Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 17 - Evidence - March 13, 2012
OTTAWA, Tuesday, March 13, 2012
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 6:04 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.
[English]
The Chair: Good evening, colleagues, ladies and gentlemen, viewers on the World Wide Web, on the CPAC network and generally on the website dedicate to this particular study. This is a formal meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
This evening we are privileged to have with us, through video mode, from the Government of Yukon, the Honourable Brad Cathers, MLA, Minister of Energy, Mines and Resources; and Greg J. Komaromi, Deputy Minister, Department of Energy, Mines and Resources.
Welcome to you both. I am sorry we are a couple of minutes late getting started, but we are all here trying to save the nation in the centre of Ottawa. Any help that you can give us will be very much appreciated.
We are continuing with our study, which is just about into its third year, on the subject of developing an energy strategy, or framework, or strategic way forward in the various energy systems of the provinces and the territories that exist in our federation.
We are conscious of the fact that energy and natural resources are provincial matters and not within the direct jurisdiction of Ottawa, but there are many areas, including areas of interest to you gentlemen, I know, where there is a role for the federal government. We have been doing this study to try to make Canadians more aware of the wonderful resources we have in this country in that, perhaps, the degree of energy literacy is not what it maybe should be amongst Canadians, young and old alike. The vast majority of Canadians do not know what happens or why lights go on when you flip the switch. We are trying to develop a degree of energy literacy in the conversation that we have successfully generated because we know that some 18 or 19 other groups across the country are now conducting studies along the same lines. Even the National Post, about six or eight weeks ago, announced, "We are having a dialogue on energy with Canadians." I told them that they were only about three years behind the curve. It is interesting that this kind of focus has now been seized by our media and by Canadians at large — a very important subject.
We have been hearing witnesses from all across the country. We have been to every province. As we wind down, we were sensitive to the fact that we had not been up to the North. We have on our committee Senator Dan Lang, who said he was looking forward to meeting you folks tonight. He does not get home enough to meet the players there. He is an active member of our committee and of the Senate and I can assure you gentlemen that he has represented the interests of the Yukon ably here since he came to the Senate.
We have colleagues of yours from the Northwest Territories and we have a senator from the Northwest Territories who is not around the table at the moment, Senator Sibbeston. We have had various representatives of the territories put their story on the record.
The purpose of tonight's exercise is to have you gentlemen tell us how you see things. We are very delighted with the materials you have provided to us. We have an orange document entitled Energy Strategy for the Yukon. We know you have vast resources in your territory, and whatever happens in the future we hope will be a much more efficient, sustainable series of energy systems that result from collaboration among the provinces and the territories and the federal government to develop a greater prosperity in all parts of Canada with these rich resources.
We have determined so far in our study that Canada is virtually an energy powerhouse and that we have much to be proud of. There is too much tearing down going on, and it is high time we cried out from the housetops and hilltops that Canada is really great, which we know it to be, but the message sometimes does not get through.
In that spirit, gentlemen, welcome. I believe Minister Cathers will speak first, and the deputy is there to help you answer our incisive and penetrating questions.
Hon. Brad Cathers, MLA, Minister of Energy, Mines and Resources, Government of Yukon: Thank you for your welcome and the opportunity to appear before the committee through the miracles of technology. I do not have a picture showing of you, so if there are any gestures or indications from your end, I am unable to see them, but hopefully you are able to see us correctly.
My name is Brad Cathers, and I am the Minister of Energy, Mines and Resources and Minister Responsible for the Yukon Energy Corporation and the Yukon Development Corporation, as well as Government House Leader for the Yukon.
The Chair: Excuse me for a moment. Do I understand you to be saying you cannot see us?
Mr. Cathers: I cannot, but we do not need to worry about that if you can just interrupt me when you need to. As long as you can see me okay, we can proceed as far as I am concerned.
The Chair: We have done a number of these teleconferences. I am wondering if this can be remedied. Is it local, at your end, or do you know?
Mr. Cathers: I do not know, and frankly, in the interests of your time — I know you are all busy people — I do not think we need to be overly concerned about the lack of picture at our end.
The Chair: Since you cannot see us, around the table we have the Energy and Natural Resources Committee of which I, Senator David Angus from Quebec, am the chair, and Senator Grant Mitchell of Alberta is the deputy chair. He is right here beside me.
We also have Senator Rob Peterson of Saskatchewan; Senator Richard Neufeld of British Columbia, a former minister there. We have Senator Judith Seidman of Quebec, Senator John Wallace of New Brunswick, Senator Daniel Lang of Whitehorse and Senator Bert Brown of Alberta.
There are other senators on the committee who may or may not show up. You will not see them ambling in, but when they arrive, I will mention their names.
Our full-time clerk is away. Ms. Shaila Anwar is clerking for us tonight, and she is out with our technology people trying to fix the situation. We have a representative from the Library of Parliament who works as our researcher and analyst, and her name is Sam Banks.
There you have it. Sorry for the interruption. I agree with you; it is better to carry on in the so-called dark. Go ahead.
Mr. Cathers: Thank you very much.
Hello to the members who I have met before, and to others, I look forward to meeting you in person at some point. I would also like to begin by thanking Senator Lang particularly for his assistance in setting this opportunity up.
I would like to begin with a bit of an overview of the situation in the Yukon, some of the energy opportunities and challenges we are facing, as well as our vision for dealing with them. Then I will certainly be happy to answer either through myself or through my deputy minister any questions that senators might have.
