An ambitious plan by the city and a private developer to create a low-carbon power plant for the downtown peninsula has received a definitive rejection from the B.C. Utilities Commission, which said it couldn’t support the idea of requiring customers to buy power from a monopoly.

That puts the brakes on Creative Energy, a company owned by developer Ian Gillespie, and its plans to build a huge underground network throughout parts of the peninsula to provide heat and power to new buildings there.

That plan relied on new projects being mandated to hook up to the Creative Energy system to ensure there would be enough volume to support the high cost of building the infrastructure for a large new utility.

The commission said Creative Energy is free to operate as a power company.

But it would not approve its agreement with the City of Vancouver to be the sole option as a power source for new buildings.

“It created a monopoly for Creative Energy and we don’t think that’s in the public interest,” said David Morton, the commission’s CEO. “We won’t approve an agreement that includes that obligation.”

Mr. Morton said the commission did allow the University of British Columbia to start a district energy system that was the only power source allowed for one of its neighbourhoods under development, but that was because UBC was the master developer and owned all the land.

“But the city doesn’t own all of False Creek and Chinatown,” he said.

Mr. Morton said the commission also didn’t accept the argument from Creative and from the city, which was one of several intervenors in the case, that it needed to require new buildings to hook into the Creative system to support a new kind of energy utility that would significantly reduce greenhouse-gas emissions.

“There are other companies that can provide energy like that,” Mr. Morton said.

He said the city now has two options if it really wants a low-carbon energy system for downtown.

It can pass a bylaw requiring new developments to hook into Creative.

The commission has no authority to stop a city’s bylaws.

Or it can run the system itself, as it does in the Olympic Village development, instead of having a private operator do it.

The decision came as a major disappointment to Creative Energy chair Trent Berry.

He said Creative remains committed to helping the city move to low-carbon power.

But, he said, without any guarantee that new projects will be required to hook into Creative, it’s unclear whether it can expand as planned.

“You need enough customers to get the benefit,” he said. Although several developers have expressed interest in connecting to the system when it is built, the company needs firm commitments on volumes to go ahead with hundreds of millions of dollars in building a new network.

He said it was unfortunate that the commission did not recognize the environmental benefits the new power utility would provide.

Mr. Gillespie’s company is the new incarnation of a much older company called Central Heat, which has provided steam heat and power to about 200 buildings downtown for decades. Creative’s plan was to switch from natural gas as a source for that steam to some other low-carbon source, as it maintained and then expanded the system to new developments. It has been considering biofuel, otherwise known as wood waste.

Vancouver’s development community had expressed concern about the idea of being required to hook into a new privately run power utility.

City officials were dismayed.

“It’s a very frustrating, disappointing decision,” said Jerry Dobrovolny, the city’s general manager of engineering.

He said 55 per cent of greenhouse gas emissions in the city come from buildings and a neighbourhood energy utility like Creative would reduce those emissions by as much as 60 per cent.

Mr. Dobrovolny said the city is going to keep working with Creative to create a low-carbon power utility, although he doesn’t think just changing a bylaw is a good solution.

“It doesn’t provide the same kind of long-term security for Creative,” he said, because a future council could come in and rescind it.