Finance Committee on Sept. 29th, 2009

[Tony Scozzafava, Vice-President, Capital Power Corporation]

Good afternoon, and thank you for the opportunity to appear before you today.

My name is Tony Scozzafava. I'm the vice-president of taxation for Capital Power Corporation, based here in Edmonton. With me is my colleague, Dr. David Lewin, senior vice-president responsible for development of our proposed IGCC power plant.

I'll go over the recommendation that we've made to the committee in our written submission, and then I'll be happy to answer any questions. However, I'm a tax accountant, and I'm clearly not qualified to speak about turning coal into gas and then taking the gas and producing power, so I'll allow Dr. Lewin to answer those questions regarding the technology.

A word about Capital Power Corporation, as you may not be familiar with the name. We're a new company, created only this summer from the spinoff of power generation assets by EPCOR Utilities, also based here in Edmonton. Although we're a new company, we are one of Canada's largest independent investor-owned power generators. We employ more than 1,000 people and have interests in 31 power plants, operating in three Canadian provinces and eight U.S. states. Our operations are North American in scope and our vision is to become one of the most respected power producers on the continent.

Now to the specific recommendation we've made to the committee for the upcoming federal budget.

We believe at Capital Power that coal will continue to be an indispensable part of our energy mix going forward, in Alberta and globally. At the same time, we recognize that we need to develop a new generation of coal plants that can meet the demands of any future carbon emissions regime, and right now the global consensus is that carbon capture and storage, CCS, is the best option we have to achieve that goal.

To meet our current policy goals for carbon reduction, we have to accelerate the deployment of carbon capture and storage technologies into commercial use. We believe that carbon pricing will eventually make CCS economical, but that would take longer than governments and the public are currently willing to accept.

We have to be clear that reducing carbon emissions is a considerable added cost for power generation, no matter which approach we take. We believe that coal, with carbon capture and storage, can be cost competitive with other low-carbon options, but right now all those options have to be subsidized. Carbon capture, in particular, is like other low-carbon energy technologies in a key respect. The cost of proving the technology on a commercial scale is very high, but that cost is expected to drop dramatically and rapidly over time as it is scaled up.

There is no mystery to this. It's the same cycle that we're seeing in other technologies, such as solar power. Technologies that are so expensive as to be commercially unviable at a given time can become very viable within a short period of time. In the interim, they are supported everywhere in the world through power pricing and other means. The challenge for CCS right now is to identify early adopters and get them through the first phase of proving the technology on a commercial scale.

Capital Power has invested a decade of effort to position itself to become one of those early adopters. We need the support of the federal government to show the potential of CCS on an accelerated timeline, so the debate comes down to how best to do that.

The federal government has supported action on greenhouse gases through a variety of mechanisms, including giving great credit, I guess, for looking at those mechanisms. One of those mechanisms is to accelerate the CCA, or capital cost allowance, allowing costs of adopting new technologies to be written off on a faster schedule that recognizes the upfront cost burden and risk that early adopters take on.

We think it's a good approach, in combination with others, and it's already in place, supporting other low-emission energy technologies. Those include renewable sources as well as the efficient and responsible use of fossil fuels.

The essence of our recommendation is this: We respectfully ask that the federal government treat CCS equipment on an equal basis with other clean energy technologies by extending the scope of the 50% CCA rate under section 43.2 of the Income Tax Act to this equipment. We think it is the right step for the federal government for several reasons. Most importantly, capital cost allowance is ideally suited to recognize the nature of investment in CCS and other technologies. That investment is heavily loaded upfront and then pays back over time as the market catches up.

The measure we are recommending is a deferral, not a permanent subsidy. By our best estimate today, the federal government would only defer $17 million of tax revenue in the plant's first two years of operation in 2015 and 2016, but the deferred revenue would be recouped over the remaining length of the project.

The change we are recommending would continue the federal government's commitment to CCS, a commitment for which it deserves great credit. The Government of Canada supported its development, including our own work at Capital Power, adjusting the capital cost allowance to support technology as it moves into implementation phase.

