Canada: Energy Updates - July 2004

Edited by Paul Harricks

Contents

• Innovative Suit Against Large American Power Companies For Carbon Dioxide Emissions

• Energy Demand Surges in Ontario

• Alberta Energy and Utilities Board Outlook

• Gowlings Delivers Keynote at Much Anticipated "Energy Solutions Forum"

• Brighton Beach Power Plant Now Operational

• Public Hearings for Bill 100 - Electricity Restructuring Act

• Ontario Government Releases Draft CES and DR Contracts

• The "Smart Meters Program:" The Ontario Government issues its Directive to the OEB

Eight American States and the City of New York recently filed an innovative public nuisance suit against five of the United States' largest power corporations.

The City of New York and the Attorneys General of California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin filed a suit in Manhattan's federal district court on July 21, 2004 claiming that the greenhouse gas emissions of the defendant power corporations are contributing substantially to a public nuisance—global warming. The claim does not seek monetary damages but asks for a court order requiring defendants, American Electric Power Company, the Southern Company, Tennessee Valley Authority, Xcel Energy Inc. and Cinergy Corporation, to cap and reduce their carbon dioxide (CO2) emissions, the primary greenhouse gas and contributor to global warming.

The plaintiffs contend that various practical, feasible and economically viable options for the reduction of CO2 emissions are currently readily available to the defendant corporations. In particular, the claim states that CO2 emissions may be reduced without a significant increase in related costs through various measures including changing fuels, improving efficiency, increasing generation from zero- or low-carbon energy sources such as wind, solar, and gasified coal with emissions capture, co-firing wood or other biomass in coal plants, employing demand-side management techniques, and altering the dispatch order of their plants.

Together, the defendant corporations own or operate 174 fossil fuel burning power plants with combined annual CO2 emissions totalling approximately 650 million tonnes. This accounts for almost one quarter of the annual CO2 emissions of the American utility industry and approximately 10 percent of the nation's total emissions from anthropogenic sources. These statistics are included in the claim to illustrate that the defendant corporations are substantial contributors to elevated levels of CO2 and, therefore, to global warming.

While some effects of global warming have already been detected in the United States, the threatened future impacts of continued global warming specific to the plaintiffs, their citizens and residents are itemized and are generally cited in the claim as "increased heat related deaths due to intensified and prolonged heat waves; increased ground-level smog with concomitant increases in respiratory problems like asthma; beach erosion, inundation of coastal land, and salinization of water supplies from accelerated sea level rise; reduction of the mountain snow pack in California that provides a critical source of water for the State; lowered Great Lakes water levels, which impairs commercial shipping, recreational harbours and marinas, and hydropower generation; more droughts and floods, resulting in property damage and hazard to human safety; and widespread loss of species and biodiversity, including the disappearance of hardwood forests from the northern United States."

As a result of these CO2 emission induced threats, the claim alleges that the defendants' CO2 emissions are a public nuisance from which the plaintiffs have a right to protect their residents and property. Public nuisance is a legal doctrine that is commonly invoked in claims addressing environmental issues as American jurisprudence has established that it provides a right of action to those affected by air and water pollution emanating from sources in other states. The claim may however encounter some technical hurdles as CO2 is a natural part of the environment and has not been designated as a "pollutant" by the U.S. Environmental Protection Agency.

Although public nuisance law is often included in claims addressing environmental damages, this claim marks the first instance of the doctrine being used to address global warming. This is also the first time that local and state governments have sued private companies to require reductions in CO2 emissions, although it will not likely be the last. In fact, the likelihood of climate change litigation emerging in Canada and internationally as a means of holding corporations responsible for greenhouse gas emissions was recently referred to by Greenpeace, an international non-profit organization that focuses on worldwide threats to biodiversity and environment.

Demand patterns in Ontario during the week of July 18 were slightly higher than they were before last August's massive blackout, reaching an approximate peak demand of 24,000 megawatts which is approximately 4,000 megawatts higher than usual for this time of year.

Energy Minister Dwight Duncan cited Ontario's population boom as the reason for increased demands for power but appeared unworried when stating that "…we think a combination of policies we'll soon implement will lead to results very soon."

Terry Young of Ontario's Independent Electricity Market Operator (IMO), said Ontario has about 10 per cent more power available now than it did before the blackout. He said the province is able to meet high demand with minimal importing of power from other provinces or south of the border.

