Canada: Energy @ Gowlings - November 24, 2008

Last Updated: November 26 2008

Edited by Paul Harricks


  • Bruce Power Considers Second Nuclear Facility in Ontario - Michael Morrison

  • Wind Sector Overview: Challenges and Opportunities - Paul Edwards

  • CRA Ruling on Municipal Corporation Capital Structures - Tim Wach and Craig Burley

  • Energy Efficiency and GHG Emissions - Tom Brett

  • Constitutional Jurisdiction Over the Nova Gas Transmission System - Alan Hollingworth

  • California Dreaming: California's Long Term Energy Efficiency Strategic Plan - Glen Carbol

By Michael Morrison

Bruce Power has announced that it will conduct an Environmental Assessment (EA) as it considers building a second nuclear facility in Ontario. The proposed 800 hectare site for the new facility is in the Haldimand-Norfolk region of southern Ontario and is owned by U.S. Steel.

The EA will examine the impact of building two reactors to generate between 2,000 MW and 3,000 MW of electricity. It will also examine how other clean energy sources such as hydrogen, solar and wind could complement nuclear generation in the area. It is expected that the EA could take up to three years to complete.

"Ontario needs affordable, reliable and clean energy as we move forward to address one of the greatest challenges of our time - climate change," said Duncan Hawthorne, President and CEO of Bruce Power. "Examining new sources of generation in Haldimand-Norfolk will give us, and Ontario, a number of options to consider going forward," Hawthorne added. "Although this is a major step forward, we will not make a decision to proceed with a project until we have consulted thoroughly with the people of Haldimand-Norfolk and have significantly progressed the EA."

The Canadian Nuclear Safety Commission (CNSC) announced that it has received the application for a licence to prepare a site and a project description from Bruce Power. Michael Binder, President and CEO of CNSC noted, "Canada is at the forefront of nuclear regulation in the world, thanks to the development of a rigorous and efficient system for licensing new nuclear power plants. This system can assure Canadians that we strive for the highest standards of health, safety, security and environmental protection."

Earlier this year Bruce Power launched a feasibility study to help Saskatchewan decide whether it will add nuclear to its energy mix.

By Paul Edwards

Abstract: This article provides an overview of the wind energy industry in Canada. After summarizing where the industry stands at present, the author sketches out the major factors that give wind power proponents reason to be optimistic about the industry's future as well as the challenges the industry faces as it becomes an increasingly important part of the electricity grid.

Background: An Industry Grown from Nothing

To date, Canada has not been among the world leaders. The installed capacity in several European countries now makes up a substantial percentage of those countries' total electric output. In Denmark, this figure is now over 20%. In Germany, it is approximately 8%. In contrast, Canada's installed wind generating capacity only meets the world average of about 1% of total electricity demand. In absolute terms, Canada's 1,846 MW of capacity (as at the end of 2007) is only a fraction of the corresponding figure in other countries including Germany (22,247 MW), the United States (16,818 MW), Spain (15,145 MW) and India (8,000 MW).

The reasons Canada has not been at the forefront of wind power are easily understandable. Historically, abundant conventional sources of electricity generation such as hydro power - especially in provinces such as British Columbia and Quebec - have made the case for new energy sources less compelling here than in Europe and some other parts of the world. Nevertheless, the same factors that have been driving the wind industry worldwide have now taken hold in Canada. A multitude of projects in all regions of the country are currently being built and planned.

Some regions of Canada are ahead of others. In Alberta, which up until now has led the country in terms of total installed capacity (524 MW at the end of 2007), most wind power developments have so far been concentrated in the Municipal District of Pincher Creek. Each of Quebec (422 MW), Ontario (521 MW), and Newfoundland (390 MW) also now has a substantial number of installed projects.

