Natural Resources Committee on Oct. 16th, 2017

[The Chair, Liberal, James Maloney]

Good afternoon, everybody. Welcome back.

We have two witnesses joining us in the first hour to further our discussion on strategic electricity interties. We have, from DeMarco Allan, Lisa DeMarco, senior partner. We have Chris Benedetti from Sussex Strategy Group Inc. Thank you both for joining us today.

The format, in case you don't know, is that we'll give each of you up to 10 minutes to make a presentation, following which we'll open the floor to questions from around the table. There are earpieces for you should you need them for translation, because you will certainly be asked questions in French and English.

I will turn the floor over to Ms. DeMarco.

[Lisa DeMarco, Senior Partner, DeMarco Allan]

Thank you very much, Mr. Chair.

Thank you very much, everyone, for the invitation to appear.

My name is Lisa DeMarco.

I am the senior partner of DeMarco Allan. What I'd like to do today is cover four main things with you. First let me tell you a bit about where our perspective comes from, a little bit about DeMarco Allan. Secondly I'd like to contextualize our comments today, look at interties in the context of the indigenous, the trade, and the climate context, and within that context, highlight what in my view are the real problems that the Canadian energy strategy and the pan-Canadian framework are trying to solve.

Finally, I will put forward some thoughts for your consideration on a path forward, a path forward that leverages on co-operative federalism, indigenous partnerships, and strategic trade.

I'll note that in the future you will have a copy of the presentation that we're working from, which includes a map that we've taken some time to develop. It outlines all of the interties in the country, and it juxtaposes the emissions in each jurisdiction. It does so by giving relative sizes of dots. In that context, we have overarching NAFTA negotiations that are now ongoing, and we have a host of indigenous considerations and partnerships that are working their way out and leveraging on the Truth and Reconciliation Commission and the developments with indigenous peoples of Canada.

In general, as the world transitions to a lower-carbon economy, we want to see electricity move from areas of tiny dots, low-emissions jurisdictions, to jurisdictions of big dots, high-emitting jurisdictions. Canada has a wealth of tiny dots. It's my strong view that in particular we should capitalize on the wealth of clean energy resources that we have.

Where is that view developed? What is the perspective that we're bringing to bear?

DeMarco Allan LLP is Canada's first clean energy and climate boutique law firm. I made the decision to literally throw all my eggs in the confidence of this committee, this table, and leave a global leadership position in a global law firm practising energy and climate law to start up a boutique firm. We've grown from three partners to 10 in the course of the last three years. We provide services to oil and gas companies, environmental groups, first nations, electricity companies, governments domestically and around the world, and we've been actively involved in the United Nations negotiations for a period of almost 20 years.

Our perspective is intensely Canadian but internationally informed, so it's from that perspective that I'm of the strong view that we are sitting on a wealth of clean energy resources. In particular, we have the opportunity to be an extraordinary clean electricity exporter. We can do that not simply through exporting the commodities but also by exporting services: clean energy know-how; fantastic engineering services; world-leading expertise on carbon capture and storage, in the nuclear area, in renewables; and last but certainly not least, world-leading expertise in electricity storage, effectively the holy grail that we've all been trying for.

You'll see once you have the associated map in front of you that there is considerable opportunity for all of the low-emitting jurisdictions within Canada to export south, and particularly in the central Canada region, for exports between lower-emitting jurisdictions in B.C., Manitoba, Ontario, and Quebec inward to Alberta and Saskatchewan to facilitate a transition to a lower-carbon economy in an efficient manner that does not effectively strand economic assets. Many of my comments really look at what the key problems are. How do we get to that end goal through the Canadian energy strategy, through the pan-Canadian framework, and solve for what I believe are four key problems?

The first challenge that we're facing is facilitating an economic transition to a low-carbon economy via the electricity system. A 30% reduction by 2030 is not a simple goal. We will need to facilitate electrification and fuel optimization in transportation, which constitutes 24% of our emissions profile; in buildings, which constitute 12% of the country's emissions profile; and in oil and gas, which constitute 26% of our emissions profile. Specifically, much of the oil and gas sector is powered through higher-emitting electricity and has the opportunity to move to a lower-emission source.

The second problem or challenge that we're trying to solve is with regard to optimization and innovation in the Canadian energy system. It's my strong view that efficiency is lost in fuelism. Instead of solving for how much of what type of fuel should produce what type of electricity, we should be solving for carbon. Let the system, the system operators, and the companies bring to bear their wealth of knowledge to solve for a carbon target.

