Industry Committee on Oct. 3rd, 2006

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

In terms of working with the industry in manufacturing, and I guess even beyond that, can you talk to us about any operational alliances you've built with the industry so that you can work together--for example, on technology, working together for the success of both industries?

[Michael Cleland]

In fact we do work closely with our manufacturing colleagues. They have a loose association of energy-using industries. Actually, they're headquartered right across the hall on the same floor that the Canadian Gas Association is on. So we do work with them.

The main thing we've been doing together is pressing the federal and provincial governments to develop a more coherent perspective on energy, to develop what we call an energy framework. We think that's absolutely fundamental to getting the conditions right. We're on the same page on most of these issues and we compare notes and try to push it along.

[The Chair, Conservative, James Rajotte]

Mr. Konow.

[Hans Konow]

To add to that, at the ground level, where our companies operate in distributing gas and electricity, etc., we have very active programming with our industrial partners and our commercial accounts. All of the work that goes on in trying to drive energy efficiency through the industrial structure is through a partnership approach. Our systems examine how they might be able to assist through smart metering, different rate programs--ways in which the customer can tailor his energy buy in such a way as to minimize or optimize his costs. If you want absolute, 100% reliability, you'll pay one price. If you're willing to be on a merit order when supply is very tight and there have to be cutbacks, then you pay a different price.

Every industry, of course, has different needs. Some need 100% reliability--100% power quality, basically--and others are more flexible. It is a partnership approach, and if you want happy customers, then you have to work with them. That goes on at a kind of granular level.

We have some programming in terms of encouraging energy efficiency and working with federal departments and provincial settings to try to advance energy-efficient technologies into the marketplace.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Is that one of the things--

[The Chair, Conservative, James Rajotte]

Mr. Shipley, we're over time.

We'll go to Mr. Masse for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I have a couple of questions. The first is, can all of your organizations vouch that the GST reduction actually went back to consumers, that you didn't inflate your prices internally to make up the difference for it? When there was a reduction in Atlantic Canada of taxation, there was a study done that showed there was no real net benefit to the consumers, so I want to make sure it has happened.

I'm going to ask my second question, because it's more important than the first, which is just one I get on a regular basis.

To bring it back to the study, I'm not really hearing anything from the energy industry here about how they can help move the manufacturing industry forward, in a larger perspective, or make energy part of a competitive advantage. When I look at where we're going in manufacturing, I guess we have to decide as a country whether we're going to be in or out of it. One of the assets we have as a net exporter of all kinds of energy is that it's the number one thing companies often look at: do you have stable energy and do you have low prices?

It gets to whether we have a dual market economy, where you have this as an attractive incentive for manufacturing plants. I look at, as an example where I come from, the auto industry. We're getting hammered by subsidies from the U.S. and Mexico and other places. Why is it that we don't use the natural advantages we have to bolster our manufacturing industry? I know we have trade agreements that are prohibitive of this, but where, in a larger picture, do you think your organizations can make a big difference for manufacturing in our country, as opposed to somewhere else?

[Hans Konow]

On electricity, if you talk to the industrial accounts about what their number one objective is, it's reliability. They say, before price, before anything else, make sure my supply is absolutely reliable and that I'm not going to have sudden interruptions, because that's extremely costly. I think we do an excellent job in that regard.

In terms of the price of an electron or a molecule of gas, I think the picture we've been painting is that we are competitive. There are regional realities, which certainly appear to me difficult to fix through policy intervention without having probably unwanted side effects. So I think what you get down to is what I was trying to talk to earlier: what the practical things are that companies that supply electrons can do with their customers to ensure they have the right technology, optimized for the price ranges and circumstances they need, and that they have, within the regulatory environment—because, as I pointed out, for electricity we have regulated prices.... Are we able to make the investments in energy efficiency program offerings and recover those costs? Will the regulators allow us to make that investment, or will they say no, that's an additional cost that everybody bears and they don't want us to make it? This then denies industrial customers the opportunity to have that partnership.

That's a real issue. In Ontario, where the market was restructured, there came to be a disincentive to investment in energy efficiency by the very entities that are directly connected to the customers. Regulators are starting to deal with that and recognize that they have to create incentives or opportunities to earn back the investment you make as a company in that partnership. I think there are opportunities at that granular level for us to be strong partners in helping consumers use the product in the most efficient way in their own lights.

[Dane Baily]

To talk just about the oil business, the fundamental differences in oil, gasoline, and diesel prices as you go around the world are due to taxes. The base crude refining costs are pretty much the same, and as you saw on the chart, all the taxes are different.

The U.S. is about 15 cents a litre cheaper than the average in Canada, and even in Canada, when you go province to province, you'll get a low of about 25 cents a litre on gasoline all the way up to just over 40 cents a litre in some other provinces. That's where the price differential comes in. There's an element of competitiveness there. This is really government prerogative; we don't get into the tax discussion.

But I want to react to the question about whether the GST went through. I can categorically say yes. Our wholesale prices are ex-GST, and then the taxes are just added on, so the wholesale prices went down exactly by that.

There was a myth about that study in...I think it was New Brunswick; I think it was Shane Walsh who did the study. He said that the tax reduction clearly went through to the marketplace, but the trouble you get into is in the retail volatility, which is after the wholesale price—the retail price wars. It's pretty tough, when the price is going up and down a dime a week, for the consumer to see it, but he said it was definitely there: the whole band just moved down.