More generally, it's important to treat clean energy technologies equally, to recognize that different areas of the country have a different mix of energy sources.

It would support Canadian industry and technology, including new projects and a major infusion of new knowledge and expertise. It would support renewal of some of our most basic infrastructure and at the same time help transition a core industry into a very different future.

Finally, as to the new plant that we're proposing in particular, it would help establish Alberta and Canada as global leaders in technology-based solutions to reduce greenhouse gases.

I thank you for the opportunity to be here today to speak to you in person. It's been an honour, and I hope to meet with you again.

Dr. David Lewin and I are happy to answer your questions. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to Grant MacEwan University.

[Alan Heyhurst, Associate Vice-President, Corporate Services, Grant MacEwan University]

Thank you for this opportunity.

Our president, Paul Byrne, has submitted a written document. Unfortunately, he was called out of town and he's asked me to present his recommendations to the committee. What I'm going to do is just highlight the recommendations and the reasons for them, and then I can answer questions from you.

He's put it in the form of opportunities, and the first opportunity is to increase funding for infrastructure in education. The reason for this is that the demand for post-secondary education outstrips the capacity that we have in our buildings.

The new buildings that we build now are sustainable buildings in that they are built to LEED silver standards. We also require funding to upgrade existing buildings. The buildings may be functional now, but when you compare them to the current standards, you'll see that additional funding to bring those up to standard would be appreciated. We also, in some institutions, have deferred maintenance. What we need to do there is provide additional funding so that, again, those buildings can be brought up to standard if we cannot replace them.

The other priority is access to post-secondary education, and this is more from a student perspective. We know that the cost of attending a post-secondary institution can be extremely high when you take into account the tuition fees, the living, the books, the supplies, all the association fees.

We have a recommendation on this for the committee. There is a system of refundable tax credits right now for post-secondary education, but it applies only to tuition fees. If we could include the whole cost of education as a tax credit, I think that would alleviate some of the issues. Because you can't go to school with just tuition fees. You have literally hundreds or maybe thousands of dollars' worth of books and other supplies. That would be a consideration that we would like you to look into.

The final item we have is investment in technology. Sometimes location can be a barrier to education. We would suggest that we look into promoting technologies so that the student doesn't necessarily have to be on campus. Although traditionally, as years have gone by, face-to-face instruction has been very important, there may be instances where the education can be done remotely. We're recommending the committee look at technology for distance learning, maybe subsidize the purchase of computers for students, and also look into high-speed Internet access, especially in rural locations.

I thank you for this opportunity. I've really summarized Paul Byrne's presentation, so I'm open to questions afterwards and hope I can answer them.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to the Wood Buffalo Housing and Development Corporation.

[Bryan Lutes, President, Wood Buffalo Housing and Development Corporation]

Good afternoon, Mr. Chair.

My name is Bryan Lutes and I'm president of Wood Buffalo Housing and Development Corporation in Fort McMurray. Thanks for allowing us to present this afternoon.

Wood Buffalo Housing and Development Corporation is a not-for-profit affordable housing provider in the most expensive real estate market in the nation.

The Regional Municipality of Wood Buffalo ranks, by area, amongst the largest municipalities in North America, encompassing approximately 10% of the land mass of Alberta. The disproportionate national economic contribution of Fort McMurray is well known. The Fort McMurray region is the economic engine of Alberta, according to our premier as of Saturday, and potentially the economic engine of Canada at this point.

Oil and gas activities in Alberta have a total national impact of $2.9 trillion. Oil and gas activities in Alberta create total GDP impact of $2.5 trillion in Alberta, $166 billion in Ontario, and $93 billion in British Columbia.

Due to the fact that the Wood Buffalo area relies heavily on oil from the oil sands industry, special interest groups have recently smeared the region as anti-environmental.

