Energy @ Gowlings - April 2005

Edited by Paul Harricks

Contents

• The Canadian Government Launches Project Green

• Ontario Gives Green Light to 1,675 MW of Power Capacity

• Twenty-Five Responses Received to Lower Churchill Request for Expressions of Interest

• B.C. Government Funds Solar Project at Two Secondary Schools

• Unlimited Liability Corporations and the Alberta Advantage

• Wind Power Transmission & Distribution Integration

• Mackenzie Valley Hearing Continues to be Moving Target

The Canadian Environment Minister, the Honourable Stéphane Dion, Natural Resource Minister, the Honourable R. John Efford and Industry Minister, the Honourable David L. Emerson have launched Project Green, Moving Forward on Climate Change: A Plan for Honouring our Kyoto Commitment.

The Ministers stated that Project Green "harnesses the power of the market to integrate climate change considerations into the day-to-day decisions of Canadians." Minister Dion added, "Our plan is pragmatic and results-driven. The balanced measures allow Canadians to honour our Kyoto commitment while improving our competitiveness in a sustainable economy. The plan also safeguards our health by cutting emissions of smog-creating pollutants, greens our communities, protects wild spaces and boosts our economic competitiveness. It sets out the essential steps for Canada to sustain its strong economy and quality of life in the 21st century."

Project Green contains measures that were announced in the recent 2005 federal budget (refer to the March 9, 2005 Special Edition 2005-3 issue of Energy @ Gowlings for more information on the 2005 federal budget). The plan requires the Canadian government to fund investments of approximately $10 billion between now and 2012 to fully realize the anticipated greenhouse gas emissions reductions of approximately 270 megatonnes. The following are some of the action plans related to Project Green:

Climate Fund (75-115 megatonnes)

The new Climate Fund is a market-based institution for the purchase of emission reductions and removals on behalf of the Canadian Government. It will:

• Purchase domestic greenhouse gas reductions from farmers, businesses and communities; and
• Secure qualifying international emissions reductions that will assist Canada in complying with its Kyoto target.

Partnership Fund (55-85 megatonnes)

The federal government will work with provinces and territories to:

• Strike new agreements and improve existing ones;
• Determine strategic investments on the basis of mutual priorities; and
• Finance, on a cost-sharing basis, major technology and infrastructure investments identified in collaboration with provinces and territories, e.g. clean coal, phasing out coal-fired power plants, carbon dioxide capture and storage pipeline and extending the east-west electricity power grid.

Large Final Emitters (LFEs) (45 megatonnes)

Targeted at the oil & gas, thermal electricity, mining and manufacturing sectors, many options are available such as:

• Adopting upgrades to achieve in-house reductions;
• Purchasing emission reductions from other LFEs;
• Investing in domestic offset credits; and
• Purchasing international credits as long as they represent verified emission reductions.

Green House Gas (GHG) Reduction Programs (up to 40 megatonnes)

The government currently has a number of GHG programs underway, e.g. the EnerGuide for Houses Home Retrofit Incentive program. Project Green recognizes that, to remain effective, efforts must evolve over time and build upon what works, reallocate funds from initiatives deemed less effective and take advantage of new technologies. To ensure climate change investments receive maximum results, all programs will be reviewed before the release of any new funds in 2007.

Carbon Sinks (up to 30 megatonnes)

The government notes that, "Business-as-Usual sinks are those stores of carbon in the soil and forests that Canada will have simply by continuing existing practices. It is projected up to 3 megatonnes of greenhouse gas emissions can be reduced by 2012 through existing farming and forestry practices."

Renewable Energy (15 megatonnes)

The government is spending $1.8 billion over the next 15 years to:

• Quadruple the Wind Power Production Incentive to 4,000 megawatts; and
• Create the Renewable Power Production Incentive to develop other renewable sources including solar, small hydro and biomass.

Consumer Action (5 megatonnes)

To educate the public on making green purchasing decisions, the government will:

• Increase technical advice and services to individuals, businesses and communities; and
• Continue to raise awareness through the One-Tonne Challenge.

Automotive Industry (5.3 megatonnes)

Reductions in GHGs in this sector will be achieved through a Memorandum of Understanding (MOU) between the federal government and the Canadian automotive industry. The MOU sets out commitments by the automotive sector to achieve emissions reductions though the deployment of more fuel-efficient and less greenhouse gas intensive technologies and vehicles. Examples include improved fuel efficiency, advanced emission and diesel technologies and alternative fuel and hybrid vehicles.

Greening Government (1 megatonne)

Primarily through the reallocation of existing funds, the government will reduce its own emissions of GHGs by:

• Putting in place a Green Procurement Policy to govern all purchases, including power, by 2006 and make its central heating and cooling plants more energy efficient;
• Ensuring new office buildings meet the Leadership in Energy and Environmental Design (LEED) Gold Standard; and
• Replacing its vehicles over time with more efficient alternatives including hybrids.

