Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 10 - Evidence - Afternoon meeting
EDMONTON, Wednesday, November 30, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 12:50 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
The Chair: I am calling this special meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources to order.
We continue our study on Let's Talk Energy, here in the great Albertan capital of Edmonton. We are having a whirlwind tour of the West, yesterday and the day before in Vancouver and today here in Edmonton and tomorrow and Friday in Calgary. We are literally getting immersed in the oil patch and all elements of our terms of reference that flow therefrom and are related thereto.
Mr. Vaasjo, we welcome you.
Brian Vaasjo is President and CEO of Capital Power Corporation. He was appointed COO of EPCOR in 2008 and was chiefly responsible for regional power generation and water operations. A primary responsibility was advancing the company's competitive power and water businesses across North America, including the clean coal initiatives that Brian initiated.
He has also been president of EPLP, now CPILP, since its acquisition in 2005. He joined EPCOR in 1998 as executive VP and chief financial officer and led EPCOR's IPO and debentures and preferred shares.
At EPCOR, he was responsible for the development and acquisition activity, M & A, including the Genesee 3 project and the UE Waterheater Income Fund spin-off prior to taking on the position of president and CEO of Capital Power.
Brian Vaasjo, President and Chief Executive Officer, Capital Power Corporation: Mr. Chair and members of the committee, I thank you for the opportunity to speak to you today. This is an important project for Canada and I know you and your committee members will work diligently to look for solutions to the energy challenges facing our country.
Capital Power has been actively engaged in the national dialogue on Canadian energy policy through EPIC and participation in meetings in Banff, Winnipeg and Charlottetown. Capital Power Corporation is a growing independent power generation company that owns and operates more than 3,300 megawatts of power generating assets across North America.
Born out of the municipally owned assets of EPCOR in 2009, CPC is thriving as a publicly traded company on the Toronto Stock Exchange. By the year 2020, we plan to triple the size of our generating portfolio. Today we have 16 power plants that reach from Vancouver Island to New England, and we are proud to be headquartered right here in Edmonton.
Our asset mix includes wind, natural gas and coal-fired generation. Here in Alberta, coal remains an important part of our fuel mix and we have taken a lead in making our plants some of the cleanest coal-fired generators in North America. In fact, we were the first to introduce supercritical coal power generation technology in North America a decade ago with our Genesee 3 facility.
Together with TransAlta, we now own a second supercritical coal facility, the brand new Keephills 3 project west of Edmonton. It is a $2 billion project that we have been working on for five years. Construction started in 2007. We saw the first firing of the boilers in May of this year. It officially came on line in September. It uses the latest scrubbers and emission control systems, including a bag house that captures 99.9 per cent of the particulate emissions.
In fact, Keephills 3 and our Genesee plants reduce NOx and SOx emissions by 80 per cent and carbon dioxide by 24 per cent compared to conventional coal units. That is the equivalent of taking 190,000 cars off the road or planting 100 million trees. We are very proud of the efforts we have made to provide cleaner energy in Alberta.
Our other new addition in Alberta this year is the 150 megawatt Halkirk wind project in south central Alberta. We currently have 40 megawatts of wind power near Goderich, Ontario, and are building or developing another 490 megawatts of wind energy in projects in British Columbia and Ontario.
We are making major investments in generating cleaner energy throughout our operations. As an example, we completed a total rebuild of the Clover Bar Energy Centre situated in east Edmonton. This was a brownfield redevelopment on the site of the old power plant along the banks of the North Saskatchewan River.
CPC invested more than $260 million in demolishing an outdated and inefficient power plant and replacing it with three new state-of-the-art natural gas-fired GE turbines. They have a combined output of 243 megawatts offered into the grid on a demand basis.
In 2011, we also completed extensive modifications on our North Carolina facilities to replace two thirds or more of the coal burnt in these facilities with biomass and tire-derived fuel.
Let me comment on a number of issues that might be of interest to the committee. The Alberta market serves as a model for others to learn from. Here are a few key points on that.
It has resulted in over 4,000 megawatts of privately funded competitive generation. Under this market design, investment risks have been transferred from taxpayers to investors. Price transparency to consumers means that the customers understand the true price of power and can adjust their consumption accordingly.
The Chair: Sir, could I just interrupt you there? Speaking as a Quebecer, we have a utility called Quebec Hydro. It is government-owned and it is a huge producer and generator of power. In B.C., there is BC Hydro and so on.
Some of the people who will be sharing information here in other provinces do not fully understand that in Alberta, there is not a publicly-owned utility like in some of the other provinces.
Mr. Vaasjo: In Alberta, there are regulated power distribution companies that distribute power to your home, and there is also a regulated transmission authority in the province, but the generation is entirely unregulated.
A market exists whereby different power generators bid into the market and there is a process whereby the prices are chosen depending on demand at any point in time, and that is the price that basically the market clears at every hour.
The Chair: Is the regulated transmission system publicly-owned? Is that owned by the province?
Mr. Vaasjo: No, it is not.
The Chair: So it is all private capital that runs this network here in this province?
Mr. Vaasjo: Although the local distribution companies, two of them, ENMAX and EPCOR, are owned by their respective cities.
The Chair: By the cities?
Mr. Vaasjo: Yes. But both are also regulated by the Alberta Public Utilities Board.
The Chair: So there is no equivalent, like OPG or Hydro Quebec or BC Hydro or Manitoba Hydro in this province?
Mr. Vaasjo: No.
The Chair: I think they are getting to your model more in Nova Scotia. When we were there, we saw that at least there is a hybrid system.
Mr. Vaasjo: Actually, the hybrid system exists to a degree in both Ontario and British Columbia, whereby new generation is basically coming from independent power producers like ourselves on a competitive bid basis, the difference being here we bid in every hour for the price of power, whereas there, the competition is for long-term power purchase arrangements, which then form part of the cost base of the utilities in those respective provinces.
The Chair: I think that clarifies it.
Mr. Vaasjo: Capital Power has seen significant investment in wind co-generation, natural gas combined cycle, gas peaking and coal-fired generation all within the Alberta competitive marketplace. The competitive structure of Alberta's design provides strong incentives for companies to be efficient and innovative in the design, development, construction and operation of power plants.
Alberta's market also includes an effective monitoring and enforcement framework to ensure compliance by all participants with all applicable market rules. There are two distinct bodies to investigate and impose sanctions where applicable.
The Market Surveillance Administrator monitors and investigates behaviour in the marketplace, then brings forward a case to be considered by the Alberta Utilities Commission. If the AUC determines that there has been a breach of the rules, companies are held accountable. So there is a compliance and enforcement mechanism to ensure the integrity of the system.
From an affordability point of view, the retail market design also affords all Albertans the opportunity to manage their price exposure through the ability to contract with competitive retailers, while also providing access to a flow- through rate via the regulated rate option.
If the average household consumer wants to sign a long-term contract with a retailer, they have a range of pricing options available to them. For those who opt for the regulated rate option, consumers pay the monthly market price for power, but they are cushioned against sudden price swings because of forward purchases in the market.
I believe transparent and actual power prices result in conservation. Industrial power users can make business decisions based on their usage of power and the flexibility of their operations, so consumers have choices when they are considering their energy options. These are all aspects that are unique to Alberta's deregulated market.
From an industry perspective, Alberta's regulatory framework also provides a level of certainty about long-term investments. Companies like ours can make long-term capital investment plans with the knowledge that the market rules are likely to remain consistent over time. That is not something we can say about all jurisdictions across Canada, and that has an impact on long-term investment in large-scale electricity infrastructure.
Investors and shareholders are more likely to focus their capital investment in markets where they can be confident that there will be consistent policies over the long term. That is part of the reason why Capital Power has been a strong advocate of the federal government's efforts to move ahead with capital stock turnover regulation for coal-fired generators.
CPC has provided constructive feedback on how these regulations can be most effectively implemented to achieve the desired reductions in the most cost effective way for consumers.
Because the CST rules take a long-term view of coal-fired generation in Canada, there is a degree of long-term certainty in the market, not just for ourselves, but for all other players. Without that certainty, it is difficult to imagine how any company would be prepared to risk a substantial amount of shareholder investment on projects that may or may not be viable several years down the road. It just does not make good business sense.
The regulations set out clear targets for emissions and achieve real reductions in GHGs and other pollutants. That helps attain Canada's Copenhagen commitment. It also provides a clear picture for investors. That is good for the environment and it is good for the market.
The regulations also establish a framework that allows for investment in new technologies, including carbon capture and storage. The development of these technologies will mean provinces like Alberta, rich in coal reserves, will see coal as part of their long-term future.
We see it as our responsibility to continue on the path of developing these coal reserves in an environmentally responsible way. At Capital Power, we believe we will have commenced the development of another coal generation facility in Alberta within a decade.
In relation to this, Capital Power is a partner in the Pioneer Project that would see carbon capture and storage applied to the new Keephills 3 unit, further reducing its GHG footprint. This is a significant step down the path.
Finally, I would like to comment on interconnections between provinces. Most interconnections in Canada actually travel north and south rather than east and west, and there is a simple reason for that. It just makes economic sense.
Distance to markets, cost and availability of generation, ongoing trading relationships as well as previously developed routes and siting corridors have all factored into decisions made about transmission development. Given the significant distances between load centres in Canada, we do not believe that a national grid makes sense from either an economic or public policy point of view. In fact, we believe a national transmission grid would be destructive to the economy.
I would like to thank the committee for coming to our home town, Edmonton, Alberta. I would be happy to answer any questions you might have.
The Chair: Mr. Vaasjo, all of the witnesses have told us that it is simply impractical to have a national east-west grid but maybe to have a grid from say the Atlantic coast to the Manitoba border or something like that and then another one out here. I do not know. It all seems to be working north-south at the moment.
Mr. Vaasjo: I do believe there are likely circumstances where the grid would be developed. There should possibly be further links in the east and we are seeing links between the Maritime provinces occurring on the transmission side, and those are all driven by the parties involved. They are not driven by national policy.
Certainly, in many cases, they look for federal government support, but it is not an initiative driven by a Canadian policy. It is what actually makes economic sense and establishes greater levels of reliability for those regions.
The Chair: So the buzzword of "smart grid" came up when we started having talks with the U.S. Do you see multiple smart grids in the country?
Mr. Vaasjo: Certainly. Our country is effectively in power generation regions and certainly would see the evolution of smart grids, other technologies and approaches, as the economics of a lot of these technologies evolve.
Senator Mitchell: We heard a lot yesterday and the day before in B.C. about them doing some remarkable things, as we are in Alberta, but they have got 385,000 smart meters in homes already. Do you have plans in that regard?
Mr. Vaasjo: We are basically a wholesale generator so from a Capital Power standpoint, that is not a business we are in. However, I do know that ENMAX is experimenting with that, and EPCOR is considering that.
As the technology evolves, it is happening, and in fact, in a marketplace like Alberta it makes sense. Eventually, from a retail basis, they will be able to differentiate on-peak and off-peak, which will allow for even more significant cost savings with the utilization of smart meters.
Senator Mitchell: So it has implications for how you would manage the system and the production?
Mr. Vaasjo: It certainly would.
Senator Mitchell: You make the point that in 2011 you completed extensive modifications on your North Carolina facilities to replace two thirds or more of the coal burnt with biomass and tire-derived fuel.
That gets into the question of competitiveness and the cost of competing fuels and so on. What caused you to do that? It must be commercially competitive to use these alternative fuels.
Mr. Vaasjo: Those facilities were destined to have long-term contracts with Progress Energy, the local, actually very large generation and wire company in the U.S., because it had status under the FERC where they had to contract, not necessarily on an economic basis.
There is a high probability that those plants would have been shut down. They are quite old. What drove us was a couple of things. One is the evolving environmental regulations in the U.S., particularly around NOx and SOx. That drove us to certainly clean them up from that standpoint.
In addition to that, the utilization of tire-derived fuel and biomass with the magnitude that we are utilizing actually makes them green. We actually get green credits and get paid for the green attributes of those facilities. That is actually what has made it economic, the fact that although there is still some coal burning, they are effectively considered to be green generators.
Senator Mitchell: That brings me to my third question, the whole question of pricing carbon and the implications for carbon capture and storage.
You were talking about carbon capture and storage. First of all, where exactly do you think that technology is? You said you would be building another plant within a decade, so we must be close to 10 years out. Do you believe that we need a price on carbon, and if so, how would you do that if you were the Prime Minister or the Premier for a day?
Mr. Vaasjo: There are two elements to that. We have been, as Capital Power and its predecessor EPCOR, very involved in pursuing new coal generation technologies. As I said earlier, we were the first ones to bring supercritical technology to North America which, with all the coal generated, you can appreciate that was very much stepping out onto the edge.
We have been doing a number of other things with our facilities to reduce our overall carbon footprint. As we look at other technologies, whether it is wind, whether it is solar or coal, we see that there are significant strides that are being made in those technologies.
Maybe let me step back for a moment. One of the significant elements that gave us that confidence is we had been working, in conjunction with the federal government and the provincial government, on a $33 million what is called FEED study, front-end engineering and design study, for an IGCC facility in a graded gasification combined cycle, so basically a gasifier, which resulted in a large-scale power generation facility here in the province.
