Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 10 - Evidence - April 3, 2014
OTTAWA, Thursday, April 3, 2014
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:03 a.m. to study the current state of ``One Call'' programs that identify critical underground infrastructure in Canada; and to study non-renewable and renewable energy development including energy storage, distribution, transmission, consumption and other emerging technologies in Canada's three northern territories.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
My name is Richard Neufeld. I represent the province of British Columbia in the Senate and I am chair of this committee.
I would like to welcome honourable senators, any members of the public with us in the room, and viewers across the country who are watching on television. As a reminder to those watching, these committee hearings are open to the public and are also available via webcast on the www.sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under ``Senate Committees.''
I would now ask senators around the table to introduce themselves, and I'll begin with the deputy chair, Senator Grant Mitchell from Alberta.
Senator Patterson: Dennis Patterson, Nunavut.
[Translation]
Senator Massicotte: Paul Massicotte from Quebec.
Senator Nolin: Pierre Claude Nolin, a representative from the province of Quebec.
[English]
Senator Wallace: John Wallace from New Brunswick.
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Black: Douglas Black from Alberta.
The Chair: I'd also like to introduce our clerk, Lynn Gordon; and two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today we are continuing to examine the current state of One Call, or Call Before You Dig programs that identify critical underground infrastructure in Canada.
It gives me great pleasure to welcome our witness this morning, coming to us by video conference from New York City, Mr. Bob Kipp, President, U.S. Common Ground Alliance.
Thank you so much for taking time out of your busy schedule, Mr. Kipp, to be with us today. I understand you have some opening remarks and then we will go to a question and answer session. A reminder: Your words are being transcribed and interpreted as well, so please speak at a moderate pace. Thank you again. You can proceed, sir.
Bob Kipp, President, Common Ground Alliance: Thank you, senator. It's a pleasure to be here. I wish I were up there with you folks.
I've sent a couple of documents to refer to, if you have them in front of you. The first one is a matrix of One Call legislation across North America and Australia. I won't talk too much to that. It just gives you an idea of what the various states have in terms of legislation, coverage, exemptions, civil penalties, tolerance zones, et cetera. When you look at One Call legislation in Ontario, Quebec, British Columbia, Alberta, et cetera, these are some of the considerations that people would look at when looking at what to legislate in their environment.
The other document is a short PowerPoint, by my standards, but it will give you a little bit of history of how we got to where we are and what we're proceeding to do.
One Call centres have been in existence in the U.S. in some places over 40 years, but the Common Ground Alliance began with a study coming from the Transportation Equity Act for the 21st century in 1998. As some of you may know, in the U.S., pipelines are re-authorized every four years, and there are hearings before congressional committees every four years, they call a number of witnesses. And this was from the 1998 hearings — one of the outcomes of that hearing.
If we go to the next page, 160 people participated in this study of best practices across the U.S. It took a little over a year and they came up with 132 best practices that they could agree to. These are not necessarily the best practices, but they are the best practices all could agree to. That's critical, because every one of them is done on a consensus basis.
These practices are now adopted — we continue with the committee — and many of the states have adopted some or all of them into rule or law. We've translated them into French as well. We've brought the province versus state and some of the other zip codes, postal codes, and made those translations. The last I understood from Mike Sullivan was that there was close to an agreement, as to a Canadian set of best practices, based on these.
A number of folks from Canada are on the best practices committee, including Mike and some others from various provinces, and they've been on the committee since we began in 2001 as the CGA.
The next page is strictly our mission and vision. The idea is simply that we're about damage prevention to underground infrastructure. What do we need to keep reducing damages, to measure them, to bring people together and adopt the best practices. This next slide is a matrix strictly of the magnitude of the job.
Yesterday, I was speaking to a group of contractors in New York to try to give them a perspective of what's below the ground. There are 2.6 million miles of paved roads in the U.S. When you think of how many roads there are and of 2.6 million, there are 2.7 million miles of pipeline, and then there are 19 million miles of total infrastructure, it's a major undertaking to keep all of that safe. I'm not sure what we would have in Canada. The old 10-to-1 rule I don't think would apply because of geography. I think you have far more than 10 per cent of the 19 million. I would suggest you're in the 4 million-mile range at least. It's a big undertaking.
The next page is not really so much to identify the people but to show you who is on the board of directors and who they represent. We have excavators, state regulators, insurance, railroad, oil, locating, all of the industries and all of the stakeholders that have anything to do with keeping the infrastructure safe. These people are typically recommended by their associations, their groups, and then put to a vote and looked at by the board.
In that particular group, there are two Canadians: Mike Sullivan, who testified before you about three weeks ago, from Alberta One-Call; and Dan King, a Vice-President for TransCanada in Calgary, and they both sit on our board of directors. The board meets three times a year face-to-face and another two times, typically via conference call.
The next page is a summary of our committees. As you can see, the first one is the One Call Systems International. These are the people who represent the One Call industry, as well as others, but mostly the One Call industry. We have a series of other committees, which I won't get into in any detail whatsoever. I'll refer to them a little later as we look at some of the results.
In terms of One Call centres, there are approximately 60 in the U.S., and that changes a little bit up and down. Forty states have a centre covering the geographic state itself, and then there are two centres sharing the geography in various ways. In New York, you have Long Island, and you have the rest of the state. In Illinois, you have Chicago, and you have the rest of the state. In California, it's divided in two — California North, California South. There are various ways of doing it, and they work together.
Most centres receive incoming requests by telephone, 811, which has been discussed, and various 800 numbers, Internet and fax. Mike mentioned, in his testimony, Click Before You Dig. Obviously, the Internet is a good way of doing it because it enables you to spread out the load and keep documents of the calls.
Approximately half of the centres in the U.S. are for-profit centres, and half of them are non-profits. Frankly, there is very little distinction in performance between both. Either way tends to work, and I wouldn't say one is better than the other in any way, shape or form.
We estimate that, in 2012, the centres received about 28 million incoming requests, and, from those incoming requests, they issued 150 million locate tickets to the various owner operators of the infrastructure. That gives you an idea of the volume of digging.
We do these studies every year. We look at adults 18 and older and a total sample size of 5,400, and we look at their awareness: unaided and aided awareness of 811 in the U.S., awareness of 811 advertising, future intent to call, which is very important — I'll get to that in a second — and then the gender, age and rural area.
The awareness level of calling before you dig continues to increase. That's really important. We at the Common Ground Alliance do not have an advertising budget. We put together some materials that various groups can use, but we certainly try to encourage the One Call centres, the owner operators, to publicize the need to call before you dig, and the awareness has doubled over the last few years. More and more people are aware they have to call and quite a few now are aware that it is 811 in the U.S. that you do call.
The next slide is a very interesting one, in my estimation, because, in a lot of instances, when you ask a home owner who is putting in a deck or pool or patio if they plan to call, they say, ``No, no, I know where everything is.'' Then boom, he's hit a cable line, a copper line, a water line or a gas line, or he's putting a fence post in and hits something with the auger. That has been the case for years and years. Back to my days in the phone company, it was a common thing, but we're now seeing that that's changing. The people are now saying, ``Yes, I will call. I know I need to call, and I will do it.'' We see that that number has improved dramatically over the last four years.
I'm not sure I have that particular chart, but I can tell you that, from 2008 to 2012, the number of people who were likely to call — somewhat likely or highly likely — has gone from 50 to 81 per cent in the space of four years. The word is getting out. I think the message that we're all promoting is out there.
The DIRT report is a report we've put together; it began in 2004. It's a voluntary damage information reporting tool. It is probably the best vehicle we have for driving change. How do you know where you're going if you don't know where you've been? That old saying is quite accurate. It is voluntary, and it is confidential.
On the next page, we collect damage and near-miss data — voluntary, as I said. It is analyzed by a PhD and report writer and managed by a committee process.
The next slide will give you an idea of the damages that we estimate have occurred in the U.S. in the last eight years. If you look at that chart, you'll see the construction spending, which, of course, came down during the recession and is now starting to pick back up. The number of damages we had given to us or put into the system by volunteers or voluntarily by companies and individuals went from 20,884 in 2004, our first year, to 218,894, submitted in 2012. As we are getting ready to produce the 2013 report, we are well over 230,000 submissions.
The blue line is the estimated range of damages. As you can see, we estimate that the damages in the U.S. have gone from 700,000, or thereabouts, to 360,000, a dramatic improvement in terms of what's being damaged. No doubt the construction spending going down had something to do with that. Overall, I think the industry's enthusiasm has a great deal to do with the reduction in damages.
