apply to the BCUC for an exemption – circumstances which were one of the initial reasons for the Inquiry. However, whether or not the Inquiry’s recommendations provide sufficient consideration for UNDRIP and principles of economic reconciliation within Indigenous territories, they pressure the Province to act.

It is possible that renewed opportunities in the government-to-government space will arise, especially in light of the need of the Province to develop strategies to adequately implement DRIPA. These opportunities may create more room to negotiate self-regulation for Indigenous utilities projects as part of broader government-to-government frameworks including reconciliation agreements, interim measures agreements, and other forms of agreement.

II. Standing Offer Program

The closing of the SOP in 2017 was a key issue addressed by the Inquiry outside of the question of regulating Indigenous utilities. The Inquiry recognized a clear connection between economic reconciliation and Indigenous engagement in the utilities sector by noting the 20-year history of Indigenous IPPs selling power to BC Hydro through both the SOP and Clean Power Calls. The closure of the SOP has resulted in uncertainty as to the future of viable Indigenous-owned IPPs if there remains no foreseeable means to sell power to BC Hydro.

The Inquiry provided a recommendation regarding a need to reduce barriers for Indigenous Nations who wish to develop and sell power to BC Hydro at market prices in order that “Indigenous utilities are provided meaningful competitive economic opportunities while ensuring that all BC Hydro ratepayers are not harmed.” This recommendation also factored consideration for prior barriers under the SOP for IPPs that also provide public utility services and operate above a 15 MW capacity, and a need for a more appropriate pricing regime based on the nature of the energy being produced.

Further, where an Indigenous IPP would otherwise suffer adverse environmental, economic, social, cultural or spiritual impacts, the Inquiry supported a subsidy or premium to market price for an Indigenous IPP. Importantly, these recommendations are reinforced by Articles 20 and 21 of UNDRIP, which set out the need for Indigenous peoples to maintain and improve their political, economic, and social systems, and impart a responsibility on government to support continuing improvement of Indigenous social and economic conditions.

Furthermore, the Inquiry emphasized that an Indigenous Nation’s access to BC Hydro’s transmission system through energy purchase agreements is an important component of that Nation’s economic self-determinism, and that such access should be considered independently from many of BC’s other energy objectives, which must be assessed by the BCUC when considering applications under the Act. Although this emphasis by the Inquiry only resulted in a recommendation for a policy review by the Province, it highlights that economic reconciliation warrants significant consideration by BC Hydro.

III. Retail Sales and Utilities Prices

The cost and reliability of utilities in remote First Nations is a concern in many communities who purchase power from BC Hydro. Where an Indigenous utility is developed to provide power to communities that are currently serviced by BC Hydro, the Inquiry supported that the Indigenous utility should not be blocked by the presence of BC Hydro, and further, that it may sell retail power both to the community and to BC Hydro as necessary. Here, the Inquiry appears to support Indigenous utility development by reducing economic barriers, and promoting measures that ensure the cost of energy remains managed at the community level.

IV. Indigenous Regulation and Dispute Resolution Procedures

Throughout the Inquiry process, concern for the protection of ratepayers was repeatedly cited as a key concern of the BCUC. This concern was particularly focused on the adjudication of disputes between Indigenous utilities and ratepayers.  On this issue, the Inquiry recommended that consumer disputes relating to Indigenous utilities should be subject to a “competent, arm’s length regulator” to avoid conflicts of interest and ensure that Indigenous and non-Indigenous ratepayers receive the same protection.

Further, the Inquiry suggested that BCUC should retain some initial control over the operation of Indigenous utilities until such time as the utilities satisfy BCUC that they have arm’s length complaint and dispute resolution processes in place for ratepayers.  BCUC will assess the adequacy of each Indigenous utility’s dispute resolution process through a specialized body, comprised of Indigenous and non-Indigenous peoples with specialized knowledge of the particular Nation’s laws and governance and public utility regulation generally, as it is practiced elsewhere in Canada. The specialized body would need to approve an Indigenous utility’s dispute resolution process prior to the Nation’s utility law coming into force. Such an assessment would be required even where an Indigenous utility opts out of BCUC regulation on reserve, modern treaty, or self-government lands.

Accordingly, if the Province adopts such recommendations, Indigenous utilities will have to develop specialized dispute resolution processes, reflecting both the law and customs of the particular Indigenous Nation, as well as some established, non-Indigenous dispute resolution procedures.

What’s Next?

As the legislature comes back in session this summer with a mandate to align the laws of BC with UNDRIP, the Act may well be one of the first pieces of legislation on the agenda this summer. Indigenous engagement in the utilities sector remains a key piece of the implementation of UNDRIP by the Province, with particular regard to Articles 19 and 26 respecting consent and economic self-determinism within Indigenous territories. In the meantime, Indigenous Nations that are poised to distribute energy on their lands and within their territories will be eagerly awaiting the removal of BCUC’s regulatory red tape.

Importantly, the Inquiry’s recommendations may shift the momentum back toward the sale of energy from Indigenous utilities to BC Hydro and other markets. Further, pressure on the Provincial government may create more negotiating power in the government-to-government space for Indigenous Nations seeking to self-regulate utilities. These outcomes would be cause for cautious optimism, particularly as BC Hydro completes its comprehensive review process, as the development of Indigenous utilities remains a viable and important opportunity for many Indigenous Nations to be leaders in a sustainable energy economy while building prosperity for their communities.

Want More?

As Indigenous utilities and IPP projects become viable, our team at MT+Co. is ready with the necessary expertise to assist Indigenous Nations with developing their unique institutions, laws and frameworks to support such endeavours. Please don’t hesitate to get in touch with Jordan Ardanaz, or our Practice Group Leaders, Tamara Napoleon and Tyson Lamarsh.