Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 26 - Evidence - March 26, 2015
OTTAWA, Thursday, March 26, 2015
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:01 a.m. 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 the committee.
I would like to welcome honourable senators, any members of the public with us in the room and viewers all 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 sen.parl.gc.ca website. You may find more information on the schedule of witnesses on the website under "Senate Committees."
I would like senators to introduce themselves. To begin, I'll introduce the deputy chair, Senator Paul Massicotte from Quebec.
Senator MacDonald: I'm Michael MacDonald from Nova Scotia.
Senator Sibbeston: Nick Sibbeston from the Northwest Territories.
[Translation]
Senator Ringuette: My name is Senator Pierrette Ringuette from New Brunswick.
[English]
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Patterson: I'm Dennis Patterson from Nunavut.
The Chair: I would like to introduce our staff, beginning with the clerk, Lynn Gordon, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
On March 4, 2014, the Senate authorized our committee to undertake a study on the non-renewable and renewable energy development including energy storage, distribution, transmission, consumption and other emerging technologies in Canada's three northern territories.
Today I am pleased to welcome, in the first portion of our meeting, Mr. David Morrison. Mr. Morrison is appearing before us today as a long-standing citizen of the Yukon, having retired from his position as President and Chief Executive Officer of the Yukon Energy Corporation at the end of 2014 after 10 years of service with the corporation. Some members of the committee may recall that we first met with Mr. Morrison in Whitehorse as part of our travels to all three northern territories in May 2014.
Mr. Morrison, thank you for being with us today. We look forward to your opening statement. Once you have finished, we will go to questions and answers. The floor is yours.
David Morrison, as an individual: Good morning, senators. I hope you'll bear with me this morning as I've picked up a cold over the last few days, so I'm a little raspy. Other than that, things are good being retired, if I can get that in as a first point.
Senators, I don't have a long opening set of remarks, but I would like to say a couple of things that hopefully will spur some conversation this morning.
First of all, I think the work that the Senate is doing with this committee is very important because no one, anywhere across the North, is taking a broad look at the subjects that you are. I wouldn't say they're the most important things going on in the North because there is a lot of important work that has to be done from a governance point of view in each of the three territories, but the whole question of energy and the environment underlines just about everything else that goes on. For a body such as yourself to be taking a look across the North, a pan-northern look, and providing a clear and objective analysis of the issues that face the North in these areas, I take my hat off to you. It's very important work.
There are a couple of issues. I'm almost hesitant to raise them because I think they're self-evident. When you look at the North, the North is certain things. There are vast distances between communities. They are small communities, not all connected by the 401 or the freeways that run through Ottawa. Yes, they all have air support, but when you think about the provision of energy services in Southern Canada, you think about them as large, bulk services being provided by large carriers, which creates huge economies of scale.
You've got Hydro One in Ontario, which is your main transmitter. You have large generating companies that feed into that transmission system, which gain the benefit of those, and you have large populations in relatively close proximity to these utility services.
You have little of that in Northern Canada, but certainly Whitehorse and to an extent Yellowknife are the exceptions to the rule. Both have hydro plants that are close, if not directly within the communities. So the communities get some economies of scale out of those things, but the rest of the territories are not blessed with those amenities.
When you start thinking about the history of the place, other than the thought that has gone into the hydro plants that are there — and were generally built to serve mining developments of historical days — the approach has always been, "Well, let's do the easiest." It was easiest to truck or ship or fly in diesel. It was, at the time, a convenient price, if not the best price, so we did the easiest. Now, when you try to do something different, you have to compete with systems that are already in place, costs for replacing infrastructure, and operating costs that may or may not be different.
Renewables, while they have their challenges, I think are the right things. I'm reminded that one thing we all need to do is not think about today but think about what the future is and how we can lay a pathway if not do things that will at least last into the future.
In your work, there is importance in trying to find a way to lay a path for the options for some of the very small communities that pay exorbitant rates because they've been left to what was easiest 40 or 50 years ago. We really haven't set our minds to the many different options that could them forward, get them off diesel and on to some cheaper alternatives.
My last point would be that it may not always be the cheapest alternative today. I hope you'll think about that point for a minute, at least, in your deliberations. There may have to be a way the bridge that cost for a period of time or for a community to absorb a cost that may be higher today but there is a benefit down the road that can be cheaper.
Thinking about that concept, I'll use the example of hydro. When people were building hydro plants — the Mayo hydro plant, as an example, was built in 1951. It must have seemed like an extraordinary cost in 1951 to build that 5- megawatt hydro plant to serve a very small community. The community was lucky enough that there was a mine up the road, but it wasn't a huge mine. Even at its best, it employed hundreds of people, not thousands.
When you think about the benefits hydro, it's clean. Maybe it's not green in the strictest sense of the word, but it is clean energy. The high-end capital costs up front have to be borne by someone, but as that plant ages, it continues to produce at the same efficiency. The cost curve is almost a 30-degree angle down. After you're 10 or 15 years into a hydro plant, those costs look pretty cheap.
I'm not saying that's the model, but I encourage the committee to really think about not only the available options but how they can be paid for by the people in the North. I do believe that people have to pay for things, so this is not a request for you write a recommendation that the federal government pay for all of this, which I'm sure you would do because the federal government has lots of money. How do you do these things? How can we do some pilot projects in communities that might pave the way for us to learn both the pros and the cons of some of these newer technologies from a cost perspective?
Mr. Chair, those would be my opening comments, and I'm available for questions.
The Chair: Thank you very much for those comments, and we will begin with the deputy chair, Senator Massicotte.
Senator Massicotte: Thank you, Mr. Morrison, for being with us again. We obviously treasure your advice and comments.
I totally heard your first comment as to how important our work is. That was an easy one. But let me challenge you on the second point, and I will exaggerate some things to get you to draw further on your conclusions.
You said the North is cold, basically an extremely wide geographic territory —
Mr. Morrison: Sparsely populated.
Senator Massicotte: — that is thinly populated. The issue people always talk about is that the energy costs are high which therefore diminishes the opportunity for further development and so on.
Given those realities, and we've looked at and continue to look at — you mentioned renewables. Let's talk about wind. Some spots are showing promise, but not obvious. Some examples indicate the blades are freezing, which is an impediment and it's complicated.
With sun energy, the costs are going down dramatically in the world, but as you know in the North, at many periods of time there isn't adequate sun, which means you have to have redundant energy somehow irrespectively.
Pellets, as you know, are showing promise in some places. It's happening. We're not sure why it's not happening everywhere else, but it's happening in some places.
Hydro, as you know, can't work in many places. We're not too sure about the adequacy of the stream or the power.
I know there are high energy costs, which is what the problem is, but everything is relatively high compared to us down South because maybe we get it too cheap, around the same price as in New York City but cheaper than in many parts of Europe, and we're seeing development.
So what do you do? We appreciate the wishful thinking, but what's the real solution? If you had to write a report, what would it say?
Mr. Morrison: Senator, there are a couple of points, and I think we've had this conversation.
In Whitehorse, they probably pay about the same rate as you pay here. Is Whitehorse really part of the mix? The North is a broad spectrum of issues.
If I was helping to write this report, part of what I would be saying is that there is no panacea, no silver bullet or single solution, and you would have to look at the attributes of each. Maybe it would involve small areas or even larger communities, but there are ways to do things that will mitigate those costs to some extent in some areas.
Just as wind isn't the solution necessarily, it might be in some areas. Rime icing is a "pArcticular" challenge, but it doesn't appear in valley wind; it appears more in mountaintop wind.