That work was being funded again equally by Alberta, ourselves and the federal government, and we were involved in the $2 billion process with the Alberta government in terms of seeking funding for the project.
What happened in Alberta, as happened in most jurisdictions, is that power prices dropped dramatically. If it were not for the dramatic drop in power prices, we are pretty confident that we would have gone ahead with that facility and would have had the first full-scale gasification to power facility in the world.
We proved to ourselves the technology worked. We were to the point where we had actual commercial arrangements with EOR, oil and gas companies that were going to take the carbon pipeline arrangements. It was not a theoretical engineering study. It was one where we were prepared to go forward and spend a couple of billion dollars on building this facility.
Again, power prices basically eroded the ability to go forward with that project.
Even at that point in time, significant components of that facility, between now and then, have dropped dramatically in cost, air separation to name one. A significant capital cost has dropped very significantly.
So we expect to see those kinds of steps in progress to take place over the next number of years, and arguably 60 to 80 per cent of the generation in the U.S. is coal, 70 per cent of the generation in China is coal and that is just increasing. You know, when you have that kind of world-wide interest in coal, that is where their energy resources are, you can see that something will happen in the relatively near term when people turn their minds to it.
We were just in China a month ago and speaking to the largest coal generator in China, and their comment to us was that they are dealing with NOx and SOx in particular. It is on a national basis, and then they are going to deal with carbon.
So that should be in the course of a few years and I think once China turns its resources towards reducing carbon from coal, you will see dramatic strides taking place.
Senator Banks: Because the chair asked the question about ownership, I just want to make sure that we are clear on the record. EPCOR is the company from which, to use the colloquial, your company was spun off?
Mr. Vaasjo: Yes.
Senator Banks: Did EPCOR not keep a residual interest, a retained interest in Capital Power?
Mr. Vaasjo: EPCOR did at the time of the IPO retain a 72 per cent interest, and some of that was driven by market and some of that was driven by —
Senator Banks: Politics.
Mr. Vaasjo: No, actually, their stated intent is to get down to zero, and right now, and it has been only two and a half years, they are down at 40 per cent. We have diluted them through our issues of equity and they have also had secondary offerings of their own, so they will be down to zero.
Senator Banks: Why wind? We have heard often about the impracticality of wind, the fact that you cannot rely on it for base load, the fact that it is simply not reliable and it is a lot of trouble, that it can cause public relations problems. Why have you determined to go further into it and obviously further yet into it? Is it a practical alternative for you as a generator?
Mr. Vaasjo: Our general perspective is, depending on the region, there are a range of options that are available and that typically the answer in each particular region is going to be a number of different fuel types and in different mixes.
There certainly is in almost all areas some degree to which wind can participate in that mix. Certainly in large amounts, wind does create problems because typically, the wind does not blow when it is real cold and does not blow when it is real warm, which is actually when you need power the most.
However, it does provide generation, and with proper system planning and with other generation built around it, it certainly can make a tremendous amount of sense, especially in provinces like Ontario, Quebec and British Columbia, where they can compensate for the swings in wind energy with more water going through the dams. You know, they are able to deal with peaks much more readily than say Alberta and Saskatchewan, which are substantially based on coal or natural gas.
Senator Banks: A friend of mine sent me a video the other day of a wind turbine on fire. Have you ever had any of yours catch fire?
Mr. Vaasjo: No, we have not.
Senator Banks: It was pretty spectacular.
Mr. Vaasjo: I imagine it would be pretty spectacular.
Senator Banks: The reason it was spectacular is, of course, given the location, there is not a heck of a lot you can do about it. The point behind the accompanying article was that the greatest difficulty in that respect that is faced by the manufacturers and maintainers of wind turbines is that the grease, in effect, just cannot last that long.
Is that an ongoing maintenance problem, that the lubricants that are required when that thing really gets going just cannot stand up?
Mr. Vaasjo: There is a tremendous amount of friction there because even though the blades on a wind turbine are made out of extremely light material, they are big. We can easily walk down the inside of those blades. That is the magnitude of them.
So there is a tremendous amount of stress and it does create certainly breakdown of lubricants and so on, but particularly with the newer versions of the technology, they are overcoming those issues and problems. There are sealed bearing systems that work very well and should last the life of the components.
Senator Banks: My last question is a bit rude. You have to be concerned with the return on investment to your shareholders.
Mr. Vaasjo: Yes.
Senator Banks: Let us assume that the regulatory things to which you have referred were not coming down the pike at 90 miles an hour, and it is an entirely rhetorical question, I guess, what would be the likelihood of you and other people who are running things, other proprietors of generators, in the present circumstance doing those green things that you are doing, doing those conversions that you talked about if it were not for the fact that — I told you it was a rude question — you saw the regulatory train coming down the track at 90 miles an hour? There would be less incentive to do those things, to make those capital investments, would there not?
Mr. Vaasjo: There certainly would be less incentive. You know certain things are happening at a relatively quick pace, but previously EPCOR and now as Capital Power, we have taken a view that we are not green. We in no way, shape or form suggest that we are green and in fact we say we do not have a green strategy.
We take a position that we are environmentally responsible, and so for example, with the building of Genesee 3, which was well in advance, although at the time, people were talking about carbon and what may be some regulations coming down quite a ways into the distance, we did step out and at significantly extra cost, in the order of 20 to 30 per cent more for that plant, build that plant. Over the last decade, it has generated significantly less carbon than a conventional coal facility, and at no benefit to us, per se. We receive no credits. As I say, there is, in effect, no benefit to us.
Senator Banks: The conversion that you made in the States, would there not have been in other circumstances a temptation to let those older generating plants run out their time and let us use it till its reasonable capital time is expired?
Mr. Vaasjo: I think to be fair to the intent of your question, I would say under most circumstances, yes.
I think the thesis that you are driving towards is correct. In that particular case, the facilities were old enough that they would just be shut down. But to be fair to your thesis, I think the direction you were going is probably correct.
Senator Neufeld: On page 5, you talk about $260 million spent in demolishing an inefficient power plant and replacing it with new state-of-the-art natural gas-fired turbines.
Obviously, the $260 million includes the demolishing. How much a megawatt would it cost you today to put in those three?
Mr. Vaasjo: I guess the wording is not quite right there. The actual decommissioning cost was in addition to the $260 million, so in that case, it would be about $1 million a megawatt.
Senator Neufeld: When you talked earlier about the studies you had been doing with provincial government, the federal government and yourselves on the coal fire generation, I cannot remember the term —
Mr. Vaasjo: IGCC.
Senator Neufeld: You guys use it all the time. We do not.
The Chair: "We" meaning?
Senator Neufeld: Of course, other than you, Chair. You are always talking about that kind of coal generation, I remember that clearly.
A drop in prices you say discouraged further development. What were the prices at or what prices are needed to make that commercial in today's world? What kind of a price per megawatt hour would you need?
Mr. Vaasjo: We were looking at price projections that were starting at about $80 a megawatt and moving up and then slowly stepping down, so what happened to the power generation market throughout North America was a significant reduction in demand, and here it flattened out. It was a little bit of an overbuild but prices dropped pretty rapidly to the $50 range.
The other contributing factor is the price of natural gas. Natural gas generation became dramatically cheaper, and it looks to be cheaper in the longer term. So there is a significant I will call it shift in the cost of power generation downward because of natural gas, and that would make something like our IGCC facility push off a little bit further from an economic standpoint.
Senator Neufeld: So it was two factors really. I wondered about that.
Mr. Vaasjo: They both impacted on the price of power.
Senator Neufeld: You obviously have a long-term outlook on coal, and coal will always be with us in the generation of electricity — I do not dispute that for a minute — but in what kind of generation facility? Is some more technology going to come along? Do you think it will be carbon sequestration that will do it or carbon for enhanced oil delivery and those kind of things?
Mr. Vaasjo: Effectively, the technology is there today. As I said, we were very confident in the technology we were dealing with to basically gasify coal so you do not even burn it, you are gasifying it and moving it in a different state. That technology is there. In fact, they are using gasifiers in China fairly extensively to create diesel fuel.
So we are confident of the technology, and actually, we were using precisely the same gasifiers as are being used in China today.
The other alternative or the other route which is reflected in the Pioneer Project, which is an active project now in Alberta which we are a partner in, basically it is a process where you are able to capture the carbon after the coal has been burned. So "post-combustion" and "pre-combustion" are generally the two terms, and those technologies are there today.
The issue is bringing those technologies down to a cost where it makes sense and where it is competitive. The cost of coal in Alberta is cheap, unbelievably cheap and accessible.
Senator Banks: Do you not own your own coal?
Mr. Vaasjo: We do. The coal in Alberta, one of the very significant elements to it is it is sub-bituminous coal, so really it is not metallurgical. There really is not a market for it. There is not a market value for it, so it is always just the cost of producing the coal and it is mine-mouth coal.
You do not have to worry about what the market price of coal is or what is happening with metal, so not only is it low cost, it will sort of always be low cost.
Senator Neufeld: The U.S. has an absolutely huge amount of the same type of coal.
Mr. Vaasjo: It is effectively the same coal as the Powder River Basin coal.
Senator Neufeld: Actually, British Columbia has a fair amount of it too but we mine metallurgical coal and export it.
Did I understand you to say you have some wind or you are going to build some wind generation in British Columbia?
Just to add to that, I totally agree with you about a grid across Canada. I have never, ever spoken in favour of that. I think if the economics are there between provinces, between jurisdictions as they were between British Columbia, for instance, and the U.S., those things will happen, and they will happen because there is an economic reason to it, not because someone in some far-away city decided that we should have wires strung from British Columbia to Newfoundland just so that we can say we have an east-west grid similar to our railway.
I appreciate that you said that, and we have heard that a number of times, and from an economist just recently, telling us the same thing. That is more of a statement that I totally agree with you, but talk about the wind in B.C.
Mr. Vaasjo: We have an existing wind farm in Ontario today. We are actually building and have the foundations poured through the last few months in Tumbler Ridge for a large wind facility there. We have two wind facilities that are in the latter stages of permitting.
They have gotten long-term PPAs in Ontario and we expect to start construction next year. We have got one in Alberta that we started construction on actually just about two months ago.
Senator McCoy: I am curious and would like to pursue in a little bit more detail the federal government's regulations for coal-fired generators which you reference on page 8 of your remarks.
You say you have been working well with them and you are supportive of the capital stock turnover approach. There have, however, been some quite pointed criticisms coming from Alberta on the way those regulations were framed insofar as I think the shorthand is to say that they were too prescriptive.
I wonder if you could just provide a little bit more detail as to what that criticism entails, and talk a little bit about what is meant when people say that if they just set the targets, then we are more free to innovate to reach them.
I do not want to put words in your mouth, so I am being careful. Perhaps you could just expand on that whole issue, please.
Mr. Vaasjo: Sure, and it is actually a very interesting and very topical issue in industry today.
Capital stock turnover basically is where each of the coal facilities would retire after a 45-year life, and that establishes what a profile would be of emissions from coal generators across Canada.
So that is basically what is in Canada Gazette, Part 1 today is those statements, and then there is some latitude around provisions in which maybe you could have your plant run another year or two, so there is a certain degree, although a small degree, of flexibility around that.
There is a group in industry and probably the provinces who have coal generation that would say those regulations are not quite flexible enough and would see there being greater flexibility around that.
For example, Nova Scotia is on a program today where they are reducing carbon from their coal generation fleet, but they are not bringing it down by shutting down the oldest plant and then shutting down the next oldest plant. What they are doing is bringing down plants together and also, as it turns out, one of their newest plants would be one that they would shut down first.
They need that kind of flexibility but they would still meet the profile that they would get if they shut down the plants according to the Canada Gazette today.
There is another group in industry, and I am not sure yet where the provinces are on this, suggesting that we just set targets. Let us just set carbon targets and then just let people get to those. One of the differences is you do not have this progression towards say meeting a 2020 target. What you have is coal generators going to 2020 and then shutting down, and then 2025 and shutting down. So it is a totally different concept.
That is how those three somewhat chain together. We are in the camp that is saying you need a little bit more flexibility, you need to deal with Saskatchewan and Nova Scotia who are doing wonderful things but just need some flexibility to do what they are doing.
Going all the way not actually to capital stock turnover but setting targets and so on, we do not subscribe to that.
Senator McCoy: So essentially it is a question of technology applications, is it? The regulations are saying you cannot build a new power plant and you cannot continue running your old power plant unless —
Mr. Vaasjo: You can build natural gas, you can use any other fuel sources to replace it. You cannot use coal unless you reach basically the natural gas equivalent on a new facility, which actually, that kind of legislation opens the door for carbon capture and storage because it basically says to people like us, "You can go ahead and build the plant, and you are not going to be off side, as long as its emissions, with the aid of carbon capture and storage, are equivalent to a natural gas plant, and that is what we need to proceed.
Senator McCoy: Or any other kind of technology that would achieve the emissions profile of a natural gas power plant.
Mr. Vaasjo: It actually only speaks to coal. It does not speak to any other technologies.
One of the things that you will hear is that a natural gas standard will be coming that will in theory parallel the coal standard. It will have the same mechanisms around it, so it will be more prescriptive around natural gas.
Senator McCoy: When the ERCB, then the EUB, gave you permission to build Genesee 3, they said you can build it as long as you can meet this emissions profile and it has to be equivalent to a natural gas-fired generating plant, as I recall.
