The Nova Scotia Legislature

The House adjourned:
October 26, 2017.

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HALIFAX, TUESDAY, MAY 18, 2004

STANDING COMMITTEE ON ECONOMIC DEVELOPMENT

9:00 A.M.

CHAIRMAN

Mr. Russell MacKinnon

MR. CHAIRMAN: Good morning, ladies and gentlemen, welcome to the Committee on Economic Development. Today's witnesses are representatives from the Department of Energy, Electricity Marketplace Governance Committee. We have with us Mr. Allan Crandlemire, Manager of Energy Transportation and Utilization and Mr. Scott McCoombs, Energy Engineer. The process is, we allow our witnesses to start off with opening remarks, anywhere from 10 to 20 minutes, in that range, and then we will open up the floor for questions. I will start off by asking the individual members to introduce themselves.

[The committee members introduced themselves.]

MR. CHAIRMAN: Gentlemen.

MR. SCOTT MCCOOMBS: I'm Scott McCoombs, the Energy Engineer from the Nova Scotia Department of Energy's Energy Transportation and Utilization.

MR. ALLAN CRANDLEMIRE: I'm Allan Crandlemire, Manager of the Energy Transportation and Utilization at the Department of Energy. Our division has responsibility for downstream gas, gas plants, gas pipelines, Maritimes and Northeast, Heritage Gas, Strait Area Gas, gas distribution, gas markets, that sort of thing. We also have responsibility for electricity renewables, energy conservation, actions related to climate change mitigation, although we have a separate group that is involved with climate change negotiations and that sort of thing, but all of the measures that would remediate climate change falls in our division as well.

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We will start. There are already handouts so I will just walk you quickly through those and then we will open it up for questions. In terms of the EMGC recommendations, obviously they go back to the Energy Strategy itself which was released in late 2001. I will just talk specifically to the electricity and renewable components of the Energy Strategy. Obviously, it was much broader than just electricity or renewables and it covered oil and gas and energy efficiency, what have you, but we will focus this morning on electricity and renewables.

In terms of some of the strategy goals with respect to electricity, obviously it emphasized electricity supply, reliability, competitively-priced electricity, environmentally responsible generation of electricity. I think those are the key words I would want to leave you with today and that we have the luxury of a reliable system. There is no doubt for a minute that if I turn that switch off now and flick it back on, everyone is absolutely confident the light will come on, yet we are dealing with a commodity that has instantaneous delivery. There is zero storage in the system. That is just the way electricity works. Someone has to produce instantaneously with our demand to turn that light switch on. It is quite remarkable, when you stop and think of it that no matter what you plug in in the next second, the electricity is going to be there to provide that supply.

In terms of the Energy Strategy, it recommended developing an Electricity Marketplace Governance Committee which would give the government advice on how we would go forward implementing electricity measures. There was also a commitment in the strategy to establish an open access transmission tariff and to introduce competition to the wholesale market, which is the six municipal utilities in Nova Scotia. Canso, Antigonish, Berwick, Mahone Bay, Lunenburg and Riverport are the six municipal utilities, otherwise it's Nova Scotia Power across the system. So it's a relatively small wholesale market in Nova Scotia.

The Energy Strategy also set a voluntary target of 50 megawatts of renewable by the end of 2005. It encouraged development of cogeneration, and it suggested that a competitive process be introduced for adding new capacity to the system. The Energy Strategy also touched on emissions management, and it identified several different air emissions that were going to be reduced over the coming decade. It racheted back SO2 emissions by 25 per cent by 2005, and to 50 per cent by 2010; it committed to reducing NOx emissions by 20 per cent below 2000 levels by 2009; and reducing mercury emissions by 30 per cent below 1995 levels by 2005.

Now I'll move into the EMGC, the Electricity Marketplace Governance Committee. The purpose of that committee was to recommend to the Minister of Energy the implementation, development, structure, economic considerations and rules to introduce electricity competition in Nova Scotia. That committee had seven members. It was formed in April/May 2002. It started its work shortly thereafter. It is a relatively small committee, by design, to maximize its functionality.

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As you can see, from the list of members, it put the fox in with the chickens. Nova Scotia Power was a member; municipal utilities had a representative; the Canadian Manufacturers and Exporters, which represented large customers on Nova Scotia Power's system, had a member on that committee; ECANS, the Electricity Consumers Association of Nova Scotia, which by and large includes medium-sized industry, medium-sized electricity users; there was the Canadian Federation of Independent Business; the Consumers Association of Canada; and the Renewable Energy Industry Association of Nova Scotia. So it covered a wide spectrum of stakeholders and, obviously, a wide range of interests there. I wouldn't indicate for a minute that they came with a common viewpoint.

The results of that process were beyond what we could have ever hoped for - 89 recommendations and unanimity on nearly all of those, only two or three recommendations where there was any dissension on that overall committee. Some of their recommendations, in terms of market scope, which is basically just how much of the market are we going to open to competition, they recommended starting out with just opening up the wholesale market, so again, that's the six municipal utilities. They recommended that we consider opening up more of the market to competition, but not until we had done a cost-benefit analysis of that broader opening. They also recommended that Nova Scotia Power develop and file an open access transmission tariff, that there be a scheduling and information system, an electronic system so that players could go onto the system and make reservations for moving their electricity from one point to another, and that eventually we move to full FERC compatibility - FERC is the electricity regulator in the United States.

In terms of new capacity, the EMGC recommended that there be a competitive process, that our Utility and Review Board oversee that Nova Scotia Power would annually file a long-range plan that indicated both long-term requirements - long term being over 10 years - and short-term requirements in the next 18 months and that that report on system requirements be available for public scrutiny, so it be an open, public process in terms of reviewing that report on supply and requirements.

In terms of assessing proposals for new capacity, there would be consideration not only for capital and operating costs, but also emission impacts and overall efficiency of the system proposed. You are looking at several criteria now, as opposed to just cost which is, historically, where we have been.

In terms of renewables, the Energy Strategy had a voluntary target of 50 megawatts by the end of 2005. The EMGC failed on that and said, move forward with the voluntary requirement, but starting in 2006 we want to see a portfolio standard that has an absolute requirement for increased renewables in the mix. Basically, they proposed increasing the renewables by 5 per cent over the time period from 2001 to 2010. I think the existing renewables in our mix now would be in the order of 8 or 8.5 per cent, so that would push it up to 13 or 13.5 per cent by 2010. They also recommended separating the renewable

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attributes from the kilowatt hours themselves, so in essence there was potential to sell the green credits as one item, and to sell the kilowatt hours as a separate piece.

Net metering really falls under the renewables umbrella, but I just wanted to flag that as a separate item because it tends to be of interest to lots of rural electricity customers in particular. I just want to emphasize with net metering that it's generation associated with a customer load, so it's not meant to be just a little stand-alone, small generator off on its own, it's meant to be a generator that has a load and, for the most part, he's just satisfying his own load, but he's using Nova Scotia Power as a battery - so some days he's oversupplying and selling into the system and other days he is undersupplying and drawing away from the system. That is the intent with net metering, not meant to be just a small player that has no load of its own.

With net metering the EMGC recommended that in today's world the maximum is 10 kilowatts and they recommended that that maximum move up to 100 kilowatts of capacity, and that Nova Scotia Power develop appropriate connection standards for that size of operation. Obviously, you don't need the same connection standards for a 50- or a 100-kilowatt system as you need for someone that is 20 or 30 or 100 megawatts. As well, the excess energy carry-over is kept at 12 months - so I'm under this month, over next month, but on a 12-month revolving basis my excess falls off the table, so I have up to 12 months to use up any extra generation I provide to the system in any one month, and the distributor would be Nova Scotia Power. For the most part, Nova Scotia is entitled to the emission credits that come with that net metering generation.

On the cogeneration side, the strategy and the EMGC encourage cogeneration. They put together a system where electricity from cogeneration could be sold under bilateral contracts to all retail customers connected to transmission grids. So even though for conventionally generated electricity, the only market that's open is wholesale customers, if you have cogeneration, a new cogeneration system in Nova Scotia or if you have renewables, you've a much broader market opening as far as the ability to sell that electricity to customers.

[9:15 a.m.]

If Nova Scotia Power was buying the electricity from cogeneration it would pay avoided costs for new generation and associated transmission and Nova Scotia Power would develop a pro forma power purchase agreement so that anyone that wants to get into that business would know exactly what they're looking at as far as selling electricity to Nova Scotia Power is concerned.

In terms of where we are at this stage, the government accepted the EMGC's recommendations back in November. I think copies of all of the report on all of EMGC's recommendations were distributed to all the MLAs back when the report was released in

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October. Nova Scotia Power, just within the last week or so, has submitted an application to the URB for an open access transmission tariff. Prior to their submitting that, they had several technical conferences with stakeholders going back to early January, so most players have been engaged in that process leading up to its filing a few days ago.

The province is currently drafting new legislation to enable implementation of the EMGC's recommendations and one of the first requirements we'll have to put in place would be opening up the wholesale market - that requires a legislative change. I would just add to the bullets that are here on your page, as part of the process for Nova Scotia Power getting approval for its most recent LM6000 over at Tufts Cove, there was a commitment during that process to continue on with the stakeholder process that would look at how we could add more renewables to the system, how we could add cogeneration to the system and how we could get DSM into that mix as well - demand side management - so basically dealing with the gap between supply and demand not only on the supply side of things, but also on the demand side of things. Those stakeholder processes will carry on through the rest of this calendar year.