What communities are pellets going to work in? What communities is gas going to work in? Are there large enough communities you could burn waste, garbage, and create energy? There is equipment that looks at burning both waste as garbage, and you can supplement it with waste wood. Don't quote me on the fact that they're pellets, but at least chipped wood and sawdust, which you can mix together. I've seen that.
The issue in small communities in the North is that their economics are probably not much better in the initial stages than the system you have right now. So if it's always about the cost, if it's an economic comparison on the initial days with a payback over five, six or seven years, how do you get people from what the norm is today to what it is tomorrow, if you're looking for a cleaner environment? I would say that it's a basket of solutions, some of which are going to be just as expensive.
How can territorial governments finance those communities or those projects and still have the customers pay?
Senator Massicotte: If you got five to seven years of payback, I think the solutions would be easily achieved.
Mr. Morrison: Sure. I do, too.
Senator Massicotte: Having said that, how do you get there? We're not engineers and we don't have the tools to search for the answer. What do you do? How do you get there? How do you put a system in place that gets the best source of energy in spite of the fact the cost of oil has gone down by half in the last little while? I heard this weekend that there are 300 years of natural gas in the United States now. There's a lot of natural gas.
Mr. Morrison: Maybe I need to correct myself. I might have used some terms.
Today the price of oil has come down, and from the work that I had undertaken previous to leaving Yukon Energy, I'd say that domestically, I understand the LNG and the gas supply business as well as I certainly need to, and there is lots of natural gas, even in fairly close proximity to the North.
I don't see natural gas as being an option that you don't look at, and I don't see oil as being an option you don't look at. I just see them as part of that basket of solutions that you have to look at and try to find a solution that works, depending on the situation. You may need to rely for a while on diesel supply or a natural gas LNG supply to run some of these communities, but from the work that I've seen, the gas piece will at least bring some of those costs down. You've got an opportunity to do that. Then maybe you can look at some other things while the cost of energy is coming down.
I think the challenge is to look at it not just in broad strokes but more in smaller regional pieces to see what possible solutions there are and whether they can be collective solutions.
One of the other points that I probably should have made is we need to find a way to use our energy more efficiently, even if we're going to use it. If communities don't have district or central heating systems and we're using that energy and wasting the heat, we shouldn't be doing that. We should be using the heat.
Senator Seidman: There is no question that in the process of doing this study we've discovered it's a huge challenge to find ways to provide reliable, sustainable, efficient energy in the North. I think you've made the point very well to explain to us how we should look at region-specific solutions as opposed to painting broad brush because the situations are so different in various regions. I appreciate that.
I was going to ask you about international models and if you had looked at the other Arctic countries to see what they're doing in terms of trying to develop efficient, reliable, sustainable energy. However, I would like to follow up on what you just finished saying, and that is about energy efficiency and what measures can be taken to encourage energy- efficient outcomes.
Mr. Morrison: There are several. I will try to answer both of your questions together because that's something I have looked at a bit.
To give you an example, we went down the path of thinking that we could economically burn the garbage in the Whitehorse landfill or the garbage that goes into the Whitehorse landfill and create some energy. I went to look at equipment, and it happened to be in Scotland. I talked to the Scottish Environment Protection Agency people who would give the permit for this technology, and their view of the world was that the permit for the technology was really fairly straightforward. There was a certain set of criteria, and if it didn't meet these thresholds, it didn't get a permit; if it met the thresholds, it got a permit.
The more important point in relation to our discussion was that if that proponent — I can't remember what it was — in something like three to six months after the plant was in operation had to be selling the heat and they deemed it inefficient, they would have shut it down. They weren't going to let the plant operate inefficiently, and in their view, just selling the electricity was not an efficient use of the energy available in the plant.
If you go to Sweden, you basically have exactly the same thing. Now, don't be fooled by the fact that Sweden tells you it's the cleanest, greenest energy producer in the entire planet when they're connected to the Baltic transmission grid for backup and it's about the dirtiest one in the world, but you really have to applaud the Swedes for doing the same thing, ensuring they utilize the full benefit of the energy available in the communities. When you look at projects, as we have, whether it's waste or geothermal or even on the LNG side of things, you really need to find waste heat customers or heat customers. Most of the economics of those things live and die not on the electricity but the heat.
We "pArcticipated" with some partners, the Champagne and Aishihik First Nation, on a little waste plant in Haines Junction and couldn't make it work because they couldn't find sufficient heat customers. But in many cases, if you think about getting heat out of those, the amount of heat you can get out of those plants, it makes a huge difference. If you can cut the price that the electricity consumers are paying, you're probably cutting the heat price they're paying because you're not double shipping everything else. I know there are communities in the Northwest Territories and Nunavut that have central heating systems. There are none in the Yukon. There are a few buildings that were connected to some old biomass systems.
I know you don't have a magic wand, but I think the fact that you've initiated this discussion may spur other discussions. I don't have all the ideas, but there are some good ideas out there. So those would be the pieces.
Senator Seidman: Thank you. I appreciate that because I think you've helped explain that there are models in other countries that could help us figure out how to provide sustainable yet efficient use of the energy that we use up there.
Mr. Morrison: Senator, I think that's really the key. It's sustainable and efficient use of the energy that's available.
Senator Ringuette: In your capacity at the Yukon Energy Corporation, have you met with this group from northern affairs that is specifically focusing on community-based, sustainable energy projects?
Mr. Morrison: No.
Senator Ringuette: You have not mentioned nuclear in your presentation, and I think it is one option that we have to consider.
The other thing is you talk about communities, and I feel that our broader look into this issue has to include the potential economic development, future mining operations and so forth. The energy requirement is greater than just community-specific. What would be your recommendation in regard to us being able to include economic development in our projection?
Mr. Morrison: Thank you, senator. I was remiss in not talking about economic development in the future. To me, it's the next bigger step in the piece. How do you provide for economic development and the future? I've spent a lot of time in my career in the energy business in the North trying to figure out what the load curve is going to look like 10 years or 20 years out. It's a very difficult task.
If you gave me a blank cheque, certainly in the Yukon and large parts of the Northwest Territories, and Nunavut where I could, I'd build hydro. I'd try to right size it. My theory is always you have to build the right project in the right place at the right time for the right price at the right size. You can't always get it completely matched, so I would want to be always trying to be a bit ahead. I don't think you can build 200 or 300 megawatts when you're using only 10. But could you build 20 or 30 if you were only using 10 and then grow? It depends on what the future looks like.
One of the challenges the North has is that we have been blessed with resource development, but because we're blessed with resource development, we also are blessed with the ebbs and flows of resource development. We have had mines and mining projects, but we know they go up and down, and sometimes they materialize and sometimes they don't. So how do you plan for those things?
While you want to encourage jobs and an economy, is it your responsibility to always have to be supplying power to that sector? Maybe it's time to think about some new options for doing that, because when they come and go, who pays? The communities pay. If you've built something and customers go away, the rest of the customers have to pay. So that's the challenge, and getting it right is really important.
I would build hydro. I might build some wind, supplemented by diesel in some places.
In small communities, I don't know how — unless you've got access to transmission and larger-scale hydro or, as you say, nuclear. Certainly the Northwest Territories is a no-nuclear zone, if I remember correctly. I'm not sure you would get it through the Yukon, although we had an energy planning charette for three days, and it was high on the list of things that people wanted to see. The regulatory process is a job for a much younger man than I was; I want to tell you that.