The perspective that comes to mind today in the Yukon is one of managing success. Our economy and population in the Yukon have grown dramatically in the last number of years, since 2002, and we are in the enviable position of having a strong economy, particularly considering the challenges within the rest of the world. To be in the situation of having economic growth in the past few years, as you know, senators, is one that is not common, and we see it as a situation of managing success. There are challenges created by that economic growth, but of course, it also provides many opportunities.
Some facts and figures to provide you background on the Yukon that I would like to begin with include the fact that the Yukon's recent economic success is due primarily to the significant upsurge in mining activity and exploration and the opening of new mines. Since 2007, three hard rock mines have opened in the Yukon, employing more than 600 people directly. The mineral production value for these three mines for 2011 will be nearly $600 million. In contrast to roughly nine years ago, we had no operating hard rock mines, so the evidence as to what that provides in terms of economic success should be evident.
In addition to those three operating mines, we have another four mines in the permitting stage, which together could employ an additional 1,000 people directly, providing additional economic growth and opportunity for Yukon people and businesses and, of course, economic spinoffs in terms of job creation as well.
On the exploration front, a record of over $300 million was spent on mineral exploration in 2011, and exploration provides more than 1,200 direct jobs in the Yukon plus indirect employment.
Yukon's population growth between 2006 and 2011 was 11.6 per cent, making it the highest growth in Canada. In 2011, the Yukon had the highest population in recent history, at 35,818, with 80 per cent of Yukon's population growth taking place in the city of Whitehorse. The demand for residential land and housing, particularly in Whitehorse, has been steadily increasing as a result, and this robust news is good for our economy but creates challenges.
The increase in the amount and intensity of mining activity and expansion of residential and industrial activities has created significant additional demands on our energy supplies. In particular, we have seen a steady increase in demand for electrical energy that, from all indicators, will continue to grow.
In a historical context, until the late 1980s, most of the electrical generation facilities in the Yukon were owned by the federal government's Northern Canada Power Commission. The Northern Canada Power Commission was replaced by the Yukon Energy Corporation in 1987, which is a publicly owned electrical utility that is owned by the Yukon.
The Yukon is not connected to southern power grids. The Yukon Energy Corporation is the main generator and transmitter of electrical energy in Yukon and works with its parent company, Yukon Development Corporation, to provide Yukoners with electricity.
The other electrical utility is the Yukon Electrical Company Limited, which is owned by ATCO.
Yukon Energy has the capacity to generate 125 megawatts, and Yukon Electrical Company Limited has the capacity of approximately 16 megawatts. Hydro facilities generate 85 megawatts of power, with the balance, 39 megawatts, coming from diesel generators and 0.8 megawatts from two wind turbines.
Our newest facility, the Mayo B hydroelectric project, was completed at the end of 2011. On behalf of the Yukon government, I want to formally express our thanks again to Prime Minister Harper, the Government of Canada and ministers who were involved in this project for their help in making this become a reality and for their investment of $71 million in this project.
In addition to the federal funding, the funding for the Mayo B project was made possible by contributions from the Yukon government and the Na-cho Nyak Dun First Nation.
This initiative involved building a second powerhouse about three kilometres downriver from an existing powerhouse, which had the result of more than doubling the amount of energy generated from that river.
The Mayo B project provided power into the Yukon's transmission system, starting at the end of 2011. However, despite this increase in generation capacity, we are now, due to the growth of both residential and electric customers, looking at the point, an expected two years down the road from now, when we expect to be fully using our energy capacity, without creating a significant reliance on diesel generation.
The Yukon has a small population without any connection, as I mentioned, to the North American grid, but we have global-scale mineral potential that cannot be realized without significant investments in infrastructure. I do not think I have to tell most of you of the important role that governments, particularly the federal government, can play in nation-building exercises and in the development of that potential.
With gold, copper, zinc, and tungsten deposits receiving hundreds of millions of dollars in investments to bring them into production, the importance of increasing the Yukon energy supply is increasingly apparent.
To realize the national-scale economic opportunities available in the Yukon, the central partnership role played by the Government of Canada, in projects such as the Mayo B hydro project, is very important in enabling us to capitalize on and to develop opportunities that are beyond the resources of the Yukon government, with our small population and small budgets.
The Government of Yukon is hopeful that the Government of Canada will continue to recognize the national importance of the economic development of the territories and will be willing to continue to partner in vital energy infrastructure developments, such as energy and transportation infrastructure.
Though optimistic about future opportunities and developments, the Yukon is doing its best to manage the economic and environmental challenges presented by our current energy infrastructure. We currently generate 39-megawatts from diesel. This warrants some special mention, as reducing diesel generation is a key goal in the Yukon's energy strategy and our climate change strategy.
For most of the year, the Yukon relies on hydro power for our energy supply, with small amounts of electricity being produced by wind. During the winter months, we have to supplement, using our diesel generators. As I mentioned, due to the increase in demands on energy, we expect, within a couple of years, to need to use diesel for baseload through a broader portion of the year.
Yukon Energy has nineteen generators powered by diesel oil — eight in Whitehorse, two in Mayo, six in Dawson, and three in Faro. For both financial and environmental reasons, we would prefer not to use diesel generators. As demand for electricity grows, we are looking for new sources of clean power so that we can keep the use of diesel to a minimum or eliminate it.
