Canada’s electricity sector Reform

Priyank Jain

Ratanjeet Singh

Pankaj Rathee

Canada’s electricity sector faces a bright and promising future. For nearly a century,

the industry has consistently delivered safe and reliable electricity to Canadians from coast

to coast to coast. Going forward, it has the potential to contribute towards meeting

Canada’s global environmental commitments, while also contributing to the recovery and

long term prosperity of our economy Electricity is the lifeblood of our modern world.

Indeed, it is hard to find a single aspect of life that has not been transformed by electric

power. Many advances in medicine, transportation, manufacturing, communications, and

information technology were attainable because of electricity. In societies around the

globe, electrification is a fundamental catalyst for economic growth and the means to

improve living conditions.

• The electricity sector in Canada has played a significant role in the economic and

political life of the country since the late 19th century.

• The sector is organized along provincial and territorial lines.

• In a majority of provinces, large government-owned integrated public utilities play a

leading role.

• Canada is the world's second-largest producer of hydroelectricity, which accounted

for 63% of all electric generation in 2011.

• Ontario and Alberta have created electricity markets in the last decade in order to

increase investment and competition in this sector of the economy.

Electricity is viewed by many as a “public good”, meaning that every person should be able to

consume electricity without reducing its availability to others.

Section 92A(1)(c) of the Constitution Act, 1867 places “development, conservation and

management of sites and facilities in the province for the generation and production of

electrical energy” under the jurisdiction of provincial governments. Initially, crown-owned

utilities were largely self-regulating However, in order to meet this potential, Canada’s

electricity sector must undergo a transformation. The transformation of Canada’s electricity

sector and the realization of its social, environmental and economic objectives go beyond the

plans and actions of industry. Governments, regulators, environmental and aboriginal

stakeholders, and the broader public must be involved in the conversation if we are to be

successful in transforming Canada’s electricity system.

The electricity system in Canada today is world-class; Canadians enjoy some of the most

affordable, reliable and cleanest electricity in the world. Unfortunately, there has been a lack of

recent capital investment in many jurisdictions. After a period of overbuild during the 1970s

and 1980s, the industry was able to meet growing electricity demand without any significant

generating capacity or transmission line additions. In the last two decades, few jurisdictions

have made significant investments, and there has been little expansion or development of the

electricity system overall. Today, major investments are overdue to replace and renew aging

assets and allow for the continued efficient, reliable and economic operation of the existing ".

Add in the need for new investment to meet future demand, improve system efficiency,

enhance customer interfacing systems and technologies, reduce greenhouse gas (GHG) and

other air emissions, address potential constraints on water resources, and improve overall

environmental performance, and the investment requirements become considerable – the

International Energy Agency (IEA) projects required investment in Canada’s electric sector by

2030 to be on the order of $240 billion (CAN).

Canada’s objective of improving environmental performance and reducing GHG and other air

emissions has led to the increasingly frequent entanglement of federal energy and

environmental policy. In the past, energy policy was driven primarily by population and

economic growth. Today, climate change, resources constraints, sustainability objectives, and

energy efficiency and conservation are equally important drivers of the policies shaping

Canada’s energy future.

In fact, the energy sector broadly, and to an extent the electricity industry in particular, have

become catalysts for ensuring Canada’s future prosperity, for meeting our global environmental

commitments and sustainability objectives, and for enabling a healthy society in the years to

come. The expectations for the electricity sector to deliver on these objectives are high, and the

industry holds a vast amount of potential. However, in order to enable the supply of affordable,

sustainable and reliable electricity, investment in Canada’s electricity infrastructure must be

planned and capital must be deployed in an efficient and strategic manner. Moreover,

important tradeoffs between these objectives must be identified, balanced and managed.

Investments to enable a more sustainable electricity system will not occur without a cost to

electricity consumers, and must be balanced against impacts on electric reliability. The ability to

deploy capital efficiently requires the involvement of many interested parties, including

governments, regulators, environmental and aboriginal stakeholders, and local communities,

and depends on clear public policy. Industry must respond to the demand for low-emitting and

sustainable technologies for electricity generation and a more efficient and responsive bulk

power system; governments and regulators must establish policies and conditions that will

enable the investment and technological development needed to make the transformation

possible; and the public must recognize that such a transformation will not come without a cost

and subsequent impacts on rates. This discussion paper demonstrates the potential of the

electricity sector to contribute to the achievement of Canada’s economic, environmental, and

societal objectives.

The Regulatory Pillars of Canada’s Electricity System

As mentioned earlier, despite growth, research and development investment, and technological

advancement, the model for producing and delivering electricity has remained largely

unchanged for over 100 years. This is in large part because it continues to deliver what end-

users value in an electricity system: affordability and reliability. These are the system’s pillars.

• In Canada's federal system of government, jurisdiction over energy is divided between

the federal and provincial and territorial governments.

• Provincial governments have jurisdiction over the exploration, development,

conservation, and management of non-renewable resources, as well as the generation

and production of electricity.

• Federal jurisdiction in energy is primarily concerned with regulation of inter-provincial

and international trade and commerce, and the management of non-renewable

resources on federal lands.