Senator MacDonald: Thank you, Mr. Morrison, for being here. Being from the Yukon, I think you have a somewhat different geographical layout than certainly Nunavut, that area, in terms of the resources that are available and how you have access to them.
I notice your report calls for the increased use of pellet stoves and pellet boilers in places like the Yukon and the Northwest Territories. In places like the Yukon — and you have mentioned energy efficiency and the importance of not wasting energy, of not throwing it away — do we have to look at heating homes from a different point of view, as opposed to providing power and energy for lighting homes? What I am getting at is this: A place like the Yukon, for example, do they produce their own pellets up there?
Mr. Morrison: No.
Senator MacDonald: So they have to import them. But there's no reason why they couldn't?
Mr. Morrison: There's no technological reason why they couldn't.
Senator MacDonald: No. Or resource reason?
Mr. Morrison: No. There may be an economic reason. I don't know. Do the economics work? Can you produce this much and sell this much?
Senator MacDonald: Do economics ever work? That's one of the questions in almost everything.
Mr. Morrison: Fair enough.
Senator MacDonald: I like the stuff you're talking about in regard to hydro power in certain areas, and what Senator Ringuette talked about in terms of nuclear power, but of course the front end of the economic footprint is very expensive.
Mr. Morrison: Very expensive.
Senator MacDonald: Are we to a certain extent kidding ourselves here? Are we almost resigned to importing expensive sources of carbon fuel?
Mr. Morrison: I realize this is a difficult challenge. There is no simple solution. But I go back to my point. I think we've got a lot of untapped resources that we haven't thought through. I'll use this one example.
Whitehorse, and particularly the Riverdale area of Whitehorse, sits on a warm-water aquifer, not a hot-water aquifer. It's not a geothermal project that you see in the movies — geysers and gushing steam that will produce hundreds of megawatts of power. We just built a school in Whitehorse, so I'll probably get hell for this. That water is not hot; it's warm.
Senator MacDonald: Yes, but can they extract heat from that water?
Mr. Morrison: You can get heat out of that water. That school sits on top of that aquifer. We should have used that to heat that school, and we didn't.
Senator MacDonald: A heat pump of some sort to exploit it.
Mr. Morrison: Exactly, and we didn't. We built a jail and we did the same thing, only the jail uses pellets. But I don't think they use the pellets anymore; it didn't last long.
I want to make two points. First of all, when we have options to use other technologies, small impact — I'm not suggesting for a minute that that's a resource that we could have developed. Yukon Energy spent several millions of dollars looking at geothermal projects — more the heat kind, the geyser kind — and figured out that it's high risk, high expense, but there's certainly potential there.
But I'm not talking about that. I'm talking about taking the little things, where there is something like maybe a little hot water, or looking at a community that maybe has a stream running by. Could we put a little micro-hydro wheel in there? Individually, I think Yellowknife was looking at trying to pull heat off one of the abandoned mines.
Senator Patterson: Con Mine.
Mr. Morrison: Right, pulling the heat out of that and using it as a central heating system.
We're not going to get away completely from gas and diesel, but I think we could reduce the footprint if we challenged ourselves to look at small victories, not huge victories, as we go forward.
There are small victories out there, and it might be hydro, certainly the Yukon and places in the Northwest Territories that I'm aware of. I've been to all those communities. I know the challenges. I ran the utility that served all those communities at one time. It is enough to keep you up at night trying to think of these solutions.
That's why this work is important. You're not going to, in a blaze of glory, write a conclusion that says, "We have found the solution," but you are identifying that there are issues that need to be addressed, and hopefully others can take up that next step and deal with some of those.
You've got to look at it area to area, or community to community in some cases. If people want to do something, people can do something. Governments can help by not making things restrictive, and utilizing the resources that they have when they build things to try to be as efficient as possible.
Senator Patterson: Thank you for being here. I think the committee was quite surprised when we toured the North to see that there didn't seem to be much sense of energy conservation, energy efficiency, which has been called the low- hanging fruit in reducing energy consumption. Would you agree that this is an area that could be improved on, and what's preventing that from happening?
Mr. Morrison: Senator Patterson, I would wholeheartedly agree that that's an area that could be improved on significantly. Preventing it from happening? There are a couple of things. I'll give you an example.
I will say that I'm out of touch with the regulatory process in Nunavut these days, but I certainly understand how the regulatory process works in the Yukon and the Northwest Territories. Energy conservation costs that come from utilities to customers have to go through a process.
At our last hearing — sorry, it wasn't even our hearing. It was ATCO's hearings, because we partnered with them on an energy conservation system for the Yukon. The board said, "Well, no, you can do this and this and this," all of which were all the small things. It was residential initiatives. The big wins are in government and commercial buildings. They're the big wins because they're the big landlords. They consume the most space. They're easier to economically get a payback for what you're doing, not just in energy conservation but in a monetary way.
Regulators often have real difficulty getting their heads around spending money to save money. I don't know why. As far as I could see, the panel of witnesses we had were very knowledgeable people who had been involved in the design and development of energy conservation systems across this country, and we still couldn't get it through them. They're hesitant.
The other way to really stimulate this, in my mind, is to implement building and construction standards that really give people no choice but to have energy efficient operations. It's hard for me to say I want more rules and more regulations, because I'm not generally a fan of that, but where government sets building standards, they need to be higher. They need to be more rigorous.
Within energy systems and conservation, we need to start talking about sharing heat. If you've got a downtown area and everybody's got a heating system, it's at least worth looking to see whether you can pipe a couple or three or four or a dozen buildings together and use the heat that you've got. Everybody's got waste heat. That's more energy- efficient.
Again, governments could lead the way because they have the power of the landlord or the renter. When the Government of Yukon rents a building to put its departments or staff in, those landlords should be required to meet a very rigorous energy conservation standard. Otherwise, there are two things happening. The rent might be cheap, but the operating costs of the building are probably through the roof if the rent is cheap because the building is not very energy-efficient. If the building is energy-efficient, you might pay a little bit more per square foot because the landlord has a higher investment, but your operating costs should go down because you're using less energy. If you then put programs into that to encourage people to turn lights off and low-flow water and toilets, you can get a double whammy. You get the double-barrelled effect of that. I think there is some real payback for people over time.
I would agree. I think energy conservation needs to be front and centre. Somebody has to show leadership. Government in the North is a very big landlord, and that would be an easy way to start or an easy place to start.
Senator Patterson: I'm interested that you worked for the Northern Canada Power Commission in the 1980s. At that time, the territorial governments, and I was part of it, were all eager to purchase that federal Crown corporation and develop their own smaller utilities across the three territories. It happened one by one over the years.
Mr. Morrison: Correct.
Senator Patterson: Now the territorial governments told our committee, "We would like to partner with the mining sector and with the federal government in investing in large energy projects in which the federal government would play a role." Having been part of the federal Crown utility that I presume was grappling with these issues in those days, the feds successfully handed it off in return for the territorial governments taking over its debt, at least in the N.W.T. case.
Mr. Morrison: Yes.
Senator Patterson: With that perspective, what would you say about the federal role today when territorial governments are begging for an increase in their debt cap so that they can invest in renewable energy and saying they can't afford to do it on their own? What is the federal role now in that?
Mr. Morrison: Interesting question. Let me start with the debt cap and that will give me some time to get my head to where I think I need to be.
The debt cap issue is a huge issue in the development of renewables because renewables cost a lot of money. I think roughly these days I know what the Yukon's debt cap is. I don't know what N.W.T.'s or Nunavut's is. Let me give you an example.