However, they did not say how you could do that, and you came back and said right, we have supercritical which is the most modern technology, which is good, and we will add some offsets and we will meet that emissions profile.
Mr. Vaasjo: You are quite right. I am amazed that you are so knowledgeable on Genesee 3.
The difference between what the government is talking about today and our licence on Genesee 3 is that we were able to buy emissions to offset. That is not the case. One of the real fundamental points here is that when they are talking about meeting those emissions profiles, they are talking about absolute reductions in carbon.
We are not able to buy credits to offset. That is the carbon profile for those facilities.
Senator McCoy: For that plant.
Mr. Vaasjo: For that plant or groups of plants, depending where they go with the flexibility. In the Nova Scotia example, it does not mean they can buy credits or they can offset with wind. This is the absolute profile of emissions that will come from their coal facilities.
Senator McCoy: The criticism of that approach is that it is too inflexible? It is a small set of individual engineering brains in the civil service in Ottawa saying how we should apply technology or some other device to contribute to this emissions profile.
Mr. Vaasjo: I would say for industry in general, and I think many of the provinces, because as you can appreciate, we have had hundreds of hours of conversations on these issues in trying to derive some consensus views, generally speaking, your comments are absolutely appropriate as it relates to existing Canada Gazette, Part I.
The recommendations are coming forward from industries and provinces and will be followed up on. Add certain flexibilities to that, but the general concept is the same. So now there is a question of degree of flexibility, and we differ within industry as to what degree there should be, but if you add on that flexibility, absolutely, the provinces and the companies will sign on, the reason being that it gives us absolute certainty from a carbon standpoint as to what is going to be happening with our facilities from now until 45 years from now, which is tremendous from our standpoint.
The Chair: Mr. Vaasjo, as you can tell from the questioning, we are fascinated by the Capital Power experience. Thank you for sharing your insights.
We will continue our session with Kirk Andries and Eric Newell from CCEMC, which is the Climate Change and Emissions Management Corporation.
Both these gentlemen are legends from the private sector in the energy business in Alberta. I can remember many years ago coming out here and I think meeting you both. I was on a mission with a well known Irish politician at the time. We wanted to know what was going on in the oil patch. I think his initials were B.M. Anyway, he is still around back in Montreal.
Eric Newell is the retired Chancellor of the University of Alberta, a position he held from 2004 to 2008. He is the retired chair and CEO of Syncrude Canada Limited, positions he held from 1994 and 1998 respectively, until 2004. He served as president of Syncrude from 1989 to 1997.
Prior to that, he worked with Imperial Oil Limited and Esso Petroleum Canada Limited. He is an officer of the Order of Canada and a member of the Alberta Order of Excellence.
Kirk Andries is Executive Director of the Climate Change and Emissions Management Corporation and he is getting short-changed. I have his biography in my book. We will give him his due though, will we not, Eric?
Please start, Mr. Newell.
Eric Newell, Chair, Climate Change and Emissions Management Corporation: I will be the one doing the talking.
Kirk has quite a good background. He has a lot of forestry background, holding senior positions in Al-Pac. He has also done a lot of work globally in the energy and forestry area. He was down in Washington for several years and he is actually one of the architects of the business model I am going to talk about with the Climate Change and Emissions Management Corporation. I was not. I just got brought in as the chair in 2009.
First of all, both Kirk and I would like to thank the committee for having the opportunity to talk with you today about how we are trying to address some of the major environmental challenges that our industry faces so that we can realize the tremendous energy resource potential of this country and make sure it is sustainable.
In particular, I will talk briefly about two organizations. One is Alberta Innovates-Energy and Environment Solutions Corporation and the other is the Climate Change and Emissions Management Corporation. I chair both boards, but we will spend more time on the Climate Change and Emissions Management Corporation model because I think it is very unique and I think it is a model for Canada.
The Chair: Are these both non-profits?
Mr. Newell: Yes, they are both not-for-profit corporations. Energy and Environment Solutions is the Government of Alberta's technology arm in the key areas of energy and environment, and Climate Change and Emissions Management is a little more separate and stand-alone from the government, and I will describe how that works.
I guess if we had to pick a few messages we would like to leave you with, there would be three of them. One is that Albertans and the industry do care about the environment and responsible resource development. Another way to put it is, we get it. We are a large source of the emissions in Canada and we know that we have got a challenge ahead if we are going to be sustainable to figure out how to reduce that.
The second thing, and I think I probably speak for just about every CEO, is that we know that to hit the targets that we are talking about longer term on this planet, we are going to need transformative technology change. So technology has to be one of the key solutions here.
The third message is that this Climate Change and Emissions Management Corporation is a unique business model that is working, and even though we are very young, we are very confident we are going to deliver real reductions and should be a part of any framework that federal Government of Canada has in terms of going forward.
In other words, whatever framework the federal government policy comes up with, it should allow for investments in a clean technology fund such as this as a legitimate compliance mechanism because it is such a great way to leverage technology and resources.
The Chair: Within their jurisdictions.
Mr. Newell: Right. Certainly the world needs energy. I think that is the first thing we have to realize, and we have a huge strategic supply in this country.
The oil sands, if you just took it by bitumen in place, is equal to the Middle East. If you take it on proven reserves, we are third largest in the world. It is a huge part of our economy and accounts for at least 30 per cent of the Alberta government GDP and a growing amount of Canada's GDP.
It is a global resource. For the U.S., we are the largest source of imports now. They are the largest consumers of energy, consuming 20 million barrels per day, and our imports into the United States from Canada have increased from 13 per cent to 22 per cent in the last decade and the estimates are that they will be over one-third by the year 2030, and I think that could be low.
However, to realize that potential, we have to recognize that the key is responsible resource development and we do have some environmental challenges.
I would say we have got three major challenges. One is reducing the carbon emissions from energy production. Second is continuing to reduce water use and improving water quality. Then the third area, especially for the surface mineable oil sands, is how do we deal with the tailings ponds and how do we do a better job of moving reclamation forward.
Alberta is taking decisive actions in all areas and I certainly could cite chapter and verse the good track record the industry has had to date, but that is not good enough. We know we have got to keep doing more and we have these challenges.
There are many organizations that address environmental issues, but one of the two I was mentioning that I would like to talk briefly about is Alberta Innovates - Energy and Environment Solutions. This emanated out of the initiative of the Alberta government to consolidate and focus better the whole number of innovation groups in the province, and our deputy premier, Doug Horner, was probably the one who led it, and in effect, it boiled down to coming up with four corporations in an overarching research and innovation authority.
One of the corporations, the one I chair, is the Energy and Environment Solutions, so it is the technology arm of the Government of Alberta and it is a bold objective, but we do want to position Alberta as the leader in energy and environment technologies and driving towards lower carbon and efficient water economy.
The second key organization which came out of the Alberta government was the Climate Change and Emissions Management Corporation, and as I said, it is quite a bit more arm's length. In fact, we did not even incorporate under Alberta legislation, we incorporated under federal legislation, because we always entertained that we wanted to partner with people much beyond Alberta's borders and even Canada's borders because the good ideas will come from many different places.
Our mandate is very clear at CCEMC and that is to reduce greenhouse gas emissions, and the secondary target is to help adapt to climate change by investing in new technologies.
Senator Banks: Alberta Innovates used to be the Alberta Research Council.
Mr. Newell: Part of it did. Alberta Tech Futures, which is one of the four corporations, includes Alberta Research Council but it also includes the Ingenuity Fund, it includes iCORE and it includes Tech Edmonton, so it is fairly broad in scope.
Within Energy and Environment Solutions, we have four key strategic focuses, and I should point out that this EES evolved out of the Alberta Oil Sands Technology and Research Authority, AOSTRA, that Peter Lougheed created back in 1974, and it worked through to about 1999. It was a key enabler in the development of oil sands.
From there it morphed into Alberta Energy Research Institute, which I used to chair too, but it brought in other energy sources. Now this new addition brings in all the environmental areas as well.
The four areas that we focus on include energy technologies and the environmental technologies that go along with those energy technologies. Just about every energy research project you see these days has got a very big environmental component.
The other thing you should be aware of is we do a lot of work in the area of renewables and emerging resources. We do not view Alberta as the fossil fuel province, we view it as the energy province.
The fourth area is water, and I know you talked to David Schindler this morning, and really, one of the things that happened in this was we took the Alberta Water Research Institute and integrated it within Energy and Environment Solutions, so it is much broader than water associated with energy. It deals with all the water, and the biggest issues are in the southern part of the province. I would suggest that water will be the crude oil of the 21st century, so it is a very, very important area.
Now I am going to move right into climate change, because I think the largest challenge that we have facing us of the ones I listed is how do you keep increasing energy production to meet the rapidly rising energy demands while at the same time reduce absolute levels of emissions?
The industry has a great record if you take oil sands. Since 1990, we reduced our emissions per barrel by 39 per cent. That is the good news. The bad news is production is up four times since then, so the absolute emissions go up, and that is why we are such a target, and we understand that. But that is a huge challenge, to keep increasing production at the same time as making absolute reductions.
I love this next chart, because it kind of shows why you might get different approaches in different provinces. The first thing I would draw your attention to is over 60 per cent of the emissions in this country come from two provinces, Ontario and Alberta.
The second thing I draw your attention to is in Alberta, we have a very small population. It is not domestic consumption that is the big source of our emissions, it is the large plants. So it makes infinite good sense that the Alberta government would start with something like the Climate Change and Emissions Management Corporation, which focuses on the large emitters.
Whereas if you go to Ontario, it is a larger population, more dense, more consumer oriented. British Columbia, you saw their approach was more to go to the carbon tax at the pump, so I think there are some differences to understand here.
This gets to the point I started with, one of the messages. We get it. We know if this country is going to hit its targets that we are going to have to do a real bang-up job in this area, and it is going to be technology that will take us there.
The actual policy foundation or the way the Climate Change and Emissions Management Corporation works is that it is aimed at the large regulated emitters, and by that I mean any plant that emits over 100,000 tonnes a year. It so happens there are 109 of them, so it is not a huge number.
The target that was initially set out was to make a 12 per cent improvement in the energy intensity versus a 2005 operations baseline, and they have to hit that target. They get measured against that target each year and they have to close the gap, either by making the improvements, and that is a difficult thing to do, or by using other options.
One is they can invest in offsets, and the Alberta government created an offset market, and they can buy offsets. The third option is they can invest in our technology fund to the tune of $15 a tonne was the price that was chosen. This was all framed in 2007 under the Specified Gas Emitters Regulation.
The fund itself, and I am glad this is the case, collects the money. At CCEMC, we do not get into collecting. That is all done under the administration of the Minister of Environment.
The interesting thing about the model is that those funds are segregated. They cannot go into general government revenues. By legislation, they can only be spent to reduce greenhouse gas emissions or to make investments in adaptations to climate change.
The CCEMC then is really structured like a delegated administrative organization. The minister appoints the chair, and that is it. The other members of our board and our public, if you like, are the large industry sectors and the general public. We draw our membership from there.
The minister does have some control, obviously. The department collects that money and then they put it together with a grant agreement letter, and in effect put it into a bank account, and from there, we are responsible.
We have to manage those funds. We have to go out and generate the proposals, evaluate the proposals, fund the proposals, and then follow up using third-party verification to ensure we get the absolute greenhouse gas reductions that we are talking about. So it is quite an interesting and comprehensive model.
The CCEMC is designed to deliver the climate change strategy for the province, and so the minister does in the grant agreement letter to us each year outline how he would like to, in general, see the funds allocated.
I want to assure the committee that we still pick the best projects, but over a three- to five-year time frame, they would like us to put about 20 per cent of the funds into the area of energy efficiency and conservation and 30 per cent into reducing the cost of carbon capture and storage, particularly the carbon capture idea, so that is over and above the $2 billion that Brian Vaasjo talked to you about with commercial investments.
Then the third area is 50 per cent goes into what we call greening the energy mix, and that breaks down into two areas. One would be very transformative changes in the production of fossil fuels and the other part is renewable energy sources.
We have to prepare an annual report each year for the minister. We have to put out a business plan. Everything is on the website. We are totally transparent. Even for the valuation of projects, we have fairness monitors that report to our board so you can track it that way.
There is a vehicle for us to have an ongoing dialogue with the minister, and as we see things, we might say, hey, look, we are getting better ideas in the carbon capture cost reduction area than that, do you want to consider changing your mix. The policy areas are still under the control of the government. Our job is solely to pick the best projects.
We have collected to date $260 million. That was from mid-2007 to the end of 2010, and that is not bad when you consider that many people would say that the $15 a tonne price for carbon is low. But that is how much we have generated.
Our role as a board is to manage projects not only in those three functional areas but also to ensure we get projects all along the innovation chain. That is what that next chart is about.
First, we need to have a good portion in the area that is right near to commercial deployment level or at demonstration level, because in the end, we will get measured on whether we actually deliver greenhouse gas reductions.
At the same time, if we are counting ultimately on transformative change, we have got to allow some at the front end, you know, the wild-assed idea approach. There is less chance for success, but that is where the brain power comes from.