On the next slide, you see the distribution of events by division, and you see Canada also submits damage data. As a matter of fact, I think British Columbia is producing their DIRT report from the submissions into our tool, and I think Alberta may be doing the same. We're looking at producing a Canadian report as soon as we know we have statistically valid data in the system. This year, we will produce not only a general DIRT report, but we're also going to produce a gas distribution report, a telecom report and a transmission report, which will enable companies and those industries to look at not just the overall picture but the overall picture of their industry.
The next slide, which I picked out of a separate presentation, gives you the relationship between awareness and not making a call. In those places where they are more aware of Call Before You Dig, they call more, and the damage costs because calls weren't made are down in those areas. It's important to get the awareness out there, and we do see a relationship.
The next slide is a quick pie chart. This is the key. Notification not made is the low hanging fruit in our industry. It's down to 25 per cent. If we look at those 350,000 or 360,000 damages, about one quarter, no call was made to the One Call centre. That's down from about 45 per cent in 2004, and I estimate about 50 per cent in the year 2000. It's critical that we get the call made.
You'll see in a chart coming up that, if people make the call, 99 per cent of the time the job gets done with no damage. It's essential that we get them to call and get the marks located. The industry does its job very well once everyone is notified of the job that is pending, and so the marketing, identification, locating and excavation are done well.
Other highlights, mostly from the U.S., and there are some geographic reasons, we suggest that less than 1 per cent, which I just mentioned, notification experience damages. Twenty-five per cent, which I talked about, and a call to the One Call centre is the easiest, most effective means to reduce or eliminate damage.
Next it's small fencing, irrigation and landscaping. Contractors were mostly involved in events that included a failure to make a notification. We still have a lot of DIYers, weekend diggers, who don't make the call. It's typically around homes, and we have to work those through and get them to make that call.
In the U.S., we have ``811 day,'' which is a big day for us, August 11. We do a number of initiatives across the country. A really interesting statistic is that 49 per cent of the people who dig in the U.S. will either watch or attend a NASCAR race, which surprises the heck out of me, but is a critical component. Thanks to Shell in the U.S. and 3M, we do a lot of NASCAR promotions.
I mentioned the next slide, percentage of no-calls in 2008, 37 per cent; 2004 was around 45 per cent; and 2011, 26; 2012, 25.
We're on to the last couple of slides, and this is one of the big ones. There are two congressional damage-prevention mandates in the U.S.: one is grant eligibility and the other is a study. They are really working at reducing the number of exemptions to state One Call laws, and also looking at enforcement. They're meeting with the states and they give federal grants to a lot of the pipeline state representatives. I believe Cynthia Quarterman, the administrator, testified that 78 per cent of the funding to state damage prevention, or National Association of Pipeline Safety Representatives, comes from the feds. They're saying you have to remove some of those exemptions or it could impact your funding.
We did a quick study of that on the next slide, and you'll see that in states we had 18 that were statistically valid, where five or more exemptions exist in the state One Call laws. Their report rate was 7.33 damages per One Call tickets. In states with four or less — and there happen to be 18 of those statistically valid — the damage rate was less than half.
I would strongly suggest that when people are looking at One Call laws, and a lot of them in the U.S. are looking at revamping, revising their laws, that they seriously look at exemptions. I think when you have a lot of exemptions it brings about this attitude of, ``Maybe I don't need to call,'' et cetera, and the damage rates go up.
The last slide is one that I like to use. It's a bit misleading in terms of what we do as excavation related, but in the U.S. they've looked at pipeline incidents with deaths or major injuries since 1988. These are not just excavation. They can also be corrosion and other factors. But this is the key. Even with the growth of pipeline transmission, distribution, gathering, the number of incidents keep dropping. I think that's testimony to the industry really doing a better job, the states doing a better job, the regulators doing a better job, everyone, and more and more people are going home at five o'clock at night. I think, after all, that is the key.
Thank you. I'm open to any questions.
The Chair: Thank you very much, Mr. Kipp. That was very interesting. We have lots of interest so, senators, I'm keeping the clock going so that everybody gets an opportunity.
Senator Mitchell: Thanks very much, Mr. Kipp. Good to see you. You were in my office a while ago.
This is an excellent presentation with a brand new technical term that we haven't heard before, ``weekend diggers.'' We'll be using that in our report, I'm sure.
I think it would be safe to say that we're all very impressed by how the United States could bring all this together with so many different state actors. We only have ten provinces and three territories, of course. Given that the legislation really applies at the state level, what specifically was the federal government's role? How did they incent this tremendous coming together of all of this legislation? In that context, how does the congressional grant responsibility work? Our impression was that people call and companies pay for each call. In Canada there really isn't a government responsibility financially.
Mr. Kipp: Yes. There are almost three questions in that one, thank you.
The first one: It came together as a result of the congressional hearings every four years, the re-authorization. At that time, there was a fellow by the name of Rich Felder, since retired, with DOT and the government, who had the idea of bringing everyone together. It was sort of unheard of in the industry. As a matter of fact, I had been asked to speak in many other regulated environments about how we do it. When these players first came together — and I wasn't there at the time — many of them didn't even like each other. They wouldn't talk to each other. That's why it took a year to do the study. They would only see each other in court. It was very conflicting at first.
These people developed a bond, and many of them are still around and they like each other and they're friends. That's how it started. It was an idea out of the blue.
The second part you mentioned, how do the feds do it? They fund only the pipeline safety representatives in each state. As I mentioned, as I understand from the testimony of Minister Quarterman, they fund about 78 per cent of their budget. They can impact what they do regulating the pipeline. In addition, they have grants every year, I think it's $2 million a year that you can apply for, for anywhere from $50,000 to $100,000 for One Call centres or someone in the One Call industry to get a grant to try to do something different that the rest of the industry might be able to benefit from.
Beyond that, it's really up to the states in terms of their legislation, how they want to enforce it, what they want to put in their rules and regulations and how it works. You have everything from a very laissez-faire attitude that the only time they would ever enforce a law would be if there was a fatality.
You have others, like Virginia, where since 1998, I believe, they investigate every single gas and liquid damage report and every month they have a hearing and they have fines and/or education. By the way, it's not a nasty thing. No one is going out of business with the fine. The fines are from $500 to $2,500 — not anything that will put anybody out of business. But it brings them to a stage where they have to improve.
Probably one of the most fascinating hearings I attended — because I try to go to their hearings when they have them, at least once a year — there was a contractor who drove 125 miles that morning because he had been fined the month before. At the beginning of the meeting there's an appeal process. He was up first, and his fine was a letter. It wasn't even money. He had been rapped on the knuckles for what someone perceived he had done wrong. He had been a contractor for 25 years and took so much pride in what he did and how he did it that he wanted that letter removed. That tells you something about how that industry works.
When I attended the first meeting in Virginia, I asked the regulator to leave the room at lunch. I was just with the board. There are eight people on the board: contractors, owner/operators and One Call centres. I said to them, ``Level with me: Is this guy a ``nine-oner''? Is he rapping you when I'm not in the room?'' They were all really good and said, ``No, it works. We trust each other. This works. It was difficult at first, but we all know the ground rules.''
If you look at Virginia's damage report rate, it's one of the lowest in the country.
Senator Massicotte: Thank you, Mr. Kipp, for being with us this morning. Obviously the issue for us as legislators is whether we need to do this, and the fact we have been considering legislating would suggest some people do not agree. If it's in their self-interest to do so, they would do it, which means some people are against this. Who is against this and why does it merit doing something against their will?
Mr. Kipp: There is a tremendous distrust between excavators and owner-operators and locators in various geographies and groups. There is always the fear that legislation will favour one group or another. That's been hard to overcome, because in the past if you were funding a candidate and giving him a lot of money and he gets elected he might look at things your way more than someone else's way. There has always been that fear.
When we bring them together and take that fear away and they see that anything and everything we do is on a consensus basis and there is an equal voice at the table, then that fear goes away. It's not easy.
We still get into meetings and talk about best practices where someone will say, no, you are not favouring the excavator or locator, and the excavator is the one that fears it the most because he is the one that is typically blamed. I refer to the excavator as the hockey goaltender or the quarterback in football. No matter what happens in hockey, if it is a bad play in the zone, a bad change, a three-on-two, then it's a two-on-one, the defenceman has to take away the pass and he decides he is going to be a hero and take out the puck carrier, beautiful dished-out pass, the puck goes into an empty net and everybody says, ``Hey, goalie, you are awful.''