If Yukon went out to build a 50-megawatt hydro plant, which is not very big and would serve not more than one and maybe a bit of another mining project that's out there talking about developing as we go down the road, in my mind, that's a $500 million bill. I'm sure somebody in Southern Canada will tell you that Morrison is crazy because hydro is $2 or $3 a megawatt. It ain't. It's $10 or $12 and in some cases more. For $500 million, we've only built 50 megawatts. Nobody has enough debt cap room for that, and that is tiny. We're not even talking about building anything, and the debt cap room is gone.
I think if you're going to talk about really developing solutions for energy in the North, the federal government has a role because it has already set a debt cap level and people are going to have to figure that out.
I really think it's important that resource developers pay their way, and we hopefully had some influence on that. When we built the transmission line from Carmacks up to Stewart Crossing to link our two grids, we told every mining company we talked to that they must pay for part of the main grid if they're going to connect to the grid. The system had always been that people who wanted to connect to the grid had to pay for their connection to the grid. We said, "You know, that's great, but you're using the grid. You have to pay." And they paid a contribution. Resource developers have to be part of that solution as well. The power just can't show up for them and then they get to use it and go. They have to be part of that solution.
Having a discussion between the three northern territories, resource developers and the federal government might help bring some of these issues more to the front. I don't propose, Senator Patterson, that the federal government just writes big cheques and walks away, but it does control some purse strings.
The federal government also may well be able to provide some seed money that could get repaid. It might be slow capital in the sense that it might be repaid over a much longer period of time than would you otherwise do it, maybe incrementally as the generation is used to pay it back, but pay we should, and the federal government shouldn't be asked to just give and give and give.
Now, if government chooses to invest in some things and put some money forward, fine. I was the recipient of the federal government's good graces when I was at Yukon Energy. We got some $70 million dollars for our hydro plant under a green energy program. But what we're talking about, if you really think about the costs of some of these things, it's billions of dollars. So either the financial tethers have to come off so the territorial governments can make these investments or someone has to find a way to set up an investment pool that can be used and paid back over a period of time, but that is another important restriction that sits there right now. When you talk about energy development, if the government can't borrow any money, if it has reached its debt cap, you're never going to build anything, nothing.
[Translation]
Senator Bellemare: I am very interested in energy recovery and energy efficiency, the subjects you were talking about earlier.
I have had the opportunity to visit the Shetland Islands, and I was very surprised to see how the islands were organized in terms of the recovery of domestic and commercial waste. The Shetland Islands are heated through recovered energy, and it is very clean. It seems to be a very efficient and cost-effective process.
The Shetland Islands form a small territory with 20,000 inhabitants, more or less. Is a specific size needed to support the development of a similar waste to energy system? Could the system be adapted to larger cities? My first question is this: which kind of municipality is best suited for this waste to energy system?
My second question arises from the explanation you have just given. You said that private investment is lacking and that it is difficult to make financial arrangements that would allow the costs of public investment to be shared in order to make it affordable at societal level. Have you thought about specific financial arrangements that would involve the public who would benefit, the companies and the government?
In my opinion, everyone has to come together and taxation could be a major instrument that would make it worthwhile to invest in the time and to recover the initial investment from those who cannot do so, but who could help to repay the costs in more specific ways. Basically, have you thought about a specific type of municipality where recovery systems could work, and tax-based financial scenarios?
[English]
Mr. Morrison: Thank you, senator. When you're looking at heat and energy recovery, I don't think there's necessarily a right size or wrong size. It's more related to if the community is small, that's a good thing. If it was small but very much spread apart, big distances between the houses, it might make it cost more. I think it's more the ability to pipe or to find a way to efficiently pipe that heat.
There are systems all across this country that use waste heat to heat things these days. When we ran the diesels all the time, we always had waste heat and we used it to heat things. It doesn't happen everywhere, but it should. If you're going to use a product like that, then you should at least get the benefit of the heat, and I do not think there is a right or a wrong size. You could do it big and small.
There are a number of different investment vehicles that can be brought to bear here, and certainly we have. One of them, and of primary importance across the North, is First Nation investments in energy systems. This is critically important, in my mind. First Nations in the Yukon have, for the most part, settled land claims, they have investment corporations and they make financial decisions with financial advisers as to whether or not they will get themselves involved in energy projects. That does help; it helps greatly to offset the public debt cap issue that comes along. Thank you for that, senator, because I had forgotten to raise this.
When Yukon Energy built the LNG plant with the Kwanlin Dün First Nation, one of the two First Nations in Whitehorse, we offered a 25 per cent share of the project to each of the two First Nations. One of the First Nations eventually declined, and with government permission we were allowed to offer that 25 per cent to the other First Nation. So the Kwanlin Dün First Nation is a 50 per cent partner.
It gets a little detailed, but energy projects in the Yukon are financed, regulated on a debt/equity ratio. Debt is the number that everybody has to be concerned about because debt of the energy corporation becomes debt of the government, so it's 60/40. Think about the math. If you have a hundred million dollar project, $60 million of it is debt, and if you have a 50 per cent First Nations partner, it's $30 million in debt. You've taken the debt impact on government and reduced it by half. If it's 25 per cent, you've reduced it by 25, so on and so forth. That is an investment vehicle that can be used greatly.
It could be a completely independent investor that could become the partner, and partnerships in general will have to be more prevalent. Independent power production is going to have to be more prevalent. I'm not sure that IPPs are going to get away from government debt because our friendly Auditor General is probably going to say the commitment for the contract is government debt, but to your point, there are investment vehicles that could be used. They could be inventive and they could offset some of the impacts. They won't get rid of them all, but they will do that.
I'm getting in trouble; I wasn't trying to rush you, senator.
Senator Bellemare: Thank you for your answer.
The Chair: I have a quick question and then the deputy chair has one. I'm going to limit it to a quick question and answer.
I totally agree with conservation. I know Senator Patterson touched on it and some others. In conservation, you said the electricity rates for Whitehorse are much the same as Quebec's or B.C.'s or Manitoba's.
Mr. Morrison: No, I said they're much the same as here, and here is not B.C., Quebec and Manitoba. There are two tiers in this country. There are those three, and everybody else.
The Chair: I'm aware of that, to be perfectly frank.
Mr. Morrison: I thought so.
The Chair: We'll compare it to here. Was there any move in the Yukon to put in a two-tier pricing system that would encourage conservation? It's done in a province I know, British Columbia, on a huge system. There is a two-tier rate for everyone, industry and residential.
Was there any move to actually do things like challenge the generating system to look at conservation as being part of their incremental supply, meaning new growth? I'm familiar with this. Fifty per cent of new incremental supply must come from conservation. That challenges people to get out of the mindset of, "I just want more money to run this system" to "I really have to think about how I operate this system."
Mr. Morrison: The answer is no, Senator Neufeld. I am very supportive of the system that you have advanced there. I really think those are great things, but you got that because your energy strategy policy clearly outlines how the province goes forward, and that is one of the requirements.
We never had that kind of policy guidance, but you're right: It really does challenge you. And I hope that some of these things are part of the recommendations in your report.
The Chair: Thank you. I think those are good things to challenge everyone with.
Mr. Morrison: I agree.
The Chair: We have a system; what do we do.
Senator Massicotte: Further to an earlier question, you emphasized conservation, which I think is very good. But as you well know, the best reason for conservation is to charge the market price, to price the cost. Some jurisdictions up North have subsidized energy whereby the user does not see the true costs and he gets paid indirectly, in some other form. Therefore, the incentive is not as much as it should be if one realizes that.
