Canada: Energy @ Gowlings - October 2005

Last Updated: November 10 2005

Edited by Mr Paul Harricks

  • Ontario Government and Bruce Power Reach Agreement to Restart Nuclear Units
  • Stakeholders Alliance Holds Forum on the Long-Term Impact of Ontario's Electricity Policy
  • NEB Releases Short-Term Outlook for Natural Gas and Natural Gas Liquids
  • OEB Issues Discussion Paper on Filing Requirements for Transmission Infrastructure Investment
  • New Wind Power Policy for B.C.
  • PEI Approves 30 MW Wind Farm

Ontario Government And Bruce Power Reach Agreement To Restart Nuclear Units

Ontario Energy Minister, the Honourable Donna Cansfield, has announced that the government and Bruce Power have reached an agreement to produce an additional 1,500 MW of electricity through the refurbishment of Bruce A Units 1 and 2 at the Bruce Nuclear facility, located near Kincardine. This represents enough electricity to power one million homes.

Bruce Power will invest $4.25 billion to restart Units 1 and 2, refurbish Unit 3 when it reaches the end of its useful life and replace the steam generators in Unit 4. Its investment will bring the total output from the Bruce Power facility to 6,200 MW and create about 1,500 construction jobs over the four-year project.

"This agreement is transformational for Bruce Power," said Duncan Hawthorne, President and CEO of Bruce Power. "Instead of shutting down units beginning in 2009, we have created a new future where we start bringing units back to service that year. Our employees and our communities can now look forward to a new era of security and growth." Hawthorne further added, "This will be one of the largest engineering projects Ontario has seen since these generating stations were first built. This will be a challenging job, but the experience we gained during the restarts of Units 3 and 4 will be brought to bear throughout the process."

"This is a landmark transaction for our province," said Cansfield. "In the past, financial risks associated with Ontario's nuclear fleet have rested squarely on the shoulders of ratepayers or taxpayers, costing them billions of dollars. This agreement transfers much of the risk associated with the project to the private sector and away from hard working Ontarians, while ensuring fair prices and the capacity to meet Ontario's future energy needs."

Under the agreement, Bruce Power will receive $63 per megawatt hour for all of the electricity produced through the Bruce A units. The average price for electricity in Ontario from January 1, 2005 to October 4, 2005 was $67.75 per megawatt hour. The output from the Bruce B unit will continue to be sold into the market at spot prices or to various customers under fixed price contracts. Bruce Power will pay all capital costs associated with the refurbishments of the units and ensure that "much of the risks of cost overruns related to the refurbishment and restart of the units are transferred away from Ontario ratepayers."

Stakeholders Alliance Holds Forum On The Long Term Impact Of Ontario's Electricity Policy

The Stakeholders Alliance for Electricity Competition and Customer Choice (Alliance) organized a forum on the topic: Ontario Electricity Policy: Its Long Term Impact . David McFadden, Alliance Chair and Chair of Gowlings' National Energy and Infrastructure Industry Group, chaired the event.

The forum brought together leaders from all sectors of the Ontario power industry and from large and small consumers, as well as government officials. The program looked at the topic from four perspectives:

  • Developments in Surrounding Jurisdictions;
  • The Generator's Perspective;
  • The Distribution and Transmission Perspective; and
  • The Consumer Perspective.

Each perspective was considered by a panel of industry experts. Among the speakers were:

  • Duncan Hawthorne, President and CEO of Bruce Power;
  • The Honourable Perrin Beatty, President and CEO of the Canadian Exporters and Manufacturers
  • Mike Kuryichuk, Chairman of the Board of the Association of Major Power Consumers of Ontario
  • Charlie Macaluso, President and CEO of the Electricity Distributors Association
  • Bruce Boland, Senior Vice President, Corporate Affairs, Ontario Power Generation
  • Dan Allegretti, Vice President, Regulatory Affairs, Constellation Energy.

In a luncheon address, Dr. Warren Jestin, Senior Vice President and Chief Economist, Scotia Capital, reviewed the serious competitive pressures being faced by Ontario manufacturers and the importance of competitively priced power to the economic health of Ontario and Canada.