You can do your job right, but if everybody else screws up, you are going to get blamed because you let the puck in the net or you threw the interception. It's called an excavation damage, not a locating damage or placement damage. That's where a lot of mistrust is. It takes time but it works.
Senator Massicotte: In Canada the legislation is such that the excavator is responsible for all damages he may cause from the fact he did not follow proper procedure, which is an immense liability. Think of pipelines. You would think they would be motivated by the legal and financial responsibility. Is that also the case in the United States?
Mr. Kipp: There are different laws in different states. Let's take Virginia. Their rule is 48 hours; it might be 72 hours. If there is damage or the locate is not done within 48 hours, the infrastructure owner is fined. You have to do it in that time because you don't want the excavator showing up with his crew and not being able to dig. There is down time. That's not fair to the excavator. The excavator likes that. Then the locate is done. If the locate is inaccurate or mismarked and damage results as a result of that locate then it's the owner-operator. He's responsible for dealing with his locator, whether it is a contractor or an employee, to make sure that does not recur. Now the excavator, if he doesn't call or hand dig within the tolerance zone, then he's responsible. All of those things are looked at equally to see where the responsibility for the damage is.
Senator Massicotte: Do they all agree to have one locator or do they send their own locator?
Mr. Kipp: That varies immensely. One third of the locates in the U.S. are done by the infrastructure owner's employees; then they will have contractors. In some cases, you may have a contractor who will do Verizon, Washington Gas and something else. He may have three contracts. When he goes on the site, he does those three locates. Next to him you may have someone from Commonwealth Edison doing their own. It varies from state to state and company to company.
Senator Black: Thank you, Mr. Kipp. You are to be congratulated on the work you have done; we thank you very much for giving focus to the work we are doing. I've taken from your comments that in the U.S. the really quite extraordinary advances have been driven by a groundswell as opposed to legislation imposing these obligations across the U.S. Do you agree with that?
Mr. Kipp: Correct. I would say we've had encouragement from the feds and some of it has been financial. When we first started we would get a half-million-dollar grant a year, and we had very little funding in 2001 when I began. We now continue with that funding to do various things and some of them are related directly to what FINSA wants us to do, but we now have 2.1 million in revenues from sponsors — companies like Shell, TCPL and others.
Senator Black: How about if you give us some free advice as to what we, as senators, should be doing to encourage the type of success in Canada that you have seen in the U.S.?
Mr. Kipp: That's a tough one. You have some really strong people in Canada from Natalie in Quebec, Brian in Ontario, David in B.C., Mike in Alberta. I think you have some really strong people who want to move the agenda forward.
We missed the boat on 811 in the U.S., which has become a team logo, like the Dallas star or the maple leaf, and it tends to bring people together. If you look at some of those people and leaders like Trans-Canada, Bell, Gaz Métro in Quebec and Jim Tweedie and the Canadian Gas Association out of Ottawa, a lot of good people who are looking for your guidance and maybe some leadership. I don't think they are asking for funding, but they're looking for ways to get legislation. That's one of the big issues. Ontario recently got it. I know Quebec would like it. Alberta has some of it. B.C. has some of it. You need legislation with teeth, and maybe it's on a provincial basis with federal guidance.
Senator Black: Thank you very much.
Senator Seidman: Thank you, Mr. Kipp.
You have shown us that data collection provides evidence in your DIRT report. We really appreciate that. And also that awareness campaigns work. We have heard that data plays an important role in ensuring buy-in from stakeholders.
Understanding that we've had this pocket resistance in Canada, did you find that collecting this evidence to show how One Call systems can reduce incidents and damages helped in selling the program across the U.S.?
Mr. Kipp: Yes. I can speak to one very recent example: As I mentioned, the lowest hanging fruit is the per cent no- call. If we can get people to call 99 per cent of the time the industry does the job right. We were able to ascertain that we had a very serious problem in one geographic area of the U.S. where instead of 25 per cent they were 65 per cent; they have a tremendous number of damages all across the infrastructure. I have since met with a state senator and he has called some people together. They have a tremendous number of damages in that state. They have the people working together. They have a long road to go, but that is the low-hanging fruit. They have to get an awareness campaign that works. They have to get people who know to call, and that's an enforcement issue. They have to get the people who are exempt off the exemption list. That particular state has had some bad issues, and they are working toward getting their act together. It will take some time, but collecting damage data is essential.
Senator Seidman: Why didn't their awareness campaign work? You said they had one, but it didn't work.
Mr. Kipp: I will come back to Senator Mitchell's question. I think it's a funding issue. When I say funding, most of the One Call centres in the U.S. are funded on a per-ticket basis. That means if I'm Bell Canada and the One Call centre refers a thousand tickets to me today, the rate might be 84 cents or $1.25. I would owe them $1,250 if it's $1.25. With that money, most of the One Call systems allocate a certain per cent to public awareness. This particular state was funded on a mileage basis, which means that at the beginning of the year they know their revenue line. Now, even though you want call volumes to increase, that's not a good thing if you want your bottom line to be profitable. They were cutting costs because their revenues were fixed. They have to change their funding model.
Senator Seidman: Thank you.
Senator Patterson: This is most enlightening.
You've had the Call Before You Dig number since 2005, and in Canada unfortunately our Canadian Radio- television and Telecommunications Commission denied the use of the 811 dialing code because it's being used for non- emergency telehealth triage services. It seems the most common method in Canada of making locate requests is via the Internet. Have you thought about whether a Click Before You Dig system might have advantages over a call system as we look ahead to a national system in Canada?
Mr. Kipp: Well, the advantage is certainly one where you can distribute the call volume, costs are reduced, that's all good, and you can get around that. In general speak, to me, the more ways people can get to you, the more options you have to provide them with service. The Click Before You Dig is a tremendous option for businesses that start their day at a computer. It is a great option for those business guys who may have an iPad or iPhone they can use, but it is not such a great tool for those who are not as user-friendly with some of the Internet services. To me, the more ways you can give them — fax, Internet, telephone — the better chance you have of reaching everyone to increase your population reach.
Senator Patterson: Another aspect I'd like to ask you about is damage prevention standards for underground infrastructure. You may know that our Canadian Standards Association is developing a Canadian damage prevention standard. I think it's called CSA Z247. Is your Common Ground Alliance aware of this or participating in the development of this proposed damage prevention standard?
Mr. Kipp: Not from a U.S. perspective, but Mike and Jim and the folks up in Canada are very familiar with it, I'm sure. They just met last October. I think they meet a couple of times a year to discuss Canadian focused issues and I suspect they are probably aware of that. I would have to check with them.
Senator Patterson: Is there a damage prevention practice approach applied in the U.S.?
Mr. Kipp: Yes, our best practices. That is our approach where we bring the committee together three times a year. There are task forces that review on air — on telephones, telecoms — where they have specific new best practices. If there is a practice out there that someone is doing in a state or province and they want to bring it to the committee, they issue a transaction record. The committee reviews it and if it looks like it is a viable new best practice, they create a task team that looks at it, words it, and agrees or disagrees to go with it. If it comes to the committee, it's reviewed, discussed and goes back to every association — gas association, contractors — and then they come back for a vote on a consensus basis. If all agree then it becomes a Common Ground best practice.
Senator Wallace: Mr. Kipp, when I listen to your comments and I think back to other witnesses we've heard, it seems so logical that One Call centres make complete sense. The benefits that you and others have pointed out seem very obvious. If we decide to encourage this in Canada, to have a One Call system throughout the country, where is the resistance likely to come from? From a business perspective, one thing that that comes to mind is that once the call is made, if there are delays in getting a response, getting the actual locate made, then excavation firms would be reluctant. They don't want to have their jobs tied up. Time is money and they'd be concerned about bureaucratic problems and delays.
I heard you mention the time frame of 48 hours. I thought I understood you to say there was a 48-hour period where the locate would have to be made, which doesn't seem like something unreasonable. When you say that, is it a standard in all states across the country or is there a prescribed time that the locate would have to be made within that would vary by state? What can you tell us about that?
Mr. Kipp: You will see that on the one matrix. Most of them are two or three business days. There are exemptions. In some of the rural areas of Montana it may be four or five days, but by and large most of the country — 95 per cent — is under the two or three business day issue. Once the contractor is aware of that, it is not a big deal. By the way, they all also have emergency locates. If I'm a contractor and doing something and a water pipe bursts, I can call the number and have one-hour or three-hour emergency locates, and the locates must go out at that point.
