Canada: Energy - October 2015

The exploration, development, transmission and sale of energy is the backbone of the Canadian economy. Reserves of crude oil found in western Canada are among the largest in the world and Canada is one of the leading producers of both oil and natural gas. The world's longest crude oil and liquids pipeline system is operated by a Canadian company. Another Canadian company owns one of the most extensive natural gas transmission networks in the world. A significant portion of Canada's energy, primarily oil, natural gas and electricity, is exported to the United States. Shale discoveries in the United States and eastern Canada will continue to have an impact on natural gas in Canada and will require investment to accommodate the changing transportation patterns.

The provinces of British Columbia, Quebec, Manitoba, Newfoundland and Ontario have abundant sources of hydroelectric power, and Canada is a world-leading producer of hydropower. The largest nuclear power generating facility in North America is located in Ontario. The province of Saskatchewan is home to some of the largest known highgrade uranium deposits, making it the world's largest uranium producer. Coal is also mined and used primarily in the western provinces and for export.

Canadians have been recognized as among the largest per capita users of energy in the world. Several Canadian provinces have taken steps to reduce the level of energy consumption both on the part of large industrial users and individual consumers. Laws and government support programs that support investment in infrastructure, additional generation, conservation and improved efficiency have the ability to transform the way new and existing Canadian companies meet their own and the Canadian market's energy needs over the coming decades and represent significant investment opportunities.

National Management & Regulation

The Canadian energy sector is governed by both federal and provincial or territorial laws. At the federal level, the National Energy Board regulates matters that transcend provincial boundaries and provides advice to the Government of Canada on national energy issues. It has been given a mandate to study and keep under review a broad range of energy-related matters under federal jurisdiction, including the production, transmission, distribution and sale of energy, and sources of energy, both in and outside Canada.

Within the scope of its jurisdiction over extra-provincial energy matters, the National Energy Board's role extends to construction and operation of facilities, tolls and tariffs and approval of transactions. Thus, the National Energy Board regulates the construction and operation of interprovincial and international pipelines, international electricity transmission lines and designated interprovincial electricity transmission lines; it deals with traffic, tolls and tariffs for the pipelines within its jurisdiction; and it grants approval for the export and import of oil and natural gas and the export of electricity.

Provincial Regulation

In addition, most provinces have established a regulatory body to deal with activities such as the distribution of electricity and natural gas. In Ontario, for example, this body is the Ontario Energy Board. In the natural gas field, the Ontario Energy Board does not regulate the price of the commodity purchased by consumers, but it licenses marketers who sell gas to small volume consumers. It also approves rates charged by utilities for the distribution of gas and exercises powers in relation to the construction of gas distribution facilities, the creation and operation of gas storage areas, the sale or amalgamation of gas distribution utilities and the approval of franchise agreements between distribution utilities and municipalities.

On the electricity side, the Ontario Energy Board sets transmission and distribution rates and approves the budget and fees for the Independent Electricity System Operator. The Ontario Energy Board also licenses electricity market participants; sets the rate for standard supply service by electricity distributors that supply the commodity directly to customers; approves the construction of certain transmission facilities; and approves certain business arrangements within the regulated part of the electricity industry. Given the turbulent economic times, regulators are more than ever focused on the economic and customer rate impact of the decisions being made on rates, tariffs and new infrastructure.

Energy Generation

While the generation, transmission and distribution of electricity generally fall under the jurisdiction of the provinces of Canada, nuclear energy is accorded a special treatment. Nuclear energy is seen to be a matter of national interest, as is Canada's effective participation in the international control of nuclear energy. The government of Canada has established the Canadian Nuclear Safety Commission which regulates the development, production and use of nuclear energy, as well as the use of nuclear substances and certain prescribed equipment and information. Ontario has forecasted nuclear will continue to form a significant source of electricity for the coming decades. The future of specific nuclear facilities and the long-term management of nuclear waste will be the subject of debate for years to come. However, the existing sites may have their life extended through refurbishment and the installation of new units.

The generation of renewable energy, particularly the wind, solar, hydro and biomass/biogas industries, has very quickly become a multi-billion dollar business in Canada, and especially in Ontario. Most provinces have embarked on programs to develop and procure renewable energy from independent power producers. Coal and natural gas will continue to play a role in power generation as the dispatch capability makes these fuels especially adept at providing the necessary response to peaks in demand.

Transmission and Distribution

Canada has an extensive pipeline system to deliver natural gas from British Columbia, Alberta and Saskatchewan to eastern Canada and the U.S. The distribution and transmission of natural gas is regulated but open to private sector ownership. Investment will continue to be required to expand the system's capacity and flexibility. Natural gas and electricity will be impacted by proposed changes to the oil pipeline system. Further, the development and evolution of the natural gas market and infrastructure system will be also impacted by the development of shale gas in the northeast of the United States, the changing needs of the oil sands and access to export markets and LNG.

New pipelines are proposed that would connect Alberta to the Pacific Coast thereby opening up new markets in places such as China. In addition to reviewing large project applications, the National Energy Board is consistently researching and refining Canadian government policies on oil and gas exploration in the Arctic and both in regards to on and offshore drilling. Several other pipeline projects, oil and natural gas, are currently in development.

A significant portion of the electricity generated in Canada is transmitted from the province of origin to neighbouring provinces and to the United States. The ownership of the electricity grid is a combination of public and private sector ownership with provincial regulators regulating the rate of return. Ontario has recently embarked on a process to permit competitive development of transmission infrastructure which has garnered interest from several international transmission companies. Several jurisdictions have embarked on multibillion dollar initiatives to improve the transmission system to meet the needs of the new economy through system expansion and the transition to a smart grid.

Conservation Initiatives

Energy conservation has also been given prominence as a key objective of both the federal and provincial governments. At the federal level, Natural Resources Canada continues to operate the Office of Energy Efficiency ("OEE"), which is the starting point for businesses and individuals to collect information on government grants, rebates and incentive programs for research and development into new technologies and energy efficiency upgrades. For businesses, the OEE offers incentives as varied as grants for the retrofitting of factories to rebates on the purchase of fuel-efficient fleets. Provincial programs may also exist to encourage energy efficiency upgrades.

In provinces like Ontario, a wide range of opportunities have been opened up through the promotion of conservation and reduced energy consumption. In addition to energy generating opportunities summarized above, businesses also have opportunities to enter into conservation and demand reduction contracts with provincial authorities, whereby businesses get paid for curtailing their peak energy use when done in response to requests from the Independent Electricity System Operator who manages the real-time electricity supply in the province. Further, businesses that invest in more energy efficient equipment and processing may also qualify for support.

Finally, based on the supportive environment created by the feed-in tariff and conservation regimes, Canada is also emerging as a 'smart grid' technology leader. Referring to the efficiencies gained when electricity is managed and tracked by technology from the point of generation all the way to end-use, both existing and new Canadian businesses are emerging as global players in the energy management field.

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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