Housing stats in the area, according to CMHC's spring 2009 survey, say that the average rent for a two-bedroom apartment in Fort McMurray is $2,200 a month. Compare this nationally. It is twice that of Edmonton, over twice that of greater Toronto, and nearly four times that of Montreal. According to Fort McMurray's real estate board, the average sale price in 2008 for a single family home was $682,000.

Two primary needs exist: more affordable, attainable housing units and a green sustainability approach developing high-growth neighbourhoods that will materially aid in the facelift of the region.

We would like to present to you two options for your consideration today.

The first one is an affordable net zero or net-zero-ready development in the new subdivision called Parson’s Creek. Parson's Creek is the newest greenfield site in the Fort McMurray region, approximately 1,000 acres on the north side of the city. Identified by the Province of Alberta as the high-growth node, some 24,000 residents will occupy the development.

In consultation with Gordon Shields of Net-Zero Energy Home Coalition, we have the following definition of net zero. A net zero community is a community whose buildings annually produce enough energy to offset the amount of energy purchased from the grid, resulting in a net zero usage from the grid.

Just like typical buildings, a net zero building is connected to and takes energy from the utility system. Unlike typical buildings, these produce enough energy to send a portion back into the utilities, enhancing long-term affordability by reduced utility bills, enhancing carbon emissions by reduced to zero or near-zero energy, enhancing climate protection, clean air, and healthier homes. Net zero defines the next generation of sustainable development, enhances community and social well-being, and enhances community image as well.

Concerning Parson's Creek net zero energy development funding and support, the services cost for the 1,000 acres is roughly $1.6 billion. The province is putting that money in. The upside to get to the net zero or near net zero energy-ready is about $500,000. And then for the builders to build houses would require a subsidy of about $90,000 a door.

I'll get into my second proposal, which is the rental development--federal. Currently the federal tax situation does not make it favourable for rental product to be developed. Canada is the major country in the world without a national housing program. The federal government, in the latest budget, dedicated $8 billion towards housing, but no funds for tax incentives were directed.

We would recommend—not a more favourable tax treatment for the residents in the Fort McMurray industry, but simply a levelling of the playing field by applying the same tax rules to rentals as to sales development.

Our request of the federal government is to remove rental housing disincentives from the federal tax policy. We therefore request a rescinding of the tax issues for the municipality as described above, or, in lieu, the elimination of the national rental tax policy, specifically.

Thank you for allowing us to present. We'll answer questions as they come up.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation. We'll now go to the County of Athabasca.

[Charles Ashbey, Councillor and Chairman, Budget and Finance Committee, County of Athabasca]

Thank you, and good afternoon, Mr. Chairman.

Briefly, the County of Athabasca is a municipality where we don't have any really novel suggestions; we have a continuation of what we have seen occur over the last couple of years, principally with the new deal for funding for infrastructure.

The county has recently taken advantage of the program. Thanks to the new deal program, we have been awarded roughly $3 million of federal money for a road overlay project. Particularly important--and I've been on council since 2001--I think the amount of federal money we have availed ourselves of in that period of time has been negligible. Just in the last year we got $3 million for the road overlay project. I think the Town of Athabasca, within its boundaries, got over a million dollars for a lagoon, and the Village of Boyle got roughly $4 million for upgrades to a hockey arena. So these funds coming at a time when the costs of these projects have been skyrocketing due to inflation is extremely vital.

In the last three years, the overlay job we're doing has gone from around $6 million to over $12 million. Thanks to the federal programs, the new deal and the Build Canada programs help take up some of the cost of inflation. So it is the county's opinion that ongoing federal support for infrastructure requirements in the $10 billion per year range nationwide is warranted.