There are two key issues. First, the contractor wants to ensure it's done in 48 or 72 hours and if it is not a report is issued and the owner-operator should be fined for not meeting the time frame. Second, in some states we have seen contractors abuse the emergency locate. They are brought to task and are fined for abusing it, and it is a percentage. By and large, the system works well. We have Associated General Contractors of America at the table; they are well- represented. They chaired the CGA and were the chair people for a number of years. They really support this. At the end of day the most important thing to a contractor is going home at night, and this system helps ensure they go home at night.
Senator Wallace: Are those minimum locate times legislated in each of the states?
Mr. Kipp: Yes.
Senator Wallace: That's per legislation?
Mr. Kipp: Legislation, yes.
Senator Mitchell: Mr. Kipp, you mentioned there are 132 agreed-to best practices. Can you give us an example of an appealing or worthwhile best practice, at face value, that isn't agreed to and why?
Mr. Kipp: There are over 150 now by the way; 132 was initial. I can't think of one offhand that they did not agree to. I remember there was one on locating practices that went to the board and was quite contentious. Mandatory calling is one.
The railroads, as an example, did not want to call for locates on their own property for a variety of reasons. You go out west and they have black fibre along the tracks. They have to dig up the tracks and they don't want to call to get the fibre located. It's on their right-of-way. That one was 10 years in the making where we finally got agreement if it's on private property. It took 10 years to get the wording so we could get that fifteenth vote, which was the railroad, to say ``We'll do it.'' And that's how the process works.
Senator Mitchell: In your presentation, I got the impression that there is 811, but you also said, in some cases, 1-800 numbers. There is not a single call centre where all the calls go — which is the model being considered in Canada — and distributed from there? In some cases, it goes directly to a state call centre?
Mr. Kipp: The states typically want to regulate their own state and don't want anybody interfering, so 40 of the states have a One Call centre. Some are for-profit, and some are non-profit. Then, as I mentioned, some have two One Call centres. Texas is a really unique one. It has two One Call centres, and they are not geographically different. The calls alternate as to which one they go into. There are some variances. For one of the northern ones — I will say North Dakota — their calls are answered in Texas. It does happen that you can get that.
Senator Massicotte: Just a word about some technical stuff that relates to the locator and their ability to detect exactly where the pipe is. When you are doing construction, especially residential construction, doing a subdivision, when you're trying to connect to the water pipe or electrical pipe, you often encounter a rock or some obstacle. Therefore, the contractor on site will vary his path contrary to the plan specs approved by the city municipality. In most provinces, there is no need for that contractor, engineer or architect to make a note of the variation and file as- built plans for the city. Is that the case in the states? And is the technical equipment of the locators able to detect that variation so that they could actually tell the contractor who goes on site for excavation, ``No, the pipe, contrary to the plan, is not here; it's actually here''? Is that a similar problem, and how do you get around that issue?
Mr. Kipp: There are two parts. The first one is the as-builts, and it varies by state whether they should or should not file. It is a best practice. We believe that, when you modify the plan, you should be filing the as-built with the owner- operator. That is definitely in our practices.
In terms of the locating, it is an interesting industry that is getting better and better. The technology is getting better, but it's not perfect. We have a locate rodeo held once a year in Georgia. Various groups in Canada and the U.S. have competitions. Eventually, all of the best locators make their way to Georgia, and they have a competition to see who is the best locator in North America. That is the kind of competition to get people interested, to get the suppliers interested. Is it perfect? No. Can they detect some of those turns? Absolutely. Sometimes, depending on the wire and on whether it's a metal pipe, they will be able to follow — it's radio detection — the line and mark it as such. It's not a perfect business, and, definitely, when you get into pipes that are made out of cement or some of the plastic pipes, they are more difficult to locate if there is a deviance in their path.
Senator Massicotte: I understand for those pipes, like the syrup pipe, that are not made of metal, they often wrap a copper wire or some wire around them to make sure they're detected. You are saying that the technology is not good enough to note significant variations. So you're saying that many states actually require as-built plans to be filed, even by the residential developer?
Mr. Kipp: Yes. Not all of them are wraps. Some of them are really old, and you also have abandoned pipes. Sometimes, you get a locator who goes out. There is no record of the abandoned pipe. He will go out thinking it's the pipe he has to locate, put his wire on it and locate it. Meanwhile, the live one is sitting 8, 10, 12, 15 feet away. That can and has occurred. You get those instances also. Some are wrapped in wire. As a matter of fact, there are some I've seen where there's a fibre running alongside the pipe, and, if there's any ground disturbance by a backhoe or anything, they will dispatch people to see what's going on if the earth is shaking because they don't want anybody near those pipes, some of the big transmission pipes. There are a variety of ways of doing it.
Senator Massicotte: For the small residential contractors, what about the not insignificant complaint that the as- built plants significantly increase their costs?
Mr. Kipp: I'm sure it does increase their costs. I don't know about ``significantly;'' I guess that's subjective. At the end of day, if it helps protect the next guy, I think it's a pretty good thing, and I think that's really what it's about.
The Chair: Just a couple of things. We talk about locator competition. In the province I come from, the ministry I was responsible for, we had mine safety competitions, which are natural, where different mines in different parts of the province compete on their safety. I can see the locators doing the same thing.
I have one question, and I'm still not clear. What involvement was there from the federal government in the U.S. to make your One Call system successful? Can you give me some sense? You often spoke about the states wanting to manage their own affairs, and I totally believe in that. They should be able to. We're federal. We have to be very careful in how we actually manage this, or do we even try to manage it? That's a question I've had right from the start. How does a federal government get involved to make it so that you don't overstep your bounds but you can still encourage?
Mr. Kipp: Gee, my job is tough enough; I don't know about yours. I don't know the history other than the reauthorization process, which is every four years for the pipeline industry. Follow the money. There is funding that goes from the feds to the states, and, with that, they're able to get some things done, particularly with respect to the One Call centres, where there was some grant money going and where the pipeline safety representatives were. Some of that half a million dollars they gave us to get us going gives them a voice at the table.
We do have a federal regulator on our board. He does not have a vote, but he is on the board. The positive side to that is that, during National Safe Digging Month, I can go to Secretary Foxx and Administrator Quarterman, and they will hold a press conference at some point talking about 811 — they're going to have one of those — or come to a NASCAR race and say how important it is to call 811. They benefit by reducing damages and getting pipeline safety out of the headlines. When we first came into the job, for the National Transportation Safety Board, one of their ten items on their most wanted list was pipeline safety. It was a major issue, along with airlines and car seats and so on. It's now off the list. We were able to work with the federal government, with the states and with the various groups to get damages down. It's an interesting marriage, but it works. For whatever reason, we were able to make it work. I think a lot of it is funding. At the end of day, there is still an issue where there is some money going to the states. As I mentioned, 78 per cent of the pipeline state representatives are funded by the feds.
The Chair: I understand that part. That's how the provinces get involved with the federal government — ``I need money.'' I understand that.
Thank you very much, Mr. Kipp, for presenting. I understand you're travelling, and you've gone out of your way to make yourself available. I can tell you that we appreciate that very much.
Mr. Kipp: My pleasure. I wish I was there. That's home for me, born and raised in Ottawa. I wish I could have made it.
The Chair: You can come back any time.
I am pleased to welcome Mr. Harold Calla, Executive Chair, First Nations Financial Management Board; and along with him is Niilo Edwards, an adviser.
Mr. Calla, you may proceed with your opening remarks and then we'll go to questions and answers. We need to be out of this room by 10 o'clock, so I just remind everyone to keep that in mind as we go through it. After your presentation, there will be, I hope, some questions from the senators, and some answers.
Mr. Calla, the floor is yours.
Harold Calla, Executive Chair, First Nations Financial Management Board: Thank you, Mr. Chairman. I appreciated Mr. Kipp's comments, because it's not just contractors who want to go home and sleep at night: it's also members of boards of directors of pipeline companies, of which I am one. I appreciate your work in this area.
I want to thank you for allowing us to appear before you today. The main focus of my presentation will be on opportunities that exist for First Nations to participate as equity partners in proposed large-scale natural resources projects in Canada.
I serve as the Executive Chair of the First Nations Financial Management Board. Our organization has created a modelled approach that establishes First Nation equity participation as an option for consideration.
Before I get into the details of this modelled approach, I will take the opportunity to provide the committee members with a brief background on the Financial Management Board as an organization. The Financial Management Board is an institution created under sections 49 and 55 of the First Nations Fiscal Management Act. This act received Royal Assent in 2005, after receiving all-party support in the House of Commons and Senate.
