Natural Resources Committee on Oct. 2nd, 2017

[The Chair, Liberal, James Maloney]

Order. We will now resume. We have three witnesses, all joining us via video conference.

Gentlemen, thank you for joining us today. The process is that each of you will be given the floor to make a presentation of up to a maximum of 10 minutes. When the three of you have completed your statements, we will open the floor to questions from committee members.

Let us start with Mr. Shaffer, who is a professor at Simon Fraser University.

[Professor Marvin Shaffer, Adjunct Professor, Simon Fraser University]

First, I'd like to thank you for inviting me to speak to you today. Greater integration, like provincial electricity markets, is an area I've been interested in for a long time.

I'm an adjunct professor in Simon Fraser's public policy school and I have been a consultant for many years. One of my first major assignments was to participate in a comprehensive study of the technical, economic, and contractual aspects of a western electric power grid. The study was undertaken in accordance with a 1980 agreement among the three prairie provinces to investigate the feasibility and desirability of a 1,000 megawatts sale of firm power from Manitoba to Alberta and 500 megawatts to Saskatchewan.

The study identified and assessed alternative intertie configurations. It analyzed economic impacts, benefits and costs, and pricing and ownership arrangements. The study did identify a preferred high voltage B.C. link. It studied the economic impacts that would be redistributed within the region and it did estimate the benefits and costs. Overall, the study concluded that there would be utility cost savings, and in terms of the social benefits and costs, there would be net benefits for the region as a whole.

Notwithstanding the finding of overall net benefits, as you know, the western electric power grid did not proceed. The different jurisdictions could not get beyond narrow provincial considerations. Manitoba Hydro was clearly focused on north-south trade and Alberta and Saskatchewan were interested in their own resources and power potential. Here we are 35 years later and I'm not sure how much has changed. There are significant opportunities in potential net benefits from stronger interprovincial ties, but the lesson from the western electric power grid is that it isn't enough to identify opportunities that offer economic and environmental benefits. It's essential to align narrow provincial with broader regional and national interests.

I'm in Vancouver at Simon Fraser University and I'm most familiar with the circumstances of British Columbia and Alberta right now, having left the prairie provinces some time ago. There have always been synergies and opportunities for mutually beneficial trade between the predominantly hydro system in British Columbia and the thermal system in Alberta. These opportunities have been explored to some degree but not to their full potential because of constraints in intertie capacity, planning criteria—and the self-sufficiency criteria in British Columbia stands out in this regard—and the dominance of provincial perspectives that give rise to divisive concerns about equitable access to markets and transmission in each other's jurisdiction.

With developments that have taken place and are planned in British Columbia, and the phase-out of coal and the emphasis on wind and renewables in Alberta, the opportunities are, if anything, much greater today.

As a result of reduced growth in requirements for electric-intensive industry, combined with the possible development of the Site C hydroelectric project, B.C. Hydro will have considerable surplus energy in the short to medium term that could serve to displace coal and other federal production in Alberta. More importantly, over the longer run, with the development or possible development of Site C, the addition of generating capacity at Revelstoke, and the refurbishment and upgrade of existing facilities, B.C. Hydro will have flexible capacity that could support and enhance the rapid expansion of wind energy in Alberta. It could provide the system backup that Alberta would most likely have to otherwise get from single-cycle gas turbines, with the economic costs and GHG emissions that would entail.

Displacement of thermal generation and the provision of hydro backup to support more wind production are two obvious opportunities that could be pursued with stronger ties and coordination. There are other opportunities as well. The thermal and other resources in Alberta could provide the backup energy capability that B.C.'s hydro system needs for low-water years, and generally it could enable British Columbia to ensure a reliable supply without the costly self-sufficiency criterion it currently has in place.

More intertie capacity and access to U.S. markets through British Columbia for surplus Alberta wind production could improve the economics and incentive to develop more wind in that province. It could mitigate the price collapse that otherwise can take place during wind events.