The county's second suggestion is for more commercialization of research and development by making investment in scientific research and experimental development a refundable tax credit to stimulate increased private sector investment. The long-term financial health of the county requires a transition to a knowledge- and technological-based economy and away from a resource-based economy. While Canada is blessed with a cornucopia of resources, the long-term wealth of the country will be based on developing the intellectual and creative capacity of Canadians, who will develop the future technologies, processes, and knowledge required to meet the needs of Canada and the world. In the future world economy, Canada is competing with countries that, lacking our resource base, heavily promote the development of their human capital. To compete with these countries in a future world economy in green energy, nanotechnologies, and nano-cellulose products, the federal budget needs to actively promote private research and development by making the scientific research and experimental development tax credit refundable.

We have the world's fastest growing university within our boundaries--Athabasca University, a correspondence and long-distance learning institute--with in excess of 30,000 students enrolled. They have actually started an Athabasca River research study, and we're hoping to build a centre for river-based research in conjunction with that. The county and Athabasca University are good partners.

Our third suggestion for the 2010 federal budget is directed towards agricultural support and is related to the second point above. Developing new product lines for consumption and export is vitally important to an export-oriented industry. Two federal government programs--AgriInvest and AgriStability--have been of assistance to producers, especially during this recent year of drought and grasshoppers. The county strongly supports the increase of $1 billion annually in the levels of core funding and to applied research associations and forage associations.

In conjunction with previous presenters from Fort McMurray on having Highway 63 go through the length of our county, the federal government's commitment of $150 million to the twinning of Highway 63--it was a few years ago, 2006, I think, that it was committed--is greatly appreciated, because we have volunteer ambulance people who have to tend to the carnage on that highway on a daily basis. Twinning it is for safety. It is the engine of growth, certainly in Alberta, if not in the country. The federal government recognizing that as a national highway was greatly appreciated. So thank you.

[The Chair, Conservative, James Rajotte]

Thank you. Thank you very much for your comments.

We'll now go to NorQuest College, please.

[Dr. Wayne Shillington, President and Chief Executive Officer, NorQuest College]

First of all, thank you very much for the opportunity to present to you this afternoon. We provided a written submission to the committee. I'll highlight some of the key points and look forward to answering some questions.

For those who may not be totally familiar with NorQuest, we're a community college serving the Edmonton region, and the largest community college in the Alberta post-secondary system. Our focus is on creating the pathways to careers that enable the advanced skills in the skilled workforce that are needed in the future economy for Canada. That starts with career programs that lead to jobs--highly skilled occupations. But because of our role as a community college, a large percentage of our student body are new Canadians, so it includes transitioning those highly skilled immigrants to productive roles in our economy. That is a large part of our academic programming. It also provides an opportunity for those who are perhaps underutilized in our economy, such as the aboriginal population. In my brief I note that over 13% of our students are self-identified as having aboriginal heritage. So again, that ensures that everyone can contribute to the Canadian society and economy.

On our career areas, we have a number of areas of expertise that are leading-edge across the country. Besides the usual certificates and diplomas in a range of college programming, we have identified areas that go above and beyond and have roles locally and nationally. Those are areas of print media production; intercultural education; aboriginal education; health care, especially continuing care; and supports for learners who have challenges. Much of the work of our applied research is done in those areas of expertise by our faculty, who are involved in leading-edge activities that take the academic expertise and build solutions with business partners in the print media. In the brief I've highlighted some examples.

We've also benefited greatly from the Western Economic Diversification investment that has helped us create business solutions. Last week we had presenters in Edmonton from California Polytechnic. The print industry from across western Canada came here to learn about environmentally sustainable print media production.

So that's the kind of leading-edge research done there, and that links to my first recommendation, which is to ensure that the federal government invests in applied research. Many of the research models and granting agencies have been defined around the traditional university research model. So the college system across the country—and we're very active in that—is doing more research in partnership with business. We would really like you to look at how you can better support that kind of research that has very immediate financial and business solutions. Another area is intercultural. That entire area works with skilled immigrants working for engineering companies and organizations like that.

The second recommendation is on accessibility to the college and opportunity for everyone. As a result, many of our students come from diverse backgrounds. We've grown over 20% in the last year. With more immigration, greater aboriginal population growth, and the desire of those populations to engage in our economy productively, we're under tremendous enrolment pressure. Like my colleague from MacEwan, facilities and infrastructure are major challenges for us.