Advantages and Opportunities

The factors that have been driving this expanding interest in wind and making it attractive to investors may be divided into four broad categories:

  1. Supply and demand;

  2. Financial;

  3. Resources; and

  4. Public policy.

Supply and demand. While demand for electrical energy continues to rise despite conservation efforts, each conventional source faces constraints on its ability to meet that demand. Hydro continues to be quite cheap, but most of the biggest sites were spoken for long ago. Moreover, large hydro projects tend to cause upstream flooding and downstream flow interference: effects which are, at a minimum, controversial and, in some cases, plainly unacceptable.

Other conventional sources of electricity, coal and natural gas, are responsible for generating a substantial percentage of Canada's greenhouse gases (GHG's), which Canada has made international commitments to reduce.

Nuclear plants do not create greenhouse gases but they take a long time to plan and build and entail environmental issues of their own. Aside from the radioactive waste material which they produce as a by-product, nuclear plants need to consume large quantities of fresh water.

Financial. These constraints have opened up market opportunities for new sources of electricity which can be produced at reasonably competitive rates. Formerly, wind was not cost-competitive. Over the last couple of decades, however, wind's competitive position has advanced markedly as a result of improvements in technology, coupled with a rise in the cost of some other energy sources such as coal and natural gas. Wind turbines have become much larger and more efficient than they were a few years ago. Advances in the forecasting tools available to system operators and in their ability to balance variability in power supply also enhance wind's competitiveness.

Since wind is not dependent on commodity prices, project costs tend to be relatively predictable, a factor which can help make projects bankable.

Resources. All provinces of Canada have numerous excellent sites where wind velocities are typically high and where wind energy projects could be placed. Since these could collectively supply more power than could ever be used, there is no issue over the availability of this renewable resource.

Public Policy Advantages. Aside from being seen as a "clean", renewable source of power, wind has several other advantages from a public policy viewpoint. Calamitous power outages should be less likely when the sources of generation are widely distributed as opposed to being centralized in major plants. If the life of a wind farm should come to an end, the process of decommissioning the site will be relatively easy and inexpensive.

In the relatively near future, wind is likely to benefit from government policy favouring technologies which do not emit GHG's. The platform of President-elect Obama included establishing a "Renewal Portfolio Standard" which would require that 10% of all electricity consumed in the US be derived from renewable resources by 2012. In Canada, when the carbon cap-and-trade systems which the federal and various provincial governments have been proposing are ultimately implemented, one of the likely results will be a premium being placed on renewable energy supplies.

Turbines can - in fact in many cases must - be sited in rural communities. Wind projects are therefore capable of providing revenues, by way of jobs, municipal tax revenues and landowner royalties, in many communities, including aboriginal communities, which are economically depressed.

Constraints and Challenges

A number of constraints and challenges continue to face any enterprise wishing to undertake a wind energy project. These may be divided into:

  1. constraints posed by the nature of the resource;

  2. financial challenges; and

  3. environmental and regulatory challenges.

Limitations of the Resource. The most obvious limitation of wind as a source of energy lies in the fact that, even in the windiest places, the wind is not blowing all the time. A typical Canadian wind farm produces no energy at all as much as 30% of the time. The rest of the time the wind is not always blowing at high enough speeds to fully power the turbines. This leads wind to have what is referred to in the industry as a "low capacity factor". While most Canadian wind farms have a realized capacity factor which is higher than in many other countries, they still only average around 30%.

The demand for power, on the other hand, persists every hour of every day. While a thermal coal plant, for example, can burn more coal at times when the demand is at its greatest, a wind farm does not have such flexibility. Since technologies do not currently exist which would allow large concentrations of energy from wind turbines to be economically stored until the energy is needed, the fraction of any electricity grid which is supplied by wind (the "penetration level" of wind) will not at any time in the foreseeable future amount to more than a minority of the demand in any location (likely 20% or less in most areas, although some forecasters predict that this percentage will rise).

