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Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 4 - Evidence, April 25, 2001 (morning)

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EDMONTON, Wednesday, April 25, 2001

The Standing Senate committee on Energy, the Environment and Natural Resources met this day at 10 a.m. to examine such issues as may arise from time to time relating to energy, the environment and natural resources.

Senator Nicholas W. Taylor (Chairman) in the Chair.

[English]

The Chairman: On behalf of the committee, I would thank you for your presence here. Unfortunately, two of our members had to attend an editorial meeting, but they will be here later on. I would apologize for the fact that all five members are not present.

We have already met with witnesses in Vancouver and Calgary. Over the next few days, we will hear from Canadians in Toronto. I say "Canadians," because, in Vancouver, we also heard from a witness from California

The goal of these hearings is to enable us to grasp a sense of the views of Canadians on the important field of energy. Our recommendations will take the form of a report to the Senate.

We have with us this morning Mr. Thomas Marr-Laing, Mr. Chris Severson-Baker and Ms Mary Griffiths.

Ms Mary Griffiths and I worked together for years in the Alberta Legislature. She has an illustrious background. I think we were way ahead of our time.

Mr. Thomas Marr-Laing, Energy Watch Program Director, Pembina Institute for Appropriate Development: Thank you for this opportunity to appear before your committee.

I have been with the Pembina Institute for about 11 years. I have held various positions in the institute, including a four- or five-year stint as the executive director. For the past three years, I have had the responsibility of directing the Energy Watch Program. Three members from the Energy Watch Program are here today. Ms Gail MacCrimmon, our fourth person, focuses on the oil sands work that we do.

The Energy Watch Program is focused on conventional energy, which includes oil sands and coal generation of electricity. The program is also concerned with Arctic oil, northern frontier oil and gas development.

Our interest lies in engaging or intervening in the development and use of fossil fuel energy in a way to minimize the risk to human health and the environment. We point to technologies which will minimize the impacts associated with the use of fossil fuel energy and, where possible, we point people in alternative directions.

We work in collaboration with the other facets of the institute, our Climate Change Program, our Renewable Energy Program and our Green Economics Program, all the time recognizing our need for energy. It is a small word, but trying to advance societal changes towards it, is a huge challenge.

Mr. Chris Severson-Baker, Environmental Policy Analyst, Energy Watch Program, Pembina Institute of Appropriate Development: I have been with the Pembina Institute for about five years, and I also have a double-barrelled surname. Most of that time I have focussed on conventional oil and gas. I support colleagues who work on oil sands and to an increasing extent, electrical power generation. I also spend a good chunk of my time talking to landowners and citizens in Alberta about their concerns concerning oil and gas, and I try and point them in the direction of information on environmental issues and about best practices.

I also do a lot of work with the Clean Air Strategic Alliance in Alberta and I am involved in various regulatory overviews and reviews.

Senator Spivak: What is your background? Are you all economists?

Mr. Severson-Baker: I have a general environmental science degree with a major in economics and policy from the University of Alberta. I pretty much landed this job right out of university. I did a little bit of work with the Toxics Watch Society of Alberta and with the Alberta Environmental Network before I found a job with the institute.

Mr. Marr-Laing: My formal training is in engineering. I took an engineering degree at the University of Alberta in the mid-1980s. The engineering degree I took was in computing software, so I have missed my opportunity to get rich in this world. I have a fair amount of business-related experience, and I apply that to the environmental, ecological, work that I have done along the way.

Dr. Mary Griffiths, Environmental Policy Analyst, Pembina Institute for Appropriate Development: My background is as a geographer and as a university professor. Coming to Canada caused a major change in my career. I did a lot of environmental work with the Liberal caucus in Alberta and, when I felt ready for a change after nearly 11 years with the Liberals, I was delighted to be able to move to the Pembina Institute, because I have always been interested in sustainable development.

The major work of Pembina Institute is to further the sustainable use of our natural resources. It is excellent that this Senate committee is looking into this aspect.

The Chairman: Ms Griffiths was the head researcher in the Opposition in this field for years, and she did many other things with great enthusiasm and energy.

Senator Spivak: No wonder you survived so long.

Ms Griffiths: I learned a lot from Senator Taylor. In fact, he trained me.

Mr. Marr-Laing: For a lot of good reasons, we are very pleased to have Mary working with us.

Ms Griffiths: I should just say that my main work so far with the Pembina Institute has been in dealing with the conventional oil and gas industry, and trying to help landowners, who are confronted with the development of oil and gas on their land, and how to deal with those applications. I would refer you to our booklet, which we will table with the committee, entitled: When the Oil Patch Comes to your Backyard.

Senator Spivak: I hope you will have some information for us regarding the Continental Energy Policy and the proposal regarding the number of gas wells that are to be drilled. The number is out of sight.

The Chairman: We heard from the Canadian Association of Petroleum Producers yesterday and from a gas distributor the day before in Vancouver. We have some idea of how much of an expansion is planned.

Mr. Marr-Laing: I had anticipated making our presentation in about 10 or 15 minutes, and then going into a question period, if that meets with your approval.

Senator Spivak: Yes.

Mr. Marr-Laing: I have provided copies of the speaking notes which I will use as my guide. It is about three pages long.

I speak from a structural-conceptual perspective on energy, and I will touch on some specifics. We believe it is critical that Canada make some substantial changes in the way that it produces, creates, and uses energy within its national boundaries.

A number of factors are driving the need for a structural change in how we use energy. They are environmental, they are human health related and they are related to climate change issues. Frankly, there are also a number of economic and competitive factors which are driving the need for making the structural change.

In understanding the environmental and human health issues as they relate to energy, especially here in Alberta, which is largely the upstream producing end of fossil fuels, we structure for five different categories of environmental impacts. I would refer you to the top of page 2. A range of local air pollutants is associated with the production of fossil fuel, which have a human health impact of concern. Particulate matter is associated with the creation and combustion of energy. That is related to a range of hazards, air pollutants, such as hydrogen sulphide, benzene, which is a non-threshold carcinogen, as well as a range of polycyclic aromatic hydrocarbons, all of which have toxic impacts upon humans.

I will name just some of the local air pollutants, and others are listed in our brief. We think local. We think regional. We are largely dealing with nitrogen oxides and sulphur dioxide, which are key contributors to the formation of acid rain, acid deposition. Sometimes this is deposited in rain, and sometimes it is in a dry form. It leads to acidification of soils and lakes.

A range of extensive surface habitat damage and disturbance is associated with pulling fossil fuels out of the ground. Alberta is a most unfortunate example of the fragmentation of the boreal forest that can occur, largely from this industry, although not entirely. Of course, mining and agricultural activities also have other environmental impacts.

To illustrate how extensive the intrusion into the ecosystem of our boreal forest in Alberta has been over the last 40 or 50 years, outside of our parks, if you were to ask to be put down by helicopter anywhere in the northern half of the province, which is covered with the boreal forest, within one kilometre or less, you would have access to a roadway of some form, be it a seismic line, a hydro line, a pipeline or whatever, which would enable you to leave that forest.

A range of potential risks to soil and water degradation are associated with the extraction of hydrocarbons. That extraction can have a deleterious impact on water and soil quality.

The last item relates to the greenhouse gasses that are associated with the whole process, the upstream and downstream use of fossil fuels. About 15 per cent of the emissions that are greenhouse gasses are associated with just pulling the material out of the ground, processing it, putting it into a pipeline and moving it to the end user.

I would refer to the graph on the last page in our presentation. "The Kyoto Gap," is a graph of where we are headed in terms of greenhouse gas emissions. With a "business as usual" approach, we will be emitting around 764 megatons per year of carbon dioxide into the atmosphere. Our commitment to the international community was that it would be 565. That is a gap of 200.

In Alberta, we are, in fact, considering intensifying our energy use and shifting from gas back to coal. There is discussion of further expansion of oil sands, to meet U.S. needs. Those steps will push that bar up, in spite of the fact that science is telling us is that we are losing time, and that it simply is unsustainable.

This is how we assess the human health and the environmental impacts associated with our current reliance on fossil fuels to meet the energy needs of our society. Almost by definition, this reliance is unsustainable. We simply cannot continue on the path we are taking.

I am sure you have heard many people in the industry talk about how well they have done to reduce impacts generally on a per-barrel or per-unit basis. The environmental impact efficiencies associated with development have been improving. There has been substantive decrease in the amount of flaring of solution gasses occurring within this province. The oil sands industry will talk about implementing technologies in order to have less impacts on the environment. Those technologies include the use of SAGD in-situ, and lessening the excavation required for open-pit mining.

Those are positive steps, and they are reducing, on a per-barrel basis, the impact on the environment. However, they may not mention that the total impact of the increase in energy is actually outstripping the efficiencies that we are gaining on a per-barrel basis. They might not talk about the increased number of conflicts between rural residences and new sour gas wells that are going in to try to fill the pipelines that are going south. They might not talk about the fact that the new technology of the oil sands allows us to move away from the 2 to 5 per cent of the oil sands we could have retrieved before, because it is close to the surface, and to retrieve another 80 per cent, which is a sizeable portion of the northern part of our province.

