Taking Stock of Atlantic Canada’s Electricity Sector Stock of Atlantic... · AIMS POLICY PAPER:...

Taking Stock of Atlantic Canada’s Electricity Sector

Gordon Weil, PhD, LHD Senior Fellow in Electricity Policy

October 2014

© 2014 Atlantic Institute for Market Studies

AIMS POLICY PAPER: Taking Stock of Atlantic Canada’s Electricity Sector

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The Atlantic Institute for Mark Studies (AIMS)

AIMS is a Canadian non-profit, non-partisan think tank that provides a distinctive Atlantic

Canadian perspective on economic, political, and social issues. The Institute sets the benchmark

on public policy by drawing together the most innovative thinking available from some of the

world's foremost experts and applying that thinking to the challenges facing Canadians.

AIMS was incorporated as a non-profit corporations under Part II of the Canada Corporations

Act and was granted charitable registration by Revenue Canada as of 3 October 1994. It received

US charitable recognition under 501(c)(3), effective the same date.

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Email: [email protected]

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Board of Directors

Chairman: John Risley

Former Chairman: John F. Irving

President and CEO: Marco Navarro-Genie

Vice-Chair: Robert Campbell (New Brunswick)

Vice-Chair: David Hooley (Prince Edward Island)

Vice-Chair: Leo Power (Newfoundland and Labrador)

Secretary: Fae Shaw

Treasurer: Elaine Sibson

Directors: Paul Antle, Laura Araneda, Lee Bragg, Stephen Emmerson, Richard Florizone,

Malcolm Fraser, Greg Grice, Mary Keith, Dennice Leahey, Scott McCain, Jonathon Norwood,

Bob Owens, Maxime St. Pierre, Jason Shannon, Peter Woodward

Advisory Council

George Bishop, Angus Bruneau, George Cooper, Purdy Crawford, Ivan Duvar, Peter Godsoe,

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Miller, James Moir, Jr., Gerald L. Pond, Cedric E. Ritchie, Allan C. Shaw, Joseph Shannon

Board of Research Advisors

Advisors: Charles Colgan, J. Colin Dodds, Morley Gunderson, Doug May, Jim McNiven, Robert

Mundell

© 2014 Atlantic Institute for Market Studies

mailto:[email protected]

http://www.aims.ca/


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Table of Contents

About the Author............................................................................................................................4

Introduction....................................................................................................................................5

Electric Utilities..............................................................................................................................6

Regional Generation.......................................................................................................................8

Transmission..................................................................................................................................10

Regulation.....................................................................................................................................12

Opportunities for Atlantic Canada................................................................................................15

Conclusion.....................................................................................................................................19

Conclusion.....................................................................................................................................20


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About the Author

Gordon Weil

Gordon Weil graduated from Bowdoin College, Brunswick, Maine (A.B.), the College of

Europe, Bruges, Belgium (Diploma) and Columbia University, New York (Ph.D. in Public Law

and Government).

He was Commissioner of Business Regulation, Director of the Office of Energy Resources, and

Public Advocate of the State of Maine. He has served on numerous regional energy bodies and

was chair of the national organization of state energy agencies.

He was the chair of the New England negotiations leading to the region’s electric transmission

tariff and the Independent System Operator. A licensed energy broker, he has engaged in

wholesale and retail power purchasing and power sales and strategy development for wholesale

and large retail customers in the U.S. and Canada.

He has taught at several colleges and universities and is the author of 12 books and numerous

articles on economic, governmental, and historical subjects. He was a local elected official. He is

also Chairman of Weil Publishing Co., the publisher of more state administrative codes and

government registers in the U.S. than any other entity. He is bilingual English/French.


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Introduction

In recent years, the electric sector in Atlantic Canada has undergone major changes. In light of

these developments, it is timely to review the status of the sector, to look at where it is going, and

to examine possible opportunities for its new and beneficial evolution.

Each province continues to follow an independent course and, with one notable exception,

relatively little attention has been paid to creating new interprovincial arrangements.

The exception and the most significant single development is the Muskrat Falls hydro project in

Labrador, which will transform the electricity outlook in Newfoundland and Labrador and link

the province to the North American grid.

Each province develops its electricity policy to guide the sector and develop new legislation.

Significant policy changes frequently occur immediately after a change of the political party

leading the provincial government. At times, electricity may be placed in the context of a more

extensive energy statement. Some provincial policies have been applied for several years, while

in 2014 Nova Scotia was conducting a new review of its electricity sector.

Between 2010 and 2012, the Atlantic Energy Gateway (AEG) studies and discussions involving

the Canadian government, the Atlantic Provinces, the electric utilities and the system operators,

produced significant work on possible regional efforts to develop and gain access to renewable

resources. For several years, the Atlantic Institute for Market Studies (AIMS) has produced a

series of papers dealing with opportunities for regional benefits resulting from utility

developments.