This limitation on wind's penetration level has led system operators to enforce limits on the connection of wind projects to the grids they are responsible for. For example, in 2007 the Alberta Electric System Operator (AESO) placed a 900 MW "cap" on wind facility interconnection to the Alberta system as a temporary measure to protect system reliability. While this cap has since been removed in favour of a "Framework" for Wind Integration, the AESO, like other system operators, will continue to be watchful that its system is not jeopardized by too many wind interconnects.

A second limitation lies in the fact that, although there are a great many potentially good sites, many of them are far-removed from cities and industrial centres where the power is required. Transmission over long distances using the type of facilities which are currently in common use entails substantial line loss, rendering remote sites less energy - and cost-efficient.

A shorter-term problem is that existing transmission lines may not have the capacity to accommodate large new wind energy projects.

Financial. The less-than-perfect reliability of wind farms as a source of power can give credence to the argument that wind power has inherently less value than power from other sources.

Although wind energy projects have more robust economics than they did a few years ago, the up-front capital costs are heavy, compensated for in part by very low operating and back-end decommissioning costs.

Finally, the flip side of the point that wind gains competitiveness as competing commodity costs (coal and gas) rise is that competitiveness can be negatively affected in the event of a prolonged depression in the market price of those commodities.

Environmental and Regulatory. Despite its reputation as a clean source of energy, wind is not without its share of environmental issues and detractors. Wind energy is undeniably benign from a global, national and regional point of view, but not all people like the sight or the sound (in high winds) of turbines towering over their neighbourhoods. Specific local issues with large turbines may also include bird and bat kills.

The regulatory process can be as complex for a wind energy project as for other types of industrial projects. Local processes, especially in some provinces such as British Columbia, have been found to be cumbersome and multi-layered, slowing down the process considerably and affecting project economics and financing.

Other. In the short-term, a challenge continues to be posed by a bottleneck in the supply of turbines and other key components - one result of wind energy's recent success.

Looking Ahead: Where From Here?

Wind power is an industry which is certain to grow over the next couple of decades at least. In all regions, a number of projects are under construction or at various stages of the regulatory process.

The federal Government has projected that wind energy will supply 6% of Canada's electricity by 2020. A far more ambitious goal has been set by the Canadian Wind Energy Association (CanWEA), which argues that wind energy can supply 20% of Canada's total electricity by 2025. This would represent an additional 55,000 MW of power, or roughly a 30-fold increase over current levels.

In line with CanWEA's target, a recent technical study released by the US Department of Energy concluded that 20% of American electricity needs could be met by wind by 2030.

Whether or not these targets are met, there is no question that Canada's wind energy industry will be expanding rapidly over the next couple of decade, creating exciting opportunities in what is already a substantial market. Aside from supplying domestic demand, there are opportunities for the export of Canadian wind power, particularly from sites in eastern Canada to the eastern seaboard of the US.

The author would like to thank Chiara Woods for her research assistance.

By Tim Wach and Craig Burley

The Income Tax Act (Canada) (ITA) permits certain corporations owned predominantly by one or more municipalities to be exempt from "regular" tax under Part I of the ITA. The requirements for qualification for such status are found in paragraphs 149(1)(d.5) and (d.6) of the ITA, with the result that qualifying corporations are often referred to as "d.5" and "d.6 corporations".

Among the requirements imposed under paragraph 149(1)(d.5) and related provisions of the ITA are the requirements, in general, that, (i) at least 90% of the "capital" be owned by one or more Canadian municipalities (the "Capital Requirement"), and (ii) if the corporation has voting shares issued, one or more Canadian municipalities must own shares that give them at least 90% of the votes that could be cast under all circumstances at an annual meeting of shareholders of the corporation (the "Voting Requirement"). As well, in general terms, a related provision will deny a corporation itsd.5 corporation status immediately if someone other than a Canadian municipality has the right to acquire shares of the corporation which, if exercised, would cause the corporation to lose its status (the "Share Rights Requirement").