Our energy strategy serves as the Yukon's road map to energy conservation and efficiency. I believe I gave you copies of that. The strategy was introduced in 2009 and provides the Yukon with the overall vision for meeting the energy needs of the Yukon people, economy, and communities.
The Chair: You may have already told us what I am asking, namely, what is the total population? You mentioned that it is a small population, not hooked into the other grid. How many?
Mr. Cathers: Just over 35,000.
The Chair: We were told, I believe, that in the Northwest Territories it is 43,000. You are about the same population, plus or minus 10,000.
Mr. Cathers: Roughly speaking, but the Yukon has a smaller portion of land mass than the Northwest Territories. We have a much greater development of our road infrastructure and a greater concentration of our population around our capital city than the Northwest Territories does, so there are a number of very distinct differences in our opportunities and our challenges. They are comparable, but also distinctly different, from those of the other two territories.
Senator Lang: If I could add to what the minister said, when you look at the population, there is a significant increase during the summer months — that five to six months a year — in the exploration, mining and tourism industries. You would probably get another maybe 10,000 people working in Yukon in the summer months and then leaving again.
Mr. Cathers: Thank you, Senator Lang.
Another thing I should mention, in terms of the context of the Yukon's economic growth, is that, in 2003, the Yukon's population was roughly 28,500, so we have had a significant upswing in the population along with our recent economic growth, particularly in the mining industry. We have also had growth in other sectors of our economy, both related to the mining increase and otherwise, an example being the tourism industry.
If I answered that question, I would just continue by mentioning that the Yukon government supports a shift towards cleaner, renewable sources of energy that can provide an alternative to fossil fuels, can be produced locally, and can minimize greenhouse gas emissions.
To that end, we support renewable energy projects in communities located off the electrical grid and currently using diesel generation. Options we are looking at include: wind, hydro, solar, wood, or geothermal projects. Liquefied natural gas is also an option that has not been used in the Yukon, but it is looking like the logical choice for meeting some of the next stages of the Yukon's energy needs. This is due to both the time and cost of developing major hydro projects and the fact that liquefied natural gas is a cleaner and cheaper source than the diesel generators upon which we currently rely.
Investments in these areas are also aimed at buffering the Yukon's energy sector from volatile fossil fuel prices. By that I mean the investments in the renewable areas. The investments are also aimed at helping us minimize greenhouse gas emissions from diesel generation.
Although the Yukon has reserves of oil and gas, our needs for these energy sources are currently met entirely through imports. The limited amount of natural gas we produce within the south eastern corner of the Yukon is shipped out to B.C.
While our preference is to develop renewable energy sources, using liquefied natural gas for electrical production seems to be, as I mentioned, the next step in meeting Yukon's electrical needs.
In closing, I have a few comments to add to the perspective on Yukon's energy opportunities. We are aiming to take a balanced and proactive approach to energy development and management and are grateful for the ongoing support and recognition, from the Government of Canada, of the unique challenges of energy infrastructure in the North. We look forward to continued partnerships in helping to develop the Yukon's economy.
Another element I should provide is that the Yukon is roughly 483,000 square kilometres and composes approximately 4.3 per cent of the Canadian land mass, with just over 35,000 residents in the territory.
That ends my prepared remarks, my snapshot of the Yukon's energy situation. I would be happy to entertain any questions you may have.
The Chair: Thank you very much, minister. To show you what a nice, touchy- feely committee we are running here, we are allowing Senator Lang to be the first questioner.
Senator Lang: Thank you very much, Mr. Chair.
I would like to welcome the minister and the deputy minister here tonight. I want to say that I am very pleased to see that you are here. We had the Northwest Territories here last week. I think it is very important that the North's voice be heard, particularly in this committee and looking ahead. I want to echo your comments about describing your situation in the Yukon as "managing success."
We are very fortunate back home in Yukon to see what is happening within the mining community, as well as other sectors of the economy, to see the expansion going on, and that leads us to the situation we are in now. Perhaps you can comment on this. The renewable energy supply that we have I believe is almost all spoken for, and as I think you mentioned, we are going to have to now start utilizing diesel fuel in some cases as a backup and in some cases just for expansion because of the increase in population and the increase in the mining community.
The one area that we are very concerned about here around this table is exactly what the federal government's role is in respect to the territories and the provinces as we move ahead and what role we play in conjunction with someone like yourself in the jurisdiction that you represent. You might want to expand a little further when you talk about the federal-territorial relationship and how you see the various departments of government and the government in total working with you in order to meet the demands that are being put upon you, in view of the fact we have a small population. We are looking at a significant increase in mining. If those four projects go ahead, it will be substantially increased royalties to the Government of Canada, so perhaps you might want to expand a little further on that if you would.
Mr. Cathers: Thank you, Senator Lang. Yes, that certainly is correct; it is a case where we at this point in time are at the stage where the Yukon's renewable electrical capacity, primarily hydro, is reaching the point of full usage. We do have surplus hydro currently; however, during peaking periods regularly throughout the year we are hitting times that we use diesel generation and there is increasing reliance on it during winter months.
The benefit for the federal government in investing in energy infrastructure comes not only from nation building but from the resource revenues that the Government of Canada receives from the income tax received by the Government of Canada and of course through further decreasing territorial reliance on government transfers for funding territorial needs. That growth in revenue, that growth in our own source revenues all offsets the requirement for reliance on federal transfer payments.
