Natural Resources Committee on Oct. 18th, 2017

[The Chair, Liberal, James Maloney]

Good afternoon, everybody. We are going to get under way here.

We have two witnesses in the first hour, and in the second hour we have one witness and then we have some committee business at the end.

Gentlemen, thank you very much for joining us today. The procedure is that each of you will be given the floor for up to 10 minutes for your presentation, and then we will open the floor to questions from around the table. There are earpieces there for both of you, should you need to be the beneficiaries of interpretation, because you will be asked some questions in French, I'm sure.

Mr. Stensby, you look like you are ready to go, so why don't we start with you? The floor is yours.

[Wayne Stensby, Managing Director, Electricity, ATCO Group]

Thank you very much, Mr. Chair.

I want to offer my sincere thanks to all the committee members this afternoon for the opportunity to provide my testimony.

My name is Wayne Stensby. I am the managing director for ATCO's electricity global business unit. For those of you who may be unfamiliar with ATCO, we are a proud Alberta-based leader in energy infrastructure development, with more than two million customers around the world, including over a million here in Canada.

It is our singular focus, day in and day out, to ensure reliable, accessible, and affordable energy. In doing so, we play a key role in enabling economic growth and the prosperity of the communities that we are privileged to serve. We are extremely proud of our long history of joint venture partnering, and in particular our partnerships with many of Canada's indigenous communities.

As I think about our Canadian operations, we own and operate electricity generation assets in Alberta, British Columbia, Saskatchewan, and Ontario. We operate an extensive system of more than 12,000 kilometres of transmission lines and over 75,000 kilometres of distribution lines in Alberta, the Yukon, and the Northwest Territories. Our newest business, ATCO Energy, is an electricity and natural gas retailer in Alberta.

As one of the very few publicly traded Canadian electricity companies that operate in Canada, with businesses across the entire electricity value chain and in multiple provinces and territories, we believe we are afforded a unique, holistic perspective on the potential for electricity infrastructure solutions that work to the benefit of all Canadians.

Indeed, when I consider the discussion point today, I note that we are presently constructing a 500-kilometre, 500-kilovolt transmission line known as the Fort McMurray west line, which we'll put into service in mid-2019. In 2015, we placed in service our eastern Alberta transmission line project, or EATL, which is a 500-kilometre, 500-kilovolt DC transmission line that serves to support the renewables build-out in Alberta.

With that backdrop, I am delighted to be speaking to you today specifically about strategic interties, which we believe offer a rare opportunity to achieve simultaneous positive outcomes across multiple areas.

The committee has requested that the witnesses address five specific questions. For these opening remarks, I'd like to take each of the five questions in turn, and then finish with a couple of additional thoughts.

The first question was about regional electricity independence. From our perspective, we believe the supply of electricity should be viewed using an overall systems approach, with an energy corridor across several provinces and to the north providing an important backbone that would enable the exchange of reliable and competitively priced electricity.

We would suggest that, rather than seeking regional independence, a strong overall strategy is to seek regional interdependence, working across provincial and territorial boundaries to ensure that the provinces and territories have an adequate supply of affordable, low-carbon electricity.

This interconnected grid could enable Canada to achieve a number of positive outcomes, including the reduction of reserves. Today, the provinces and territories each have the objective of providing reliable electricity under all scenarios. Therefore, each province and territory currently overbuilds generation capacity in order to meet scenarios of exceptional load. This results in a relatively inefficient system design, which incurs incremental costs that flow through to the consumer. If provinces and territories could instead draw from interties in order to facilitate some of these exceptional demand periods, some of this capacity could be avoided, and the savings realized by consumers. On a very high-level basis, we believe the avoided new-build capacity could represent a net present value of as much as $16 billion across Canada.

The second point is about increased resilience. As we face extreme weather events, and we note that they are becoming more frequent, an interconnected grid across regions improves resilience, making it less vulnerable to weather-related outages and reducing the time it takes to restore electricity following outages.

The third point is load diversity. Provinces and territories vary in time zones across our very expansive country and have staggered daily system peaks. lnterties enable provinces and territories to share capacity and meet the wave of peak demand as it moves from the east to the west across our regions. Provinces and territories could avoid the use of more expensive peaking plants that are presently in place today or wouldn't need to be in place in the future. Our very early high-level analysis would suggest that these savings could have potentially as much as $1 billion in net present value.

The challenge is of course that, given the wide variety of market frameworks, much consideration is required in order to land on methodologies that would allow the value to be distributed to all participants fairly and that it does not simply result in a wealth transfer across the borders of our provinces and territories.