We think that the current energy supply crisis in North America, and the fair amount of media buzz - much of it being lead by Mr. Bush - presents both an opportunity and a risk to Canada.

We now have an opportunity to dramatically increase the role that renewable energy, alternative transportation technologies, conservation and energy efficiencies and so on, can play in this mix, this portfolio, which will be aimed at meeting our energy needs, both in Canada and in North America generally. Unfortunately, the voices on those issues have not been heard as clearly as the voices of those who are in favour of increasing drilling and of increasing access to the old way of production.

In our view, we should be figuring out how to strategically position Canada to take advantage of these emerging opportunities around the non-traditional ways of generating energy. Our view is that we are poised on the edge of an energy revolution that will be every bit as powerful as the revolution we experienced with respect to personal computers, the Internet, and biotechnology. There is a range of technologies respecting fuel cells, micro power, hybrid cards, biofuels, and so on, which other users of energy will be developing. It is to their benefit to discontinue their reliance on fossil fuels.

Canada will eventually be left out in the cold if we continue to be the hewers of wood and drawers of water - and providers of energy. We have the smarts, the engineers, the technology, and the capability of understanding energy. We are very good at providing energy. However, can we make the transition in mindset to diversify energy as understanding not just fossil fuels but a range of other types of energy? We must not respond by a further entrenchment of the development of our conventional understanding of energy, because to do so, as I mentioned before, will further exacerbate the social, environmental, and human health problems, as well as extend our risk from a competitive point of view when substantive changes start to occur.

Our view, then, is that we must strategically place ourselves on a path. We have no illusion that we can make an overnight change from a dependency upon fossil fuels to renewables, hydrogen-based economies, et cetera.

The time required to move capital equipment - and by that I mean cars, boilers, et cetera - does not allow for an overnight shift. However, there is a limit to how long we can continue our normal path.

The major concern, from our point of view, is climatic change and responding to what the signs are telling us. In our view we have about a 20-year to a 40-year window in which to make a substantive reduction in our dependency upon fossil fuels as our primary energy source. However, 20 to 40 years is a very short period of time, given the size of the challenge that we face. In our view, we must consciously recognize that is what we are doing, and make the strategic and clear policy decisions that will lead to the transition towards enhanced dependency upon hydrogen and renewables. We cannot simply look 10 or 15 years down the road and crank up the oil sands, crank up the Mackenzie Delta, to keep producing our regular fuel, or we will come to a point where there will be a serious disjoint in the transition that we need to make.

Achieving this change will require active engagement by governments. As well, the free market has a very important role to play, in terms of providing the creativity and the drive to change, but it can only do so if the proper social signals are being sent to the market. Currently, the market does not recognize environmental externalities. Those are not incorporated into the price that people pay. That is why coal, for example, is seen to be cheap here.

To enhance the necessary technological change, government, which is a representation of societal needs, must play a guiding role and send those signals to the market. You need not play the role of the provider, the maker of the technologies, but you must send out the signals that change is required. Without that, as we saw through the 1990s in the voluntary response to greenhouse gasses, we will get nowhere on these issues.

The last point on this page is that, as senators, you have the opportunity to influence the folks across the hall, in the Commons, who often work within a shorter time frame because elections must be called every four or five years. You have an opportunity to provide advice on these strategic concepts and the transitional requirements that we need as a Canadian society. That is the key message we wanted to get across to you.

I will take a few minutes to speak to some of the specific areas where we think the federal government should play a role. I will deal first with the Continental Energy Policy.

Our general view has been that there is a need for a Continental Energy Policy. We have a serious problem and that policy, and Canada's involvement, needs to focus on a longer-term vision as to where we need to go. That means renewables, enhancement of transportation technology, options, development of biofuels and so on. That is the where we should be focusing our energies, because we cannot drill our way out of this problem, to quote one of the senators from the United States. A series of short-term policy responses will, ultimately, not solve the problem.

We have to be clear that the supply-side option, as has been talked about, will have a serious, deleterious impact upon Canada. I am referring to the well-being of its natural resources in terms of increased hydro in Quebec to the extent that there may be some further flooding in northern Quebec; development in the North; further enhancement and development of oil sands; and the increased exposure of Canadians to the human health impacts associated with conventional energy sources.

The major factor is that there is a clear economic liability associated with increasing our greenhouse gas emissions here in order to provide energy to the Americans. They have been clear that they will not assume any carbon liability. We are living in a dream world if we assume that, at some point in time, someone will not have to pay the piper for those increased emissions. We are going along and encouraging industry to invest billions of dollars in developing new resources, without providing a clear policy signal as to how we will deal with that one central issue.

That ties into the whole allocation question associated with climate change. Who is going to take responsibility for it? We are encouraging expansion of the oil sands. We are encouraging expansion of other sources of fossil fuel energy, but we are not telling ourselves - the Canadian public - who will, eventually, have to pay for reducing our greenhouse gasses. Science tells us that, at some point in time, we will have to do it. If we cannot be up front on that, then I say that we are sending an unfair signal to the private interests that are investing those monies at our behest, and we are being unfair to Canadian taxpayers who will have to pay for that.

In order to participate in this discussion on Continental Energy Policy, Canada must argue for a balanced portfolio of energy supply, and not simply focus on oil, gas and hydro.

Any decisions made by the Canadian Government must be made in an open and transparent fashion. There must be appropriate processes in terms of understanding the environmental impacts, and there must be meaningful opportunities for public participation.

It is critical that the federal government retains an active engagement in dealing with local and regional environmental issues.The whole concept of harmonization, which means devolving those responsibilities down to the provincial level, presents substantive risk to Canadians in each of the provinces.

There must be a continued role in, one, the development of the science and, two, the regulatory role for the federal government. We are now experiencing that in coal development here in Alberta. It is a critical piece of the puzzle, both in terms of how the North may be developing, and in other areas where we have already gone.

Senator Spivak: I have a comment, and then I have about three questions.

My comment is that I do not think there is a single political figure in the decision-making process in Canada who has any idea of the urgency of the question. They may have some knowledge of it, but they have no concept. Of course, most have no concept, but those who do, have no idea of the urgency.

The National Energy Board told us about their role in the environmental assessment of the pipelines and so forth, and I assume that role applies only to pipelines and not to drilling. I do not know how they could be involved in that.

I asked them how they would go about dealing with the cost, and their economist told us that they would take into account some of the external costs, but he did not sound very convincing. They say are an independent panel. My first question is: What is your view of the National Energy Board's role as one of the bodies responsible for overseeing development in the North?

My second question relates to what we were told by the representatives of CAPP. They told us, unlike anyone else, that they have been involved in discussions Washington and that they have been assured that the Continental Policy will be comprehensive. It will deal with conservation and everything good, as well as everything bad, of course. What faith do you have in their ability to put forward Canada's view rather than just representing the industry? They are an industry group. I do not know if any other group has been to Washington, other than political figures.

The third question I have relates to the fact that we were told by the representatives from CAPP that there is 100 years of fossil fuels left. You say there is a 20-year to a 40-year window in which to make a substantive reduction in our dependency on fossil fuels. I have read that elsewhere. Fuel cells are not available yet, but, hopefully, that will be the major revolution. There are other things, but I do not know if they will have as much of an impact.

My question in that regard is: Who will win the race? As well, can you tell us, will fuel cells, which will use hydrogen in the end but, in the meantime, methane, lead to a substantial reduction?

I learned a new term which is, "distributive generation," which I take to mean that you could have your energy source in your own basement. You would no longer need the large hydro dams.

Those are my questions.

The Chairman: You mentioned involving the public, and putting pressure on to achieve environmentally clean solutions. Yesterday we heard an intriguing idea: that a person would be issued a T-4 or a T-5 slip -we would have to call it a T-6 slip - at the end of the year, which would show how much clean energy was purchased, and that would show as a credit on his or her income tax form. It would get the same treatment as a dividend - you gross it up. In other words, we issue T-4s to show salaries, which can be claimed back. A T-5 shows interest and dividends. This group mentioned issuing a T-6 or a T-7 so that, at the end of the year, the purchaser could how much money had been spent on wind or solar energy. As the purchaser, you would pay the market value, the energy company would agree to supply it, and you would get a credit on your income tax. That sounded very intriguing. However, we must remember that many people do not pay income tax, but if we at least gave an incentive to the rich to use environmentally clean energy, we would be ahead.

Have you done any work on that involving John Q. Public? It takes it entirely out of the hands of the utility companies and the producers, and puts it in the hands of those who will get a tax incentive to do it.

The other matter I noted in listening to you is that I am not sure you have been involved in Aboriginal issues. After all, they are the people in this country whose territory has been affected in the sense that they have had to change the location of their traplines and so on. I know I am getting into Senator Adams' territory, and I am sure he will be more specific. I recall Mary and I worked on these issues. You made mention of the number of roads that have been built to transport energy, but the fallout in our aboriginal community has been felt much more than that.

Senator Adams, by the way, is from Nunavut, and is what I might call our in-house expert on global warming.

Senator Adams: I would just mention that before I left the North to come to Edmonton, the wind chill factor was minus 37. Obviously, we are not feeling the effects of global warming in the North yet, particularly in the middle of April.

