Finance Committee on Oct. 3rd, 2016

[Mike Morrice]

If I can jump in, I think a very tangible example of one of the key assets I mentioned in the presentation is the trust and relationships in communities on the ground across the country. A conversation like this is generally not a very easy one.

The Natural Step has been having an 18-month process of conversations, just like this, where you have a mix of people in a room who usually aren't together in one place. I think that's the magic of what the Energy Futures Lab has started to do, taking a nascent idea like that, and with the right people in one place, getting into the kind of conversation that is usually so divisive in the media. But when you get two people in a room who have a relationship in place and a facilitated process, something special can happen. That's the kind of thing we want to see more of right across the country.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'll move to the first nations finance representatives, Mr. Daniels and Mr. Berna. You mentioned some of the exciting things going on down in the south Okanagan. I've been involved peripherally with the Nk'Mip in Osoyoos, and I've been closely following projects in Penticton.

I just wonder if you could perhaps comment briefly on the hurdles and challenges that first nations face that businesses outside that community don't face when trying to build big projects to give their people work and capacity.

[Ernie Daniels]

It's a very good question.

Just the nature of being on a reserve is a real impediment. You can't put up land or other assets as collateral. It's very, very difficult. I'm sure the credit union people would agree. That's the number one thing.

The other thing, I think, is the lack of capital that first nations have, affordable capital. We have some first nations that are still borrowing at 11%, or 6%. Our rates are much better than that because we go to the source. That's another impediment.

For the most part, I think first nations are catching up on capacity. They really are building up their capacity. I would say that a few years ago, it was an impediment also, but they're coming together as a group where before they did everything by themselves. It's very difficult to raise a lot of capital if you're on your own. We have an example of a first nation in Alberta that went to the market themselves, and their cost of borrowing is really expensive. By coming together as a group and going to the market, we're able to get the rates that they really need to borrow on.

[The Chair, Liberal, Wayne Easter]

Thank you.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you all very much. I do have questions for all of you, but I'm not sure I'll be able to get to them. Let me try.

I'll start with the First West Credit Union. I read in your brief, and then it was in your presentation as well, about how the changes you face are different from banks. For example, you mentioned the capital gains difference. Are there other examples or legislative changes that you want specifically in this budget that would level that playing field, as you mentioned?

[Ron Dau]

I think one of the biggest issues we face in particular is when it comes to taxation. While credit unions are sometimes lumped in with banks, there are those very foundational differences in terms of how we raise capital. Ours comes from our retained earnings. As I mentioned, the lower our retained earnings, the less opportunity we have to lend out to small businesses.

As you'll see, and as you probably know already, credit unions are in a lot of small towns across Canada. We provide a very important source of employment but also support for small business and people wanting to buy their first homes in those small towns across the country. That's very important.

In terms of other legislation, specific to your point, we do wish to always see the regulatory burden managed effectively, realizing that the complexity of a credit union is significantly different from a bank, an international bank such as we have in Canada. We just want appropriate regulation for credit unions to make sure it fits the complexity of our organizations.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I'm turning now to the Low Carbon Partnership. You mentioned my riding, the city of Pickering, and as well, as I noticed, one of your partners, Durham Sustain Ability. I was on council locally and regionally, so I am very familiar with Durham Sustain Ability, in particular, and the late founder, Jack McGinnis.

I have two questions.

How do you choose your projects? Do other levels of government, specifically municipalities, contribute to the overall fund? I know the work Durham Sustain Ability did with Durham Region, as well as the City of Pickering, as an example. We always provided partnerships, but we didn't always provide cash. I know you're asking for a $30-million investment to scale up. One, are you getting investments from other levels of government? Two, how do you chose the communities that are ready, outside, I recognize, of the businesses in the sector?

[Mike Morrice]

It's a great question. I'll be very brief.

This is for the Sustainability CoLab Network, one of the four entities in the Low Carbon Partnership.

We choose our members based on four approaches they much follow. They must be local, working with businesses. The businesses must be setting targets, so not just all chatting in a room about the same old, same old. They're setting goals about what's going to change. And they must be financially self-sufficient, which gets into your second point. They all apply, and we select those that are best positioned to be successful against those criteria. That's how we can come back and say, “Here are the results: total GHG is reduced; total GHG is committed.” It's because we have those rules that we ensure that our local members, like Durham Sustain Ability, follow. Durham Sustain Ability had their program, Durham Partners in Project Green, for two years before they began to work with us. They had started to bring some people in a room...no results to report on. As a result of working with us, that's what's now changed.

To your second question, this is a core requirement. Our programs must be financially self-sufficient. It's around a $250,000 program locally to operate. That comes from a mix of business, government, and foundation support. With this investment, the Government of Canada can leverage examples like that from all four of our partners that have a locally, financially self-sufficient program in addition to provincial support. In the CoLab Network, for example, in the past year, the Ministry of the Environment and Climate Change, in their green investment fund, supported the CoLab Network with a $1-million incentive fund from cap-and-trade revenue. This is what's already in place, as I mentioned, the trust relationships that are already built up across our network, that we bring to bear to then look to scale further.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

For the First Nations Finance Authority, your set-up actually reminds me quite a lot, again, of when I was in municipal government. The regional municipality had a better credit rating, so when we had to do infrastructure projects, we would borrow through them and their credit rating. It reminds me very similarly of that. But in this, and in your situation, how do you actually decide on the projects? Obviously, you have a limited amount that you could lend out. Specifically, how do you determine that, for example, if there's a first nations community that needs an infrastructure project versus an economic opportunity that presents itself? Or do you have certain scales and rationale if you're going to do x percentage of infrastructure versus economic longer term? How do you make that determination?