There is no shortage of opportunities. One way to think about all of the opportunities is to ask yourself the question: how would the systems develop without a border if it were one jurisdiction, one integrated or combined system? A politically unconstrained view of that hypothetical combined system would identify the opportunities, and with some analysis, identify the opportunity cost or what we’re foregoing by not pursuing them. The challenge would then be to consider how to get there institutionally, with a planned system in British Columbia, and politically, with the need for both provinces to perceive a fair sharing of the benefits that greater intertie capacity and coordination can provide.

The federal government, in my view, can play an important role in bringing the parties together to analyze the opportunities in the context of an integrated system, what that might look like, and to address the institutional and political constraints. The federal government has important interests here as well. More efficient development and operation of the electric systems will be increasingly important for competitiveness and efficiency in the national economy with the shift away from thermal production and the electrification trends in transport and other sectors that we can expect in the near term and certainly longer term. More rapid displacement of thermal production and reduced need for and reliance on thermal backup capacity for renewables will be important in meeting GHG reduction targets in the most cost-effective ways.

Finally, and not insignificantly I believe, strengthening east-west trade in electricity can reduce the dependence on U.S. markets and the energy trade surpluses that, for political reasons in the United States, may be used to limit economic trade in manufacturing and other areas.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Hinds, why don't we move on to you?

[James Hinds, As an Individual]

Thank you, Mr. Chair.

I have a couple of things quickly at the outset. Was there a map circulated that looks something like this?

[The Chair, Liberal, James Maloney]

Yes.

[James Hinds]

Excellent. I'll speak to that. Secondly, I'll make a public service announcement. The various organizations with which I've spent time have asked me to make sure that you understand that these are my views, and not necessarily the views of Hydro One or the Independent Electricity System Operator in Ontario.

With that out of the way, I really just have two quick points to make.

The first is in relation to the map. When you ask an electricity person how they see the world, this is how we see the world. There are three big pieces: the eastern interconnect, which includes Quebec; Texas; and the western interconnect. This is what North America looks like to us. It probably looks strange to you because, really, our system is interconnected on the eastern interconnect between Attawapiskat in the north and Key West in the south. Since electrons travel at the speed of light, anything that happens on the way through, whether it's some squirrel getting into a generator in Miami or whether it's a snow event up in Canada's far north, will be instantly seen by a whole bunch of control room operators as it happens. They may not find out what happened for another three months. It's really quite a marvel of engineering.

In that view of the world—eastern interconnect, western interconnect, and Texas—you'll notice the geographic boundaries that you're used to seeing for political geography, the states, the provinces, and that. Electricity is carried over those boundaries by interties. Just a fundamental principle is that most of these systems are built to be self-sufficient within a sovereign entity, but are interconnected through interties.

I thought today part of the discussion that you wanted to have was about the value of the interties. I'm not going to drone on and on because there seemed to be a lot of different topics and a lot of different manifestations about that, but I will make two obvious points about this map. The first is that the eastern interconnect is not interconnected with the western interconnect, neither in the United States nor in Canada. That's a glaring observation. Marvin addressed it a little bit, but we've never really looked seriously as a country at interconnecting our own country.

That would have advantages for Canada. It would also be an interesting market play because if we interconnected, Canada that would be the only route of interconnection between the eastern and the western United States. Texas is down doing its own thing for a lot of interesting and amusing historical reasons, which we can get into in question period if you care, but it's kind of glaring. Maybe what I will do at this point is just stop with the map, and then if people have questions on it we can get into it.

Let me make a second point. The electrons themselves that move around at the speed of light and power our lights and power everything that we do are actually technology agnostic. They're technology neutral. They don't care whether they were made in a nuclear reactor, a photovoltaic cell, even a chemical interaction in a battery. The commodity is utterly fungible. I know of no other commodity that can be made so many different ways. Steel can't be made this many different ways. It's quite remarkable.

But the electrons themselves are technology neutral. We all have different endowments in our jurisdictions. We all have different biases in terms of public policy about the way those electrons are manufactured. Once that happens, the interties and the system don't care how they were manufactured. They flow at the speed of light over copper wire and end up where they're supposed to end up.

