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Home > Speeches and Presentations > Speeches and Presentations 2010 > NEB's View on Export and Import Regulation in the Electricity Sector

NEB's View on Export and Import Regulation in the Electricity Sector

Presented by
Gaétan Caron
Chair and Chief Executive Officer
National Energy Board

Canada/U.S. Energy Transactions Conference
Vancouver, British Columbia

23 August 2010

NEB's View on Export and Import Regulation in the Electricity Sector

Good afternoon.

I was very pleased to receive an invitation from the organizers to give a special address. I think this forum is a wonderful opportunity to learn and share best practices. I'd like to take this time to share with you the NEB's perspective on energy, regulation and market integration.

Outline

My presentation will follow the subjects outlined here.

Based on experiences of those in the audience here today, I'm sure the policy issues and evolution of energy regulation through the lense of free trade, smart regulation and sustainability will be familiar.

The NEB: Active and Effective in Canada's Pursuit of a Sustainable Energy Future

I'd like to begin with a brief background about the National Energy Board (NEB). The NEB is an independent federal agency established in 1959 by the Parliament of Canada. That's right, 50 years old last year!

In essence, the NEB has two broad responsibilities that derive from the National Energy Board Act. Our regulatory role includes: oversight of the construction ,operation and abandonment of international and interprovincial pipelines, international power lines and designated interprovincial power lines; authorization of pipeline tolls & tariffs; authorization of energy exports (oil, natural gas, natural gas liquids and electricity) and imports (of natural gas); and to administer the Canada Oil and Gas Operations Act and Canadian Petroleum Resources Act on non-Accord frontier lands and offshore territories for any oil and gas activities that occur.

Second, our advisory work includes informing the government, industry and the public at large about developments in energy supply and markets through our Energy Information Program. This includes undertaking reports like Canada's Energy Future, other Energy Market Assessments and making energy information available at our website.

Note: The NEB regulates approximately 71 000 kilometres (44 120 miles) of pipeline across Canada, approximately 1 400 kilometres (870 miles) of international power lines, and over 1600 wells in frontier lands and offshore territories (only 1 offshore well drilled since the NEB attained COGOA responsibilities in 1991).

Electricity Regulation in Canada

NEB responsibilities with respect to the electricity industry pertain to electricity exports and to the construction, operation and abandonment of international power lines (IPLs) and designated interprovincial power lines (currently there are no such lines). The Board often shares regulatory authority over international power lines with its provincial counterparts. Designating an interprovincial power line to be regulated by the NEB is a policy matter, to be made by the Governor in Council.

The role of the provinces and the federal government has gone through a series of ebbs and flows over the years. The NEB avoids duplication of provincial processes and utilizes a market based approach; relying on market forces and monitoring to verify that markets are working. There are multiple rights and approvals at the provincial level that exporters of energy often need to attain. For example, many exporters have wholesalers licences granted by the Ontario Energy Board, allowing them to purchase bulk power in Ontario.

In support of its regulation of energy trade, the NEB has a number of tools in its tool kit. In addition to its authorities under the NEB Act and Regulations it has now obtained substitution (under CEAA) and participant funding approvals for hearings, which are components of Bill C-9 that received Royal Assent on 13 July 2010. We also participate in the work of the Major Projects Management Office (MPMO), which was established in 2007.

Regulatory Function: International Power Lines

Under its regulatory role, the Board has responsibility over the construction, operation and abandonment of international power lines (IPLs) or life cycle regulation. The applicant chooses the type of authorization which ultimately determines the regulatory authority for the life of the IPL. Authorization for building an IPL is provided in the form of a permit or certificate. Certificates are subject to Governor in Council (GIC) approval. The permit process is a written proceeding and although the Board can set terms and conditions, after the Board has issued the permit, jurisdiction will generally 'spring' to the provincial regulator for application of certain provincial laws (unless the applicant files an election to have the NEB Act apply). However, the NEB permit conditions (together with certain applicable federal laws, such as under s.21 of the NEB Act for review and variance) will be paramount to any provincial laws applied.