With regard to the second question, low-carbon electricity distribution, in a typical year, both Manitoba and British Columbia export far more electricity to the United States than they do to other provinces. In fact, there are more than 30 major transmission connections between Canada and the U.S., yet there are relatively few interconnections of relatively limited capacity across the provincial territorial borders. While Manitoba and British Columbia have an abundance of hydroelectricity, Alberta and Saskatchewan are presently embarking on plans to significantly increase renewable energy and reduce the greenhouse gas emissions intensity of their grids. Interprovincial tie lines between these provinces would allow access to new and existing hydro resources that could have a powerful impact on meeting emissions targets across the country.

As well, there are many northern and remote communities that are meeting their electricity needs primarily through diesel-fired generation, with fuel that is transported either by a plane or across seasonal ice roads. Not only is diesel-fired generation uneconomic, adding to the already considerable cost of living in northern Canada, it is also at times unreliable. We firmly believe that reliable, cost-effective, electricity should be a basic element available to all Canadians. Given the abundance of current and potential hydroelectric resources in the west, and the opportunity to become grid-connected with the north, we envision that there are three high-level opportunities for the western provinces and territories, particularly, additional capacity and interties between Alberta and British Columbia, a larger scale Alberta-Saskatchewan-Manitoba intertie that would require an amount of direct current, and an intertie between Alberta and the Northwest Territories.

Question three refers to opportunities for alignment with the Canadian energy strategy. lnterties can facilitate the development of renewable energy resources to meet future demand. As Alberta, Saskatchewan, and other provinces and territories build out wind and solar projects, interconnection with the geographically separated or diverse renewables, or with dispatchable supply can provide important backup for intermittent generation. This allows the provinces and territories to avoid additional or unnecessary gas-fired generation that would otherwise be needed to meet the rapid changes in the intermittent renewable outputs. Our analysis, again at a very high level and very rough stage, would suggest that this could represent a net present value of roughly $1 billion for Alberta and Saskatchewan.

The fourth question is the Canada-U.S. energy trade and relations. To date, most generation and transmission planning in Canada has been largely confined within provincial boundaries and, of no surprise, has resulted in large efforts being taken, or undertaken, to provide export corridors to the U.S. lnterties that connect us east to west and allow the provinces to be more interconnected, and then through to the U.S. for export, provide additional opportunities. We don't see a conflict here; we see a benefit.

As well, interconnection across the country makes additional markets available to other provinces. Sales to neighbouring jurisdictions could indeed help finance or develop additional renewables in Canada.

The fifth question is employment and economic impacts. Interprovincial interties are large and long-lived infrastructure that bring high-quality construction operations and maintenance jobs to a number of regions for decades to come. Even more importantly, for the reasons I've outlined, interties help enable the provision of clean, reliable, and cost-effective energy for all Canadians. This underpins the economic vitality of our communities from coast to coast.

As an additional consideration, I would like to leave you with a couple of thoughts.

First, investments in capital-intensive, long-life assets like hydro generation and bulk transmission require long-term vision. That long-term vision needs to focus on the future benefits that these projects will provide. We encourage the decision-makers to look at the long term when weighing the opportunities today.

The second point is regarding timelines. There's a recent presentation from work done by NRCan that people are considering interties by 2030 and new hydroelectricity capacity by 2040. Our view is that these timelines are simply too long. Solutions to support renewable energy and modernization of the grid are required in the 2025 time period. The window of opportunity to realize these benefits can bring significant movement and significant opportunity if done today and not in decades to come.

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there, unfortunately. We have some time restraints.

Mr. Vaasjo.

[Brian Vaasjo, President and Chief Executive Officer, Capital Power Corporation]

Good afternoon, Chair, ladies and gentlemen, and honourable members of the Standing Committee on Natural Resources. My name is Brian Vaasjo. I am president and chief executive officer of Capital Power, headquartered in Edmonton, Alberta.

Capital Power is a developer, owner, and operator of generating facilities across Canada and in the United States. We are a publicly traded company with a market capitalization of approximately $2.7 billion.

Thank you for the opportunity to appear before you and to provide our perspectives on interties and their potential role in Canada's transition to a lower-carbon energy system.

As a participant and investor in electricity markets in Alberta, B.C., and Ontario, we are committed to working with governments at all levels in the assessment, design, and implementation of policies that can achieve public policy objectives for the electricity system in an efficient and effective manner.

Capital Power currently owns approximately 4,500 megawatts of power generation capacity in 24 facilities in Canada and the United States.

In Canada we have interests in 624 megawatts of capacity in Ontario from three wind facilities and two natural gas facilities. In British Columbia, we have 427 megawatts of generating capacity from a natural gas facility on Vancouver Island, two waste heat facilities, and a wind facility.