The purpose of this paper is to provide an overview of the electric sector with information on

source documents and relevant studies. In reviewing the electric sector in Atlantic Canada, this

paper focuses on:

Electric utilities and provincial policies affecting them;

Generating assets in the region;

Transmission and access to the grid;

Utility regulation; and

Opportunities for provincial and regional development in the electric sector


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Electric Utilities

New Brunswick

Concern about rates led a previous New Brunswick government to advocate the acquisition of

NB Power by Hydro Quebec. However, the proposal did not succeed, because of a popular desire

to retain the provincial Crown Corporation and the uncertainty about rates in the future, even

under the new system.

New Brunswick has reverted to the traditional non-market, vertically integrated, monopoly

electric utility. After the failure of the attempt to sell NB Power, a new government conducted a

study leading to the decision to abandon any pretense of an electricity market.

The separation of NB Power units into separate companies was ended, though the power-

marketing arm was left independent to avoid any problems with appearing to use the utility’s

transmission system to favour its own generation. That separation remains relevant in situations

involving sales outside the province, particularly to U.S. customers. But the New Brunswick

System Operator, a completely independent transmission manager, was eliminated in the belief

that it was no longer necessary in the absence of a provincial electricity market.

The elimination of the electricity market was complete, returning New Brunswick to the kind of

strong monopoly that long ago had disappeared elsewhere.

In addition to NB Power, with about 390,000 customers, three municipal utilities operate in the

province: Saint John, Edmunston, and Perth-Andover. They have a total of approximately 43,000

customers. At a minimum, access to the transmission system – so-called open access – applies to

wholesale customers, like municipal utilities. They may purchase and resell power by using

others’ transmission systems to obtain supply from third parties. That is no longer possible in

New Brunswick, where municipal utilities are now required to purchase their power supply from

NB Power.

Municipal utilities in New Brunswick may supply themselves from generation within their

service territories, by using distributed generation and through net metering with their own

customers. NB Power must obtain some of its power supply from renewable resources. All

distribution utilities are required to deploy demand side management and energy efficiency

measures.

The overall effect of the New Brunswick electricity law is to provide NB Power with virtually

absolute control of the electricity sector. NB Power itself is subject to extensive control by the

government.

Nova Scotia

In contrast to the New Brunswick approach, Nova Scotia utilities operate in the context of

policies similar to other jurisdictions elsewhere in much of North America and favouring

competitive power supply.


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Historically reliant on power generated using provincial coal, Nova Scotia is now shifting from

this supply to more environmentally acceptable resources. It is likely that the province will rely

increasingly on imported power, and more competitive power supply, from both imports and

provincial sources, will be available.

Nova Scotia Power Incorporated (NSPI), the principal utility, is a subsidiary of Emera, a

company with several other operations in Canada and the United States. It has about 490,000

customers. In addition to this investor-owned utility, there are six consumer-owned utilities in

the province: Antigonish, Berwick, Canso, Lunenberg and Mahone Bay, all municipals, and

Riverport, a cooperative. They serve about 11,000 residential customers.

The province seeks to have customers increasingly supplied from low-impact, renewable

resources and, through retail access, they will be able to be purchase electricity from competitive

suppliers. NSPI is mandated to have 40 percent of its power supply come from renewable

resources by 2020.

NSPI is the Nova Scotia participant in the Muskrat Falls project. It is responsible for the

construction of the Maritime Link with Newfoundland and will receive a portion of the output of

the project. This hydro supply will replace coal-fired generation and create a new utility

relationship with Nalcor, the Newfoundland and Labrador generation provider. This new

arrangement will cause an increase in the transmission capacity of the Nova Scotia link with

New Brunswick.

Newfoundland and Labrador

The utility structure in NL is unusual with both a Crown corporation and an investor-owned

utility playing major roles. There are no municipal utilities in the province.

Nalcor, the Crown corporation active in oil, gas, and electricity, owns Newfoundland and

Labrador Hydro (NLH), responsible for most electricity generation and also for distribution to

about 35,000 customers in more remote parts of Newfoundland. NLH is regulated for some of its

activities. Most distribution, but only a relatively small amount of generation, is owned by

Newfoundland Power (NP), an investor-owned subsidiary of Fortis, the utility holding company

based in the province. NP, which serves about 260,000 customers, is a regulated utility.

There are no municipal utilities in NL, though NP is a wholesale customer of NLH, and it is

required to obtain any new power supply from NLH.

NLH on the island of Newfoundland is the rare case of a major utility that is isolated from a

regional or national grid. It has no transmission links with the mainland of North America.

NLH has the exclusive right to supply power to NP and industrial customers. Under a broad

grant of monopoly power, NP and industrials cannot develop their own generation, but must rely

on NLH, though the requirement is not retroactive with respect to NP or an industrial customer

previously owning generation.


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The ban on new self-generation by industrial customers, except for emergency purposes, is

extremely rare in the industry. Apparently, commercial and residential customers are not

similarly banned from self-generation.

No renewable supply or conservation promotion requirements are required under law, but the

province is endowed with extensive hydro resources, which will increasingly be deployed to

serve demand.

