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Issue Category: Issue 3, 2018

  • Industry Leader: The Federation of Alberta Gas Co-ops Ltd.

    Industry Leader: The Federation of Alberta Gas Co-ops Ltd.

    In the early 1960s, Alberta farmers were clamoring for a lower cost energy option. Natural gas was arriving in waves at Alberta’s cities and towns, but even though the pipelines were often going by their fields the farmers were being left out in the cold. It was considered too expensive to serve remote farms, and there was a better business case to be made to ship the gas to California.

    So, the founders of the Meota Gas Cooperative did what prairie farmers do best – they took their future into their own hands. Literally through their own muscle power, they created a small natural gas distribution operation that was owned and run cooperatively for its members. The idea flourished, and by 1964, there were enough natural gas co-ops in southwestern Alberta to warrant an umbrella organization, the Federation of Alberta Gas Co-ops Ltd., to represent them to gas producers, regulators and governments.

     

    Advocate for Rural Consumers

    The Federation was the first such organization in Canada and now is the largest rural gas distributor in the world.  For almost 60 years, it has represented the views of its members to municipal, provincial and federal governments, helping enhance the lives of approximately 400,000 rural Albertans through natural gas distribution.

    “The Federation was the first such organization in Canada and now is the largest rural gas distributor in the world.”

    Currently, the Federation serves 52 rural gas co-ops, 16 town and villages, five counties and seven First Nations communities across the length and breadth of Alberta. It is a not-for-profit organization, run by an eight-member Board of regionally-elected directors. With 100,000 kilometers of member-owned pipeline in the ground, its role as an advocate has increased to include providing centralized services such as data collection, operations and maintenance audits, easement submissions, training, station meter inspections, and negotiating fair insurance plans for the rural co-ops.

    “The Federation is a lobbying body to the government, ensuring that we communicate and advocate for our membership, provincially and federally,” says Executive Director Tom Kee. “We want to make sure that rural amenities and services are the same as urban communities, have competitive rates, and we want to be in the same conversations as investor-owned utilities to deliver services.”

    Executive Director, Tom Kee

    Government Support is Key

    Kee acknowledges the largely farmer-run co-ops and the Federation may not have thrived without the substantial support of the provincial government. The provincial 1973 Rural Gas Program supported the gasification of rural Alberta, helping cover the costs of building distribution systems in sparsely populated regions considered non-commercial by both pipeline companies and large utilities.

    In 2013, the Federation took over a large portion of the Rural Gas Program, including disbursing grants, providing easement services for co-ops, and ensuring control over the quality of pipelines entering the gas co-op system. While each rural utility is self-sufficient as a company with qualified staff to operate, maintain and build their systems, the Federation provides support through additional training and, increasingly, technology. It also has been developing a geographic information system (GIS) that will link to all the individual co-op systems.

    “It has grown from being an umbrella organization helping the co-ops get more opportunities to becoming a one-stop shop in regards to GIS, engineering, health and safety, and measurement,” Kee says.

    “We want to make sure that rural amenities and services are the same as urban communities, have competitive rates, and we want to be in the same conversations as investor-owned utilities to deliver services.”

    Exclusive Franchise

    Although the number of family farms across the nation has dropped over the past 50 years, there has been no drop in the Federation’s membership. It’s co-ops are provincially mandated to provide natural gas services to new residential, commercial and industrial concerns that come on stream inside their rural franchise areas – which in Alberta means covering about 200,000 square kilometers.

    This vast service area led to another exclusive service: the Federation is one of the few organizations in Canada allowed to go out to meter stations in the field to recertify and reseal electronic correctors in service. “The reason is we have 700 stations that are all out in the middle of nowhere, so the ability for us to shut down the meters for a couple of months to take them to a shop isn’t really feasible,” says Kee.

    “The Federation is one of the few organizations in Canada allowed to go out to meter stations in the field to recertify and reseal electronic correctors in service.”

    Challenges

    With the numbers to back them, the rural co-ops started their own brokerage company, Gas Alberta, to buy natural gas and compete with the other investor-owned utilities. The co-op board or council sets the gas rates, but currently their biggest challenge is maintaining their systems.

    Aging natural gas infrastructure and shifting regions of production have seen transmission pipelines that are deemed non-economical be decommissioned, and areas outside of new supply basins struggling to find alternative sources to tap into. Natural gas production also has become more focused in the northwest of the province as reserves in the south decline, but corresponding distribution systems to northeastern communities haven’t kept up.