Note: The most recent NEB certificate was issued to Sea Breeze Victoria Converter Corporation on 30 October 2006 (Certificate EC-III-26). The most recent NEB permit to construct and operate an IPL was issued to Montana Alberta Tie Ltd. (MATL) on 30 March 2007 (Permit EP-301).

International Power Lines and Interprovincial Power Lines

Illustrated here are the capacities for inter-regional trade of electricity. It is evident that the areas with most transmission capacity are the hydro jurisdictions, and that in many cases the provinces have greater trade potential with neighbouring states than with other provinces. This demonstrates the relative importance of international electricity trade for economic and reliability benefits. Trade in the Territories is limited due to the remote nature of the supply and demand for power in these regions.

The most recent IPL addition is the 1 000 MW IPL which more than doubled the intertie capacity between New Brunswick and Maine. This line enables synergies between the Atlantic's winter peaking systems and the growing summer demand in New England (the New England market was winter peaking about 20 years ago whereas today their peak summer demand is about 20 per cent, or 5 000 MW higher). Similarly the most recent (1 250 MW) interprovincial addition that almost doubled the trade capacity between Quebec and Ontario will help to increase efficient utilization of these complementary systems.

Looking to the future, trade remains very important to system efficiency, reliability and resource sharing. There are multiple intertie proposals on the radar that could contribute to these ends listed in the NEB's recent infrastructureEMA: Canada's Energy Future - Infrastructure Changes and Challenges to 2020.

Regulatory Function: Electricity Export Authorizations

Authorization for exporting electricity is provided in the form of a permit or licence. Licences are subject to Governor in Council (GIC) approval. The Board has not held a public hearing for an export licence since the NEB Act was revised in 1990. Cycle times for approval of an export permit can vary from 50-90 days, depending on the complexity of the export application and whether significant issues arise. Cycle times include a 30 day comment period following publication notice in the Canada Gazette and other publications (if the applicant or its affiliates have facility interests in Canada).

An application requires detailed information as outlined per the Memorandum of Guidance to Interested Parties Concerning Full Implementation of the September 1988 Canadian Electricity Policy (MOG) (Revised 23 January 2003). The Board uses information provided by the applicant and considers any submissions filed by interested parties to make its decision regarding the issuance of a permit. Typically, before issuing an export permit, the Board must be able to determine that:

the applicant has completed the application notice requirements in accordance with the MOG;
the proposed exports will not cause any unacceptable effects on provinces, other than those from which exports will occur;
further consideration of the impact of the exportation on the environment is not required; and
the parties interested in buying electricity for consumption in Canada will be given fair market access to any electricity proposed for export under the permit.

The majority of electricity permits are issued for a ten-year period. To ensure that a potential nexus between the authorized exports and effects on the environment does not arise in the future, the Board incorporates a condition into the Permit, which limits any single export contract that the permit holder signs to a maximum term of five years. The Board is of the view that a sales contract of five years or less is not sufficient to support the construction of new facilities or modifications to existing facilities, to serve the demands of an export contract.

Exports and Imports: Averages from 2007-2009

One of the conditions on an export permit issued by the Board is that the permit holder submit reports of their export and import activity regularly (most often monthly) to the NEB. The NEB is the official collector of statistics related to Canadian international electricity trade and the associated revenue. Pictured here we have average numbers for the past three years grouped by province. Recently British Columbia, Alberta and Saskatchewan have been net-importers of power, whereas the provinces east of Saskatchewan have been net-exporters. Canada as a whole is a net-exporter, with Quebec, Ontario and Manitoba combining for about 90 per cent of the typical $2 billion surplus.

This dominance of the hydro jurisdictions in trade is in part due to their capacity to store energy behind dams, shifting generation from off-peak to on-peak (either daily or seasonally). Exports are typically less than 10 per cent of Canadian generation, but is increasingly important to meet demands for energy on both sides of the border, and cooperation between the industry and authority counterparts has become the norm.