In Labrador, the Churchill River provides great hydropower resources. Power from the Upper

Churchill Falls projects flows mainly into Quebec with a relatively small share of the output

available to Nalcor. This arrangement, regarded as exploitive in Newfoundland and Labrador,

has been subject to great controversy and litigation. Hydro Quebec has prevailed in these cases

and will be entitled to most of the output until 2041. Nalcor is developing Muskrat Falls, one

element of Lower Churchill’s potential, with Gull Island available for later development. The

total potential Churchill output, available to Newfoundland and Labrador over time, will make it

one of the largest power suppliers in northeastern North America.

With the interconnection of Labrador to both Quebec and Newfoundland and the link between

Newfoundland and Nova Scotia, NL will become a significant player in regional energy trade.

More transmission is likely to be developed. The province itself should be able to recognize

significant economic benefit from its increased role.

Prince Edward Island

Prince Edward Island remains dependent on imports, though it is developing wind power for use

in the province. As an importing area, PEI aggressively seeks to move to indigenous renewables

and conservation.

The province’s principal utility is Maritime Electric, owned by Fortis, which is based in

Newfoundland and Labrador. It has a legislated monopoly on distribution and about 77,000

customers. Summerside operates its own municipal utility and has about 6,900 customers.

The province expects utilities to implement energy efficiency and demand response plans. In

addition, utilities are expected to obtain 15 percent of their power supply from renewable

resources. They are also required to enter into net-metering agreements.

Regional Generation

Power supply in Atlantic Canada is undergoing a significant transformation. In Newfoundland

and Labrador, Holyrood, a fossil-fueled station and the largest generating plant, is expected to be

phased out and replaced by output from Muskrat Falls. The mandated shift from coal-fired units

to renewable resources in Nova Scotia will result in a major change in the generation profile

there. Some of the replacement power will also come from Muskrat Falls. In Prince Edward

Island, additional local wind generation may decrease the need for imports and make the island

more reliant on renewable power. The change in New Brunswick may be less substantial, but NB


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Power can be expected to incorporate more renewables into its power supply mix. Throughout

the region, there will be pressure to deploy more demand side measures and conservation.

Table 1 shows the in-region sources of energy in 2013. In addition to the resources used by

utilities, some industrial customers have their own generation. The table also shows likely

changes in the power supply mix.

Table 1: Annual Electric Power Generation (Megawatt Hours), Atlantic Utilities (2013)

Province Type of Generation Megawatt Hours Share


Total 41,869,343

Hydro (a) 40,759,390 97%

Fossil fuel turbines 1,013,567 2%

Wind 96,386 <1%


Total (b) 154,221

Fossil fuel turbines 626 <1%

Wind 153,595 100%

Nova Scotia

Total (c) 10,336,823

Hydro 958,509 9%


Wind 465,517 5%

New Brunswick

Total (c) 13,455,625

Hydro 3,344,641 25%


Nuclear 3,930,248 29%

Wind 554,318 4%

Atlantic Canada

Total 65,816,012

Hydro 45,062,540 68%


Nuclear 3,930,248 6%

Wind 1,269,816 2%

(a) Most of this power is exported to Hydro Quebec; (b) Most power is supplied by imports from other provinces;

(c) Most power is used in the province

Source: Statistics Canada, Table 127-0002 (CANSIM)

This supply situation is undergoing change in each province:

Newfoundland and Labrador: Decreasing fossil fuel, increased new hydro generation from

Churchill Falls with more used in-province and available for off-system sales. Wind capacity is

55 MW, but province will obtain almost all of its supply from hydropower

Nova Scotia: Decreasing fossil fuel, decreasing in-province generation, more regional imports,

more renewable resources used. Current wind capacity is 242 MW

Prince Edward Island: Increasing wind development, possibly reduced imports, likely

increased use of renewables. Current wind capacity of 173 MW


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New Brunswick: Increasing use of renewables with target of 10 percent of power supply by

2016, refurbish or retire older units. Current wind capacity of 294 MW

Although increased reliance on wind power is a certainty, availability from this resource remains

a limiting factor. Prudent planning suggests that the effective capacity may be 20 percent of the

nameplate (i.e. nominal) capacity of generators listed above. When improved electricity storage

is developed, this capacity factor will increase. The combined use of wind with hydropower,

which can be regulated to maintain a higher level of availability, is also likely to develop.

The effect of these trends should produce a significantly different power supply mix by the end

of the decade. Hydro and wind will increase, fossil fuel-fired power decrease and nuclear remain

unchanged.

Transmission

Transmission ties exist throughout Atlantic Canada, but they are relatively small, reflecting the

traditional focus of each province on meeting its load with in-province resources (Table 2).

Increased interconnections are under consideration, and the new links resulting from the Muskrat

Falls project will bring major changes to the interprovincial grid.

The capacity of the transmission ties–called total transfer capability (TTC)–measures the

theoretical maximum generating capacity that can be moved. However, operational

considerations may limit the flows that make take place at any one time or also by season.

Because operating conditions at the delivery end of a flow may differ, the flow in opposite

directions on the same line may also differ.

These are the TTCs among provinces in the region and with utilities outside the region, though

some are never used to this extent.

