Government Operations Committee on March 5th, 2013

[Wayne Rogers]

It's usually done on a project-by-project basis when there is an interest on the part of the department to proceed with some kind of evaluation. Recognizing that they have some money to pay us, then we will take a look at a particular facility.

We have a mechanical engineering section as well, and one of the things we will do is to take a look at related mechanical opportunities. For example, if a chiller is in rough shape or is under capacity for a given situation, then obviously there is an opportunity for a reduction in the lighting load to extend the life of the chiller rather than replacing it. Obviously, any cooling requirement is directly related to the amount of lighting in the building.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I'll change gears and go over to Mr. Love. There, I would just recommend that if you wanted to go a little bit further west over to B.C., you might find it a little warmer in winter. I moved 23 years ago adjacent to my colleague Mr. Albas in the Okanagan.

With over 2,000 hours of sunlight a year, solar has been very popular in both the commercial and industrial sectors. Some of the wineries are going in that direction, as well as hoteliers. And as I mentioned, there's geothermal in the residential sector.

I'd like to thank all the witnesses for their excellent information.

Mr. Love, in your presentation you talked about energy performance contracts and how they could be used to finance energy projects. As a fiscal conservative, I always like it when the government doesn't have to pay and we find savings by using private sector innovation and financing. Maybe you could share with the committee a little about how that is something we might be able to expand from a federal perspective.

[Peter Love]

Yes, absolutely. Thank you.

It has been around for a number of years. As I said, about a third of your buildings have already been done, and there's a great opportunity to use it more. It's a matter of using the funding available from the private sector and having them take the risk that the project is going to come in technically and financially.

There were earlier questions about evaluation. One of the key parts of any energy performance contract is that it's a very detailed evaluation measurement and verification protocol, using an international standard to make sure that everyone agrees on how we're going to measure. This is why it's called a guaranteed performance contract—because it's guaranteed and the performance is guaranteed.

Especially when it's a multiple project where there are mechanical, electrical, and different features going on, it's really important to bring those in and have a complete, comprehensive turnkey project done. Again, as I said, the advantage of having one company involved is that if there's ever any problem with it, you know who to go to.

I was in the States recently with one of their governments. It's a very active program in the U.S. right now, and it has been for a few years. They said that it's often the energy performance contractors who will go to the government and say that they've noticed a problem with a building and they're going to go in and fix it. That is before the government has even noticed a problem, because it's the company that is at risk, so it's up to their incentive to identify any problems and rectify them as soon as possible.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That sounds like a great partnership because they're being proactive.

[Peter Love]

Yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much.

Ryan, could you maybe elaborate a little more from REALpac's perspective? You're recommending that the capital cost allowance be increased from 4% to 50%. That's obviously a big jump. Do you have any idea of the dollar values this would extrapolate to, in terms of the financial impact on the budget?

[Ryan Eickmeier]

Just to come full circle, we would advocate that chillers and heating pieces of equipment be included in class 43.2 of the Income Tax Act. Giving those the 50% depreciation rate that we're talking about here would fall in line with many other pieces of energy efficiency equipment.

From a cost standpoint, it's difficult to project. We are still working with NRCan on the number of buildings across the country that are, let's say, 20 years or older. If we had, say, 800 buildings taking up this program across the country, you would certainly see short-term revenue loss for government in terms of tax income, because you'd have an increased depreciation rate. What we'd see over a 10-year period, we think, would be increased revenue from the amount of jobs and the amount of actual work that's needed to enact these pieces of energy efficiency.

From a greenhouse gas and environment standpoint, we see massive reductions in the use of CO2. Just to put it in perspective, if this went through with 800 buildings and the numbers we're working with right now, we would see the equivalent of 145 Toronto high-rise condominium apartments being taken off-line. That would be the reduction in energy use, from our standpoint, but after 10 years we would see a net positive gain for government in terms of revenue.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

For GHG emissions too—

[The Chair, NDP, Pat Martin]

You're well over your time, Ron.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

—you could maybe find out what that would extrapolate to.

[Ryan Eickmeier]

Yes, sure.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much, Mr. Chair.

[The Chair, NDP, Pat Martin]

That's an excellent point to leave on. It's an interesting point.

Next, for the Liberals we have John McCallum.

You have five minutes, John.

[John McCallum, Liberal, Markham—Unionville, ON]

Thanks to all of you for being with us.

My first question is for Mr. Love on energy performance contracts. My understanding is that the private sector puts up the money and the private sector guarantees the energy reduction. How is the private sector paid?

[Peter Love]

Through the savings, the guaranteed savings: there is a reduced energy bill that is associated with the project. You invest $100 in the energy efficiency of a building and there are guaranteed savings of 15% to 20%, as I said, and it's that income flow for the period of the contract that is used to pay off that initial $100 investment. After the end of the contract, those energy savings accrue to the building owner.

It's using the savings during the contract period to pay for the initial capital. When the contract period is over, typically these measures are lasting 15, 20, 25 years, so that's when the government would have those savings.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

I'd like to focus on this proposal for tax incentives, because one witness has made the proposal. None of the others have, so I'd like to know what the others think.

When we listen to Mr. Rogers, it sounds like it's a no-brainer to do these lighting things, and there's no need for new tax incentives.

When I look at your examples, Mr. Love, of major savings relative to capital costs, that seems to be doing just fine.

Do any of the three of you who are not proposing tax incentives think we need them?

[Peter Love]

There is a group that's been brought together—REALpac is part of it and our association is part of it—that has advocated this change to the tax of 43.1%. There's a submission that's been made to the finance minister on that. I'm sure you've seen it, but if not, we could make that available.

[John McCallum, Liberal, Markham—Unionville, ON]

Why do you need the tax incentive when you get such large savings relative to the capital cost, according to your examples?

[Peter Love]

It's going to mean even more savings. It's going to be even larger savings.

[John McCallum, Liberal, Markham—Unionville, ON]

But if it's financially viable under the present tax system now—

[Peter Love]

You still have two-thirds of the buildings that haven't done anything. So there's still a large number of people out there, building owners, both in the private and public sector, that have decided not to, that they would rather invest their money somewhere else. They would rather buy a new building. They don't really understand this energy thing very well. They think since the bill is similar to what it was last year, they're just not going to bother with it. It sounds pretty complicated to them.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Rogers, do you have a view on this tax proposal?

[Wayne Rogers]

I think it's a great idea, because we need to have some additional incentive for building owners.

Out west a lot of the very large buildings are owned by insurance companies, and not just one insurance company but several. For example, three or four insurance companies will own a building. One of the things we've noticed is that to get a decision out of Toronto, say, is like pulling teeth; hence, the local managers and building operators would rather just sit back.... Their budgets are established for their energy consumption, so they would just as soon leave things alone, without creating more work for themselves.

If there's increased incentive, obviously they're going to be more interested in driving a project forward.

[John McCallum, Liberal, Markham—Unionville, ON]

You said that 77% of government buildings were not connected with Public Works. They don't do this improved environmental work. Why not?

[Benjamin Shinewald]

That's our question for you.