Tan Sukhera 00:04
Hello, everybody, and welcome to Canadian regulatory fireside chats. Now before the pandemic gr folks used to get together especially on Fridays at lunch, and they would network they would learn from your peers troubleshoot different issues that they’re facing brush up on different tips. But unfortunately, because of the pandemic, it’s sort of a thing of the past now, and it’s in the spirit that we started Canadian regulatory fireside chats, there’s been a massive lack of information out there, especially in our social media feeds about the fantastic work that people in this space are up to. So we’re really proud to be part of the solution. The series is meant to be a platform for champions of industry, from government relations, policy and regulatory teams, to share their take on best practices, overcoming challenges and educating others. Now, if you’re a fan of the chats, please feel free to like, share and join into the conversation. And now it’s time to take a look at some of the housekeeping rules. So as always a bit of a 30 minute session today. There’s a q&a in the chat, so you can locate that now in zoom. The recording will be shared after the event. And if you’re someone who likes to live tweet, you can always Tweet with the hashtag hashtag fireside chats. And of course, our handle is at no at G and o wi t. If you’re interested in becoming a speaker, you can send an email to firstname.lastname@example.org There’s always different topics, industries. And really the goal is to just try and share as much insights as possible. And on that note, I’m your host Tansa Cara I’m the vice president of insights for Noah Inc. And we always are still are just trying to improve and eager to learn. So we do definitely welcome all your feedback. So this talk is powered by NOAA Inc. For those who don’t know where media regulatory and business intelligence company, we use AI and machine learning to actively search federal, provincial and municipal government sources of information online. This includes the Hansard parliament, because that’s committees debates, requests for consultations, things like the regulatory bodies and government agencies, live video feeds and more and you can always visit www.no.com for more details. Now, it’s my favorite part of each chat where I get the chance to introduce our speaker for today, Episode 18. Today we’ve got Paul with us. Paul is the Vice President of Strategy and delivery of public and regulatory affairs with the Canadian Gas Association in Ottawa, Ontario. The CGA is the national voice for Canada’s natural gas distribution companies who deliver natural gas to over 20 million Canadians. Paul leads CGAS overall business strategy with members and develops the thinking behind the future of the regulated energy delivery industry in Canada. Prior to join the CGA, Paul worked with Natural Resources Canada, which is Canada’s federal resource department, providing natural gas market and policy advice to the Department Senior Management. Without any further ado, take it away, Paul.
Paul Cheliak 02:50
Well, thank you very much tan for the introduction. It’s my pleasure to be here with all of you today. As noted, my name is Paul Chilliwack, Vice President of Strategy delivery with the CGA. As noted We are based in Ottawa, we’re a national trade association. We were incorporated in 1907. So we’ve been around for a number of years. My role again, is to manage our government relations or policy and our public relations functions. So for context, the CGA members are natural gas delivery companies or utilities from across Canada. We operate in eight provinces and two territories, we have a wide coverage across this great country of ours, and we deliver importantly, 38% of Canada’s energy needs for parallel. This is greater than the 20% of our energy that we get from electricity. And as an industry, we have an interesting and growing suite of new low emission gases that are being added to our systems. And so these include things like hydrogen, and renewable natural gas that is produced from landfills. We operate an astounding 575,000 kilometers of infrastructure from British Columbia through to Nova Scotia, and each day we deliver energy to over 20 million Canadians. Natural gas is the largest source of energy in Canada to both manufacturing, industry and residential homes. So that is a backdrop. Let’s jump into the heart of our discussion today. Our title, unfit for purpose, modernizing utility legislation for netzero 2050. Let me start with what I would consider a thesis for our discussion. Today, energy delivery companies, both gas and electric are limited due to dated legislation around whether and how much they can invest towards large scale greenhouse gas emission reduction projects. Given that 50% of the energy in Canada flows through a regulated asset, either line or wire, Canada will not meet its GHG emission reduction targets until we properly modernize utility legislation across Canada. So my job is to unpack that thesis for you today of focus in doing so on the following areas, helping you understand utilities, and how are they regulated? discussing why Canada excels at setting targets for greenhouse gases, but often struggles at meeting. Although it’s outlined why