Transport Committee on April 11th, 2024

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

I'd like you to provide me with more details.

Basically, your company opposes projects to export clean energy from Quebec. Then your company asks for money from the government and taxpayers here in Canada so that you can export energy from your end.

Don't you find this situation somewhat ironic?

[Matt Pawlowski]

I really do not think that it's in the other direction. I think that what we look at with the Lake Erie project is really a project that has access to both markets. It is not what we call in the industry a generation tie line. A generation tie line is essentially generation on one end that is fully needed in order to transport down to another load. That is very different from what this project looks at. This project is not really tied to any one generation source. It is a tie between two separate markets.

The market access that IESO would have to PJM, and potentially a contract with the resources of PJM and vice versa, creates dual flow. I think that's really important, because that's the kind of tool that's needed—not just generation flowing from one area to the next, but having what's called diversification of generation resources that helps the system have the right mix in order to meet the loads that are there.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Your investment portfolio includes a gas-fired power plant. You said earlier that you intend to start producing wind and solar energy, but you didn't necessarily talk about gas-fired power plants.

In other forums your company has been involved in, you've said that gas-fired power plants produce clean energy.

To the extent that, as a society, we're moving away from carbon-emitting energy production—so we're looking at decarbonization—do you have any plans to eventually shut down those gas-fired plants and transition to 100% clean energy production?

[Matt Pawlowski]

That's a great question. I think it speaks to what we're doing as far as the whole company is concerned. When we look at our company, we really have two main entities within that. NextEra Energy Resources is the wind and solar company that does development and operations of predominantly wind and solar, with some nuclear plants as well.

On the other side, we have Florida Power & Light, which is our utility in the United States. It's the largest utility by megawatt hour in the U.S. We have a pretty significant gas presence there. It's a very efficient gas fleet, but what we also announced is a program called Real Zero, which is our efforts to get our Florida generation down to a zero-emissions profile by 2045. That includes conversion of some of the gas plants into hydrogen, and it includes more transmission for all the solar development that we're doing. It also includes battery storage. We have one of the largest battery storage projects in Florida.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Pawlowski.

Thank you, Mr. Barsalou‑Duval.

Next we have Mr. Bachrach.

The floor is yours for six minutes, please.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair.

Thank you to our witnesses, Mr. Pawlowski and Mr. Farmer, for being with us.

I was noting that the conversation started to take a turn at the end with my colleague's questions towards the topic I wanted to discuss.

In your opening remarks, neither of you gentlemen mentioned climate, greenhouse gases or emissions. The reason I raise this is that, when you look at the CIB's communications around the original iteration of the project, that was the primary rationale in terms of the public good that they were seeking. It was around greenhouse gas reductions and contributions to the climate plan, reducing emissions from Ontario's energy grid.

I'd like to drill down a little more on that, because it looks like what we're looking at is a new iteration of this project. It's been very difficult for the committee to understand some of the assumptions that went into the modelling that resulted in this claim that somehow there was going to be a net emissions reduction from building this line. We heard about that at the last meeting.

Perhaps the first question I'll ask will be for Mr. Pawlowski.

Has NextEra conducted its own analysis of the greenhouse gas implications of the Lake Erie connector, and what was the outcome of that analysis?

[Matt Pawlowski]

Thank you for the question.

We certainly engaged our own independent experts when we did our due diligence efforts.

Yes, the project is going to lead to greenhouse emissions reductions. Let me tell you why. The one significant way it's going to do that is by allowing you to have market access to larger geographical generation sources. When you look at, for example, what's happening in PJM and the PJM interconnection, there is a significant transition of that interconnection and all the generation sources from gas fleets, coal fleets and nuclear fleets into more renewable generation. Their entire interconnection queue is basically made up of renewable energy sources.

What this project does is allow for contracts, for example, to take place in the PJM interconnection and move that clean power across our line into Ontario, and vice versa. It also allows any excess generation that Ontario would have to be transported to PJM. That's where you have the gas emission reduction, but you also have the market arbitrage opportunities where you can take advantage of the difference in prices between Ontario and PJM. It's both a greenhouse play and a market play to gain advantage for whatever party is selling.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

There are lots of assumptions built into that.

Could it not be that if Ontario has a surplus of high-emission electricity that it's willing to sell at a low cost, it could then dump that into PJM and essentially undermine some of the decarbonization goals of the states that are part of that market?

[Matt Pawlowski]

That is certainly a scenario, but I'll tell you the other scenario.

The other scenario is that instead of dispatching a gas plant in Ontario, the IESO can take advantage of a resource that's in PJM that's already either dispatched or clean, or both, in order to not dispatch the plant in Ontario. I think that's the better scenario of the optimization that can take place when you have access to different markets.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

We asked some questions around this at the last meeting. I'm wondering what your analysis tells you about the net flows based on emissions reductions. This scenario of importing power from the U.S. to Ontario, as you just described, seems like it would potentially produce the greatest emissions reduction. Over the next 20 to 30 years, looking at what those different markets are doing, Ontario is bringing a massive amount of fossil gas-generated power onto the grid.

Can we safely assume that what we would see under this project is a net flow of power, that Ontario would become a net importer of American power, in order to meet decarbonization goals? Is that largely what we would see?