The opportunities within these areas, particularly within the mining sector, there are some cases where the availability or lack thereof of energy supply and transportation infrastructure may be a make or break factor in whether mines come into production or not due to the costs of those infrastructures. In some cases, the opportunities that are developing through advanced exploration projects look like they will provide situations where multiple projects could, in fact, be advanced by investment in transportation or energy production, in generation or transmission facilities, and that is a bit of a snapshot. Do you want to add to that?
Greg J. Komaromi, Deputy Minister, Department of Energy, Mines and Resources, Government of Yukon: Perhaps I could provide an example about this relationship that exists between Yukon and Canada around the kinds of economic benefits that can accrue to the country as a result of some of the things that are going on in the Yukon. As an example, I would take a look at the Casino Project, which is a fairly large Western Copper and Gold opportunity northeast of Whitehorse currently in the bankable feasibility stage of its development. The proponent of that project has released the socioeconomic component of that work as a way to start to quantify some of the benefits that would flow from a project like that.
Just as a snapshot, the Casino Project has a capital cost of just over $2 billion to develop, and according to the proponent's estimates, the project has the potential to provide $9.8 billion in GDP to Canada; 54,000 jobs across the country of one kind or another; $2.8 billion in wages and salaries in Yukon and the rest of the country; and $2.8 billion in taxes to the federal, provincial and other governments. There is a very significant correlation in terms of the upside opportunities in Yukon to both Yukon and the federal government. However, to realize on these opportunities, we will need these creative partnerships to provide the infrastructure necessary for them to go forward.
Mr. Cathers: I would like to add one point to that. As a number of you if not all of you will be aware, the nature of Canada's resource sector has changed from decades ago when typically you would have a mining town with all the workforce living there. For hard rock mines, currently some of the workforce is local while some flies in from other parts of the country and pays their taxes there. That would be the same with further economic growth. We would expect to see both an upswing in Yukon population and also workers coming from other parts of the country due to that increasingly flexible nature of that sector of the economy.
The Chair: Minister, my information is you were only available for the one hour; is that correct? I am asking because I have quite a list of questioners, and I know Senator Lang would not want to take their time if he does not have to.
Mr. Cathers: I have this booked in my calendar it looks like for an hour and a half, so I can provide that much time if that is the wish of the committee.
The Chair: That is very generous of you, minister. We will allow Senator Lang to carry on a little longer then.
Senator Lang: Thank you very much, Mr. Chairman.
I want to follow up with looking ahead to the future for Yukon's options from the point of view of supply for energy and to meet these obviously huge projects that are in the offing.
Perhaps you could expand a little on the two possibilities: the possibility of natural gas and where you would get it in the Yukon and what kind of timeline you would work on in that respect; and, second, is there any possibility of an extension of the B.C. grid and, if so, where are you with that as a possibility from the point of view of getting a supply of energy?
Mr. Cathers: In respect of oil and gas development at this point, there is increased work going on in the north Yukon around the Eagle Plains area. That is an example of some of the long-term dividends of nation building investment in that it is adjacent to the Dempster Highway which, as senators will recall, was an initiative of Prime Minister Diefenbaker that has led to these long-term economic benefits.
That area is looking very promising at this point in time. There has not been sufficient work to determine exactly the size of the oil and gas reserves in that area. It is primarily natural gas. It is looking very promising. If that meets the potential that it appears it may, it could provide the majority of the Yukon's energy needs by providing a local supply of liquefied natural gas. Absent that development proceeding to an advanced stage, liquefied natural gas still appears to be the best mid-term solution for us to expand our grid capacity in that hydro projects require significant investment. Large-scale hydro projects, simply put, are beyond the resources of the Yukon government to make that investment. That is an area where federal investment in that infrastructure would open up opportunities if the federal government chose to make that investment.
In terms of your question, Senator Lang, about connection to the B.C. grid, the Government of British Columbia has been expanding that grid or extending it northward. At this point, there is still a significant gap. The nearest point of electrical generation is in the Watson Lake area. Watson Lake itself is not connected to our one existing grid that runs, if senators have a map of the energy strategy for Yukon in front of you, between Dawson City, Mayo, Whitehorse and Faro. We have a significant gap there. It is also one that, long term, the Yukon has significant hydro potential. If we had connection to the B.C. grid, we could be an exporter of green energy to southern Canada.
Senator Lang: On one other area, perhaps you could take time and give a snapshot of our regulatory process that is in place in the Yukon, because it is an area of concern across the country. I know that we have a process that many other jurisdictions would like to emulate, if possible. Perhaps you could speak to that for a minute.
Mr. Cathers: The Yukon, as you know, has a process in place that is different from other jurisdictions, partly as a product of the First Nation final agreements in the Yukon and partly as a result of devolution of management authority from what was then Department of Indian and Northern Affairs and has now gone from INAC to Aboriginal Affairs and Northern Development. I believe that is the current department title. That department, until 2003, had most of the authority over the regulatory regime in the Yukon. The Yukon assumed that authority at devolution in 2003. That has provided significant benefits in terms of our ability to make decisions locally and to develop the Yukon's economy.
The assessment process to which Senator Lang refers is one that is the product of a piece of federal legislation, the Yukon Environmental and Socio-economic Assessment Act. That act provides for a single window assessment process into which governments and regulatory agencies have the opportunity to provide comment and after which the regulators who would have the jurisdiction in that area would make the decision. In most cases, the Yukon government would make decisions for lands and resources, but there are exceptions, such as Department of Fisheries and Oceans and Transport Canada may make the decision or be the decision body, as it is referred under the legislation.