legislative reform is frankly hard to do, but so critical for our future, I’ll share where we’re seeing progress and what a model for the future might look like. I’ll end with six steps to get to a future where we have moderate utility legislation in place across all regions of the country. Okay, so let’s get started. Before digging into legislative reform, let me spend a few minutes outlining what a utility is, and importantly, how they’re regulated utilities, they are natural monopolies. What does this mean? It means there’s only one set of pipelines or one set of wires down your road. It’s called a franchise area. And only one service provider can deliver energy in that territory, it wouldn’t make sense to have 10 different operators build 10 different systems down your street and all compete for the same customer. The economic inefficiency of doing that would be great. But because it’s a monopoly, they must be regulated, and acts measure to mitigate what we call monopolistic pricing behavior. So a regulator regulates the monopoly. And every utility in Canada has a regular their economic regulators. So it’s different than an environmental regulator. An economic Raiders regulators job is to ensure that the rates that we all pay are fair and are just, they do not generally account for greenhouse gases in their decision making lens. And this is an issue and we’ll come back to it. All utility costs are recovered in rates. And utilities make money by receiving an approved rate of return on the capital, they invest in infrastructure. So rates and rate recovery. So who pays and how much are debated and determined by the regulator through an open hearing process. These processes include things like testimony from interviews, that could be a large industrial customer, it could be School Board’s, or other energy consumers. It is this openness and transparency of the economic regulatory process that is unique and not commonly understood. It is very much the opposite of political or cabinet decisions, which are strictly confidential. Regulators always make their decisions based on filed evidence, evidence. And importantly, those decisions. They’re not made in a vacuum. They do account for and look to integrate the legislative parameters within each each jurisdiction. So in summary, the process is extensive. Utilities are highly regulated, and information and decisions are always made public. So that we understand what utilities are and how they’re regulated. Let me discuss the emission reduction challenge facing Canada as a country and then more specifically to the utility industry. At a national level, our common challenge as a country is to reduce GHG emissions quickly, but affordable. It is this affordability overspeed challenge that we must be cognizant of. And for any of you that follow energy. We have witnessed across Europe a dramatic price increase in natural gas and electricity. And those higher prices are driven in many ways by a lack of energy investment, and negative policy signals sent towards natural gas in particular. As a result of those choices, global suppliers of gas, were not looking to supply the EU market. This combined with a cold winter last year has left the EU with very low storage levels for natural gas. And as a result, the market is short on gas prices have increased. So what has happened this has had a direct effect on many industries including food processing, fertilizer producers, both of which are large users of gas. So as we look to unpack how we’re going to reduce emissions, Canada has to be mindful of the pace of its emission reduction efforts and what effect this has on consumers. I would say this is even more meaningful since Canada unlike many parts of the EU is a large resource producing country. So, to recap, our national challenge is to reduce emissions affordably, but also quickly. So at the utility level, our challenge is much different. It’s centered around provincial or territorial legislation, specifically, gas utility acts. So what is a utility act? acts are pieces of legislation that outline the functions of a utility. They include what a utility can and cannot invest in. Remember, utilities are monopolies. So they require a prescriptive investment set of guidance. Now, these acts that exist across Canada, were written many decades ago, long before Canada was setting GHG emission reduction targets. So you can start to see the challenge we face, governments are setting more stringent emission reduction targets, but their utilities both gas and electric, are still operating under frameworks that are in many cases decades and decades old. Because of this, Canadian utility acts are unfit for purpose given today’s policy aspirations around emission reductions. Therefore, the thesis of the discussion is we must as a country work to modernize utility, X and do so swiftly. If we do we open the door for utilities to invest in and earn a rate of return on the much needed GHG emission reduction projects, things like hydrogen, things like carbon capture, utilization and storage, things like renewable natural gas, etc. To fully grasp our emission reduction challenge as a country, let’s spend a few minutes on where Canada is at. So a quick recap. Canada has set ambitious 2030 reduction