[The Chair, Conservative, James Rajotte]

Mr. Cleland.

[Michael Cleland]

Very quickly on the response to what we can do to help to underpin industrial competitiveness. I think it's really very straightforward. We can invest in delivering supply to our customers more reliably and more cheaply. There are some things that policy and regulation can do to help with that.

I do want to make one point, though, and we're not always on the same page. In this particular case, Mr. Konow talked about demand-side management programs. When we go to regulatory processes, the industrials actually don't like our demand-side management programs, because they end up paying for it. They say, “Look, we'll look after that, go away.” I understand why they would do that. That's fair, and that's played out in the regulatory processes. But as I say, there are two sides to all of these coins, and we don't always entirely agree on these things.

[Brian Masse, NDP, Windsor West, ON]

You also noted another important difference in terms of storage--

[The Chair, Conservative, James Rajotte]

Mr. Masse, you're way over time.

Ms. Kadis for five minutes.

[Susan Kadis, Liberal, Thornhill, ON]

Welcome, gentlemen.

I'm interested to know particularly if you believe the federal government should be providing further financial incentives or alternative incentives in the alternate energy sector in particular. I know you've touched on that, obviously needing a whole gamut of energy, particularly in the manufacturing and other sectors and the current status. Also, how do we compare with other industrial countries in the research and development alternate energy area? Finally, who would you say are the leading players in Canada in this area?

[Dane Baily]

We've been working very closely with the government in terms of the renewable fuels policy, ethanol and biodiesel. The fundamental challenge the government has is that the only way for an effective policy to work in Canada, because we have a free trade partner in the United States that has heavily subsidized both the production of ethanol and the blending of ethanol, is to match their subsidies.

We had one estimate that it was about $800 million a year to meet our 5% target. That's a significant amount of money to invest in the business. Two of our association members built the two largest plants, so it's a viable business option, but we have a real challenge, because the U.S. structure throws our markets off by reason of the way in which they've heavily subsidized it.

Ideally, what we can do is talk to the U.S. government and say,“Listen, at $60 a barrel crude, you don't need to throw this amount of money at the renewable fuels business.” If they were to take away, say, the blending subsidy and do other things, then the business would grow in Canada.

So do we need to throw more money? We need to match the U.S., if it's really going to go. And I think that's a challenge that the policy-makers are looking at seriously. But it will go.

[The Chair, Conservative, James Rajotte]

Mr. Cleland.

[Michael Cleland]

Briefly, on who's investing in alternative technologies, I think if you looked across the board you'd probably find that it's the members of Mr. Konow's association and my association and Mr. Bailey's association who are mainly doing that.

My member companies are investing in wind power. They're investing in ways, for example, of reducing the costs of running energy at their gate stations with ground-source heat. So there are all sorts of examples across the board.

Who are the biggest? I'm not sure. You'd have to look at that. But one thing that's quite clear is that diversity is good. Alternative energies of all sorts are good. We need to do some things to help give them a bump. But it's important, if you're going to subsidize things like that, that it be time limited. It's until they can get themselves established in the marketplace. The worst thing we can do is put subsidies in place that go on forever. That's bad policy.

[Hans Konow]

To follow up, the electric utilities are now by far the biggest wind developers in the country. That's incontestable. Wind is increasingly becoming close to being commercially competitive. It still does require an uplift, so that I think should be sustained. But I think Mr. Cleland's point is correct, that this should not go on forever.

I think where you use federal dollars it should be in an attempt to advance and de-risk technologies that aren't quite there yet. I would certainly make the case, in terms of strategic investments, that wind is one such thing. It is a strategic investment that's useful to us. I would submit that clean coal is another strategic investment that we need in order to maintain the diversity of fuel sources that dampen volatility. So that's another area of opportunity.

[The Chair, Conservative, James Rajotte]

You have a minute remaining.

[Susan Kadis, Liberal, Thornhill, ON]

I'll give my remaining minute to Mr. McTeague, if he so wishes.

[The Chair, Conservative, James Rajotte]

Mr. McTeague, for a minute.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Before Mr. Baily goes, I thought it would be a good opportunity....

Mr. Baily, in light of the number of refineries that have closed, and I know my colleague Dave Van Kesteren talked a little bit about what the future is, I've noted here--and you and I will probably dispute the question of cargo rates--that prices in Toronto, Ottawa, and Montreal are exactly four to five cents a litre above the prices in the United States, which can't be good news for consumers. But the real issue here I think is one of how you would foresee, short of the municipal and economic or ecological and environmental concerns that are out there....

Is it true that the industry itself, certainly at the downstream, which is your section--not the upstream, which we can't hear from CAPP--has spent a considerable amount of time rationalizing, shutting down refineries, raising utilization rates, such that you would create an artificial situation where, even if demand were to start a little bit on an upward trend, we would find ourselves in a very scarce and tight market situation?

[Dane Baily]

Utilization in Canada is much higher now. There is a myth about the refineries that have been closed down. We had 44 refineries I think in the 1960s. We have 17 refineries today. The capacity today is about three times what it was for those 44 refineries. So people can play with numbers, and I think there has been some misleading information.

Our refineries--

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

It's just that we have none in Toronto, and it's the largest market in Canada. We used to have seven refineries.

[The Chair, Conservative, James Rajotte]

Mr. McTeague, you're over time and we need to let Mr. Baily answer.