Canada: Energy @ Gowlings, October 19, 2011 - Volume 9, Number 6

Edited by Paul Harricks

AFTERMATH OF THE ONTARIO ELECTION

By David J. McFadden and Sean G. Conway

Electricity policy emerged as a key issue in the Ontario general election of October 6th.

In the months leading up to the election and during the 30-day campaign, debate focussed upon such issues as: the rising price of electricity, the cancelling and amending of contracts with power suppliers, the economic benefits of the Green Energy Act and the future direction of electricity policy in Ontario.

The election of a minority Liberal government is sure to keep the energy/electricity issues in the firing line at Queen's Park. The fact that there will be many more PC and NDP members in this new Legislature all but guarantees that Premier McGuinty and his cabinet can expect a constant grilling on energy matters. Moreover, the Opposition will now have a much more definite role in ordering the business of the legislative committees where a lot of government business is normally transacted. Expect the Opposition to undertake more active and rigorous examination of such initiatives as the Samsung deal signed by Premier McGuinty 18 months ago.

Looking ahead, it is clear that the Green Energy Act will continue to attract attention. The recent election campaign revealed significant backlash in rural Ontario to the siting of wind turbines. In fact, virtually every riding with existing or planned wind farms voted for the Progressive Conservatives, costing the governing Liberals a number of seats in the Legislature and arguably their majority. The Ministers of Agriculture, Environment and Education all went down to defeat in the face of very focussed anti-wind campaigns. There will almost certainly have to be some kind of reconciliation in the months ahead to deal with the apparent urban/rural divide over wind farms.

Another aspect of this election campaign will surely involve the integrity of power contracts. In the dying days of the campaign, the Liberals announced the cancellation of a Mississauga gas-fired plant which had been attracting local opposition within the community. It was the second time in as many years that a gas-fired plant slated for the Mississauga/Oakville area had been cancelled. The consequences of these terminations are unclear at this time but the companies involved will inevitably be looking at legal remedies. And the power requirements to be met by these gas plants in the Greater Toronto Area will have to be met presumably by transmission upgrades and expansions which could have their own issues with host communities as we have seen elsewhere. They will also have their own price tag.

The rising cost of electricity was a much-discussed topic during the campaign. With growing concern about high unemployment, another recession and the cost of doing business in Ontario, don't expect this issue to disappear. Premier McGuinty and his colleagues have argued that these increased energy and electricity costs are largely the result of upgrading our transmission system and cleaning up the environment by providing for more 'green energy'. The Opposition has countered with their view that the pricing under the FIT program was prohibitively expensive and should be replaced by a competitive process that produces the best available price for the power generated.

Given the ongoing economic challenges facing Ontario, it can be expected that the provincial government will give new attention to the cost of electricity. While the FIT program will likely survive, pricing under the FIT contracts is likely to be less generous over time. As well, look for efficiencies in other areas. All three major parties have expressed concern about the growth of the many agencies established in recent years to oversee the energy market in Ontario. The Opposition at Queen's Park has made a great deal of the high executive salaries associated with these agencies. Expect some streamlining or restructuring of roles and responsibilities in this area with a view to reducing costs. And speaking of the drive for greater efficiency in the Ontario electricity sector, we may very well see a policy push for additional restructuring or consolidation in the distribution sector as distributors confront the costs of, among other things, the smart grid. Another reform might be assigning demand management and conservation programs to the LDCs subject to OEB oversight without the additional layer of OPA oversight.

One aspect of Ontario's energy portfolio that did not attract a lot of attention during the campaign was the nuclear file. That will likely change in the months ahead as the new government will have to make some important decisions around regarding both refurbishment and 'new build'. For the moment, it is important to note that both the Liberals and the PCs have clearly indicated their support for pursuing a 'nuclear future' for Ontario. The NDP is clearly not as supportive but even they are choosing their words carefully on this issue.

Electricity policy is inextricably linked to Ontario's economic future. At a time when jobs and economic growth will dominate the public agenda, expect this area of policy to remain very active and relevant to the daily lives of Ontario citizens and businesses.



New Alberta Premier: New Energy Strategy

By Ethan Sinclair

On October 1st, members of Alberta's Progressive Conservative (PC) Party elected their new leader and Alberta's new Premier, Alison Redford. The Premier has advised Albertans that a general election will be called in 2012, giving Redford little time with her newly appointed cabinet to implement her energy strategy which was a key pillar of her leadership platform. 

The Strategy

Redford envisions Alberta at the centre of the international energy industry, promising to position Alberta as a global leader in sustainable hydrocarbon production, and the global leader in renewable energy production.  While supportive of the Ethical Oil characterization of Alberta's oil sands, Redford would promote (and to a large degree defend) Canada's energy resources in Northern Alberta by "telling the story" of the success achieved to date in environmental regulation and improvements and technical innovation.