You say in your brief that the development and management of northern frontier oil and gas would require some regulation. Senator Spivak mentioned earlier that we met the National Energy Board in Calgary yesterday morning. It was clear that those witnesses did not have very much to do with policy, although the board does makes decisions about oil exploration permits and permits.

As you know, there are two pipelines in the North. One goes through Alaska, and the other goes through Alaska, the Yukon Territory, and down to B.C.

The National Energy Board have told us that this will be regulated, but some of the Aboriginal land claims in the Yukon have not yet been settled. That also applies to B.C. I would like to know why you believe northern frontier oil and gas development should be regulated by the federal government.

I spoke to some officials of the Department of Indian Affairs and Northern Development in Ottawa. They usually participate in any decisions that are made regarding native land claims and other matters before any energy production can start. Two years ago the territory of Nunavut was created when the land claims in that area were settled, and now there is talk of building a power line from Manitoba to Nunavut. They want to build a power line up to Nunavut that would incorporate the building of winter roads. However, any Aboriginal land claims in Manitoba have to be settled in Ottawa before we can do something like that.

We want to work with the Government of Manitoba because it is particularly difficult for those of us who live in the Keewatin area to have access to energy supplies year round. The situation in the Baffin, the east side of Nunavut, is different because they rely on Sealift, tanker ships, to bring in oil supplies from Montreal and other places in the east. People in Western Nunavut - places like King's Bay and Kugluktuk - rely on oil supplies from the Mackenzie Delta pipeline.

Since the land claims of Nunavut were settled, some of our people have moved to the south. That is where they see their future. It is not a problem at this stage, but we do not want that trend to continue.

No decisions to extend the pipelines can be made until we settle any outstanding land claims. Do you have any more information to offer on that?

The Chairman: Just before you answer, I have one more question.

Have you done any research on air sheds? As you know, pollution is always measured on a per-unit basis, that is, a smokestack is allowed a certain amount of emissions, and a factory is allowed a certain amount. Of course that means nothing unless there is an allowable limit of, say, one per township or something like that, rather than thousands. We heard that 27,000 gas wells are going to be started up.

Senator Spivak: I think it is more.

The Chairman: That was their estimate over the next few years. My concern is how much pollution will be result if each one of those is allowed to emit just one cupful of pollution. Have you have done any work on trying to ring fences? The economists use the term, "ring fences" for income tax purposes. Have you thought about ring fences for pollution purposes?

Mr. Marr-Laing: We will work through that list of questions.

There are two parts to the question on the role of the National Energy Board. We have been told by the Alberta regulators, that is, the Energy and Utilities Board, the Alberta environment department and others that, until we have a ratification of Kyoto, and until the commitment that we have made actually comes into law and forms legislation, their hands are tied on the climate-change issue. Effectively, they have been able to deal with the macro-management of the development of fossil fuels. However, until Kyoto is ratified, the regulators cannot deal with the climate-change issue very effectively.

Senator Spivak: The environmental impact of the pipelines is separate.

Mr. Marr-Laing: Yes. Given the macro-management issue has not been dealt with in such a way as to give the regulator any authority, the focus is more on the local impacts associated with the development of any pipeline, be it the Alaskan or whatever else goes into the North.

I mean, give credit to the industry. They have come a long ways in terms of reducing the impacts associated with development.

The Chairman: On a per-unit basis?

Mr. Marr-Laing: On a per-unit basis; that is right. For example, they now go under rivers rather than going directly across rivers, which presents a higher risk. It is not that the risks are zero. We have approximately 250,000 kilometres of pipeline here in Alberta. Any map of Alberta shows a lot of pipelines. The system is aging. The incidence of leaks has increased. I am not saying that the risk is zero, but it is a lot lower than it was, say, 30 years ago. The industry can apply technology, make changes, and reduce the impacts.

If we choose to continue to develop hydrocarbons, we can again reduce the per-unit impacts. However, managing the macro picture is out of the hands of the regulators until we, as a society, through our government, decide how we are going to do that.

Ms Griffiths: Under the Canadian Environmental Assessment Act all pipelines must be assessed by the NEB. It would be useful, as Tom said, if we had some requirement to look at the cumulative impacts and to keep emissions down, not just those related to a pipeline, but the whole development.

Unless there is a federal government requirement to include emissions in the review, then that will not take place. I believe we need to strengthen the Canadian Environmental Assessment Act; and that some individual provinces are not necessarily taking their full share of the responsibility.

This is getting slightly away from the role of the NEB. I am speaking to developments in general. An individual province stands to gain a huge number of royalties, which will increase its wealth. We believe that the federal government must maintain a watchdog presence with respect to emissions, that is, greenhouse gas emissions, emissions from particulates and acidifying deposition, and flaring emissions.

Senator Spivak: There is a group of people who deal with environmental assessment, but they told me that they do not consider cumulative impacts.

The Chairman: Mary's point is they have to have a look at the cumulative effects.

Senator Spivak: I do not know if that is covered in a provision of the act.

The Chairman: There are certain results if we do anything. If we simply say that you cannot put out beef with E. coli, you will hear a loud scream of western alienation. Today everything can be interpreted as being a move to alienate the west. I say that even though most of us here are westerners.

If we decide that sulphur emissions must stop, that will immediately be taken to be a move against Edmonton, not a move against Ontario or Toronto for polluting the Great Lakes. We will be taking away royalties. Naturally, provincial governments are only paid royalties on the basis of what it costs to run a project, and treatment and clean-up costs will be deducted before the calculation of tax.

There is a general feeling that they have been very fortunate. They have been able to blame the oil business. The government has never taken the blame for not having regulations that allow the oil companies to do certain things.

Mr. Marr-Laing: We are doing a reasonable amount of work in the North. In March Chris and I were in Tuktoyaktuk and a few other communities. It was minus 43 at that point, but it was quite beautiful. We noticed that people had a lot of experience with seismic development and exploratory wells, because they had seen those things happening in their communities during the '70s and the '80s. People have experience with the front end of the development cycle, but not with the full production, processing, and waste management aspects. They must understand that a pipeline that will move a billion cubic feet of gas per day requires so many wells to be drilled on an annual basis for 30 or 40 years.

Our advice is: Understand what a generational development involves when you make your decision, when you choose whether or not to develop a particular resource. You must utilize the regulatory mechanism to show some consideration and understanding of what those impacts will be in terms of the decisions that will be made about whether or not a resource should be developed.

A pipeline is 30 to 50 metres wide and, say, 1,500 kilometres long. You can manage that. However, you must understand that that involves a whole bunch of other things happening. That paints a very different picture of the situation.

The Chairman: Are we being lemmings, though? Your remarks are not so different from the remarks made by the National Energy Board and by the CAPP. You are talking about the inevitability of so many gas wells being drilled and so on, and you say that it will take 20 to 40 years before any change is felt.

Have you given up on wind energy and other forms of energy? Gas prices are now up to U.S. $6 to U.S. $8 an mcf. I am wondering whether that will attract users to your market.

Are we arguing here about buggy whips and how to make a better buggy when Ford has already got something in its garage that will put us out of business? You are the forward-thinkers. How close are we to the hydrocarbon field being at least held even or shot back?

Mr. Marr-Laing: If I had a definitive answer to that, I would probably make a lot of money in the next 10 years in that I would bet on the technology. Our sense is that a combination of the increased costs of conventional energy, both tighter supplies and increased environmental management costs, combined with technological change to the greener side of energy, will mean that, within 10 to 15 years we will reach a substantive crossover point where there will be a dramatic and substantive increase in the use of alternative forms of energy and in the efficient use of energy coming on to the market.

Our advice to the Alberta Government is: Do not expect this world of surpluses of fossil fuels to continue forever. We say the same thing to a number of the companies that we engage, Suncor, Petro-Canada, and others. We advise them to make sure that they have a substantive part of their profits strategically invested in developing the intellectual and technical capacity to understand these new technologies, in order to own these technologies and to be advancing them, because at some point in time, somebody is going to bring it on the market, and they could be facing a substantive change in the viability of their existing industry. We believe that will be within a fairly short-term period.

Senator Spivak: Some of them have recognized that.

Mr. Marr-Laing: Yes, they have.

Senator Spivak: They want to be energy companies, not simply oil companies.

Mr. Marr-Laing: Oil and gas companies; that is correct. Suncor is a good example. They put $200 million into wind and into exploring methane capture.

Senator Spivak: We have to remember that hemp was originally going to be used for paper production until whoever it was that owned large tracts of forest decided that would not be done.

The Chairman: We had a massive shift from hardwood to soft woods being used in paper.

Mr. Marr-Laing: That is how we understand an energy revolution will occur as well. We are trying to be pragmatic because we know they cannot do that overnight. It is not going to happen in five or six years.

The Chairman: We wanted you to be a witness our committee because we thought you were looking into what might be considered "far-out" energy such as biomass. We know that agriculture produces ethanol, and that it can turn out a reasonable fuel from canola. Mind you, when you follow the city bus it smells like French fries, nevertheless, the oil can be burned as diesel. That is a biomass. In agriculture, we are always looking for markets. Have you done anything in that line at all?

