Thanks, Mike.
I would like to thank the committee for inviting us to speak today regarding strategic interties.
At a high level, it seems pretty clear that there is much to be gained, both economically and environmentally, from improved and expanded wholesale electricity trade between B.C. and Alberta. Alberta is a province transitioning from coal generation to additional natural gas and wind generation, and perhaps eventually solar generation as well. B.C. is a province rich in clean, flexible hydroelectric generation. This diversity in generation technologies between B.C. and Alberta should support mutually beneficial trade between the provinces. However, there are two key barriers that have hindered maximizing these wholesale electricity trade opportunities: transmission transfer limitations and market design.
As Mr. MacDougall noted, B.C. has had a significant surplus of electricity available for export; however, in recent years, very little of that surplus electricity has found its way to Alberta. Over the past few years, Powerex has exported the vast majority of this surplus to California, while less than 10% has been delivered to Alberta. In effect, clean electricity from B.C. has travelled thousands of kilometres to California, generally reducing natural gas generation levels in California. From the perspective of reducing carbon emissions, this seems inefficient, as B.C.'s clean surplus electricity could have been sent right next door to Alberta to reduce coal output.
Aside from the challenges with transmission transfer capability, as described by Mr. MacDougall, a primary reason for this outcome is the relative price signals provided by California's organized market, compared with Alberta's, for clean generation imports.
Fortunately, Powerex expects this situation to shift to some extent in 2018, as Alberta implements its carbon competitiveness regulation, or CCR. This CCR program will have the important effect of pricing Alberta's carbon emissions and raising the value of electricity imports. We expect that this will make Alberta a more attractive destination for B.C.'s clean surplus electricity, which is expected to displace Alberta's coal generation.
Although we expect that the introduction of the CCR program is likely to increase trade between the provinces, providing mutually beneficial economic and environmental benefits, opportunities exist to expand these benefits further.
In particular, as Alberta installs qualifying renewable resources, largely expected to be wind generation, under its climate leadership plan, it will require additional flexible resources to provide renewable integration services. While some of these flexibility services will be provided from Alberta's current and expanded natural gas generation fleet, B.C.'s resource mix is well situated to compete to provide these services, while further reducing greenhouse gases. For example, B.C. may be able to back down its flexible hydro generation and utilize Alberta's surplus wind generation when the wind output exceeds Alberta's ability to use it. Later, B.C. can return clean electricity to Alberta, displacing fossil fuel generation, when Alberta wind is not producing.
Achieving this outcome, however, requires at least two key areas of co-operation. The first one is a commitment to a fair, efficient, and robust market design and/or a long-term commercial arrangement that results in an equitable allocation of the short-term production cost savings, the environmental cost savings, and the investment cost savings, compared with Alberta going it alone. The second one requires expanding the limited transmission transfer capability between the provinces.
Importantly, both of these areas of co-operation must occur together. The economic and environmental benefits of market design improvements and/or long-term commercial arrangement will be significantly limited without expanding the current transmission transfer capability between the provinces. Similarly, expanding the transmission capability under the current market framework without a new commercial arrangement is unlikely to achieve the economic and environmental benefits required to justify the necessary investments in the new transmission facilities, or to equitably distribute those benefits between the provinces.
We thank you for your attention and will be happy to answer any questions.