Table 2: Transmission Links Among the Atlantic Provinces and Adjoining Systems (2013)

Link Generating Capacity

NS » NB 350MW (500MW with Maritime Link)

NB » NS 300MW (designed for 405MW)

NB » PEI 210MW

PEI » NB 105MW

NB » HQ 770MW (multiple interconnections)

HQ » NB 1017MW (multiple interconnections and significant usage for NE link)

NB » ME 128MW (two separate sets of terminals)

ME » NB 128MW (two separate sets of terminals)

NB » NE 1000MW (two separate lines)

NE » NB 550MW (two separate lines)

NL » HQ 5150MW (from Labrador)

NE: New England | ME: Northern Maine | HQ: Hydro-Quebec

Source: AEG Transmission Modeling Study Report, Hydro-Quebec


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The major planned changes are new lines from Labrador to the island of Newfoundland and from

Newfoundland to Nova Scotia. The operating effect of these news lines will also affect the Nova

Scotia link with NB.

NL » NL: 900MW (new link between Newfoundland and Labrador)

NL » NS: 500MW (Maritime Link)

NS » NB: 500MW (200MW increased capacity

With the addition of the Muskrat Falls related facilities, the potential for exchanges within

Atlantic Canada would be substantially increased. As regional interconnections grow, they offer

greater opportunities for economical measures to maintain system reliability, although the

configuration of transmission within each province may limit the potential benefits. Additions to

transmission to improve reliability both within provinces and among them are likely to be less

costly and speculative than additions to generation.

Of great importance is the potential for expanded exchanges among provinces that can result

from upgraded interconnections. Increased exchanges of power can promote efficient use of

generating resources and of the most economical supplies on a regional rather than merely on a

provincial basis. This is especially the case for the two net importing provinces – Nova Scotia

and Prince Edward Island. The AEG studies have considered possible transmission upgrades for

the region.

Related to the development of the transmission system is the question of who will have access to

it. The intent of the process that removed transmission from the control of utilities also owning

generation was to require that transmission owners transmit power – called “wheeling” – for

wholesale utilities. The utilities that purchase power and resell it to their end-use customers

could then be assured of the ability to buy power in a competitive market. In some cases,

transmission access was also given to retail transactions, usually through marketers that bought

power, wheeled it, and sold it to end-user customers.

In the context of Atlantic Canada, open access for wholesale customers would apply in the

provinces to:

New Brunswick: 3 municipal utilities

Prince Edward Island: 1 municipal utility

Nova Scotia: 5 municipal utilities and one cooperative

Newfoundland and Labrador: 1 investor-owned utility

Some of these wholesale entities have been unable to benefit from open access. The largest in

New Brunswick buys supply from NB Power. One other New Brunswick municipal has a

grandfathered arrangement to buy from another supplier. The third New Brunswick municipal

has its own generation. The intent of provincial law is to have all three be required to be NB

Power customers with no transmission access. Newfoundland and Labrador has denied

transmission access to the distribution utility, which is required to purchase power from NLH. In

Nova Scotia, the eligible utilities’ activities are likely to be limited to purchasing off-system


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renewable power. Only the municipal utility in Prince Edward Island has ventured into the kind

of wholesale transaction originally envisaged.

The lack of transmission access, even for wholesale utilities, essentially limits the electricity

trade to the major utility in each province. If these utilities increased the efficient and economical

use of the grid, customers, deprived of their own access, could nonetheless derive considerable

benefit.

Regulation

Electric utilities are usually subject to regulation by a specialized body, typically a board or

commission, which may authorize or require certain actions by utilities. The most usual authority

is to approve rates proposed by a utility.

Utility regulation is considered to be a delegated legislative act, meaning that a legislative body

could make all of the decisions that are handled by the regulator. The degree to which

governments have ceded autonomy and independence to regulators varies from one province to

another in Atlantic Canada.

Among the criteria that may be used to analyze a regulatory body’s autonomy are whether (1)

jurisdiction is conferred by law or government action, (2) regulatory decisions may be overruled

by government or by a court, (3) government can instruct a regulator in the exercise of its

jurisdiction, (4) appointment of members of regulatory bodies is for fixed terms or at the will of

the government, and (5) a well-defined scope of jurisdiction exists.

Although the degree of regulatory autonomy varies among provinces, all accept a degree of

government involvement in the regulatory process. For example, in all four provinces, the

relevant minister may refer matters to the regulatory body, and the provincial government can

prevent or limit matters being referred.

Relatively little Canadian federal regulatory authority exists. The limited federal jurisdiction,

exercised by the National Energy Board, deals with cross-border transmission links with the

United States. Because most major Canadian electric utilities conduct business in the United

States, decisions of federal regulators there may have significant effect on Canadian operations.

Thus, the U.S. move to open transmission access was influential in Canada, particularly because

American regulation may require reciprocal access for access by Canadian utilities. This

development has a potential effect on provinces, because of provincial regulation of

transmission, a federal matter in the United States.

New Brunswick

The reversion of NB Power to a more traditional electric utility model also involved changes for

the Energy and Utilities Board (EUB). It gained some new jurisdiction, and the ability of the

provincial government to reverse its decisions was ended.


