Natural Resources Committee on Oct. 16th, 2017

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

Thank you.

Thanks to the witnesses for being here today.

I'm from British Columbia, so I'd like to start with Powerex and ask a few questions to expand on what you were talking about, especially around the barriers you mentioned to the transmission. You have transmission transfer limitations, and market design. You talked about exports to California, exports to Alberta.

Perhaps I should start by thinking about the Alberta situation and what it would take in terms of new interties between B.C. and Alberta to change that formula for Powerex, and Alberta for that matter, in interchange of electrons.

[Mike MacDougall]

We really need to focus on the usable capacity we're going to get for the investment. As I mentioned in my introductory remarks, the existing facilities don't operate anywhere near their design capabilities. The very first things we should be looking at are investments that could be made that could bring that capacity back up to get another 300 megawatts, maybe 400 megawatts, on those existing facilities, at far less money than what new facilities would cost.

Then, when we start talking about the new facilities, again we have to be cognizant that electricity is a tricky commodity. There are a lot of interactions with how electricity flows over the grid. In designing the interties, there are ways that you can put in facilities that don't get you very much transfer capability, and then there are ways we can put in facilities that will get us much more.

I gave the example in my talk about when Alberta was connected to Montana. The design choices that were made ended up not changing Alberta's overall ability to bring electricity in, but just allocated capacity that was already there with B.C. over to Montana. If we were to build a new link between B.C. and Alberta, we'd want to minimize the amount of capacity that would ultimately get bled out among all the existing facilities and try to create as much incremental capacity as possible.

In getting to the next piece, the incentives, I'll turn it over to Mr. Bechard, in terms of what would be necessary to support that investment.

[Tom Bechard]

Before we go too far along the road of trying to figure out how we're going to build more transmission capacity, we're working right now on trying to figure out whether there's an economic case to be made for better coordination between the provinces. We also have to work out how we're going to use the line.

There's no point in building a line if you don't have some agreement on how it's going to be used. Whether that's used to displace building new gas generation in Alberta, or simply to get operational efficiencies for when there's excess in Alberta.... You know, if they turn to wind as their new source for replacing all of the coal, there will be times when the wind is blowing and times when the wind is not blowing. Rather than using only gas generation to help them with that, if we had a long-term agreement on intertie to help them out, maybe they could reduce some of the spending on building gas plants and we could achieve some capital cost savings with the intertie build.

That was kind of a long-winded answer, but I think the short answer is that we need to get the commercial entities together on both sides of the intertie, figure out how we could use an intertie if we had it, and then work out what we need to build.

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

To follow up on the electricity market situation, this is all new to me. I'm trying to learn.

We just heard from Ms. DeMarco in the previous hour about some strange pricing mechanisms where you're paying retail prices in situations where it would be better to pay wholesale, and vice versa. I'm thinking more of your exports to California now and how that market works and what your profits are, or when you make a profit and when you don't. How does that work?

Is there any way we could have better market regulation or a market model that would facilitate the movement of electricity between...well, both California, and Alberta and B.C.?

[Tom Bechard]

As I said in my verbal address, the carbon tax in Alberta is going to go a long way to helping that. In January next year, when they start to implement their CCR in Alberta—that's the carbon competitiveness regulation—that's going to raise the price of coal generation there relative to other sources of generation, and it's going to send more power flow to Alberta from B.C. That in itself will do that.

We'll have to see how that pans out. At that point, we could start to see the intertie actually limit deliveries that go to Alberta. The intertie hasn't been much of a limitation in the last couple of years because Alberta prices have been low relative to California prices, so there really hasn't been much of a limitation on what we can send from B.C. to Alberta at most hours. I think maybe when we see the CCR go in place, and as that CCR gets more stringent, I expect there to be more demand for transmission to Alberta. That in itself will help a lot. Carbon taxes do work. Where they've been put in, they certainly work, and I think that's a great mechanism to make things happen in our business.

