Transport Committee on April 9th, 2024

[Chris Bittle, Liberal, St. Catharines, ON]

I have a point of order, Mr. Chair.

[The Chair, Liberal, Peter Schiefke]

There's a point of order.

Go ahead, Mr. Bittle.

[Chris Bittle, Liberal, St. Catharines, ON]

I have to agree with Ms. Koutrakis. This is a study with respect to the Lake Erie connector, and I thought there was going to be some tie-in from this individual back to the Lake Erie connector. I know we're talking about Lake Erie and that there's fishing that goes on in Lake Erie, but this is a broad definition of fishing and has seemingly zero connection to what the committee is studying.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Bittle.

You have 30 seconds left, Dr. Lewis.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

Will you be paying bonuses this year from the CIB?

[Ehren Cory]

As I mentioned earlier, we publish our balance scorecard that we measure ourselves against. That goes to Parliament. It's part of our disclosure.

For the year just completed on March 31, we are still in the process of tabulating our results for the year, taking those to our board and getting approval, so it's too early to say. However, if you were to look at our balance scorecard, we have met or exceeded many of our objectives and missed on a few. It's at the board's discretion from there.

[The Chair, Liberal, Peter Schiefke]

Thank you very much.

Thank you, Dr. Lewis.

We will end today with a line of questioning by Ms. Koutrakis.

You have the floor for five minutes.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you very much, Mr. Chair.

Thank you to all our witnesses for being with us today and for answering all the questions to the best of your ability. It's definitely very helpful to this committee.

Mr. Cory, I want to go back to your testimony before this committee on May 9, 2023. At the time, you said—and you said it again in your comments today—that, due to cost escalations, both the CIB and the private sector operator ITC deemed that, given the cost increases on the Lake Erie connector project, “it was no longer good value for money.”

Do you continue to share that opinion today, having heard that there is a new partner looking at it? Do you still feel the same way?

[Ehren Cory]

I would honestly say that it's a bit too early to know for sure. The new proponent, which acquired the rights to their project around the new year, December or January, is doing its own work on a revised cost estimate. As I said, 2022 was particularly challenging from the perspective of the escalation of core inputs.

It's also, as I mentioned earlier, a very specialized kind of construction. There are only a few boats in the world that can do this kind of deep trenching and laying of high-voltage bidirectional cable, so you also have to worry about when you can get a boat that can do this. The new owner, who I think may be appearing before the committee, has been doing some work.

In answer to your question, as investors, it's our job to receive their updated cost estimate. On the other hand of that equation, the Government of Ontario is doing its modelling and updating its modelling. They need to determine their updated view of the value to Ontario ratepayers, because, at the end of the day, this contract is with the IESO, which represents Ontario ratepayers, and they're willing to pay an amount for this line.

That math has to work, so the Province of Ontario has to determine that they want to proceed at a price they're willing to pay, and then we can lend to the project. That's what we'll need to figure out in the months ahead.

As I said earlier, it's about better grid connectivity east and west across our country but also north and south with our neighbours. A more robust grid makes more reliability, it makes lower power prices for everybody, and it makes better GHG outcomes for everybody. In the long run, we hope this project and many like it do proceed, and we'll see.

[Annie Koutrakis, Liberal, Vimy, QC]

Who was responsible for the decision to suspend the Lake Erie connector project in the first place?

[Ehren Cory]

It was the proponent themselves, because, quite simply, at that point they had negotiated a price from Ontario. They had a loan from us; they had their own private financing, and they had their return hurdle rate. Then, once their costs went up, the project didn't pencil for them anymore, and they couldn't do it, so they decided to suspend.

[Annie Koutrakis, Liberal, Vimy, QC]

Was the CIB consulted before the cancellation?

[Ehren Cory]

We were, as was Ontario. Frankly, the proponent had to do their math with their commercial interest and, at that point, they couldn't make it work. We weren't going to put more money into their project. Ontario wasn't going to increase the price. That left it to the proponent to decide, and they obviously decided they needed to suspend.

[Annie Koutrakis, Liberal, Vimy, QC]

Do you need to incur additional due diligence costs by going into this next era?

[Ehren Cory]

MP Murray was asking this question a little bit earlier. We will build off all the work that has been done to date, and it's extremely useful. However, we will, for sure, want to do an updated look at all three—project costs, GHG impacts, and then the legal documentation in the finalizing of what is a pretty hefty contract. There will be some more due diligence costs. They will all build on what's been done to date.

[Annie Koutrakis, Liberal, Vimy, QC]

You said in your opening remarks that the due diligence cost for this project represents less than 0.1% of CIB's announced investment of $655 million. Is that a regular rate? My background was working at CIBC Wood Gundy for many years and then Raymond James, and I remember seeing many IPOs and term sheets. Is that a competitive rate? Would you say it's below? Are fees expected to be higher than that? Where are we in terms of value received for the $900,000?

[Ehren Cory]

That's a great question.

We do benchmark it across projects. The due diligence costs of this project were higher than average. You heard me talk about the other two projects that had been suspended. If you noticed, those numbers are much smaller. This is a more complex project. It would be one of our larger investments. Our largest investment to date is the REM, which was $1.3 billion. We have other significant investments in the $500 million to $1 billion range. This is a big one. The due diligence costs were higher, but as a proportion of the investment they were quite small and highly competitive. We do benchmark it as well. When we talk to other institutional investors, when we talk to the pension fund...they would say that it's actually quite a competitive rate.

The last thing I'll say about that is that one thing at CIB that we've been very focused on is bringing that cost down, thinking about standardized tools and projects. This is a very bespoke project—a one of one. No one else is building wires underneath Lake Erie. However, when we do loans for zero-emission bus fleets, which we've done with the City of Ottawa, the City of Brampton, Durham Region, school bus operators in Quebec, etc., we've tried to create standard documents, standard legal terms, lower due diligence costs. We are trying to do that on every deal where feasible.

Thank you, Chair.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Cory.

Thank you, Ms. Koutrakis.

I thank all of our witnesses for appearing before us today and for providing their feedback and their testimony for this study.

I will now adjourn the meeting.