Mr. Marr-Laing: Yes, some of my colleagues have done some work in that area. I have some materials here that give details about the viability of some of those technologies and the role that they can play. These changes are happening now. Canada has the opportunity to take advantage of that and to be a player, or we can be left out in the cold. To be left out in the cold means that we will focus on fossil fuels.

The Chairman: I think it is a little early for that. However, we will have to make a decision in the Senate on whether the oil and gas epoch will continue into the next generation. If so, we have to soften the effects of it. We have to decide whether the oil and gas epoch is drawing to a close because the price is extreme to the point where these other forms of energy will come on the market. Perish the thought, but we may even turn to atomic energy, which is what some of the people are talking about.

Senator Spivak: It is too expensive.

The Chairman: It could be wind, solar or biomass. There is a lot less pollution associated with those.

Have you prepared any models to compare the cost of a Btu of energy from, say, a wind plant or a solar plant? It probably costs the same to turn out energy from a wind or solar plant now as it did 20 years ago; whereas, the cost of oil and gas has gone up 20 times in the last 20 years. Somewhere along the line we are going to bump heads.

Mr. Marr-Laing: I am not aware of a single study that has put all those pieces together. However if you want to know the wind industry's projections for its growth and where it needs to go to cross substantive price barriers and drops, and how much ingress into the markets it thinks will be made, that kind of information is available.

The Chairman: That is trying to demonstrate to the public what the true cost of hydrocarbon energy is, including the pollution associated with it and how that affects the geography of the country.

Mr. Marr-Laing: That is right. It is an effort to increase awareness of them and to try to get those costs incorporated back into the hard economics of the process, rather them being carried by the public.

Senator Spivak: What is your take on the fuel cell?

Mr. Marr-Laing: There is no magic bullet that will solve our energy woes in the future. It will be a mixed-bag, a portfolio, of solutions.

The fuel cell has an important role to play in that. We prepared a report which analyzed upstream - the source of the hydrogen that will be used. That becomes pretty critical. You can process that in certain ways whereby there is no environmental net benefit associated with it. Other forms of processing and formulating technologies which will create those benefits. Again, we have to keep our eyes open as to how we apply any one of these things and be conscious as to the long-term impacts associated with that.

We cannot rely upon our current economic system to get us out of this problem, because the window for the fossil fuel energy change is not 60, 80 or 100 years. Fossil fuels will no longer play a significant role in heating and transportation. They probably will, however, have a long-term role in the formation of plastics. Our point is that the environmental thresholds that we are facing, particularly climate change, do not give us that much time, so there must be a social engagement in assisting the transition.

The other technologies are there. They will make inroads. It is a question of the speed at which they do, and how we facilitate that.

You asked about the U.S. role in terms of conservation, renewables. Is this window-dressing or is it a central part of the platform? Will there be clear targets as to how much of wind power will be provided in certain states, just as Mr. Clinton set targets for some of the renewable portfolio standards? Will this require clear social drivers requiring certain performances on certain timelines, or will it be a matter of just putting, say, a few hundred million bucks into this research or that research? In the meantime, we will spend $7 or $10 billion building pipelines, electricity grids, and so on. It is a question of balance.

Senator Spivak: My question to you related to the fact that CAPP is down in Washington talking to them. Where are our other people with other points of view? I take it no one else has been invited.

Mr. Severson-Baker: I am not aware of anybody from the NGO community having gone to Washington.

Senator Spivak: Yet, here is CAPP talking to them.

Mr. Severson-Baker: That is the kind of thing you tend to hear about through the network.

The Chairman: They are paying their own way. That is an income tax deduction.

Senator Spivak: I am sure certain NGOs would pay their own way, too.

The Chairman: It costs an NGO more to travel than somebody in a corporation.

Mr. Marr-Laing: Within the community, there is close interaction between U.S.-based and Canadian-based groups, particularly those working on climate changes, the Climate Action Network.

The Chairman: Have you done any work on how our hydrocarbon industry affects climate change?

Mr. Marr-Laing: Yes, a report which we released a couple of years ago on Canadian solutions was an overview of the problems associated with the sources of hydrocarbons and our view of how we can close the gap. The report covers a range of measures which apply to a range of industries.

The Chairman: Do you believe in global warming? I understand that there are some people in Calgary who do not.

Mr. Marr-Laing: It is no longer a matter of whether one chooses to believe in it or not. It is a question of listening to our scientific advice.

The Chairman: One cannot afford to not believe.

Mr. Marr-Laing: Exactly. From a risk-management point of view, you had better not ignore it and you must decide how you are going to respond to it.

You mentioned issuing a T-6 in order to be eligible for a tax credit.

Senator Spivak: Before you move on, I must challenge you on your last statement.

Do you read the editorial pages of the National Post?

Mr. Marr-Laing: Yes.

The Chairman: Oh, shame on you.

Senator Spivak: I rest my case there.

The Chairman: A right-wing rag like that?

Senator Spivak: Well, no. You have to read it, because there is a definite editorial bent for ridicule.

Mr. Marr-Laing: That is right. Considerable resources are still being spent by companies like Exxon to influence public opinion and the policy-makers.

Senator Spivak: That is right.

Mr. Marr-Laing: Some people still believe the world is flat, irrespective of a Canadian walking around it.

The Chairman: If there are any of those around, they are working for the National Post.

Senator Spivak: Yes, but the National Post has hardly a small influence on our country.

Mr. Marr-Laing: We recognize it is there, but I say a responsible understanding of what the IPCC is telling us - our best scientists and their U.S. scientists - in terms of where it is at, says you cannot ignore this piece.

As to the idea of introducing a T-6, I believe you have heard from Clean Air Renewable Energy. We were involved in initiating that with Suncor Energy. Clearly the green-energy credit - where people get a tax credit for having invested in green power - is a critical factor in removing some of the structural barriers to allow people to make choices.

Senator Spivak: Did you meet with Mr. Martin?

Mr. Marr-Laing: It would have been one of my colleagues, Robert Hornung or Matthew Bramley. Yes, they have had some fairly high-level discussions within the department.

There were a couple of questions about the Aboriginal or northern perspective. The position we take is that it is not our choice to advise as to whether or not they should be developing their resources. There are, I think, significant socio-economic development reasons why the peoples in that region would want to take advantage of developing that resource.

It would be just too darn easy for me to speak out. I live in Drayton Valley which is an hour west of here. It is an oil and gas area, and people pay their mortgages, and so on, so we are not going to speak to that.

What we do say is: If you decide to do that, do it with your eyes open. Understand what the risks are from an environmental and human health point of view. Make sure you have got that incorporated into your framework in making decisions so that you can articulate where the caps for development are going be and where the limits are in terms of how much impact you want on your claims.

The Chairman: Is this where we move into the Aboriginal field?

Ms Griffiths: Not specifically, no, but the situations described would be relevant to Aboriginal communities.

Mr. Marr-Laing: We are doing work in that regard right now. As a matter of fact, this afternoon's task is to take that kind of documentation and convert it for use in northern jurisdictions.

The other piece of advice we give is: Understand that this is a temporary opportunity that is being presented. Forty years from now, most of those resources will most likely be exploited, so think about what the 30-year cycle, the 50-year cycle and the 70-year cycle will look like.

Senator Spivak: Seven generations.

Mr. Marr-Laing: Yes. The capital that will be generated will create opportunities. You can even clearly articulate it. From an energy point of view, communities like Tuktoyaktuk and other communities are totally independent of having to fly or truck in diesel to provide the energy and the electricity needs for that community.

They may say that they will use that capital to install windmills for wind power and on other forms of renewable energy, so that they will never be dependent on the south to provide their energy again.

You can seek private money to do that. Companies that want to make a lot of money might allocate some money to the communities. The public purses will make a lot of money as well. That is, generally, our thinking on that.

It is clear that there is a tremendous challenge around capacity building in understanding this industry. Northern communities have more experience in mining than in oil and gas. Having the people who know the potential risks and being able to manage and regulate this is, I think, a substantive challenge. Who will play that role?

You still have the question of federal engagement. There is a whole list of acronyms to describe those who are involved, from Environment Canada, DIAND, the NEB, to the acronyms which describe all the resources councils.

Senator Spivak: We saw the list. It is a very long list.

Mr. Marr-Laing: Some of that will have to sort itself out. That will be a transition.

The Chairman: In one of your reports you described a specific measurement, and it was not the gross domestic product or the net domestic product. Was it the "happiness quotient"?

Ms Griffiths: The "genuine progress indicator." Again, we are looking at what is really sustainable development, and not just measuring things in terms of the gross national product.

The Chairman: I think half of the editorial staff in the south suffered a heart attack when they read that.

Ms Griffiths: I was involved in the research on that.

The Chairman: That leads me to another question. You mentioned that you ran that through Alberta, but have you run it through a territory where native people live?

Ms. Griffiths: Not yet.

The Chairman: They have an entirely different set of factors to consider.

Ms Griffiths: Not yet. We had a grant from Western Economic Diversification to do it in Alberta, but obviously, it was breaking new ground. We are limited to some extent in terms of what information is available. You need to conduct a series of these over a long number of years. If other regional or provincial governments are interested in doing this sort of work, then the Pembina might be interested in doing it.