The other key to note is this greenhouse gas assurance, because one of the fundamental differences of our technology funds from just about any other one is we do not declare victory when the dollars go out the door or when we pick the projects. In fact, we assign a follow-up person to each project we fund and we work with them to try help them be successful.
We actually have third-party verification for all the greenhouse gas emission reduction we get because we know we have to in the end get reductions that are real and can be validated, particularly if we are arguing that this should be a legitimate compliance mechanism.
We are confident from what we have seen, based on our history of leveraging these resources going all the way back from AOSTRA to today, and the focus we are getting from people, that we will deliver greenhouse gas reductions.
So what are the results? The CCEMC itself has only been in business for two years. That is when I got the phone call from the minister, would you chair it. So in that time, we put together the whole corporation, picked the board and we have already been through three major rounds of projects.
As I said, we have collected over $260 million, and that is coming in, by the way, at a rate of around $70 million a year, even at the today's relatively low price.
In those three rounds, we have selected 27 projects for funding and we have actually allocated about half of the $260 million. But the really good news, and this shows you the power of these technology funds, is that that $126 million has actually translated to $632 million of actual R & D projects, so we are getting a leverage of four to one.
Because we would never fund the total, we insist, and that is part of the proposals, that we work with industry, get the industry partners in there. Not only do you leverage your capital resources, I think most importantly what you are doing is drawing on the brain power resources, but also, once you get commercial success on an idea, you can deploy it much quicker.
It is a very good, very well thought through model, and so that is what you should really acknowledge Kirk Andries and people like Bob Savage for.
I know it sounds like a small number right now. Just with the few demonstration projects that we funded to date, they account for about 8 megatonnes of reduction over the 10-year period, and that is just from the demo pilots. The real prize comes when you get the successes and then deploy them more broadly.
If we simply decided we were just going to wind up on our current business and we just allocate the rainy-day money we have there, we would have over $1 billion of R & D projects, so we will be there by the end of next year, mark my words. That is our target.
The Chair: You cannot spend $1 billion?
Mr. Newell: Yes, there is lots of good stuff.
One of the other things we do as a board is we manage a portfolio and so, as I said, we try to manage that distribution of energy efficiency, so when we see a gap, then what we are doing more of right now is we target our RFPs.
We have got two RFPs currently out, big project proposals, and we will actually be allocating more money on the next one. You will see later we need to get more in the greening of the fossil fuels and more in the carbon capture, so that is there.
Sometimes the route is not just to have targeted request for proposals if you do not have the right brain power together. One of the areas that we thought had a big potential was the whole biological area, and yet we looked around, we did not see the logical group that was going to come up with projects, so we actually held a session in Toronto. We brought in world experts on it to ask, is this a good area to be looking at.
They actually think we might even accomplish 30 per cent of our target, so even if they are wrong by a fair amount, that is too significant not to look into. So we actually created and are funding a biological network, and their whole role is not just to be a think tank or research centre but actually to come up with demonstration projects they can put into our CCEMC model and get funded and going.
There are different ways. That is how we manage the portfolio.
The next chart shows you where we are at after three rounds and this actually surprised a lot of people because there are a lot of skeptics who thought this would be just collecting money from the big emitters and recycling it right back to them. Actually, you will see here more of our project investments are in the renewable area than anywhere else, and some of them are pretty exciting.
We will move this distribution quite a bit with the next RFP because a good portion of it is aimed at that greening of the fossil fuels and carbon capture and storage, so we will move the bars up and try to get closer to our target mix.
Interestingly enough, the fifth RFP which is already out there, and we have had a huge response to, is we went after the small- and medium-sized enterprises. All along, the board knows good ideas can come from anywhere.
One of the projects we are funding is that of a young man in Calgary who is doing the work out of his garage, and if he is successful, he will be awful rich, but we will also reduce a lot of greenhouse gases too.
This next chart shows you how the funds are broken down by sector. Yes, the big electric power generation and non- conventional oil extraction, read oil sands into that, are getting a good chunk of it.
Over 90 per cent of the funds come from three sectors. The biggest funders, in other words, the biggest emissions are the coal-fired power generation. Second is oil and gas, including oil sands, and third is pipelines.
The good news here is you can see that even though some of those sectors do get some good funding, because we expect prizes there, but all industrial sectors are taking part. That was one thing we wanted to make sure the model allowed for.
The next chart shows you how our investments have spread across the innovation chain. Again, you can see that the lion's share is at the market demonstration commercialization stage because as I have said, we are going to get measured in the end by whether we actually deliver greenhouse gas reduction.
It is natural that at the early stage we would want to focus on that, but we still have some in the very transformative stage, and we are talking to people like the ones at X PRIZE. We are very linked into Virgin Earth Challenge and Richard Branson with $25 million, so we might actually develop a partnership there.
So we are very cognizant on the board of how we ensure we are getting those real bright ideas and that we are not getting too traditional, which is I think a danger sometimes.
The next chart just shows how they break down over the three RFPs, but as I said, we are still early in the game. I am sometimes asked, well, how would you measure success, because technology has a fairly long lead time? The way I would lay it out for CCEMC is after a year, have we got the organization in place, running, engaged and actually generating good proposals, so I think we have done that. We can claim success there.
After five years, if we are really successful, we should have a really attractive portfolio of strategic projects, some of which we know are going to be successful. At 10 years we will actually be bending the curve.
It is important, because I thought we would run into a lot of static or misunderstanding in the public that technology does take time, but actually, we have done some market research and people understand that it does take those kind of timelines, so we are quite encouraged.
I will just wrap up and say this is a unique model, and the keys here are the regulatory structure. Senator McCoy will tell you that Alberta has been quite a leader in this area. It started out with the climate change legislation back in 2003. The Specified Gas Emitters Regulation was brought in in 2007, and actually started collecting. Then the CCEMC was formed in 2009.
We are still young but we have established performance targets. We picked a price for carbon. I will be the first to admit the price was probably picked out of the air, just to get started.
I think Alberta deserves some credit for that because what they said, in effect, was we know technology takes a long time. We cannot wait for the rest of the world to get their climate change policy in place so we are going to start, and we are going to start modestly.
If you recall, in 2007, the world was really heated up. The U.S. was talking cap-and-trade. We were going to go big. The federal government had turned the corner. So we thought we would in a very short time expand the number of emitters, like the definition of a large emitter. Even those that are now over 50,000 tonnes have to report their greenhouse gas emissions.
I can see that coming down to — this is Eric Newell talking — 25,000 tonnes a year. I think beyond that, the administrative issues are just not worth it because just with the 100,000 tonnes a year, we get over 70 per cent of the emissions from large emitters, so it is a good example of the 80/20 rule.
The 12 per cent was just a target. We figured the targets would get tougher, so it is all there. Government policy can move these levers at any time.
The $15 a tonne, I think everyone felt that was going to go up, and you will get different views on it, but there are a lot of views that talk about it being in the 30 to $40 range.
If you had Jim Carter up here talking about carbon capture, he would say that to make carbon capture and storage economical, we would probably need a price on carbon of around 30 to $40 a tonne, and then you hear the wild ones like Suzuki and others say you need $200 a tonne.
But the Alberta government, to its credit, did not wind it down when nobody moved ahead. The economic recession came along in 2008. Down in the States, Washington and these places, they are so wound up about jobs that this is not a big issue for a lot of them.
In Canada, we have the same recession. We cannot get ourselves uncompetitive against the U.S. That is really not a wise thing to do at all.
So we have kept it going, and somebody says, well, you know, what happens, Eric, if everyone hits their target? I say, well, we are the only organization I have ever known whose ultimate objective is to go out of business. So I do not think that is so bad.
I would just finish off by saying that the other key to this model is its provision for sustainable funding. Anyone who is in R & D tells you that is what you need. With the collection every year and it being dedicated, it cannot go into government revenues and bounce up and down.
Then right throughout every element, there is accountability built into the system. It is quite a good model. The large emitters are accountable, first for putting the money up, but secondly for managing and picking the best projects to get us to where we go.
I have often said, more with my oil sands hat on, it is technology that got us to where we are today and it is technology that is going to get us to where we need to be tomorrow.
My three messages are, we care about the environment, technology is key to the solution, this is a great model. It is a model for Canada. We are talking to people at the ETC in Ottawa. Saskatchewan is tailoring something after what we are doing. Newfoundland now wants to talk to us.
So whatever they do over there, you guys in the Senate, make sure they do not just get down and regulate. Make sure that they allow for the flexibility of things like these technology funds, because we have to leverage the brain power and the resources to make sure that we can have responsible development of the tremendous energy potential we have in this country.
The Chair: Mr. Andries, you are the manager? I understood you to say that you are the chair appointed by the government, and there is a board of how many directors?
Mr. Newell: We have 14 directors right now.
The Chair: Who selects them? Does the management select them?
Kirk Andries, Executive Director, Climate Change and Emissions Management Corporation: There are two elements. One is the articles of incorporation or bylaws which specify that there is a certain number of positions that are reflective of the emission sources, so somebody from energy, somebody from pipeline, somebody from forestry, that sort of thing.
Then there is another bundle available for public appointment, and Eric, in consultation with others, makes choices about who comprises the composition of the board, because it is Eric who makes sure that the performance is delivered. So I think he wants to make sure he has got the right team.
The Chair: So do you follow retired CEOs?
Mr. Newell: Not necessarily. No, actually, it is not quite as dictatorial as it might have sounded.
If you thought who was our public, who would be the members of this corporation, they are the large industrial associations, so obviously, we talk long and hard about them, and what I want to do is make sure we get the knowledge around the table.
I have worked with AOSTRA as a CEO, then chaired Alberta Energy Research and now this, and I can tell you that the two biggest reasons they have been successful is, one, at the board level, they have a very technologically and business astute board that follows this in a very hands-on fashion, and second, that we have an outstanding staff which has very good processes for drawing in proposals, building industry partnerships and evaluating them.
So we have that built. Our CEO for Energy and Environment Solutions is Dr. Eddy Isaacs. Eddy goes all the way back to early days of Research Council, AOSTRA and all that, and we have a great staff there.
At CCEMC, we are a virtual corporation. We do not have a single employee. We do not have any bricks and mortar whatsoever. We contract all of the services out.
Kirk is contracted to run the operations. He also has a communication agency that does that. We have Eddy Isaacs contracted to do all of the evaluations, so that gives us the same standards for both EES and for Climate Change.
We then have PWC to do the financial systems. We have our own internal audits, Deloitte Touche, our general counsel is Davis, Rob Seidel, who is a national partner.
We thought the virtual model was the best one at least starting out, because you do not know how fast this is growing, and it is actually the cheapest way to be able to deliver all these services. So we are running at well under 3 per cent. Our administration costs are well under 3 per cent of our fees, so we run around kind of lean and mean.
Right now, with only the $15 a tonne, we are bringing in $70 million a year. You can see that if the world heats up like it was imagined, we could be bringing in substantially more. One of our objectives over the next three years in our business plan is to try to define when is the trigger that you would have to actually hire some staff and at what level, but right now, we run her lean and mean.
The Chair: No offices or anything?
Mr. Newell: No, we borrow offices, we borrow meeting rooms.
The Chair: At your members' places?
Mr. Newell: At our members'.
The Chair: So you do not have an office to go to?
Mr. Newell: But I have to tell you this. We have an all-star board, and not one person said no.
Every one of them had a long chat with me about why they were on the board. We wanted their expertise but they were not there to make sure their sector got their share of the funding. They have to leave their hat at the door. You are at the table, you are there to pick the best projects.
Every one of them without exception agreed to that, and it would have probably been a condition for them to serve on the board, and they are highly engaged. You can imagine the level of people, and if we have more than one or two absent at a board meeting, that is a lot.
Senator Brown: My question for the previous witness was answered. I just wanted to know how long you could put scrubbers and emission things in a coal-fired plant, and at what age does it not become possible. I got my answer.
The Chair: Do you have questions for these gentlemen?
Senator Brown: Not really. I think they are pretty sharp individuals and they are doing a pretty good job.
Senator Mitchell: As I was sitting there listening to you, and it is very compelling, Mr. Newell, I was thinking maybe you should be in Durban this week. You would be a great spokesperson, one because you are explaining it so well and you are pointing out what we are doing, but two, because you are acknowledging that we have a problem, and it is very refreshing to people who are so deeply concerned about this problem to hear.
It sounds to me like you are certainly an advocate of pricing carbon. Do you see that as essentially a tax? Would you see that as a carbon tax or carbon levy and do you think it should be higher at some point?
Mr. Newell: That is a good question. I would say no to it as carbon tax for a reason I will come back to in a minute.
Yes, I think you heard a somewhat different view from Brian, but to me, I do not know how you make the economic sense of carbon capture and storage without a price on carbon.
Is $15 the right number? I doubt it. I think it is low. I picked a number to start with, and I think the market will set that, and as I indicated, from the work that Jim Carter did on the Carbon Capture and Storage Council, factoring in the learning curve on how we would reduce cost, things like that, in the end, if you had a price of around 30 to $40 a tonne, you can start looking at carbon capture and storage as being pretty economic, especially if you have the enhanced oil recovery potential.
That council estimated that we could recover an additional 1.4 billion barrels of oil, which is not peanuts, from our aquifers with this storage.
So yes, Senator Mitchell, I used to be one always saying, oh, let it be voluntary and all that.