Third—this is a big one that's near and dear to my heart—we are blessed with extraordinary zero-emissions power in this country, so much so that we waste a massive amount of clean, green, cheap electrons. Out-of-date electricity market rules, a lack of energy storage, and trade dynamics resulted in 4.7 terawatt hours, not gigawatt hours, of spillage of the cleanest, greenest, hydro power and a total of 7.6 terawatt hours of zero-emissions power in Ontario alone in 2016. Just to put that in context, that's about equivalent to a 1,100-megawatt power plant operating at 80% efficiency being wasted. We have to solve this problem.

Last, but certainly not least, we have to solve the problem of indigenous energy poverty. Reliability in certain indigenous communities was 2,081% worse than for their southern neighbours, and 400% worse than similarly situated northern neighbours. This is a problem.

Where do we go? What's the path forward? We have six recommendations for you.

The first is that Canadian clean energy and energy services should be a dominant Canadian export. The second is that enhanced intertie capability in jurisdictions with large GHG intensity disparity and economically efficient export opportunities are part of the solution, but not the whole solution.

Innovation in the form of energy storage, carbon capture and storage, very small modular nuclear reactors, enhanced trade, indigenous partnerships, and measures to minimize electron waste are also integral. Consider whether it would be appropriate to have a provincially led, federally supported, industry staffed committee to work through in a co-operative federalist manner how to maximize clean energy exports.

Consider also how you can use article 6.2 of the Paris agreement on climate change to maximize opportunity, and finally, respect the constitutional division of powers in a way that enhances the benefits of regional diversity and does not emphasize the challenges in an east-west manner.

Those are my comments. Thank you.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Benedetti.

[Chris Benedetti, Principal, Energy and Environment Practice, Sussex Strategy Group Inc.]

Thank you very much for inviting me to be here today.

As the head of the largest energy and environment public affairs practice in Canada, I am proud to lead a team that has had a lengthy history of representing and advising energy stakeholders on the intricacies of electricity system planning, policy, regulation, and procurement. Having entered the consulting area during the period of electricity market opening and deregulation across North America in the late 1990s, I have seen a myriad of policies and imperatives that affect the shape and scope of electricity markets, particularly in my home province of Ontario.

From the initial thrust to encourage private sector investment in a system that had become overwhelmed by aging assets and questionable reliability, to the transition of coal-fired generation to natural gas and renewables starting in the 2000s, to the emergence of expanded conservation and demand management, embedded generation at the distribution level, new technologies, products, and services have been emerging at an incredible pace, challenging conventional notions of how we supply and we use electricity.

Many of the witnesses who have appeared before this committee on various facets have spoken on regional differences in our electricity markets. They've also noted the importance of carbon policies and how moving to cleaner and lower-emitting forms of power is of increasing importance on both sides of the border.

Notwithstanding the recent proposed repeal of the clean power plan by the Environmental Protection Agency in the United States, I believe that economic rationalism, securing the lowest marginal resources to maintain electricity reliability across markets and jurisdictions, and doing so through low and non-emitting resources, is completely possible, if not probable.

The topic for today is the strategic role that interties can play in that process. No doubt can be given on the various attributes of an integrated Canadian electricity market from east to west or, perhaps more appropriately, from Ontario east and from Manitoba west. Some have noted the importance of seeking new markets in the United States, and the historical and continued importance of resources in Quebec and Atlantic Canada serving the eastern seaboard.

I will focus my comments on the future of the Ontario electricity market and how system planning and policy value related to interties will increase in the future.

Two dynamics are arising that will support additional intertie usage and development in the future. First, there is a need for greater flexibility to maintain reliability while securing new capacity and regulation services that support added variable and embedded generation in the province. Second, there is a value in utilizing interties to help secure new, low-cost energy supply when needs arise in the coming decade.

As reinforced in the Ontario Independent Electricity System Operator's, May 2017, Ontario-Quebec interconnection capability technical review, on an hourly basis, Ontario's wholesale electricity market economically schedules energy transactions to and from Ontario via the interties, providing an important balancing function that helps address the peaks and valleys of electricity demand, and ultimately, lowers costs to consumers.

Electricity trade provides valuable operational flexibility that helps the IESO manage increased variability as more wind and solar resources are integrated into the system, as more generation is connected at the distribution level affecting demand for grid-supplied energy, and as consumption patterns become less predictable.

Ontario continues to witness significant growth in these types of resources. Reliability in the Ontario market today is strong due to a continued build-out of conventional, utility-scale, and distribution-enabled resources across the province. Regulatory and policy areas have adjusted to support the growth of these resources over time. However, as we add these types of resources into the Ontario supply mix, and as residential and consumer businesses are looking to self-generation through mechanisms such as net metering and cleaner forms of supply, enhanced resilience in the market will be required to support future needs.