Most of the tension that happens between the political jurisdictions and the electrical countries that those jurisdictions live in, from a policy point of view, whether it's clean energy, whether it's wind, solar, thermal, coal, gas, biomass, hydraulic, whatever the technology that makes it is, happens within the sovereign realms of, oftentimes, provinces and states. In the United States, there is a more federal jurisdiction than there is in Canada, but all these things overlay on that. Fuel mix is really quite diverse even within these jurisdictions, but once an electron is made, it moves, and it moves over the interties.

Maybe, Mr. Chair, having made those two points, I'll just wait until question period.

[The Chair, Liberal, James Maloney]

Great. Thank you very much.

Mr. Burpee, we'll move over to you.

[Jim Burpee, As an Individual]

Thank you, Mr. Chair, and members of the committee.

Thank you for inviting me here to speak to you as an individual Canadian, albeit one who has spent 40 years in the electricity sector, not only in Ontario but in Canada, North America, and globally.

For me, the overarching context for today's discussion is Canada's long-term targets for climate change mitigation, specifically 2050. Many studies and reports have been released in the past few years, all identifying the need to displace the combustion of fossil fuels with electricity and biofuels. The most rigorous modelling I am aware of was done in the Trottier energy futures project, whose report was released in April 2016. From my perspective, it has done the best job of recognizing the need for a reliable electricity system; that is, customers who expect the lights to go on when they flip the switch regardless of the outside weather conditions.

A key finding of Trottier is the resultant growth in electricity demand under a wide variety of decarbonization pathways. Currently, electricity provides about 22% of Canada's end-use energy demand. This is expected to grow to 60%, necessitating close to tripling the current electricity supply infrastructure over the next 30 to 40 years. We are not talking about tweaking the electricity sector, but a major transformation of the Canadian and global energy sector, and this is after factoring in aggressive energy conservation results.

In today's discussion on strategic electricity interties, I want to go back a bit in time, well over 100 years ago. We did not start out with an integrated electricity grid. We started out with microgrids in each major city. Over time, we started linking those microgrids to improve both reliability and economics.

Today, we have a strong North American grid. It is an eastern interconnect, western interconnect, and Texas. Although perhaps the orientation of those markets and interties is greater north-south than east-west, the driving force for these interties has always revolved around reliability and economics, which means it has been in the interest of the customer.

Each province has developed its electricity sector around the resources available in that province, whether it's coal and gas, hydroelectric, nuclear, or a combination of them. Recently, there has been expansion of hydroelectric and other renewables, such as wind and solar. The opportunities are different for each province, largely because resources are where they are. Decisions have also taken into consideration self-sufficiency, not being reliant on other provinces except on an emergency basis. Given the need to expand the electricity system with non-GHG-emitting generation, this notion of self-sufficiency needs to be critically challenged to decarbonize the economy over time at the lowest cost while keeping the lights on.

There is one example in the recent past of two provinces taking a different approach through the utilities in those provinces. I'm referring to Newfoundland and Labrador and Nova Scotia, and the development of Muskrat Falls and the maritime link project, which will connect the two provinces. When completed, it will not only facilitate large GHG emission reductions in Nova Scotia, but by connecting Newfoundland and Labrador to the North American grid, it will improve reliability in Newfoundland and Labrador. What was different about this approach was that it went forward more as a partnership than a traditional buy-sell relationship, with both parties having capital at risk. It was also supported by a federal loan guarantee that reduced borrowing costs, and those savings will be passed on to the customer.

Provinces working together as partners, with capital at risk, is key in my mind. It is not simple nor easy to do, but it needs to be the way forward.

It is also necessary to talk about who pays and how infrastructure is funded. The old regulated utility model was simple. The utility, regardless of ownership, got approval from an economic regulator, and based on the approval, raised financing, usually via debt and some equity. Recently merchant transmission lines have also been proposed and built, such as the Montana-Alberta tie-line. A merchant line has shippers wanting to access the market and sign contracts with the transmitter, who raises financing—again debt and equity—on the strength of the contracts. Both are valid models, although the merchant model typically has only been used in connecting jurisdictions with open electricity markets.