Along with the Financial Management Board, the act provided for the creation of two other institutions: the First Nations Tax Commission and the First Nations Finance Authority. I will touch on this a bit later.
The Financial Management Board is Canada's only legislative body that develops and publishes financial performance and financial management system standards for First Nations.
We are an Aboriginal institution that provides a suite of financial management tools and services to First Nation governments seeking to strengthen their financial stewardship and accountability regime and develop necessary capacity to meet their expanding fiscal and financial management requirements. I signed a number of mandated principles in order for the organization to carry out its intended work.
Part of our mandate states that the purposes of the financial management board are to assist First Nations in the development, implementation and improvement of financial relationships with financial institutions, business partners and other governments, to enable economic and social development of First Nations to provide advice, policy research and review, and evaluation services on the development of fiscal arrangements between First Nation governments and other governments.
Under this section of our mandate, the financial management board has engaged First Nations in discussions about their participation in resource development as equity partners. The concept of equity is a matter that's being discussed by First Nations. It was brought to us. It doesn't matter whether we're talking about natural gas in northern British Columbia or about the First Nations around the Ring of Fire. It's a common theme.
During the summer of 2012, at the invitation of four federal departments, I was invited to participate in a series of Public Policy Forum discussions focused on how Aboriginal Canadians could meaningfully participate and benefit from a multitude of proposed resource development projects. Equity participation was a reoccurring theme of these discussions and was highlighted in the forum's final report. I've included that report here today in the material that I'll leave with you. The final point is a recommendation about one of the ways government and industry could proceed to better include First Nation participation. This report also suggested that access to capital necessary for First Nations equity participation could be backed by a federal government guarantee. A similar report done by the Canada West Foundation, released last year, drew similar conclusions to the findings of the Public Policy Forum paper.
The financial management board has undertaken our own efforts to explore these concepts further. We continue to be engaged in discussions with a number of First Nations from the West Coast of British Columbia to the B.C.-Alberta border. For the 42 First Nations in this area, their traditional territories are directly impacted by proposed routes for a number of liquid natural gas pipelines, most notably the proposed northern gateway, and also oil.
Adding to the complex nature of this reality is the absence of formal treaties for the majority of the province of British Columbia. Developments in Canada's courts over the last 18 years have established that the Crown and Aboriginal title to land coexist, although this scenario has yet to be defined. The courts have also established that there is a duty to consult and accommodate the interests of First Nations in cases where projects may infringe upon or directly impact First Nations' traditional territories. The current approach to fulfilling this duty has been downloaded onto industry in large part, often producing less than desirable results for all parties involved. It is noted in the recent Douglas Eyford report to the Prime Minister that Canada's reliance on industry creates risk because companies have different cultures, experiences and expertise in Aboriginal relations.
Within the context of today's realities, the deep level of accommodation and consultation that is needed goes beyond the means of current approaches and must involve new and innovative benefit and accommodation measures. Governments and industry should be open to the establishment of true partnerships with First Nations, such as equity benefits that would allow First Nations to have a say in the management of the project, environmental mitigation and secure revenue streams.
Our organization also recognizes that the ability to arrive at a solution does not rest completely with governments and industry. If First Nations choose to participate in these projects, they must enter into negotiations prepared to express their terms.
It is unrealistic to expect governments and industry to effectively and efficiently negotiate the parameters of such a level of meaningful participation with First Nations on a one-by-one basis. First Nations are recognizing the importance and the benefits that may be achieved by working together through a common voice to facilitate their negotiations with government and industry.
The financial management board also recognizes the importance of First Nations having the resources and information necessary to make informed decisions on the future of their participation.
In an effort to assist First Nations in making informed decisions, our organization conducted an analysis of an illustrative LNG project, which you will have a copy of today, the size of which is roughly equivalent to an existing project located in British Columbia.
I want to acknowledge that we are able to undertake this work through the support received from the Department of Aboriginal Affairs and Northern Development. Our organization retained the services of industry experts, specifically the former CFO of Terasin Gas and the former CFO of Foothills Pipe Lines to assist in the creation of this report. In commissioning this report, our objective was twofold: To assist First Nations in understanding how a modelled approach could result in their participation as equity partners with industry and to highlight the magnitude of the economic benefits First Nation communities and the country could stand to receive from their participation.
Our findings concluded that there was approximately a $200 billion net present economic benefit in the first 25 years of one LNG project in British Columbia. Economic benefits of this magnitude from projects that proceed will allow First Nations to invest in their capacity development and become significant participants in the Canadian economy.
The tools currently exist to make such a scenario a reality. Utilizing the oversight framework of the Fiscal Management Act to provide access to capital markets reduces real and perceived risks to First Nations, provinces and the capital markets.
The First Nations Finance Authority, which I mentioned at the beginning of my remarks, is well positioned to facilitate market access on behalf of First Nations. The finance authority is comprised of a borrowing pool of First Nations that are certified by the financial management board. I'm pleased to state that, as of last month, the finance authority received investment grade ratings from Moody's and DBRS will issue their first debenture of around $110 million probably this May or June. It is through the finance authority that First Nations will be able to raise the capital for equity investment should a federal loan guarantee be achieved. The importance of a federal loan guarantee enables First Nations to have market access at preferred rates of interest.
Based upon a number of factors within the modelled approach, our findings also concluded that if First Nations were to take a 30 per cent equity stake in our illustrative project, the return would generate benefits in the order of $5.5 billion to those First Nations.
Let me also state that the information of these modelled approaches were taken to mitigate the number of risk factors, and specific attention was paid to ensure that no risk be transferred onto the Canadian taxpayer from the private sector and that this model would not add additional cost to the project for project proponents. As a rate, the concept that we looked at was a rate-regulated utility model. For those familiar with it, it has a significant risk mitigation attachment to it.
Therefore, the concept of First Nation equity participation is not new. The 30 per cent equity stake was offered for participation in the Mackenzie Valley Pipeline and the Pacific Trails Pipeline in B.C. as early as the 1980s and the ill- fated Petro-Canada pipeline that was going to go to Prince Rupert.
Finally, let me reiterate this modelled approach developed by the financial management board is intended to be viewed as an option for consideration. We realize that if we are to get to the ES on these projects, the solution that gets us there must be acceptable to First Nations and be realistic in the eyes of government.
It is on this note that I want to acknowledge the constructive and encouraging dialogue that we have been engaged with with the Minister of Aboriginal Affairs, Minister Bernard Valcourt, and former Natural Resources minister Joe Oliver. I would also be remiss if I did not acknowledge the critical support and advice and knowledge that former Senator Gerry St. Germain has lent as an independent volunteer to this initiative. As many of you know, Senator St. Germain has been and still is a strong advocate for issues aimed at advancing the standing of Aboriginal peoples in this country.
In the months ahead, the financial management board will continue to engage and assist First Nations in making informed decisions regarding their participation in resource development. As the Government of Canada maps its future actions through the prism of deficit reduction, we believe that the process safeguards a magnitude of benefits that are awaiting to be unlocked, will remove significant uncertainty to a large-scale resource development, lead to sizeable increases in gross domestic product impacts and minimize the risk to taxpayers while jettisoning the standing of First Nations into the current century from both an economic and social perspective.
I want to thank you for the opportunity to be here and really to say the Aboriginal issue has been around for a long time. We have a lot of studies, not a lot or enough action. Some action has been taken that moves it in the area of economic development, and we really do need to start looking at this at least equally in economic development issues, as well as a social issue. This country needs workers. We have the largest growing population. There is a great opportunity to make a transformative change. We often heard hear the words ``transformative change,'' but what does that mean? You can't be self-governing; you can't have an ability to respond to your needs if you can't develop an economy and look after yourselves. First Nations themselves have to invest in their own well-being to bring themselves to the 21st century.
What's important for governments to understand is that First Nations who have been marginalized from the mainstream economy for centuries — and the last 20 years since Delgamuukw — are asked to move into the 21st century. We haven't had the time to evolve as the rest of the country has. Institutions like ours and the efforts of governments need to transition that transformative change to move it to the point where we have First Nations who can become more self-reliant. I had the opportunity to appear before the Senate committee not long ago on infrastructure and housing. In doing the research for that, I realized that between infrastructure and housing, there was between a $6 billion and $8 billion deficit in reserve in Canada. That money is not going to come from federal government transfers.
If we don't develop economies and move forward, there is no hope. That's one important thing to remember, whether it be the Ring of Fire in Quebec and Ontario, fishing in Atlantic Canada, natural gas, we need to position First Nations where they have an opportunity to gain and therefore something to lose if we want these projects to move forward.