Intertie transactions can be beneficial, as they can measurably improve the reliable, cost-effective operation of Ontario's power system. According to the IESO, interconnected electricity markets provide a significant opportunity to officially utilize the energy generated from a diverse range of resources over a much greater geographic area, thereby lowering the cost of producing and managing electricity for all parties. Interties with neighbouring jurisdictions expand the options available to meet system needs, and Ontario's interties have, according to the IESO, provided both reliability and economic benefits to the province for over a century.

The need for new resources in Ontario for the coming years is clear, and we expect that this will be outlined in the anticipated release of the long-term energy plan. As we can see from the IESO's 2016 Ontario planning outlook, under all scenarios the need for new supply resources will arise in the early 2020s, particularly to maintain reliability following the decommissioning of the Pickering nuclear generating station.

Interties can provide a beneficial option to system planners in securing new resources. This was underscored in the recent approval by the National Energy Board of the Lake Erie connector, a merchant HVDC intertie proposed to connect Ontario to the PJM market via an underwater cable.

As was stated by the NEB, “the NEB...determined that the project would provide benefits to Indigenous, local, regional, and provincial economies, allow greater flexibility for two large energy markets to meet changing energy needs, and increase market efficiency for Ontario and its rate payers.”

To conclude, as more and more jurisdictions set carbon policies and emission regulations that dictate the supply mix and emission profiles of the electricity sector, understanding and tracking the attributes of electricity generation is a developing and evolving need for electricity system operators and policy-makers.

Numerous jurisdictions have implemented some form of tracking system that collects and tracks generation attribute data. The key elements provided by these tracking systems vary across jurisdictions but generally include tracking emissions attributes for every megawatt hour generated, calculating average and residual emission rates, tagging emissions attributes from power source to sink, tracking interjurisdictional power transactions and inter-registry imports and exports, supporting carbon allowance adjustments for voluntary markets, and making public reports to provide transparency.

Ultimately the goal of these tracking systems is to avoid the double-counting of attributes or emissions savings tagged to specific imports and exports. Today, robust registry and tracking systems exist in PJM, NE Power Pool, and the New York ISO, while Michigan has a renewable energy certification system in place. We believe that Ontario will also develop such a protocol as a matter of course.

I hope this provides some additional usefulness to the committee in its deliberations, and I look forward to your questions.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Harvey, you're going to start us off.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Thank you, Mr. Chair.

I'd like to thank you both for being here, of course.

Ms. DeMarco, I want to start with you. I'm really intrigued by the last page of the handout, which I know most of us didn't get, but I did. Specifically, I want to start with the last two points, because I think they're really tied together. I'd just like you to elaborate a little on how you think a collaborative conversation amongst multiple levels of government and indigenous people might start, what you think the first steps of that should or could be, and what you think the strengths are to approaching it from that angle.

[Lisa DeMarco]

As the youngest of nine children, I often say the power to convene—who holds the wooden spoon—is very, very powerful. To the extent that the federal government can facilitate the convening of provincial entities and provincial entities can facilitate the industry expertise being at the table, it will be extraordinarily powerful.

I understand that a number of those initiatives are already under way, but the one that's top of mind for me is in relation to the NAFTA negotiations, particularly in relation to NAFTA chapter 6, article 605, which is up for considerable debate. This appears to be a bit of a sleeper issue right now, but in my view, it has very extraordinary potential impacts. If we can leverage an existing process that relies on co-operative federalism to be successfully achieved, that's one way.

As well, just last week we started additional dialogue regarding the energy generation process and really getting people through each and every forum around the table to be talking constructively, and not destructively, about how the country can co-operate and really enhance the benefits of diversity. That's certainly one aspect.

The second point would be in relation to the Paris negotiations. We've been sleeping on the negotiating floor for the last 20 years, helping out with a number of governments as they have transitioned to trying to get what happened in Paris to happen. Certainly, as Canada has taken the lead on the markets provisions of the Paris agreement, specifically article 6.2, and given that the U.S. has withdrawn from Paris, there is opportunity. There is considerable opportunity for Canada to leverage the emission-reducing effect of its clean electricity exports to a soon-to-be non-Paris member, and we should be negotiating that accounting and those provisions into any agreements with the U.S.

Those would be two top-of-mind concerns.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Thank you.

In your presentation you spoke about carbon targets. Although it's not directly related to interties specifically, it follows up on an earlier conversation we've had in this community around emitting sources, and I think at the time it was specifically around clean tech.