People do not talk about it as a tax here, do they? We have run into that, and I tried to convince our friend Paul Boothe, who is Deputy Minister at Environment Canada, you do not have to think of it as a tax. The federal government is just deathly afraid of the carbon tax. They view the 2006 election with StØphane Dion as a plebiscite on a carbon tax and so they do not want to go there.
Like I say, maybe it is because we are just focused on the large emitters and they understand what we are doing. It does not carry some of the heat of a carbon tax, which everybody sees as hitting them when they go to the pumps. In the end, if we are going to hit these targets, everybody is going to have to be a part of the solution so in some way, shape or form, there has got to be a price on carbon.
Senator Mitchell: How do you do that across the country? You mentioned Newfoundland and Saskatchewan want to talk to you, but is there a role at the federal level for this kind of regime to be implemented fairly and without intrusion?
Mr. Newell: I do not think it is necessary for the federal government to get involved if you are talking this technology fund approach. That number is different. If it is a broader-based tax, hitting more of the population, I think governments then have to get heavily involved.
Senator McCoy: Thank you very much for the presentation, and it is a good news story. I am really pleased that we got to share it with the committee.
This is one of the flexibility options one could add to something such as the coal-fired electricity generation regulations. Is it not?
Mr. Newell: I would agree with that.
Senator McCoy: So that is something that we from Alberta would like to see. We would like to see that point taken up and expanded upon.
Second, and this is a point I do want to pursue, you have made it an absolute criterion that there will be absolute greenhouse gas reductions. This is another one of those myths. They say, oh, you are not contributing to an absolute reduction of emissions in the world.
You are saying yes, we are. Give us 10 years and we will start to really bend the curve. That is a really strong point.
Mr. Newell: Yes, that is us. We are not the only vehicle for getting there, but the Alberta government's targets are that by 2020, they are in line with the 17 per cent reduction, but the ones we deal with are the ones by 2050. They want to reduce greenhouse gases by 200 megatonnes a year versus business as usual. That is literally a 50 per cent reduction.
Senator McCoy: It is 324 I think our target is, over all. You are saying you will be a part of that?
Mr. Newell: We will be a part of it, yes.
Senator McCoy: Is it conceivable that at some point, you are going to say okay, we have been in business for eight years, we are looking at our technologies and we are seeing that we need to push a couple of them into further deployment?
You said you have 8 megatonnes already and it is just in demo projects, and those are designed to be replicated across a much broader field once they are proven.
Are you going to get into the business of saying, okay, now you have proven that you can do it, let us get it out there, let us get it adopted wherever it can be adopted? Are you going to get into that business?
Mr. Newell: We are partly there already, just by the vehicle of how we involve industry partners, but also, if you notice on the intellectual property, we do not try to keep royalties or anything. We just see that as a barrier.
If we are going to fund something, people can hold it confidential for a little while, but it has to go out in the public. We are trying to push that way.
To get more to the point I think you raised, which is excellent, we are now starting to talk to venture capital firms. You want to get them linked in there, because if you get a good idea, we are not a bank and we do not necessarily want to see ourselves going there, but why would we not be the connector to bring the venture capital?
So there is a firm out of Vancouver that looks to be very good, and others like that. Some of the big oil companies have their own venture capital outfits, so we are going to start putting some time into that.
Senator McCoy: There is a group in California that are ex-Canadians and they have put a tech fund together recently. Are you talking to them?
Mr. Andries: I will talk to them today.
Senator Neufeld: Thank you for your presentation. You have I think a really good system going here.
Just so I understand, it is those that emit over 100,000 tonnes per year from electrical generation of oil and gas and pipelines, and do they have a choice of investing in offsets or in the tech fund? Am I kind of correct there?
Mr. Newell: You almost have it correct. All sectors are involved in it that have greenhouse gas emissions. They can come from any sector like cement companies. It just so happens that over 90 per cent are coming from those three sectors.
Yes, first of all, they have a performance target that they have to hit, and that is a 12 per cent improvement intensity. That is like greenhouse gas per barrel, unit production, not absolute on that level, and they have a baseline and that is currently the target. It can change, you know, get tougher over time.
So their choices are, one, they can try to make modifications to close that gap, which most of them are doing, but they will not get all the way there because it is a tough target if you been taking this seriously over the years, so then they have two choices.
One, they can go out and buy offsets. We just saw that the Auditor General had some fairly critical comments on our system, but believe me, it is all understandable. We will get that right too. They can buy the offsets, or if they want, they can put the money into the fund, and the rate they put it into the fund is $15 a tonne.
Kirk, correct me if I am wrong, but the offsets generally have been fairly cheap, like $7, $8 a tonne. So the fact that companies are choosing to put $15 a tonne into our technology fund I think is a good indication that, as all my CEO friends would tell you, technology has to be one of the keys.
Senator Neufeld: I wondered where the split was. Thank you for that answer.
I am going to be hypothetical here because we have heard from a lot of people that there should be a carbon tax. I am not trying to discuss the use of the word "tax" or whatever you want to call it. Let us say those who are trying to do that were successful and the federal government did impose a tax, let us just hypothetically say, where should that money go?
I want to take that just a step further. Alberta, B.C. and Ontario are pretty heavy emitters, so if they were collectively to take that to a centre and then redistribute it, would you be happy with that? I cannot imagine that you would be, so I would like a comment on that.
Tell me what you think, if in fact they did that, about how the heck do you distribute it. It is easy to run around and say let us just put a carbon tax on. The difficult part comes after that. What do you do with that money to actually get to the ends that you want to get to in a realistic way?
My way is not gathering it all in a big city in Eastern Canada and somebody down there deciding where they are going to spend it. That does not cut it with me. Maybe just tell me a little bit what you think as an Albertan.
Mr. Newell: That is one of the difficulties I have always had with the cap-and-trade system, and it is not that it does not sound great on paper, but it is that the devil is in the details.
Quite honestly, I think a lot of people see it as a wealth transfer mechanism to transfer from Alberta and Saskatchewan down east, and that is what makes it so difficult for this country to come up with a national approach to energy and climate change policy.
That is actually also why we do run into some flak or misunderstanding around technology funds when we say we want to make them a legitimate compliance mechanism. We get argued against on that because in some cases, they would rather have a system where it was not and then you get into offsets and they would win, but I think you have to stand back from it.
If you look at the magnitude of the challenges facing us, if we ever did that offset business with the monies flowing east, it would go through the rest of Canada so fast it would make your head swim. We would end up buying a whole bunch of hot air in Russia and growing a whole bunch of forests in Belize.
To me, I can tell you, if I put my CEO hat on at Syncrude, I would be one of the big contributors, if that money is going into a technology fund which I know is going to go towards what we need as a solution, I do not feel so bad about it. But if you are going to ask me to buy all that hot air in Russia, that is just a sin tax and I still have to figure out how to do the technology.
Senator Neufeld: You said the tax or the fee, I will use that word, should be more around maybe $30 for CCS. If in fact the federal government did something like that and left those dollars that were raised in every jurisdiction, then they would hit everybody, as you said. If it is going to be federally, it has to be everybody. That is at the pump, that is at your heating meter, like in B.C., and all the emitters.
If that money stayed in the Province of Alberta, let us say, how would the industry feel about that?
Mr. Newell: You mean where the emissions are is where the money stays?
Senator Neufeld: Yes.
Mr. Newell: It is hard for me to speak for all of industry, but yes, I would feel better about that.
Mr. Andries: I will just respond to that. I think that is the model that we are talking about that Alberta has built this around. In fact, what we are targeting is the sources of emissions and that the investment needs to go back to the sources, and that technology is the path to the future, so the reinvestment needs to occur there.
Senator Neufeld: Coming from B.C. and being in government when we instituted our government taxes and changes, I can tell you we do not do it quite the same as you. Ours is revenue neutral to the taxpayers. Everybody's tax is reduced —
The Chair: When you say ours, you mean B.C.?
Senator Neufeld: B.C., yes. That is where I am from.
The Chair: I am from the senate committee.
Senator Neufeld: I did not want to confuse you.
The Chair: I think you have all afternoon.
Senator Neufeld: I am sorry, Mr. Chair, but you are being confused along with good people.
The Chair: I was in your place yesterday.
Senator Neufeld: The province has a revenue neutral thing. Here you do it with technology, although we do technology also in British Columbia but we do it through other sources of revenue.
So there are different ways to do it. What I am trying to say is there are different procedures used in different provinces because of what your emissions are and where they are coming from.
But I just wanted to get your feeling on that, because I will have a discussion with one of my colleagues a little bit later.
Mr. Newell: One point, just to amplify is that we like the money to apply in Alberta, but you should realize that the way our fund works is we can do the R & D anywhere. The only criteria that is Alberta-centric is that the technology that gets developed has to be applicable in Alberta.
Some of our technology comes from Europe. Florida has a company that is involved in one of our really interesting projects and things like that. So that is the only thing I put around it, is that want to have the flexibility because good ideas can come from anywhere.
You also want to keep the system designed so that it promotes partnering, because we are talking to B.C. too, but just take a look at that emissions map, overlay that with each province's demographics, and you can see why each province might have quite a different strategy.
Senator Banks: Thank you very much for being here. In many respects, you are our hero, Mr. Newell.
The Chair: The father of the oil sands.
Senator Banks: Exactly, and of doing it right, which might otherwise not have happened. It was done right.
I do not have a question about the GHG or oil or petroleum. You mentioned water. We have found that the environment department of the province has been named Environment and Water, very specific.
You mentioned sort of obliquely when you were giving us your remarks about a specific problem of pressure on water in the southern part of the province. What did you refer to?
Mr. Newell: The Bow River is almost fully allocated. You hear a lot about the Athabasca River because of the oil sands, but only 7 per cent of the water is allocated in the Athabasca. The whole oil sands industry draws 1.3 per cent of average annual flow, so it is very low from that standpoint, but you go to the Bow —
Senator Banks: Or the Milk River.
Mr. Newell: Yes, or the Milk River. Those are big issues.
The Water Research Institute, Lorne Taylor was the champion of that, has done a lot of good work. If you talked to them, they might say they thought they lost some autonomy by getting integrated, but my argument would be that we are going to be able to bring a lot more resources and get it focused on that.
Senator Banks: So the over commitment of those southern rivers is a concern of yours?
Mr. Newell: Yes, in the Energy and Environment Solutions, yes. Water is quite —
Senator Banks: What about that fact? If we pay any attention to what glaciologists are telling us, the reliance that Alberta places upon melt to make up the difference between evapotranspiration and precipitation, which is always in a shortfall, will not be there as much any more.
Those rivers are over-allocated. We have to be concerned about what happens when it gets to Saskatchewan. Is there going to be anything left for anybody?
The only thing in the world that people will absolutely go to war over is water. We can get along without everything else, but not without water. The Milk River has been a source of very considerable international friction between the agricultural sectors of southern Alberta and Montana. Is that something that you will be addressing? Does it fall within your purview?
Mr. Newell: We certainly are focused more on the technology issues, and we are a good forum to try to raise some of these issues, because they are very hard for politicians as you know, just because of what you said. People do not react to water the same as other things. Remember all the flak when somebody tried to sell a shipload out of Lake Superior?
The Water Research Institute has a role in policy, but to the extent that technology can influence it, and also we can be a forum a little bit like the Conference Board, if you would like to use that analogy, to bring people together to talk about it.
It is not so much we have a shortage. It is that we do not have the flexibility of allocation, and people have historical rights that they will not give up. You have got to be able to optimize the use of your resource.
Senator Banks: Both the Bow and the Milk and probably other rivers are oversubscribed more than 100 per cent. If everybody took what they are entitled to by licence, there would not be any water.
Mr. Newell: That is another one of Kirk's roles. Kirk is Executive Director of the Alberta Biodiversity Monitoring Institute, which does a lot of great work in this area and there is overlap.
When we got into this adaptation to climate change, when we were making our first forays into it, I did not talk about it, but water gets right into that.
Senator Banks: Mr. Andries, are you doing longitudinal studies on measurable flows?
Mr. Andries: On water?
Senator Banks: Yes, surface water.
Mr. Andries: No, we are not. In our program on biodiversity, we monitor basically changes in habitats and landscapes, changes in anthropogenic footprint and then species itself, and the relationship between species performance and what we do on that landscape.
Senator Banks: The anthropogenic footprint would include extraction for agricultural purposes.
Mr. Andries: Certainly we include agriculture, but with respect to water, we do not do anything with what I would call mainstream water systems. What we do on the water side is wetlands. We are the most comprehensive monitoring program to look at wetlands in Alberta and we look at them from a water chemistry point of view, we look at them from an invertebrate point of view and we look at them from a terrestrial habitat that surrounds the wetland itself point of view.
We just recently released the South Saskatchewan River Basin State of Biodiversity report, and previous to that, we did the Lower Athabasca, which is where the oil sands exist, of course.
Just to give you a sense of the high quality science that we offer up, the metric that we use is a terminology called intactness, and intactness is how intact is the system in relation to what it would be if we had never occupied the land.
The reference condition is 100 per cent if we had never been there. The Lower Athabasca region, through our program, is 95 per cent intact.
When you look at large systems and how biodiversity actually operates, Northern Alberta is actually in very good shape; Southern Alberta not so much.