The Ontario Minister of Energy, the Honourable Dwight Duncan, has announced that four proposals have been selected to replace capacity for the coal-fired generation plants. The four proposals were selected in the Request for Proposals (RFP) process that was initiated by the Ontario government in June 2004. The objective of the RFP process is to bring on-line 2,500 megawatts of capacity through new, cleaner power or demand-side management projects. The four proposals represent a total generating capacity of 1,675 megawatts

"We are ensuring a reliable supply of electricity as we move forward responsibly to clean up the air we breathe and replaced coal-fired generation," said Minister Duncan. He further added, "The projects announced today represent a significant portion of our commitment to replace coal with cleaner sources of supply and conservation. In particular, the two projects near Sarnia will be sufficient to replace most of the capacity at the Lambton coal-fired station."

Minister Duncan went on to state, "The entire RFP process was overseen by an independent fairness commissioner to ensure the process was fair and transparent." Dave Goulding, president and CEO of Ontario's Independent Electricity System Operator said that the four projects will help to strengthen system reliability and contribute to the government's plan to phase-out coal fired generation. The Ontario Power Authority will administer the four contracts and monitor the progress of each of the projects.

It is anticipated that the four projects will be in service before the end of 2007 and will bring approximately $1.1 billion in new capital investment to the province. The four projects are:

Each generation project is still subject to environmental assessment and local development processes.

Newfoundland and Labrador Premier, the Honourable Danny Williams, announced that a total of 25 responses to the Expressions of Interest (EOI) that was issued on January 10, 2005 (refer to the February 1, 2005 issue of Energy @ Gowlings for details) were received. Premier Williams noted that the request for EOIs was, "very successful in terms of attracting a wide variety of proposals."

"This represents the first step towards fulfilling our government's commitment to develop the Lower Churchill resource in a manner that maximizes benefits for the people of Newfoundland and Labrador" said Premier Williams. "Our decision to issue the EOI was very strategic, because we know that we have a world-class resource, and we wanted to offer groups, consortia and governments from around the world an equal opportunity to propose their own development plans for the Lower Churchill."

Premier Williams noted that each proposal was unique with about 10 proposals contemplating a comprehensive development plan, while other proposals are for specific project components, such as equipment supply, engineering services, equity investment and environmental services.

An Assessment Committee will be established over the coming days. The committee will recommend which proponents will move to the feasibility review stage of the process (Phase II). As the process continues, the public will be kept abreast of developments; however, under the terms of the EOI, the names of those who submitted proposals would not be released. Premier Williams stated that, "When government and Newfoundland and Labrador Hydro reach a point whereby we are prepared to enter into substantive discussions with a proponent, we will release the name(s) of that proponent. I can assure the people of the province that this process will be more open and transparent that any process by any administration in the past."

More information regarding the EOI and the Lower Churchill development can be found at:
http://www.gov.nf.ca/lowerchurchill/

The government of British Columbia has announced that it will provide $300,000 in funding for a Solar for Schools pilot project at two secondary schools in Fort Nelson and Vernon. The solar power will be used to augment the existing power systems.

The Solar for Schools program is a partnership between the province and SPS Energy Solutions. Under the program, SPS will supply and install photovoltaic energy systems prototypes on the school's roof. In addition, SPS will create an interactive display, to be housed in the school's lobby, that will help students learn about this alternative source of energy. It is anticipated that the installation of the solar panels at both schools will be completed by May 2005.

The Honourable Richard Neufeld, Minister of Energy and Mines, said the project is a, "model for schools across the province and builds on our commitment to become a world leader in sustainable energy development." SPS president, David Egles, commented that he believes that "Solar systems on buildings in Canada will be commonplace within 10 years." Mr. Egles further stated, "The leading edge technology we are installing will demonstrate the potential for a school, or any other building for that matter, to generate part of its own power needs."

The 80 installed solar panels will generate approximately 10,000 kilowatts of electricity annually. This amount of power is equivalent to the annual usage in one average sized home, three classrooms or the power required to run 50 computers.

Fort Nelson and Vernon were selected for this program because they are located in a high solar radiation zone.

In the April 1, 2005 issue of Energy @ Gowlings, we discussed the introduction of unlimited liability corporations (ULCs) to Alberta. In this issue, we discuss advantages of Alberta ULCs over ULCs in Nova Scotia.

On March 9, 2005 Bill 16, the Business Corporations Amendment Act, 2005, was introduced in the Legislative Assembly formalizing the legislative measures set out in the most recent Alberta Budget. The most significant measure is the legal framework to enable the creation of ULCs in Alberta. Under the proposed amendments, shareholders will have unlimited liability for any liability, act or default of the ULC. This liability will be joint and several in nature.

Until now, the province of Nova Scotia has been the only Canadian jurisdiction in which such corporations could be established. Due to the increased popularity of Nova Scotia ULCs, commonly referred to as NSULC's, Alberta has also decided to provide a ULC structure in an attempt to attract American investors acquiring or establishing businesses in Canada. ULC's are an attractive vehicle because different income tax treatment is afforded to such entities in Canada and the United States. Specifically, they are regarded as hybrid entities such that, for U.S. income tax purposes, they are treated as flow-through entities and, in Canada, just as any other corporate entity.