I don't think I have anything else to add. Scott, unless you want to add any pieces I've missed along the way, we'll just open it up for questions and take it from there.

MR. CHAIRMAN: The first one to put their name in was Mr. Parent who just joined us. Mr. Parent, the member for Kings North.

MR. MARK PARENT: Sorry I was late, I bring regrets from my colleague Bill Dooks who was contacting me to see if I could substitute for him. I told him I was already on the committee.

The question of increased competition and deregulation, are they the same or are they different things?

MR. CRANDLEMIRE: They're different. I would be very careful about using the term deregulation with electricity. We're much more comfortable with the term reregulation. Deregulation implies that there's lesser regulation. The world is changing on the electricity side, but it's not necessarily changing with lesser regulation. It's just different.

MR. PARENT: I guess the question is, we saw, in both Alberta and Ontario when they began to move to restructure their electricity systems, very high rates for the consumers which led in Ontario to a cap on the rates and it was quite an issue during the election. I'm just wondering if that's a potential problem here with what we're doing and if it isn't, why not?

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MR. CRANDLEMIRE: We looked very carefully at electricity markets that were changing when we put together the Energy Strategy. The EMGC took months to review how the marketplace had changed in various parts in North America as well as internationally before they even started getting their teeth into making recommendations on changes. You're quite right, there's been lots of difficulties around the world. You mentioned the example in Ontario where they ran into difficulties and had to cap the price. Alberta is in the fortunate position of being able to provide rebates to customers and that sort of thing because of their fiscal situation, but they've had to contribute big time as a government toward consumers' electricity costs. That's why here we took a very cautious approach as far as opening up that market goes.

At this stage of the game the only market opening as I mentioned earlier is for wholesale customers which is 1.6 per cent of the market. It's for renewables which, again, is going to start off fairly small, it's for cogeneration but in essence the situation as we know it stays pretty much the same. Nova Scotia Power is still going to be a cost of service utility, a regulated utility, a fully integrated utility from generation to transmission to distribution. I'm not saying that there won't be progressive change over time, why it will change little by little, but we want to make sure that we don't expose ourselves to those risks as far as runaway costs go.

MR. PARENT: Thank you. In terms of the Minas Basin renewable energy - you touched on renewable energy - for a long time they've had discussion on harnessing tidal power in the Minas Basin. Is that totally dead, or is there anything going on with that, that you're aware of?

MR. CRANDLEMIRE: I wouldn't say it's totally dead, but there isn't any active consideration at this stage for new projects either. Obviously, the project at Annapolis Royal continues to produce and has performed well, but I think it's a question of economics in terms of larger scale projects.

MR. PARENT: Okay, finally you mentioned we'll face a power crunch - the briefing note I have - within five years in the Atlantic Provinces. The population of the Atlantic Provinces is not growing substantially, so is our use of electricity growing? Is that what's going to cause the crunch, or are older systems that produce electricity now not going to be producing? What's the problem in the future?

MR. CRANDLEMIRE: Usage is up significantly. It has grown steadily, but in the last year was up markedly even from what was projected previously. One of the key reasons for that growth is just the convenience of electricity and the extra conveniences we all enjoy that are electrically powered. Just think in terms of computers, why 10 years ago it was relatively uncommon in people's houses, five years ago they were on in people's houses but chances are you used them for an hour then switched them off. In the majority of places now, chances

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are that a computer screen is on 24/7, certainly in offices that would be the case, more often than not.

MR. PARENT: So in terms of conserving energy we're doing a poorer job as citizens?

MR. CRANDLEMIRE: I don't know whether we're doing a poorer job of conserving or not, but certainly we're depending more and more on electricity on a go-forward basis. Obviously in the situation I just mentioned, there are opportunities for conserving. I can't comment in terms of whether that's poorer today than what it was three years ago, or five years ago, or what have you, but unquestionably there are opportunities there. I mean monitors don't have to be on 24/7. There isn't anyone generally in the office after six o'clock at night or before eight o'clock in the morning, so there's an opportunity to save some kilowatt hours there, just the same as the lights staying on overnight - and, and, and - we're all guilty of that.

MR. CHAIRMAN: The next one on our list is Mr. Taylor.

MR. BROOKE TAYLOR: Mr. Crandlemire, I wonder if you could tell me, you're the manager of Energy Transportation and Utilization, where did you work before you came to the Department of Energy?

MR. CRANDLEMIRE: I worked at the Department of Natural Resources before I went to Energy, and I worked at the Department of Mines and Energy before I was at Natural Resources. If I might for just a second, in terms of our group, historically we had an energy utilization group at the Department of Mines and Energy and we had an energy resources group at the Department of Mines and Energy, and then when we merged in with Lands and Forests; we still had those entities within Natural Resources.

My background, going back to Mines and Energy days, I was involved with the coal section under energy resources. So I was involved with electricity generation from coal, coal R&D - clean coal technologies, coal utilization, that sort of thing. Then when the Petroleum Directorate was formed, I left the energy branch of the Department of Natural Resources at that time and went over on the gas side because the expectation was that there would be lots of opportunities for generating electricity from gas, which there was. Then more recently, when they formed the Department of Energy, we brought those energy groups that were still at Natural Resources, that dealt with climate change, renewables, energy efficiency, electricity, over into the Department of Energy and so I went to an area where I had responsibility for gas transmission, gas distribution, gas markets and gas use, to broadening it out to electricity and energy efficiency and renewables again.

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MR. TAYLOR: Mr. Chairman, I wonder if the presenter could tell us where he was during the Westray time, in what capacity were you working with the government at that particular time?

MR. CRANDLEMIRE: I was in the mining engineering group, not when Westray opened, but when Westray had its accident. I was in the mining engineering group. At that stage the energy resources group had split and the coal section moved over with the mining group and the petroleum section stayed off on its own as the Petroleum Directorate. So that was an in-between stage where I was still at Natural Resources and the petroleum group had gone off and formed their own, not department, but their own entity.

MR. TAYLOR: Mr. Chairman, it seems like there would be quite a learning curve between coal and coal mining and mining engineering and things of that nature. For example, wind power, I'm keenly interested in wind power and I've done a little bit of research on the topic. I've sent some letters to the former federal minister responsible, Herb Dhaliwal, and one of the concerns he expressed at that particular time was that the Province of Nova Scotia seems to have great potential for wind power, and my concern is - and it's shared by some members of the federal government mind you, some federal Liberal members - that we may not have the necessary human resources capacity to perhaps address the potential. What do you say to that type of a claim?

[9:30 a.m.]

MR. CRANDLEMIRE: Are you speaking of the human resource potential within government or in the private sector, too? (Interruptions)

MR. TAYLOR: We're talking about the government now and, if I could, Mr. Chairman, I would focus on that particular component of wind power generation. There's a couple of test sites, a couple of neighbours of mine, for example, are generating electricity by way of windmills. There was a program - it may still be in place - that the federal government is sponsoring, there's a financial incentive up to so many megawatts. At one time it was felt that the incentive program was largely, because of the qualification of 50 megawatts, I think it was, out of reach for most ordinary individual Nova Scotians.

I'm wondering, what have we done, what has the federal government done to better facilitate the potential for wind-power generation by ordinary, if you will, Nova Scotians, so we can perhaps lessen our reliance on some of our traditional means of generating electricity here in the province?

MR. CRANDLEMIRE: Going back to your earlier question, I don't have concerns about Nova Scotia's HR capacity when it comes to renewables. My group has five technical players in it; two of those, Scott McCoombs, here on my right, and Brian Hayes have been involved with energy efficiency, conservation, renewables, going back into the 1980s. They

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have lots of background in that area. Government can always use more horsepower in almost any area, but I think we can hold our own in that area, compared to any other area in the energy mix.

MR. TAYLOR: Yesterday I was reading - I learned about it before yesterday - where the federal government is - and this is regarding the Kyoto protocol - providing some $50,000 to some organization to further study the methane gas that is allegedly being produced by bovines, if you will, cows, in Canada. I know it's a bit humorous, but jurisdictions outside of Canada allege that 3 per cent of Canada's greenhouse gas emissions are being produced by cattle, and they tell me that the way these other countries came up with this determination is by putting some contraptions on the snouts of cows and other devices on vents that are coming out of dairy barns. This is in writing, I can provide you with the literature that makes this point.

I'm just wondering, do you think that we have any concerns here in Nova Scotia? Obviously we all have to take an interest in greenhouse gas emissions but is there any concern from your perspective being directed towards the farming community? I find the technology that was employed a little bit - I don't know if you'd call it archaic or outdated, it may be quite scientific on the other hand.