Mr. Marr-Laing: Sir, we did do it for the Yukon Government about three or four years ago. They asked us to identify and provide a framework for sustainability indicators. I am not talking about the analytical work which Mary mentioned. They wanted us to articulate what those indicators are. Therefore, we have done some of that work before.

Senator Spivak: It seems that in the North there will be a fight between leaderships to decide who will get the pipeline, and who will get benefits of the development. Are you doing consulting work for any of these governments, or do you know if someone is doing some consulting work to help them in this regard?

Mr. Marr-Laing: We are working with three or four First Nations communities, for example, the Vuntut Gwitch'in in Old Crow on energy efficiency opportunities, renewable energy opportunities, et cetera, in terms of the transition we are talking about.

If there is anywhere in Canada that we should be worldwide leaders around renewables and energy efficiency, it is the North. Chris and I bought lunch in Tuktoyaktuk in March. In apologizing for the price, they said, "We pay 44 cents a kilowatt hour for electricity, and our water costs are tremendously high and it would be more economically efficient to use wind, solar, or photo voltaics.

Most of our consulting work up there involves working with communities in making those transitions. We are also doing that in northern B.C. and with some of the Métis communities here in Alberta. This has the duplicate value of enhancing economic development and skill development and retaining people within the local community. That is our main focus.

Senator Spivak: It is a very interesting point. To what extent is the federal government involved in giving them progressive and enlightened advice? Usually their role is to do the opposite.

Mr. Marr-Laing: The federal government has a capital investment program to assist in the enhancement of renewables. None of this has a broader policy framework driving it, which one could argue is window-dressing.

This is where we are going as a society. It is going to take us a generation to get there. This is the objective, and here here are all the tactics and the mechanisms by which we are going to achieve that, and here are interim targets, which will drive us in that direction.

We do not have a framework, but there is a bunch of piece meal, one-off pieces that we are dealing with, and those change whenever the political wind changes.

Senator Spivak: I think you are right. This will be a lost opportunity if we do not start off right. It is like the developing countries. If they go through everything we went through, we are sunk.

Mr. Marr-Laing: Yes.

Senator Spivak: We need to leap-frog over that. Is there is enough of a critical mass of advice and consultation and assistance to make that happen? I do not know.

Mr. Severson-Baker: That is starting to develop. The real challenge will be the timing, because depending on the timing of the pipeline, so much development can happen in such a small period of time that it may have the effect of overwhelming the ability of anybody to respond to it appropriately.

Senator Spivak: I believe Nellie Cournoyer is heading an energy task force.

The Chairman: In Inuvik, in the Mackenzie Delta.

Mr. Marr-Laing: That is right.

Senator Spivak: Are you involved with that task force?

Mr. Marr-Laing: No, we are not.

The Chairman: The air shed question arises there. How far are you in convincing the government to use that system?

Mr. Severson-Baker: We have made progress in Alberta. The institute has played a role in helping to develop the knowledge and expertise in the province. We have three air-shed management zones.

Ms Griffiths: I believe it is four.

Mr. Severson-Baker: We now have four air-shed management zones. The hope is to have a contiguous map of air-shed zones in Alberta at some point in the future, but for now, they are located in the areas where they are most needed.

The first was the West Central Airshed Society in Drayton Valley. It is a jump-start type of environmental management practice that would be key to averting environmental impacts in frontier oil and gas areas.

The Chairman: It takes time, doesn't it, Mary? I think we moved that about 10 years ago.

Ms Griffiths: Yes. We were the first. People did not know what an air shed was, and now we have four in Alberta.

At the moment, with perhaps the exception of the Wood Buffalo Environmental Association, which does do some management work, most of it is air-shed monitoring. They are doing the monitoring. They are very much at the ground-level stage of monitoring the emissions. Now in the Fort McMurray area, where you are, they are making some attempts at management, but that is the only air shed at the moment where they are looking at management aspects.

Mr. Severson-Baker: The west central zone contemplates management. If it detects an effect, it does biomonitoring and other things. It has that as part of its fundamental basis, but it has not actually managed. It has limited itself to monitoring.

In the North it would take a lot of energy and commitment to make it happen, because these types of things are very complex.

The Chairman: I think this might be closer than you think, because our Prime Minister promised that the tar sands would keep the Americans warm in the winter and cool in the summer.

If you have already reached your maximum, you maxed out as far as tar sands in a regional shed is concerned, outside of putting it way up in the air so it doesn't come down until it is in Saskatchewan. They have to figure out some other method of inhibiting the south to a certain amount. That might run the price up.

Senator Spivak: Never mind the Prime Minister, Ralph Klein probably doesn't know what an air shed is.

The Chairman: Order! You cannot say that. Strike it from the record, or let the record show that nobody laughed.

Mr. Marr-Laing: To be fair, we do have provincial air shed management for acidification factors. That is done on a provincial scale. It is based on computer modelling. Mr. Klein actually endorsed that, so it has power, if you like, which is a factor that would trigger monitoring or management issues. It is an open question. We will know in six months whether or not the new coal that is being proposed east of here or west of here will actually trigger some of that.

Senator Spivak: I just want to clarify my comment.

The Chairman: No, I think you are in deep enough.

Senator Spivak: No, because he told the editorial board of the Calgary Herald that he did not know the first thing about deregulation, and it probably put him up 10 points in the election.

The Chairman: We do not like people who are smarter than we are.

Senator Spivak: It was a wonderful political tactic.

The Chairman: We end on a cheerful note, knowing that air sheds are progressing. Thank you for coming out.

Senator Spivak: Are all of your publications on your Web site?

Mr. Marr-Laing: Not all of them.

Ms Griffiths: Not the one I have given you.

Mr. Marr-Laing: There are about four or five others. I will leave a copy for reference.

The Chairman: Thank you for coming out.

Ms Griffiths: As we conclude, Senator Taylor, I would like to share with everyone what you said to me many years ago. You said, "When the oil and gas is gone, we want to make sure that we still have clean water."

The Chairman: Yes, I recall that.

Our next witnesses are Dr. David Lewin and Mr. Tim Boston from EPCOR. How old is the name, EPCOR? Is it three years, five years?

Dr. David Lewin, Senior Vice-President, Sustainable Development, EPCOR: It has been around since 1996, so that is five years. It has gone through a second generation.

The Chairman: I believe EPCOR services more than Edmonton, does it not?

Mr. Lewin: Is does now. I will touch on that in our presentation.

The Chairman: Before you move on, could you tell us a little bit about yourselves - not what you do for amusement on weekends, but what your academic or experience has been.

Mr. Lewin: On behalf of EPCOR, we would thank the committee for the opportunity to speak today. We are more than pleased to be able to talk about issues which are very close to our hearts, particularly the movement to competition in our industry in the province, and deregulation.

Mr. Tim Boston is our Director of Government Affairs and I am Senior Vice-President of Sustainable Development with EPCOR.

I will let Tim speak for himself. I began my career with what was Edmonton Power in 1982. I have held progressively increasing roles from generation planning through regulatory affairs and rates design, and environmental affairs to my present position, which is trying to lead the corporation in its sustainable development activities.

It is very much a work in progress. We do not have all of the answers. We have many questions, but we feel we are taking some positive steps in moving towards a sustainable development organization. For a utility which burns primarily fossil fuel, natural gas and coal, that is a major undertaking for us.

Mr. Tim Boston, Director, Governmental Affairs, EPCOR: Mr. Chairman, I graduated as an economist at the University of Alberta. I have a background in environmental economics as well as in international trade. In the early 1990s, I worked in Ottawa in portfolios dealing with international trade, industry, science, technology in Canada, as well as western economic diversification. Upon returning to Alberta in 1994, I worked for the Chair of the Standing Policy Committee on Natural Resources and Sustainable Development for about a year before going to Weyerhaeuser Canada in Alberta where I was their public affairs and government relations manager before I joined EPCOR approximately a year and a half ago.

Mr. Lewin: We want to take this opportunity to speak to the committee about what has happened in our industry in the province and try to put it into a North American context.

We titled our brief, "Expect the Unexpected," and I can assure you that we have learned an awful lot through this process of restructuring and deregulation, and we certainly have come across some unexpected results from the process.

The presentation will cover three areas. I want to say at the outset that, from our experience, deregulation of our industry is not specifically the issue. Worldwide, the whole industry is going through a restructuring. Alberta is no exception. We are introducing competitive forces at the generation end of the business, so generation would be competitively acquired.

On the retail side of the business, the competitive forces are saying that this is no longer a monopoly business, that it should be opened up to competition. The issue is the restructuring of the industry, and deregulation is one of the tools you use to encourage that to happen.

The third area of our business is the transmission distribution, "the wires" as we call it. This has always been a monopoly business, and it will remain a monopoly business.

Four fundamental forces are reshaping our industry, and we have come across, at least, nine unexpected results. I will touch on those.

One of those forces that is reshaping our industry, is prosperity. Prosperity, as we know it, is linked to the expansion of the low-cost and reliable supply of electricity. We estimate that 12 to 17 per cent of that growth in electricity consumption is dedicated to what we are now calling the "digital economy." We are seeing a very rapid growth in demand, driven from the digital side of the economy.

