Good afternoon, Mr. Chair and members of the committee.
Thank you for this opportunity to address the committee on the topic of strategic interties.
My name is Mike MacDougall, and I'm the director of trade policy with Powerex. My colleague is Tom Bechard, and he's the managing director of gas and Canadian power.
Powerex is a wholly owned subsidiary of B.C. Hydro, responsible for marketing electricity, natural gas, and renewable energy products across western Canada and the U.S. Today we would like to give you the perspective of a user of the transmission system as to how the existing interties function, how additional value might be gained from the existing facilities, and some of the circumstances necessary for new interties to provide benefits, including greenhouse gas reduction benefits, to users of the system and the ratepayers of the utilities that build them.
First, I will give you a bit more perspective on Powerex so you can understand what informs our perspective on these issues. Second, I will discuss the nature of these interties from the everyday perspective, that is, what is available for use by customers of these systems. Then Mr. Bechard will provide you some information on how the various markets provide signals or not to make use of the facilities for economic exchange and how they incent or not the use of external clean generation resources to reduce greenhouse gas emissions. Lastly, he will cover what economic incentives might be necessary to support the expansion of new intertie facilities.
As I mentioned, Powerex is the wholly owned subsidiary of B.C. Hydro. We were formed in 1988 and have nearly 30 years' experience participating in energy markets across North America. In 2016 we were the second-largest exporter of electricity from Canada to the U.S., responsible for roughly 13,600 gigawatt hours, or 19% of Canada's total exports to the U.S. We were also the largest importer of electricity from the U.S. into Canada in 2016, bringing 8,000 gigawatt hours, or 86.5% of all imports to Canada. We also buy and sell electricity in the Alberta market, with volumes representing on average 10% of our export activity and 3% of our import activity over the past five years.
In order to transact this volume of electricity, Powerex must purchase transmission services from a wide variety of transmission providers. Within the U.S., Powerex holds over 5,000 megawatts of long-term transmission capacity, spending in excess of $125 million per year on transmission services. One key concept we would like to share with the committee is the difference between the design capacity of transmission facilities and their everyday operational capacity.
For a user of transmission services what really matters is the operational capacity. B.C.'s connection with Alberta is nominally 1,200 megawatts when moving from B.C. to Alberta; however, the actual operational capacity is usually in the range of 430 to 600 megawatts, or only 35% to 50% of the design limits. Likewise, B.C.'s connection to the U.S. is nominally 3,150 megawatts, with a typical operating capacity of 2,500 megawatts, or roughly 80% of the design limit.
This difference is caused by a multitude of factors related to the design of the facilities, along with the operation of the grid itself; however, from a customer perspective, only the lower capacity is available to be used to move power. In the case where transmission rights are sold to users to support the cost recovery, as in B.C., this lower operational limit is also the amount that can reasonably be sold. In the case of B.C. to Alberta, roughly half the capacity is stranded and unable to be sold to recover the costs of B.C. Hydro's facilities.
When reviewing investments in strategic interties, we should first be considering whether we are getting the most out of the existing facilities. In the case of B.C. and Alberta, much of the limitation lies within the Alberta system itself, including choices made when the Montana-Alberta intertie was connected to the Alberta grid in 2013, resulting in a facility that did not increase Alberta's overall ability to import electricity.
Addressing the usable capacity of the existing interties is important from an efficiency perspective and could be substantially more economic than the cost of new construction.
In addition to the available capacity, one must consider whether users of the transmission system would see sufficient incentives to purchase the capacity made available by the transmission facilities and hence support the cost recovery of the investment.
For that discussion, I will turn to Mr. Bechard.