In the United States we have more than 1,100 megawatts of capacity in five states, including wind, solar, natural gas, and biomass.

The majority of our capacity is currently in Alberta. Capital Power has been the leading developer since 2004 and has ownership in nine facilities representing 2,400 megawatts of capacity, or roughly 14% of the Alberta market. Our Alberta fleet includes four coal generating facilities that are the youngest and most efficient coal units in Alberta, three natural gas peaking units, a combined-cycle natural gas facility, and a wind facility.

Alberta is unique relative to other provinces with respect to how generation investment occurs. This has little to do with specific market rules but relates to a fundamental distinction: that investment is made by private investors on an at-risk basis in a competitive market, and with no guarantee of cost recovery. While Alberta is undertaking a market redesign, the fundamental aspect of private investors bearing investment risk is expected to remain unchanged. This presents a significant issue for any consideration of strategic interties for Alberta.

Alberta's market redesign was in large part driven by Alberta's climate leadership plan, announced in November 2015. This plan introduced several policies to transition Alberta's electricity system to a lower-carbon trajectory. These included a phase-out of coal generation by 2030, introduction in January 2018 of a more stringent carbon pricing framework for large emitters, and a plan to add 5,000 megawatts of renewable generation by 2030 through a government-supported procurement program.

Capital Power was and remains supportive of the design and implementation of Alberta's plan and the emissions reduction objectives it's intended to achieve for our sector and province.

We worked with the Alberta government to reach a compensation agreement to reflect that the 2030 coal phase-out date specifically shortened the lives of six of our coal generating units. Alberta also reached agreement with two other Alberta counterparts who are also affected. This sent a positive message from Alberta in terms of investor confidence.

We are undertaking a $50-million program at our coal facilities to further improve their efficiency and reduce their emissions intensity by 10%. This responds to the signals for continuous efficiency provided by both Alberta's competitive market and its new carbon pricing framework.

We are actively exploring the potential for co-firing biomass at our coal facilities and are planning a second test next week. This would allow up to 15% co-firing at one of our units, resulting in immediate reductions in emissions.

We are also assessing design and economic issues associated with potential conversion of our coal units to natural gas prior to 2030. We are developing several wind and solar sites to participate in the competitive process to add 5,000 megawatts of renewables by 2030. We recently entered into commercial agreement with the Siksika Nation to develop projects on their lands.

We also stand ready to continue investing in the new capacity that Alberta will require to replace retiring coal generation and to meet load growth in Alberta and meet Alberta's renewable targets. We have a shovel-ready natural gas facility ready to go when market signals are appropriate.

The Alberta government estimates that the total level of power generation investment required by 2030 will be roughly $25 billion. The market redesign under way is intended to provide a framework to attract this scale of investment. This market will continue to rely on competitive forces and on investors making investments on an at-risk basis. It is in this context that the strategic interties, at least relating to Alberta, need to be considered.

The Alberta government set out three objectives for transition of the electricity sector in announcing their plan. These were maintaining reliability, providing reasonable sustainability in prices to consumers and business, and ensuring that capital is not unnecessarily stranded.

Capital Power believes there are five objectives and considerations that should be incorporated into the assessment of government-funded intertie projects.

First is reasonable costs. Any federal initiative needs to ensure reasonable costs for consumers. The costs associated with strategic interties would include the costs associated with new hydro resources developed to backstop the interties, new generation that would be required in Alberta or any “sink” provinces to provide reliability when hydro imports might not be available for any number of reasons, and direct costs to expand both intertie and provincial transmission grids to manage energy trade in real time.

Capital Power does not believe that the all-in cost of a strategic intertie would be a lower cost, from a ratepayer perspective, than low-emitting and renewable generation developed in Alberta.

Second is reliability considerations. The reliability issues raised by a strategic intertie based on construction of new hydro sites need to be considered. First, the announcement of an intertie would make an immediate impact upon investment decisions in Alberta by reducing the future market opportunity. A single large intertie creates its own significant risk from the standpoint of reliability.

Third is environmental outcomes. Any federal initiative needs to ensure that assessment of environmental outcomes takes into account whether the intertie would be supported exclusively by hydro or non-emitting generation or would be utilized to “wheel” power from other markets. Alberta's existing interties, including the one with B.C., are used to import power sourced from markets with thermal and renewable supply sources. A strategic intertie initiative that expanded the scope for wheeling of thermal generation from outside the province would not provide any benefits from an emissions perspective.

