On December 18, 2013, Hydro-Québec Distribution (“HQD“) officially launched call for tenders A/O 2013-01 for the purchase of a 450 MW block of wind power (“A/O 2013-01“).
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Eagerly awaited by the industry, A/O 2013-01 comes on the heels of the Quebec Government's adoption, on November 6, 2013, of the Regulation respecting a 450 MW block of wind energy (Order-in-Council 1149-2013) (the “Regulation“) and Order-in-Council 1150-2013 respecting the economic, social and environmental concerns mentioned to the Régie de l'énergie in connection with a 450 MW block of wind energy (the “Order“).
We have published, previously, an overview of the highlights of the foregoing and some of its related issues (including more stringent rules concerning guaranteed regional and Quebec content and requirements for project participation by the local community), which can be found in our September 18, 2013 and November 22, 2013 newsletters.
Highlights:
To begin with, the A/O 2013-01 documents repeat the requirements contained in the Regulation and the Order.
We note that the A/O 2013-01 documentation published by HQD is substantially similar to that published in connection with the previous wind power call for tenders, namely call for tenders number A/O 2009-02 for the purchase of two 250 MW blocks of wind power, for which the electricity supply contracts were executed in the spring of 2011. Therefore, most of the requirements contained in the latter still apply under A/O 2013-01.
However, we would point out certain differences from A/O 2009-02:
- Contract term
A/O 2013-01 specifically states that the term of the electricity supply contracts can be either 20 or 25 years, at the bidder's option. This is new, since each of the three previous wind power calls for tenders that HQD issued had set the term of the electricity supply contracts at 20 years. A/O 2013-01 does not differentiate in its treatment of the proposals based on the bidder's option for the term of the electricity supply contract.
- Ineligible projects
In addition to the generating facilities or wind farms that were ineligible under the previous call for tenders, A/O 2013-01 adds a new ineligibility stipulation for generating facilities or wind farms “that share the same delivery point, the same interconnection point or the same switchyard with an existing wind farm which the generation is under contract and that the contractual capacity will not been fulfilled at the start of delivery of the project being submitted.” We find this sentence ambiguous, for it is hard to assess this criterion at the proposal filing stage.
- Eligible price formulas
While the previous call for tenders allowed bidders to submit their financial proposals based on (a) a 100% CPI price formula, (b) a 20% CPI price formula, (c) a price formula with a CAD/Euro exchange rate, or (d) a price formula with a CAD/USD exchange rate, A/O 2013-01 limits the eligible price formulas to 100% CPI and 20% CPI only.
- Switchyard reimbursement
A/O 2013-01 still provides for a contribution by Hydro-Québec TransÉnergie to the reimbursement for the switchyard, and we notice an increase in the contribution for projects of less than 250 MW.
- Variants
Unlike the conditions of call for tenders A/O 2009-02, which permitted the filing of four (4) variants of a proposal in addition to the main proposal, HQD now limits the filing of separate variants to two (2), for any main proposal. The differences the variants involve are still the same as those permitted under the previous call for tenders, namely, price, installed capacity, or the wind turbine manufacturer. Note that a different site does not constitute a variant and must instead be the subject of a separate proposal.
- Terms of Reference
A/O 2013-01 also contains a revised version, as of October 31, 2013, of the Terms of Reference for the Siting of Wind Farms on Farmland and in Woodlands (the “Terms of Reference“). It would seem that the Terms of Reference repeat, almost integrally, the principles set out in the 2007 revised version of the Terms of Reference, although certain payments, such as payments for the execution of an option contract, have been revised upwards.
At this stage, there is still some uncertainty as to whether the Terms of Reference are a mandatory condition for proposal eligibility. Indeed, the A/O 2013-01 documents only mention that HQD “is urging bidders to apply the Terms of Reference,” while the standard electricity supply contract (appended to the call for tenders documents) contains a schedule where the supplier makes a specific undertaking to comply with the Terms of Reference. On this issue, it should be noted that under the previous call for tenders, HQD gave extra weighting to bidders that undertook to comply with the Terms of Reference. No such extra weighting is currently provided for in A/O 2013-01.
- Financial contributions
As provided in the Regulation, all accepted projects must pay the local municipality, the regional county municipality (or MRC) or the Native community an amount of $5,000 per MW installed in the territory of such local municipality, RCM or Native community. The A/O 2013-01 documents stipulate that every bidder must provide a copy of the agreements signed with the municipality, MRC or Native community to its proposal.
In our November 22, 2013 newsletter, we raised certain issues concerning the application of the requirement to pay financial contributions in the event a project's wind turbines are located at one and the same time in the jurisdiction of a local municipality or RCM and/or lands claimed by a Native community. We see that the A/O 2013-01 documents offer no clarification on the question of sharing financial contributions between several host communities.
- Attestation from the Revenue Quebec and application of An Act respecting contracting by public bodies
In the wake of the various recent legislative amendments designed to tighten the rules for the awarding of public contracts, the A/O 2013-01 documents stipulate that every bidder that has an establishment in Quebec must attach an attestation from the Agence du revenue du Québec stating that the bidder has filed the returns and reports it was required to file under the tax laws and that it has no overdue accounts owing to the Minister of Revenue of Quebec.
Similarly, the documents stipulate that a bidder that is ineligible or is subject to a prohibition to enter into a public contract under An Act respecting contracting by public bodies or the Election Act cannot submit a bid or sign a contract further to this call for tenders. The standard electricity supply contract contains an undertaking to that effect, which must remain in force throughout the entire term of the project.
- Control
As required by the Regulation, participation in A/O 2013-01 is reserved for power suppliers that can demonstrate that the local environment has a participation in the control of the project representing 50% or more. The standard electricity supply contract contains, in section 24.7, the following definition of what constitutes control as understood under A/O 2013-01:
“For purposes of this section, the local environment's percentage of the interest in the control of the wind farm is equal to the percentage of votes held directly or indirectly by the local environment in the stock, units or other ownership titles of the Supplier, giving a right to vote on the election of the Supplier's directors or any person in charge of the Supplier's administration. […]”
Timetable:
Here is the timetable for the A/O 2013-01 milestones:
Conclusion:
We invite potential bidders to carefully review the A/O 2013-01 rules. We recommend that the following preliminary steps be taken:
- Register promptly for one of the preparatory conferences and the call for tenders process;
- Review all previously executed option contracts to ensure that they allow you enough time for your projects to meet the established commissioning dates;
- Review the sample deeds of superficies to ensure that the term is long enough in the event of a proposal for a 25-year supply contract;
- Enter into agreements pertaining to the control by the local environment in accordance with the requirements of A/O 2013-01;
- Enter into written agreements with the relevant municipalities, RCMs or Native communities regarding the payment of the financial contributions, as required by A/O 2013-01; and
- Submit any questions as soon as possible, and in any event before August 18th, regarding any requirements you may find ambiguous.
We invite you to consult a Dentons Canada professional for any further questions about A/O 2013-01 or for assistance in preparing your proposal, or on any legal question pertaining to commercial law, real estate law, environmental law, aboriginal law, tax law, or other legal matters.
