Fortis to buy interest in 496-MW Waneta Dam hydro project from Teck Resources

Fortis Inc. and Teck Resources Limited have reached an agreement under which Fortis will purchase Teck’s two-thirds interest in the 496-MW Waneta Dam hydro project and related transmission assets in British Columbia, Canada.

The purchase price is $1.2 billion cash.

Waneta Dam is on the Pend d’Oreille River and generates about 2,750 GWh of electricity annually.

According to a press release from Teck, Teck Metals Ltd. will be granted a 20-year lease to use Fortis’ two-thirds interest in Waneta to produce power for its industrial operations in Trail. Annual payments will begin at about $75 million per year and escalate 2% annually, equivalent to an initial power price of $40 per megawatt-hour based on 1,880 GWh of energy annually. Teck Metals will have an option to extend the lease for a further 10 years at comparable rates.

Teck says this agreement will “further strengthen” its balance sheet and provide new capital to reinvest to grow the overall business. Teck “expects to realize a net book gain of approximately $800 million on the closing of the transaction.”

The press release says the acquisition of Waneta Dam demonstrates the company’s commitment to and confidence in British Columbia. “Waneta is a high-quality, renewable energy facility located in an area central to our BC operations, making this acquisition a natural fit with our strategy to increase our investment in sustainable energy,” said Mr. Barry Perry, president and chief executive officer of Fortis. “Waneta will be a stable long-term asset that will generate strong cash flows secured by a 20-year lease with Teck. The transaction is expected to be immediately accretive to earnings per share.”

FortisBC employs about 350 workers in the Kootenay region and operates four generating facilities on the Kootenay River, as well as operating and maintaining Waneta and the 335-MW Waneta Expansion (of which Fortis holds a 51% interest) that was completed in 2015.

Closing of the transaction is subject to customary conditions, including receipt of certain approvals and consents. In addition, BC Hydro, which owns a third of the Waneta Dam assets and receives a third of the Waneta Dam generation, has a right of first offer with respect to the sale of Teck’s two-thirds interest under the 2010 co-ownership and operating agreement between Teck Metals and BC Hydro in relation to Waneta. In addition, certain consents and amendments from BC Hydro are required in connection with the transaction. Teck will pay a break fee to Fortis in the event BC Hydro exercises its right of first offer. Closing is expected to occur in the fourth quarter of 2017

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