MR. CHAIRMAN: Perhaps we could draw a parallel at the Legislature. (Laughter)

MR. TAYLOR: Well, the Chairman could do that quite easily. (Laughter)

MR. CRANDLEMIRE: We've done lots of work in the department on scrubbers for power plants, emission controls for power plants, whether SO2 reduction or NOx reduction or even dealing with greenhouse gases. We haven't done any work on scrubbers for cows, either on the front end or the back end. But to be serious about your question, greenhouse gases are a huge issue for us all and are a huge issue from an energy perspective, because, one way or the other, energy is involved in almost every facet of it. I don't think we can ignore any aspect of the issue, whether it's methane from ruminants or landfill gas or methane escaping from underground coal mines in the ventilation air or whether it's just the more traditional CO2 from your chimney or your tailpipe or the biggest power plant. We're never going to get to where the world needs to be unless everyone takes action. That's industry, that's all of us with our cars and houses, with turning off our computer monitors at night, shutting the lights off in office buildings, using compact fluorescent lights instead of incandescent bulbs which are several times more efficient as far as light for electricity use goes. Those changes have to come and without those changes, we're going to have an ongoing problem as far as greenhouse gas emissions go.

Even with those changes, it's going to be a struggle to even hold the line on greenhouse gas emissions, let alone make reductions, but we have to get there. I wouldn't for a minute discount options in the agricultural sector - whether it's with animals or tillage and

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land use, what have you, all of those will be important. But out of the starting gate the focus will be on some of the largest emitters. That's logical, I think that one would initially focus on where the big game is, but that's not to discount for a minute the opportunities that we all have as individuals to influence change.

MR. CHAIRMAN: Mr. Epstein.

MR. HOWARD EPSTEIN: My thanks to you, Mr. Crandlemire and Mr. McCoombs, for coming here this morning. As you can see, I think there's an intense interest here in the subject.

At this point, we're really trying to educate ourselves a bit more about something that clearly seems to be an important part of the economy of the province and that's an evolving area. I want to start by making a suggestion to you about what seems to be the nature of the evolution of this sector.

MR. CHAIRMAN: Excuse me, Mr. Epstein. Could you speak a little closer to the mic?

MR. EPSTEIN: Sure. I want to start by making a suggestion to you about what seems to me to be the nature of the evolution in this sector and see if I've understood it correctly. Perhaps you could amplify or help me if I'm wrong.

It seems to me that there are two different agendas that are at work in the electricity sector. One is an agenda that has to do with the evolution of the business way in which electricity is generated and transmitted and sold. To some extent that means consolidation, to some extent it means - as we saw in 1992 - privatization, to some extent it now means increased desire for competition, other sources and so on. So that's one part of the agenda that seems to be at work.

The other is, of course, the environmental agenda where there's a desire to make a change in the nature of the negative impact that has traditionally been associated with how we've generated electricity. Clearly this focuses on moving away from fossil fuels and moving towards other kinds of energy sources. So, is that a fair statement about the overall picture of what it is we're seeing in the electricity sector?

MR. MCCOOMBS: Certainly in the environment, it's becoming a bigger focal point, for sure.

MR. CRANDLEMIRE: I would expand that maybe even to three agendas. Certainly there's a change from a business perspective, there's increased emphasis on environmental drivers and even beyond those environmental drivers, there's increased interest in renewables. Granted, the renewables and the environmental drivers I think are fairly closely

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related and maybe one wants to keep those as one or maybe you want to separate them into two pieces, but all of those directions are real and are significant in terms of how electricity is changing, where we go from here.

MR. EPSTEIN: Yes, in identifying these two agendas, I didn't mean to indicate that

they were completely separate. Clearly they are linked, and they're linked because many of the new businesses that might be interested in generating electricity are looking at generating it through renewables. That's part of the linkage. Can we start though by looking maybe first at the business side of it or the business restructuring side of it, and recognizing that it's not entirely divorced from the other agenda?

Our situation in Nova Scotia is that we have one virtual monopoly generator and a few small municipal entities, that's really it at the moment. There's clearly an interest on the part of a number of new companies in becoming electricity generators, primarily through wind at the moment. That's really the situation. What I'm wondering is, can you tell me at this point whether there's any obligation on the part of Nova Scotia Power to buy from alternative generators? What actually requires them, if anything, to acquire electricity from renewable sources from outside companies?

MR. CRANDLEMIRE: Maybe I didn't mention when I went through the slide deck, but for the 50 megawatts of new capacity from renewables that was committed to in the Energy Strategy, that was from independent power generators as opposed to NSP. It's all well and good that Nova Scotia Power goes off and puts a couple of windmills, one down in the Digby area and another one up in the Cheticamp area, but the 50 megawatts are above and beyond that as new generation from independent power generators.

MR. EPSTEIN: Right, so IPPs or NUGs - non-utility generators - have an opportunity to sell about 50 megawatts to Nova Scotia Power?

MR. CRANDLEMIRE: That's right.

MR. EPSTEIN: Now, that's not statutorily required is it? It's my understanding that's something that the URB told Nova Scotia Power it should be doing. Is that the situation?

MR. CRANDLEMIRE: That was a commitment in the Energy Strategy. That was a voluntary target. The 50 megawatts were a voluntary target. You're correct it's not a statutory requirement. The Department of Energy were expecting Nova Scotia Power to meet that target. That's been our expectation all along since release of the strategy and it continues to be our expectation today. As you would be aware, there's already a company down in Pubnico that's putting a project in place that will cover 30 or 31 megawatts of that 50, and we would expect additional processes this Summer and Fall that would put the remainder of that 50 megawatts in place next year.

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MR. EPSTEIN: I don't think there's much doubt that over the next 20 to 40 years the nature of electricity generation is going to change enormously in Nova Scotia. I don't think there's much doubt we're going to move away from such enormous reliance on central fossil-fuel-operated plants and more toward smaller different forms of electricity generation. The real question remains, how do we get there? If we know that this is going to happen, the question is what routes do we follow? Is it your contemplation that this will be legislated or mandated through the URB, or that it will just happen on its own? Or is there a combination of factors?

[9:45 a.m.]

MR. CRANDLEMIRE: Again, going back to the slide presentation, you'll recall there was a voluntary target for 50 megawatts, and then the EMGC followed that up by saying in 2006 we want a portfolio standard that would be mandatory, that would be legislated, that every load-serving entity - so not only Nova Scotia Power but anyone else that's serving customers in Nova Scotia, let's say Berwick Electric or Antigonish Electric - would have to have increased renewables in their mix; an additional 5 per cent between 2001 and 2010. As I said, that would be legislated, that would be mandated, there's no other option, you must have that in your mix on a go-forward basis.

MR. CHAIRMAN: Order, please. You now have had 12 minutes. We'll turn it over to your colleague. We will come back, I know you have some good questions. Ms. Massey.

MS. JOAN MASSEY: Certainly, this is a very complicated issue and I hope you forgive me if I get some facts wrong or don't sound as intelligent as I would hope to. Anyway, I'm going to go forward - renewable energy. In your report, the Electricity Marketplace Governance Committee report, there's a delay of three years between when the report was written and when in 2006 you are going to recommend that the province adopt a mandatory renewable portfolio standard. So why was there a delay set forward right at the beginning? Can you explain to me why there is such a long delay?

MR. CRANDLEMIRE: From the beginning the expectation was that we would move through a sequence of a voluntary target to start with, and then to a mandated target. The Energy Strategy recognized that there was a time window there for getting the 50 megawatts and that was from the end of 2002 to 2005, so it isn't like we're standing still and just waiting for 2006 to arrive. We're adding renewables during that 2002 to 2005 time frame to get to the voluntary target and then starting in 2006, there is a mandated target at that stage that just ratchets upward to 2010. That doesn't mean for a moment that we will have done it all by 2010 and there isn't anything afterward, it's just that the EMGC recommendations didn't go any further than 2010.

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I guess my hope would be that by 2010, renewables are absolutely cost competitive with other alternatives and we don't need to mandate them any longer, that they will be the energy source of choice, as far as electricity goes. If not, certainly, there will be tools in the box to increase it even further, post 2010. I'm not suggesting for a moment that it gets capped at that 5-plus per cent which, as I said, would put us in the range of the 13 per cent to 13.5 percentile by 2010.

MS. MASSEY: I still think it is a bit disappointing to me, and I think other Nova Scotians, that there would be such a delay in leaving these things to be a voluntary target. That's a concern, especially when we read in the paper a few weeks ago when Nova Scotia Power had their big pow-wow meeting and they're basically saying we're going to shut the province down, you know, we can't meet Kyoto targets. I really feel that unless we legislate these targets and make them set in stone, these power corporations have a tight grip on us here in Nova Scotia. Again, I don't want to argue back and forth but I think mandatory targets are better than voluntary, so I guess that's what I'm saying.

My next question is, is it true that within the renewable portfolio standard that you're suggesting that - are there or are there not penalties for non-compliance?

MR. CRANDLEMIRE: I can't answer that question today because we don't have the legislation yet to require mandatory renewables in the mix. That was another reason for the delay, that you start out with voluntary because you can do that with one stroke of the pen.

If you want to go to mandatory standards, well, you would need new legislation for doing that, and it takes some time to put that in place.

I'll be surprised when that legislation is drafted that there won't be penalties for not having it in the mix, but what it comes down to is that if it's an absolute requirement, you can always get that in the mix, it's a question of whether you're generating it in Nova Scotia, which is obviously the preferred route, but you can buy it elsewhere - and you see that quite commonly in the U.S. now, where players are trading renewable electricity just the same as they're trading any other commodity.