The net effect of this process, although it is not a perfect process, provides for significantly shorter reviews than typically occur in many jurisdictions. It provides increased clarity around the timelines in the process. The timelines for different stages are laid out in the federal legislation and set out in regulations falling under that legislation. It does provide a significant competitive advantage for the Yukon in attracting responsible investment and activity in that we can provide more clarity as to what companies will need to do to satisfy the regulators and meet the appropriate standards for protecting the environment and addressing socioeconomic needs.
Please let me know, senator, if you would like me to elaborate on that or if I have addressed that question.
Senator Lang: I am fine with that answer. I just wanted to let other senators know that this is a regulatory process that is somewhat different than in other parts of the country. As the minister said, it has given some certainty and clarity, and that is one reason we are seeing the influx of investment dollars in the Yukon. With our mining potential, those who are prepared to invest can see that if things go well, they will be able to go into production if they meet all the timelines and requirements of the regulatory process.
Senator Mitchell: It is a pleasure having you here, gentlemen. We appreciate it greatly. I want to thank Senator Lang for working with your people, as they say, to set this up. It has been great. We all like Senator Lang very much. My first question is, what do you think about him? Is he okay?
Mr. Cathers: We are required to like him, but we do.
Senator Mitchell: I could not have said it better.
There is a lot of very impressive documentation on your energy plan, and much of that energy plan focuses on coordination with your climate change plan. I have a couple of questions on that.
Could you describe how you are coping with climate change and its impacts? Do you notice it? Is much of your emphasis on climate change and so on? Is that because you see these impacts and you realize something has to be done? Also, is mitigation a public policy issue for you and a budget issue for you in any significant way?
Mr. Cathers: With regard to climate change, particularly in more northerly regions, we do see some effect on permafrost and some evidence of temperature changes. As you know, in some cases, distinguishing precisely on a year- by-year basis what is a weather fluctuation and what is climate change is not always 100 per cent clear. We have had some temperature fluctuations. We get a significant influence on the Yukon's climate from the Pacific flow, which does at times, through El Niño and La Niña, make it challenging to determine what is due to currents within the Pacific and what is climate change.
The simple answer is yes, there is some evidence of climate change. We have prioritized adaptation as a goal as it pertains to things like highway infrastructure affected by melting permafrost. Mitigation is also outlined within the Yukon's climate change action plan, and that speaks to goals such as those I mentioned in trying to reduce our use of carbon-intensive means of energy production such as diesel generation.
Senator Mitchell: You note that you have created incentives in all sectors that promote energy conservation and efficiency, and some of those are quite significant. Could you outline a bit of that program for the committee members, please?
Mr. Cathers: In some areas, we have put some incentives in for rebates for energy efficient appliances and encouraging that type of thing. I might let Mr. Komaromi elaborate on that in more detail.
Mr. Komaromi: There are a number of things that the Yukon government is doing. We have a service that we provide through our Department of Energy, Mines and Resources called the Energy Solutions Centre, and the Energy Solutions Centre provides a variety of services to Yukon families and homeowners and municipalities and businesses, such as energy rebate programs for things like higher efficiency home appliances. For example, a couple of times a year they run an opportunity for Yukoners to trade in old fridges and stoves and enjoy a rebate toward the purchase of more efficient appliances.
There are a number of other things that we are doing. We are just working now on a net metering policy.
Net metering may be familiar to some of you in Southern Canada, but it is an opportunity for us to encourage homeowners, businesses and others to produce renewable sources of energy for themselves and to sell any surplus back into our grid. We are working on getting that policy in place.
The other thing we are doing, which is a little bit of a paradigm shift for the Yukon government, is looking at developing an independent power producers' policy. Traditionally, energy production in the territory has been largely in the purview of the public government and its utilities. We are looking at an independent power production policy that would enable the private sector and industry to drive innovation and creativity in terms of meeting some of our energy needs on a go-forward basis.
The biggest challenge there is that while all of those options are obviously good ones, they come at a price. In a Yukon context, as the minister was alluding to earlier, where we do not have a grid interconnect, we have to always be managing any risk associated with the development of new projects, whether they are renewable or replacement projects for diesel like natural gas. While we all aspire to renewables and a portfolio that includes renewables, ensuring that that is practical, affordable and flexible is also important.
Senator Mitchell: This committee had a wonderful trip to the North and we visited the Yukon a number of years ago. I think most members on it now were not on it then. It was a remarkable experience for us all who did it. One thing that came up in our discussions at that time was the question of district heating. I think there were projects being considered or actually under way. Have you made progress on them or what is the status of them?
Mr. Cathers: We have done work in that area at this point. There is one municipality that is making use of surplus heat from diesel generators. There is some progress in the work within the City of Whitehorse that we funded, but at this point we do not have additional district heating occurring. It is something we are looking at within Whitehorse, as our largest city, and there is some work to explore potential in other areas.
Senator Peterson: You indicated you are expanding rapidly. Do you have sufficient skilled workforce to meet your needs?
Mr. Cathers: That is another area of challenge, providing the skilled tradespeople that are necessary for that. It is an area where we have been in discussion with the relevant ministers about the importance of continued funding for mine training, because, as you noted, it is an area of challenge and we see it as providing opportunity for citizens who are not currently employed locally or who could move to professions that provide better opportunities for them as being advantageous for the Yukon, that development of the local work force particularly in rural communities that have a higher rate of unemployment than the City of Whitehorse itself.