In terms of low-cost supply, reliability, competitive forces are the means to keeping costs at a level which, on the one hand, encourages new investments and so encourage people to build a new generation that we need in the new infrastructure and, on the other hand, supports economic growth. Obviously, it cannot, ultimately, be based on producing electricity, because that is too expensive.

The second force is the emergence of natural gasses, what we felt was the preferred fuel for power generation. On the surface, that seems to be the right conclusion, but we are now looking at other concerns relating to supply and whether, in fact, we can obtain enough natural gas to supply all of the plans that are in the pipeline.

The third force which is impacting us as we move through the industry restructuring, in particular deregulation, is that there is a role for governments and for the regulators. There is a tendency, of course, as you move through the process, to fine-tune the plan in an effort to hasten its delivery. In some cases, these actions can be counterproductive. Great care should be taken in applying ideas like price caps and shielding, unless they are very time-specific and focused on, say, low- or fixed-income consumers, or the results can be quite unexpected.

The third force is what has been coined by Alvin Toffler as "The Third Wave." That refers to the speed of change. We come from a traditional industry, which has been fairly slow in evolving in the marketplace, but the marketplace is changing at a much faster pace than the industry has been able to keep up with. It is interesting to note how quickly an economy can change these days - moving from robust growth to, now, talk of a recession and layoffs. Nortel is an example of what can happen.

We are, as a primary producer of a fundamental element in society, electricity, finding it awfully difficult to plan ahead and anticipate what the future demands will be.

Technological change in our industry has been fairly slow and methodological, but we are now being impacted by the Internet, by electronic trading, as we move into a competitive business. The whole financial system, the whole financial market, is impacting us significantly.

The electric industry is moving into what we call a high-risk, high-return period. In this scenario we certainly see opportunities. In this period of change and transition, there are tremendous opportunities for creating and, I suspect, losing value as well.

We like the phrase used by Wayne Gretzky, and that is: "Go where you think the puck will be, not where it is today." We would encourage this Senate committee to look to the future and to not look at where things are today.

We have experienced nine results as we have gone through this period of restructuring and deregulation. We have noticed that, first, there is no overall plan and no Canadian plan, for deregulation. There is no U.S. federal authority sending top-down direction. As that continues, we anticipate that this ad hoc approach will cause delays. It will cause confusion, and the worst thing is to cause confusion in the investment marketplace. Investment opportunities and signals appear to be mixed, and we are concerned that the investment marketplace will wait and not make the necessary investments that, nevertheless, still have to be made.

As we move forward, we need to encourage - and it easy to say but probably difficult to do - what we call a "continental" view, including the U.S., on how deregulation fits into the marketplace; and try as best we can to avoid the ad hoc approach.

The next overhead, which is headed, "Our landscape is changing," gives you a flavour of what has happened to the retail side of our business. Since January 1 of this year, we have gone from 270,000 customers within the city of Edmonton boundary to 620,000 customers province wide.

Senator Spivak: I do not understand these figures. Are ATCO, ENMAX and EPCOR all one and the same?

Mr. Lewin: No, those are other retail suppliers in the province. There are three of us.

The Chairman: This is going to where the puck should be, rather than where it is.

Mr. Lewin: That is right. As you can see from this slide, we have almost tripled our consumer base.

Senator Spivak: Is that because of deregulation?

Mr. Lewin: That has been one of the outcomes of deregulation, yes.

The story is that that was the TransAlta service area. TransAlta decided, as a consequence of restructuring, to move into the generation business and away from the retail business, so that service area was up for sale, and we purchased that service area from them. You can imagine the impact on our billing system, staffing and so forth, in order to continue to serve that expanded community.

I would refer to the next overhead. We have also seen that abnormal prices become normal prices. In the emergence of a spot market, we have seen a lot of volatility. This was brought on by high economic growth and high demand for electricity, coupled with a shortage of supply. We have seen the impact of natural gas prices in the province. They have risen to unprecedented levels.

In the U.S., by the way, in 1998, people were surprised to see that spot prices rose to $12 per megawatt hour. In Alberta, since 1997, over the three years to last year, we saw it rise from $12 per megawatt hour to $137 per megawatt hour. The message here is that: not until new supply, new generation comes along to relieve that supply pressure, will we see a return to price stability.

The third unexpected result is that we have seen more transition. In the transition to deregulation, we have, in fact, seen more regulation than less. Ultimately the idea, of course, is that we will have less, and I am sure that will happen. However, in this transition, it appears that you need to have rules and to take a very cautious approach. That was somewhat of a surprise to us.

We believe that, in this competitive marketplace, there needs to be a streamlined approach to the approval process for new facilities. Any supplier needs to be able to respond and build new facilities quickly but still comply with all the environmental legislation, regulations and so forth. The current process is certainly geared to the regulatory way of doing things, but not necessarily to a competitive marketplace.

We suggest that regulation should shift its focus from one of regulation to one of surveillance and monitoring versus the traditional role of rule-making and approvals.

In terms of the customer, one of the surprises was that this experience did not turn out to be like the telecom business. The basic premise of creating a competitive retail market is that customers will choose their supplier and switch quite frequently. They would have a liquid marketplace, and the supplier would have competitive forces. However, because of price gaps, competition has been somewhat stifled in the province. Most residential consumers are not choosing to choose at this time, but that is not to say that they will not do that in the future. We estimate that the exercise of choice is probably three to five years away.

However, with commercial customers who are more exposed to spot prices, we have now begun to see choice being exercised and contracts being entered into with companies like ours.

The message is that we have to recognize that this transition will take time to evolve, and that subsidizing price caps will only delay the process.

The next overhead is a cartoon. The message is that, in the future, it will be all about service in the marketplace.

Senator Spivak: I did not think that is what it was. I thought it was all about "not" service.

Mr. Lewin: Then I am pleased I included this.

The fifth issue that we have recognized - and this is getting to be quite a serious issue - is the emerging concern, particularly in this province and certainly in some parts of the U.S. regarding what we call transmission gridlock or the problem of getting supply to market. It is all very well to recognize the demand and to begin to build supply and to get over those hurdles, but if you cannot deliver it to marketplace because the transmission system is at full capacity, then you have a significant problem. That issue is now being addressed in the province. It ties into the potential for exports into the United States, as well as the potential for imports from B.C. and even the U.S. We must recognize that we are getting tied into a Pacific Northwest marketplace. It is no different from the gas industry. We must have the transmission capacity to enable that to happen. That will be developed, but our main concern is whether it will be developed soon enough so that the new generation that is coming on will, in fact, be able to supply domestic demand.

The sixth unexpected result is the whole supply equation. This is something which creeps up on you as economic growth takes off and we use up any surpluses that we had - suddenly we realize that we are short of supply. We forecast, in this province, that we need at least about 400 megawatts or so a year of additional electricity capacity over the next five years to satisfy demand.

The U.S. is going through the same scenarios. They are dealing with, obviously, a lot more than we are, but not much generation capacity has been built in some parts of the U.S. for some time.

Plans have been announced in the province over the last year which could bring on as much as 1,700 or more megawatts. There is an inherent risk here, and that is that this is a forecast. You will remember that, in the 1980s, we looked out and, on the basis of $100 oil, we built all kinds of things and made all kinds of plans, and then the economy collapsed and we were in an oversupply situation. That is always a risk in the marketplace, whether it is a regulated marketplace or an unregulated marketplace. The potential for oversupply and for stranded investment is always a risk and has to be monitored carefully.

The next overhead deals with natural gas price hikes. We have all witnessed those of late. Most of the new generation that is being either built or planned, particularly in the U.S. and to a large extent in Canada, is natural gas fired, and the concern is whether we can find enough natural gas in the time available to meet these plans. If we cannot, and those plans do not materialize, what type of generation will replace them? Our answer comes a little bit later. However, we do say that coal has a role; wind has a role; in some parts of the U.S., nuclear would have a role; and alternatives like solar and others have a role.

The next overhead deals with distributed generation. There has been a lot of talk about small technological advancements on small turbines, fuel cells, windmills and so forth, perhaps replacing large centralized generation. Indeed, that may happen over the long term, but in the short to medium term, we see that those technologies will certainly make a contribution. We are seeing more interest in wind power in this province than we have of late, but we do not see it as being the only answer to immediate supply needs. Natural gas will have a role to play but, particularly in this province, we believe that coal will have a major role to play.

The niche markets will emerge for these smaller technologies, but we do not believe that this will be the overall solution to the energy supply needs. Energy supply needs will vary geographically across the nation and across the continent.

On the next overhead, I have tried to show how, over the last 25 years, the energy supply picture in North America has changed away from oil

The Chairman: Is this Canada?

Mr. Lewin: This is U.S. There has been a shift to natural gas and, since the early 1970s, there has been a shift to nuclear. I recognize that those types of plants have not been built for some time, but there was a shift towards that. The main point is that renewables have a role to play, but it is a very small role, and it will take some time for that to grow.