I've always been a big believer that we should fund outcomes, where we want to get to. Maybe you could elaborate on that a little bit. What are your thoughts around carbon targets, and how can that tie into this greater conversation?

[Lisa DeMarco]

Looking at carbon targets, and specifically an emissions outcome, what I've called solving for greenhouse gases as opposed to solving for specific elements of the economy that may or may not emit is the way to go. That's certainly a very principled approach, where you can put regionalized creativity and specificity into achieving a goal. The way that goal gets achieved in Alberta might be quite different from the way that goal gets achieved in Nova Scotia, and may be quite different from the way it gets achieved in Ontario or Quebec, and each is valid.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Perfect. That was the answer I was looking for.

My last question is related to your map and the idea of the distance between the smaller circles, the lower- to the higher-emitting areas. One of the common themes we've heard is the cost of getting that energy to market because of the distance it is from the marketplace.

How do you think the federal government can play a role in helping to facilitate that part of the conversation around levelling the playing field so that we can access some of those lower-emitting sources as part of a broader conversation around our energy sovereignty in this country?

[Lisa DeMarco]

That's also a great question, and let me start with an answer that's going to appear trade protectionist but is entirely trade valid. Under the NAFTA now, under the WTO GATT agreements, labelling is appropriate, and I don't think even we, as Canadians, appreciate just how clean and green our energy is. We are among the top three world-leading jurisdictions. I'm going to say it again, the top three world-leading jurisdictions on clean energy. I would love to see a label slapped on our exports and have it done in a trade-compliant manner.

Secondly, Chris alluded to the process of NERC tagging and to the associated currently existing infrastructure to tag the emissions associated with a particular electron to facilitate the export of the cleanest electrons at a premium. There's no reason we shouldn't be looking to ensure that our imports are at least as clean as our existing generation, and our exports see a benefit from that. Certainly I think there are extraordinary opportunities there and lots to come over the next years.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Perfect.

Chris, my next question was for you. I'm going to run out of time, but hopefully Mark will get to you.

[The Chair, Liberal, James Maloney]

You have run out of time. Sorry about that.

Mr. Schmale.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

Thank you very much, Chair.

I appreciate you both being here.

I will start with Mr. Benedetti. I have a question for you as well.

Mr. Benedetti, you were talking in your speech about a number of issues. I just want to get your thoughts because you are from Ontario, as am I, on how the provincial government has handled the energy situation so far.

[Chris Benedetti]

That's an expansive question, and I thank you for that.

It goes back to some of my remarks about when the current provincial government came into office in 2003, I believe. I recall, at that time, the province was in a deficiency situation. There was talk about putting in diesel gensets in the Toronto harbour to deal with reliability issues to the grid.

We were in a very different place. Over the last many years we have transitioned, largely, the electricity system, both from a generation standpoint, from a wires standpoint, as well as at the load from a conservation standpoint to, in effect, modernize the system quite a bit. That's certainly come at a cost, and I know the province has addressed that, even as recently as within the last 12 months.

Those are trends that are being replicated in many other jurisdictions. To Lisa's point, in Canada, we have the benefit of having a very robust and relatively clean electricity system. In the United States, it's not so much the case. Quite often when the Ontario market is compared, we are compared to American markets and Canadian markets, but a lot of those markets still have aging infrastructure. They haven't modernized their generation fleet, and we're starting to see a bit of churn happening in some of those markets. They are going through many of the same types of undulations that we've seen in Ontario.

The one Canadian example that we're seeing of that today is in Alberta, of course, as it transitions away from its coal fleet to natural gas as well as renewables.

We continue to be in a system where we have good reliability. The lights are on in Ontario. That will change over time as older resources come off, particularly on the nuclear side. That will require greater—as I mentioned—resiliency in the market. A lot of the tools that have been put into the system, ranging from smart meters all the way through to cleaner forms of generation, and more generation at the source of demand—or “in the load” as we often refer to it—will help the market adapt to some of those changes over time and to maintain the reliability in the system.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

What was that called, when it was in demand? You just had a word for it.

[Chris Benedetti]

Load...?

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

Yes, it was “in the load”.

When we look at all of that, there are wind turbines coming in and the Green Energy Act is basically steamrolling municipal jurisdictions. As you pointed out, most of the time when the energy is needed, many of the times the wind is not blowing. This goes back to the storage issue. How close, in general, are we to getting there?

It seems that everyone's talking about it, but we're not quite there, and I'm sure when the wind turbines are turning at night, that would be helpful to store that energy. We can't, so we're selling it on pennies to the dollar and we're overpaying for hydro. How far out are we?