    The costs of building new systems can be prohibitive to the member-owned co-ops, which generally have sparse and small populations. “This has been a real concern for our gas co-ops because sometimes when they have to move their tie-ins along with any pipeline upgrading or rerouting costs, the cost may be in the millions,” says Kee. “It puts Alberta communities at risk of losing their natural gas service.”

    Kee noted pipeline giant TransCanada is proposing to construct new transmission lines, expected to be in service in approximately 2021-22.

    Vision for the Future

    The Federation continues to grow and support its member-owned utilities by representing them to governments, providing new services and up-to-date training so co-ops can remain viable in the evolving natural gas distribution market. Approximately 14 gas co-ops also are shareholders in Corridor Communications Inc., a broadband wireless internet service to rural areas. Others have expanded into heating, installing furnace and hot water tanks.

    “The co-ops are always looking at broadening services. We’re not trying to confine ourselves to distribution of gas – we look at other issues, like how to install fibre optic cable while we are installing pipelines,” Kee says.

    “The Federation continues to grow and support its member-owned utilities by representing them to governments, providing new services and up-to-date training so co-ops can remain viable in the evolving natural gas distribution market. ”

    Participating on committees in the Canadian Gas Association has helped the organization keep up with trends and learn from other members, he notes. And in the past year, the Federation has increased its involvement with the CGA so it can become more involved with other utilities, something that already has resulted in stronger communication with other Alberta utilities.

    “That’s what we want to see,” he says. “We want to be all working together as one, and that’s where we see the benefit of being part of the CGA.”

    Dina O’Meara has been covering Canadian energy issues for almost 20 years.

  • Views from our Political Commentators: NDP, Conservative and Liberal

    Views from our Political Commentators: NDP, Conservative and Liberal

    Many provincial elections are taking place (NL, NWT, AB, PEI) or have taken place (ON, QC, NB) ahead of the 2019 federal election. In your opinion, how can the results of these elections have an impact on the dynamic between provincial and federal politics and in turn the federal election results?

    By Tim Powers

    The Canadian political landscape is a busy place in 2018 and 2019. Not only is a federal election approaching next year, lots of provinces will also be going to the polls. Provincial elections and their outcomes can have pronounced impact on federal policies and practices.

    One immediate example that jumps to mind is the influence the change of government in Ontario has already had on the national energy and environmental debate. Doug Ford, the new Premier of Ontario, has already enacted legislation to end his province’s carbon pricing plan. He has aligned with Saskatchewan’s new Premier Scott Moe in a legal challenge on the Canadian plan. Ford also forced a change of leadership at Ontario’s Hydro One, one of the country’s largest electricity transmission and distribution utilities. Sending a message that potent populism knows no corporate bounds.

    Another election is coming in Alberta in the spring of 2019. Current NDP Premier Rachel Notley, generally an ally of Prime Minister Trudeau’s government, could go down to defeat to United Conservative Party leader Jason Kenney. Though Notley should not be underestimated, a recent court decision halting the construction of the Trans Mountain Pipeline and until recently her support of the Liberal government’s climate plan, could be her undoing. The Alberta election when it finally comes will have a large focus on energy and the environment. If Kenney wins he has promised to keep Alberta out of the Trudeau climate gambit. That will influence how national policy falls out.

    “The Alberta election when it finally comes will have a large focus on energy and the environment.”

    Provincial elections, along with stalled Trans Mountain pipeline development has kicked up the debate on whether or not the Energy East pipeline should be revived. When the federal Conservatives gathered for their policy convention in Halifax in August sensing some of the prevailing winds in the country they stated they would make Energy East a reality if they came in to power in 2019.

    Already, federal Conservative Leader Andrew Scheer has tucked in behind Ford, Kenney and Moe parroting many of their energy-environmental policies which are diametrically opposed to the current government’s stance. If more non-federally aligned Premiers are elected then national policy collaboration and implementation will become more challenging.

    So while it is intriguing and often entertaining to look at how the Canada-U.S. relationship and American political dynamics are influencing federal politics, don’t take your eyes off these provincial contests. They have the potential to have a significant impact on federal discourse.

    Tim Powers, is the Vice-Chairman of Summa Strategies Canada and the managing partner of Abacus Data, both headquarters are in Ottawa. Mr. Powers appears regularly on CBC’s Power and Politics program as well as on VOCM in his home province of Newfoundland and Labrador.

    BY GABRIELA GONZALEZ

    Despite well-defined levels of government and accompanying responsibilities, provincial elections have a way of influencing the national agenda. The most recent example is the Ontario election, where Premier Doug Ford and his Progressive Conservative government have started dismantling key policies from the previous administration and intentionally throwing a wrench in the federal Liberals’ plans leading up to the 2019 election.