The next slide deals with what we have called this the "Kyoto Dis-Accord." It is not my intention to be disrespectful of those people who participated in the Kyoto process - I was there present in Kyoto, and I saw what went on - but what we are trying to say here is that the process itself could certainly use some improvement. The problem of climate change remains, but the process needs to be revisited. Our experience shows that there are no simple solutions to climate change. If there were, I am sure we would have found them by now.

The pressures to produce less emissions will remain. What we see is a mix of fuel types relative to local conditions as being, perhaps, the best solution that we can adopt. For example, in Alberta that would mean coal, natural gas, and increasingly, alternatives such as wind. Perhaps in the future, solar will all make a contribution to our overall energy needs.

Coal burning in the province is extremely important to us. There have been many advancements and improvements over the last 20 years or so. Coal burning is much more efficient and produces less emissions; not as few emissions as people would like but, necessarily, there has been an improvement. We believe that, with further research from organizations like our own, coal can become a secure, viable alternative to other depleting resources in this province. We have at least 800 years of coal available to us at present consumption rates - an order of magnitude which is much greater than that which applies natural gas.

In conclusion, we believe we must recognize that we need the wisdom to discern the differences between problems and opportunities. The strategies for each segment of our business and the risks that are involved are certainly different. The risks of our horizontal integration - producing many market products, as we as a corporation do - are much different from those that apply to an organization that produces only one product.

We need a balanced approach to energy needs. We require superb constructive communication with all groups in order to make appropriate decisions as we move forward, and we need compassion to be demonstrated by this society as we go through this transition. We must recognize that some elements in the community are less able to take care of themselves and, as this transition unfolds, we must have ways and means of taking care of those people in that part of the economy.

The Chairman: Thank you for your very interesting presentation. You have given us food for a lot of questions. Does Mr. Boston also wish to make a presentation?

Mr. Boston: No.

Senator Spivak: I do not understand why the Government of Alberta entered this arena, telling everybody prices were going to go down, and it was going to be wonderful. There was no plan to eliminate the need for subsidies, which merely go back to the companies. The taxpayers are, in effect, subsidizing you people. Had there been time to plan new generation to ensure supply, maybe things would have turned out differently.

On television, I saw an interview of a man who was running a 100-year-old business. He told us that there was no longer a place for him. Surely that must cause you some concern.

Apart from subsidies, how will you ease this transition, without having a tremendous impact on businesses in Alberta?I recognize that this is a bonanza for you.

The Chairman: I think the City of Edmonton owns EPCOR. Is that the case?

Mr. Lewin: Yes.

The Chairman: This is what you love: a government-owned organization that pays a dividend back to the taxpayers.

Senator Spivak: I did not know that. I should have known that.

The Chairman: I thought I could see the line you were taking off on - the dirty capitalists - and I wanted to get you back on track.

Senator Spivak: I know, but the principle is the same, is not it? If you have a plan, it should be a logical plan and not one that plunges the province, which has the most unbelievable source of energy, into a tenfold increase in gas prices. What business can cope with that?

Mr. Lewin: There are many questions there. Perhaps I can try to give you an overview of what has happened.

I cannot speak for the Government of Alberta, and I would never attempt to do that.

Senator Spivak: No, of course not.

Mr. Lewin: I would just speak from EPCOR's point of view and from my experience of going through this process.

This process began some time ago. In fact, I was involved in the very early days back in 1992 when the whole concept of restructuring the industry and introducing competitive forces was introduced. It took up until the end of 1995 to introduce the plan, in other words, to put together the necessary legislation and regulations to begin to drive this industry restructuring.

It is fair to say that all stakeholders of different types in the province were involved at some point throughout that process. It did not necessarily always unfold the way that was initially designed, or it did not unfold the way that some people thought it should, but that is the way the world works sometimes. Everybody who needed to be involved was involved. However, at the end of the day, the driving force was that we were seeing other industries, such as the airline industry, the gas industry and the transportation industry, going through a similar restructuring, going through a deregulatory process to encourage competition.

This was happening worldwide, not just in Canada and North America, so we had some examples to draw upon. Certainly, from our viewpoint in the electricity business, we saw an example in the U.K. - which we began to model ourselves on - beginning to unfold, beginning to work. It was not a phenomenon that existed only here; it was a worldwide phenomenon.

It was felt that, as other industries were moving that way, traditionally monopoly industries, our industry would only be next. At a point you recognize that certain elements of our business, which had always been a monopoly, could be broken out and function as less of a monopoly. That was what was happening.

If we could have had all of our druthers, we would have, perhaps, chosen to do this in a different time frame, because by 1995 we had new legislation, which took effect in 1996, and things were working fairly smoothly. However, in the interim, two thing happened. One was the sudden run-up in demand, and the economy took off much quicker than anybody would have anticipated. The worst time to try to make changes and go through transition is when there is a shortage of supply. A generating plant takes three to five years to build. However, when we started the process, we had surplus in this province. Some may ask why we did not move quicker. We always want to move quicker.

The second thing that happened was the run-up in natural gas prices, and I have never talked to anyone who was able to forecast what happened there.

Senator Spivak: Does that truly reflect the planning strategy? It seems to me to be ideological, not necessarily pragmatic in the sense that you are saying that because everybody is heading towards privatization, so we should do it, too.

I must contradict you. With the advent of the free-trade agreement, anybody could have predicted that the United States would just suck all that gas out. You do not have to be a genius to figure that out, so one could have known. I am not pointing the finger at you. One could have known that you were going to have a shortage of supply.

Look at California. That was a disaster. Look at Pennsylvania which has a wonderful model. It is working very well.

I read interviews with the Minister of Energy at the time. I forget his name.

The Chairman: Steve West.

Senator Spivak: It struck me his approach was ideological. Perhaps that is being unfair. Given the fact that there were models, why pick a bad one? Pick a good one. I am very puzzled by that.

As well I would ask: Where is the Alberta advantage? The Alberta advantage is that you have a booming economy apart from the oil and gas, because you have a reasonable energy supply, and here you went and blew the Alberta advantage, and not in a minor way - big time.

I was wrong in saying prices went up tenfold. They actually went up more than tenfold, and they will probably continue to rise. I do not understand this. This is a puzzle for somebody from Winnipeg where we do have no energy resources.

Mr. Lewin: In terms of picking a model, as I said, we certainly looked, worldwide, at what models were evolving at that time, and we certainly looked at the U.K.

Senator Spivak: When you say "we," by the way, who do you mean?

Mr. Lewin: On the one side is the industry, people from our industry, government; and on the other side we have the stakeholders, consumer associations and consumer representatives across the province.

The Minister at the time, who was Pat Nelson, actually - Pat Black at the time - had a ministerial committee, and it still exists today, where advice was drawn and given. We could only base our knowledge, of course, on the experience of others at that time. The industry in U.K., it has had its ups and downs, and it has had its difficulties.

Senator Spivak: I will say.

Mr. Lewin: However, it is a model that has, nevertheless, worked.

Australia was very similar. New Zealand was very similar. Our pool, for example, is similar to the Vic Pool, as it is called, in the state of Victoria in Australia. We did our best to learn from those folks.

Senator Spivak: New Zealand, of course, has learned, and it is going back to the old ways.

Mr. Lewin: Perhaps.

Senator Spivak: I do not want to belabour the point. Thank you.

Senator Adams: We had witnesses the other day from B.C. who talked about deals with the United States. They mentioned building a natural gas generating plant in the States and building a transmission line back to Canada. Can you do the same sort of thing here in Alberta? How does the system work? He did not really know exactly know it worked.

Mr. Lewin: The only transmission link that we have now into the U.S. is through B.C., through the Crow's Nest Pass. We have to make arrangements through Powerex, which is the B.C. Hydro transmission export company, to deliver it through B.C. and then into the U.S.

We do not do a lot of that, because we do not have the supply in the province to do it. In fact, on many occasions we take generation from B.C. into the province, to reduce our peak loading and, hence, reduce our power pool price.

We are also limited in how much we can transfer, because these tie-line capacities only have a certain capacity. There is a constraint, physical constraint on us right now.

As I mentioned earlier -and this may take another 10 years to evolve - we are becoming part of a North America or a Pacific Northwest marketplace. As additional transmission capacity is added, then you should, in a true marketplace see a free-flow -

The Chairman: I will interrupt in for a second. You are talking about being a part of the Pacific Northwest. One of our witnesses in Vancouver pointed out that the California shortage was not a shortage of generation, that it was a shortage of transmission lines. You mentioned transmission lines, and said that they were getting that situation under control.

What I do not quite understand is who makes the decision about where the capital, the money, should be spent. I can understand where the capital comes from for generating plants, because you are selling a product. In public transportation, we have railways and highways. In electricity, who is looking after building power lines?

Senator Spivak: What about the loss of use of those power lines? Is it worthwhile to export if you lose all that?

The Chairman: Power lines are intriguing us. How is the building of power lines financed? Who does what?

Mr. Lewin: It is different in different provinces, but in the province of Alberta, the existing power lines are owned by ourselves. We own a small amount. The City of Calgary owns a very small amount. The vast majority is owned by TransAlta and ATCO.

The Chairman: Who tells them to crank up? How do you get big enough lines?