[Chris Benedetti]

Certainly, the perspective of the system operator is always a good one to solicit in terms of looking to see how these resources are being deployed in the market and at what marginal cost.

There's been a lot of learning in Ontario in terms of adapting to variable generation, generation that isn't on demand when you need it. For example, one of the things, the evolutions, that we've seen in the market is the manoeuvring of nuclear, particularly at the Bruce Power asset in Kincardine.

The system has adapted quite a bit, and there are new tools in place to better predict, not only when that variable generation will be able to supply into the market but also how the system operator is optimizing the use of those assets to lower costs. We're seeing that this is continuing. The technology is evolving quite a bit.

I'll pick up on a comment that Lisa made about storage and the opportunities for storage. Obviously, part of the challenge with any electrical system is that when you supply the electricity, it might not align perfectly with when you require it. Of course, the thing about electricity is that it's all about physics, in terms of the creation of the electrons and when they're actually consumed. The opportunity that lies in harnessing storage is quite vast in terms of helping to level the balance of the system between periods of high demand, or as we refer to it “on the peak”, and periods of low demand, or the “off peak”.

In the context of interties, which I know is the subject matter for this committee, they have always been used by the system operators as “virtual storage”, in their ability to transmit electricity across the tie lines to maintain reliability in the system. You move electricity out of your market when you don't need it, to a market that might require it and vice versa. We see that quite a bit between Ontario and Quebec, but we see it between Ontario and New York, and Ontario and Michigan as well. That's something that will increase, we predict, in the future as well.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

How do we fix the problem we have in Ontario with some of the highest energy rates and people overpaying in the billions? How do we fix that? Interties are a long-term solution. I think you've both said it. How about the people who need help now? How do we fix this problem? I know this is mostly provincial, but I'm curious.

Ms. DeMarco, do you want to start? Then I'll get to Mr. Benedetti.

[Lisa DeMarco]

Let me follow up first and foremost on his comments on storage. You asked very specifically about how far away we are.

We're there. This is not a science project. This is now the third procurement for storage, which just closed. We have a total of almost 100 megawatts developed commercially. I use the term “commercially” to bridge to my next answer. In the province, these make sense. They have an associated economic benefit across the energy spectrum: from customer to distribution, to transmission, and to generation. It provides the kind of flexibility between each of the four elements of the electricity sector. It's effectively the Swiss Army knife of electricity.

I think that enhancing our storage capability.... The ratio that's come up in Texas in PJM and elsewhere is about 10:1. For every 10 megawatts of renewables, you need one megawatt of storage to facilitate the electricity balance. As a Canadian leader in storage now, we need to enhance our ability to actually provide it at an appropriate scale. That's one element.

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there. I'm sorry.

Mr. Cannings.

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

Thanks to both of you for being here today.

I'm going to start with you, Ms. DeMarco, and maybe give you a chance to expand on some of the challenges that you whipped through too fast for me to write down. Thanks to the Chair, I did get a copy of what you said.

Let's start with the waste piece that you mentioned, the challenge around waste. You mentioned outdated market rules, lack of storage, and trade dynamics. How does that relate to these elements you have on the path forward? What do we have to do to get rid of that waste?

[Lisa DeMarco]

One thing that is currently underworked is the development of appropriate market rules. For many of our competitive markets for electricity, the rules were developed before storage was a twinkle in the eye. The technology is different at this point. Similarly, we have more distributed energy resources that are coming to bear. Facilitating enhanced and updated market rules that make sense is one element. Secondly, there are a number of regulatory barriers in place.

For example, in Ontario there are rules that stipulate that energy storage is paid wholesale charges when it actually generates, but has to pay much higher retail charges when it loads at the least-cost times. It doesn't make sense. It should in fact be the exact opposite. We've been undertaking a number of initiatives to work with the Ontario Energy Board, the Ontario Ministry of Energy, and all regulators, including the Independent Electricity System Operator, to start getting those anachronisms out of the system.

In particular, given the amount of spillage of zero-emission power, we need to up our game, because 7.6 terawatt hours is a huge amount of green, cheap, Canadian electron waste that we should not be incurring. Looking at enhancing intertie capability in accordance with and in coordination with storage, so we can manoeuvre as efficiently and effectively as possible, is very important.

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

Your first point was on the economic transition to a low-carbon economy, this transition that we've all heard of and would love to work toward through electrification. What do you think the top priorities there should be? What is the low-hanging fruit for the federal government, especially in terms of what we could recommend?