targets, currently 40 to 45%, below 2005 by 2030. Well, no, this is a new target. It’s more stringent than the previous target of 36%. And more stringent yet of the target before that, which was 30%. But we’re not very good at meeting our targets. For comparison, over the last decade, Canada has seen a 1% decrease in its GHG emissions. We now want to reduce emissions at a rate of 5% per year, it’s obvious we have a real challenge on our hands. As we look to 2050, we’ve set a goal of net zero. So we’ve introduced and passed legislation in this country that will hold government to account on that net zero target. Just support it, we’ve launched a net zero advisory body, this is a body that will report to the Minister of Environment climate change, outlining what are Canada’s pathways to reach net zero by 2050. The minister will then table some form of report with parliament within six months, so sometime later next spring. But it’s clear to me that to get to net zero require a whole new set of tools, we need a structural rethink of how our energy systems operate. And the legislative constructs that underpin we need a recognition that our energy systems which have a 30 to 50 year amortization period, will still be the backbone of any future. So regardless of the technology solution that you might bring to the table, you need infrastructure to deliver that energy. It can be a wire, it can be a pipeline, or can be a liquid refueling station, we sometimes see parallels to the telecom industry and where people were sort of cutting the cord on their home phone line, but a decade ago, and people draw that parallel to energy, say, Isn’t there a solution where we can just kind of cut off infrastructure and do it all ourselves? Well, no energy is different. There’s no digital form of energy, the physics just won’t allow for it. So the reality is this. In energy market terms, the number of days between now and 2030, is literally around the corner. And it would seem from an outside perspective, that often there’s more interest in the politics of emission reductions, versus the hard work needed to actually make progress. This remains a challenge not just here in Canada, but around the world. So let’s ask the question. If the GHG challenge is staring back at us, then why have we not amended legislation to allow utilities to make necessary investments? There are several reasons for this. Let me take you through a few of them. First, amending legislation is hard and it takes Time, as in years, not months. At the same time governments are elected in and as we know they’re voted out. So you may well find yourself close to the finish line on legislative reform, only to fall short due to a change in government. This leaves you back at square one. Second, there are no announcements or ribbon cutting ceremonies. With legislative reform. There’s nothing inherently exciting about amending a utility act. But once you do, the innovation and project announcements will follow. So this takes political vision, industry, vision, and patients. And third reality is on any given day, we are competing with a host of other legislative priorities, and many of which are higher profile than utility X. Politics is a constant battle where each day there’s a winner, and there’s a loser. And we know that on a given day, there will always be a higher a higher priority item, be it education, health care, pandemic response, etc. Now, with that said, we are seeing progress in certain jurisdictions in Canada. I’ll give you a couple examples. In British Columbia, the province introduced what’s called the greenhouse gas reduction regulation, or GG RR. This allows for SPC and utilities in British Columbia we deliver natural gas to make investments and recover those investments over time in new areas, such as natural gas vehicles, renewable natural gas and more recently, hydrogen blending with gas pipeline systems. But to get this regulation took several years. This points to the fact I made earlier that legislative and regulatory reform takes patience, takes diligence and takes time. One thing is certain. We will in Canada have to get a lot quicker at making these changes if we want to see near term emission reductions. But the results are in British Columbia is home to the greatest number of renewable natural gas projects. The greatest number of natural gas refueling stations, a rapidly emerging hydrogen sector, and seeing the first demonstrations of small scale carbon capture utilization and storage at the commercial building level a Canadian first. In Alberta, the jurisdiction with arguably the most rigid utility act, we’re seeing great hope. Just this week, the province unveiled its hydrogen roadmap. In this roadmap, they referenced a short term priority of amending the utility Act, which would allow utilities in that province to start blending hydrogen into their natural gas streams as a decarbonisation activity. And as you know, Alberta’s role in Canada’s energy market is significant. Seeing momentum there is very exciting, and we hope to see this serve as a model for other jurisdictions in Canada. Further east in Quebec, the province introduced a five and a 10% renewable natural gas blending mandate for 2025 and 2030, respectively. This target allows Quebec to