Senator Peterson: Do you have to pay premiums to get people to come to the Yukon?
Mr. Cathers: We know that companies that fly people in have different arrangements, depending on the company. It is something that, as I alluded to earlier and as many of you may know, is within the Canadian resource sector. Because of the changing nature of the marketplace, it has become a situation where there is an increasing percentage of workers needed for resource projects, such as mining oil and gas, and even in southern Canada, where increasingly companies have to fly people in from other locations in the country because that option has opened up for the workforce due to that high demand for jobs that is occurring, particularly within the North and Western Canada. I am sure you know there is a very high demand for jobs and insufficient local capacity to meet the needs.
The Chair: Senator Peterson, were you finished?
Senator Peterson: Yes, I was finished.
Senator Brown: Thank you, gentlemen, for your presentation. I was noting the energy strategy for Yukon. You mentioned geothermal in that and I noticed that you have symbols for geothermal in Whitehorse, Mayo and Haines Junction. Have you done any pilot projects to see how useful and how extensive geothermal will be for you?
Mr. Cathers: At this point, there has been work in investigating the feasibility of that. At this stage, other than the small scale use of heat pumps in some households, we have not got into energy production through geothermal. There has been work looking at our one high school replacement project and the potential of using geothermal within that context as a heating source. Some of it is relatively early stages. The areas that you would be looking at on the map in the strategy are areas where we believe there is a potential for the development of that as a heat and/or energy source.
Senator Brown: Do you have any comparison with other places that have tried geothermal and how deep you have to go in Yukon for access?
Mr. Komaromi: The geothermal comes in a couple of different contexts: There is geothermal that has the potential, as the minister talked about, as a source of heat for our replacement high school. That tends to be water that is not as hot as the kind of water you would need to generate electricity for example, but it can be useful as a way to supplement space heating. We are looking at that in Whitehorse as well as in Haines Junction, where fairly warm aquifers are fairly close to the surface. We have a potential to use that warm water as a way to supplement.
The other option is much hotter water for the production of electricity. We are doing field reconnaissance to determine whether we have some of the geochemical footprints to tell us whether we have that potential. Work has been done by the Yukon Geological Survey to determine whether we have areas with that footprint and whether there is potential to invest in trying to explore that further. As I think you probably know, senator, geothermal for electricity requires water temperatures that come from normally pretty far beneath the earth. Even investigating that potential is a capital-intensive undertaking. Trying to drill a well, for example, to explore geothermal at depths of 2,000 to 3,000 metres would be a pretty significant investment measured in millions of dollars. We would want to be certain that we had the kind of geochemical footprint needed before we made that kind of investment.
As the minister alluded to earlier, for the Yukon government to consider drilling a $10 million to $15 million well to evaluate something that would be, by its nature, a risky proposition is something we would have to think carefully about.
Senator Brown: I just wanted to know if you have an advantage in Yukon over other areas that have tried geothermal.
Senator Wallace: The area that you have to cover to extend the electrical grid within the Yukon is quite broad, obviously, with, relatively speaking, a small population. I understand, from talking to Senator Lang, that the costs of the grid today are not a problem. Rates are comparative to those in the southern part of Canada. As you go forward, where is the demand for your increased electrical needs? If you are self-sufficient now, your costs are in line, you are competitive, and you want to attract new industry, in particular mine development, what is the driving force to cause you to expand the electrical grid, particularly when you get into remote areas — mines that would be distant from the grid now. Where is the driver to make you expand your electrical grid?
Mr. Cathers: There are a couple of things in terms of the use of the grid at this time. We are just reaching the limits of our grid capacity. Without the federal investment in Mayo B, we would have been at that limit sooner. The other element is that that has been an important factor in facilitating mine development within the Mayo area at Alexco and at Victoria Gold, a project that is coming onto the Yukon grid. Basically, it will use the remaining electrical capacity. That affordable energy is important to the ability of that mine to develop. In terms of the impact on Yukon's economy, it is roughly $400 million in terms of mine development, significant employment and spinoff benefits. Although it will use that energy capacity, it will provide a significant benefit to Yukon's economy.
I think the heart of your question goes to new mines and at what stage it is feasible to extend the grid to new mine projects. That is something that certainly, in some cases, it is not. It depends on where the mine is. In terms of potential, from a hydro perspective as I alluded to earlier, Yukon does have significant hydro potential that at some time could result in giving us the ability to extend our grid. If we were connected to the B.C. grid, there would be some ability to export power and have the benefit from that. In terms of infrastructure for mines, if it is close enough to a mine project, then hydro projects could and would make sense. The simple answer to your question is that it depends upon the project and the mine whether it would make good economic sense to extend the grid and invest in a hydro capacity or other energy capacity to meet that particular mine's needs.
Senator Wallace: From the numbers that you would be familiar with, could it be economic at all for each of the mines to develop their own independent energy source? Perhaps it could be a combination of wind- or diesel-generated power. Could they do that independent of the Yukon electrical company that provides power? Are they entitled to do that on their own or do they have to be part of your territorial system? If they are, would the economics ever work so that they could simply cogenerate their own power for their own use? You would then not have the obligation to provide them with power and perhaps it would result in greater costs spread among all the other residents among the Yukon.
Mr. Cathers: Absolutely. To clarify that, when we are looking at expanding the power grid to feed new customers, including mines, we see that as only being a case where it makes sense for either the Yukon government or the federal investment if there will be long-term benefit from that investment.