Note: 2009 Trade Levels: Exports 50 TW.h (-10% change from 2008); Imports 18 TW.h (-24% change from 2008); Net Exports 32 TW.h (0.4% change from 2008); Total Trade 68 TW.h (-14% change from 2008).

2009 Canadian Generation: 575 TW.h

Integration of Cleaner Energy in North America

Consider environmental goals. Interprovincial and international transmission capacity allows for synergies in the renewable generation mix; particularly managing the intermittent nature of some renewables like wind with hydro. However, if these two resources could be better integrated, via links between the regions, the advantages of both energy sources can provide additional economic and environmental benefits to both regions. Wind power can be exported to hydro regions during times when the wind is blowing, saving the hydro jurisdiction water. When the wind is not blowing, electricity from hydro jurisdictions could then be imported to the wind jurisdiction instead of running fossil fuel plants. This example demonstrates an opportunity for substantial gains from trade for both parties via strategic transmission links.

The many sources of renewable power in North America, from hydro to wind to solar to tidal, each have their own unique benefits and drawbacks. Renewable sources of energy are often located far from demand centers, may be productive only intermittently, or may have high upfront costs. With this variety of advantages and disadvantages, the gains from improving integration between different energy sources and regions may be substantial.

In the policy area, collaboration between U.S. and Canadian governments will be fundamental for greater integration in pursuit of a sustainable energy future. Since its formal inception in February 2009, the Canadian and U.S. governments have amplified their commitment through the Clean Energy Dialogue (CED). Some of the key goals of the CED include trying to increase opportunities for trade in clean electricity and advancing smart grid and clean power technologies. Focused collaboration in these areas will create meaningful trade opportunities, enhancing the benefits for both countries.

Electricity Generation: Canada and U.S.

Canada and the U.S. have different electricity generation portfolios. If we look at this past to future outlook of electricity production for Canada and the U.S., you'll notice a difference in terms of the percentage of fuels that emit GHG emissions from electricity production. In 2010, close to 80 per cent of electricity produced in Canada does not produce GHG emissions.

Most U.S. Renewable Portfolio Standards (RPS) exclude large hydro. Despite some state RPS restrictions that would exclude Canadian large hydro resources, there seems to be signs of a shift towards a more practical approach. For example, Vermont lawmakers recently tabled legislation to designate large hydroelectric generating sources built after 2004 as renewable.

Towards the goal of reducing energy related GHG emissions in North America, Canada's hydro resources are an important piece of the puzzle, connecting the demand for dispatchable energy with a supply of reliable non-emitting energy generation and storage.

Electricity Trade in the West

Bringing the significance of the benefits of hydro resources down to a regional level, hydro storage in British Columbia and the Pacific Northwest help to balance supply and demand variances. Compared to Alberta and California, these markets have lower generation costs for heritage assets, and less variable weather related demand. British Columbia typically utilizes its storage capabilities to generate power when it is most valuable, i.e. during peak hours. Alberta has plans to upgrade its transmission system which will allow more energy to be traded with British Columbia, including storage opportunities with the Albertan wind energy that spins mostly at night.

Over recent years British Columbia has been a net-importer of electricity, a trend B.C.'s current Clean Energy Act seems directed toward changing by planning for "energy self-sufficiency" by 2016. This incremental power will mostly come from small scale hydro resources, although we note the Site C project is now on the radar for early next decade. In March, the California Public Utilities Commission (CPUC) approved tradeable Renewable Energy Credits for use in California's RPS, a decision which benefits exporters from British Columbia and Alberta since their renewable energy now qualifies to receive this premium.