You're always able to meet that target, it's just a question of whether it's being generated in your backyard or whether you're having to buy it from somewhere else. It isn't as if you're caught out and just can't meet a certain target if whatever happened - if the wind didn't blow in Pubnico for a few weeks, or what have you, it is available in the marketplace.

Certainly our expectation is that it will be homegrown, generated here in Nova Scotia. There are some reasonable wind regimes in several parts of the province. We have lots of interest from really small operators - I call them hobbyists who just want to do it in the backyard for their house or for their machine shop or for their farm or what have you; we have interest from municipalities like Canso, in the Parrsboro area, that want to do it on a relatively small scale in their towns; and we have interest from much larger players, like the

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people down at Pubnico, who want to put in relatively large wind farms in several areas around the province.

Easily, the interest is there now to go well beyond that voluntary target and even move, over the next year or two or three, to meet that 5 per cent increase. We're quite excited about the interest that's out there. Having said that, I want to emphasize that this isn't only a Nova Scotia Power choice, this is a choice for all electricity consumers in Nova Scotia. The reality today is that a kilowatt hour of electricity from wind costs more than a kilowatt hour of electricity from other sources, so there is a premium to be paid in today's world for a green kilowatt hour as opposed to kilowatt hours that come from our traditional system.

Now, I'm not saying, for a minute, that all of the costs for conventional generation are in the mix. Obviously there isn't a dollar value associated with environmental considerations above and beyond the systems that are already associated with our plants to control emissions. So that's a hidden cost that consumers haven't absorbed yet, but in straight dollars and cents, a kilowatt hour of wind energy will cost you more today than a kilowatt hour of electricity from oil-fired or coal-fired.

MR. CHAIRMAN: I don't mean to interrupt - I will allow one more question - but the answer to the question is yes or no, there is a legislated penalty?

MS. MASSEY: You're not recommending penalties, even though you're saying the legislation is not drawn up yet. You're making 89, I think, recommendations that, I'm assuming you're going to hope are in the legislation, but this was not a recommendation. Again, I'm going to go back to that and just say you're not recommending penalties for non-compliance for renewable portfolio standards in Nova Scotia - you're not going to recommend that?

MR. CRANDLEMIRE: I expect there will be mechanisms to ensure that that mandatory target is met.

MS. MASSEY: I know that you're recommending that, say for example, Nova Scotia Power make annual progress reports towards meeting the goals, but I think, you know, a stricter penalty system might be something that you would have wanted to look at.

MR. CRANDLEMIRE: I just want to verify one thing because you have commented a couple of times now, you're recommending . . .

MS. MASSEY: In your report.

MR. CRANDLEMIRE: Actually that EMGC report is not the government's report. That was the report of the seven committee members that I mentioned earlier, so Nova Scotia Power and a group of stakeholders. They made recommendations to government. Now,

[Page 15]

government has adopted that report so it's government's report in terms of accepting those recommendations, but they weren't our recommendations to start with, they were recommendations from the committee itself.

Let's take a situation where Nova Scotia Power didn't meet that target. They have to report to a regulator, they will continue to have to report to a regulator. I would fully expect that the regulator would say to them, last year your target was, your requirement to meet a renewable standard was x and now that the results are in, you were at x-1, and what are you going to do about it? We would fully expect that the regulator would force them to remedy that and we would fully expect to put the tools in the legislation so the regulator would have the stick to make sure that happens.

I mean the whole idea of going with a performance standard is you will meet this. With voluntary targets, you're sending the signal that you want them to meet it and we expect that they will, but you don't have a stick with voluntary targets, that's why they're voluntary. Certainly when we move to performance standards, that's not, oh, well, maybe we will or maybe we won't, that is here's the bar that you have to meet and the tools will be in the box to make sure that happens.

MR. CHAIRMAN: Before I recognize the next member, the member for Clare, the members for Kings North and Colchester-Musquodoboit Valley have another meeting just across the hall, but the member for Guysborough-Port Hawkesbury will be taking their place. (Interruption) Guysborough-Sheet Harbour, I do apologize.

MR. TAYLOR: Thank you, Mr. Chairman, and actually it's over in the Red Room. It's a Private and Local Bills Committee meeting. Thanks for letting us get our questions in.

MR. CHAIRMAN: The member for Clare.

MR. WAYNE GAUDET: Mr. Chairman, I want to start off by thanking our guests for their presentation this morning. I want to focus on the market prices in Nova Scotia. First of all, how do market prices range among the six municipal utilities?

MR. CRANDLEMIRE: Generally there's more or less consistency from one municipal utility to another. I don't think there's a huge variation in the residential rate between Berwick and Antigonish and Canso. Compared to Nova Scotia Power, I think municipal utilities would tend to have somewhat lower residential rates and somewhat higher rates for commercial and industrial customers.

MR. GAUDET: That was my second question, you know, how do market prices range between these six utilities and Nova Scotia Power. I heard that the URB oversees competitive prices. Is there protection in place to allow the six municipal utilities to continue

[Page 16]

to operate? Are you aware if there's any protection? I guess what I'm trying to find out is, is Nova Scotia Power not permitted to enter or try to enter those markets?

MR. CRANDLEMIRE: Well, in today's world every electric utility in Nova Scotia has a monopoly in its own area, okay, so Nova Scotia Power has a monopoly for almost all the province except for those six municipal areas. The six municipal utilities have a monopoly in their own area. So no one can sell electricity in today's environment in that turf that's dedicated to Nova Scotia Power or Berwick, or Antigonish, or Canso, what have you.

[10:00 a.m.]

With the market opening that we discussed earlier this morning, the first piece is only opening up the municipal utilities, the wholesale market, so what that means is in today's world Berwick can only generate its own or buy from Nova Scotia Power; there's no way to get it into Berwick otherwise. In a world where there is an open access transmission tariff and where that wholesale market is open, Berwick could buy from New Brunswick Power, Quebec Hydro, it could move that electricity across Nova Scotia Power's system because there's a transmission tariff now that allows it to do that, or it could buy from a cogenerator in the province.

So, in essence, they have some additional market opportunities as far as the supply side goes. At this stage of the game, they still have a protected market for their electricity. No one can sell electricity in the Town of Berwick other than Berwick Electric itself, with this exception - a wind generator potentially could build a new project and could sell electricity to customers in Berwick under the rules that are proposed - they can't in today's world, but the EMGC goes there, to where wind generators can sell to any customer in Nova Scotia directly with the new proposed rules.

That's not specific to Berwick, it's the same in Halifax here. Potentially a customer could say now that instead of buying electricity from Nova Scotia Power I'm going to buy it from ABC wind company that has a new wind generation site wherever.

MR. GAUDET: I guess I'm trying to understand. If we're talking about opening the market, deregulating the market, and yet we have residents in these six areas who are technically paying a little higher than what Nova Scotia Power is charging for residential, why shouldn't those Nova Scotians be allowed the choice to purchase cheaper energy from whomever they wish?

MR. CRANDLEMIRE: Residential generally was paying less in the municipalities, it was commercial and industrial that were paying more in the municipal utilities.

MR. GAUDET: Well, I misunderstood. Thanks.

[Page 17]

MR. CRANDLEMIRE: No, it was just the opposite. So, generally, within the municipal utilities, residential customers pay slightly less than Nova Scotia Power rates and commercial and industrial customers pay slightly more. In essence, what you have is some limited degree of cross-subsidization within those municipal utilities of the larger customers - the commercial and industrial customers are cross-subsidizing residential to some degree.

MR. GAUDET: When you say slightly more - are we talking cents or are we talking dollars? I'm just trying to understand how much of a difference is there between these six versus Nova Scotia Power.

MR. CRANDLEMIRE: I don't know the rates right off the top of my head. This is an area quite a little ways outside of the EMGC's recommendations, so I didn't come with that information at my fingertips this morning. On a kilowatt-hour basis, you're talking about small tenths of a cent, but even small tenths of a cent, if you multiply it by a couple of thousand kilowatt hours, on a two-month bill, works out to be small dollars.

MR. GAUDET: Would it be possible, at your convenience, to provide the committee with what the rates are, for both residential and commercial?

MR. CRANDLEMIRE: Yes, sure.

MR. GAUDET: Thank you. My last question is focused on renewable sources. I understand that approximately 15 per cent of electricity in Nova Scotia comes from renewable sources. You made a reference about the wind farm that's in the process of being put in the Pubnico area, down in my part of the province, is there a push to try to increase that 15 per cent? Are there any targets that Nova Scotia is looking at, in the next five years, in the next 10 years, to increase that 15 per cent?

MR. CRANDLEMIRE: Let me just correct your number, well, I think in today's world it would be about 8.5 per cent that's renewables in Nova Scotia as opposed to 15 per cent. In terms of increasing that - well, for renewables, we're talking small hydro, potentially tidal wind or biomass. Wind is obviously the source that's getting the most attention right now. That will grow quite quickly, I would predict, for several reasons.