[Ernie Daniels]

The first nations that come to our door to borrow have gone through a pretty rigorous process. Most of the first nations are pretty well organized, from a governance perspective as well as economically. They have their projects already in mind in terms of what they want to do. Our basis of operation is.... It's based on their own-source revenue. A lot of first nations generate revenue from various sources. They need to be long term in nature to support the long term.

Each revenue stream has a different leverage factor. For instance, a lot of first nations have transfer agreements with provincial revenue. In Ontario, a FIT contract with OPA would be a perfect example. The first nation would come to us with their contract. We would lever that into the market and then loan them money, up to what they can leverage. We don't want to get into a position where we have a big loan to one first nation that covers more than 20% of our loan portfolio. We manage that.

I think it's the economic opportunities that exist in the different regions: that's how the first nations actually go for this. It's challenging right now in Alberta, so a lot of them are looking at infrastructure projects. In Ontario it's energy. In Manitoba it's the same kind of thing.

In Manitoba we have an isolated first nation that has fly-in access, winter road access, six weeks of the year. They have to bring all their food, their fuel, everything in during this period. They have agreements with the provincial government that provide them annual revenues that can go on for ever and ever, different rebates on tobacco, fuel, and other things like that. This first nation is actually looking at building an all-weather road with a long-term maintenance contract with the provincial government.

It's this type of thing. The first nations are looking at what they need the most. In Saskatchewan a first nation was lacking houses. They built 71 houses last year with their own-source revenue. In Alberta the Siksika—

[The Chair, Liberal, Wayne Easter]

Ernie, we'll have to cut it there and go to Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thanks, all of you, for your presentations today.

You know, my Liberal colleagues across the way would be terribly disappointed if I didn't take at least one shot at the government each day, so here goes.

Mr. Dau, the new government has spent the last year undoing most things that the Conservatives tried to do in 10 years. Considering that this was a 2013 decision—I'm assuming it was a Conservative initiative in the budget—I like your chances of having them undo what they did.

Do you know what gap was probably trying to be fixed in 2013 by the previous finance minister? What dollars are we talking about?

[Ron Dau]

I don't have those numbers with me. I'd be happy to provide them to the committee.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I would appreciate it. But in round numbers, are we talking tens of millions, or...?

[Ron Dau]

It was about $40 million for the system.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

It was $40 million for the system annually.

Mr. Morrice, I don't think anybody on the planet doesn't advocate for a cleaner environment. I don't hear anybody say, “No, we want a dirtier climate than the one we have”, so I think we're all on the same page. It's the next step of how you get there that's....

I'm curious to know if you have a position on pipelines.

[Mike Morrice]

I don't think it's particularly relevant to the investment.

Brent, did you want to share more?

[Brent Gilmour]

When we're thinking about our overall usage, I think what we're interested in is this: how do you harness our existing conventional energy networks? When we think of pipelines, we think of movement. But we can think of them as storage as well, and we don't think of them that way. When we think of natural gas, it's a great opportunity to also think of energy storage opportunities. They're looking at hydrogen. There's a good example.

You also have to think about what moves through pipes. We're also interested in the growth. You're seeing it through renewable natural gas, biomethane, and all these great products that municipalities are struggling to make commitments on in terms of what provincial governments have told them they have to cap in term of emissions.

How do you harness our conventional energy networks? This is relevant in terms of how we think about the distribution network across Canada. There are great ways to harness our established conventional energy networks. Again, that's how we're working together to make use of all of that.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Okay, but that's one answer. Are you opposed or in favour of new pipeline capacity for export purposes?

[Mike Morrice]

I'm in favour of a conversation where we have businesses taking action on climate, creating new jobs, increasing the tax base, and growing a low-carbon economy at the same time.

I think a question like that creates a false dichotomy that isn't particularly relevant to the investment we're talking about here.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I'm going to take that as a no. Thank you.

To the first nations, I want to follow up a little on what Jennifer was asking about. I know in Alberta, we have something similar, called the Alberta Capital Finance Authority, where the government borrows at its AAA credit rating. I'm not sure it's going to be there much longer.

Anyway, it then passes this on to municipalities—I think there's a slight markup but very little—so that municipalities can benefit from the AAA credit rating. Do you get any kind of a similar benefit?

[Steve Berna]

Under our act, which is a federal act, we are to become self-supporting within a period of time. That means as our membership hits a certain level, we can process costs out to our membership, and that way any government grants stop. Probably within five or seven years, that will stop.

Right now, our mandate is to pass on reasonable cost recoveries to our clients. In June 2016, for example, we issued $115 million in a debenture, and our interest rate to the capital markets was 2.56%. We re-lent that to our clients at 2.9%, so we marked it up 0.34%—

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

But the 2.5% that you borrow at, could that be substantially less if you piggybacked on an AAA credit rating entity?

[Steve Berna]

You can't. It would be but you can't piggyback. For example, I ran the MFA of British Columbia, which is parallel to the Alberta Capital Financing Authority. It's black and white in its act who its members are. Its members are municipalities, regional governments—

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

But the government could change the legislation, right?