The Hydrocarbon Reality

Globally, it will be increasingly important to assess energy matters sensibly. North America's overall energy demand is on the rise. The majority of things in our day to day lives use energy. Our businesses, cars, homes, the list goes on. As the world continues to grow and develop, we will use more of these things and the energy that comes with them. The International Energy Agency's (IEA) 450 Scenario shown here assumes strong action to cut CO₂ emissions and gains in energy efficiency. Under that "green" scenario, primary energy demand is expected to grow by 20 per cent from 2007 to 2030. Hydrocarbons will be with us for some time. In 2030, fossil fuels will continue to dominate, accounting for two-thirds of the world's primary sources of energy demand. Going forward, it's a matter of how strategies and policies can mitigate the impact of consuming hydrocarbons. How to best manage and reduce the effects of our inevitable hydrocarbon consumption is challenging.

Note: The International Energy Agency's (IEA) 450 Scenario refers to the Scenario where governments are assumed to take strong action to cut CO₂ emissions. These changes in policy would result in limiting the concentration of GHGs in the atmosphere to 450 parts/million of CO₂ equivalent and global temperature increases to 2^oC. Demand for fossil fuels peaks by 2020, and zero-carbon fuels make up one-third of the world's primary sources of energy demand by 2030. Actions, however, are required to be in place by 2020.

Sustainability

An important aspect of this energy management is sustainability. Picture a 3-legged stool, with the environment, economy and society representing the 3-legs. In order to build a strong stool we need to integrate environmental goals with economic and social goals.

In the NEB's strategic plan, we define the public interest as inclusive of all Canadians, having regard to economic, environmental and social interests that change as society's values and preferences evolve over time. As a regulator, the Board considers in one gesture, all of the relevant impacts on these interests when making its decisions. This is a key aspect of pursuing a sustainable energy future. Canada, like the U.S., is looking for a diversified supply mix that will be sustainable over time. As the IEA 450 Scenario clearly indicates, this will include hydrocarbons, and a growing supply of hydro, wind, solar, tidal, biomass and technological advances on the supply and demand side, combined with constant efforts to conserve.

Role of the Consumer

Pictured here is an Inuit Inukshuk; these structures have various meanings, one of which is "You are on the right path." I think "the right path" is a sustainable path - one where the consumer holds a more salient role in determining direction. It is increasingly important for consumers, industry and regulators to share a vision of what to build and what to change. Conservation of energy resources achieved by reducing consumption can be viewed as beneficial for everyone and with some regulatory structures, the consumer can realize tangible benefits from conservation. Ultimately the transformation on the demand side will depend on how strong a behavioural change the consumer is committed to make and the incentives and technological solutions that can best manage and sustain this change.

Key Messages for a Sustainable and Integrated Energy Future

To conclude, there are some key messages and lessons learned that I would like to highlight:

Electricity trade is one medium for achieving environmental objectives in the U.S. and Canada, toward a sustainable energy future. The continued harmonization of regulatory policies can help to support continued exchanges of power, optimizing overall system efficiency and enabling the development of more renewable forms of generation.
After the policy is established and the regulations are set, what is left is for the market to operate and for Canadian society to pursue dialogue, keeping our future in sight and our direction clearly established.

Thank you

Thank you very much for your valued time. As we continue to be at the intersection of the need for infrastructure and desire to promote sustainability, the transformation of the grid will require regulators in Canada and around the world to continually update their tool kits, be creative, be extremely good listeners, be committed to continual improvement and be passionate about the pursuit of the public interest.

Through its regulatory decisions and Energy Information Program (EIP), the Board monitors energy matters and keeps the public informed. If you are interested in knowing more about the topics I discussed today, I would be happy to answer any questions you may have. Or, if you prefer:

try our website: www.neb-one.gc.ca
call us at 403-292-4800 or toll free at 1-800-899-1265
drop by our Library in Calgary: National Energy Board, 444 Seventh Avenue SW, Calgary, Alberta
reference our recent publications (Energy Futures, Infrastructure EMA,Briefing Note on Attitude and Behaviour, Canadian Energy Overview 2009 etc.)
we are also currently updating our Energy Futures Scenarios - stay tuned!