Son et Lu­mière

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Power can be ex­plo­sive, at least in the po­lit­i­cal sense. From Muskrat Falls, NL, to B.C.’s coal ex­port ter­mi­nals, bat­tles rage over costs, car­bon and com­mu­ni­ties. The vast­ness of Canada’s po­lit­i­cal and ge­o­graph­i­cal land­scapes cre­ates in­con­gruities. We ex­port 10 per­cent of our power to the U.S. while re­mote north­ern com­mu­ni­ties have to truck diesel across ice roads. We have one of the world’s clean­est power sec­tors, yet we are ground-zero for cli­mate change protests. Al­berta has one of the most ex­pen­sive trans­mis­sion tar­iffs in North Amer­ica, yet it is home to a wealth of en­ergy sources. The de­ci­sions we make can reach far into the fu­ture—from 150-year hy­dro dam projects to the cli­mate that fu­ture generations will grow crops in. Yet, those de­ci­sions are of­ten based on fickle pub­lic opin­ion and four-year po­lit­i­cal terms. SER­GIO MARCHI is the CEO of the Cana­dian Elec­tric­ity As­so­ci­a­tion. The job puts him front-and-cen­ter in many of these dis­cus­sions, as did his for­mer roles as a fed­eral cabi­net min­is­ter and am­bas­sador to the World Trade Or­ga­ni­za­tion.

How does elec­tric­ity in­vest­ment vary across the coun­try?

The sys­tem needs $350 bil­lion over 20 years to up­grade, av­er­ag­ing $10 bil­lion to $12 bil­lion per year just to keep the sta­tus quo. Typ­i­cally, cap­i­tal needed for in­vest­ment is pro­vided by the util­ity and re­cu­per­ated based on a rate of re­turn that is de­ter­mined by the pro­vin­cial reg­u­la­tory au­thor­i­ties. In Al­berta, the re­turn on in­vest­ment for gen­er­a­tion as­sets is mar­ket-based and fi­nan­cial risk rests solely with the as­set owner. In On­tario, some as­sets are mar­ket­based, some are un­der long-term con­tract and some are guar­an­teed a rea­son­able rate of re­turn by the pro­vin­cial reg­u­la­tor.

How is our ag­ing sys­tem chal­lenged by tech­no­log­i­cal de­mands?

We need some­thing very dif­fer­ent tech­no­log­i­cally from the util­ity poles that hold up the wires to­day. Cana­dian util­i­ties are some of the most in­no­va­tive and re­source­ful in the world. But great in­no­va­tion re­quires risk tak­ing. If we are to find the next game-chang­ing tech­nol­ogy, and not just re­build but rein­vent our ag­ing sys­tem, com­pa­nies need a real-world sand­box in which tech­nolo­gies and in­no­va­tions can be tested and re­fined.

Un­for­tu­nately, the cur­rent pol­icy and reg­u­la­tory en­vi­ron­ment does not stim­u­late util­ity in­no­va­tion, en­cour­age risk-re­lated R&D in­vest­ments, or en­able util­i­ties to pur­sue projects that ad­dress chal­lenges such as those faced by off-grid north­ern and re­mote com­mu­ni­ties.

Pro­vin­cial reg­u­la­tors are nec­es­sar­ily fo­cused on main­tain­ing low elec­tric­ity rates or com­pelled to find cost sav­ings through in­cen­tive-based reg­u­la­tory ratemak­ing regimes. De­cou­pling rates from ac­tual op­er­at­ing costs forces util­i­ties to make up the dif­fer­ence through strin­gent sav­ings, which re­duces or elim­i­nates op­por­tu­ni­ties to in­vest in R&D. It also cre­ates a size­able gap be­tween what reg­u­la­tors per­mit util­i­ties to do and gov­ern­ments’ strate­gic as­pi­ra­tions.

What are the po­lit­i­cal risks that keep power firm ex­ec­u­tives up at night?