After last summer's outage hit huge swaths of Ontario and parts of the United States, people embraced conservationism by washing dishes and clothes in off-peak hours, Young said. Not even a year later, that attitude has changed. "We're not seeing the kind of response that we did see after the outage," Young said. "If you can't go without using as much electricity during the peak hours, that certainly doesn't help ease the strain on the system."

The IMO reports that the Hourly Ontario Energy Price Weighted Average, based on Ontario demand since May 1, 2004, is currently 4.89¢/KWh.

The Alberta Energy and Utilities Board (EUB) released its annual report "Alberta Reserves 2003 and Supply/Demand Outlook 2004-2013," on June 3, 2004. It is considered to be one of the most reliable sources of information on Alberta's energy resources which include crude bitumen, crude oil, natural gas, natural gas liquids, coal and sulphur. Of note is the fact that crude bitumen production for 2003 reached 350 million barrels (55.7 million m3) exceeding conventional crude production of 230 million barrels (36.5 million m3) by more than 50 per cent. This report also marks the first year that the EUB has published a separate estimate of coal bed methane (CBM) reserves. Although CBM production contributes only minor volumes to the total Alberta natural gas production of 4.8 trillion cubic feet (135 billion m3), the EUB anticipates CBM production will increase. CBM reserves were estimated by the EUB to be 35 billion cubic feet (1.0 billion m3). The EUB has acknowledged that this is a conservative estimate. Industry analysts would agree, given that Alberta has significant coal reserves (37 billion tons) and that projections for CBM production across Canada are expected to reach 1.3 billion cubic ft/day by the year 2010. Alberta is expected to be a major contributor to that CBM production estimate as long as gas prices remain at a level (above US$4 per thousand cubic feet) to support the profitability of CBM projects.

The annual report is available on the EUB website at www.eub.gov.ab.ca under the heading Alberta Energy Resources and Statistics.

David J. McFadden, Gowlings Partner and Chair of the Stakeholders Alliance for Electricity Competition and Customer Choice (SAC), delivered the luncheon keynote address at the July 28, 2004, Energy Solutions Forum organized by the Canadian Exporters and Manufacturers.

Mr. McFadden's address, entitled "Where do we go from here?" examines the electricity production, consumption and distribution in Ontario.

"We are now facing a fork in the road," says Mr. McFadden, "which will inevitably mean that crucial decisions will have to be made over the next year that will have a fundamental effect on both the electricity industry and the economic future of the province."

After presenting an overview of the most recent changes in the electricity sector in Ontario, Mr. McFadden cited two particular issues which Ontario must deal with to successfully move forward:

1. Supply of power - Relatively cheap electricity is one of the primary reasons manufacturing developed in Ontario. Issues have now arisen about the availability of power, particularly with the proposed phase out of coal generation. The Province needs to develop new sources of supply which will not undermine the competitiveness of Ontario's manufacturing industry.

2. Future governance of the electricity sector - The Electricity Restructuring Act (Bill 100) states that none of the directors of the Ontario Power Authority (OPA - the governing body for Ontario electricity going forward) should be involved in the Ontario electricity industry. This needs to be reviewed. Hands on experience is required to make decisions in such a vital industry. The second governance issue is that the OPA be subject to regular public scrutiny of its performance. This cannot be achieved through reports to the Minister of Energy and Finance alone. There should be a requirement for hearings before the Ontario Energy Board every 2-3 years on the OPA's performance as well as a regular review by a committee of the Legislature.

For a complete copy of Mr. McFadden's speech, please contact Renee Summer or for further information on the Energy Solutions Forum, visit http://www.cme-mec.ca/pdf/Energy_Conference.pdf.

Brighton Beach Power L.P., a limited partnership formed by ATCO Power and Ontario Power Generation, announced on July 21 that the combined cycle gas fired power plant in Windsor, Ontario was declared fully operational. This plant will contribute a needed 580 megawatts to the Ontario grid. The project not only increased Ontario's electricity supply but it also created a number of added benefits to the economy. At the projects peak, 775 people were employed and required nearly 2 million person hours from a highly skilled workforce. The capital expenditure was over $500 million and now employs 32 permanent employees in the Windsor area.

Public Hearings For Bill 100 - Electricity Restructuring Act

The Ontario Legislature's Committee on Social Policy will meet to consider Bill 100, an Act to amend the Electricity Act, 1998 and the Ontario Energy Board Act, 1998 and to make consequential amendments to other Acts.

The Committee will meet in Toronto on Monday, August 9th and on Thursday, August 12th to hear submissions on the contents of the Bill. After those days, it is tentatively planned that the Committee will hold four more days of hearings - assuming sufficient public interest - in Clarington (Bowmanville), Windsor, Ottawa and Sudbury during the week of August 23rd - August 26th.