    As the first order of business of his new government, Premier Ford cancelled the province’s cap-and-trade program, threatening the “pan-Canadian framework on clean growth and climate change” that all but two premiers had signed in 2016 under the leadership of Prime Minister Trudeau. Ford has also challenged the federal government’s immigration policies and the respective ministers have fought fierce public battles. The outcome of the Ontario election has thrown cold water on what was a very warm relationship between Queen’s Park and Ottawa. But as history shows, Ontarians seem to like a healthy tension between its provincial and federal governments, as a sort of check and balance on each other.

    This change in provincial and federal dynamic was most evident during the first official meeting between Prime Minister Trudeau and Premier Ford on July 5. The photo-op was revealing: Trudeau looked stern while Ford looked defiant. Shortly after that meeting, the Prime Minister shuffled his cabinet partly because of the changing provincial political landscape. But this change has not been limited to Ontario. On October 1, Quebeckers gave a majority government to the CAQ, a right of centre party that will be less friendly towards the federal Liberals than the previous administration. Polling indicates that Alberta will likely follow the footsteps of its provincial counterparts and also elect a conservative government in May 2019.

    Government changes in Ontario, Quebec and likely Alberta – three critical regions for the Trudeau government – means losing key allies of the national agenda and progress on files such as infrastructure and the environment may face new hurdles.

    “Despite well-defined levels of government and accompanying responsibilities, provincial elections have a way of influencing the national agenda.”

    Despite the above political storm clouds on the horizon, Canada’s economy is thriving, unemployment is at a record low and Canada’s perception on the world stage is at an all-time high. The provincial changes present an opportunity for the federal government to contrast its forward-looking, inclusive and nation-building agenda with the alternative: a conservative, backward-looking and populist agenda that doesn’t address the real challenges of our generation.

    Liberals strongly believe they are on the winning side of the arguments on climate change, immigration and investments in social programs such as the Canada Child Benefit. Time and time again the Trudeau government shows that it can handle curve balls like a Trump presidency and NAFTA renegotiation. The USCMA, the renegotiated NAFTA, was a hard-fought win for the Liberals, delivering major wins for sectors critical to Canada’s economy and ensuring economic stability. Premiers who criticize the Liberals’ USCMA deal do so to their detriment since there is widespread consensus that Canada fared better than expected in the new Agreement.

    No one is taking the 2019 election results for granted but the Trudeau government can stand by its solid track record and ability to lead the country regardless of what comes its way.

    Gabriela Gonzalez is Consultant at Crestview Strategy. Prior to this, Gabriela worked at Queen’s Park and is a long-time Liberal organizer. Most recently, she worked as a Senior Communications and Operations Advisor to Ontario’s Minister of Economic Development and Growth. Gabriela holds an Honours Bachelor’s degree in Political Science and Psychology from York University and Master’s degree from the Glendon School of Public and International Affairs.

    BY KATHLEEN MONK

    One year out from the next federal election, campaign nomads are busy settling into new jobs at Liberal, Conservative and New Democratic headquarters to churn out platforms, nominate candidates, and staff up in the regions. The 2019 federal election is shaping up to be an interesting one and it’s worth reflecting on just how different the political landscape is today as compared to October 2015.

    The context of the 2015 election was one of growing frustration with Stephen Harper and the federal Conservatives after close to a decade in power. But, the political climate that resulted in the Trudeau government’s victory has to factor in the significant wins made by progressive governments across the country: in Alberta, Rachel Notley’s NDP stomped out the PC dynasty in spring 2015; the populous provinces of Ontario and Quebec elected Liberal majorities in late 2014 for both Kathleen Wynne and Philippe Couillard; New Brunswick’s Brian Gallant swept out a PC government the same year; and Liberals and New Democrats still held the reigns of power in British Columbia and Manitoba. In other words, the political landscape leading up to the 2015 federal vote had significant progressive political headwinds. The 2019 election will be an entirely different scenario.

    Listen, there is no money to be made in the political prediction game. Every election is unique and certainly any strategist worth their salt will be wary of dusting off the previous campaign’s playbook without changing strategy, tactics, targeting, and message. But what a difference a few years can make.

    “The 2019 federal election is shaping up to be an interesting one and it’s worth reflecting on just how different the political landscape is today as compared to October 2015.”

    With recent elections we’ve seen provincial governments challenge the federal government’s key energy and climate policy agenda and alter the dynamic between provincial and federal politics. Trudeau’s close ally, Dominic LeBlanc, got shuffled into the roll of quarterback this summer as Minister of Intergovernmental Affairs, the government is hopeful that the experienced political operator with folksy charm can manage the increasingly rocky relations with the provinces and curry favour among the premiers ahead of the next first ministers’ meeting.