Number one, wind is becoming much more competitive with conventional sources of electricity. It's one of the largest growing industries in the world right now, on an international basis, just because of its competitiveness. Obviously, as it becomes more commercial around the world, that tends to make it even more competitive still. You're getting bigger machines and more of them, and so you're literally getting into a situation where it's off-the-shelf technology and bigger projects, if you had economies of scale associated with that.

[Page 18]

There is one huge limitation with wind, though, it's not dispatchable. If it can't be firm capacity - suppose we had no other generation in our system and it was just wind, you would go to that switch this morning and flip it and the lights would come on if the wind was blowing, and the lights wouldn't come on if the wind wasn't blowing. That's just the hard reality associated with wind. If you have wind projects spread across the province, let's say, or spread across the region, as opposed to having the major production just in Pubnico, you will improve your situation there because chances are when the wind isn't blowing in Pubnico, it may be blowing in Cape Breton or it may be blowing in Canso or it may be blowing in the Tantramar Marshes.

If we have wind projects spread around the province, spread around the region, say in New Brunswick and Prince Edward Island, there's a good chance - there's a much higher probability that the wind is blowing somewhere. So all of it won't necessarily be on at one time, but parts of it will be on. When you look at the package as a whole, we're always going to have wind generation in one location or another.

But there are some limitations, at least at this stage, in terms of how much wind you can put on the system and, obviously, you have this aspect to it as well, while you're adding wind to the system and there's a cost associated with that, in terms of new capital for construction and connecting it into the grid and that sort of thing, you still have to have the other plants there to generate when the wind is not blowing, so that light will always be there when you flick the switch.

You're always going to have to have that backup capacity for following load, for generating when the wind is not blowing. I don't think anyone knows at this stage what the practical limits are. When we're talking about moving through the voluntary target of 50 megawatts and then adding another 5 per cent, which would probably mean moving up in the range of 150 to 200 megawatts of wind in our system, so we're talking about five or six or seven Pubnico projects, as far as size goes. We will have a lot better feel at that stage, to what the additional potential is in our system to handle wind.

All the better if we can easily move to 300 megawatts or 400 megawatts, but you really need to be in that operating control room and know how well the system works, how well it can be managed with that kind of volume of wind in the mix to know how much more you can handle. We need to learn as we move along on that piece. That's true wherever you are. It's not unique to Nova Scotia. That's one wart that comes with wind, if you will, that it can't follow load, it's not dispatchable, you can't count on it for capacity for the full amount.

MR. CHAIRMAN: The member for Sackville-Cobequid.

MR. DAVID WILSON (Sackville-Cobequid): Thank you for your presentation. Just a comment and a couple of quick questions. As Mr. Crandlemire mentioned, you felt pretty

[Page 19]

confident that when you go to the light switch and turn it on, your lights will come on. I think a lot of Nova Scotians, especially over the last year, have come to realize how much they really depend and rely on electricity, especially post-Hurricane Juan. A lot of our devices we use today, we use electricity for computers and even our phones today now, when you buy a phone you usually have to have a plug next to it to plug it in. Of course our usage has gone up and the devices we use, a lot of them use electricity.

After Hurricane Juan I had a lot of calls on, of course, the time period of when they didn't have power and how long it was going to be when it came on, or came back on, or when the power was going to be restored. A lot of people had mentioned, is one of the reasons because we have such a monopoly on this system; if we opened it up would it maybe reduce that time of restoring power? I understand Hurricane Juan was a storm of the century, but a lot of people in Nova Scotia and across the country use power for their food, for their medical devices that they have in their homes, and they really depend on it. It's definitely an asset that you need to live on.

Some of the questions they've come to me with are around the structure or the delivery system, the main grids in our province. I'm wondering if you're concerned with the structure, the delivery service we have now, pertaining to the main grids and that, with the growth of power usage. Are you confident that the structure is there to hold the increase that we've seen?

[10:14 a.m. Mr. Ronald Chisholm took the Chair.]

MR. CRANDLEMIRE: I think there are two or three different facets to the question you raise. If electricity usage grows over the next 10 years the way it has grown in the last 10 years - and no reason to think that won't happen because there's been continuous growth since the 1950s until now and electricity is becoming a bigger and bigger part of the energy mix; it has consistently for that time period - obviously it's going to put strains on the system. We're going to need new generating capacity. We're going to need to strengthen the transmission network to move electricity around the province. When I say we're going to, I don't mean the government's going to do this. It's going to be private generators, or it's going to be Nova Scotia Power, or it's going to be Berwick Electric or what have you. We have to have growth in the system to meet that demand, assuming that demand continues to grow.

One advantage of some of the things we've mentioned this morning, whether it's cogeneration or whether it's renewables, wind generation, is that they're going to be widely distributed around the province. Already we have a plant being built in Pubnico and the system had very little generation in that part of the province. It's likely that you'll see new capacity built in coastal regions of the province from wind, whether that's in Canso, down in the South Shore, in the Digby area, or what have you; those are logical locations. That tends to strengthen the backbone of the system just because you have generation now spread

[Page 20]

throughout the province rather than being primarily in Cape Breton, and then huge wires carrying it all to markets in Halifax. But there will have to be expansion of the transmission system, expansion for new capacity. It's just the nature of the game. You can't have the usage unless you have all the infrastructure that goes with it.

[10:15 a.m.]

MR. DAVID WILSON (Sackville-Cobequid): Another concern a lot of people have brought up to me, especially people who may be new to our province and have come from out West, or actually in the States, is that without this upgrade in the next few years, I believe, are we going to see what we see out in the western states with roaming blackouts and on the peak seasons with the high demand on power, do you fear that that's something we're going to look at before they upgrade the system?

MR. CRANDLEMIRE: No, I don't fear that, but in this perspective, if players didn't add infrastructure, that's where you would end up by definition. I mean if load grows and you don't add any capability for generating the electricity or moving the electricity around, you soon move to a situation where you don't have the ability to deliver, you know, to have the certainty that when you flick that switch, the lights will be there. I mean when you look at Nova Scotia today, we're in relatively good shape.

MR. MCCOOMBS: I would say we're envied by a number of other jurisdictions.

MR. CRANDLEMIRE: I mean you only have to follow the media over the last few weeks to see some of the difficulties that some other utilities are in, even in Canada. We don't have those problems and thank goodness for that. Having said that, can we just sort of fold our hands and relax and say, well, let's just wait and see how things unfold? Absolutely not. I mean that's exactly why you saw Nova Scotia Power applying in the past few months to add a new gas-fired combustion turbine at Tufts Cove, is because they got a bit of a scare last winter with the extreme weather that we had, the peak that was set in Nova Scotia was well above any peak that had been set previously.

So to have confidence that they can meet that new peak that might come this coming winter, if we had just as extreme or more extreme conditions, there's a new plant going in place and I mean, as well, we'll have 30 megawatts of wind come this winter that we didn't have last and assuming that growth continues, I think there will be more wind added, there will be more cogon added, there will be more gas-fired combustion turbines added, or there will be a steam cycle added to those combustion turbines over there to convert them into a combined cycle which will generate more electricity and it will be a more efficient system overall for gas use and electricity production than is the case today. Those plans are already in the works in various stages of implementation but, rest assured, those things will be developing, I mean like in the next two, three, five years.

[Page 21]

MR. MCCOOMBS: The other thing is we have a cost of service utility that has an obligation to serve here still and that's not going to change under the proposed changes that we're bringing forward here. So I mean the utility is still going to have an obligation to serve Nova Scotians to make sure that there is adequate capacity in the system to do that job and they will, obviously, be entitled to their regulated cost of service in order to provide that supply. So in that sense, I mean, you know, the reliability aspect is covered off with respect to the assurance that, to the extent the regulator approves those capacity additions, they're going to get those costs recovered.

MR. CRANDLEMIRE: I'm sorry to use up your time, but I want to flag an issue on the other side of the equation. Now, we've tended to talk a lot this morning about new generation capacity and increased demand and new transmission to meet that and that sort of thing, but there is another side to this equation as well and I want to make sure that that's on the record. What we're talking about is a supply/demand gap - demand is moving up here and the supply is fixed here and there's a gap that has to be filled - but there are two ways of filling that. We can build more transmission and more generation and fill that gap this way or we can do things to reduce demand which manages the gap a different way.

We are going to be pushing to see more things happening on reducing that demand, as well. We talked earlier this morning about computer monitors that are left on overnight, compact fluorescent lighting that delivers the same degree of lighting for only a fraction of the electricity usage. For any of you members who live in the HRM or in Sydney, the department sent out some little foam backers for switch plates earlier this Spring with some energy saving tips on them. We're going to be doing more of that and we're going to be twisting the utility's arm to do more of that, because when we're talking about adding more infrastructure to the system, more transmission, more new capacity, that tends to drive electricity prices up, it can't be any other way.

As you move electricity prices up, there is more opportunity for savings, it makes good economic sense to be saving a kilowatt hour, rather than just generating another one. Obviously, there are no environmental emissions with saving a kilowatt hour, why you get a free ride on that side. You will be seeing a lot more effort in Nova Scotia on that side and you'll be seeing a lot more effort nationally. That's one way to deal with the greenhouse gas issue, just cut back on usage.

MR. DAVID WILSON (Sackville-Cobequid): Just one quick one?

MR. CRANDLEMIRE: Okay, sure.