With that, I thank you for allowing me this time.
The Chair: Thank you very much, Mr. Calla. We will now go to questions and I'll start with the deputy chair, Senator Mitchell.
Senator Mitchell: Thanks, Mr. Calla. That was very interesting. Are we to understand, then, that project by project your group would put together consortiums of First Nations groups specific to that project so that you would bring in all those negotiators together rather than the company that's building, say, the pipeline?
Mr. Calla: We would not ourselves, senator. We are trying to create a model that we will be previewing in Fort Nelson in the next series of four LNG conferences in British Columbia, where we would lay out a model by which First Nations would aggregate themselves, create a secretariat to respond to the demands of consultation. Many of the communities, because of the multitude of projects being contemplated, are absolutely overwhelmed at the moment. The size of administrations in those organizations does not support the ability to discern what direction one should go. These are very complicated matters; $37 billion is the cost of the project that we lay out. There needs to be some aggregation and we're trying to bring that about, but it will be the First Nations themselves, as governments, that will create that. We're there to facilitate.
Senator Mitchell: Some of the incentive to do that would be the possibility of getting a federal loan guarantee, which might be heightened because you had everybody working together on it. If I'm not mistaken that would mean in a given project the actual interest rate paid by the Aboriginal consortium would likely be lower than the financing rate paid by their private sector partner.
Mr. Calla: Absolutely. The model we proposed is only proposing a federal loan guarantee for the First Nation equity component. Yes, at a Triple-A credit rating you'd get a substantial difference. In a rate regulated environment where you're looking to 11 to 12 per cent returns potentially, you have 700 to 800 basis point difference in the financing cost if you had to go to the capital and commercial markets.
Senator Mitchell: Would this model apply to renewable energy projects?
Mr. Calla: Yes, absolutely.
Senator Massicotte: Thank you both you for being here. To be blunt, I'm naive on the whole issue. I want to go back a little bit and ask what are we talking about? I know in 2006 the First Nations Fiscal Management Act was passed and basically created four institutions. One of those is you, the First Nations Financial Management Board. What is the purpose? Is it really to create a board, to consult and provide a model for First Nations to negotiate? Rewind a little bit. Why do you exist and what are your objectives?
Mr. Calla: I'm a member of the Squamish First Nation in Vancouver. I served on council for eight years. I headed economic development and ran finance. I came from the private sector originally, and when I came home I couldn't go to the bank and borrow money. I tell the funny story about going to the bank and asking to borrow money. They asked me where the minister was and I said I didn't think I was in a church, and I realized bankers don't have a sense of humour. That was the first time, and we went about making a change. The concept was to separate ourselves on a sectorial basis from the Indian Act, to support economic development and self-reliance. In order to do that, you have to have accountable, transparent financial management systems, and you need to be able to access capital markets to respond to your infrastructure, debt and equity needs outside of government.
We wouldn't be here today on these issues looking for a federal loan guarantee if the order of magnitude of these projects wasn't so significant. You're looking at a $37 billion project and our illustrative paper, 30 per cent equity. That is a lot of money. The fact is that First Nations collectively in this country don't have the balance sheets to be able to support that. We believe it's in Canada's interest to come to the table, and there are precedents that I even saw reported in the paper yesterday, with CMHC. I served on the board of CMHC for six years and realized at that point that Canada did play a role in the private sector mortgage insurance business by providing a 90 per cent loan guarantee. We believe it's in Canada's interest to respond to this in order to have these projects actually considered in a timely way.
As a member of the board of FortisBC I have enough information now that I consider myself to be dangerous on the energy business globally. The one thing I do understand is that Canada, both in terms of natural and energy resources, is not the only source of supply in this world. If we don't respond in a timely way, these opportunities will not stay here; they will go somewhere else. We had the Ambassador to Japan speak to a First Nation LNG gathering in Prince George last year and he was pretty blunt. They've shut down their nuclear. They're buying on the spot market, 15 per cent of their national energy needs, and they need to solidify that. If they can't do it in British Columbia and Canada, they will have to go elsewhere. We're in a race against time for all of our resources and we think the issue of Aboriginal participation is something that needs to be resolved to get to timely decision making.
Senator Massicotte: If I were to summarize what I'm hearing, the first message is you're talking to your Aboriginal communities, saying: Wake up. You should be a part of this. It's in your own interest to be part of this, to be more cooperative and positive.
The second thing you're saying to private enterprise is: Sorry, guys, you need our cooperation. The model we're looking at is we would like to participate in your project to the level of approximately 30 per cent.
The third message you're saying to the federal government is that we need your loan guarantee otherwise none of this will work.
Is that a good summary of the three messages you're trying to give us?
Mr. Calla: You should be here. That was a great summary.
Senator Massicotte: The third message is the most important one. The second message to the pipeline industry, if you wish, relates to some old Supreme Court rulings relative to your need to be consulted. You're saying not only should we be consulted; we should be your partner.
The third one is the difficult one. You're saying, given all considerations — social, economic and so on — the federal government should rationally give you that loan guarantee.
Mr. Calla: I think it's in Canada's interest to see these projects proceed. They need to come to understand what it will take to have them proceed. Equity participation, should it be asked for, is something that Canada will need to respond to, and not necessarily by themselves. There may be a role for the provinces. There may be a role for the producers, and there may even be a role for foreign governments in this. Each of these projects will be determined on its on merit, in my view.
Senator Massicotte: I'm not sure it's been corrected, but previously the Aboriginal community did not have property rights to their infrastructure or lands. Therefore, the lender didn't have any security because it was always subject to the minister. Has this been resolved?
Mr. Calla: No.
Senator Massicotte: Is the security equally as good on your share? I guess you've got a corporate equity position?
Mr. Calla: Yes, it would be a corporate equity position. In the model that we produce, as you'll see from the paper, we look at intercept accounts so that the debt service gets paid before anything gets transferred. The financial management board, under the act, has intervention of powers so that, if anything goes awry, we go in and take over the operations of the entity. The protections are there to ensure that the debt service is managed.
Just as importantly, going through the financial management board will help to prepare First Nations to manage the wealth that will flow from this. Part of what we're looking at here is the potential for systemic change, for the management of wealth and for development of financial management expertise. Looking at third-party validation through financial performance and financial management system certifications, on a periodic basis, is going to be necessary to ensure that First Nations actually receive a significant long-term benefit from these opportunities and develop original economies.
We have a great opportunity because the question has always been, ``What do we do for the North, particularly Northern communities?'' How do we respond to their challenges? Now, natural resource and energy development in this country, which is mainly in the North, provides that opportunity, but we need to position communities so that they are able to make informed decisions.
Imagine that you are being asked, after spending many, many years managing transfer payment funding, to consider whether or not you want to give approval to a $37-billion gas line project? How do you approach that as a community that's only had the opportunity to manage transfer funding payments? That's part of the challenge that we're facing. That's why we're not getting to yes on many of these projects around this country. Part of what we do is to try to bridge that gap, and it's starting to work.
Senator Black: Mr. Calla, thank you very much. I 100 per cent agree with your analysis. My view is the same as yours that resource development cannot move ahead without significant Aboriginal participation. For us to think anything different is naive. Having disclosed that we are aligned, I have a couple of questions for you, and I don't want you to misunderstand the context.
My first question is: As we both know, there are a myriad of potential projects, through Newfoundland and Labrador to the B.C. coast, where Aboriginal participation would be desirable. You've mentioned the Ring of Fire. You've mentioned LNG, but you and I can both think of a myriad of other projects in almost every other province of Canada. How does the Government of Canada determine which projects to guarantee?
Mr. Calla: We've considered that question.
Senator Black: I'm sure you have.
Mr. Calla: It is a responsibility of government. We believe that they will be the gatekeepers of the factors that they will consider, but it seems to me that those matters have, historically, been driven by what is considered to be in the national or regional interest. I can't go beyond that. This will have to be considered by government on a project-by- project basis.
Senator Black: Is it your view that a project can advance? Take any of the proposed LNG projects on the coast of British Columbia. Can any of the projects advance without Aboriginal participation, in your view?
Mr. Calla: I can tell you that industry doesn't think that they will get the social licence if they don't have First Nation participation.
Senator Black: Would you concur with that point?
Mr. Calla: Absolutely. That doesn't just relate to natural gas; it also relates to oil.