Once Bill 16, currently at the second reading stage, has been enacted, investors will be provided with a preferable alternative to the sometime cumbersome and complex rules governing NSULC's under the Nova Scotia Companies Act. The Alberta Business Corporations Act is a modern statute and is largely based upon the familiar federal legislation, while the Nova Scotia equivalent has only adopted certain provisions of the Canada Business Corporations Act. As there are material differences between the proposed Alberta amendments and its counterpart in Nova Scotia, many investors are likely to consider Alberta as the jurisdiction of choice. The most notable difference is the process to amalgamate with the NSULC.

The process to convert a limited liability company, incorporated in a jurisdiction other than Nova Scotia, into an NSULC is not simple. The company must be continued from its current jurisdiction into Nova Scotia, as a limited liability company, and then be amalgamated with an existing NSULC. In Nova Scotia, only long form amalgamations are permitted, which require both shareholder and court approval. Shareholder approval must be by at least three-quarters of the votes cast. However, in Alberta court approval is not required for corporations seeking to amalgamate. Depending upon the type of amalgamation initiated, only one of director or shareholder approval is required. Further, in Alberta, shareholder approval requires only special resolution, that is, two-thirds of the votes cast. Similar rules apply with respect to share capital reductions.

Under the proposed amendments, NSULC's will be able to continue into Alberta as an Alberta ULC. Upon the continuance of the NSULC into Alberta, the property of the NSULC will become the property of the Alberta equivalent. Generally the process to continue into Alberta is a less complex procedure when compared to the Nova Scotia procedure.

Among other notable differences between the two jurisdictions is the fact that an Alberta entity will be permitted to hold shares in itself for a period not extending beyond 30 days. Under the amendments, a subsidiary will also have the ability to hold shares in its parent for the stipulated time period. These amendments have been included to facilitate corporate reorganizations. In Nova Scotia, although companies are permitted to hold shares in themselves, shareholder approval is required. No such approvals are required in Alberta. Further, in Nova Scotia, where financial assistance is provided with respect to the purchase of the corporation's shares, a solvency test must be met or a specific exemption must be available. No such restrictions are provided for under the Alberta statute.

The Canadian residency requirements for directors in Alberta have also been reduced from one half to one quarter of the members of the board. Although these residency requirements do not exist in Nova Scotia, it is likely that Alberta will become the preferred jurisdiction for ULC's because of the corporate and administrative advantages.

A key strategic element in the successful penetration of wind power is its efficient integration into the electricity transmission and distribution network.

The increase in the penetration of wind power production into the grid raises a number of issues:

• The output from a wind farm fluctuates to a certain degree according to the weather;
• Wind farms are often located at the end of the transmission and distribution networks, far from end-use customers; and
• The technical characteristics of wind generation are different from those of conventional power stations, around which the existing transmission and distribution systems have evolved.

Intermittency issues require an understanding of variability and predictability. Wind prediction techniques can help firm up wind power for system operators by reducing and specifying forecast error.

In balancing a system to accommodate the fluctuating input from wind power, new solutions such as forecasting and the use of interconnectors to neighbouring electricity networks are being developed. Regarding forecasting, it has been found that, even with short measurement periods on a site, it is possible to predict output very accurately using a correlation with measured meteorological data from nearby weather stations.

Scientists are addressing criticisms that wind power is inefficient because it is only intermittently available. One proposed solution to this problem would collect energy created by wind turbines, convert it into highly pressurized air and inject the pressurized air into a dome-like layer of solid rock. The resulting air pocket would displace groundwater, expanding or contracting like a balloon. The pressurized air would then be released from the reservoir when needed, making wind a more consistent source of power.

Innovative energy storage techniques, as well as reinforcement of the grid networks and increased geographical dispersion of wind farms through the grid network, will facilitate greater wind power penetration in the North American electricity systems without affecting the quality and reliability of supply.

A hearing date before the National Energy Board (NEB) continues to recede due to actions by both the applicant and interveners. The Deh Gah Alliance Society (DAS) filed a motion on February 10, 2005 to amend the Hearing Order and postpone the date for filing intervener written evidence until at least eight weeks after the final Information Request responses have been filed under either the Joint Review Panel or the NEB review process. In response to this application and submissions by other parties, on March 22, 2005 the NEB set a new timetable for the filing of evidence. The dates were as follows:

However, on March 30 Imperial Oil Resources Ventures Limited (Imperial) sent a letter to the NEB stating that it would not be able to file its responses to the Information Requests until April 11, 2005. The NEB responded on April 1st, stating that it would allow this extension, but that the dates in its March 22nd letter would be amended to reflect the change. Revised dates will be provided once Imperial has provided its responses.

Based on these events, it is now likely that all the filing dates in the NEB's March 22nd schedule will be pushed back by at least a week, or more if Imperial fails to provide its responses by April 11, 2005. This constant extension of the schedule means that an NEB hearing is being pushed later and later into 2005. It remains to be seen whether the delay will cause support for the pipeline to begin to falter, particularly if other alternatives, such as the Alaska highway pipeline, begin to look more promising.

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.