Mr. Lewin: We have an entity in the province called a Transmission Administrator. This is a company that is on contract to the Department of Energy, which manages the planning, if you like, of the transmission requirements. Their role is to look ahead and to decide what level of transmission, what voltage levels and locations and so forth are required, and to make those plans known. They pou out requests for proposals for people to build those lines.

In some cases, there is the alternative of building generation, so if you have a demand at the end of a long transmission line, it is sometimes more economic to build generation. That has occurred in the province, particularly around Grande Prairie.

The Chairman: Is that especially so in the case of natural gas?

Mr. Lewin: Especially with natural gas being available locally.

It is the Transmission Administrator's role to anticipate this and to inform the industry. The Transmission Administrator is regulated by the Energy and Utilities Board.

Then it is up to either the current owners, perhaps ourselves, to respond to those requests for proposals to build that transmission line, or it is possible that other people may want to enter into the transmission business and build transmission lines, recognizing that they would likely be a regulated entity, because it is part of a monopoly structure to build those lines. That is how it works in this province. In other provinces, I am sure it is different.

The Chairman: It is very similar to the way natural gas pipelines and oil pipelines are evolving around the world. It still bothers me, though. At least natural gas and oil pipelines have to be approved by the National Energy Board. A company that has an existing pipeline may not want a new pipeline to be built, because they still have some capacity. They may argue back and forth.

I never hear that argument in respect of electricity. We only hear complaints when an area is blacked out. Does the National Energy Board deal with you?

Mr. Lewin: No, not as it relates to provincial jurisdiction.

The Chairman: Does it become involved if you ship to the U.S.?

Mr. Lewin: If we ship to the U.S., we have to apply for an export license to the NEB.

The Chairman: What about shipping to Manitoba?

Senator Spivak: We do not need it. We have hydro power.

The Chairman: If you want to ship beyond interprovincial boundaries, does that involve the NEB?

Mr. Lewin: I do not think it applies nterprovincially. It only applies to international shipping.

The Chairman: I now understand how it is financed, because I was there.

I was curious about who decides that we need a new pipeline and puts out the calls for proposals.

Mr. Lewin: That mechanism is in place.

The Chairman: That is done by the provincial government.

Mr. Lewin: It is done by the Transmission Administrator.

The Chairman: Who is that?

Mr. Lewin: ESBI, which is a company out of Northern Ireland, who are under contract with the Department of Energy to perform that role.

You also asked about losses.

Senator Spivak: I understand that you can lose as much as 50 per cent; is that right?

Mr. Lewin: No. The way that that works is simply that you have a system, a network of transmission. In order to reduce losses, which inevitably you find on particularly long transmission lines, strategically you will build generation at different points in the system to boost the system. It is very similar to gas pipelines. You have boost stations along the way so that you will be generating at different points on the system.

Senator Spivak: Can you do that in the United States? They will allow you do that?

The Chairman: Yes.

Mr. Lewin: It is their system. We are building generation in the U.S.

The Chairman: You have generating stations at Prince Rupert, Taylor and Joffre. I see you also have one in Tacoma, Washington.

Mr. Lewin: Frederickson, yes we do.

The Chairman: As you know, the public and the Senate is interested in green power and alternate powers. Yesterday we were presented with an idea that really interested me. It is a tax credit to consumers who use green power. In other words, if they purchased and utilized 15 per cent wind power, they would be issued a T-6 for that 15 per cent of their total energy bill which would qualify for a tax credit. That would put consumers in a position where they would have an incentive to use green power. What do you think of that idea?

Mr. Lewin: Fiscal instruments, if I can call them that, are certainly interesting tools to encourage usage of what would otherwise be an alternative supply. It is a supply which may never materialize because of its high cost, or it which will only be supplied to a niche market. However, that whole question is outside of our realm of experience.

The Chairman: So it might fly.

Mr. Lewin: It might.

Senator Adams: I am very interested in wind generation because I live in a very windy area. We are installing a few small windmills. The one we are putting in this year will generate only 60 kilowatts.

Of course, if the winds are calm for a long period, that energy source is not available. I understand you are studying this at the wind generation station at Pincher Creek, Alberta. Do you think there will be ,pre wind-generated electricity in the future?

Mr. Lewin: The supply of wind, of course, is always problematic. We have no control over that. The supply of natural gas and coal is much easier for us to control.

Wind generated power has a role to play in a niche market in places like Pincher Creek where the wind pretty much blows all the time. Sometimes it blows too strongly and you have to shut down to avoid damage. However, it would have a role to play.

In looking at the whole system, you would have to take that into account, and we do that. We do not expect that the wind will actually blow 100 per cent of the time, so we calculate what is called a "capacity factor" on those units, and we take that into account. We say how much energy is available.

One of the benefits of the system we have in the province now is that, if you have a generator available, in order to sell the output, you have to bid that output into the power pool, and you have to guarantee that you will be able to supply that when required, or you must some way of making that up.

You have to be very cautious about what you build, where you build, and how confident you can be that you can supply when necessary.

Senator Kenny: It is a supplier-pay contract?

Mr. Lewin: Absolutely.

Senator Adams: It takes a long time to recover the money you invest in windmills.

Mr. Lewin: Yes, the return on those kinds of investments is around 15 or 20 years, but that is traditional in the electricity business.

Senator Spivak: What are your strategies in Alberta to get alternative sources of energy? We know that energy companies have depletion allowances. We also heard that there is a discriminatory federal tax situation with regard to low-impact hydro and some of the other alternative energy sources.

The Chairman: I do not think they pay tax.

Mr. Lewin: We do now.

Senator Spivak: You need a critical mass. What I am trying to get at is: You can make a token effort, or you can make a real effort. Which is it?

Mr. Lewin: It is a real effort, believe me.

Wherever we see a viable investment opportunity, whether it is in this province, in B.C., or in Washington, we will make the investment.

In terms of wind power, we are making an investment today as we speak down in Pincher Creek. Again, it is small, but it is becoming more and more viable.

Senator Spivak: Let me be more graphic. The subsidies alone in this province are about $4 billion.

The Chairman: Do you mean to the consumers?

Senator Spivak: Yes, to the consumers.

The Chairman: That comes down to the high electricity rates.

Senator Spivak: What is that amount of money?

The Chairman: That was before the election, though.

Senator Spivak: I know, but billions of dollars are not a big deal here in Alberta.

Mr. Boston: They are still a big deal.

Mr. Lewin: They are to me.

Senator Spivak: What is a billion? This is $4 billion. I do not know what the depletion allowance is. How much public money is being put into all these alternative sources? I would bet that it is not a lot. I am not asking about private money.

Mr. Lewin: It is not much. We are putting in private money. It is not public money.

Senator Spivak: I am not addressing my question to private money.

Mr. Lewin: The philosophy here is that the market will determine what is required and where it is required, so that investment will be made by whoever is willing to take the risk.

Senator Spivak: Fine, but in the meantime, we do not have a free market, because oil and gas companies are subsidized to a large extent. I am wondering what the scale of that investment is. You say it is not a lot.

Mr. Lewin: In alternatives, it is not a lot at this time, but it is growing.

Senator Spivak: That is a very diplomatic answer.

The Chairman: I have two far-out questions to which you can probably answer with a "yes" or a "no."

First, have you done any experiments with, or heard anything about transmitting power through electrons, wireless electricity?

Mr. Lewin: No, but I would be interested in anything you know about it.

The Chairman: You are interested, but obviously, you have not done anything.

Mr. Lewin: It sounds dangerous.

Senator Spivak: It would mean a big cost saving.

The Chairman: Second, have you done any analysis of cleaning coal, so that it would cause no more pollution than natural gas? If the emissions were to be the same at the end of the stack, what does gas have to be, to allow you that gap to be able to clean up coal?

Mr. Lewin: I do not have an answer to the last part, which is: How much does gas have to be? All I can say is that there is a lot of work now going on at Los Alamos in the U.S., and we are contributing to that research effort, which is aimed at making it a zero-emission fuel, that is, lower emissions than natural gas. However, it will probably be 10 or 15 years before that technology becomes available.

The Chairman: Right now, though, would $7, $8 or $9 gas pay for that cost of clean up?

Mr. Lewin: Would it pay for it? It is hard to say.

Senator Spivak: When I was at Globe 2000, a company out of China - and you are probably aware of it - that was talking about a technology whereby something is injected into the coal generating process. What it does is it cut off the emissions, and produces cement clinkers, which then save you energy two ways, one in the emissions from coal generating, and the other in the production of concrete. I cannot remember the name of the company, but is this technology being looked at seriously?

Mr. Lewin: I am not sure about that. It sounds similar to the Los Alamos work that is going on. Through the chemistry of the process, the carbon dioxide is captured in magnesium silicates. It is captured in sand.

Senator Spivak: Is that then being used for something else?

Mr. Lewin: Perhaps that sand can be used for something else.

Senator Spivak: That is encouraging.

The Chairman: Gentlemen, thank you very much. Like the other panel, we could have talked all day, and perhaps we should have.

For anyone in the audience who is interested, there is an exhibit about tobacco smoking next door. It is worth seeing. As you know, this committee is spending half of its time dealing with matters relating to energy, and the other half in trying to drum up interest in our antismoking bill.

The committee adjourned.

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