Senator Black: I understand that. It's very important that we're clear on the facts we're all dealing with. Therefore, I swing back to my first question. We have Petronas. We have Apache, Chevron and Shell, which are likely the three leaders in the race there. For those projects, you mentioned the number $35 billion. I would likely triple that; 30 per cent of that is likely $30 billion. That's a big guarantee.
Mr. Calla: It is a big guarantee, but, if it unlocks 6 to $800 billion, this was the reaction when we produced the paper. People kind of looked at me and asked, ``Are you serious?'' Stop looking at the $4.5 billion loan guarantee, and start looking at the $200 million value chain it has driven.
Senator Black: Can you share with us an example, if there is an example that you're aware of, where there has been Aboriginal equity participation in a project in Canada guaranteed by the Government of Canada?
Mr. Calla: I'm not aware. That doesn't mean there hasn't been, but I'm not aware of any, certainly of this magnitude. We are all aware of Churchill Falls. We're all aware of some of these other major initiatives. I'm not suggesting this isn't new ground at all. It is, absolutely.
Senator Black: That's fine. You are to be congratulated and thanked for the work that you and your organization are doing because it's fundamental to Canada's prosperity.
Senator Sibbeston: Mr. Calla, I'm aware of the work you've done, and the institution you've been involved in for a number of years because it came through the Aboriginal Peoples Committee. Legislation was dealt with there. How are you progressing in terms of getting other First Nations on board, and how many have been certified? Also, have you had any involvement in any of the three territories?
Mr. Calla: Yes. If I can answer the last question first, we are in discussions with the Yukon right now, both First Nations and the Yukon government, so we're likely going to be going up there shortly. I think that will be our first inroad.
Understand that First Nations must declare themselves through a band council resolution and be added to a schedule, pursuant to the act, by the Governor-in-Council before they are eligible to be come under this. We weren't exactly unanimously welcomed across the country when we started this initiative. At the moment, there are 118 First Nations that are scheduled under the act, and there are about another 20 to 30 that will be coming forward. I'm pleased to say that, while most of the initial group of First Nations came from British Columbia, I would say two to three out of every four are now coming from outside of British Columbia. We are now certifying First Nations in Ontario, Quebec and Atlantic Canada. So it's moving.
Like everything, it takes time. We jokingly say we like to do things in decades in First Nations communities, and we are almost at a decade now. We have 37 First Nations with financial performance certificates and 40 First Nations with financial administration laws, and we expect that we're going to do about 25 a year from now on. The borrowing pool that has been established will grow exponentially beyond that.
Senator Sibbeston: I appreciate that your work is essentially with First Nations and getting them financially certified, but, for the work that you talk about in terms of resource development projects, do you see yourselves as essential or as the organization or group that will eventually be involved if any of the big projects were to go ahead with Aboriginal involvement? Are there other persons besides you involved in this area of trying to meld industry and First Nations so that projects can proceed?
Mr. Calla: Yes, there are. We are currently working with the New Relationship Trust in British Columbia to provide some capacity development funding. There is the First Nations Energy and Mining Council in British Columbia. As an organization and as someone who, as an individual, has sat on the boards of CMHC, Partnerships BC and, currently, Fortis, I do bring a perspective that is being called upon by First Nations. What First Nations need is a process by which they can consider how to respond to the consultation requirements that they have. What are the issues? What does equity mean? What does debt mean? There's a financial literacy component that is being developed as a consequence of our being able, and being supported by government, to focus in this area that wouldn't otherwise be there. We're all learning from that. I don't pretend to know that equity is the right position for everybody. To get to a point where you make a decision, various options need to be considered. As an accountant by training, it's rows and columns; that's what I do. Part of what we are sharing with First Nations and their advisers is that there is an opportunity to consider options. There is strength that comes from working together and there is a process by which government and industry, if First Nations come together, can get to a point where they understand when and how a decision will be made.
First Nations need capacity. One of the things we found is that smaller communities in northern British Columbia just don't have the capacity to respond and we are trying to create the infrastructure for them to get the information they need.
Senator Patterson: Welcome back to the Senate. You appeared before our Aboriginal committee on infrastructure financing recently.
I was impressed with work done by the public policy forum, which you were involved in, and particularly their suggestion that we can emulate some of the experiences in the North in looking at this challenge we are discussing today.
Now, the Mackenzie Valley pipeline project, which unfortunately suffered from what I'd call seven years of regulatory constipation, was a significant Aboriginal equity through the Aboriginal Pipeline Group in the Mackenzie Valley pipeline. It was looked on with great promise in the North. The equity there was provided by private sector proponents. You're recommending another approach for B.C. involving a sovereign guarantee through the First Nations Financial Management Board. Is the option of the proponents providing equity not available for the projects that you're involved with in B.C.?
Mr. Calla: There are two things I'd like to comment on. First, with the public policy forum report there was a clear indication from the ministry to government not to off-load your responsibilities to us. What was becoming increasingly apparent is that the private sector, whether in B.C. or elsewhere, was not welcomed to the significant equity participation that was being asked for. I think there were some offering 5 or 10 per cent equity, but there was some meaningful participation. Those thresholds were established by Mackenzie Valley and Pacific Trails.
This is a response to the public policy forum comments made by industry that was saying fulfill your duty. We're trying to establish the means by which Canada can accomplish that without attracting significant risk to the Canadian taxpayer to do so. We think that paying for equity responds to the conventions of the private sector. We don't go out and ask for equity ourselves for nothing. Engaging the private sector also provides the economic opportunity for them.
I think it will allow a more meaningful equity stake, which gets them to the boardroom table. Part of the skills transfer that will happen if this occurs is actually getting that management experience by being at boardroom tables. That's a valuable consideration.
In response to the earlier questions, this is an opportunity for government to choose where it will engage in economic development opportunity in a significant way. I don't believe it's limited to British Columbia. In fact, these notions were first put to me three years ago in Quebec in the Ring of Fire projects when we met in Sept-Îles with the First Nations up there. I think it has application across the country, if government chooses to.
Senator Patterson: The feds give a guarantee. It puts the federal government in first place as far as security is concerned. Am I right? If so, does that cause a problem with the banking industry?
Mr. Calla: It doesn't put Canada in first place because we're going to go to the capital markets. That is an issue, and it's certainly one that Minister Oliver at the time raised with me and recognized. But again, I want to go back to the oversight mechanism of what we're planning that is laid out in our report, which I think reduces the risk of default as a result of that. There is some cost. You do not give this kind of guarantee without it appearing on the nation's books, I realize, but what is the alternative? We continue to ask. If it's not this, what is it? If you want to get First Nations participation and get these projects approved — and First Nations want equity — how are we going to do it?
If there is another option I would like to hear it. This option does not lay additional costs on the project, on the consumer and it significantly eliminates the opportunity for there to be a default.
Senator Patterson: Thank you. I wish you well.
Senator Wallace: Mr. Calla, to your last comment about what other options there might be to enable First Nations communities to realize meaningful financial benefits from these projects, it is an objective we would all have. When you say that, by going the equity route, there is a cost associated. There would be a cost to the First Nations communities, albeit at a far better borrowing rate to contribute that equity than if they tried to go on their own, if they had the ability to raise the capital in the first place. There is a cost, which will be off set against whatever revenues they would get as a result of participation in the project.
In order to contribute that equity, which would be contributed to a private sector consortium they would be a part of, the federal government would be probably required to provide guarantees for the full amount of equity contribution. When you mention options that would be available to enable the First Nations communities to receive their financial benefit, have you looked at a model where they would receive a licence fee instead of an equity position? They are at the table because they have an interest in land, which is needed to make the project go otherwise there would be no need to talk to them. Why not simply charge a royalty or a licence fee to the proponents for their use of the land? It could be a negotiated fee that would be adjusted in accordance with the financial returns from the project as time went on. And if that were the case there would be no need for the federal government to provide a guarantee and no need for 30 per cent equity contribution. Why wouldn't that work?
Mr. Calla: Certainly it's an option, senator, but not one people are looking at seriously. The infrastructure providers would like to see that. I think industry is apprehensive about an equity position.
Senator Wallace: With equity, you have participation in management. It requires a skill set to be involved in the management of a complex project.
Mr. Calla: Some of that could be built over time. I think in the analysis that will lead to informed decision making, a comparative analysis would be required between various revenue sharing options in an equity position.
The equity position, in my view, has a greater opportunity to develop the capacity of First Nation communities. If money itself was the answer in First Nations communities — with the amount of money the federal government invested over the last 300 years — the problem should be solved. More money by itself is not an answer to the issues we have before us.
Senator Wallace: What is it, in addition to money or financial return?