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The EUB, which regulates in a number of areas, has specific responsibilities assigned by the

electricity law. Its operations are set by a special additional piece of legislation. Members are

appointed for fixed terms, and the EUB is considered to be a quasi-judicial body. Board

members may participate in regional utility regulatory panels dealing with matters of interest to

more than one province, an important innovation. A consumer advocate may be appointed for

individual matters before the EUB.

In addition to an improved definition of matters under its jurisdiction, its new authority results

from the elimination of the New Brunswick System Operator. Though it does not control the

daily operation of the system, the EUB carries out some duties formerly attributed to the

independent system operator.

The apparent grant of greater independence is limited by the rulemaking authority of the

government of the day. The government may order the EUB to review a matter it designates. By

establishing rules on a wide range of subjects relative to NB Power, ranging from its return on

equity to reliability standards, the government retains sufficient power over EUB activities that

the lack of review of its decisions after they are made is less important than it may initially seem.

With the government as both the owner of NB Power and exercising considerable control over

EUB jurisdiction, independent regulation, or at least the appearance of it, remains somewhat in

question.


The Island Regulatory and Appeals Commission (IRAC) has been existence with essentially its

current jurisdiction since 1991. Its principal control is exercised over Maritime Electric, the

investor-owned utility that has a virtual monopoly except for the area served by the single

municipal utility. It has jurisdiction in other sectors as well.

Under the law, the IRAC has considerable independence. Because, unlike in NB, the government

does not own the utility, it is not in a position to adopt policies supportive of the utility and

require the regulator to conform to them. Regulation is more independent because of the

character of Maritime Electric as an investor-owned utility.

IRAC members are appointed for fixed terms, but their length may be determined by the

government and they need not be of similar length. The Commission is considered to be quasi-

judicial and appeals remain in the court system.

Although IRAC exercises regulatory control, an agreement between the province and Maritime

Electric dominated the regulatory situation. Aimed at controlling rates and relieving Maritime

Electric of costly power supply commitments, the agreement prescribed rates and provided for

the assumption of certain costs by the province. This unusual agreement, replacing traditional

regulation by direct government interaction with the utility, essentially reset the basis for the

regulation of the utility.


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The agreement also led to the creation of the PEI Energy Commission, which made

recommendations for further industry restructuring. It called for the creation of a consumer

advocate. Little action has yet been taken on its recommendations.

Nova Scotia

Electric utility regulation in NS is close to the form used with respect to arm’s length control. As

in PEI, the principal electric utility is investor owned, and, in this case, the government’s interest

is manifest through the Utilities and Review Board (UARB). As in other provinces, this body has

regulatory control in several sectors.

The UARB has been authorized to have full- and part-time members, but it currently has only

full-time members appointed for what amounts to a life term (ending, however, at age 70). A

consumer advocate may be appointed to participate in specific cases and, in an unusual feature,

there may also be a separate, small business advocate.

While the Board thus has a considerable degree of autonomy, the government has the

opportunity to control the scope of its jurisdiction. For example, the UARB consideration of the

Maritime Link aspect of the Muskrat Falls project resulted from a government referral, though

the subject matter was broadly defined. As for appeals, they go into the judicial system and not

to the government.

NSPI is owned by Emera, an unregulated energy company. The Board must ensure that the

finances of NSPI, subject to its review, are distinct from unregulated activities.

In general, the NS regulatory regime follows the traditional form of independent and autonomous

review. Though relevant laws set certain terms for its review of NSPI, it may usually act without

significant government involvement.


The electric utility scene includes Newfoundland Power, the investor-owned distribution utility,

Newfoundland and Labrador Hydro, the subsidiary of Nalcor, both of which are regulated, and

Nalcor itself, the unregulated energy Crown corporation.

Although the Board of Commissioners of Public Utilities (PUB) has rate review jurisdiction and

other usual authorities, the NL system involves the least regulatory independence in Atlantic

Canada. The PUB members are appointed by the government, which sets the “terms and

conditions of appointment.” No term of office is stated. A consumer advocate may be appointed

by the government, which also sets the “terms and conditions” of the position. The same person

may perform this function in several utility matters. Appeals from regulatory orders go into the

judicial system rather than to the government.

The government may exempt utilities or specific matters from PUB jurisdiction. In effect, that

was done with respect to the approval of Muskrat Falls. The government has powers of “general


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reference” of matter to the PUB as well as the ability to give detailed instructions to the

regulator.

The result is to make the PUB an adjunct to the provincial government whenever the political

leadership decides to exercise authority. The power of the government to grant exemptions from

PUB jurisdiction undermines the necessary sense of regulatory reliability and consistency that

should underlie such a quasi-judicial system.

Opportunities for Atlantic Canada

Traditionally, the Atlantic Canadian provinces, with the obvious exception of Prince Edward

Island, have developed policies based more on self-sufficiency and self-management than on

regional cooperation. Provinces have been reluctant to cede even the slightest influence or

control over their electric systems.

The electricity geography of Atlantic Canada has differed from the remainder of the country. The

three Maritime Provinces have access to other provinces and the U.S. only through New

Brunswick, the only gatekeeper province in Canada. Newfoundland and Labrador has had a

degree of access for Churchill Falls through Hydro-Québec, but the island of Newfoundland has

been isolated.