A significant issue in any analysis of the Capital Requirement is the breadth of the concept of "capital". For example, it is arguable whether it extends beyond equity capital to include, for example, debt of the corporation. The Canada Revenue Agency (CRA) has, in the past, expressed certain views on this question, such as in Technical Interpretation 9913895, December 2, 1999. However, based on discussions that we have had with the CRA, it is clear that they have not released publicly all of their positions on this issue, that the Technical Interpretation referred to above does not outline all their thinking, and that "capital" may well include debt in some circumstances.

With respect to the Share Rights Requirement, the CRA has, in the past and in the context of similar but different provisions of the ITA (notably rules applicable to the concept of "related persons" under the ITA), expressed views on whether such rights would include certain rights typical in shareholder agreements such as so-called "rights of first refusal". However, whether the CRA would extend these views to the Share Rights Requirement applicable to d.5 corporations has not been clear.

It seems that the CRA has addressed some of these issues in the context of a recent ruling, being Tax Ruling #2007-0224741R3 "Capital of a Municipal Corporation" (the Ruling). However, because almost all of the details were redacted from the published version of the Ruling, it is difficult to extract much guidance from it. The Ruling involved a private sector investor in a d.5 corporation who proposed both to invest in shares of the d.5 corporation and to provide funding by way of debt.

Several points in the Ruling are interesting. For example, it seems that the CRA continues to believe that debt must be considered when considering the extent to which the "capital" of a d.5 corporation is held by persons other than Canadian municipalities. However, the lack of detail in the Ruling makes this somewhat unclear. As well, it seems that the CRA is willing to extend its prior positions on rights under shareholder agreements to the Share Rights Requirement, but again the lack of detail in the Ruling makes it unclear how far the CRA is willing to go in this regard.

It seems from the Ruling that the CRA has further developed its thinking in respect of the requirements in paragraphs 149(1)(d.5) and (d.6). On the other hand, from our experience in discussing these matters with the CRA, it is clear that all of its deliberations on these matters have not been made public. Accordingly, without further and clearer public statements by the CRA one must still tread very carefully in this area.

By Tom Brett

Canadian energy users which are, or will in the future become, subject to greenhouse gas (GHG) emission reduction laws can benefit from enhanced energy efficiency projects in two ways. First, those energy users whose emissions are restricted by the regulatory scheme can enter into energy efficiency projects to reduce their energy consumption and hence their emissions. Second, parties that are not subject to mandatory GHG reduction can create projects which reduce fossil energy consumption and therefore GHG production to levels below those that would result from a "business-as-usual" approach.

The projects are labelled "offsets" in the GHG legislation and can be used by regulated emitters to meet their emission reduction obligations. One offset equals one ton of carbon dioxide equivalent emissions. Regulated emitters may find it less expensive to meet their GHG emission reduction obligations by purchasing offsets rather than undertaking the expenditure necessary to achieve the required reductions at their facilities. For the creator of the offset, normally an unregulated user, the sale of the offset will create a second revenue source, beyond the dollar value of the energy savings alone.

For example, section 5 of the Alberta Climate Change and Management Act, passed in 2007, authorizes the creation of emission offsets. Alberta Regulation 139/2007, the Specified Gas Emitters Regulation, enacted under that legislative authority and effective as of July 1, 2007, provides that eligible offset projects must:

  • be in Alberta;

  • result from action taken on or after January 1, 2006;

  • be from an action taken that is not otherwise required by law at the time the action was initiated (sometimes referred to as the "incrementality" criteria);

  • be real and demonstrable; and

  • be quantifiable and measurable.

Pursuant to this regulation, the Alberta Government has developed a number of "how-to" manuals, or Offset Quantification Protocols, which describe the conceptual framework and methods of measuring the eligible emission credits from energy efficiency projects, waste heat recovery projects, and commercial and institutional green building projects, both new buildings and retrofits. Alberta has also published protocols for solar, wind, small hydro and landfill gas projects, among others.