[Matt Pawlowski]

Yes. I mean, look, on a long-term basis, I think you would see that this is just another resource in the stack that the IESO has. I think that's what our studies are showing. There is an ability to have this resource and to optimize the system for both reliability and resiliency. That's really what our models are showing. That's why we're excited about this project. It really creates the opportunity for IESO to have one more access market to gain, whether it's greenhouse emissions reduction or from a financial perspective.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Great.

I'll turn now to Mr. Farmer with a question.

Does the IESO have a decarbonization mandate? If so, how is that mandate articulated?

[Chuck Farmer]

We do not have an explicit decarbonization mandate. However, I would point you to the Ontario government's powering Ontario's growth plan and the IESO's own work on the pathways to decarbonization. When we look at what is happening in Ontario, given the recent developments particularly around demand, as my colleague from NextEra raised, we have a lot of battery plants being built. We have two going into southwestern Ontario. A lot of mining is starting to develop in the north and there is great population growth. We see demand increasing.

In Ontario, we're just in the process of completing about 2,500 megawatts of storage procurements, which will enable renewable energy over the longer term. We are beginning a procurement for about 2,000 megawatts of non-emitting energy. We expect that to grow to about 5,000 megawatts coming into service in the 2030s. We have set in motion about 8,000 megawatts of new or refurbished nuclear.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Farmer.

Before we begin the second round, I want to bring it to the attention of honourable members that the Honourable Lisa Raitt has joined us. She is now available for questions in the second round.

Ms. Raitt, will you be providing opening remarks, or did you just want to jump into questioning?

[Lisa Raitt, As an Individual]

I'm happy to take any questions, Mr. Chair. I don't have any prepared remarks.

Thanks.

[The Chair, Liberal, Peter Schiefke]

Thank you very much.

With that, I'll turn the floor over to Mr. Strahl.

The floor is yours for five minutes, please.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Thank you very much, Mr. Chair.

I note that Ms. Raitt is here and that the current minister, Minister Fraser, is not. I understand that they were just talking to one another, so it's unfortunate; maybe she could have invited him to jump in on Zoom. But perhaps he didn't have a House-conforming headset. We'll move on from that.

Mr. Pawlowski, you said in your opening remarks that the Canada Infrastructure Bank is a “potential project investor”. Would you proceed with the project without the investment of the Canada Infrastructure Bank? Could it go forward if the CIB were not an investor?

[Matt Pawlowski]

I do think that the benefits the CIB brings to the table are really important. Again, we look at it from the standpoint of financing, but we also look at it from the standpoint of other participation that's included. We view the CIB as a potential investor, because it's one of the investors that we would like to work with. As long as there are benefits that we provide to the CIB, and through their due diligence efforts they view this as a project that they want to invest in, I think that's where the benefit lies.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Sure, but my question wasn't on what the benefit was for the CIB. Are there other investors that could fill the financial gap that the CIB would fill? Are there other potential project investors that are not backed by the Canadian taxpayer?

[Matt Pawlowski]

NextEra certainly has many different financing partners, such as the large banks that I'm sure you've heard of, or other infrastructure plans, but again, I think that when we look at the CIB, there are benefits that the CIB brings that are unique to CIB and unique to Canada. That's why we go through the effort of—

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

The CIB obviously provides you, a private company, with a benefit, in that it comes with low-interest loans backed by Canadian taxpayers. You've also mentioned numerous times that you believe that if you bring the CIB on board, you essentially fulfill your duty to consult and accommodate where necessary when it comes to first nations. It sounds to me a little bit like it's definitely a win-win for your company, in that you get a Canadian taxpayer-backed loan, and you also essentially check the box, or extinguish your responsibility, to fulfill the duty to consult and accommodate where necessary.

If you don't bring on the Canada Infrastructure Bank, are you not responsible, then, to fulfill your duty to consult and accommodate where necessary? I realize that it's of benefit to bring them on, but if you don't bring them on, doesn't that bring additional responsibilities to your company that you would have to fulfill?

[Matt Pawlowski]

It's a great point, and I am very excited to tell you that we have received two letters of support from the first nations for our CER application for the extension of the construction date on the project. To answer your question, I think we're already doing that, and we will continue to do that. It's not an “and/or”; it's really “and” and all the inclusive things that we need to do.

We've started discussions with the first nations, just like we're starting discussions with the CIB, and we will continue to do those, because we view them both as a significant partner for the project.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

When ITC Holdings or Fortis suspended their participation in the project, they indicated in their filings, “Macroeconomic conditions relating to rising inflation, interest rates and foreign exchange impacted the viability of the project”. This was in July 2022.

Is it your company's belief that inflation, interest rates and foreign exchange have improved since that time? We certainly haven't seen that underlying economic data in Canada. In fact, we've just had the Bank of Canada choose not to reduce interest rates. Many of the banks here are warning about inflationary pressures brought about by the upcoming budget from this government.

Why is it so different for you when it looks to me like the macroeconomic climate is the same or perhaps even worse?

[The Chair, Liberal, Peter Schiefke]

Give a 15-second response, please.

[Matt Pawlowski]

I'll give you a quick answer.

There have been a lot of different changes in the system that our due diligence efforts have revealed are beneficial to the project. Yes, I'm certainly not going to argue that inflation has improved or the supply chain has improved. We're certainly working through those issues, but, at the same time, our own analysis and our experts' analysis have shown that this is a viable project, and we want to move forward.