Change is occurring. Atlantic Canada had made tentative steps toward the adoption of

competitive energy markets, but that effort has largely been dropped. The first steps were

probably inspired by the belief that either American regulatory demands for reciprocity or

pressure from the development of U.S. markets would force change.

The situation did not develop as expected. First, expected demands for reciprocal access to

Canadian markets by American marketers did not occur. Second, the situation in the U.S. South

and Pacific Northwest demonstrated that vertically integrated utilities would survive and would

not have to be broken into separate generation and wires companies. Third, efforts in Ontario and

other provinces to develop markets were abandoned.

The provincial utilities had not generally promoted markets, preferring the monopoly model.

Provincial governments required time to develop regulatory regimes that would support a degree

of consumer protection and provide some consistency in utility control.

Change has also been occurring in ties outside of the region. Nova Scotia-based Emera has

become the owner of two utilities in Maine, making it an important player in the New England

market. The implications of its enhanced role there for its activities in Atlantic Canada remain to

be seen. And Nalcor, the owner of Muskrat Falls, expects to use output from that resource to play

a greater role in regional markets.

At the same time, New England, the prime export market, is also undergoing change. Demand

appears to be stabilizing as efficiency and conservation measures gain in effect. New in-region

wind generation is planned, though that may create opportunities for Canadian hydropower to be

used to increase windpower’s availability. The New England states are pushing for increased


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access to relatively low cost natural gas. The result is that New England may prove to be less

attractive as a market than it has been. Atlantic Canada may find itself with a strong incentive to

get the most it can out of its own regional market.

With the abandonment of the quest for provincial markets, new electricity policies and laws were

developed. The character of the electric sector in Atlantic Canada began to settle. Nova Scotia

will join Prince Edward Island is using imports to meet basic requirements. Emera will either

transmit through NB or develop its resources in Maine, essentially leapfrogging the gateway.

And in the most significant development, Nalcor will interconnect both Labrador and the island

of Newfoundland to the Atlantic Canada grid.

These developments and the work of the AEG should encourage new policies and applications.

Much opportunity and benefit to the region could be lost if the electricity policy situation

remains unchanged. They key appears to depend on developing regional applications that do not

reduce provincial authority but rather that use it in new ways.

Utility Policy

The basic utility structure is likely to remain unchanged with one dominant utility in each

province plus a major distribution company in Newfoundland and Labrador. Mergers and a shift

between provincial ownership and investor ownership are unlikely.

Wholesale access is possible in Nova Scotia and Prince Edward Island, but not in New

Brunswick and Newfoundland and Labrador. The wholesale markets are relatively small, except

for NP’s market in Newfoundland. By opening transmission to unfettered wholesale access, the

larger utilities would stand to lose few sales, while encouraging the evolution of a rudimentary

market. Where this approach has been applied elsewhere in North America, the results have

varied between negligible and positive.

Even more important, the utilities should recognize the potential of distributed generation –

small, local resources – that appears to be inevitable. Utilities themselves can get into the

distributed generation business. As customers achieve greater efficiency and conservation, the

utilities may find the development of a business in distributed generation contributes to their

viability.

Generation

The generating profile is changing, because of legislative and popular pressure to move to the

use of resources that have a less harmful effect on air quality. Dependence on fossil fuel-fired

generation will decline and no nuclear power will be added, making recourse to renewables

inevitable. This has been a core objective of the AEG.

The Muskrat Falls development suggests the use of the Churchill Falls as a regional, renewable

resource could be of the utmost importance. Not only should there be relatively early availability

from Muskrat Falls itself, but planners could begin viewing the development of the transmission


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system to accommodate some possible output from the existing Upper Churchill facilities

beginning in 2041 and the later exploitation of Gull Island.

It is evident that, with adequate transmission, Churchill Falls could become the prime regional

resource. In other words, this resource, viewed over an extended period, could transform the

electricity situation in Atlantic Canada. Just as Newfoundland and Labrador sees it as promoting

economic development, so might the entire region.

Although there would probably be little support for a regional power market, some form of

regional management might ensure the most efficient use of available resources, while

maintaining complete ownership control in the provinces. Units could be committed to regional

use from time to time at the discretion of their owners.

The most obvious approach would be to create a power pool in which energy would be

dispatched in line with its cost, the least expensive units being used first. A pool is not a market

because units are not dispatched in accordance with price. But it would assure owners of

committed units of a reliable revenue stream at a known price. A unit could be excluded from the

pool if it were being used by its owner to supply its own load or in a bilateral deal.

Power pools were extensively used in the United States before the development of market

arrangements. They are relatively less complicated than markets and require only a small staff.

Savings created by their use compared with a non-pool situation can be shared among all

participants. They operate under commonly agreed rules.

Transmission

The present and future interconnections among the Atlantic Canadian provinces offer the best

opportunity for deriving regional benefits from available and planned generation.

The AEG has focused appropriately on balancing and operation through the use of an integrated

grid. Balancing involves making energy available instantaneously across interconnections to

provide reliable service in adjoining systems as usage varies from forecast. An entity responsible

for balancing can achieve economies of scale if several small systems are supplied by a common

service.

