BC Hydro and Power Authority exercised its right of first offer to buy Teck Resources Ltd.'s two-thirds stake in the 496-MW Waneta Dam in British Columbia, for C$1.2 billion cash.

With BC Hydro's decision, a previously announced agreement between Fortis Inc. and Teck will be terminated, and Fortis will be paid a breakup fee of about C$28 million, both Teck and Fortis said in separate Aug. 1 news release.

Fortis announced in May its plan to acquire Teck's interest in the Waneta Dam. Fortis is the majority owner of the adjacent Waneta Expansion hydroelectric facility that began commercial operation in 2015.

BC Hydro already owns the remaining one-third of the Waneta Dam. In a statement, the provincial government-owned utility said the power generated by Teck's two-thirds share will be supplied to Teck's integrated zinc, lead smelting and refining complexes in Trail, British Columbia, under a 20-year lease, with an option to extend for an additional 10 years. The terms of the lease are about the same as had Fortis acquired the stake: Annual payments of about C$75 million per year, escalating at 2% per annually, equivalent to an initial power price of C$40/MWh based on 1,880 GWh of energy per year. The remaining one-third of output is supplied to BC Hydro customers.

Predecessor companies to Teck built the dam in the early 1950s to support smelting operations. BC Hydro acquired its initial one-third interest in 2010.

"The lease will provide a long-term stable supply of power to the smelter, supporting local jobs and economic development for many years to come," BC Hydro President Chris O'Riley said in a news release. The utility added that the acquisition will have no impact on BC Hydro's overall energy supply and demand balance.

The closing of the transaction is not expected before the first quarter of 2018, and it must be cleared by the British Columbia Utilities Commission.