Natural Resources Committee on Oct. 18th, 2017

[Wayne Stensby]

Yes.

[Brian Vaasjo]

Sure.

The Alberta market is extremely competitive, but you would also find that industry works together very well to find answers to significant issues. I would say that if properly constructed and an intertie that fundamentally makes a tremendous amount of sense, then we could certainly find a way to make sure it works within the market structure. Again, a lot of that is the lead of the Alberta government, to ensure that happens.

You had asked the question on whether there is a cost. One of the things that is often not talked about from an intertie perspective is where the energy is coming from, and the cost. I think that is very much something that is missed in the conversation.

If you take Site C, just because it's a live example today, it's an 1,100-megawatt facility with a 70% capacity factor. That's equivalent to a large natural gas plant. To build an intertie to export power to Alberta, and to have an intertie, makes very little economic sense. My friend next to me could probably put a project together much cheaper in Alberta, with hydro and other renewables.

In any event, when you think of an intertie, one thing is that the actual cost of the generation behind it is much like the pipeline debate. What are the upstream and downstream impacts of it?

[The Chair, Liberal, James Maloney]

Thank you.

If you think you can get a question and an answer in less than a minute, I'll give it to you.

[Kelly McCauley, Conservative, Edmonton West, AB]

I have one for the people from Alberta. I used to work next door to ATCO. Full disclosure, I think I got my gas from ATCO Gas.

Gentlemen, you spoke about investor confidence. We are forced to shut down six coal plants early. Are ATCO and Capital Power changing any of their investment plans in Alberta, or in Canada, because of future investor confidence that the rules may change again, or is it business as usual for investment?

As a follow-up question, if we are shutting down the coal, what are we going to do to replace that capacity? Is it all switching to natural gas?

[Wayne Stensby]

Is it business as usual in Alberta? Maybe this is the new world in Alberta.

[Kelly McCauley, Conservative, Edmonton West, AB]

I've heard that ATCO's investments are headed to Texas now instead of Alberta for power generation.

[Wayne Stensby]

Yes. I think it's quite challenging in Alberta. It's a very dynamic time we live in, and there is a lot of uncertainty. I won't speak for Brian, but I'm sure he shares the view that as we move through a number of these transitions, and we move to capacity market, there are a lot of unanswered questions. Until we get the answers to those questions, I don't think any of us are pulling out our credit cards.

[Kelly McCauley, Conservative, Edmonton West, AB]

The reason I asked is that there are far-reaching implications. We talked about unintended consequences. When we force these changes, when they are not planned out, there are jobs lost, people affected, taxpayers on the hook for $1.3 billion for these changes, lost investment, and perhaps energy power shortages, if we are not investing in natural gas, which I understand some power companies are not anymore, in Alberta.

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there. We really are out of time.

Gentlemen, thank you both very much for joining us today. Your evidence has been very helpful.

We'll suspend for one minute, and then we'll start our second hour.

[The Chair, Liberal, James Maloney]

Ladies and gentlemen, we are going to begin the second hour. We're going to have to stop at a quarter after five to get into some committee business, so we'll have to move fairly efficiently.

Mr. Fox and Ms. Milutinovic, thank you both for coming. We appreciate your making the effort to be here today.

We'll give you the floor for up to 10 minutes between the two of you. I don't know how you're going to present. Then we can open the floor to questions from people around the table. There are earpieces, should you need translation. Beyond that, it's fairly straightforward.

The floor is all yours.

[Jim Fox, Vice-President, Integrated Energy Information and Analysis, National Energy Board]

Thank you.

Good afternoon, Mr. Chair and committee members. Ms. Milutinovic and I appreciate the opportunity to appear before you today.

I'd like to open by familiarizing the committee with the National Energy Board's mandate with respect to electricity. The production of electrical energy in Canada and much of the infrastructure and trade in electrical energy are constitutionally within the powers of provincial governments, so the NEB's mandate on electricity is quite limited. The mandate we do have comprises two broad categories: an adjudicative function and an energy information function. We believe both are somewhat relevant to your study today.

There are two separate aspects to the adjudicative function. The first relates to power lines. A company seeking to construct or operate an international power line, or IPL, can apply to the NEB for either a permit or a certificate. The board always seeks public input for an IPL application. Under the permit application, the board hears concerns from stakeholders, but after they hear concerns, they are required to issue the permit under the NEB Act, although the board can attach conditions to the permit. Once permitted, an IPL is subject to regulation by the province it is in, if an energy regulator exists in that province. Should the board receive comments that somewhat concern it as a result of the permit application, the board can recommend that the IPL be designated for the certificate process by the Governor in Council.

A company can also apply directly for a certificate. Under the certificate process, the board can hold a hearing and approve or deny the IPL application based on the evidence gathered. The ultimate approval under the certificates process is subject to the Governor in Council.

The NEB has no automatic authority for the regulation of power lines that cross provincial or territorial boundaries. That said, the Governor in Council has the authority to designate an interprovincial line to be under NEB regulatory authority. Currently, the NEB does not regulate any electricity transmission lines that solely go between provinces.

The second aspect of our adjudicative process deals with trade. Exporting electricity to the United States requires a permit or a licence from the National Energy Board. The current default process is the permit process, which begins with a public comment period under which the board will consider factors such as the effects of the export on adjacent provinces and fair market access for Canadians. If the board has concerns, it can recommend that the application go to a licence process, which requires a hearing. If the permit process prevails, though, the NEB will issue a permit. Under the licence process, the board can approve or deny the application after the hearing. Approvals are subject to Governor in Council approval as well.

Since the permit process was introduced in the early 1990s, all export authorizations have been under permits rather than licences. With both permits and licences, the board has the authority to attach terms and conditions. For example, the board requires companies to submit monthly reports on the volumes traded. The NEB Act allows electricity export permits to endure for up to 30 years.