Beyond balancing, a system must be assured of reliability. Interconnected systems in North

America have reliability coordinators, entities responsible for assuring there is sufficient

generation and transmission available at any moment to ensure that customer load is always

served. A regional approach also provides economies of scale in operations, but even more

important, it avoids each system having to provide it own reserves by sharing reserves

regionally.

Both balancing and reliability are central to the safe and effective operation of transmission

systems. They have nothing to do with markets or even energy exchanges. No system gains

economic advantage; all can achieve low cost and high efficiency. While balancing and


18

reliability may be an integral part of a power pool, they may be limited to use only for basic

electric operations.

The availability of new hydropower from Muskrat Falls and the interconnection provided by the

Maritime Link make at least a degree of regional balance and reliability coordination possible.

The broader the area covered and the greater the carrying capacity of transmission

interconnections, the greater the benefits that may be achieved.

Aside from these functions, the increased availability of both hydro and windpower in Atlantic

Canada makes the value of a regional transmission grid even greater. Transmission investment is

not speculative and does not involve untested technology. It offers a less costly way of

developing energy resources than potentially excessive investment in generation.

Regional transmission planning, as discussed by the AEG, would pave the way for the most

efficient and economical use of generating resources, enabling the region to gain access to new

renewable resources. In this exercise, both regional and provincial systems should be included.

Finally, in the further future, the region could consider integrating the management of regional

transmission. The creation of a single regional transmission tariff could reduce many

transmission costs and stimulate exchanges within the region. Each provincial transmission

system would recover its costs with the revenues collected through a postage-stamp tariff in the

region rather than though a series on individual, so-called “pancaked” rates. It is likely that this

approach could be considered in the framework of a power pool.

Regulation

Regulation of the electric sector by provinces is characteristic of the Canadian system.

Interprovincial trade takes place through bilateral agreements in large measure because New

Brunswick has not wanted to cede the advantage it enjoys in its unique gateway position. Next

door, Hydro-Québec wants to maintain an absolutely free hand.

Only New Brunswick has legislation permitting joint regulatory participation with another

province. This provision makes sense and adoption by other could facilitate common review of

matters of regional interest. But no province should be forced to accept the jurisdiction of a

regional regulator.

Another approach worthy of consideration is the adoption of parallel legislation in each of the

Atlantic Provinces. If matters of common interest, such as transmission planning, were treated in

the same way, though still independently, by the provinces, this approach would provide an

incentive for increased energy exchanges. A consultative process to develop draft legislation for

each province to consider could produce useful results. Such a process could somewhat

depoliticize the electricity sector.


19

Conclusion

Atlantic Canada currently faces great opportunities for the efficient, profitable, and beneficial

development of the electric sector. Current utility ownership prerogatives need not be sacrificed

to take advantage of these opportunities. And much of what is possible has been successfully

accomplished elsewhere, allowing the region to learn from the experience of others.

This review of the Atlantic Canada electric sector yields the following conclusions:

The current utility structure with dominant provincial utilities is likely to prevail for the

foreseeable future

No obvious need or opportunity exists for a pure market system, but the opportunity for

economic exchanges, possibly through a power pool arrangement, is evident

Increased wholesale access, the use of self-generation, and distributed generation all offer

potential benefit in all provinces

The use of renewable resources will increase, displacing fossil fuel usage

Labrador’s hydro resources could virtually transform the Atlantic Canada’s energy

outlook

The development of windpower and hydropower could be better integrated to increase

the benefits of both

Regional transmission interconnections and, where necessary, provincial systems could

be upgraded to increase reliability and better use of regional resources

Transmission reliability should be managed regionally to produce economic operation

Utility regulation among the provinces could be harmonized, provincial regulators could

seek areas of cooperation, and regulatory independence should be enhanced


20

Background Documents

New Brunswick

Electricity Act, SNB 2013, c 7. https://www.canlii.org/en/nb/laws/stat/snb-2013-c-7/latest/snb-

2013-c-7.html

Energy and Utilities Board Act, SNB 2006, c E-9.18. https://www.canlii.org/en/nb/laws/stat/snb-

2006-c-e-9.18/latest/snb-2006-c-e-9.18.html

New Brunswick Department of Energy. Energy Blueprint. October 2011.

http://www2.gnb.ca/content/dam/gnb/Departments/en/pdf/Publications/201110NBEnergyBluepri

nt.pdf

AIMS. A New Plan for N.B. Power: Analysis and Comment. November 2011.

http://www.aims.ca/site/media/aims/A New Plan for NB Power.pdf


The Churchill Falls (Labrador ) Corporation Limited (Lease) Act, 1961. SNL1961 51.

http://www.assembly.nl.ca/legislation/sr/statutes/c5161.htm

Electrical Power Control Act, 1994. SNL1994 E-5.1.

http://www.assembly.nl.ca/legislation/sr/statutes/e05-1.htm

Energy Corporation Act. SNL2007 E-11.01.