MR. DAVID WILSON (Sackville-Cobequid): What I see, especially being new to this position, is that we seem to be reactive after things happen, government and big corporations. I just want to emphasize that the government needs to really - even though this is a private company - look at it and make sure that they are delivering the service and the

[Page 22]

potential to deliver more service. A quick question, are you confident with the measures or the safeguards in place for our grid system? If something happens on the eastern seaboard, like we saw last year, up to Ontario, with one area being affected but it's just kind of relaying up the coast, are you confident that we have measures in place that will prevent us from being affected by a mass power outage like we've seen?

MR. CRANDLEMIRE: I think our focus has always been on reliability and certainly, that has been reinforced by what happened with Hurricane Juan, with what happened with the blackout last Summer, that sort of thing. But it isn't like we just heard of the reliability word with those events. Why, we were very conscious of reliability going back to when the Energy Strategy was put together and when the EMGC first started doing its work. That's the reason it was a very cautious approach towards making changes to the system. Why, we didn't want to jeopardize that reliability that was already in the mix, the relatively competitive prices that were already in the mix, the confidence that Nova Scotians have in electricity. You can certainly see from the things that have happened in California, or in Alberta - to a lesser degree - or in Ontario where public confidence has been shaken in the system as a result of some of the changes. We are much more comfortable taking a very slow and steady approach to this, rather than jumping in and making big changes all at once.

MR. CHAIRMAN: Mr. MacKinnon.

MR. RUSSELL MACKINNON: My first question is, what percentage of the market does Nova Scotia Power have at the present time in Nova Scotia, energy consumption?

MR. CRANDLEMIRE: As far as generation or energy sales go?

MR. MACKINNON: Sales. Well, consumption in Nova Scotia. We have 950,000 Nova Scotians, what percentage of that does . . .

MR. CRANDLEMIRE: Nova Scotia Power would sell a little bit over 98 per cent of the electricity that is sold in Nova Scotia. That . . .

MR. MACKINNON: That's fine, because I have a whole series of questions, rather than long, protracted answers - and I don't mean that in a negative sense but I'm looking for detail. Is Nova Scotia Power operating at full capacity presently? Its power-generating facilities, are they operating at full capacity?

MR. CRANDLEMIRE: For the most part, no but on the coldest day last Winter or actually on a few of the coldest days last Winter, they were going full tilt.

MR. MACKINNON: Generally, what do they operate at, at what capacity?

[Page 23]

MR. CRANDLEMIRE: I don't know an exact number to that, but I would say in the order of probably 70 per cent or something like that.

MR. MACKINNON: So they control 98 per cent of the market but they only operate at 70 per cent capacity.

MR. CRANDLEMIRE: If I can just add one quick line, you could never operate at a high-capacity level because, for reliability reasons, you have to maintain a 20 per cent reserve in your system.

MR. MACKINNON: So, they're 10 per cent below capacity.

MR. CRANDLEMIRE: In theory, you can never go over 80 per cent.

MR. MACKINNON: What percentage of their total production do they sell outside of Nova Scotia?

MR. CRANDLEMIRE: It's small numbers, let's say it's 5 per cent or something of that order.

MR. MACKINNON: Five per cent?

MR. MCCOOMBS: Between 2 per cent and 5 per cent, in that order.

MR. CRANDLEMIRE: Yes, it varies from year to year, but it's relatively small numbers.

MR. MACKINNON: You indicated that Nova Scotia Power has given notice it cannot meet its Kyoto targets, correct?

MS. MASSEY: I said that.

MR. CRANDLEMIRE: I didn't say that.

MR. MACKINNON: Well, are they able to meet their Kyoto targets?

MR. MCCOOMBS: Nobody knows what that target is going to be.

MR. MACKINNON: To the best of your knowledge.

MR. CRANDLEMIRE: We don't even know what the Kyoto target is.

[Page 24]

MR. MACKINNON: I want to go back to a comment that was made by the Premier a little more than a year ago. He indicated that if Nova Scotia Power was to meet the Kyoto protocol targets it would have to increase rates by 29 per cent. Do you agree with that statement?

MR. CRANDLEMIRE: I think you have to look at the assumptions that underlie that. I would presume that the assumption was that the Kyoto target for Canada would be applied equally across every province, and that's not an assumption that we would make today.

MR. MACKINNON: So you're saying no.

MR. CRANDLEMIRE: I'm saying that we wouldn't make that assumption. There's been ongoing negotiations amongst the provinces and the feds as to how the Kyoto reductions will be divvied up.

MR. MACKINNON: If I could, Mr. Chairman, I would like to drill down on that just a bit because it's quite significant on what the power rates will be and in terms of environmental controls as well. That assumption is identical to the assumption that was put forth by Nova Scotia Power. So it's almost as if the Premier was taking the exact position that Nova Scotia Power had put forth, in accepting what they said. At a later date, representatives from within the Department of Energy, I believe, appeared before one of these subcommittees of the Legislature and indicated quite the contrary. I would like to know from you what it is. What's the anticipation within the next few years of coming close to meeting these Kyoto protocols?

MR. CRANDLEMIRE: You're asking me questions that are outside my area, so I can't go into it very deeply. Let's put it this way, if Nova Scotia Power had to meet the reduction that's proposed in the Kyoto protocol and Nova Scotia's share was the same as every other province's, and then Nova Scotia Power would absorb the biggest reductions in Nova Scotia, of any player, just because of the nature of its business, uses a lot of fuel, produces a lot of CO2, it would be very expensive, there's no question about that.

I can't comment today in terms of whether it would be 29 per cent or 31 per cent or 25 per cent, I don't know the answer to that, but I know that there's extensive negotiations amongst the province and the feds over how that reduction will be allocated amongst provinces, and there's extensive discussions with Nova Scotia Power with the province over what are the best options for making substantial reductions, not knowing what the target will be.

[Page 25]

[10:30 a.m.]

MR. MACKINNON: The other issue is an issue that evolved because of the privatization of Nova Scotia Power, and that was the elimination of the general principles that were attached to the Rural Electrification Act, which had a significant impact on development throughout rural Nova Scotia. Has there been any discussion with the Department of Energy, or your group, on reactivating the principles of the Rural Electrification Act? Are you familiar with what I'm referring to?

MR. CRANDLEMIRE: I'm not hugely familiar, but I can say that there hasn't been any discussion within the last year on that.

MR. MACKINNON: Well, I'm very disappointed to hear that, because I think that can either make or break the lifeline in rural Nova Scotia, and I put that on the table. Prior to the privatization of Nova Scotia Power, if you lived in a part of - I'm sure Mr. Epstein would be somewhat familiar with this - rural Nova Scotia, I believe if you lived within one mile of the end of service and there were, for example, three residential units constructed then the service would be provided and absorbed by the corporations and so on. Now, if you go one foot beyond the existing service, you have to pay. It's user pay directly and it has hampered development throughout rural Nova Scotia quite a bit. Residential, commercial, industrial - to a lesser extent the industrial and commercial. It has had a tremendous impact and I'm sure, Mr. Chairman, down through the Eastern Shore and Guysborough it has had a tremendous impact.

I would put that on the table and ask your committee to perhaps report back to members of the committee as to what consideration will be given to that particular issue, and give us something in writing, would you do that?

MR. CRANDLEMIRE: Okay, we will.

MR. MACKINNON: Perhaps a recommendation to government as to how you would or would not proceed on that, would that be okay?

MR. CRANDLEMIRE: Yes.

MR. MACKINNON: Thank you. How much time do I have left, Mr. Chairman?

MR. CHAIRMAN: Three minutes.

MR. MACKINNON: Okay. First of all, I'm curious as well with regard to the offshore. We've produced and sold a lot of natural gas and so on here in Nova Scotia, but there doesn't seem to be a lot of consumption here. We're selling it outside the province. I recall attending a conference down in Providence, Rhode Island, about three years ago -

[Page 26]

maybe four, three anyway - and they were talking about new gas-fired power generating stations. I believe, Mr. Chairman, you were sitting next to me when the announcement was made . . .

MR. CHAIRMAN: New Hampshire.

MR. MACKINNON: New Hampshire it was. No one in Nova Scotia even knew that they were going to construct these power generating stations. The regulators had approved them using Nova Scotia gas. We didn't even know that such a thing was occurring, and we were quite surprised. How does Nova Scotia fit into this offshore gas energy program? Is there going to be increased consumption by Nova Scotians in the long term, or are we going to continue to sell because that's where the greatest rate of return is from a corporate point of view, and a tax point of view?

MR. CRANDLEMIRE: That's a question really business will answer over time.

MR. MACKINNON: Why not government?

MR. CRANDLEMIRE: Not someone from government. I'll say this, Nova Scotia Power built a 47-megawatt gas-fired plant two years ago, it only burns gas. They're building another one this Summer, it only burns gas. So obviously they're going to use more gas than they have previously. Tufts Cove has already converted, it can burn either gas or heavy oil. At this stage, in large part, they haven't used gas because it costs a lot more than their other fuel alternatives. They made the choice for Nova Scotians of keeping electricity prices as low as they could by burning coal or heavy fuel oil rather than gas. On any day they have the option of burning more gas, recognizing that in today's world it costs more.