So that's an obvious logical way to get there, to help conservation and to find a way to give the money directly; in other words, you pay for it and this is what you do with it. But politically, that's not always very easy. How do you get there?
Mr. Morrison: Well, I think what you're suggesting, senator, is a better way of providing an energy subsidy than the standard models that are there now. We basically reduce somebody's bill. The government pays the utilities for subsidizing that, or some sectors bill higher than the residential piece.
I think part of the point you're making is no one sees that. It's lost. No one even wants to look at a utility bill; they're so complicated anyway. They look at that bottom number, gasp, and say, "I better write a cheque."
There are a myriad of examples of how you get the money into the hands of the consumer. If you're going to subsidize something or reward conservation, they need to get the dollars in order to see the impact.
We have a net metering program that lets people feed into the grid, but they don't get anything for it. They get some credits or something. Well, they're not going to do it. You have get things into people's hands.
I think designing a subsidy program is much better. I'm not a fan of subsidy programs. I understand there are areas where people's rates really need to be subsidized somehow, but I think if you can marry these subsidies and conservation with something that a consumer is really getting into their hands to see, you may well make some huge steps in people's energy consumption.
The Chair: We've gone over time here, so thank you very much, Mr. Morrison. It was good speaking to you again today.
It is now my pleasure to welcome Mr. Louie Azzolini, Executive Director of the Arctic Energy Alliance.
We met with you, sir, last spring in Yellowknife as part of our fact-finding study, and we thank you very much for being here today. We all look forward to your remarks, and then we'll go to questions and answers. The floor is yours.
Louie Azzolini, Executive Director, Arctic Energy Alliance: Thank you, Mr. Chairman. I will keep my introductory comments brief so that there is a maximum amount of time for questions.
I represent the Arctic Energy Alliance. We have a budget of about $3 million, and we deliver programs to all sectors of the N.W.T. economy. Ninety-five per cent of the funding comes from the Government of the Northwest Territories, and almost all of our programs are oversubscribed. The philosophy we operate under is energy conservation first and then alternative energies where practical and feasible.
I want to couch my comments in the context of nation-building. I know it may seem out of place, but bear with me.
The challenges the Northwest Territories faces with respect to energy are both its Achilles heel and its benefit. Underneath its feet lie enormous amounts of energy that will benefit all Canadians. At the same time, energy is the greatest challenge that faces the Northwest Territories and its economy.
With that introductory context, the challenges that I see are pretty plain. It's the cost of energy, and in this context, electrical energy and heating energy. That cost is a function of people's disposable incomes. When you don't make a lot of money and you have a big bill, it aggravates that sense of cost.
Our economy is a challenge. Purchasing power is pretty limited. The project pipeline is pretty narrow. There are pockets of development, but the economy is a challenge. Without money to spend to either reduce your energy consumption or entertain alternative energies, you're stuck in a rut.
Another challenge we're facing is an aging power infrastructure. One of the generators near Yellowknife still has a swastika on it. It's the truth. We're dealing with aging infrastructure.
With regard to accessing energy that's abundantly available, the north is a treasure trove of energy sources, whether they be water, biomass, natural gas or oil. We are literally drowning in energy but can't use it. It's like being in the ocean and dying of thirst, metaphorically.
Another challenge is the fiscal sustainability of the current model, and this is where the nation-building question comes into play. The investments that I believe need to be made are multi-generational. Contemporary, common sense, short-term economics does not work at that scale of analysis. That scale of analysis only works at a nation-building, multi-generational scale.
With those challenges, what are the Government of the Northwest Territories and the Government of Canada doing through the Arctic Energy Alliance?
We deliver about nine program types to businesses, community governments and individuals. Our focus is on renewable energy and energy efficiency, with energy efficiency being our highest and first priority.
All our programs, save one, are oversubscribed. We have a waiting list. Our business program went through $200,000, alternative energy program likewise. The energy rebate program for product purchases, for market shaping, demand shaping, oversubscribed by $150,000. In Ottawa terms, that may not sound like a lot, but in N.W.T. terms, that's a lot.
What else are we doing? We are collaborating pan-territorially. The Nunavut Energy Secretariat sits on the board of the Arctic Energy Alliance, and I'm in semi-regular contact with folks in the Yukon. I think that the solutions to be found need to be pan-territorial where we use our respective strengths and bring them to bear across the territory. We're too small a population base. We're too big a territory or territories to do it alone. For example, we had staff working in Iqaluit this past spring. We put out a call for energy rating services to assist in people reducing their energy consumption. We could afford to do 10 time-wise. Within a week, there was a demand for 100 that came through the door. There is a demand for the service. It's currently not available there. We are partnering with and working with the Nunavut Energy Secretariat. That's an example where we try to leverage our respective strengths to benefit ourselves as a northern territory rather than a sovereign entity called the Northwest Territories. So, collaboration, cooperation.
The Government of the Northwest Territories is making a significant and concerted investment in helping and fostering a behaviour and an attitude towards energy that looks first at conservation and then at alternative energies. They deserve to be applauded. If you're looking for a model, what the G.N.W.T. is doing is the model, as far as I'm concerned, because it's working. The challenges it faces are so monumental, given the number of people and the tax base we have, that it cannot I believe in the long-term address those bigger questions — it comes back to nation- building — without assistance.
So what's the way forward? I think advancing the pan-territorial model is a way forward.
We need to find ways to put more money in people's pockets. I don't mean to sound glib, but income security and energy security come through strategic investments. Those strategic investments and the highest priority strategic investment would enable access to currently trapped energy resources to provide an income base so that people can afford the higher energy costs, because we are in a northern, remote place. It's cold and dark. We're a small population. It's reasonable to expect higher costs.
Build the Mackenzie Valley all-weather road. Increase accessibility to resources. Reduce the risks associated with having isolated communities. Increase the potential for economic development and the amount of money people make, and reduce the cost that businesses face in terms of wanting to access and extract those resources.
We have a permitted pipeline route, and it's an energy corridor that currently is unused. The premier has suggested to essentially back flow that, if it was built, and to have an energy export terminus some place in the higher Arctic. I think that's worth pursuing. Again, a combination of visionary thinking combined with practical day-to-day action will go a long way towards addressing the challenges that the Northwest Territories faces with respect to energy.
Part of the challenge is being able to simultaneously look at different scales of the issue and blend those scales into a unified package of ideas, because sometimes the scale of analysis and the solutions at various scales of analysis can be contradictory. At that point, it's trying to assess where those contradictions exist and what priorities should take place.
We are a young territory. Alberta was once the Northwest Territories. We are a part of Canada, and we have much to contribute and we want to contribute. We are making concerted efforts in the way things are being done in the Northwest Territories. We have a burgeoning biomass energy sector. Factually, on a per capita basis we consume more pellets and produce more energy using biomass than anyone else in Canada. That model is exportable through all the boreal forest communities that face similar access challenges and cost of energy challenges.
We can contribute to the rest of Canada through the know-how we are developing in response to the challenges that we face. We are doing that, but some of the challenges are so big and so monumental and our population and tax base so small that overcoming them will be almost impossible without that broader, longer vision.
Thank you.
The Chair: Thank you very much. We'll go to questions, beginning with the deputy chair, Senator Massicotte.
Senator Massicotte: Thank you, sir, for being with us this morning.
You talked about nation-building and so on. Is it relevant for us? Should the sovereignty issue be part of our consideration? Is there an argument there of merit?