Senator Banks: A different story.
Mr. Andries: A different story. But we made value choices about what we want to do in Southern Alberta and nobody questions that. There is just a consequence to it.
The Chair: In terms of anthropogenic footprints, I hear you might have a vacancy on your board soon, and Senator Banks is going to become available here in December. He would make a great contribution to the brain power because he has been well trained here and he is very interested.
This is fascinating stuff. Yours is one of these virtual organizations that are becoming more prevalent, and you are a great model. Senator McCoy has been telling us about you and it is pretty impressive stuff.
Senators, we have with us now two individuals from the Government of Alberta Department of Energy, or Alberta Energy.
Thank you both very much for coming. I think you know what we are engaged in here. This is an ongoing study of the energy sector that started back in mid 2009, and we are finishing our consultation with Canadians and government people and all kinds of representatives across the country to get the sense that we have tremendous regional diversity and disparities across the land.
Today it is Alberta and it is Edmonton and we are very delighted to be at the seat of Alberta's government and to have you two folks from Alberta Energy, Mike Ekelund, Assistant Deputy Minister, Strategic Initiatives, and Kathryn Wood, Acting Assistant Deputy Minister, Electricity, Alternative Energy and Carbon Capture and Storage.
You are going to start, Mr. Ekelund.
Mike Ekelund, Assistant Deputy Minister, Strategic Initiatives, Alberta Energy: We may get a little technical. Both Kathryn and I are practicing professional engineers, but we will try to keep from going into engineering space too much.
I wanted to talk to you basically about three parts, and discuss a little of the history for an understanding of the experience that Alberta has had in the development of resources, then a picture of where we are today and then what direction the province looks to be going in.
When we talk about some of the past history, we were primarily a light, medium and heavy oil producing province from 1948 until the 1970s. We hit about 1.5 million barrels a day in 1972 and then that resource started to decline. That gave us substantial experience in development of oil, drilling a number of wells across the province in many regions of the province, and as well in regulating oil and gas activity.
We started with the Turner Valley Conservation Board which became the Energy Resources Conservation Board. We have very long history of conserving resources and of regulating the industry.
Once we started to decline after 1972 with conventional oil, a couple of things happened. One was natural gas production that went from about 4 billion cubic feet a day, largely natural gas that was waste product from oil development, up to 14 billion cubic feet per day in 2001, which was our peak. We became largely a natural gas producer and had a lot of experience in the drilling of natural gas wells, the regulating of natural gas wells and the operation of natural gas processing facilities.
At the end of last year, conventional oil had declined to a production level of 450,000 barrels a day, which is substantially down from that peak. Natural gas had declined from 14 billion down to about 10 billion cubic feet per day, but that 450,000 barrels a day of oil is coming from 40,000 producing wells or zones in wells, so we have a large number of oil wells that have been managed by the regulators of the province and the province over that last 30, 40 years. Natural gas comes from over 100,000 producing natural gas wells or zones within wells.
The overall drilling of gas wells has taken place since the early 1900s. I think the first regulation we had around it was in 1911 or possibly 1914. We have reached up to a peak of 20,000 wells drilled in 2005. In 2010, 10,000 wells were drilled, which is down from the peak, and I think that reflects the changes that have happened in the economy.
The other thing that happened is we had declining conventional oil. We had the increases in natural gas and the move towards more natural gas but also the development of the oil sands, and I was lucky to be here to hear Eric Newell, one of the founders of the oil sands industry, talk about the climate change fund.
That went from starting out in 1967 with the Suncor project to where we have reached 1.6 million barrels a day, and that is from around 10,000 producing wells and five large oil sands mining projects.
We also have significant experience in terms of upgrading, refining and petrochemicals. We are a significant upgrading and refining hub. Much of the upgrading takes place in the large facilities in the Fort McMurray area and refining here of course in Refinery Row and the Industrial Heartland in Edmonton.
As well, we have a couple of the world's largest crackers at Joffre, taking ethane into ethylene and so on. Alberta has had a lot of experience in developing those industries.
We have also had significant experience in coal, starting from the 1880s, although it did not really take off until 1960 or so when we started to develop the electricity generation system largely fed by coal. That is up to about 40 million tonnes of coal that was produced in 2010.
My colleague, Kathryn Wood, will discuss the electricity system and will talk about co-generation and wind power and a few of those other things, so I will not get into details on them.
The reason I have laid out some of the background is to lay out some of the shifts we have seen but also the significant experience that we have had in development of oil and gas activity and coal, the regulation of oil and gas activities for 150,000 producing wells between oil and natural gas including the wells that were drilled and would not be currently producing, and having produced billions of barrels of oil and trillions of cubic feet of natural gas over those last few decades.
I think it is important to understand that we have been a lead in developing and implementing new technologies throughout that time to be able to develop those resources and to manage those resources appropriately, and I think that is important in terms of where the province will be going in the future.
Just a few of the examples of the large technological changes I have seen since my start in the engineering field back in the 1970s would include better enhanced oil recovery techniques to get more oil out of depleted oil reservoirs. That is technology that has been developed and used here.
There is better equipment for seismic so we can get better information from the rocks to understand where the pools are, but also better changes in the seismic techniques on the land so that you have less environmental impact.
We used to run long seismic lines. Now you have to have zigs and zags in those so you do not have that long line of sight for wolves or for people who are hunting animals. You have hand-carried seismic, so there have been technology changes there.
Horizontal drilling has been a fundamental game changer. It has improved production. It has reduced the number of wellsites required. It gets better recoveries.
We have gone through the whole capability of producing dry coal bed methane. That is a new technology. The development of wide-spread use of steam assisted gravity drainage opened up the in situ part of the oil sands.
We have seen that technology change over time. That is where we are going to be seeing the future the province going in terms of the energy sector.
So what is the future? Well, there are a number of new horizons and a number of new challenges. The technological changes are going to continue. They are providing Alberta with new resource opportunities, and we expect that they will be applied to some of the challenges that we clearly have around resource development.
We have been able to produce natural gas from coal seams. We are now seeing the beginning of natural gas production from shale. We have a small number of wells, but if we take a look at the experience in the United States with a number of different gas shale producing areas, there is substantial potential.
If you look at the rock volume we have in Alberta, there is really significant potential for shale gas. There is also potential for shale oil, so although we have been declining on natural gas and on the conventional oil, depending on how those work out and the development of that technology, we could see those either not declining or potentially increasing over time. In northeastern British Columbia, we have seen changes from shale gas.
Production from the oil sands, clearly we expect that to increase. If you look at the Energy Resources Conservation Board's most recent forecast, they are talking about effectively a doubling by 2020, so from 1.6 to something in the area of above 3 million barrels a day. That of course is going to bring its own challenges, and we have spent some time here talking with Dr. Newell with regard to climate change, greenhouse gases and how Alberta is approaching those issues.
We also expect to see that there will be some continuation of our decline in conventional oil but it is going to be offset by some of the new technologies so by 2020, we could be up around 3.7 million barrels a day of bitumen, synthetic crude and oil.
We have been a significant supplier of oil to North America and through North America to the overall world requirement, and we continue to see that that is going to be needed into the foreseeable future.
If you look at the International Energy Agency outlook and the scenarios that they put out last month, there is going to be a significant need for all resources and for oil in particular, and much of that they are looking at in their scenarios comes from pools that either have not yet been developed because of the economics or pools that have not yet been discovered.
So unconventional oil is going to be very important, not only to be able to provide the oil that is expected but also to be there if there are challenges around developing those other reserves that have not yet been found or not yet developed.
So that has really, as Premier Redford talked about, made it a strategic resource, and as the premier has stated, it has put us in a situation to play a global leadership role in meeting the world's energy demands and adjust in an environmentally sustainable manner. She stated that we need to become a preferred international supplier of energy and innovation to be able to meet that strategic role.
When we look at the future of the sector, I think much of the focus of industry, government and regulators is going to be on how do we play that strategic role, how do we produce in a sustainable manner, because that is going to be the keystone to being able to meet the world's needs for oil.
We have, as I said before, had a lot of experience around how we regulate oil and gas and other activities. We have had a lot of experience around technology.
Alberta has been in the forefront of doing things like AOSTRA, and put substantial money into developing an entire new technique, in situ gravity drainage, which allowed this entire oil sands resource outside the mines to be unlocked.
That kind of technological advancement is what is needed to be able to develop our resources in the future, and I will give you some examples of where we have had successes already and would hope to continue on that.
Many Albertans, industry, government regulators and multi-stakeholder organizations have helped reduce flaring of natural gas from oil wells by 77 per cent since 1996, and venting by about half from 2000. I am very proud of that because I was involved in some of that work in terms of how we did our otherwise flared solution gas regulations, but it was with working together with a number of different policy tools and technological tools and regulatory changes that were able to make a major change in how much natural gas was being flared.
In the oil sands, as Dr. Newell pointed out, there has been a 39 per cent decrease in the intensity of greenhouse gas emissions with shifts to more in situ. I expect there is further work to be done to maintain and continue on that trend but that will be done.
Reclamation is one of the key challenges. It has always been a requirement of oil sands mines but when we have got very long mine lives, it takes time to see the movement on that.
I think we have seen a pretty significant milestone with the completion of the fill and soil and all the planting work on the oil sands Tailings Pond Number 1, the Suncor pond, and I do not know if you had a chance to take a look at that.
It has not received a reclamation certificate. The soil has been put on, it has been planted. The growth is started but it will take some time for the growth to get to the level where we can provide the certification. Essentially, though, the land reclamation has been completed. That was pretty significant, and we will be seeing that continue with others.
There are a number of other things that the producers are doing with respect to tailings as well. We have Suncor working on polymers which help dry out these consolidated tailings, which are the biggest issue. That is where the clay does not settle and can take decades to centuries to actually have that settle if you just left it by itself.
Finding ways to put in chemicals that will allow that to dry more quickly can move much more quickly to reclamation by breaking up the water so you can treat the water and the soil so you can work with the soil more quickly.
Similarly, there is work on centrifuges, there is CO2 injection which gets you towards the same thing. It helps take the clay out of the water and reduce the amount of tailings. That is an important area and the ERCB has laid out an approach to reducing tailings over time. I think that is a pretty significant area that the industry and government need to continue to go in into the future if we are going to be able to meet our goals of being able to produce our resources.
We have been the lead in setting standards and policies for our high level of sustainability for a number of years, and I can talk for quite a while about GHG legislation and the carbon management approach that we have taken. I think you have heard all of that from Dr. Newell. It has resulted in 17 million tonnes, and I think slightly more, because this was at the end of last year, of actual reductions in CO2, the over $200 million fund, and as well, something in the area of at least $71 million in clean energy projects already.
We see it as a virtual cycle. Either you make the reduction through reductions on your facility or through offsets or you put the money into this fund and that money then goes back solely into further reductions on the clean energy piece that Dr. Newell talked about. It does not get confused with any other policy functions or levers or outcomes. It is structured around achieving those particular goals.
There is always work to do in ensuring that you are able to count those offsets properly. That can be very challenging, and we have seen that in terms of what the Auditor General has talked about. That is one of the challenges that we see, and I think Dr. Newell talked about when you get into a larger system with a much broader range of offsets, you are going to have many of those challenges, and particularly trying to audit internationally around offsets I think is something that would have to be addressed.
Alberta has also committed a substantial amount of money, $2 billion, to carbon capture and storage demonstration projects. We have three projects over $1.6 billion that have been signed up so far and each one is going to be sequestering over a million tonnes of CO2 per year.
The Chair: Are those the ones the federal government has put money up for or are these additional ones?
Mr. Ekelund: I believe the federal government has been involved in each of the three.
The Chair: They put up a lot of money for that.
Kathryn Wood, Acting Assistant Deputy Minister, Electricity, Alternative Energy and Carbon Capture and Storage, Alberta Energy: They have put up a lot of money. I do not believe all three have money from the federal government but I believe two out of three, and we do have a fourth project that Mike is about to mention, and the federal government has committed money to that and that negotiation is still ongoing.
I think the federal government had committed to three out of the four projects that Alberta is supporting.
Senator McCoy: Not quite as much as Alberta committed.
Ms. Wood: Correct.
Mr. Ekelund: I am not going to get into any further details on that, given the time frame, and I am not the electricity person.
It is critical just to understand what we are putting out for demonstration, and as Dr. Newell talked about, you get leverage in terms of the companies investing. We have our partner, the federal government, involved in this as well, and it is moving towards the goal of having demonstration at a number of technical levels carbon capture and storage as well as moving ahead.
I know technically this can work. Technology changes over time. I actually started out as a young engineer working on a carbon capture project that would inject carbon dioxide into wells in the Swan Hills area. That was back in the 1970s.
What we need to do is take that really rudimentary stuff we did back then and turn it into more cost effective approaches today that will get us below that $30 a tonne or below even lower cost to be able to put substantial amounts of carbon capture and storage back into those geological reservoirs.
The government will also be working closely with communities and First Nations affected by development to ensure proper consultation and accommodation where necessary to address the impacts. That is an important area as well that I see the government continuing to work on and moving ahead on.
One other new initiative, you are probably all aware of it, but within the last couple of weeks, we have put out the oil sands portal. One of the things the government has wanted to be very clear about is being able to have the information about what is happening with the oil sands verified, so that the data is there, the information is there. Anyone in the world can take a look at that information and draw their own conclusions.