If that increase in hydro supply is going to meet future needs of the economy or provide us, ultimately — and again, with the connection to B.C. we are talking billions of dollars — it is not a short-term project but a long-term one in setting out the vision from a nation-building perspective. There is potential for the Yukon to derive ongoing benefit from exporting green energy to other jurisdictions.
In the short term, yes, mines can provide their own power production. Currently, they have been doing it through diesel generation. We are looking at steps to encourage them to provide that through renewable energy when possible, but more likely, and realistically, in most cases, the liquefied natural gas option is one where, both on the main grid for our expansion of base load and meeting that need for mines within the Yukon, liquefied natural gas makes the most sense. Where they are providing power for themselves, they will be 100 per cent responsible for the costs of that energy infrastructure. We are only interested in energy projects from which we see net benefit to the Yukon and not something that is just a short-term interest.
Senator Wallace: Obviously, with the Yukon population of 35,000, the economies of scale of any major project take on a different dynamic than it does in the more highly populated areas of the south. As you said, you weigh that against other economic benefits that would come from that particular development.
The economies of scale are a challenge that you will face which that development in the south would not to the same extent.
Mr. Cathers: Absolutely. That becomes a situation where there are opportunities; we have limited ability to capitalize on them. For example, the Mayo B project connected two previously unconnected grids and allowed us to better move power around for residential customers, mines and other commercial consumers. Without the federal investment in that project, it would not been a project that the Yukon government would have done on its own.
Senator Wallace: Thank you very much for that.
Senator Neufeld: Thank you, minister. You have done a great job in explaining some of the problems that you have in getting electricity around the Yukon. It is a huge and sparsely populated territory, so you have done a good job.
Can you tell me what your hydro rates are now, residential, commercial and industrial? Are they all the same or do they vary around? I guess on the grid, I would be more interested to know.
Mr. Komaromi: Hello, senator; nice to see you.
First, electrical rates in the Yukon have not changed significantly since 1998. They have been relatively stable. We have been able to accommodate that stability largely with these legacy hydro assets that we have enjoyed and were able to meet our needs. As the minister noted, the capacity of those assets is now coming to an end. That legacy, hydro, is coming to an end. What the impact of new energy generation on rates will be is something that, even as we speak, we are trying to get a handle on.
Right now, the industrial rate in the territory is 10 cents a kilowatt hour; the residential rate is a little higher, 14 cents a kilowatt hour. We looked at a comparison of Yukon's electrical rates with a variety of other Canadian jurisdictions and we are right in the middle. The cost per kilowatt hour is more expensive in Yellowknife than here and there are other jurisdictions in the south where the price of electricity on a kilowatt hour basis is higher than we are. Generally speaking, in the context of the country, we are almost smack in the middle.
Senator Neufeld: If you take the average cost across Canada, it is about 9.5 cents for residential, so you are very close to that.
I am familiar with the policies that you are developing on net metering, independent power production, management and bio-energy strategy because I was there in B.C. when we did those things. Are you working with the Province of British Columbia? I know it is different, but there are some things that are the same. Are they cooperating with you to give you some help? If they are not, maybe I need to talk to BC Hydro a bit about getting some cooperation so that you do not have to spin the same wheel again. Is that in fact happening? Are they cooperating with you?
Mr. Komaromi: Yes, senator, they are. We have a good working relationship both with the Ministry of Energy in the Province of British Columbia and with BC Hydro. In point of fact, we are taking advantage of retirees from BC Hydro to give us some of the technical and other advice that we need to be able to implement these policies successfully. Some of those folks were there at the same time that you would have been the minister there, senator. They are helpful for us. The answer is yes, we have the kind of interjurisdictional support that we need to do these things successfully.
Mr. Cathers: To add to Mr. Komaromi's comments, that legacy hydro that has been put in place, largely through the Northern Canada Power Commission; and that investment made by the federal government through NCPC and Mayo B is what has allowed us to have relatively low rates. As we increasing rely on our backup generation and our peaking supply for diesel, we are looking at 35 to 38 cents per kilowatt hour for the cost of energy production. That is why, for liquefied natural gas, we see that as being the next step. The capital costs of that are significant as we look at load increases. The cost per kilowatt hour is looking at roughly 15-cents for production from LNG, but those capital costs will be a challenge for the Yukon as we have both the increase in residential demand and the Yukon economy, including in the service and supply sector, increasing that energy need and that energy usage on the grid. That will be the challenge in addition to whatever mines do; that is, that general commercial and residential base load increase.
Senator Neufeld: I appreciate that it will not be easy to figure that one out.
Going to a different topic, I do not know if you talked about it, but regarding the mines producing in the Yukon and the ones that you are expecting to come on, to where do you move that ore? Not everyone here knows probably where you move it. I do, but maybe you can explain it to the folks here because they have a map in front of them and they can follow it.
Mr. Cathers: It will depend on the area. We have some shipped out of Skagway now. With new mines, depending on the mine, they are looking at shipping out of either Skagway, an Alaskan port about 110 miles from Whitehorse; or port facilities in northern B.C. That is dependent on the project. In some cases, some of the mine projects that are advancing toward becoming operating mines are still considering both options.
Senator Neufeld: Thank you.
Senator Seidman: Thank you for putting up with not seeing us for a while.
I have a question that is related to Senator Neufeld's, and that is that so much of Canada is the North, and every province in the country has a substantial northern area.