I would make this point as well, that with the emission reductions we spoke about

earlier this morning - cutbacks of 25 per cent by 2005, 50 per cent by 2010 - that's going to limit their flexibility for selling gas and burning other fuels. They're going to have to burn gas because it's cleaner, or, alternatively put scrubbers on their heavy fuel oil plant or their coal-fired plants to reduce SO2 emissions, but one way or the other they have to get to those SO2 reductions. Burning gas is probably the easiest option for them, the least costly option, at this stage of the game.

MR. MCCOOMBS: Another thing is the revenues from gas sales have offset their other fuel costs, so that's been a benefit to ratepayers in this province to the extent that they've been able to make profit on those gas exports. Part of that revenue comes back to Nova Scotia Power which is then used to offset what would otherwise be the need to raise rates from other fuel prices. They use it basically as a hedge against other fuel costs.

[Page 27]

MR. CRANDLEMIRE: The sale of gas, I mean the new power plants that were just approved - you mentioned a couple of MLAs were in New Hampshire or wherever and learned that for the first time. It's not news to us, we recognized it from when SOE first went into production - there's three or four gas-fired power generation plants or cogeneration plants that have been built within 100 miles of Bangor one way or the other. They're big users of SOE gas. They've had trouble being competitive in the electricity market with the price of that gas, but they built those plants on the assumption that they would be gas-fired and would sell their product on that basis.

MR. MACKINNON: Mr. Chairman, just in closing, I'm a little surprised the Department of Energy wouldn't know what's happening with our natural resource that's leaving the province, at least its destinations.

MR. CRANDLEMIRE: We know exactly. I can give you a list of the plants that are using it.

MR. MACKINNON: But the ones that are being contemplated.

MR. CRANDLEMIRE: We're well aware of those as well.

MR. MACKINNON: Okay. Thanks.

[10:37 a.m. Mr. Russell MacKinnon resumed the Chair.]

MR. CHAIRMAN: Okay, for a second round, on a first-come, first-serve basis. Ms. Massey.

MS. MASSEY: Again, forgive me if I don't have my information correct. It's a conundrum to me how, number one, we have a net metering option for a customer that can be both the consumer and the generator of electricity in this province. While they're supplying this, they can bank their electricity? Correct? And then at the end of the year, if they've consumed less and produced more, they have a credit. I'm concerned then at the end of that, I believe you call it a green tag? For example, their credit is lost, they don't get to keep that. Nova Scotia Power gets to keep that, so I'm not sure what kind of an incentive that is for those people who are trying to generate electricity and maybe it's through a renewable source.

On the other hand, we're saying to producers of electricity in Nova Scotia, a private generator, we're saying - I could be wrong on this - but you produce electricity but then the amount you produce, Nova Scotia Power has to create the same amount of electricity so that they can provide backup for that amount of electricity produced by these private generators. Is that correct? Am I at all correct in any of those statements?

[Page 28]

MR. CRANDLEMIRE: There are pieces of truth to all the lines you just mentioned. Here's the reason why the rules are as they are in terms of the EMGC's recommendations on net metering. With the electricity costs that you pay as a householder - what is it?

MR. MCCOOMBS: It's 8.6 cents plus HST.

MR. CRANDLEMIRE: Yes, 8.6 cents, something like that, plus HST. The biggest piece of that is for generation. Let's say it's 5 cents, for example, for generation and maybe there's a penny in there for transmission so your electricity was generated down at Lingan Power Plant and had to be transmitted to Dartmouth, give them a penny for that, so we're up to 6 cents. Then there's 2 cents and a bit just to run the distribution system and to deliver it to your house and to have someone come read your meter and send the bill and process the payment, and that sort of thing.

Okay, now you're living on a farm, I will leave you in Dartmouth just because - we'll make that a constant, and you have your own generation. This month you generate just a little bit more than what you need and so the meter is going backwards and you've put some electricity into the system. Nova Scotia Power has used two pounds less coal this month than normal because of your generation. Next month it's the opposite, they used two pounds more coal and you drew the same amount out of the system, so your balance is zero. You're using that transmission system to bring the power down from Cape Breton. You're using the distribution system, all of that, yet your bill for those two months is zero, okay? So you've used the system, haven't paid a cent towards it because for those two months you had a net balance of zero.

The reason that the net surplus falls off the table after 12 months is to recognize that you're using all kinds of infrastructure in that system and paying nothing towards it. So to the extent that you are oversupplying on a 12-month basis, that's your contribution towards the costs of operating that overall system. The reason you're giving the green credits to Nova Scotia Power, again, is because you're getting a free ride as long as you're not buying from the system, even though you're using all kinds of infrastructure in that system regularly.

MS. MASSEY: I will stop you there, because I would have to argue the fact that if you would flip it around, Nova Scotia Power is getting a free ride from the people who are generating this electricity because they either had to put some solar panels in or they might have little - you know, they're generating. They've put in some form of generation system on their own, so Nova Scotia Power is getting a free ride off their green tags too. So you can look at it both ways, I think - can't you, seriously?

MR. MCCOOMBS: Well, I guess another aspect I would like to add to that is it comes down to this backup capability as well. I mean if you're a self-generator and you have a renewable energy generation source that may or may not be producing energy when the utility sets its peak, therefore it basically is providing energy to them, but it's really not

[Page 29]

providing any kind of value in terms of firm capacity, it may or may not be providing any value in terms of firm capacity addition to the system.

So to that extent it's worth less to the utility than it would be if it was a firm generation source that could be counted on 24/7 and even though you may at the end of the month net out in terms of your demands of energy versus how much you would otherwise be using, it's when that energy is available, when it's being produced that is also critical in terms of the equation of what the value of that energy is worth, and because you're on the net meter on the retail rate, you're getting the full retail value of that energy, regardless of whether it's really providing that supply at a time when the utility truly needs it or not. So there is some trade-off there between the value that the utility is getting out of that generation source versus the benefits that are being sent back to the customer.

MS. MASSEY: Thank you very much. It's all very interesting.

MR. CHAIRMAN: I recognize Mr. Chisholm.

MR. RONALD CHISHOLM: Mr. Chairman, I've got to apologize, I was a little late coming in. I didn't get a call to be here until about 9:30 a.m. and it's not one of the committees that I'm on so I'm not really prepared for this, but I guess when I look at the whole system from 1970 to probably 1985, I worked in construction with Nova Scotia Power and different contractors that were in the province. There was a great deal of activity building the system substations in Onslow, Antigonish, Port Hawkesbury, Victoria Junction, and Sydney - I worked on them all in the eastern part of Nova Scotia and built power lines in all those areas as well. In the last number of years, there doesn't seem to be that activity that there used to be as far as rebuilding or upgrading the system, I guess you would call it.

Yesterday I did a tour of Stora Enso in Port Hawkesbury and they had a board right in the control room that indicated the amount of consumption that Stora Enso was using from the Nova Scotia Power system. I think when I was there yesterday, it was about 15 per cent of the total power consumption in the province that was being used by Stora. I wonder, is a reliable electricity supply sustainable with the current and increasing demands for electricity in the province where we don't seem to be upgrading the system any. You talked about wind supply and all that sort of thing, but when one company is using that much energy, where are we going to be in five years' time?

[10:45 a.m.]

MR. CRANDLEMIRE: That one company is going to be using more in a few months' time than they are now, because I think they're still in the process of building or converting one of the paper lines to supercalendered paper. I don't know the exact increase but it will have an increased electricity usage once that construction is complete.

[Page 30]

MR. CHISHOLM: Well, according to what they told us yesterday, that was on the low end of what they were using yesterday for supplies.

MR. CRANDLEMIRE: When you mentioned all of the construction a few years back and not much happening now, the system was - well, back when we built Trenton No. 6 and Point Aconi - hugely overbuilt at that stage, had a big surplus of capacity in the system, and of course they had to build all the transmission and the substations and what have you to go with those new power plants. We've gone for roughly 10 years now, just mopping up that surplus capacity, if you will, just growing to fill that ability that was already there. We're only getting to the point now where we're having to add to generation, to transmission, to substations for future load growth. Nova Scotia is not unique in that regard. New Brunswick is very much in the same situation. They had built Belledune back in the early 1900s, and have just moved now to where they're having to look to new capacity. P.E.I. is in the same situation, where they need new capacity even sooner than New Brunswick or Nova Scotia.

You'll be seeing increased investment in generation, transmission, other substation infrastructure, that sort of thing, through the rest of this decade, just because we've drawn that surplus down to the magical 20 per cent reserve capacity, and now we have to add more just to maintain that reserve.

MR. CHAIRMAN: Mr. Epstein.

MR. EPSTEIN: Can you help us understand the wheeling proposal. I have to say this isn't clear to me, because once the Utility and Review Board sets an OATT, the open access transmission tariff, were you saying to us that the system is then going to be open to anyone to wheel across the system?

MR. CRANDLEMIRE: There's two steps actually, the transmission tariff has to be in place, and then the wholesale market has to be open, so that a Berwick Electric, for example, can buy electricity from any supplier. It's not open today, so . . .

MR. EPSTEIN: What's the barrier to opening it? Is that the division inside Nova Scotia Power of the transmission from the generation function?