Fourth is community benefits. Federally subsidized intertie projects would displace and pre-empt investment in low-emitting and renewable capacity in Alberta. In doing so, they would also diminish the opportunity for Albertans and Alberta communities to realize the benefits of locally sited generation that will be required to replace retiring coal generation and meet demand growth. This is a particular issue for Alberta communities in which coal facilities are located, but also an issue for communities looking for the opportunity to host renewable energy projects.

Fifth is a level playing field and investor confidence. As noted, Alberta's market will continue to expect investors to bear risks of investment decisions and to seek a return through a competitive market. A federal initiative to subsidize imported supply will create an unlevel playing field for Alberta-based generators. Ensuring fair treatment of existing investments must be considered for any federal initiative, in the same way that Alberta has established this as a principle for its market redesign initiative.

In respect of Canada's 2050 vision, as a final comment Capital Power notes that the Government of Canada's 2050 vision identifies a role for several sources of non-emitting power generation, including hydro, nuclear, and carbon capture and storage.

Consideration of strategic interties needs to be coordinated with the assessment of those options to ensure that any federal funding is targeted to support the lowest-cost option. In this regard, Capital Power believes that any funding or procurement process to support non-emitting technology should not be fuel-specific but should instead invite proposals from industry on options that can meet the non-emitting criteria.

Successful proposals would be those that would meet objectives in a most cost-effective manner. Proceeding with strategic interties in isolation would close the door on other technologies, such as carbon capture and storage, that may be more appropriate and cost-effective for Alberta over the long term.

In closing, government support for intertie projects, while in certain jurisdictions could be a source of public good, in others might have unintended consequences with respect to consumer costs, reliability, and investor confidence.

Capital Power is a Canadian company that wants to continue to invest in our power infrastructure to support the transition of Canada's electricity system. We are not asking for any advantages or special programs or benefits. We are asking that the government not embark on programs that disadvantage us.

Capital Power appreciates the opportunity to provide its views on this very important initiative.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you, gentlemen.

Our first questioner is Ms. Ng.

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

I want to thank both of you for coming today and helping us work through the study on strategic interties and the consideration of them for the country.

I'm going to start with ATCO.

You've talked about what the opportunities might be for strategic interties, and particularly the ability to create a connection through certain jurisdictions. Can you talk to us about what some of the logistical or infrastructure demands might be and what might need to be considered in doing that?

[Wayne Stensby]

I think from a pure infrastructure perspective, it's very doable. Building transmission lines east and west, in theory, is no more complex than building them north and south. You have to go through a landowner process. You need to think about partnerships. From a technical and infrastructure perspective, it's completely doable.

I think the hard work comes—and my colleague Brian alluded to it—in setting out the framework around markets, given different ownership interests in different provinces and different territories, and how you come to a commercial position that does not advantage or disadvantage any particular proponent. That's the real piece of work. I don't think that this is a technical or infrastructure construction debate per se.

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

You had talked about the opportunities between Alberta or B.C., Alberta and Saskatchewan, or other east-west participation.

Can you give us a state of.... “Readiness” is probably not the right word, but which would be the most ready if you were to look at the state of what exists in Alberta today with respect to the interties?

[Wayne Stensby]

I would try to think about this in a staged way, because while there could well be a vision of a pan-Canadian transmission network, I think the practical side would be to think about it in a staged manner. There is a great opportunity to support the north and build a relatively small connection between Alberta and the Northwest Territories. I think there is an opportunity to expand the current relatively small and weak connection between Alberta and Saskatchewan, and I would think about that in a staged approach. As you think about British Columbia, again, we have an existing intertie with British Columbia. I think there is an opportunity for an additional intertie to B.C.

As to which one of those might come first, I think we need to look at the dynamics of the current generation build-out in British Columbia, Alberta, Saskatchewan, and the north. I'd be particularly keen to try to address the north, because I think the north has some particular challenges that, as a Canadian, I'm quite passionate about.

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

I like some of the work you have done that talks about the net present value that can accrue by being able to develop some of the strategic interties into some of those jurisdictions.

Could you expand on the benefit for us if we were to build out some of those strategic interties, and how that connection could also then help with some of the surplus power we might get out of that in the Canadian jurisdiction, which would then help with trade with our southern partners.

[Wayne Stensby]

The very high-level work we've done didn't attempt to quantify what additional generation could be developed in Canada or exported into the U.S. I think there is a great opportunity there, but we have not done that analysis. We've been focused on the coal transition and the build-out in Alberta particularly. That is a piece of work, however, and on a very high-level basis.

If the committee was interested, we could take that on as a supplemental that we could provide. I believe Canada is blessed with tremendous hydroelectricity resources, and we can be the solution for many of our cousins to the south, if that's what we choose to do. I think there is a great opportunity there for the Canadian economy.