distribution utilities on natural gas to make investments in renewable natural gas projects. Not surprisingly, Quebec is home to the second most renewable natural gas projects in the country, and a number of natural gas refueling stations. This also home the largest green hydrogen project in Canada. So it should be noted that reforming legislation is not about rewriting entire utility acts. It can be as simple as including a couple words that broaden the definition of what utilities can invest in. Once the overarching legislation is amended with new wording, industry and its regulator can use that legislation as guidance to help demonstrate where utility can invest in what a regulator is comfortable hearing, and how the intervenors in that project can be heard. But without the words being in the legislation, there is no predictable pathway for either side. So, we often think, how do we sell the idea of legislative reform to decision makers? First, we have to talk the same language. We need to connect legislative reform at the utility level to GHG emission reduction targets. So instead of framing legislative reform through an investment lens framed through a GHG lens, communicate clearly to government that failure to reform legislation means utilities can’t make the investment and governments can’t in turn turn make progress on their GHG targets. The inability to talk about emission reduction progress on the campaign trail will be a challenge for governments, given many of their campaign promises across this country hinge on a strong environmental record. So if you amend the act, you can make progress and you have a political leg to stand on on the campaign trail. Second, we need to connect change with voters. If we want action to reduce emissions, the rate pair or the customer all of us were needed in this discussion in some way. politics today is fast paced, highly driven by polling and voter intention. We need to mobilize Canadians to think differently about their energy service provider. At the same time, we must communicate on cost. We can’t advocate for emission reductions only to lose people when costs go up. And in Canada and around the world, there’s been far too little on what the costs of change are, in particular net zero. Often public polling is frankly uninspiring. If you ask Canadians, do you want to reduce emissions? They’ll nearly always answer yes. When you ask them, how much are you willing to pay each month to do so the response is usually less than $10. Third word possible take the politics out of the process, political decisions or just that their political. We should instead leverage the transparency of the utility regulatory system. Doing so will allow parties to be heard. It will enable a frank discussion of cost and trade offs. And most importantly, leave us all with a record of the discussion and a public decision. So how do we get to this future? I’ve got six steps. First one, we need a common vision between industry and government around the need or the role that utilities are expected to play in netzero 20/52, we need to be fearless. We must realize that legislation and regulation will never be perfect. Don’t let perfect be the enemy of the good. We need to be nimble and realize that our energy world in five years 10 years and 20 years will be different than today. And that’s okay. Third, we need to study and research this issue of utility legislative reform. This will help us get onto the same page for our parts. The Canadian Gas Association and our counterparts at the Canadian electricity Association are commissioning research that will detail case studies from around the world where governments industry and regulators have grappled with the same issue of data utility legislation. What did they do to change and how did they implement. Fourth, we need to apply our vision and research within the Canadian context. And alongside Canadian energy decision makers. What worked in Australia or what worked in the UK may not exactly work the same way in Canada. Fifth, develop a made in Canada roadmap for utility legislative reform in all provinces and territories. And importantly, we need to set a date that we want to achieve this by then develop a plan as to how we’ll get there. Six is champions. We need a champion. There is an annual energy mines and ministers conference held in Canada each summer that brings together ministers accountable for utility acts, among many other things. Securing a recognized recommendation or a recognition from that group that utility legislative reform is a priority and that they’re willing to work on would open up a real dialogue with government on this issue. But we need a champion. So let me conclude with two comments. First, if we continue to kick the can down the road on this issue of legislative reform, Canada’s 2030 and 2050 GHG emission reduction targets will end up like all others we have set on that as well swept under the rug. Second, Canadians we’ve always punched above our weight, in athletics, in the arts and in Energy. I know that I’m confident we have what it takes to get the job done on reform. And I very much look forward to supporting the cause. 10. Thank you. I appreciate the time the opportunity. I welcome any questions from the group today.