    With Ontario Premier Doug Ford and Saskatchewan Premier Scott Moe challenging the federal government’s carbon tax policy and the Trans Mountain Pipeline essentially becoming a ‘political dumpster fire’, the provinces’ growing frustration with the federal government makes headlines daily. For the Trudeau government, securing a second majority mandate in 2019 will depend on far more than just the winds of ‘real change’ and opposition to the Harper regime. This time the road to victory will be more challenging and the government’s ability to communicate and demonstrate substantive progress on major policies will be the key to their success or ultimate downfall.

    Kathleen Monk is a Principal at Earnscliffe, where she is trusted by Canadian leaders to navigate complex public strategy issues, design strategy and bring together diverse stakeholders to tell authentic stories that deliver results. She appears regularly on CBC The National’s pre-eminent political panel, The Insiders, and provides analysis for CBC News Network’s Power and Politics.

     

  • Making the Most of the USMCA Through Cross-Ownership

    Making the Most of the USMCA Through Cross-Ownership

    “Cross-ownership.”

    That was the matter-of-fact reply to a question that I asked Peter Morici,1 now a Professor of International Business at the R.H. Smith School of Business at the University of Maryland but then director of the Canadian-American Center at the University of Maine. My question was why, if Canada and the United States could negotiate an Auto Pact to manage automotive trade, the two countries could not do the same for steel, given that so much Canadian steel imported to the United States was for the auto sector.

    In his answer, Morici identified an important but often ignored aspect of U.S.-Canadian trade: a lot of bilateral trade occurs between branches of the same company, or between firms that have the same owners. That has been the case for the auto industry from the beginning, with General Motors, Ford, and Chrysler shipping vehicles and parts between their plants in the United States and Canada from the first decade of the 20th century, switching to full-time military production between 1942 and 1945, and then seeking to integrate production across the border to offer more models at a lower cost to consumers in both countries.

    “There is an important but often ignored aspect of U.S.-Canadian trade: a lot of bilateral trade occurs between branches of the same company, or between firms that have the same owners.”

    In effect, the Auto Pact was a concession to this integrated reality of cross-ownership but the governments, who wanted to get out of the way of industry and promote the competitiveness of Canada and the United States in the increasingly global auto industry.

    Steel was a different case, as Morici indicated; U.S. and Canadian steel producers were competitors, owned by different people. When they clashed, they wanted trade remedy action, not trade deals.

    Now in the first decades of the 21st century, steel trade remains contentious, with the United States imposing tariffs on Canadian steel (and aluminum) on national security grounds. But Morici’s insight still holds: there is relatively little cross-ownership of steel production in the two countries, and U.S. and Canadian firms remain rivals. Resource sector trade follows a similar pattern. Cross-ownership of lumber companies, such as Weyerhauser’s take-over of Canada’s MacMillan Bloedel, has reduced the amount of trade tension between the two countries, though it hasn’t silenced small U.S. lumber producers without ownership ties to Canada from seeking trade protection.

    This may explain why U.S.-Canadian trade relations over energy have been less contentious. Major U.S. oil and gas companies have operated in Canada for decades, and helped develop offshore oil in Newfoundland, Sable Island gas in Nova Scotia, and the oil sands in Alberta. In recent years several Canadian energy companies have invested in the United States, particularly in natural gas and in energy infrastructure.

    The case of Canadian hydroelectricity has been more contentious, particularly over powerline infrastructure and renewable portfolio standards. But this lends support to Morici’s cross-ownership thesis: most provincial utilities are Canadian owned. However, there is evidence of growing cross-ownership in the electricity sector, too, as Canadian hydro firms invest in regional power companies in the United States.

    United States, Mexico, Canada Agreement

    The draft United States Mexico Canada Agreement (USMCA)2 negotiated to replace NAFTA as the rulebook for North American trade contains important energy provisions that promote common energy performance standards, regulatory cooperation by governments related to the energy sector, and reinforces the rights of energy sector companies to operate in all three countries. Unlike NAFTA, which had a single energy chapter that conveniently combined all energy related provisions in one place, the USMCA has energy-relevant language in various places throughout the lengthy text. After combing through the draft, my preliminary judgment is that USMCA represents a step forward for Canadian energy, particularly oil and natural gas.

    Cross-ownership ties between the United States and Canada in the energy sector are a positive indicator of better energy trade relations in the future. This feature of the U.S.-Canadian energy relationship could be expanded to include Mexico if U.S. and Canadian firms find attractive investment opportunities in Mexico and if incoming Mexican President Andrés Manuel López Obrador, a critic of his predecessor’s energy reforms, does not attempt to reverse them. Since 2014, Mexico has actively pursued3 Canadian energy investments in the Mexican market.