Mr. Azzolini: In my opinion, yes. When you have other nations building nuclear ice breakers and militarizing their North, I believe Canada has no option but to firmly exert its standing and sovereignty in its northern regions.
Senator Massicotte: You're referring to the passage or more than that?
Mr. Azzolini: I'm referring to more than that, senator.
Senator Massicotte: Give me some examples.
Mr. Azzolini: Russia just finished commissioning the largest icebreaker in the world, a nuclear icebreaker. It's also in the process of further militarization of the Arctic by way of the development of 10 forward-operating military bases. It has put all of the Arctic under military command right now.
This is in the news, not hypothetical stuff. They're taking an assertive and aggressive position with respect to the North, and I think that Canada would be wise to ensure that the footprints it places in the snow are deep and visible.
Senator Massicotte: Thank you.
[Translation]
Senator Bellemare: I find your remarks very interesting. There is a fundamental problem whenever it is about the economic development of areas that are rich in natural resources, but where the people do not have very high levels of income, and of investing enough funds so that development can start. You bring up the question of implementing collective action in Canada in order to develop the economy of the territories.
More practically, what budget does your group, the Arctic Energy Alliance, have at the moment? Do you have any federal economic development agencies on your board of directors?
I ask that question because the Standing Senate Committee on National Finance held a debate with the economic development agencies in the north in order to find out how they go about using their money to establish economic development projects.
I was surprised by the lack of "visionary thinking and practical action" you mentioned. In my opinion, you have put your finger on something fundamental. In the context of world geopolitics, it makes a great deal of sense.
Are there key players on your board of directors? To get the ball rolling, you really need the involvement of key economic players. Do you have economic development officers? Do they have a voice in this?
What is your view on the subject?
[English]
Mr. Azzolini: I will be brief. Our budget is about $3.1 million per year. More than 95 per cent of that budget comes from the Government of the Northwest Territories. Our board consists of deputy ministers of the Government of the Northwest Territories, representatives of the utilities — the Northwest Territories Power Corporation, Northland Utilities — and we have no federal representation whatsoever.
[Translation]
Senator Bellemare: Why?
[English]
Mr. Azzolini: I don't know why.
Before I arrived in the early 2000s, most of the funding for the Arctic Energy Alliance came from the federal government. For whatever reason that's no longer the case and the funding is provided by the Government of the Northwest Territories.
I could make a very good economic argument that the $3 million provided to the Arctic Energy Alliance provides a greater return on investment in terms of the economy and the investments people are making because we don't give away free money. People have to put money into the game to get subsidies. When you combine the economic incentives with the multiplier effect in terms of what we're able to get other people to spend, plus you take into account the savings that we're assisting to create, we're generating over $3 million in economic activity. The federal government is currently not a player at the board level.
[Translation]
Senator Bellemare: Have you invited any federal economic development agencies? I do not want to get involved in the debate, but I do advise you to try to develop a partnership with the Canadian Northern Economic Development Agency. They have a budget, they get projects going. That might help to develop some synergy, thereby creating even greater leverage if everyone involved works together. I will stop there.
[English]
Mr. Azzolini: Your point is well taken. As a not-for-profit agency and at an arm's length from government, we focus on the delivery of programs. In other words, we want to see and make an impact in people's lives.
The type of initiative you're describing is more at the policy level. That's outside the sphere of my action, but it is within the sphere of the board of directors and the Government of the Northwest Territories to enable that.
Senator Patterson: The Arctic Energy Alliance has been around for quite a time. I think you said there are nine programs. Could you say what has received the most applications under the Alternative Energy Technologies Program?
Mr. Azzolini: Thank you, Senator Patterson. It's good to see you.
The Arctic Energy Alliance has been around since 1997, and thank you for flagging it. It's a long-serving organization and it has considerable depth.
Specifically to the Alternative Energy Technologies Program, solar energy and biomass are in greatest demand.
Senator Patterson: Could I ask you about biomass? How much more affordable is it compared to furnace oil? Are there enough biomass boilers and technicians in the N.W.T. to service the demand? Is there enough supply available for this kind of heating? Do you have any comments about the recent decline in oil prices, whether it would change the competition of biomass with furnace oil?
Mr. Azzolini: Those are fantastic questions.
The ecosystem of businesses and technical support individuals that has developed around the biomass energy sector in the Northwest Territories is second to none. In short, it has developed and is maturing, and I think it is currently at the forefront of biomass industry in Canada in terms of the availability of people that can sell biomass appliances and the variety of biomass appliances. We have a competitive sector with resellers of various brands, models, types and sizes.
The trade and service sector has developed to the point that it is now very competitive internal to that sector. The two members within the trade sector currently sit on the CSA committees. It's recognized even at the CSA level that they have the know-how to bring to the table in respect of biomass and biomass energy appliances.
The supply of biomass energy by way of pellets principally comes from British Columbia and Alberta. Ninety-five per cent of their supply is exported overseas. The Northwest Territories is one of their sizeable clients. Supply has not been an issue into the Northwest Territories — supply quality occasionally, but that's getting rectified in terms of the purchasing power of the consumers.
The oil price has not had an effect on them. I act as secretary treasurer to the NWT Biomass Energy Association, and they have not seen a decline in their business. I believe one of the reasons is that even with the reduction in oil prices they can still bring heat energy online at a per-unit basis less than the cost of burning oil to do so. What they can provide in terms of an investment standpoint, for someone buying one of these things, is that the volatility within the fuel supply sector with respect to biomass is very low. The volatility of oil speaks for itself, and investment decisions of any significance when you're dealing within a highly volatile cost structure makes business planning a risky proposition at best.
In short, it's a great sector. It's maturing and is still competitive with oil even at these prices. If I can take it a step further, I believe it's an industry sector that the N.W.T. could support in terms of becoming an export industry to other provinces and northern territories in terms of the know-how and service it can provide.
Senator Sibbeston: Mr. Azzolini, is there not a power plant being proposed for Hay River that would produce pellets?
Mr. Azzolini: Yes, there is. The forest management agreements have been signed. The individual who wishes to open the plant has the business case available. It was accessing the forest supply or the source energy, and I believe both forest management agreements have been signed and that the fuel supply is now available. The question is now just to build it. Soon the N.W.T. will hopefully have a locally sourced supply of pellets. It will also act as an export base in terms of being able to export these pellets essentially out of country.
Senator Sibbeston: With respect to the personnel you have situated in various parts of the North, I know you have a person in Simpson — her name is Teresa — but I also know that there was a bank of solar panels at the Fort Simpson airport. Were you involved in that?
I know that recently you've been working with the community of Lutselk'e to set up a solar panel plant there. Can you describe that? Is that something you hope to provide for most of the communities in the North for the future?
Mr. Azzolini: Thank you, Senator Sibbeston. The strategy in the Northwest Territories, as reflected in my comments, is trying to address multiple levels of challenges at the same time and reconciling where those challenges contradict each other.
Local solutions drive adoption. When do you something local and people accept it, it's more likely to happen.
We've got staff throughout the five regions of the Northwest Territories: Inuvik, Norman Wells, Fort Simpson, Whati and Hay River. These people drive and they are the front line. They work one-on-one with others to make things happen. Traditional marketing approaches where you put leaflets up, that works, but the marketing approach there has to be one-on-one, where we work with individuals to help them make the choices they want to make. It's a very customized, tailored service.
The solar panels you speak of in Simpson, it's an NTPC, Northwest Territories Power Corporation installation. The Lutselk'e one is interesting because that project was initiated by, partially funded by and installed by the community of Lutselk'e. They did it all, and they want to sell power into the grid. They are not a net metered client. They want to be a power producer, which raises its own policy challenges in the Northwest Territories, especially when you're dealing with small grids.