[The Chair, Liberal, James Maloney]

You're right on time.

Mr. Tan.

[Geng Tan, Liberal, Don Valley North, ON]

Mr. Thériault, the Conference Board of Canada recently published a report called “Power Shift: Electricity for Canada's Remote Communities”. I want to focus on the word “remote” and how the interties can benefit remote areas.

In your opinion, how many remote areas can benefit from one intertie going through a typical rural region? How many remote communities can be linked to these interties? I'd like just a rough number.

In the case of a very remote community, where a connection to any intertie is not feasible, what other technologies or solutions can be used to help with those remote communities? Furthermore, can proximity to an intertie connection, for example, 100 miles away or even a few hundred miles away, provide any benefit for very remote areas?

[Louis Thériault]

There's no easy answer to this. If it was straightforward and economically viable to supply electricity to remote communities, it would happen now. If it's not happening, it's because there's a major cost associated with bringing all that infrastructure to communities that are spread throughout a really large territory. It's a challenge for a country like Canada.

On top of that, you have weather and so on. Then you start moving jurisdiction by jurisdiction: how the base load is constructed, how the peak loads are constructed, and how the system's designed by the province. There's no easy answer.

You mentioned a general average. That's the challenge. There's no general average, because remote communities are really different in terms of their economic development and in terms of which group you're talking about. If you're talking about indigenous groups, whether you are talking to Inuit groups that are farther north or to first nations—depending on which first nations and even within those first nations—then you have different levels of knowledge and socio-economic development.

As part of the board's work on remote communities, we have an initiative called the “Centre for the North”, and we've been exploring that for the last six years. The overarching message from all the work is that it's really hard to find a homogeneous, blanket solution to some of the challenges, whether it's about infrastructure development, indigenous youth, or governance. Each region has its own specific fabric, characteristics, and DNA, so I'm sorry to say it but I can't answer that with a rule of thumb.

The second point of your question, around solutions for really remote communities and probably those that are further north, is this challenge of storage. Right now, diesel is the main source of fuel. It comes once or twice a year based on a guess as to how much is going to be needed for the season, and then you just hope it's going to work out. It's really polluting, it's not really efficient, it's noisy, and there are all kinds of challenges associated with it.

Wind power and storage capacity is starting to emerge as an option. It's not the case for hydro and nuclear, but for a lot of the renewables—say, if you're thinking of offshore or onshore wind—the big challenge is the battery and how you accumulate that energy. Some technologies are starting to emerge on that front. We've talked about this, in fact, as part of our work. It's not scalable and economically viable yet, but as part of the low-carbon transition, it's definitely something that needs to be considered.

I'm sorry, can you rephrase your third question for me, please?

[Geng Tan, Liberal, Don Valley North, ON]

Suppose my community is 200 miles away from an intertie. Can it get any benefit from that construction or intertie, or any infrastructure?

[Louis Thériault]

There's a financial component to that. It can be either a political decision to bring it, or there are some technologies around local grid options that could be deployed. If you're thinking of low-carbon options, we're back to my point about batteries—or storage, more largely defined—for options like solar or wind.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you.

My second question is actually for both witnesses. We can clearly see the benefit of the increase in the number of interties in Canada. We know that building transmission capacity is important, but what about also improving the efficiency of the existing energy transportation system in order to reduce waste and energy loss? Just how focused should we be on upgrading the energy transmission efficiency in order to reduce energy loss?

For example, on one side, I can invest money in building more interties, and on the other hand I can also invest money on upgrading the aged infrastructure, like the transmission lines. How do we find this balance? Do you want more interties or do you want more money for...?

[Mike MacDougall]

That's a tricky question for me, not being an engineer. I'm aware that there are options since some of these lines have been built. I think there are new conductors that could decrease the losses. Some of the change, I think, in the technology from the AC to HVDC for going longer distances can also help, but I don't think we've seen any kind of analysis of the cost benefit on that.