Unlike the Alberta regime, Canada's GHG policy and legislation is still a work in progress. However, the Government's recent GHG policy announcements, Turning the Corner, published on March 10, 2008, laid out the fundamental aspects of the federal GHG reduction regime.

The federal plan focuses on large industrial emitters of GHG, including power generators, namely facilities that emit more than 100,000 tons of CO2 equivalent per year. Offsets are seen as one method to comply with the regulations and of reducing overall costs of compliance. One of the Turning the Corner policy papers, entitled Canada's Offset System for Greenhouse Gases, explains the federal approach to eligible offsets. The federal approach is broadly similar to that in Alberta. Offsets must be generated in Canada and must achieve real, incremental, quantified, verified reductions of greenhouse gases, and be within a category of eligible offsets. The Delphi Group, a prominent Canadian GHG consultant, has advised that the federal government is currently reviewing the offsets eligible under the Alberta legislation to determine which ones may be "fast-tracked" into federal offsets. The federal eligible offsets will be similar to those in Alberta and will include energy efficiency projects. The federal offset protocols are under development, through consultation with a private sector advisory group, and should be published throughout 2009. The offsets will need to be registered with and certified by Environment Canada under regulations made pursuant to the Canadian Environmental Protection Act. The government is encouraging industry groups to propose offset protocols, as it has a serious personnel shortage in the area, and cannot do the work alone in a timely way.

Generic offset protocols, for categories like energy efficiency, must be completed before the submission of an individual energy efficiency project. All of this activity is due to be completed by the end of 2009, as the proposed GHG regulations are due to come into force on January 1, 2010.

Finally, British Columbia, Manitoba, Quebec and, two weeks ago, Ontario have joined with seven American states in the Western Climate Initiative (WCI). The Design Recommendations for the WCI Regional Cap-and-Trade Program were issued on September 23 of this year. These recommendations contemplate the use of offsets as one way for regulated emitters to meet their obligations. The plan is to commence January 1, 2012 in all eleven member jurisdictions. The offset protocols will be developed in the next few years. It is likely that energy efficiency projects will be eligible offsets under that plan.

In the meantime, since energy efficiency projects initiated in the last few years and current projects will create eligible offsets under both the federal and Alberta regimes, parties to energy savings agreements should ensure that the agreement addresses the allocation of ownership of any eligible offsets that the project creates.

By Alan Hollingworth

On November 18, 2008, a hearing will begin before the National Energy Board (NEB) to consider an application by TransCanada PipeLines Limited (TCPL) that its wholly-owned affiliate, NOVA Gas Transmission Limited (NGTL), should properly fall under federal or NEB jurisdiction. NGTL is currently regulated by the Alberta Utilities Commission.

The appropriate regulating authority for NGTL has long been a matter of speculation and discussion. As long ago as 1991, John Bishop Ballem, Q.C., now of Gowlings' Calgary office, published a scholarly article which considered the constitutional position of NGTL: "Pipelines and the Federal Transportation Power" (1991) 29 Alta. L. Rev. 617. NGTL connects directly with, and transmits gas to, inter-provincial systems leading to eastern Canada, the mid-western United States and California. Over the years, the ownership of all of these inter-provincial and international pipelines has come into the hands of TCPL. TCPL also has interests in transportation systems which would deliver gas, via Alberta and probably the NGTL system, from Alaska's North Slope and Canada's Mackenzie Valley and Delta.

Lastly, TCPL has integrated, to a very great extent, the operations of NGTL with its other pipeline affiliates. For instance, NGTL has no employees.

This makes the TCPL corporate situation more like that of Westcoast Energy Inc. (now Spectra Energy). In 1998, the Supreme Court of Canada decided that Westcoast's system was all properly under federal (NEB) jurisdiction.