We've had some benefit from the knowledge infrastructure investments in the short term. That did some nice maintenance and we're doing some exciting things. But there's the larger, long-term strategy of creating sustainable infrastructure with new environmental standards--creating new facilities and refurbishing the old ones--and creating the kinds of learning spaces the students need. We're really struggling currently with not being able to physically accommodate the learners we have.

The other recommendation is on investing in that infrastructure. The other one that's sort of tied to that is your strategy around the aboriginal population--there are huge waiting lists in that growing population--and looking at how you can make stronger investments to ensure that population is able to move forward and participate in learning.

Those are our recommendations. I look forward to answering any questions you have later.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll go to the Small Explorers and Producers Association of Canada.

[Gerry Gilewicz, Chairman, Finance Committee, Small Explorers and Producers Association of Canada]

Thank you.

The Small Explorers and Producers Association of Canada, or SEPAC, represents more than 400 junior oil and gas companies across Canada. I use the word “junior” because it's an important distinction in the oil and gas world. When I talk about junior oil and gas companies, I'm talking about companies that produce anywhere from zero up to 10,000 barrels of oil equivalent per day. We need to make that distinction before I get into the recommendations, because it's an important one.

We've had many challenges over the years, the first of which has been pricing, for natural gas specifically. Junior oil and gas companies are predominantly natural gas producers, and approximately 75% of their production comes from natural gas. Of course, it's no secret that right now, today, we live in a world of very low natural gas prices.

The second challenge we've had, which has become highlighted especially in the last 12 months, is the credit crisis. We rely heavily on bank financing, and credit lines have been cut drastically. We need other means of raising capital in a very capital-intensive industry.

The three proposals that I have before you relate specifically to the flow-through share program. It's not a new program; it's been in the Income Tax Act for more than 20 years. What we're looking for is changes to it.

The first one is that for a limited time period, to deal with the current situation, a 30-month period be provided for converting Canadian development expenses into Canada exploration expenses. This is for a temporary period. The proposal is jointly made with the Canadian Association of Petroleum Producers, which made it in a submission to the Minister of Finance this past summer. SEPAC comes into play in that we have said we would put our weight behind this recommendation as well, but we would want these expenditures eligible for flow-through share renunciations.

The second is similar to the first. It is that the first million dollars of Canadian development expenses, which gets a lower writeoff rate in the Income Tax Act, be eligible to be converted to Canadian exploration expenses, which have a 100% writeoff. The level of re-characterization has not been revisited since 1996, and it has not kept up with the costs to explore and to develop the resources. In fact, it was reduced from $2 million to $1 million back in 1996 to reflect the health of the industry. Things have changed quite a bit since then, especially in the junior world—and the flow-through share program is only relevant to the junior oil and gas world, not to the senior producers.

The third recommendation goes hand in hand with the second one. Access to the million-dollar re-characterization of development expenses to exploration expenses is limited to companies that have $15 million of capital on their balance sheets. This is far too low, and we find that very few of our members can actually participate in this program for that reason. We would like the limit raised from $15 million to $50 million.

We'd be remiss in not talking about what this might cost the government. As anybody who is familiar with the flow-through share program will know, it's really a timing issue. The junior oil and gas companies are foregoing their tax deductions and passing them off to the individual investors. So really, there's no permanent tax cost; the only tax cost there might be lies in the present value of the writeoffs. We've given a numerical example analyzing that. We think that on $100 of renounced expenditures, the cost to the government would be less than $2.

In summary, we're not asking for anything new here. What we are asking for is an enhancement of what's already in existence. This is an excellent program for the junior world. It's unique to the entire world. We just need the amounts updated to reflect current standards.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll start with questions from members. The first round will be seven minutes.

We'll start with Mr. McCallum, please.

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

Thank you, Mr. Chair, and thank you all for being here with us this afternoon.