The NEB has no mandate for the regulation of electricity imports, nor for interprovincial electricity trade.

Beyond our adjudicative function, the NEB contributes to the national energy conversation by providing neutral, independent, and fact-based information to Canadians. The NEB's energy information program includes the collection, analysis, and publication of information on energy markets, including electricity. We regularly publish energy information reports, ranging from very brief targeted energy market snapshots to more comprehensive larger reports. These products increase the transparency of the Canadian energy market, support energy literacy, and inform Canadian decision-makers.

We will soon be releasing the latest edition in our energy futures series, entitled “Canada's Energy Future 2017: Energy Supply and Demand Projections to 2040”, or simply, “Energy Futures 2017”. Our energy futures reports are the only publicly available long-term Canadian energy outlooks that cover every energy commodity in all provinces and territories. An interesting fact is that next week's report comes 50 years after we published our first such report in 1967.

“Energy Futures 2017” will look at how possible energy futures might unfold for Canadians over the long term by considering three cases: a reference case, which is based on the current economic outlook; a moderate view of energy prices; and the climate and energy policies that were announced at the time the analysis was done.

A higher carbon price case considers the impact of higher carbon pricing than in the reference case, and our technology case considers the impact of greater adoption of select emerging technologies that impact energy production and consumption.

Technologies include less expensive solar and wind electricity generation, grid-scale battery storage, electric vehicles in the passenger transportation sector, steam-solvent technology for the oil sands sector, electrified space and water heating in the residential and commercial sectors, and carbon capture and storage technology for coal-fired electricity generation.

I'd like to point out a few key statistics with respect to renewables in Canada. Canada has a wealth of electrical generation capacity. Fifty-five per cent of Canada's capacity and 58% of our generation are from hydro. Non-hydro renewables account for 12% of capacity and 7% of generation, and coal, nuclear, natural gas, and oil round out the rest.

We've provided some slides to the clerk on non-hydro renewable capacity and generation projections, as well as Canadian end-use demand according to the three scenarios in our upcoming energy futures report. That's a bit of a spoiler for the energy futures report, as interesting as it might be.

Electricity generation varies greatly across provinces. For example, hydro accounts for 95% of electrical generation in Quebec, Manitoba, Newfoundland and Labrador, and Yukon, and 87% in British Columbia. Conversely, virtually none of Nunavut's power is hydro-generated. Instead, Nunavut relies heavily on diesel generation. Nuclear power generation, at 15%, is Canada's second-largest source of generation. However, it is concentrated in only two provinces, Ontario and New Brunswick.

A notable trend over the past decade has been the increase in the generation capacity for renewables such as wind, solar, and biomass. Non-hydro renewable energy has increased its national share by almost five times since 2005. In fact, according to our projections, renewables' share of generation capacity is expected to grow even more in the future, with wind capacity more than doubling and solar capacity more than tripling by 2040 in our latest reference case scenario.

In conclusion, the board stands ready to assess any electricity applications that are filed with it, and we will also continue to provide fact-based energy information to inform the energy debate in Canada.

With that closing, I'll thank the committee again, and we're open for questions.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Fox.

[Shelley Milutinovic, Chief Economist, National Energy Board]

Maybe I'll just make one clarification. It's 95% or more of hydro in those provinces, because some of them are 99% or 98%.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Lemieux.

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

Thank you, Chair.

Thank you to our witnesses.

As you know, our government has introduced carbon pricing that will reach $50 a ton in 2022. I'm from Quebec, where we produce a lot of hydroelectricity and have started producing wind power.

When we compare the production costs of those two energy sources to those of, for instance, a coal plant elsewhere in Canada, we're clearly led to believe that production costs are lower in coal plants. However, if we take carbon pricing into account, could we believe that production costs in the coal sector would be similar to those in the wind power or the hydroelectricity sector in Quebec?

[Jim Fox]

I can start answering that question and then I'm going to turn it over to our chief economist.

[Shelley Milutinovic]

I didn't hear it.

[Jim Fox]

You didn't hear it. Maybe as I go, you can catch it.

Obviously, a carbon price will increase the cost of producing coal-fired electricity. As to whether or not it will come to equal that of hydro, or incremental hydro, that's a question that is more technical, and I don't know that we actually have an assessment of that.

[Shelley Milutinovic]

I didn't hear the question, but I think that by 2030 there will be almost no coal-fired power generation in Canada. Most of that is because provinces have said they are going off coal. The cost isn't even the key thing. The key thing is the policy saying we are going off coal by 2030. I hope that answers your question.

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

Could we say the same thing about natural gas-fired electricity generation?

[Jim Fox]

Are you asking if we will ultimately get off natural gas power plants? Is that the question, because of carbon pricing?

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

Yes.

[Shelley Milutinovic]

We did two scenarios. One scenario has carbon pricing in Canada going up to $50 in 2022, similar to the pan-Canadian framework. The other one has it continuing to rise by $5 a year after that. In both of those cases, we actually increase our consumption of natural gas for power generation, because it has lower GHGs than other forms. Plus, it has other benefits. You can bring it on quickly, and it's relatively cheap. It's a good backup for renewable energy, and so on.

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

I'm pondering another great question.

During the last eight years, electricity prices went down about 40% in export markets. Now, we're thinking about a way to produce greener electricity and to develop new inter-ties in an environment where electricity consumption is on the rise.

Have you given any thought to how we will finance these new electricity-generating projects and these new inter-ties in such a low hydroelectricity market?

[Shelley Milutinovic]

Most Canadian electricity exports come from the provinces that are hydro-dominated: B.C., Manitoba, Ontario, and Quebec, most of all. It is largely the hydro we are exporting.