There was a general agreement among the forum participants on a number of points:

  • The Ontario Government should revisit its decision to close out the province's coal plants on the schedule proposed and develop a strategy to employ "clean coal" technology in the years ahead;
  • The government must develop and articulate a clear plan and larger vision, one that will outlive the current government's mandate, and that will foster investor, consumer and industry participant confidence;
  • The operational infrastructure is, in many instances, reaching the end of its useful life and serious consideration must be given to its replacement. As such, regulatory approval for capital spending needs to be streamlined; and
  • Ontario needs to set a pricing regime that will allow pricing to be competitive with surrounding jurisdictions.

NEB Releases Short-Term Outlook For Natural Gas And Natural Gas Liquids

The National Energy Board (NEB) issued its Short-Term Outlook for Natural Gas and Natural Gas Liquids to 2006 . The outlook considers natural gas supply and demand, natural gas infrastructure and natural gas liquids supply, demand and infrastructure.

The outlook notes that, in the past few years, there has been an extremely close balance between supply and demand with demand growth outstripping supply growth. This tight situation has led to "high and volatile natural gas prices". Also noted is the effect that high oil prices have had on sustaining the high natural gas prices. The increase in oil pricing, coupled with limited fuel switching opportunities, have contributed to the high natural gas prices. On a positive note, the high natural gas prices have decreased natural gas demand in some sectors as industries have either made capital investments or implemented efficiency programs to improve energy efficiency.

As the production of natural gas has grown, so too has the capability to extract natural gas liquids (NGLs). The outlook states that, "essentially all of the ethane, 87 percent of propane and 67 percent of butane production is sourced from natural gas. Considering that NGLs in Canada are primarily extracted from natural gas, changes to the supply and demand for natural gas would impact NGL supply. Periods of high and volatile natural gas prices affect the economics of extracting NGLs from the gas stream. Conversely, NGLs left in the gas stream increase the supply of natural gas."

The price of natural gas is determined within an integrated North American market which is influenced by regional considerations such as transportation costs, infrastructure constraints, weather and global considerations such as oil pricing. The NEB anticipates that the price of crude oil will continue to have a major impact on natural gas pricing during the outlook period with the price of natural gas ranging from US$5.51/MMBtu to US$12.41/MMBtu. Since supply continues to be tight and there is "limited ability to increase supplies quickly", a situation which could be worsened by extreme weather, natural gas prices are expected to remain high and volatile during the outlook period.

With respect to natural gas supply and demand, the NEB has highlighted the following issues:

  • Canadians are facing high and volatile natural gas prices over the outlook period. Although high gas prices have benefited Canadian economic growth, higher energy costs present a challenge for consumers and the industrial sector; and
  • For oil sands producers, high and volatile natural gas prices have added uncertainty to the cost of their operations. Consequently, suitable alternatives for natural gas are being investigated by oil sands producers and they will make investment decisions based on the overall economics of their operations.

The NEB expects that natural gas delivery from Alberta will decline over the projection period while deliveries from British Columbia and Saskatchewan are expected to grow. In the U.S., it is anticipated that growth in gas production will come from the Rockies region (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming). The NEB also expects an increase in liquefied natural gas (LNG) imports into North America. Similarly, an increase in natural gas-fired generation will contribute to growth during the outlook period .

It is anticipated that, "the volume and patterns of gas flows through existing pipeline infrastructure will undergo change". Changes in demand will also affect natural gas volume and pattern flow through existing pipelines. Although outside of the outlook period, the anticipated increase in natural gas consumption in the oil sands region could reduce natural gas volumes flowing downstream. The following map illustrates the current North American pipeline grid.

Source: National Energy Board

Growth in demand for heating, petrochemicals, gasoline and diluent for bitumen and heavy oil will contribute to the demand for NGLs during the outlook period. However, limited growth in production of NGLs is expected during the outlook period since high natural gas prices, relative to crude oil, discourages the extraction of NGLs from the gas stream. In addition, the anticipated increase in demand for natural gas in the oil sands will reduce the amount of liquids rich gas available at the straddle plants. The outlook notes that, " a significant investment has been made in developing the NGL transportation and extraction facilities and in providing feedstock to the petrochemical sector. These industries are evaluating their options to secure additional NGL sources and find alternatives."

The full text of the outlook can be viewed by visiting the following site:

OEB Issues Discussion Paper On Filing Requirements For Transmission Infrastructure Investment

The Ontario Energy Board (OEB) has issued a discussion paper on Filing Requirements for Transmission Infrastructure Investment. The OEB recognizes that there is a need to clarify the approach for evaluating the costs and benefits of transmission infrastructure investment. The primary purpose of the discussion paper is to present a potential test for that evaluation.