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

This may or may not be something you can answer, but it picks up a bit on the point by Mr. Vaasjo and what you talked about. It is around what strategic interties you would take, and the kinds of things you would have to consider around the mix of energy that might exist. From a practicality standpoint, do you have any thoughts about how government might need to look at that as we consider strategic interties? I agree. There is that balance.

[Wayne Stensby]

I think it's quite a complex.... It comes back to the market frameworks and Brian's comment about unintended consequences. I think we are all quite keen to see that additional interties do not simply become wealth transfer between provinces and that we don't somehow disadvantage some parties and advantage others, and find ourselves potentially producing higher carbon emissions generation or enabling what we weren't intending to enable.

I think this is at the crux of the question. It's really where the work needs to be done to establish, number one, who would fund the interties and how they would get funded, and number two, how the electricity that's transferred across them is managed and marketed into these disparate marketing entities.

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

Somewhere I read that.... Oh, I'm done.

Thank you so much, gentlemen.

[The Chair, Liberal, James Maloney]

That was right on time.

Mr. Falk, go ahead.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to both witnesses for attending the committee meeting and presenting here today.

Mr. Stensby, I'd like to start with you. You talked about moving from independence to interdependence. I'm assuming you mean in relation to interties. Can you explain to me what you mean by that?

[Wayne Stensby]

We didn't get here by accident. If you look at the traditional build-out of electricity systems in Canada, you see that there is a long history, and it has much to do with what we could call “ownership models”. British Columbia is a crown corporation. Saskatchewan is a crown corporation. Manitoba is a crown corporation. As Brian very astutely and correctly pointed out, Alberta is a bit unique in its investor-owned utility base, but fundamentally the provinces were responsible for the provision of electricity, and that's the way it has been built out.

Going forward, I think you have to take a broader perspective as a Canadian in order to help each province work within its remit of low-cost, reliable electricity. I don't believe we've taken full advantage of the adjacencies of our provinces. I think we've almost allowed these barriers to exist.

The other point I would make is that there is a technical separation between the electric systems along the border of Alberta and Saskatchewan—and it falls all the way down into the United States—that historically has provided a particular challenge to interconnect. With recent changes in technology, I think that's no longer the case. We can use lots of advanced technology in order to more closely couple Saskatchewan with Alberta. There was a technical reason for some of the separation, but most of it was around ownership structure and individual provincial responsibilities.

[Ted Falk, Conservative, Provencher, MB]

Okay.

Do you think increased interties would also increase collaboration between different jurisdictions? Do you think the end result would be cheaper hydro for consumers?

[Wayne Stensby]

I think that, if it's done right, the end result should be cheaper electricity for consumers. I think it's going to take increased collaboration to enable interties, as opposed to interties creating increased collaboration. I see it the other way. If we can't get good agreement and discussion going across provincial and territorial boundaries, we won't be successful at developing interties.

[Ted Falk, Conservative, Provencher, MB]

Do the interties exist today that provide adequate redundancy within our electrical grid in Canada?

[Wayne Stensby]

They are part of the resilient solution. Where they don't exist in individual jurisdictions, we've simply built more generation. There are a couple of ways to solve the equation. We solved it by what I refer to as overbuilding or by building excess generation in each jurisdiction.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Stensby.

Mr. Vaasjo, I would like to ask you a few questions.

You indicated that you produce coal, gas, and wind power.

Can you tell me a little bit about the difference in the cost to produce a megawatt of power—a kilowatt, perhaps, is a better measurement—in those three different systems? Then could you also parallel that to the carbon footprint that each might make?

[Brian Vaasjo]

With regard to coal, the variable cost—at this point in time, that's the more reasonable measure—to produce a megawatt of coal power generation is in the order of about $15, so it's very inexpensive.

If you move to natural gas and a fairly efficient natural gas plant, that's more in the order of $45 a megawatt.

Wind is very dependent on the jurisdiction that you're in, the wind resource. Generally speaking, in a good wind resource you can get into the mid-$40 a megawatt hour. In other jurisdictions, it's more in the $60 to $65 to $70 a megawatt hour range. There's been a tremendous improvement in the wind hardware over the last couple of years. Again, there have been tremendous advancements, not only in efficiency and cost of equipment per se—the price of steel and so on—but in the ability of the equipment to capture the wind. The science behind it has improved considerably as well.

[Ted Falk, Conservative, Provencher, MB]

Okay.

It is definitely a lot cheaper to produce a megawatt of power from coal.

[Brian Vaasjo]

Yes.