Finance Committee on Nov. 6th, 2017

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Any questions for anyone else?

The bottom line is to provide greater security. Is that what this is all about?

[Justin Brown]

It's to allow the Bank of Canada to use mortgages as collateral in more meaningful quantities. Under the current policy, they would have to go to the local registry offices and register each individual mortgage, which would be time-consuming and might not meet the liquidity needs. This would allow them to do that in larger quantities.

[The Chair, Liberal, Wayne Easter]

It's all about government efficiency.

Thank you, gentlemen. We'll call up division 6, which deals with the Payment Clearing and Settlement Act.

Mr. Vaillancourt is chief of the financial sector policy branch in the Department of Finance.

Welcome, Mr. Vaillancourt. The floor is yours.

[Hugues Vaillancourt, Chief, Financial Sector Policy Branch, Department of Finance]

Thank you.

Like my colleagues, I'm going to provide a quick overview of the proposed amendments. I would then be glad to answer any questions you have.

The Payment Clearing and Settlement Act gives the Bank of Canada responsibility for the oversight of payment and other clearing and settlement systems in Canada for the purpose of controlling systemic risk or risk to the payment system. The proposed amendments in part 5, division 6, strengthen the Bank of Canada's ability to identify risks to financial market infrastructures and to respond in a proactive and timely manner.

The proposed amendments to the Bank of Canada's powers are primarily meant to expand the bank's power to issue directives for a broader range of risks and situations; provide the bank with the power to approve significant changes to operations, rules, procedures, or other documentation related to the financial market infrastructure; and clarify the bank's ability to enter into oversight agreements with financial market infrastructures.

The proposed amendments will make it easier for the Bank of Canada to exercise its powers, duties and functions by providing more graduated tools to improve its oversight over financial market infrastructures.

[The Chair, Liberal, Wayne Easter]

Okay. Are there any questions?

You said, “broaden its authority”. As a layman, it always worries me when somebody is going to broaden their authority and I'm on the other end of the pipe. I made a note, earlier in the bill.... “A clearing house shall provide the Bank with reasonable notice before making...any significant change in relation to the designated clearing and settlement system”.

How do you define “significant”?

[Hugues Vaillancourt]

We define it in the legislation. Let me just walk you through it.

The bank reviews significant changes for unintended consequences on the risk management practices of clearing and settlement systems to ensure that risk continues to be controlled. Presently, the PCSA—the Payment Clearing and Settlement Act—only requires designated systems to provide the bank with advance notice of significant changes to their design and operation. Given the ability of significant changes to impact risk management, it was proposed that this power be expanded to allow the governor the ability to approve significant changes prior to their implementation.

[The Chair, Liberal, Wayne Easter]

Okay. Is there anyone else?

Thank you, Mr. Vaillancourt. You got off an awful lot more easily than the second panel we had today.

[Hugues Vaillancourt]

I have no comment on that.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

I call for division 7, the Northern Pipeline Act.

Ms. Lorraine McKenzie Presley is the director general of the portfolio management and corporate secretariat at Natural Resources Canada. With her is Mr. Victor Ndihokubwayo.

The floor is yours. Go ahead.

[Lorraine McKenzie Presley, Director General, Portfolio Management and Corporate Secretariat, Department of Natural Resources]

Thank you very much.

Good evening, everyone. What I'd like to do tonight is to quickly describe the issue and our proposed solution. Then we can respond to any questions you may have.

First, the Northern Pipeline Agency is a federal agency within the Department of Natural Resources' portfolio. It was established by the Northern Pipeline Act, and it is responsible for the administration of the act. The agency's core mandate is the federal regulation of the planning and construction of the Canadian portion of the Alaska Highway gas pipeline project.

The issue is that, at present, the agency is over-collecting its cost from TransCanada, which is the project proponent. This is an unintended consequence of the current cost-recovery regulations, as the agency is required to use estimated operating costs, as set out in the main estimates, to bill the proponent.

Our solution is to resolve the over-collection of funds permanently through a minor technical amendment to section 29 of the Northern Pipeline Act. Specifically, we are seeking a technical amendment through the cost-recovery framework used by the agency, as set out in section 29.

We are looking for two things. First, the amendment would allow the agency to recover its full cost from the project proponent based on its actual spending, its actual costs, rather than estimated costs, which is now the case. Second, the amendment would remove from the act the requirement to use the National Energy Board's cost-recovery regulations. The unintended consequence, as I mentioned before, is to cause the agency to over-collect from the project proponent because it uses estimated costs, as opposed to actual costs. The amendment would be simple and would allow the government to quickly, efficiently, and permanently address the issue and prevent future over-collection.

Why now? Budget 2017 identified the need to modernize or streamline the framework for recovering costs for this project. The government believes that this amendment would improve the existing cost-recovery framework, making it more efficient and enhancing transparency. Also, it is a federal responsibility to correct this over-collection issue and enable the repayment to the project proponent, and to do so as soon as possible.

To conclude, the proposed amendment would resolve the issue of over-collection permanently, which is a key element of the amendment we are seeking. This technical amendment, once approved, would allow the agency to bill the project proponent based on its actual costs rather than its estimated operating costs. The government is of the view that an improved cost-recovery mechanism would further support the agency in carrying out its federal responsibilities: first, to efficiently and effectively fulfill Canada's obligations as set out in the act and in the Canada-U.S. agreement, and second, to maintain a state of federal readiness should the proponent proceed with the construction of the northern portion of the project.

With that, I will open it up for questions.

[The Chair, Liberal, Wayne Easter]

Who wants to start? Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

It's about pipelines, so of course I'm going to ask a question.

How much is the Government of Canada over-collecting right now?

[Lorraine McKenzie Presley]

As of March 31, 2017, it's $4.8 million.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Is this accumulated or on an annual basis?

[Lorraine McKenzie Presley]

It's accumulated.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Okay. That's all.

[The Chair, Liberal, Wayne Easter]

On that question, that money that's over-collected and accumulated, do you pay that back? Do you do it annually? How does it work? This is going to create more efficiency in the system.

[Lorraine McKenzie Presley]

That's right.

Currently the government has been relying on a provision under the Financial Administration Act, which allows the government to repay over-collected funds through remission orders. It is a repetitive process. It's inefficient. We have to do it every so often when we encounter this problem with the Northern Pipeline Agency.

This provision would allow us to halt this repetitive process. It would allow us to repay the proponent the monies that are owed right now, and in one remission order. We are proposing that. It's not part of this provision. It would just be done through the usual government mechanism. We would not have to redo that process again. This would basically eliminate this over-collection process, which is an unintended result of the current regulations that the NPA has to use.

[The Chair, Liberal, Wayne Easter]

I take it that this particular cost recovery doesn't fall under the Service Fees Act?

[Lorraine McKenzie Presley]

No, it doesn't.

[The Chair, Liberal, Wayne Easter]

It's a different act.

[Lorraine McKenzie Presley]

Yes, it's completely different.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Just out of curiosity, the regulation of regulated pipelines done through the NEB using the cost of capital and assumed depreciation and all that stuff.... I can understand this avenue, but why follow this avenue versus just looking at the formula that's been used for this pipeline and changing that?