I've spent twice as many years in education as in politics, so I thought I would start with the two educational representatives here.

My first question is to Mr. Shillington, about his suggestion that the federal government should put more money into supporting applied research by colleges. I tend to agree with that. My observation is that the federal government, in supporting research over the years, has been very ungenerous to colleges as distinct from universities. My question is, do you agree with that, and why is it? Is it a jurisdictional thing, that colleges are more the creatures of provinces than are universities? How do you see that? This is not the first time we've heard a proposal like this, and it doesn't seem to have gone very far. I think that in principle it's a good thing, but what are the impediments?

[Dr. Wayne Shillington]

I think one of them is—I don't disagree with what you said—that research in colleges has really just in the last probably half a dozen year come into its own. That is one factor. It's new to the agenda. It's more closely linked to the business innovation agenda--very closely linked--than what you think of as basic research, the bench research of a university.

Many of the mechanisms that have been put in place for decades have been based on that model. I think it's a matter of transitioning to a model that supports both activities and recognizes the value of both. I agree with you that it hasn't moved as quickly as we would like, and that was part of my goal today. It was to help move that agenda forward.

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

Do you have any thoughts on this, Mr. Heyhurst?

[Alan Heyhurst]

I could say something different about last week when we were a college and now we're a university.

[Voices]

Oh, oh!

[Alan Heyhurst]

Unfortunately, I have only been at MacEwan for seven weeks, and my last stint in education was over ten years ago. I really can't answer the question, but I do know that in the college field—and correct me if I'm wrong here—they concentrate, and so will Grant MacEwan, on the role of teaching. Research will still be a component, but it will be a lot smaller than in a university setting.

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

Thank you.

My second question to either or both of you has to do with access and support for students. It's my impression, at least anecdotally, that this is a more serious problem for students now than it was a year ago, partly because student unemployment is at a record high, so students find it very hard to get jobs. It's also partly because students' families or parents might be feeling more of a pinch because of what's happened to the stock market and so on.

In terms of your own institutions, do you find that there is a more pressing need for assistance now? Is it a higher priority than it might have been a year ago?

[Dr. Wayne Shillington]

Certainly from our perspective the demand is higher, and again, given the part we play in the system as a community college, those in the more marginal or lower socio-economic areas and the new immigrants are sometimes the first ones to experience that downturn, and they're not often in the financial position to pursue education without government intervention. So we've been working with both governments to do that.

We very much agree that access has become a greater issue than it was two or three years ago.

[Alan Heyhurst]

I think I can say the same for MacEwan. Our enrolments are up about 15% over the last year. We are now starting to move people out of the main facility so that we can convert to classrooms. When the economy is bad, it's really good for education if we have the space to accommodate it.

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

My next question is for Mr. Lutes. You have two options. One is the net zero. The other one is about ending the discrimination against the residential rental industry, for example, by the fact that the rollover of capital gains is prohibited in this industry.

We've had other people present that, and I think the idea has merit. However, I was a little puzzled—and maybe I'm missing something—but the way your proposal is framed it seems that you're asking for that end to discrimination only for your municipality, and you're asking for the net zero community thing only for your case. Maybe there is a reason, but I'm not quite sure how the federal government could do that exclusively for one municipality.

[Bryan Lutes]

Thank you for the question, Mr. McCallum.

Let me elaborate on that. In terms of the rental changes to the tax law, we're proposing that you set that up as a pilot in the highest-need area of the country today, fine-tune it, and then you can roll it across the rest of the country in a proven manner. Then it works and has a track record of working. The net zero energy and technology involved would involve groups from different areas of the country, which the technology would be moved across as well. It would not just benefit our community immediately, but ultimately the country at large.

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

But presumably you'd have no objection if this leveling of the playing field for rental property were applied to the whole country.

[Bryan Lutes]

That's what we ultimately hope. Being a not-for-profit, it doesn't directly affect me. We would hope that private developers would be able to invest in rental development, because there are rental pressures across the country. It's a national issue.