For Redford, "sustainable hydrocarbon production" puts greater emphasis on environmental stewardship by promoting energy efficiency, research and technical innovation and collaboration, and regulatory and monitoring systems of "the highest standard" which would function independently of both government and industry.  Redford's recent media comments and the rebranding of the environmental portfolio as the Ministry of Environment and Water, suggests an increased emphasis on water issues and protection of the Province's water resources.

The proposed shift in Alberta's energy strategy from the conventional hydrocarbon sector to a greater emphasis on renewable energy sources would leverage current revenues generated from conventional sources "to ensure that Alberta remains a leader when the shift to renewables occurs on a large scale." The strategy, to date devoid of any suggestion of subsidies or subsidized tariff rates for renewable generation, involves establishing an authority to direct government involvement in renewable energy, operating in partnership with the academic and private sectors, promoting education and research initiatives, and updating the Alberta Electric System Operator's ("AESO") terms of reference to facilitate connection of renewables to the electricity grid, creating greener energy choices for consumers.

Alberta Land Stewardship Act

The Alberta Land Stewardship Act ("ALSA") is the Government of Alberta's primary tool for the regulation of land use management (see: http://www.gowlings.com/KnowledgeCentre/enewsletters/energy/HtmFiles/V9N04_20110721.en.pf.html?lang=0). Redford's leadership campaign included a proposal to suspend the ALSA on account of the controversy over its impacts on real property rights, until the contentious issues of compensation, consultation and access to the Alberta courts are more adequately addressed. 

Electric Transmission Infrastructure

Premier Redford has also questioned the Electric Statutes Amendment Act, legislation which empowered the Government of Alberta to (i) designate specific transmission projects and lines as "critical transmission infrastructure" thereby bypassing the AESO "needs" application to the Alberta Utilities Commission ("AUC"), and (ii) requiring the AESO to procure certain of that critical transmission infrastructure on a competitive basis. 

Under the Electric Statutes Amendment Act, the Government of Alberta has designated four transmission projects as "critical" including: (i) two high-voltage lines from the Edmonton area to the Calgary area; (ii) a line from Edmonton to the Heartland (Ft. Saskatchewan) Region; (iii) a line from west of Edmonton to the Fort McMurray area (supporting oil sands development) and from the Fort McMurray area to the Heartland region connecting oil sands cogeneration facilities to the provincial grid; and (iv) reinforcement of the grid in the Calgary region.  The Premier has confirmed her support for the development of the Edmonton to Heartland line, and for one of the two Edmonton to Calgary lines, but has suggested a reconsideration of whether the other transmission projects are indeed "critical". The AUC has completed hearing the Heartland facilities application, and a similar application to the AUC for the Calgary region reinforcement, given the lack of public objections, will be decided without a hearing.

With AUC facility applications for the two Edmonton to Calgary transmission lines scheduled to go to their respective hearings on November 7, 2011 and January 16, 2012,  further legislative amendment would be required on a priority basis if the Premier's reconsideration of these transmission lines is to occur without wasted regulatory effort.

Appointments

Premier Redford has appointed Ted Morton, who ran against her in the PC leadership race, as her Minister of Energy.  Mr. Morton was Finance Minister in the Stelmach government, and was previously the Minister of Sustainable Resource Development.  In his new ministry, Mr. Morton will play a key role in advancing export avenues for Alberta's bitumen, including increased transportation capacity to the U.S. and to Canada's west coast en route to Asia.  Both the Premier and Mr. Morton are avid supporters of the proposed Keystone XL pipeline, running essentially from Alberta's oil sands to the U.S. Gulf Coast (which is anticipated to receive approval from the U.S. Department of State before year-end).  Both also support development of Enbridge's proposed Northern Gateway pipeline from Edmonton, Alberta to Kitimat, B.C. and the negotiation of requisite economic benefits agreements with the First Nations living along the proposed route.  (See "Bringing Bitumen to Market":
http://www.gowlings.com/KnowledgeCentre/enewsletters/energy/HtmFiles/V9N03_20110510.en.html#5).

Mr. Morton has also acknowledged the importance of promoting development of Alberta's liquefied natural gas ("LNG") sector by the creation of access to Asian markets via British Columbia's west coast, a goal that was advanced earlier this month when the National Energy Board granted a LNG export licence to the Kitimat LNG project.

Gary Mar, who lost the PC leadership race by a slim margin, has been appointed by Premier Redford as Alberta's trade representative to Asia.  Mr. Mar was Minister of  Health and Wellness and Minister of Education in the Klein government and then served as Alberta's trade envoy to Washington under Premier Stelmach.  This important appointment further cements Alberta's commitment to expanding access of the Alberta energy industry to new opportunities in diversified markets.

Conclusion

While Premier Redford is not required to call an Alberta provincial election until 2013, the likelihood of a much earlier call is high.  How the Redford government implements its energy strategy will go some way in assisting the Alberta electorate in its decision on whether to continue and extend the current 40-year PC mandate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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