At the time of writing, the outcome of the application is by no means certain. Although it was represented at the time of the TCPL filing that the Alberta Government did not object to the transfer of jurisdiction to the federal authority, recent actions and filings of the Alberta Department of Energy tend to indicate otherwise. It is therefore quite conceivable that a decision of the NEB, in favour of it taking jurisdiction, could be appealed.

Stand by for future developments.

By Glen Carbol

On September 18th, 2008, the California Public Utilities Commission (CPUC) took a giant leap towards overcoming what it perceives as market barriers to energy efficiency by adopting its first Long Term Energy Efficiency Strategic Plan. The eleven year plan, running until 2020, is the state's first integrated framework of goals and strategies for saving energy.

The Plan targets residential, commercial, industrial and agriculture consumers of electricity with the objective of employing market transformation, defined as: long-lasting sustainable changes in the structure or functioning of a market until further publicly-funded intervention is no longer required.

According to CPUC, utility programs in California have naturally gravitated toward measures which produce readily-quantified, low-cost, near-term savings which offer an easy way to purchase load reduction with limited market impact. As a result, there has been little incentive for utilities to engage in the kind of long-term planning which produce meaningful market transformation. In response, the Plan aims at moving utilities beyond short-term energy efficiency activities into a more sustained long-term focus. The Plan proposes to accomplish this by emphasizing its four "Big Bold" strategies:

(1) All new residential construction in California will be zero net energy by 2020.

Zero net energy (ZNE) is a general term applied by CPUC to a building with a net energy consumption of zero over the course of a year. ZNE homes are typically envisioned as connected to the grid, exporting electricity when there is a surplus and drawing electricity when not enough electricity is being produced.

The Plan characterizes this goal as a "reach" or "programmatic." In other words, it is intended to "capture the imagination and spark the enthusiasm of all who participate in transforming residential new construction to ultra-high levels of energy efficiency."

(2) All new commercial construction in California will be zero net energy by 2030.

The Plan envisions that this goal can be accomplished by adopting aggressive minimum energy codes and standards for buildings, aligning commercial building benchmarking, and targeting financing to support meeting the commercial sector goals, especially approaches to resolve the "principal agent" problem (when economic motivation is split between owners and tenants.)

As part of this effort, California will establish a "Path to Zero" campaign sponsored by CPUC that will feature real-world experience and data on emerging technologies, practices and designs that deliver zero net and ultra-low energy buildings.

(3) The Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped to ensure optimal equipment performance.

The prevalence of air conditioning in new homes compared to 30 years ago has caused air conditioning to become one of the state's largest energy consuming end uses and the single largest contributor to peak power.

The goal here is to improve HVAC efficiency 50 percent by 2020 and 75 percent by 2030. The strategies to achieve this improved efficiency include: streamlining local government permits, starting more pilot programs, changing the building code by replacing the current optional quality control requirements with mandatory requirements, improving the inspection and verification compliant system, and enforcing penalties for noncompliance.

(4) All eligible low-income homes will be energy-efficient by 2020.

California's Low Income Energy Efficiency (LIEE) programs provide no-cost energy efficiency and appliance testing and repair to qualified low income customers in rental and customer-owned residences. The challenge for LIEE has always been outreach. Currently, more than 50 percent of low income residences have not received energy efficiency upgrades. In response, the Plan intends to increase spending in (i) marketing, education and outreach and (ii) workforce education and training.

In the end, how the Plan is to be funded is just as important as the Plan's implementation. CPUC's regulated utilities have already filed applications seeking authorization for $3.7 billion of energy efficiency programs for the next three years. These programs will be ratepayer funded. In fact, under the Plan ratepayers will continue to be the principal means of funding for all future programs. To make this cost issue somewhat more sticky, the Plan makes special mention of the fact it has not undergone any cost-benefit analysis. So while it may be California dreaming for CPUC, it may well end up being nothing but the California blues for home owners and businesses for quite some time.

The full text of the plan can be viewed at:

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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    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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