This small little community — I have to put this in context. For the last 15 years, there was the concept first of building a hydro transmission line around their regional area to service the mines, and their opposition, I think, was part of the reason why it didn't proceed. They have been investigating a run-of-river hydro project there for a number of years. Economics didn't make that happen.
What happened was, when the community took the initiative to find a solution that they wanted, they went out and pursued that project. They found resources to make it happen. They've partnered with Bullfrog Power, so there are external funding sources happening as well. They made it happen.
We can talk a long time about big projects, or we can focus on practical, doable projects where communities have buy-in and are willing to put money on the table to make it happen. They put money into this. They managed the construction; they put out the tenders for the building and the purchasing of these panels. All that's missing now is finalizing the power purchase agreement, hooking the wires up and it's good to go.
Financially, is it a great project? No. Is it great from the standpoint of actually doing something as opposed to talking about it? It's fantastic. We need more of that. We need to believe in ourselves. That's part of making it happen.
Senator Sibbeston: Last summer when our committee was touring the North, we went to Whati and had a meeting with the people. We're aware that the community has a plan or a vision to develop a run-of-river mill because there is a river nearby.
I note you said you have an individual situated there. Is that person in part there to help the community develop this proposal for the hydro plant?
Mr. Azzolini: Sonny Zoe, who works with the Arctic Energy Alliance, has been a proponent of this run-of-river project for eight to ten years now.
The energy source you're speaking of is being viewed from a number of different perspectives. It has a greater potential in terms of being able to service a proposed mine nearby. One of the options is to develop a larger hydro facility, which would require more capital so that it can plug into that grid. The alternatives being considered are run- of-river. Currently, I believe that the larger project in terms of generating a larger output of power through a more capital-intensive project is the one that's favoured.
Sonny is involved, and he has been pretty pivotal in looking at the run-of-river, but more importantly, what he did was bring attention to the possibility that existed with respect to that flowing water and the energy that was entrapped in it, which could be used for the benefit of the locals.
Senator MacDonald: Thank you for being here. There are so many questions about the North when it comes to energy. I have a couple of questions and they're both different.
First, I want to speak to you about subsidized power up there. Most communities rely solely on diesel for energy. Yellowknife is subsidized 28.53 cents per kilowatt hour for the first thousand kilowatt hours and 600 kilowatt hours for the rest of the year. Who is actually doing the subsidization? Who provides the subsidy?
Mr. Azzolini: I'm not an expert on this, so take what I say with a grain of salt. You'll want to crank the weight of evidence on this one down.
Yellowknife, for the most part, uses hydroelectricity, traditionally about 98 per cent. This past year has been an anomaly because of the low water supply, so they have had to burn more diesel. They're now about 75 per cent hydro, I believe.
We speak about nation-building; there's territory-building. As part of territory-building, we help each other shoulder the loads, metaphorically and really speaking. So where the power rates are lower because the cost of production is lower, the difference between their cost of production and the selling price, I believe, contributes to subsidizing the cost of power in other regions in the Northwest Territories, and understandably so, at $2 per kilowatt in some places.
Senator MacDonald: Who provides the subsidy? Where is the money coming from?
Mr. Azzolini: The Government of the Northwest Territories. The Northwest Territories Power Corporation is considered a related entity for accounting purposes. From what I understand, a related entity means that most of the funding comes from the Government of the Northwest Territories. If you follow the money and you follow what the accountants are telling you, it tells me that the Government of the Northwest Territories is footing most of the bill.
Senator MacDonald: You say "follow the money." I'm curious where the flow ends. Is that money actually coming one way or another from the federal government to the Northwest Territories?
Mr. Azzolini: You're asking a very complicated, politically loaded question.
Senator MacDonald: I am.
Mr. Azzolini: The federal government is a significant contributor to the Northwest Territories by way of transfer payments. We know that. How much of those transfer payments go to subsidize or to assist the N.W.T. Power Corporation, I don't know that. But if we want people living up there, something's got to get done because people are going to start voting with their feet, and that's what's happening. We have a net out-migration of population in the Northwest Territories.
Senator MacDonald: I guess that leads into my other question. When you gave your introductory remarks, you mentioned a number of items that you thought were priorities. The one I want to speak to you about is the Mackenzie Valley all-weather road. Obviously, all of these things have a cost attached to them. My opinion is that if you're going to invest in anything, then that would be the way to go. I understand that the territorial government is talking about doing a section, starting on a section. The road itself is proposed from Wrigley to Tuktoyaktuk, the final road.
What is your assessment of the impact of that road if it were to be completed? I think that's one of the great projects up there and the one I would certainly be fronting. If I was going to argue for one to be the priority, I think that's the one.
Mr. Azzolini: Senator, I share your sentiments. I was fortunate yesterday to be able to sit in with the Senate yesterday, and I heard Senator Patterson speak. I think it was about making strategic, nation-building investments. As luck of the draw would have it, in a previous career I also "pArcticipated" in preparing an economic analysis of the impacts of building this road.
The short-term impact would be a restructuring of the economy at the transportation level. Because the North is so big and the communities so spread out, it stands to reason that transportation is one of the big economic drivers. It costs a lot to move stuff. In the short term, when the road is built, you're going to see transportation costs come down, which means that there's less money going into that sector.
The flip side is that exploration and development costs in terms of running rigs, exploring, food supply, those kind of practical things that are known as a cost driver, because transportation is generally a cost driver, will decrease because accessing those resources and providing services along an all-weather road reduces the cost point or the price point of being able to access and develop those resources.
It's the single most important thing that can get done to open up those resources, renewable and non-renewable. There is significant hydro power available on, for example, the Great Bear River. That's been investigated. Building that road would enable a transmission line that would link the Northwest Territories and the hydro-electric potential that exists there.
Transportation is the most critical issue facing the Northwest Territories in terms of building that territory and its unity, but also in terms of the Canada nation-building that Diefenbaker began.
Senator Seidman: Eighteen years, 1997 till now, of serving communities in the Northwest Territories, I understand, and obviously providing a very valuable service. You're sounding some of the same themes that Mr. Morrison did in the previous hour of testimony here, and that is the multiple-level challenges, a need for a coordinated approach, very clearly community tailored, small, practical approach to things as opposed to needing a long-term visionary attitude about this, but to get down to tailoring things to individual communities, which is I believe what you're talking a lot about here today.
You talked about having nine different programs. I wondered which program receives the most applications from residents and businesses and also what role you play in educating the public about energy efficiency and conservation, or even development of new approaches to dealing with the community problems. In your Arctic Energy Alliance outline, you say that your goal is to allow for a more coordinated approach to public education and the delivery of energy conservation services. It's a convoluted question, but I want to get a sense from you about how that all happens?
Mr. Azzolini: It's not convoluted at all. It's well-spoken.
The most applications we receive are in regard to the Energy Efficiency Incentive Program, the market-shaping program in terms of products available in the marketplace and demand for those products, such as LED lightbulbs. If you provide a subsidy, people increase the demand and the market steps in to supply. It is very popular, but not the most popular.
Our Commercial Energy Conservation and Efficiency Program helps businesses take action to fine-tune or to remedy their existing systems. It's not about bringing in a new heating system; it's about looking at what they're doing and finding ways to conserve. It's extremely popular as well.
All of these are oversubscribed, so it's hard to say what's most popular when everything is getting sucked dry.