Provincial regulation of oil and natural gas activities, pipelines, and distribution systems is

administered by provincial utility boards. The producing provinces impose royalties and taxes

on oil and natural gas production; provide drilling incentives; and grant permits and licenses to

construct and operate facilities. The consuming provinces regulate distribution systems and

oversee the retail price of natural gas to consumers. The key regulations with respect to

the wholesale and retail electricity competition are at the provincial level. To date, two

provinces (Alberta and Ontario) have initiated retail competition. In Alberta, the electricity

sector is largely privatized; in Ontario the process is ongoing. In other provinces electricity is

mostly generated and distributed by provincially-owned utilities.

The National Energy Board (NEB) is an independent federal regulatory agency that regulates the

Canadian energy industry. The NEB was created in 1959 and reports through the Minister of

Natural Resources to the Parliament of Canada. Its primary responsibilities include:

1. Inter-provincial and international oil and gas pipelines and power lines,

2. Export and import of natural gas under long-term licenses and short-term orders,

3. Oil exports under long-term licenses and short-term orders (no applications for long-

term exports have been filed in recent years), and

4. Frontier lands and offshore areas not covered by provincial/federal management

agreements.

5. In 1985, the federal government and the provincial governments in Alberta, British

Columbia and Saskatchewan agreed to deregulate the prices of crude oil and natural

gas. Offshore oil Atlantic Canada is administered under joint federal and provincial

responsibility in Nova Scotia and Newfoundland and Labrador.

International power trading carried out by Canadian provinces with USA

Province Canada to USA (GW-Hr) USA to Canada (GW-Hr)

Alberta 41 991

British Columbia 9,955 9,999

Manitoba 9,344 139

New Brunswick 1056 585

Nova Scotia 0 146

Ontario 11,066 1,764

Quebec 19,879 443

Saskatchewan 991 321

Total 51,341 14,387

Cross-Canada�������� Cross-Border

• As the provincial electricity systems matured, interties to neighboring provinces as well

as to bordering US States allowed for increased optimization of generation resource

endowments.

• Increasing the size of the network reduced electricity prices by allowing the

development of larger, more efficient plants to serve the larger loads.

• The economics behind today’s electricity system dictate that in most jurisdictions,

customers are afforded lower costs by transmitting electricity from the most efficient

generating sources to the load centres, sometimes over thousands of kilometers.

• Over the years, this complex web of generation, transmission and distribution assets has

grown to meet Canada’s appetite for electricity and has served its purpose very well: to

provide affordable, reliable power to all Canadians.

Generation

• Net Installed capacity: 130,543 MW

• Hydro Power has the dominant share approx 57%

Type Hydro Wind Tidal Solar Thermal

NEW FOUNDLAND 6,781 54 0 0 584

PRINCE EDWARD ISLAND

0 152 0 0 117

NOVA SCOTIA 374 218 20 0 2,006

NEW BRUNSWICK 947 249 0 0 2,849

QUEBEC 38,438 658 0 0 3,018

ONTARIO 8,406 1,457 0 108 25,516

MANITOBA 5,054 104 0 0 501

SASKTAWACHEN 856 171 0 0 3,159

ALBERTA 883 806 0 0 11,107

BRITISH COLUMBIA 13,205 104 0 0 2,291

YUKON 78 1 0 0 33

NORTH WEST TERRITORIES

56 0 0 0 127

NUNAVUT 0 0 0 0 54

Transmission & Distribution

• The Canadian transmission networks extend over 160,000 km.

• The Canadian transmission networks are largely integrated to the continental power grid.

• Transmission and Distribution tariffs in Canada are split in 4 groups :

1. Residential : Monthly usage: 1000 kWh

2. Small Power : Power demand: 40 kW; Consumption 10,000 kWh, load factor:

35%

3. Medium Power : Power demand: 1,000 kW; Consumption: 400,000 kWh, load

factor: 56 %

4. Large Power: Power demand: 50,000 kW; Consumption: 30,600,000 kWh, load

factor: 85%.

Restructuring

• Jurisdictions that have introduced private sector reforms, the results have been mixed and the

process has been slow.

• Alberta’s electricity market is the most evolved, and it has stimulated the most private sector

investment.

• Ontario sought to introduce both wholesale and retail competition in 2002.

• High prices and other circumstances, however, conspired to bring a quick end to this new

market.

• Ontario has since adopted a “hybrid market.”

• Major step was Ontario power authority’s release of Supply Mix Advice Report and the

provincial government’s ensuing Supply Mix Directive.

Quasi-judicial bodies regulate provincial utilities:

� British Columbia: Public utilities commission.

� Alberta: Alberta utilities commission

� Saskatchewan: Province of Saskatchewan

� Manitoba: Province of Manitoba n Public utilities board

� Ontario: Ontario energy board

� Québec: Régie de l’énergie

� New Brunswick: Provincial Government

� Nova Scotia: Utility review board

� Prince Edward Island: Regulatory and appeals comm of PEI

� Newfoundland and Labrador: Commission of Public utilities

� Yukon: Yukon utilities board

� Northwest Territories: Public utilities board

� Nunavut: Government of Nunavut

Canada’s electricity system is on the verge of an important transformation. While

significant investment is required and will not come without costs, the benefits to investing in

reliable, affordable and sustainable electricity far outweigh the risks. Investment in electricity

infrastructure will ensure a stable supply of electricity to support Canada’s economic and

demographic growth. Growing our electricity supply responsibly, and investing in lower-

emitting electricity technologies, will mean a reduction in the sector’s environmental footprint

as well as economic and social benefits to our communities.