MR. MCCOOMBS: No, it's opening a competitive market. Right now, Nova Scotia Power, basically, is the sole supplier to the municipal entities in this province. In order to allow competition for those wholesale customers that Nova Scotia Power currently is serving, there has to be a change in the legislation to provide that competitive market opening.

MR. EPSTEIN: There's a legislative restriction?

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MR. MCCOOMBS: There is a legislative restriction with respect to who can sell electricity currently to entities in Nova Scotia.

MR. EPSTEIN: Where's that?

MR. CRANDLEMIRE: That's what protects the monopolies, as such.

MR. EPSTEIN: Sorry, what legislation is that in?

MR. MCCOOMBS: The Public Utilities Act.

MR. CRANDLEMIRE: It's in the Public Utilities Act but, in essence, it provides a monopoly for Nova Scotia Power, it provides a monopoly for each of the municipal utilities within their own jurisdiction and . . .

MR. EPSTEIN: Doesn't this go hand in hand with - what's the point about setting an OATT if you're not going to open up the market? (Interruptions)

MR. MCCOOMBS: That's what's going to happen in the legislation . . .

MR. CRANDLEMIRE: We're going to do the two concurrently, but there's two steps to it, Nova Scotia Power has to put the transmission tariff in place and, legislatively, we have to open up those wholesale markets, so that (Interruption) Now, here's where a transmission tariff could work, though, without opening the wholesale market. You could have, say, Kimberly-Clark build a cogeneration plant, they could use the transmission tariff to send the electricity across Nova Scotia Power's system to a customer in New Brunswick, without any opening of our wholesale market; for it to be used in Nova Scotia, we have to have the transmission tariff and we have to open that wholesale market.

MR. EPSTEIN: I'm wondering about the timetable for this, because it sounds as if this might happen within the next couple of years, that the URB will set the OATT and legislation could come forward in order to open up that market, and if that's the case, are you actually contemplating that at that point we will have full-scale wheeling? The scenario I have in mind, for example, is what happens if the large customers that we just talked about, like the pulp and paper plants or even private homes, massively, suddenly start buying their electricity from Hydro-Québec?

MR. MCCOOMBS: They aren't eligible, under the market opening we're limiting the competition to wholesale customers only.

MR. EPSTEIN: So this is what you're saying. You're saying that you're only going to open it up to the six municipalities. That's your limit.

[Page 32]

MR. CRANDLEMIRE: As a first step.

MR. EPSTEIN: That's the problem. People, I think, are going to be very much misled at this point unless this is really clear to them that it's only those municipalities. Now, as I understand it, the committee wanted to open the market up more extensively than that. They were talking about opening up something as much as 25 per cent of the electricity market to competition. Has the government yet taken a position on this?

MR. CRANDLEMIRE: The committee considered opening it up to a larger group of customers. So basically opening it up to municipal utilities as well as a group of large industrials which, you are correct, would have resulted in roughly 20 per cent of the electricity demand being open to competition, something like that. At the end of the day the committee decided against that.

MR. EPSTEIN: So the wheeling proposal at this point contains high protection for Nova Scotia Power as essentially the monopoly producer. That's really it. The only opening up to competition is going to be for that 2 per cent, 2.5 per cent of customers who are represented by those six municipal utilities who are going to be able to purchase their power competitively from somewhere else?

MR. CRANDLEMIRE: What the wheeling allows is electricity to move outside the province unlimited. Anybody can generate in Nova Scotia and send it outside the province. They can generate inside the province and send it to only the six municipalities, they can't sell to any other customer inside the province, or they could generate wherever in Nova Scotia and send it to Nova Scotia Power.

MR. EPSTEIN: Okay, thanks.

MR. CHAIRMAN: Just as a point of clarification, what are the names of the six municipalities in question?

MR. MCCOOMBS: Canso, Antigonish, Berwick, Lunenburg, Mahone Bay and Riverport. Those are the six.

MR. CHAIRMAN: Okay.

MR. CRANDLEMIRE: It used to be seven, Kentville sold their municipal utility a few years back and merged it with Nova Scotia Power.

MR. CHAIRMAN: Okay. We have four minutes left. Just a general question overview, one issue if I could, members of the committee. A big issue that went through the 1980s was exploring the utilization of biomass. That seemed to have dropped off the Richter scale altogether in terms of energy consumption. If you could perhaps make a comment on

[Page 33]

that, where that fits into it. As well, where I come from, coal mining, it's a big issue, the Donkin coal mine in particular, if you could make some observation as where these two issues fit in the long-term strategy?

MR. CRANDLEMIRE: On the biomass side, the biggest plant in Nova Scotia would be the plant that's next door to Bowater Mersey, it's to the order of 20 megawatts or so using waste-wood materials. It's a cogeneration plant that provides steam to Bowater and electricity to Nova Scotia Power. There's a small plant out in Middle Musquodoboit associated with the Taylor Lumber operation that sells some electricity to Nova Scotia Power. It uses some for their own. Certainly, biomass-generated electricity comes out of the category of renewable; it can compete with wind or any other options. When we set targets whether its voluntary targets or mandated targets for meeting renewable standards, biomass can fit that bill just as easily as wind.

MR. CHAIRMAN: Coal, where they fit in the long-term strategy, are they expanding or contracting?

MR. CRANDLEMIRE: In terms of coal, we have a large coal-fired capacity in the province, Lingan, Trenton, Point Aconi, Point Tupper. Those plants will continue to operate. They are still the cheapest sources of electricity. They're still going to burn in the order of 3 million tons a year of coal. If there's more production in Nova Scotia from surface mines or if Donkin comes on, it can meet that co-requirement. If it doesn't, it will be imported as it is today for the most part. There are three or four open pit mines that are producing, but generally it's a small quantity relative to the overall demand for solid fuels.

MR. CHISHOLM: I don't know if you know much about it, but this man - I think his name is Livingstone - has a small hydro plant down in Milford. What does he do with his power?

MR. CRANDLEMIRE: He sells it to Nova Scotia Power. He's a private power producer, and Nova Scotia Power has a power purchase agreement with him. It wouldn't be hugely different except in terms of scale with the power purchase agreement they will have with the group down in Pubnico or they would have with the operation next door to the Bowater plant that uses biomass for fuel. There are a number of small power producers around the province. There's a small hydro one out St. Margarets Bay way as well.

MR. CHISHOLM: I just happened to come across his operation one day when I was touring the Milford Land Reserve.

MR. CHAIRMAN: That pretty well concludes today's presentation from Mr. Crandlemire and Mr. McCoombs. Do you have any closing remarks? Two minutes or less.

[Page 34]

MR. CRANDLEMIRE: I would just make one quick comment. At one time or another this morning, several members commented they didn't know if they had it quite right, or weren't quite sure how it all worked and that sort of thing. You shouldn't be embarrassed about that in the least. When we put together this EMGC committee, we polled electricity experts from those various committees that I mentioned - we had Nova Scotia Power people there, and yet that committee worked for, easily, three or four months just to understand all the issues and how it all works in terms of bringing more renewables into the system. I think the fact that wind wasn't dispatchable and couldn't follow load, and as well how things would work in terms of having a transmission tariff and having to open up the market so customers could buy.

So, no reason to feel self-conscious that you don't understand how this whole picture works. Even experts took weeks and weeks and weeks to get a good grasp on the issues before they felt comfortable launching into recommendations. As much as anything, I view this as an opportunity for us all to learn a bit this morning about how the system works, obviously as we move down the road of making changes there is going to be a huge task for us on the public education side just so that people recognize that the first step is the market's only going to open to those wholesale customers, which are the six municipalities. Joe Householder or Joe Business isn't going to have the opportunity to buy electricity from whomever he wants in the short term - I'm not saying that won't come much further down the road, but we'll deal with this one step at a time.

MR. CHAIRMAN: Okay, thank you. Very quickly.

MR. CHISHOLM: Maybe an invitation to our guests today if they would like to join us in early July in Canso for the Stan Rogers Festival - we could show you how much wind we have down there.

MR. CHAIRMAN: Okay, or come across the street and find out how much wind is in the Legislature. (Laughter) Natural gas, anyway.

Seriously, we do want to thank both our witnesses today. It was very informative, straightforward in your responses, and very productive. Did your committee prepare a final report? I know there was an initial report. Maybe you'll provide that? (Interruptions) There are some in the House - oh, I didn't know.

MR. MCCOOMBS: If someone would like an extra copy, I brought along extra copies.

MR. CHAIRMAN: Maybe if I could get a couple of copies?

MR. MCCOOMBS: Sure.

[Page 35]

MR. CHAIRMAN: For our next meeting, June 8, 2004, 9:00 a.m., the shipbuilding industry. We'll have Dr. Russell William Saunders who will be making a presentation. I think that's very interesting, because it has been raised by a number of members.

So, with that, I'll entertain a motion to adjourn.

MR. TAYLOR: I move to adjourn.

MR. CRANDLEMIRE: We go away with two tasks. We were going to get municipal rates for you and we were going to get some information on rural electrification for you, Mr. Chairman, so we'll get back to you with that.

MR. CHAIRMAN: Thank you. We are adjourned.

[The committee adjourned at 11:00 a.m.]