Premier Redford said we have nothing to hide with respect to the oil sands and that information is there so that we can achieve that level of transparency.
Not only do we have to be able to reduce our environmental impacts, and particularly one of the ones that is measured is the GHG impacts, but we need also to be able to show we are doing that in a credible fashion, and I think this portal moves us in that direction.
The final area is access to additional markets, and certainly that has been a significant issue in the press. We think there is value in selling our products, a wide range of them, and also to a wide range of markets, and the goal is to find the best portfolio that will give the best value for our citizens over time.
We can sell diluted bitumen into Chicago, into the U.S. Gulf Coast. We can sell bitumen and synthetic crude oils off the west coast into Asia. We can move some of our barrels of different kinds into central Canada. I think there was even a speech in the last couple of days that talked about moving further out to Montreal and even to the Maritimes.
There are opportunities there. There are also opportunities to upgrade and refine, and the provincial government has been at the forefront of that in terms of signing a deal to have some of our royalty bitumen processed into diesel fuel here in the Industrial Heartland area, and that gives us another market here as well as the opportunity to sell further projects into western Canada and other areas.
Getting access to different markets has strategic value and can also help optimize that portfolio of projects. Those are the directions that I expect the province will take, and clearly we have had some direction in terms of what was on the Energy and Mines Ministers Conference and the press release they put out about the principles for a Canadian energy strategy. Our premier has been very supportive of —
The Chair: Are you referring now to the July 19 Kananaskis meeting?
Mr. Ekelund: Yes.
The Chair: You call it the Energy, Mines and Ministers —
Mr. Ekelund: EMMC — Energy, Mines and Ministers Conference.
Ms. Wood: Energy, Mines and Minerals Conference.
Mr. Ekelund: Or Energy, Mines and Minerals Conference. They basically put out a communique about what a Canadian energy strategy might look like in terms of the goals, the vision and a number of potential deliverables under that, and then there would be future work that would continue at each of these conferences, but our premier has been very supportive of the need for a Canadian energy strategy.
The Chair: She gave a speech on the subject on almost her first day out to play.
Mr. Ekelund: Yes, and I think it even extended to a North American energy strategy in terms of discussions in Washington.
I think we can see some guidance in terms of where the government would go from what we have seen through the EMMC, from our premier's support of that process towards Canadian energy strategy and a North American energy strategy, and as well, some of the key areas in the mandate letters for the various ministers.
I just want to touch on a couple of those, particularly the ones that our premier has said would be a very high priority, a number of ministries working together to implement an initiative to make Alberta the national leader in energy efficiency and sustainability.
Clearly that is a high priority for the government, and we will be moving ahead with that, as well as looking at how we work with the federal government to ensure coal-fired regulations support the common goal of reducing carbon dioxide emissions, that is the end goal, without unduly impacting Alberta consumers, which is something that certainly has to be taken into consideration in any policy decisions that you make.
As well, leading Alberta's participation in the development of a Canadian energy strategy, the premier has laid out very clearly in the mandate letters what the priority of government is. I think that is where we will see the sector moving ahead.
As Dr. Newell put it, industry gets it. Industry sees what needs to be done in terms of sustainable development. The Government of Alberta has clearly laid out a path towards that and an understanding of what needs to be done.
So that is my opening comment, and I would like to pass it on to Kathryn.
The Chair: Your minister is the Hon. Ted Morton, is that correct?
Ms. Wood: Yes, Ted Morton.
The Chair: He is the new minister here. He was not at the Kananaskis meeting?
Ms. Wood: That was Minister Ron Liepert.
The Chair: Is it your sense that the policies you have outlined of Alberta Energy have seamlessly continued under the new administration?
Ms. Wood: I would suggest that the policies that Mr. Ekelund outlined are seamless. Our new premier has given these mandates to our new minister and so they are continuing the type of mandate and direction that Minister Liepert had initiated.
Mr. Ekelund: Maybe I can help clarify.
The Chair: I would like to drill down on that a little more.
Mr. Ekelund: I would not say at this time that I would be able to say that all policies of departments of government would be exactly the same under a new administration. But the ones that I have pointed out in the mandate letter, we have been given our direction, and in terms of a Canadian energy strategy, clearly that work has started and that is a priority of the new administration.
Ms. Wood: I would like to give you a high level overview of the electricity system in Alberta. I am aware that you have already heard from some of the corporations in Alberta and you are likely to hear from more who work in this marketplace.
The market in Alberta is structured very differently from in the rest of Canada, so I would like to give you a high level perspective of what we are trying to achieve and the principles on which we have based the market structure.
Alberta has not in our history ever had provincial Crown-owned utilities. We have had municipally-owned utilities and investor-owned utilities —
Senator Banks: Except for telephones.
Ms. Wood: I apologize. I am thinking of electricity utilities, correct. Thank you, Senator Banks.
In the electricity industry, we have not had provincially Crown-owned utilities. We have had a regulated structure in which corporations such as Alberta Power, now ATCO Power, and Calgary Power, now TransAlta Power, have invested in facilities to provide the generation, transmission, distribution and retail services to customers. We have had a history of regulation but not a history of Crown-owned utilities.
Every other province in Canada has had a history with provincially Crown-owned corporations. They are not still all in that same structure, but the restructuring from the other provinces started with a provincially Crown-owned corporation and moved it into some more market sensitive areas, and we did not start in the same place.
When moving into a competitive environment, the Crown-owned utilities have a particular sense of ownership by the population, and it is very difficult to move a Crown-owned corporation into a market. It has been a challenge for our neighbouring jurisdictions in Canada to make some of those transitions, and we have had I think some more success in Alberta because we started with investor-owned utilities.
We restructured in 1996 and we have continued the support for that through different legislative enactments and the principles of our structure as they now exist. I would like to start from generation to transmission to distribution to the retail markets.
On generation, we have an energy-only market. That means we do not pay anybody any amount of money to build. Existing as a generator will not get you a payment in any way. In Alberta, you have to produce electricity and sell it through the central pool in order to earn enough money to pay for your structures.
We have no long-term capacity payments that guarantee anybody any amounts of money for the fact that they have constructed the capacity to exist. We only pay you for the energy that you produce.
If you build a 500-megawatt coal-fired power plant or a 2-megawatt wind turbine, you only get paid for the electricity you produce and you get paid at the pool price in hours, so we settle the market every hour, and on that hour, if you have been producing, you will get paid the price of that hour.
We pay you only for the energy produced. We give you a payment each hour of the year, which is a lot of fun. There are over 100 independent power producers in Alberta and they are each producing in each of 8,760 hours in a year and our Alberta electric system operator manages the flows and the prices and the market and the system and makes sure everybody gets paid that amount.
The Chair: You cannot average it out? It sounds ridiculous.
Ms. Wood: Electricity cannot be stored. If you could store it over here and average it from hour to hour, it would make everybody's life a lot easier.
Oranges are storable, so you can take an average price on oranges. You cannot do that on electricity. We do not have significant technology for long-term storage yet. We are working on storage technologies to try and even out the peaks and valleys.
Most markets sell electricity on at least an hourly basis. There are markets in the Northeastern U.S. that sell it on a 15-minute basis, but we are balancing that electricity every minute of the hour and we give you a price for every hour of the day.
We have higher-priced hours and lower-priced hours. Our overnight hours are based on the price of coal overnight. And we are just moving into peak hours now. Within about two hours from now, we will start to see prices rising for the evening rush hour, and those hours are part of the peak in Alberta, and our peak hours are generally set on natural gas-fired plants.
This feature of our market gives a price signal that tells investors when to invest. That is really all that that price signal does. Overnight, that price signal can be zero. If a few people who own coal plants have not put a price in, we will pay zero for an hour.
On average, in the current year, we are paying about $85 per megawatt of power, but in the Alberta market, you can go up to $999.99 for an hour if there is a lot of shortage and a high demand on a cold day and it is winter and the lights are on because it is dark.
We have a market from zero to $1,000. It is priced every single hour, and that signal is simply a signal to investors for when to put your investment in. As the prices go up, you would start to look at the long term reasonability of investing in this market. Consumers do not pay that money.
So I will get to that in a minute, but just so you know, our generation is based on energy only. In every other jurisdiction in Canada, and every jurisdiction in the U.S. except Texas, there is a capacity market or a feed-in tariff or some other way of doing this.
One of the benefits of this market is that it is efficient at bringing in high efficiency generation options. We do not tell anybody what fuel to use. We do not tell anybody where to build or when to build. We do not have any central planning on generation.
That price signal is the only signal that tells people when or where to build and it is investors who make those decisions. In our jurisdiction, that has been a success story that I look forward to getting to you.
On the wholesale market then, we have generators and consumers. The generators offer their power into the wholesale market. The buyers, the consumers, buy from the wholesale market and nobody has to pay that. If you want an off-take agreement, if you want a contract for differences, you can go to the people who are wholesalers in the market and buy power. The only people who are buying the power at the pool price are those who have chosen to.
We have had 10 years of experience, almost 11 years now, with that pool price, and we believe that about 20 or 30 per cent of the market is still consuming on that price and paying that price, and they are doing that because there is a risk at hedging that you are on the wrong side of the market. So they have chosen to hedge part of their supply and leave the remaining on the floating.
It is kind of like a mortgage. Some people want a nice long-term agreement and they pay for a seven-year mortgage. Some people will stay at a floating price. Some people will hedge their mortgage and have some of it fixed and some of it floating.
In our market, there is a forward market. We have an NGX page where they are providing —
Senator Banks: What is NGX?
Ms. Wood: It is a natural gas exchange. It is another exchange for products, and in Alberta, it is a standard for selling natural gas. We have asked them to set up an electricity page for us.
We have forward markets. We have long-term supply markets and others. We have more than 100 participants generating energy and another 100 registered to consume energy so we have a vibrant market.
Those are our two features. Let me see if I captured the second feature, the energy-only market.
In our wholesale market, we have a principle of a fair, efficient and openly competitive market so we have rules about how you can bid into the market, rules about how the prices are set and the market surveillance administrator, who is rather like the Competition Bureau for electricity, watches the market and makes sure that people are behaving in a competitive manner, to make sure that nobody is using market power inappropriately in trying to keep prices high.
We have fair, efficient and openly competitive generation, and so those are the two first principles upon which we are based.
The third principle is open access transmission. We believe that because we are not centrally planning where the generation goes, we need to, as much as possible, have transmission for wherever the generation will be sited.
The generators get to choose where to site, so if you are looking at biomass in Alberta, you are going to be in the northwest where we have boreal forest. If you are looking at wind power, you are going to be in the south. You cannot move the wind to where the generators are, so we are saying site the generation where the fuel is. We will facilitate getting that generation to market with transmission.
That is not a policy without its controversy, because the challenges in building new transmission are significant. However, the cost of transmission is small when compared with the cost of generation, and we have felt as a policy it is more efficient to site your generation efficiently and use geographical advantages of being close to your fuel source than it is to constrain generators on the transmission side. Our policy is built on open access transmission.
We have no policies on distribution that are different than anyone else's. Distribution in Alberta is totally regulated, as it is in other jurisdictions.
The final piece of our market is on customer choice, and we have said in our Electric Utilities Act that all Albertans have the right to choose their provider for electricity, and so we now have 12 companies in the province who are offering retail services to the small customers.
We have a tranche of customers who consume less than 250,000 kilowatt hours in a year. We call those customers regulated rate eligible, and we ensure that there is a regulated rate available for them. Anybody who sells to a smaller customer must be licensed, so we have 12 licensed retailers serving products to these small customers.
They are offering 19 different products right now, and that would be a fixed price product for one, three or five years, a floating price product, products combined, natural gas and electricity, with different types of exit fees. All sorts of different things are being offered to consumers.
Twenty-eight per cent of Alberta consumers are signed up on a contract. That means 370,000 Albertans have signed a contract for their power supply. That is in addition to the small commercial customers, the industrial customers and the really big fellows.
Senator McCoy: Is it just the residential customers?
Ms. Wood: Residential customers definitely fit into that category, but so do the smaller neighbourhood community businesses, a bakery store, your corner store, your church and community leagues would fit into that category.
When we put those four major principles together and then we have had 10 or 11 years of experience, we believe there is a success story here. We are the fastest growing economy. Our electricity consumption grows each year by two cities the size of Red Deer. Every year, we are adding enough power transmission and distribution to serve two cities the size of Red Deer, and we believe that is going to continue to grow.
Private investment in Alberta has invested in 6,400 megawatts of generation capacity since 1998. That is over $12 billion in investment, without any long off-take agreements guaranteed by any government.
We have had efficient capital stock turnover in Alberta in these 11 years. We have added over 4,000 megawatts of co-generated facilities, so steam and electricity produced together. We have had a significant amount of that in the Fort McMurray region where the oil sands will use the steam downhole and produce electricity and sell it to the grid.
We have added about 1,000 megawatts of wind generation in Southern Alberta without a feed-in tariff, and that is because they can earn money on the market and they can consider their risk over time.
The remaining additions to our system have been high-efficiency natural gas and supercritical coal-fired units. So we have been adding some of the highest efficiency units that are available.