Mr. Calla: Developing a capacity to make informed business decisions, the ability to get a transfer of knowledge in an expediated fashion from industry.
I look at myself as a status Indian from North Vancouver who has had the opportunity to sit on the boards of Parnerships B.C. and CMHC. I'm a very different person as a consequence of that engagement. There are professional capacities in First Nation communities that adequately train members of First Nation communities to be able to sit on these boards.
Senator Wallace: In order for First Nations communities to receive that education, there is a heavy cost associated with it, the 30 per cent contribution and the guarantees. Are there perhaps other ways to provide that education and still have the First Nation communities receive the financial benefit? Really, the primary focus is for the First Nations communities to receive benefit. I would suggest that if they can receive that through licensing fees, then these other related issues, as important as they are, could maybe be dealt with in other ways. I suggest that to you. I don't know the answer.
Mr. Calla: I understand that point of view. I will say it's not my point of view. I've seen too much of it the other way.
Senator MacDonald: Mr. Calla, thank you for your presentation today and your commitment to this effort. I want to get back to the equity stake. You mention, I think justifiably, that an equity stake would allow you to obtain skills at the management table, but of course a 10 per cent equity stake would still allow you at the management table and provide you with those skills and would be a much smaller buy-in and guarantee buy-in for the government. I'm curious why you set the bar at 30 per cent.
Mr. Calla: We haven't set it at any per cent, senator. We're using that as an illustrative example. Particularly in British Columbia, where you have, for the majority of the province, not settled treaties, what does your title interest provide you? Really, that is the debate here. I've heard some say, ``Well, we want 50. We want to own the pipeline.'' Those are private sector decisions that get made. We're suggesting that a 30 per cent equity position seems, in the two cases that we cite, to have been a negotiated settlement on what a fair compensation should be — not 10 per cent. It's quantum of benefit.
Senator MacDonald: Of course, compensation can be measured in a couple of ways, from my point of view. There is monetary compensation, and there is what is not included in here and I hope will be discussed. I think it's important to put people to work, too. Employment is important. To get Canadians to buy into this sort of concept, especially with the loan guarantee, I think they want to see meaningful employment. I'm wondering how meaningful employment segues into the efforts you're making.
Mr. Calla: When we talk about establishing a framework under which First Nations can engage with industry and government on these, it will be in a variety of matters. Employment, training and education are all part of that. That's what the real buy-in is from First Nation communities. You have a deficient labour force in terms of numbers who haven't got a skill. We can create those opportunities. Our community members want to stay in their communities. They are prepared to stay there and work. Absolutely, the training is the big buy-in or First Nation communities. It's not to make the money and have the oil or gas pipeline go through their traditional territory. That's not what they are interested in. They are interested in educating their people and giving them jobs. That's equally of benefit. At the same time, they want to have a share of what comes out of their traditional territories.
Particularly in oil and gas you have various infrastructure components, as you'll see from the report, that generate different rates of return of the value chain, different percentages of value chain. The pipeline represents 2 per cent, but the LNG terminal represents 12 or 13 per cent of a $200 billion value chain in the first 25 years. Just because you happen to live on the coast doesn't mean you won the lottery when you can't get the oil or gas to the coast unless it runs through a pipeline. The First Nations themselves will have to sit down and have some discussion about how those disparities get resolved amongst themselves. It's happening. It happened in the case of the four host First Nations during the Olympics, of which we were part. We all got together and put our differences aside and stopped talking about traditional territories and just made some business decisions. That's really what this is. There are some matters that give us an opportunity to get to the table to talk about business, but these are really business decisions.
Senator Seidman: Mr. Calla, I think that all of us understand the importance of getting First Nations to participate in this, and it's related to the future of our country in many respects. You made a very important point in your presentation to us when you said that we've always looked at the economic issues but we have to look at the social issues. You've touched on that in your additional responses to questions about equity involvement. I'd like to give you the opportunity to discuss that a little more because it's clear to me that there is a huge connection. The economic aspect of this is very connected to the social aspect. Could you elaborate on that?
Mr. Calla: I will try to give an example. One of first things that I was involved in when we started to develop a Real Canadian Superstore on the Squamish Nation reserve lands, and part of the lease arrangement was we built it. We partnered with a private sector entity and created our own construction company and we built it. As it was nearing completion, I walked onto the site and someone I had known came up and spoke to me and thanked me. At that point, I was on council and I got nervous and wondered why they were thanking me. He said, ``I want to thank you because I've been able to feed my family for eight months.''
That's the difference. When we talk about a lot of challenges that we face in our communities in terms of various types of abuses, it is really centred around the lack of an economy, a lack of jobs and the social consequences of that. While we've not gone into it in our paper, if you look at the reduced costs of the social network that could result from improved economies in the North, I think again it's in Canada's interest. It really gets down to we are no different than anyone else. We want to raise our families in a healthy and safe environment, and we want to give them a better opportunity than we had. It's hard to do that under the environment under which we function.
We would all like to see change. I've seen many attempts by many different governments and by many First Nation leaders trying to create this change. It will take time. I've sat and looked at political approaches to initiating that change. I haven't seen a result. It certainly has not resulted in treaties in British Columbia of any significant nature.
I kind of migrated to say, ``Well, let's develop an economy. Let's see if can move down this path, because the political path is not leading us anywhere, in my view.'' Certainly the legal path has in terms of court decisions, but politically, we are still very challenged. In my view, developing an economy and engaging with mainstream, getting skills transfer and getting people employed creates opportunities that people can see in their communities. One of biggest challenges is that it's okay to educate everybody, but do we have to send them all to Fort McMurray for a job? People want to stay in their communities and this will allow that to happen.
Senator Seidman: Thank you. I know that we're pressured to leave this room. It certainly gives us a lot of food for thought in that connection between the economic situation and the social issues that need to be resolved.
The Chair: I have a couple of questions. First, I want to tell you that I'm generally in favour of what you're talking about, so you understand that. In fact, I worked with Gerry quite a bit on this concept. On the 30 per cent, I think you've answered that question. That's a kind of starting place so that you can actually have some numbers in front of you and see how that works.
What I was a little bit confused about is that you talked about the value of one plant or one system. It's not just a plant. Then you went to an ownership in the pipeline. I'm a little confused about where you're at. For instance, in northeast B.C., where the natural gas is, there is a treaty, and there is a sharing of that revenue. I know that because I was the minister who was there when that took place. I don't know how you deal with the upstream — that being the upstream. Pipelines, I can understand. Then, when we get to the plants, we have the Haisla, who have made a deal with Chevron and Apache on their land.
I know that it gets complicated and that you probably can't answer that in any definite way, but that's where some of the complexity comes into this, I believe. If you think about, as Senator Black talked about, the billions of dollars across the whole country and multiply that by 30 per cent, the debt for the country, that's everybody. That's, in fact, First Nations, and that's non-First Nations. It gets huge. I understand the revenue stream, too, but the federal government still, for all of the people, has to sign those notes.
Is there some sense in the way you folks are talking about or dealing with reinvestment? Is there some sense of where you would reinvest some of the revenue that you would get through a 30 per cent stake, lessening, over time, the debt that the government has to guarantee?
Mr. Calla: There are a couple of comments I'd like to make. One, we're talking about an option, so the construction risk is taken out of it. These are options. I think that Canada has the responsibility to determine which projects it will or won't support, and it can't support everything, just flat out can't do that. It's not within the financial resources, as you point out.
It will have to establish the criteria by which it will consider these initiatives, and that's not for me to tell them what to do. I think that, clearly, our history has shown us that, where regional and national interests are considered to be at stake, they will consider whether or not to act. Part of the reason we're going to Fort Nelson is to deal with the upstream conversation. It is the challenge that First Nations will face. I think they will find themselves talking about coming together and creating an entity that participates in all aspects — upstream, midstream and downstream. That's the discussion that needs to be had. What we're really trying to say is: To expedite this process, you need to determine whether or not equity conversations at those negotiation tables are real or not. With the order of magnitude of these projects and in the absence of a federal loan guarantee, it's going to be difficult. Do we want to lose these projects because of that? That's the question.
The Chair: I understand that. Thank you very much. I appreciate very much your presentation. I think everybody around the table does. Thank you for coming.
As a message to the committee: The Swiss delegation is coming on Thursday, April 10, from 3:15 to 4 p.m., Room 356-S. Anyone who can come to that, I'd appreciate it. We'll be there, the deputy chair and I. At this time, we have no meetings for next week.
(The committee adjourned.)