Shifts in pub­lic opin­ion. Rightly or wrongly, the op­po­si­tion par­ties use power as a club to beat gov­ern­ments with. When you have volatile pub­lic opin­ion which pres­sures gov­ern­ments and then reg­u­la­tors, the govern­ment’s pri­or­ity be­comes keep­ing rates low, for ex­am­ple.

The chal­lenge in a world of chang­ing tech­nol­ogy and in­no­va­tion is en­sur­ing that we get that through the reg­u­la­tors, but when­ever we go to them with a pi­lot, such as re­new­able en­ergy, the re­sound­ing re­sponse is a flat ‘no.’ But the gov­ern­ments tell us to do it, so there’s a gap be­tween the mes­sages. An­other real chal­lenge is that we can’t al­ways fund it through share­hold­ers.

We can’t al­low our­selves to race to the bot­tom. If we only go for the cheap­est op­tions, it runs the risk of af­fect­ing re­li­a­bil­ity and we will pass onto our chil­dren a lower qual­ity sys­tem. It’s a com­pli­cated dance. We need to com­bine the best with fru­gal­ity. This is miss­ing in the dis­course. Fif­teen years back, the govern­ment with the bless­ing of the pub­lic de­cided to phase out coal. It was an ex­pen­sive move, and the pub­lic to­day for­gets that yes­ter­day’s pub­lic opin­ion wanted that change. If kids don’t show up with asthma puffers in the same num­bers they did be­fore, then mis­sion ac­com­plished.

What’s the so­lu­tion for con­nect­ing re­mote com­mu­ni­ties?

When I’ve talked to fed­eral gov­ern­ments they’ve done a good job in lis­ten­ing. When we talk about tak­ing north­ern com­mu­ni­ties off diesel they say give us the busi­ness case. There is no good busi­ness case. It is costly to wire and con­nect the north. We did it for cities, then ru­ral com­mu­ni­ties, so now let’s do it for the north—there is a na­tion­build­ing ra­tio­nale. It’s 2016, we should of­fer mod­ern in­fra­struc­ture. Min­ing in­vest­ment will go else­where—they can’t pick up the tab for all in­fra­struc­ture. Maybe there wasn’t a great case for rail­ways, pipe­lines and TV, but it was na­tion-build­ing. The cost of diesel rel­a­tive to wiring is cheap, but when­ever there’s a spill or health­care cost it’s in a dif­fer­ent bud­get, not the one for diesel. If you con­sol­i­date all the re­lated ex­penses there is a busi­ness case. We’re hop­ing that in the next bud­get the govern­ment will make a dent and take to­tally de­pen­dent com­mu­ni­ties off diesel.

What’s the im­pact of car­bon pric­ing on the elec­tric­ity sys­tem, broadly?

The CEA has con­sis­tently sup­ported an economy-wide—and con­ti­nent-wide— price on car­bon, which would max­i­mize low-cost emis­sion re­duc­tions while pro­tect­ing the com­pet­i­tive po­si­tion of Cana­dian com­pa­nies, in­clud­ing elec­tric util­i­ties re­spon­si­ble for Canada’s $3.1 bil­lion elec­tric­ity trade sur­plus with the U.S. Look, our sec­tor to­day is 83 per­cent GHG free. It’s got to be com­pet­i­tive across the con­ti­nent—it’s only 41 per­cent GHG-free in the U.S. We are con­cerned that we are at a dis­ad­van­tage. We think there’s a real, real po­ten­tial to ex­port: The Obama clean power plan, which sets more am­bi­tious tar­gets for states and com­pa­nies; and the re­cent North Amer­ica agree­ment to pro­duce 50 per­cent clean en­ergy by 2025. We think this will have real eco­nomic ben­e­fits, helping U.S. to shrink its GHG emis­sions.

Ser­gio Marchi, CEO of the Cana­dian Elec­tric­ity As­so­ci­a­tion

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