    Although the USMCA would eliminate Investor State Dispute Settlement for Canadian firms in Mexico that was previously available through NAFTA’s Chapter 11, Canadian investors in Mexico (and vice versa) will have access to a similar mechanism in the Comprehensive and Progressive Trans Pacific Partnership, and USMCA’s Chapter 144 preserves investor-state dispute settlement for redress on national treatment, most-favored nation treatment, and direct expropriation.

    “NAFTA showed that once trade and investment barriers are removed, cross-ownership can reduce trade conflicts and power growth across North America.”

    The USMCA adds protections5 for investments in to government contracts in the areas of oil and gas, power generation, and ownership or management of infrastructure. Another positive aspect of the USMCA is Chapter 156 which liberalizes trade in services, including energy-related services to which Canada has considerable expertise.

    Since NAFTA, economic growth in Mexico has increased demand for energy and turned the country into a very attractive energy market. As a result, it was important for the USMCA to get energy trade rules right. Two chapters are important in addressing concerns about closer energy linkages: Chapter 87 affirms “the Mexican State’s Direct, Inalienable, and Imprescriptible Ownership of Hydrocarbons”  and Chapter 278 is a strong anticorruption clause based on the standards developed by the Organization for Economic Cooperation and Development (to which all three USMCA countries belong).

    “Cross-ownership ties between the United States and Canada in the energy sector are a positive indicator of better energy trade relations in the future.”

    NAFTA showed that once trade and investment barriers are removed, cross-ownership can reduce trade conflicts and power growth across North America. Although NAFTA has been justly criticized and after nearly 25 years was in need of an update, energy trade and investment under NAFTA has been a success story that USMCA looks to advance further once it is approved and implemented by all three countries. In the coming months and years, look at the data on  cross-border investment and cross-ownership activity for evidence that North American energy markets are being strengthened or weakened under USMCA.

    Christopher Sands is Senior Research Professor and Director of the Center for Canadian Studies at the Nitze School of Advanced International Studies (SAIS) and a nonresident Senior Associate at the Center for Strategic and International Studies (CSIS), both in Washington, D.C.

    1. Peter Morici, Professor Emeritus, Robert H. Smith, School of Business, online: <https://www.rhsmith.umd.edu/directory/peter-morici>.
    2. Office of the United States Trade Representative, United States-Mexico-Canada Agreement Text, online: <https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico>.
    3. The Globe and Mail, Mexico pitches newly reformed energy sector for Canadian investment, online: <https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/mexico-pitches-newly-reformed-energy-sector-for-canadian-investment/article18954287/>.
    4. Office of the United States Trade Representative, Chapter 14, online: <https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/14 Investment.pdf>.
    5. Greenberg Traurig,  From NAFTA to USMCA: The New North American Trilateral Free Trade Agreement, online: <https://www.gtlaw.com/en/insights/2018/10/from-nafta-to-usmca-the-new-north-american-trilateral-free-trade-agreement>.
    6. Office of the United States Trade Representative, Chapter 15, online: <https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/15 Cross Border Trade in Services.pdf>.
    7. Office of the United States Trade Representative, Chapter 8, online: <https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/08 Recognition of Mexican Ownership of Hydrocarbons.pdf>.
    8. Office of the United States Trade Representative, Chapter 27, online: <https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/27 Anticorruption.pdf>.

  • A Message from the President and CEO of CGA

    A Message from the President and CEO of CGA

    Welcome to our third and final issue of 2018. This year has been a busy one for CGA and at present it looks as though 2019 will mean more of the same: energy is front page news and natural gas is top-of-mind energy.  Next year will be particularly interesting as energy is shaping up to be a major issue for the fall 2019 election campaign. In preparation for that, much of our focus at CGA will be on engaging the politically active on how energy affects constituents’ interests. Affordability in the face of rising costs, reliability in the face of outages, sustainability in the face of aggressive emission reduction targets, innovation in the face of ever-changing technology – all of these issues are on the minds of Canadians. We believe natural gas has a great story to tell on each of them and we want to make sure it is well understood.

    Recent reports from the NEB on the domestic front, and the IEA on the international front, speak to just how important that natural gas story continues to be for our country and the globe. The articles that follow offer interesting perspectives on this importance. I hope that you find this issue of Energy informative and thought-provoking and, as always, I encourage you to get in touch with us with your feedback. From all of us at CGA we wish you a Merry Christmas and the best for the holiday season, and may your 2019 be filled with Energy!