In fact, the place where you might want to be focusing such a thing is how much mileage you can get out of the electricity that is delivered already, the efficiency at the end points of use as opposed to the efficiency of the delivery over the wider grid. I think a lot more of the losses occur as you step down into distribution and the end point as opposed to bulk transmission.

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there, unfortunately.

Mr. Falk, we're going over to you.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I'd like to start with Powerex. During your presentation, you indicated you exported 10% of your power to Alberta, or 10% of your exports were to Alberta. You brought back 3%.

What are the pricing models for exporting and importing? Are they equivalent? Are you paying them the same as they're paying you?

[Tom Bechard]

The two provinces have very different market models. Alberta—

[Ted Falk, Conservative, Provencher, MB]

In other words, no.

[Tom Bechard]

We tend to buy overnight when they have surplus, so either their generation is backed off or they're not running any of their expensive generation, and—

[Ted Falk, Conservative, Provencher, MB]

So they may as well give it to you.

[Tom Bechard]

—we buy when it's inexpensive, and then we provide energy when it has higher value to them. On a peak when they'd have to run an $800 facility, we're selling it to them and keeping the costs down for Albertans.

[Ted Falk, Conservative, Provencher, MB]

The pricing models are very different, depending on whether you're exporting or importing power.

[Mike MacDougall]

The prices are set by the Alberta market through the operation of its power pool. The model is the same in both cases. The result of the value of energy is different depending on the level of demand. We tend to be a buyer when the demand in Alberta is low, they're in surplus, and the prices are lower, and we tend to be a seller when demand is high in Alberta and the value is higher.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

Mr. Thériault, I'd like to ask you some questions, as well. This government is moving our economy very quickly and aggressively into electrification. I'm not totally opposed to that, but looking at our existing energy sources, fossil fuels, we have multiple ways of transmitting that energy, be they trains, transport trucks, ships, flying into northern communities, and pipelines.

With electricity we have one source of transmission, and that's through the grid. We're talking about interchanges here, and I'm wondering, in your opinion, do we have sufficient redundancy in the system? We're now sole-sourcing an energy product, and I'm concerned about sole-sourcing energy products because there's a vulnerability there.

You've done a lot of work in the past on national security issues. How vulnerable is our grid? Are we as a country susceptible to terrorist attacks on our grid or malfunctions of our grid the more we become electrified?

[Louis Thériault]

Cyber-risks or international security risks are there all the time. In fact, we responded to the OPEC crisis in 1973 exactly for these reasons, because we felt we were exposed. It's part of the equation.

In our work, we talk about what it would take to meet the Paris agreement to decarbonize the economy. In that context, you need to think of electricity and clean electricity. There are no technological solutions or any other way out. It goes with cars, how we move, how we play, how we work, how we do business. It's throughout, and electrification through clean energy electricity is a central element. When you bring the other dimensions to this, it adds an element to the analysis that definitely needs to be considered.

That's why I like to insist on a made-in-Canada carbon policy that includes options for delivering to the rest of the world, where it's much more carbon intensive, where the regulatory standards are not Canada's standards, and where security systems are not just in Canada but across the world. We are a provider of solutions, and we can turn that into a great opportunity for Canada.

A domestic-only, made-in-Canada within our geography, approach is extremely self-limiting. We need to start opening up options that go beyond, because at the end of the day, that 450 parts per million we're talking about when we consider limiting temperature growth to two degrees, it's a world problem. We need to find a world solution. Canada, by definition, is a small, open economy, and it turns out we can offer a lot of elegant solutions to the rest of the world in this new carbon transition.

[The Chair, Liberal, James Maloney]

Thank you very much. That's where we're going to stop for the day.

Gentlemen, thank you very much for joining us today—in the case of Powerex, we thank you for joining us twice. We appreciate your contribution to the committee.

We will see everybody on Wednesday. This meeting is adjourned.