I would like to know if there is any sharing of best practices among every northern region of our country, in other words all provinces.
Mr. Cathers: I guess the simple answer to your question would be yes. Does it relate to a particular field or question that you were asking about? There are a number of areas where we work with other territorial or provincial counterparts in a wide variety of public policy areas. Did you mean specific to energy?
Senator Seidman: Specific to energy, of course. Specific to what we have talked about today in terms of all the challenges that you have.
I am from Quebec. We have enormous hydro capacity in northern Quebec, but clearly we have similar issues as they may do in northern Ontario and other northern areas of the country.
I would like to know how much sharing of best practices there are in terms of managing the challenges and perhaps helping with the development of innovation or investment or whatever it might be.
Mr. Cathers: We have been working, in terms of our policy development particularly, with areas like our independent power producer policy and net metering. We have relied upon and gained assistance from other provinces and looked at what N.W.T. and Nunavut do.
In some areas the details of the challenges we face are both similar and distinctly different from N.W.T. and Nunavut in that they have more diesel generation as part of their overall supply, and that a much greater percentage of their energy picture requires fly-in and fly-out in certain communities.
For Yukon communities, we have one community that is reliant on air travel for providing access to food, fuel, services, et cetera, and the rest is connected through our transportation grid. That is part of the simple answer.
I will let Mr. Komaromi elaborate on some of the policy details to perhaps better answer your question.
Mr. Komaromi: We are also active on FPT shared committees, such as the council of Canadian energy and mines ministers. We participate in that and there are a number of subcommittees that work under EMMC. That is where we focus some of our work, and the emerging discussion around a national energy framework occurs in that forum.
We participate in the Mines Intergovernmental Working Group, a part of the Canadian council of energy and mines ministers that meets regularly, and we develop a shared work plan.
We are in constant contact with other jurisdictions, including Quebec, around energy and mineral-related matters through that forum as well.
Senator Seidman: I notice in your book, Energy Strategy for Yukon, in fact you have a little write-up on best practices, specifically in two priority areas. You say it is a priority to update best practices for environmentally responsible oil and gas exploration and development and to develop best practices for minimizing greenhouse gas emissions in the oil and gas sector.
I am still continuing the line of questioning in how much sharing there is across the North, between regions and provinces.
Mr. Komaromi: We have our own Yukon Oil and Gas Act. We took responsibility for oil and gas in the Yukon in 1998 and we are always in the process of ensuring we continue to improve our regulatory framework.
We are in the midst of conversations, as we speak, with jurisdictions that we share our border with around our oil and gas regulations and drilling and production regulations, natural gas processing and so on. Those are ongoing conversations that we are having with the Province of British Columbia and the Province of Alberta.
Senator Seidman: Thank you very much.
The Chair: Gentlemen, I think this brings us to the end of my list. As chair I wanted to ask you a couple of questions.
There is always talk of the use of diesel-generated power. Where do you get your diesel oil from and how do you get it there?
Mr. Cathers: Some of our diesel comes in through the Port of Haines, and some of it comes up the Alaska Highway from down south.
The Chair: Mostly in drums?
Mr. Cathers: We would be looking primarily at B trains and super B trains. That would be the source. It is largely trucked.
The Chair: In your report, I liked the line that said the Yukon would like to go on record as fully supporting the national energy strategy and the excellent work of this Senate committee.
The phrase "national energy strategy" is quite loaded, as you well know. You indicated in your evidence on the record that you support a national energy strategy.
How do you envisage that strategy? What shape would it take? Secondly, is it your sense that, in the last year or two, the provinces and territories are demonstrating a new willingness to work together to develop such a strategy?
Mr. Cathers: In the overall context, we appreciate the work that has been going on. Perhaps "framework" would be a better choice of words in that case.
I think it is important to have an approach where there is some connectivity in terms of policies from the provincial, territorial and federal side as it relates to energy, that there be, to the best extent possible, a shared vision and working relationship on shared challenges. That does exist to some extent, but efforts to better develop that working relationship will be beneficial. I think that would be a better way to frame it.
Unfortunately, you are looking at an earlier draft of my remarks. I would frame that in a different manner, in terms of supporting a national energy framework that all provinces, territories and the federal government work collectively on, respectful of each other's jurisdictions but working together cooperatively and effectively.
The Chair: That is helpful to me, because I followed closely when you were giving your opening remarks, and you actually did not read that paragraph as indicated in my draft.
"Framework" is the sort of word we have been using to try to work harmoniously as a body of the federal government but not a province or a territory. That clarification is very helpful.
Before I close, colleagues, are we all comfortable? Are there any other questions?
I would like to thank you both very much indeed. I would like to thank you, Senator Lang, for everything you did to help make this happen. We are only sorry it did not work out on another occasion when you were in Ottawa and could have been here in person, but hopefully we will have an occasion in the future.
We here, at this committee, wish you well. We thank you for your input and for your goodwill.
Would you like a last word, minister?
Mr. Cathers: If I could. Thank you, senators.
I do apologize. An earlier version of my remarks was shared with you, through an error on our end. I appreciate the opportunity to clarify that, particularly with regard to the national energy framework.
I thank you all for your time this evening. Thank you for your interest in the Yukon and our role within Canada as a partner in the development of our country's opportunities and setting the vision for Canada moving forward into the 21st century.
The Chair: Thank you very much, Mr. Cathers; and thank you, deputy minister.
(The committee adjourned.)