Two additional days, Wednesday, September 15th and Thursday, September 16th, have been set aside for clause-by-clause review after which the Bill will be reported back to the fall Session of Legislature for final debate and passage, probably by late November or early December, 2004.

Anyone interested in making an oral presentation to the Committee should contact the Committee Clerk by 5:00 p.m. on Thursday, August 5th. The Committee Clerk is Ms. Anne Stokes. Written submissions can also be made to the Committee and they should be submitted to Ms. Stokes by not later than Thursday, August 26th.

Copies of the Bill may be purchased through Publications Ontario or Toronto. An electronic version of Bill 100 is also available on the Legislative Assembly website at www.ontla.on.ca.

If you have any further questions please contact Sean Conway.

The Ontario Government released a draft Clean Energy Supply Contract (CES Contract) on July 21, 2004. This marks the next major step in the process to secure up to 2,500 megawatts of new electricity generation capacity and/or conservation measures through long-term contracts. Under the contract, the supplier is responsible for developing and operating the facility or portion of the facility utilized to supply electricity and related products either directly or indirectly to the Independent Electricity Market Operator (IMO) markets or an end user. The CES Contract anticipates the introduction of the Day-Ahead Energy Forward Market in its construct. The term of the CES contract is for a maximum of 20 years.

On July 26, 2004, the Ontario Government also released a draft Demand Response Contract (DR Contract). These contracts involve the installation of new capital equipment, software and associated services that enable the supplier to curtail or reduce electricity demand when the market price for electricity rises above the strike price contained within a DR Contract, or in response to an operational directive of the IMO during peak hours. The supplier is responsible for developing and operating the Contract Project to meet the amounts. The term of the DR Contract must be a minimum of five years.

The CES and DR Contracts anticipate the creation of the Ontario Power Authority, and have provided for the assignment of all executed contracts at that time. Both also contain a scheme of liquidated damages payable by the supplier in the event that commercial operation is not achieved by the milestone date established. The obligation of the supplier only begins from and after the date of commercial operation, and if this cannot be achieved within one year of the milestone date, the party is in default. The supplier must keep the Ontario Electricity Financing Corporation (OEFC) highly informed with frequent consultations and reports, as they maintain active involvement in the project and have the option to inspect facilities with notice and oblige the seller to perform capacity tests. Both of the contracts contain similar provisions, only some of which are highlighted here.

The CES Contract or the DR Contract, the RFP and the Proposal will constitute the agreement between the energy supplier and the OEFC. The RFP and Summary of the Contract Project are scheduled for release on August 30th, 2004. Please refer to the following Web site http://www.ontarioelectricityrfp.ca/ for a complete draft of the contracts and further information.

The Ontario government has announced a "smart meter" program as part of its energy conservation strategy in an effort to prevent another blackout in Ontario like the one experienced last summer. The government hopes to reduce electricity usage by five per cent by 2007.

The government has directed the Ontario Energy Board (OEB) to develop and implement a plan for the installation of 800,000 smart electricity meters by December 31, 2007, with implementation for all Ontario customers by December 31, 2010. This initiative will integrate four million smart meters and 90 electricity distribution companies in Ontario.

The OEB has been mandated to consult with stakeholders to identify options and address issues with regard to these targets and to provide an implementation plan by February 15, 2005. Stakeholder expressions of interest must be sent to the Acting Board Secretary by August 3, 2004, at 4:30 p.m. Comments on the discussion paper must be received by the Acting Secretary by 4:30 p.m. on August 13, 2004. The discussion paper can be found at the following Web site: www.oeb.gov.on.ca .

The OEB has been directed through this process to:

• identify mandatory technical requirements for the meters and support operations of distributors;

• identify barriers to the successful operation of the program as well as mitigation strategies;

• identify regulatory mechanisms for the recovery of costs;

• assess the competitive provision and support of smart meters; and

• consider the efficacy of non-commodity time of use rates.

The objective of the program is to give consumers direct control over their energy bill by ensuring that they pay the actual price for the electricity at the time they actually use it. Doing so allows consumers to shift their electricity use to non-peak periods when the price of electricity is lowest.

For more information please see www.oeb.gov.on.ca as well as "Smart Metering Not Just Smart Meters" by Paul M. Grod, President, Rodan Metering Services Inc., which appeared in the energy@gowlings April 30, 2004 - Volume 2, Number 8 edition.

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.