Tan Sukhera 25:15
Thank you. Fantastic. Thank you so much. There you have it, folks unfit for purpose, modernizing utility legislation for Net Zero 2050. It’s time now to take a look at some of the q&a going on here. It’s the last five minutes of the chat. Let’s take a look at question number one. All you noted a lot of legislative changes what sort of flexibility to regulators have to address greenhouse gas projects in the face of their current legislation?
Paul Cheliak 25:47
Thanks, Ken. Yeah, it should be noted that in Canada, there have been examples where regulators have taken a step forward and said, I’m going to test the limits of my legislation. And let’s just see what happens. And so two examples come to mind. One in British Columbia, where Fortis BC the gas utility applied for an innovation Levy, or a fund, and this fund would go to supply capital to pre commercial natural gas technologies. Historically, that was a non starter, it just wasn’t something that the utility was comfortable filing for, they didn’t have a clear legislative mandate to do it. And regulators generally were uncertain about how they would allow utility to make investments with customers money into technologies that aren’t yet in the market for all of us to go by. So this impasse on where in the commercialization chain, a utility can enter with a long standing issue in Canada, forests applied and said, Look, this is not something we normally do. It’s not something that’s clear in the legislation that we have the flexibility to do. But here’s the pitch. No one else is doing it. These companies need help. And we’re seeing all kinds of them come to us saying, Look, we’re close to commercializing, but we don’t have the capital to get it over the finish line. Could you as a utility help us out. So that formed the basis for a filing to the regulator in British Columbia. And the outcome was, yes, fortress was awarded $20 million over five years to support these companies through that commercialization chain. And so that was sort of a landmark decision in the regulatory space in Canada, the first of its kind, that utility was allowed to use customers money to invest in pre commercial technology. And the other is very exciting project in Markham, Ontario, where Enbridge was allowed to invest in a technology that will allow them to produce and blend hydrogen into their gas pipeline system. This is the first project in North America that will see natural gas be blended with hydrogen that will then be distributed to a couple 1000 customers in the Markham region in Ontario. And so two examples of how regulators and industry have taken legislation and said, Let’s push the margins of what we’re reading here and see if we can get something meaningful in both cases they did.
Tan Sukhera 28:20
Alright, and just moving on to the next question here. Utility legislation is provincial. But is there a role for the federal government?
Paul Cheliak 28:30
It’s a tricky one, right? Canada’s division of powers is such that utility acts fall under the purview of provinces. And so they’re the custodians of those pieces of legislation. But there is a role for the federal government’s I think they recognize that role. The environment is a national conversation. The federal government has a jurisdictional role in environment. And so the role has to be very clearly defined, though. I think it’s really about a couple things. One is convening. So the federal government does have a voice, it has convening authority, and it can bring provinces and territories into a room to have a conversation that is truly pan Canadian. So convening is a strong asset that the federal government has at its disposal. Thanks, sharing of results as well. 10. So the Canada energy regulator, which is responsible for interprovincial and international energy infrastructure, does have now a requirement on companies that file to build new infrastructure to demonstrate how they’ll achieve net zero emissions on that infrastructure. So that’s just been in place the last little while, but they’ll be sort of first out the gate on how does that process look? What was the response of companies and what learnings from that process might the federal government share with industry at the provincial level?
Tan Sukhera 29:57
Excellent. Well, it looks like there’s no more questions at The moment but let’s take a moment to say thank you so much for all the attendees who joined us this afternoon. Really appreciate you guys. And Paul. Paul, thank you so much for your time today. It was a fantastic talk. And we’re going to make sure that the recording goes out to the public as well. Just before we let you go, how is the best way too for people to get in touch with you, Paul?
Paul Cheliak 30:21
Yeah, email is probably the best. P tele email@example.com 10.
Tan Sukhera 30:28
Okay, fantastic. Thank you so much. Take care everybody. Have a great weekend.
Paul Cheliak 30:32