Public Utilities Act. RSNL1990 P-47. http://www.assembly.nl.ca/legislation/sr/statutes/p47.htm

Newfoundland and Labrador Energy Plan: Focusing our Energy. 2007.

http://www.nr.gov.nl.ca/nr/energy/plan/pdf/energy_report.pdf

AIMS. The Muskrat Falls Hydro Project: Opportunities and Risks. October 2012.

http://www.aims.ca/site/media/aims/Muskrat Falls.pdf

Nova Scotia

Electricity Act. Acts of 2004, c. 25. (Includes Electricity Reform Act)

https://www.canlii.org/en/ns/laws/stat/sns-2004-c-25/latest/sns-2004-c-25.html

Public Utilities Act. Revised Statutes, 1989, c. 380. https://www.canlii.org/en/ns/laws/stat/rsns-

1989-c-380/latest/rsns-1989-c-380.html

Utility and Review Board Act. Acts of 1992, c. 11. https://www.canlii.org/en/ns/laws/stat/sns-

1992-c-11/latest/sns-1992-c-11.html

https://www.canlii.org/en/nb/laws/stat/snb-2013-c-7/latest/snb-2013-c-7.html

https://www.canlii.org/en/nb/laws/stat/snb-2013-c-7/latest/snb-2013-c-7.html

https://www.canlii.org/en/nb/laws/stat/snb-2006-c-e-9.18/latest/snb-2006-c-e-9.18.html

https://www.canlii.org/en/nb/laws/stat/snb-2006-c-e-9.18/latest/snb-2006-c-e-9.18.html

http://www2.gnb.ca/content/dam/gnb/Departments/en/pdf/Publications/201110NBEnergyBlueprint.pdf

http://www2.gnb.ca/content/dam/gnb/Departments/en/pdf/Publications/201110NBEnergyBlueprint.pdf

http://www.aims.ca/site/media/aims/A%20New%20Plan%20for%20NB%20Power.pdf

http://www.assembly.nl.ca/legislation/sr/statutes/c5161.htm



http://www.assembly.nl.ca/legislation/sr/statutes/p47.htm

http://www.nr.gov.nl.ca/nr/energy/plan/pdf/energy_report.pdf

http://www.aims.ca/site/media/aims/Muskrat%20Falls.pdf


https://www.canlii.org/en/ns/laws/stat/rsns-1989-c-380/latest/rsns-1989-c-380.html

https://www.canlii.org/en/ns/laws/stat/rsns-1989-c-380/latest/rsns-1989-c-380.html




21

AIMS. The Muskrat Falls Hydro Project: Opportunities and Risks. October 2012.

http://www.aims.ca/site/media/aims/Muskrat Falls.pdf


Electric Power Act. R.S.P.E.I. 1998, E-4. http://www.gov.pe.ca/law/statutes/pdf/e-04.pdf

Island Regulatory and Appeals Commission Act. 1991 c.18. R.S.P.E.I. 1988, I-11.

http://www.gov.pe.ca/law/statutes/pdf/i-11.pdf

Renewable Energy Act. 2004 c.16. R.S.P.E.I. 1988, R-12.1.

http://www.gov.pe.ca/law/statutes/pdf/R-12-1.pdf

PEI Energy Commission. Final Report: Charting our Electricity Future. September 2012.

Government of PEI. www.peiec.ca

AIMS. PEI Electricity Policy: A Review of the PEI Energy Commission Report, February 2013.

http://www.aims.ca/site/media/aims/Weil- Review of PEI policy .pdf

Atlantic Canada Transmission and Power Pool

AIMS. Regional Cooperation in Electricity Exchanges in Atlantic Canada: Steps Toward the

Creation of an Atlantic Power Pool. 2012. http://www.aims.ca/site/media/aims/Atlantic Power

Pool.pdf

Atlantic Energy Gateway. Transmission Modeling Study Report. A Study of Transmission

Upgrade Options for Atlantic Canadian Utilities. 2012.

http://nsrenewables.ca/sites/default/files/aeg_transmission_modeling.pdf

Atlantic Energy Gateway

Research studies. Executive Summaries. 2012.

http://www.acoa-apeca.gc.ca/eng/publications/ResearchStudies/Pages/home.aspx#aeg

Regulation

AIMS. Freeing the Flow: Proposals for Reform of Canadian Electric Industry Regulation. 2010.

http://www.aims.ca/site/media/aims/FreeFlow.pdf

http://www.aims.ca/site/media/aims/Muskrat%20Falls.pdf

http://www.gov.pe.ca/law/statutes/pdf/e-04.pdf

http://www.gov.pe.ca/law/statutes/pdf/i-11.pdf

http://www.gov.pe.ca/law/statutes/pdf/R-12-1.pdf

http://www.peiec.ca/

http://www.aims.ca/site/media/aims/Weil-%20Review%20of%20PEI%20policy%20.pdf

http://www.aims.ca/site/media/aims/Atlantic%20Power%20Pool.pdf

http://www.aims.ca/site/media/aims/Atlantic%20Power%20Pool.pdf

http://nsrenewables.ca/sites/default/files/aeg_transmission_modeling.pdf

http://www.acoa-apeca.gc.ca/eng/publications/ResearchStudies/Pages/home.aspx#aeg

http://www.aims.ca/site/media/aims/FreeFlow.pdf

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