Reforms in Canadian Electricity Sector

Pankaj Rathee(89)Priyank Jain(92)Ratanjeet Singh(95)

Introduction

• 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.

A Provincially Owned and Regulated Industry

• Electricity is viewed by many as a “public good”.

• 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.

Regulatory framework

• 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• Provincial regulation of generation activities, power lines, and distribution

systems is administered by provincial utility boards. The producing provinces impose royalties and taxes; provide 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.

Federal regulation• 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:

Inter-provincial and international power lines, Export and import of energy under long-term licenses and short-

term orders, In 1985, the federal government and the provincial governments

in Alberta, British Columbia and Saskatchewan agreed to deregulate the prices of energy.

Facts about Canadian power sector

• Organized along provincial & territorial lines.• All provinces have their own utility boards to regulate

transmission & distribution rates.• Worlds second highest producer of hydro power.• Canadian per capita power consumption is one of the highest

in the world ~17k KW-hr per annum.• Majority of Canadian utilities function as vertically integrated

crown corporations operating as regulated monopolies.• Nuclear Energy consumption of Canada is 3 times that of India• Canada Exports nearly 10% of its power to USA.

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.

Generation

• Net Installed capacity: 130,543 MW• Hydro Power has the dominant share approx 57%

Type

Hydro 75,077

Thermal 51,365

Wind 3,973

Solar 108

Tidal 20

Total 130,543

Type Hydro Wind Tidal Solar Thermal

NEW FOUNDLAND 6,781 54 0 0 584

PRINCE EDWARD ISLAND0 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 33NORTH 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 kWh2. 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%.

*Canada has historically been a net exporter of electricity to the United States.

Constitutional issues• The provincial governments own most of the petroleum, natural gas and coal reserves,

and control most of the electricity production. This means that the national government must coordinate its energy policies with those of the provincial governments, and intergovernmental conflicts sometimes arise.

• The problem is particularly acute since, while the energy consuming provinces have the bulk of the population and are able to elect federal governments which introduce policies favouring energy consumers, the energy producing provinces have the ability to defeat such policies by exercising their constitutional authority over natural resources.

• Section 92A of the Constitution Act, 1867 assigned to the provincial governments the exclusive authority to make laws in relation to non-renewable resources and electrical energy, while Section 125 prevented the federal government from taxing any provincial government lands or property.

• On the other hand, the federal government has the power to make treaties with foreign countries. This has important implications for treaties involving energy production, like the Kyoto Protocol, which the Canadian government signed in 2002. Although the federal government had the authority to sign the treaty, it may require the cooperation of the provincial governments to enforce it.

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.

Electricity Restructuring: New Institutional Structure

CompetitiveGenerators

LargeConsumers

SmallConsumers

Fixed-PriceGenerators(e.g., OPG

Nuclear and Baseload Hydro)

IndependentElectricitySystem

Operator(IESO)

RegulatedPricePlan

Ministry of Energy• Overall policy/legislative

framework• Sets targets for technology,

conservation, renewables.

Energy Board• Guarantees public input/fairness• Approves prices for price

regulated generators; oversees contracts for new supply

Power Authority• Prepares integrated system • Contracts for new supply and DSM• Manages regulated price plan• Conservation Bureau

EnergyRetailers

Conti….

• Limited progress was made in British Columbia with the creation of the British Columbia Transmission Corp. (“BCTC”), whose mandate is to manage and provide non-discriminatory access to BC Hydro’s transmission system.

• In March 2007, the British Columbia Utilities Commission approved BC Hydro’s Integrated Electricity Plan and Long-Term Acquisition Plan.

Market and pricing

• Electricity pricing varies by province or territory according to the volume and type of available generation and whether prices are market-based or regulated.

• Since Alberta has moved the furthest in restructuring its electricity market, Its electricity prices are more market-based compared to other provinces and territories.

• Ontario has chosen to partially restructure its electricity market, so mixed approach is followed.

• Prices in other provinces and territories are set by the electricity regulator to cover costs and allow for a reasonable rate of return to. investors

Residential prices across various cities

Regulatory bodiesQuasi-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

Thank You…..!!