We have also retired about 1,500 megawatts of some of the least efficient capacity in the province. We have had nine gas plants retired, some of the oldest units, and six coal-fired units have been retired for 1,500 megawatts of the least efficient and that has come off line simply because the company that owned it said it is inefficient, I can use it for peaking and for a few days a year, and then they will make the decision, we can invest in that and it is a better investment.
So a 6,400 addition and a 1,500 subtraction is nearly 8,000 megawatts of change in this market. When we started in 1996, we were only 8,500 megawatts total. Now we are in the order of about 13,000 megawatts of capacity.
The Chair: That increase is the size of two cities of Red Deer, have you got it geographically pinpointed? Is it largely in Fort McMurray?
Ms. Wood: There has been significant addition in Fort McMurray but we have had significant additions everywhere.
I do not have the numbers geographically, but we have had significant industry in Edmonton, and in our Industrial Heartland. In the north-south corridor between Edmonton and Calgary, there has been significant industrial development.
We would suggest it has been broad growth across the province. Grande Prairie has been one of our most significantly growing cities, so we are growing across the province. It is not just Fort McMurray that is doing the oil sands. The rest of the province, indeed the rest of Canada, is growing in ways to support what is going on in the oil sands.
The Chair: You indicated that the Alberta economy is growing faster than any other Canadian economy.
Ms. Wood: Yes.
The Chair: I do not know whether you can quantify that.
Ms. Wood: On the electricity side, we would say that we are growing at 3.2 per cent, but in some areas in the province, we are growing at 6 per cent per year for electricity growth.
The Chair: When you say the economy, do you have a GDP here?
Ms. Wood: I do not have the GDP numbers with me so I apologize, sir. It is quite an amazing thing to see the growth that is here.
Right at the moment, in our electricity industry, we have over 1,200 megawatts of capacity in construction. We have nearly 2,800 megawatts of capacity that has regulatory approval and they could start building any time they wanted, and we have another 10,000 megawatts of capacity in the queue, people who have announced and asked our electric system operator for a transmission connection, and so they are just in the timing of working on their approvals for that and that is 1,200, 1,300, 1,400 megawatts of capacity.
Senator Banks: Is it all coal?
Ms. Wood: No, sir, it is not all coal. Not even close.
Right at the moment, with the uncertainty in the federal coal regulations, it is a real challenge to start up a new coal- fired plant. We probably have 1,500 megawatts of coal in our queue.
There is a company that is considering building on the old Milner site, that company is Maxim. Bow City Power has been proposing an idea for about 10 years, and they have not gone away and they have not built yet, but they are still working on it. I have heard that there is another company that might be considering it.
The challenge is that until we have that federal co-regulation confirmed, and know what it means and what flexibility is allowed, I do not think we will see that next coal-fired one announced in the near term.
Mr. Ekelund: Would it be fair to say what we foresee is that natural gas is what is going to be built?
Ms. Wood: Natural gas and co-generation of natural gas will be the next generation, the next tranche.
Our challenge, and I think you have heard plenty about it today, is to ensure coal is not left out of the fuel mix. We are sitting on a grand resource in our coal and we are still looking forward to developing it over the long term.
In closing, I would just say that Alberta has achieved this result in generation development with no taxpayer-held debt, no ratepayer-held risk —
Senator Banks: No stranded debt.
Ms. Wood: No stranded debt. We have in fact had stranded benefit to consumers.
The assets that were generated in the regulated world before we restructured, we have a proxy for restructuring for the regulated world and we have over the 10 years paid back $3 billion to Alberta consumers for those assets. Those assets are still being operated and they are still returning value to Alberta consumers.
We can say that the generation assets that were built under regulation, I think I just said that, we have just returned value to the Alberta consumer.
So we would say that this market is a success. The Alberta Power Summit is ongoing in Calgary today and I was there yesterday. We had speakers from all of the major corporations in Alberta who say they believe that this structure is viable over the long term.
Once we have the coal-fired regulation in the federal government understood with some certainty in the market, they look forward to investing in this market.
Senator Mitchell: The fact is you do not have feed-in tariffs. You get paid whatever the hourly rate is. If I put a solar panel on my roof, can I automatically get you to reverse the plug and buy it?
Ms. Wood: We do have a regulation that allows for micro-generation at that level. It has only been in existence for three years. We have more than 300 Albertans who have chosen to do wind or solar panels or solar heat or whatever.
In the regulation, we provide the meter so the distribution company socializes the cost of the meter, and that may change after we get enough of it under way, but that is a great way to start the process.
It is a meter that measures in both directions, so we measure consumption and we measure what you generate, and if there is an imbalance in favour of generation, we have a requirement that you get paid the regulated rate for that power for each month, and the regulated rate provider must pay you, and I think they do a balancing payment to the homeowner once a year.
The regulation also suggests that we are not looking for this to be a generation source yet, so you must size your micro-generation to your load. If you have a load for a house, we ask you not to size it to serve the neighbourhood.
Our distribution companies are still trying to figure out how this energy flow works, so we want some safety in there as well.
Senator McCoy: It is important to understand that yet again, there is another regional difference in markets.
We have this cheap resource called coal which is everywhere and it is just brown dirt. That is why it is called sub- bituminous. It is just ridiculously cheap, as Brian Vaasjo said.
We are going to just let that sit there? Under the coal regulations, as it sits right now, you are saying you are not going to bring on any more coal-fired generation in any fashion. Would you then support what we heard from the other witnesses, and that is we need some flexibility in the coal-fired regulations being proposed by the federal government?
Ms. Wood: I would support that entirely. My team is actually working very closely with Alberta Environment and Water and we have met with staffers within Environment Canada so that they understand this market and that we understand their model, because we disagree with their model on a number of features.
They spent a day in Alberta last week and my team will be going to Ottawa in two weeks to have more conversations with them so that everybody understands what the numbers are in each province and what it means to Albertans.
Their proposal, as it was gazetted, suggests that Albertans would pay about $5 a year in increased costs because of their regulation. Our calculation suggests that it would be $22 per month per Albertan. We have a difference in numbers. It is a significant difference.
Senator McCoy: From $5 a year to $500.
Ms. Wood: Yes. We struggled with that. Our assumptions are very different from theirs, but I think, in fact, they had the same impression about averaging electricity that we take from other markets.
That does not apply in the electricity market. You cannot do an economics averaging of how much short you are and average that across the year. You may be short in these 12 hours and you may be fine for the rest of the year, and that is why we build extra capacity in generation and transmission. You need to serve for the worst hour, not for the average hour.
Senator McCoy: So it may be that we will talk again off line and get some of that information for our energy study.
The Chair: We were told it came as a surprise. You were all blind-sided basically by these regulations, and after Kananaskis, even though that was energy as opposed environment, was there no preliminary federal-provincial cooperation on this?
Mr. Ekelund: That is probably political.
The Chair: That is a $500 difference a year.
Ms. Wood: It may be a political question.
The Chair: It is not designed to be one. It is normal practice.
Ms. Wood: We did receive information in June 2010 about what the regulation might look like. We did not ever receive anything in writing. We met with the federal environment folks and shared what we had heard, and we still did not receive anything in writing. We told them what our position was, but somehow the message went up and around and across and down, and it was like telephone. We did not get the same message delivered.
The Chair: This is a good place to tell us because we will get on the case.
Ms. Wood: When we sat down with them a week ago, they had not seen any of our numbers or our assessment. By the day they gazetted their regulation, we had not seen examples of what their model was proposing for Alberta. So everything that was gazetted, aside from the ideas of capital stock turnover, everything in there for their analysis of what was going on in Alberta, was a surprise to us.
The Chair: There are some quite important MPs from Alberta, including the biggest one. This is ridiculous. This is a good place to note it.
Senator Neufeld: For large industrial consumers, is there a regulated rate for those folks, or do they pay while they are using whatever comes out of the power pool?
Second, you listed off quite a few thousand megawatts of supply that could be built in the near future. Is that planned for domestic or export?
Ms. Wood: The first part of the question, industrial and commercial consumers can take their price at the pool if they choose to but they can also contract from a number of providers. They can go directly to the generators and purchase a long-term agreement. So we do not believe that most of those industrial customers are receiving the pool price.
We know with the power purchase arrangements on the regulated assets, and most of those agreements will last till 2020 unless the plant will shut down earlier, the price of that power is in the four- to five-cent range.
If in 2001 you signed a 20-year deal for some of the five-cent power, you may have a 20-year deal, but we do not have visibility into the books of everybody and we do not require that every over-the-counter deal gets registered somewhere, so we do not know the actual price that industrial consumers are paying.
Senator Neufeld: So only large industrials were able to buy forward, as I understood, when the market was created?
Ms. Wood: No. There were auctions for smaller industrials to do that as well.
Senator Neufeld: I am talking industrial, so you can talk big or small, but industrial.
Ms. Wood: To be frank, the big guys got together and bought a power purchase arrangement on their own and they went together and said we are going to buy it and see if they can get it at four cents. So there are some folks who have some very good deals.
Senator Neufeld: And resell it.
Ms. Wood: Some of them are reselling, some of them are consuming it on their own.
With respect to the power that is in the queue, all the power in Alberta is designed for Alberta consumption first. We have some of the smallest interconnections with our neighbours of any electricity jurisdiction. In most jurisdictions, you might have 20 to 30 per cent inter-tie capacity based on the size of your market, the installed capacity, and that would have us having much larger inter-ties than we have right now.
We have a small inter-tie with Saskatchewan and a larger inter-tie with B.C. but neither of these are enough to suggest that anybody wants to make their money on export. The fact of the matter is those inter-ties are useful for selling your excess capacity or importing your shortages, but we in Alberta are suggesting that that is a very small per centage.
It is less than 7 per cent right now, and over the years, as we have grown from that market that was 8,500 megawatts to 13,000 megawatts, we have not expanded the capacity of our inter-ties. So they are quite a constraint if somebody is thinking about export.
Exporters pay a tariff on the system that supports, so if somebody wants to export, they do pay a transmission tariff that supports that.
Mr. Ekelund: Would it be fair to say that the size of the inter-ties we have clearly demonstrate that it is important to balance and for emergencies, but absolutely not designed in any way for export.
Ms. Wood: Alberta is definitely a net importer and has been for many years.
Senator Neufeld: But they do export some power. I know that for a fact.
Ms. Wood: We export overnight to British Columbia and we buy it again during the peak hours.
Senator Banks: Balancing loads.
Ms. Wood: Balancing loads, yes.
Senator Banks: But that works out to B.C.'s economic advantage, right? We are buying at a higher price than we sell.
Ms. Wood: No. We are buying at a higher price in fact, because we tend to export our power at night, which is at a lower price, and we buy it during the day when we need it and the market price is higher, so we are paying a higher price.
Senator Neufeld: That is the business that goes on within Alberta also, my friend.
Ms. Wood: British Columbia is benefiting from that.
Senator McCoy: We try to help out wherever we can.
Senator Brown: One thing I have not heard about today was the regulation for when a gas-fired plant wants to get off stream. What have you got for protection so that they do not just drop out like the California one at Balzac?
Ms. Wood: I am not sure I understand the question, sir.
Senator Brown: Well, the gas-fired plant at Balzac was owned partly by California Power, 33 per cent, and they went into Chapter 11 protection. They advised me that they were buying power by the minute and they were showing the fluctuation. That was when it was really high and you could make a lot of money on it.
Now of course, energy is way down in terms of natural gas. So I do not think they will drop again like they did that time, but they are going to build three more plants around Calgary, I understand, one on each corner, and this one is back on stream and has been for some time.
What happens if they say, we are not making enough profit margin here, we are going to shut this down? Have you got some protection to provide some time frame in which they can get off stream?
Ms. Wood: If a producer wants to go off line because they are not making any money, they can go off line because they are not making any money. In Alberta, you can go off line if you have a boiler tube leak or if you have a ball bearing problem.
Genesee 3 has a ball bearing problem, they are off line for five or six weeks right now. If you are going to go off line, you can do that.
If you go into receivership and your shareholders are having a problem with financing and money and that gets sold, I would suggest somebody else will buy that and bring it back into service, so Alberta will lose that amount of power for a short period of time, but power plants do not just go away because the owners go into receivership, and so I would say that the market will adjust for that.
Senator Brown: I am glad to hear that. The first one lasted for a couple of years before it got back on.
The Chair: We had a witness from Capital Power this morning, and he indicated they have got a coal-fired plant about to be built.
Would that all be subject of course to these ill-conceived federal regulations?
Ms. Wood: If you are building a power plant that comes on line after the date the federal government regulation goes into service, then yes, your power plant would be subject to that.
We have just had a coal-fired power plant come on line in Alberta this year, and because it came on line before 2015 when the regulation would come into service, it is not required to have any carbon capture of any sort for 45 years life.
The Chair: Please convey our respects to Minister Morton and tell him that these federal senators are user-friendly. Next time we come, he might think differently. We would love to hear from him on our study. We heard he had some reluctance but we had none.
You both were great, very articulate on your subjects that you each covered, and we are very grateful to you and wish we could have a longer time. We are going now to the labs at Devon and hopefully that will increase our understanding.
Ms. Wood: I hope you have a wonderful time at the labs. They are great out there.
The Chair: This meeting is adjourned.
(The committee adjourned.)