Beyond the issue of financing the building of infrastructure, there is the question of who ultimately pays for it. In the electricity sector, it has virtually always been the customer on a user-pay basis. In other words, the customer pays in accordance with how much they use.

Of course, there is also the possibility of a taxpayer-pay model either directly, in other words the government would provide a level of funding for the infrastructure, or by subsidies.

While the customer and taxpayer are usually the same person, where you start to blur the lines between the two and move away from a pure user-pay system is most notably in Ontario. Ontario provides another cautionary tale as we go forward. The electricity sector is a very capital-intensive sector with long-lived assets, but the math is very simple. Make large investments over a relatively short time and electricity prices rise rapidly as those investments are made and the costs start to flow to the customer. This fact must be understood with each capital decision being made. There will also be local impacts from all these decisions, whether it is large hydroelectric, wind, solar farms, transmission, urban densification, public transit, and so forth.

Lastly, there is Canada-U.S. trade. While over the course of the year the flow is biased from Canada to the U.S., there are times when the flow has been northwards. The relationship between Canada and the U.S. markets has been positive and beneficial on both sides of the border. Notwithstanding the current U.S. administration's position on climate action, there continues to be very positive signals from many U.S. states to increase trade, particularly with respect to non-GHG-emitting supply.

I spoke earlier of developing the interprovincial partnerships with respect to infrastructure. Enhanced sales of clean electricity in the U.S. market is another developing opportunity for interprovincial partnerships.

That concludes my remarks and I look forward to your questions.

[The Chair, Liberal, James Maloney]

Thank you very much.

All right, Ms. Ng, over to you to start the questions.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Thank you very much, gentlemen, for joining us today and sharing with us your comments.

I'm going to address my first question to Mr. Burpee.

Can you give us a point of view? There are choices the country has to make going forward about the priority that we give to increasing supply, if you will. What's your view about how much we do around modernizing or upgrading our electricity system versus the investments that we ought to be making around interprovincial interties. Where would those strategic ones be the most advantageous?

[Jim Burpee]

In terms of modernizing, there is no question in my mind going forward that, in any decarbonization scenario, the distribution grid is going to become far more complex than it is today. The consumer will get more involved in the electricity system through variable demand, how electric vehicles are charged, and what not. The transmission system, which overlays that and has to connect that, is also going to get more complicated than it is today. Any time we do renewal and upgrade, the way forward and how things are going have to be factored in.

In terms of strategic interties, whenever I look at a map of Canada, I always hear talk of the east-west grid. I have lived in northwestern Ontario for a period of time and flown over there a lot. There's not a lot of empty space up there, but if you look of our opportunities, I always think of Ontario-east, and Manitoba-west. There was some reference to that before. Manitoba and B.C. still have hydro resources to develop, and clearly, there are needs to reduce the use of coal and fossil fuels in Saskatchewan and Alberta.

It's a little different in Ontario in terms of there not being as much to displace now that coal is out. There is still some gas, but if we look at the use of electricity to displace transportation fuels and space heating, we see that we're going to need more. It's a question of how Ontario and Quebec will do a better job of working together, whether.... I'm not sure “competing” is the right term, but it's a different relationship in terms of where investments are made and how they're made. It's different from the past, but I always like to say Ontario-east and Manitoba-west are where the big opportunities are.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Thank you.

I'm going to turn my next question to Mr. Hinds, and thank you for sharing the map.

I have a similar kind of question to you about the opportunities around interprovincial interties and where you think there may be some good advantages for us to do it here in Canada.

[James Hinds]

In the sense that this has been looked at a lot of different times, I think the most recent iteration of a full east-west tie was back in 2005. TransCanada had done a study and was trying to rally some support for a full trans-Canada tie. We're not that far away.

Ontario is interconnected with a 115-kilovolt line into Manitoba, and I believe Alberta is interconnected up north with Saskatchewan. In theory, it's not difficult to create one. The question is how big the thing should be if you want to do a trans-Canada tie. I think to meaningfully affect the electrical flows, it would have to be quite big. The other gentlemen will have a valid opinion. I'd throw a number of 4,000 megawatts on it. The opportunity for us to do things interprovincially as opposed to doing them north-south, like we've been doing, is to try to follow our peak load across the country as dinnertime moves across the country, because that's when our electrical peak is.