There is also the Alternative Energies Technology Program.
Those three would be the top, I would say, and all three of them were tapped out.
The Alternative Energy Technologies Program, as I said, is really popular on the biomass and solar side. Solar is beginning to get some traction. It's not there yet. We have the early adopters coming on line now. We'll see where that goes.
With respect to the role of education and informing the public about what energy is and the choices they can make in their lives, that is central to what we do. First and foremost, we work with people, whether it's one-on-one. But in everything we do, in every program, the first thing we do is we look at the conservation side. You can spend $15,000 putting in solar panels, or you can spend $300 bucks changing light bulbs. What do you want to do? The economics really sort of hit you in the face because it's often that simple.
Every program, every individual that works on it, and there are 20 of us, the first thing out of our mouths is, "How can we help you conserve?" You may want the fancy solar panel because it looks good and it seems like your answer, but just switch out your 30 light bulbs. That's all you've got to do.
Senator Seidman: You say your whole approach and your main efforts are on public education, and you meet with individuals. That's the first thing you do. How does that happen? Is it individuals in their homes and businesses? They apply to you and then you sit down with them and discuss their individual case?
Mr. Azzolini: Yes. We have five regional offices, and the people who work there know the people in the region. We visit every community and work with the local governments in every community. When someone applies, for example, for the Alternative Energy Technologies Program for purchasing solar panels, we will work with them individually in terms of identifying the size and the siting of it, and we provide them the information so they can make an informed consumer choice.
With respect to businesses, we conduct yardstick audits. We conduct detailed energy audits on their facilities, and then they make their choice in terms of where they want to make their investments. We advise them as to what investment choices they can make and the return on those investments, but ultimately they make those choices.
In terms of the broader communications side of it, we do work with the Northwest Territories Power Corporation, and they have a communications element as well. We do partner with them in terms of the material that they prepare for public consumption. It gives us an opportunity to provide input. We cross market in terms of making information available through our local offices and as well on our website. We do the same with the Northland Utilities as well.
At the broader level, higher order marketing, we essentially partner with the people who are board of directors who sit at the table. We're coordinating, which is really what the organization was intended to do, but when it comes down to providing client service, it is one-on-one, tailored, professional, objective, and it is factual.
Senator Seidman: I just want to understand. You obviously are very bottom-up; you relate very well to the bottom individually. How much input do you have to the larger policy-making area? You're seeing the real needs on the ground and you're discussing them, so how much of what you see allows you, and what opportunities do you have, to make recommendations at a larger policy level?
Mr. Azzolini: A lot. The North is really small. Recently, this fiscal year the energy files under the energy portfolio were consolidated with the Department of Public Works and Services. They are the body that the Arctic Energy Alliance enters into contributions agreements with. It's a group of 20 people; it's not huge. They bring us into their policy discussions as they see fit, but I've never sensed there are barriers and I always sense that they listen earnestly and respect our core expertise. That's enabled an informed, frank dialogue. Conversely, we respect that they deal with certain elements that are outside our sphere and it's not our place to challenge that, but we can inform that.
The Chair: I don't usually ask questions, but I'm going to ask a few.
You say the Arctic Energy Alliance has been in operation since 1997. I don't know whether you have been there since conception or not.
Some of the things that I listened to are very good. I appreciate what you're saying. As I understand your mandate or your goal, it is to reduce the cost and environmental impacts of energy consumption through conservation, energy efficiency and renewable energy projects.
In the 17 years that it has been in operation, what are the largest accomplishments that you've had? What would they be, if you can name a couple? That might be a little difficult to answer, but maybe you could try to do that for me, please.
Mr. Azzolini: I have not been there 17 years. I've been there four. I've lived in the North all my life, so I have a bit of perspective. The fact that it has been there for 17 years and has continued to be funded is evidence that, in my mind, the public service it is providing is recognized and valued.
One of the most important things is being able to have five regional offices and the ability to provide a service to individuals in their communities where they're at, where they live. If that was not possible, not only would we be seen only as a Yellowknife entity but rather self-serving as well.
As the North ages, if you want to put it that way, what we're finding is that we are less transient. Someone pointed that out to me a couple of weeks ago and I have reflected on it. We are becoming a place to call home. I was an immigrant there, but my children were born there.
What I find is that as the organization matures, it's maturing in line with the territory itself and its character is changing. I'm dodging that one a little bit because I don't have a direct answer to give you in terms of a specific program, and my window of observation is fairly limited, but I can say that the community energy planning and the community energy profile that we prepared were fundamental to long-term planning. The Energy Efficiency Incentive Program in terms of market shaping has been very important, and more recently I would say the Alternative Energy Technologies Program. I believe these three, including the provision of local services at the community level through the region natural offices, are the most important things that have occurred.
The Chair: One thing that I don't think you touched on is conservation. Have you been successful in leading a process to start conserving energy?
Mr. Azzolini: Good question.
The Chair: That's the cheapest megawatt you can get, conservation. It's the cheapest megawatt electricity that you can get on a system.
Mr. Azzolini: You make money on it. It's better than that. I wish I could say yes, but the answer I will say is no. We wouldn't be in business if we had achieved our objective.
The Chair: Thank you very much for that answer. I appreciate it.
I have one more quick question. You say the Mackenzie Valley all-weather road in your mind is the number one priority. You've lived there all your life. What communities would that road service? I understand the oil and gas industry really well. I'm not talking about being able to move rigs back and forth. What communities would that highway service?
Mr. Azzolini: Wrigley, Tulita, Fort Good Hope, Inuvik.
The Chair: Tuktoyaktuk and Inuvik are fine. They've had a highway for a long time. Norman Wells?
Mr. Azzolini: Norman Wells, of course. Those would be the principal beneficiaries. The ancillary benefits would flow to the communities that are currently serviced off the winter roads.
The Chair: So in your mind, what responsibility would Imperial Oil have in contributing to the building of that road? They have been producing oil out of Norman Wells for probably 50 years.
Mr. Azzolini: That's a political question that politicians are best to answer.
The Chair: Don't duck around it. The last person actually gave us some answers to that. It's not political at all. It's a straightforward question. What responsibility does industry have to contribute to these kinds of projects, or is it just government that funds it?
Mr. Azzolini: I believe that it's a government responsibility.
The Chair: Thank you for that.
Senator Massicotte: I'm curious. When we went to Yukon, we met the gentleman who was taking garbage and producing oil. It was a patent from Europe and he was about to make it higher production. Whatever happened to that? Are you aware of that?
Mr. Azzolini: I'm not aware of it.
Senator Bellemare: Mr. Morrison talked about using waste to produce heating. Have you thought about that for communities?
Mr. Azzolini: Yes. We have not investigated it very much, because it hasn't been a high priority with us in terms of using that waste energy.
Senator Patterson: We canvassed a number of federal programs from various federal departments targeting energy conservation and green initiatives in Canada, and I wasn't impressed that Northern Canada is on the radar, even though its challenges are great. Have you sought federal funding?
Mr. Azzolini: Has the Arctic Energy Alliance?
Senator Patterson: Yes.
Mr. Azzolini: We do at the individual program level through NRCan with ecoENERGY, the energy rating service, which is a supervisory service they provide.
Have we aggressively gone out and pursued it? No, because every dollar we get costs us almost a dollar in administrative costs. It's not worth it.
The Chair: Thank you, Mr. Azzolini, for your thoughtful remarks and your answers. We appreciate that very much. Thank you for taking the time to come and testify.
(The committee adjourned.)