This paper will serve as the starting point for discussions with a Technical Advisory Team. After the Advisory Team has provided the OEB with input on the "conceptual and practical merits of the potential test," the OEB will develop a draft test and filing requirements which it will release for public comment. The comments received from the draft test and filing requirements will be used to develop the final requirements.

The OEB notes that, with respect to electricity, it is guided by the following objectives (section 1(1) of the Ontario Energy Board Act, 1998 (Act)):

  • To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service; and
  • To promote economic efficiency and cost effectiveness in the generation, transmission distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry.

The discussion paper also notes that, under section 92 of the Act, the OEB mandate for leave to construct applications is to ensure that electricity transmission line expansions are in the public interest. The OEB anticipates that the province is entering into a period of large investment in electricity infrastructure, including transmission lines.

The test has been developed by examining the cost-benefit methodologies for transmission development employed in California, Australia and New Zealand. The following is the framework for the test that has been put forward:

  • Benefits of Transmission Investment;
  • Maximizing Benefits; and
    • Modelling parameters;
    • Materiality Threshold;
    • Value of Unserved Energy;
    • Discount Rate;
  • Timeframe;
  • Alternative Projects; and
  • Uncertainty.

The paper identifies a number of issues for discussion that are specific to the above framework. In addition, the paper identifies the following, more generic, issues for discussion:

  • Are there other methods of transmission investment evaluation that the OEB should be examining?
  • Should the benefits of increased competition be included in the test? How should they be assessed?
  • What role should probabilistic standards play in the test?
  • How can the test ensure that network and non-network investments are treated appropriately?
  • What role(s) should the Independent Electricity System Operator and Ontario Power Authority play in the cost-benefit test and transmission investment applications in general?
  • Are there any specific existing network analysis software applications that are acceptable to use to fulfill the requirements of the proposed test?

The full text of the discussion paper may be viewed by visiting the following site:

New Wind Power Policy For B.C.

The British Columbia government has announced a new 10 year ‘holiday' from resource rent for wind projects located on Crown land. The government states that the new policy will offer flexibility and incentives for wind producers with respect to capital investments.

"In partnership with the wind power industry, we have come up with an innovative solution to ease the financial risk for wind power producers, which will ensure we can move forward in developing alternative energy opportunities," said Energy, Mines and Petroleum Resources Minister, the Honourable Richard Neufeld. "New participation pricing features will allow the industry to develop and mature over the first 10 years."

Under the new policy, there will be no participation rents for the first 10 years of commercial operations. From year 11 on, the following variable rent scheme will be in effect:

  • One per cent of gross revenue when the annual production factor is less than 25 per cent;
  • When the annual production factor is greater than 25 per cent but less than 40 per cent, the rent will range on a sliding scale from one to three per cent; and
  • Three per cent of gross revenue when the annual production factor is greater than or equal to 40 per cent.

The B.C. government believes that the variable rent scheme will ensure a fair return to the Province while "being sensitive to the actual production characteristics of individual projects." A review of the rent free phase will be conducted in 2010 however, any changes that are made to the rent scheme at that time will not affect projects that are already in operation.

"The provincial government has worked diligently for two years with the B.C. power sector and other stakeholders to develop the best wind tenure policy in Canada," said Ron Percival, chair of the wind committee of the Independent Power Producers of BC.

Currently, there are 169 tenure applications for wind energy development in B.C. and over 2,000 MW of wind power projects in various stages of development throughout the province.

PEI Approves 30 MW Wind Farm

Prince Edward Island Energy Corporation (PEIEC) received approval from the PEI Government to proceed with final design and development of a 30 megawatt wind farm at the Eastern end of the Island. Frontier Power Systems was the successful bidder in the RFP for project design services issued at the beginning of the year. Construction should start in the spring of 2006 and the wind farm should be operational in the fall of 2006.

Minister of Environment, Energy and Forestry, the Honourable Jamie Ballem, also mentioned that PEIEC will soon issue an RFP for the financing of the capital costs of the wind farm project, estimated at $55 million.

Minister Ballem demonstrated that promoting wind in Prince Edward Island is a key component of his government's renewable energy strategy and goal of 15% of electrical energy from renewables by 2010. Prince Edward Island is indeed a national leader in wind energy development.

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