I'll assume that there are no ringers in the room there, but the systems really do expand and contract depending on the time of day. I'll speak to the Ontario system because I know it the best. At night we're consuming about 10,000 megawatts. On a hot air conditioner day this past summer, we were at 21,000 megawatts. That pulse of doubling our effective capacity every single day continues all the way through the seasons. In Quebec it's even more dramatic because in the middle of winter they have most of their heating on baseboards, so their electrical peak is very high. I don't know the characteristics of the western system as well as I should. Certainly Marvin would be able to tell us what goes on in B.C.

I think the opportunity, if we're going to do it, has to be a significant opportunity to move it east-west. We know our interconnection is north-south, both in the western part of the country and the eastern part of the country, which are very big, and we know we have generally a ready market for our electrons down in the United States. The question would be, is it worth interconnecting in a meaningful way east-west?

[Mary Ng, Liberal, Markham—Thornhill, ON]

Is it?

[James Hinds]

There's a lot of math and a lot of electricity, and there are a lot of things that have to go on here, not the least of which is siting, which is huge problem for transmission. Any time you build something new, it takes forever to get transmission approved. It can take decades.

Perhaps the best thing that was done in Ontario was the setting aside of corridors 25 and 30 years ago in urban planning, which didn't deal with all the issues but certainly made it a viable alternative for us to build new transmission in Ontario to move generation around the province. Again, it's a question for study. My instinct, as a business person, tells me in the next... These are very long-life assets, too.

Let me abstract away from the political cycle, which is three years or four years. These assets live forever. The transmission corridors live forever. The generation assets live, in many cases, 50 or 100 years in the hydraulic case, and certainly in the nuclear case, 50 years, and in the gas case, 20 years easily, but we can repurpose them for at least another 10. These are very long-lived assets, so answering the question in the context of multiple decades is a business proposition that's worth looking at.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Does that business proposition, if done well and strategically into strategic regions, also enable a greater north-south intertie that is economically advantageous for Canada?

[James Hinds]

We're doing our own north-south interties right now more or less bilaterally. We keep augmenting our interties with the United States, in Ontario's case. I know Quebec has a line proposed in through Vermont and New Hampshire. I know that this intertie that's going down as a result of the Muskrat Falls coming out of Nova Scotia is going to tie into the New Brunswick interties. Presumably they're going to enhance that. Bilaterally the provinces tend to be working on a lot of different intertie options at any given time. Right now—correct me if I'm wrong, Marvin—I think they're twinning the intertie between Alberta and B.C. through Banff.

These things have always—

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Thank you very much.

[The Chair, Liberal, James Maloney]

All right, thank you.

Mr. Deltell.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Chair.

Thank you, colleagues and gentlemen. It's quite interesting.

My question will go directly to Mr. Hinds.

I was very interested in your diagram, especially because I'm from Quebec. As you know, Quebec is the most powerful partner in hydroelectricity, to say the least. What we can see now is that there is something to do about that. Following the questions of all my colleagues on this issue, do you have any indication how much it would cost if one day we had the same link coast to coast in electricity and hydroelectricity?

[James Hinds]

By the way, we fully respect Quebec—and this is not my map. This is the way the Americans look at this. From the point of view of a colleague, Quebec's interconnection with the eastern interconnect is seamless. I think the jurisdictional boundary that they draw in their map is only because Quebec has a different form of electricity system than the rest of us do. They have direct current, as opposed to alternating current.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Is that why we cannot sell our Quebec electricity directly to other provinces and to the United States, and why we have to build our own electricity transmission line?

[James Hinds]

That's not completely true. You sell a lot to the Americans through our transmission system. At any given point in time, you'll be selling to Ontario, and wheeling through Ontario and selling into the United States' grid. Right now I just checked, and we're probably wheeling about 400 megawatts of power from Quebec to New York for you.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

If we can sell it—