[Recorded by Electronic Apparatus]
Tuesday, June 4, 1996
.1105 
[English]
The Chairman: I'd like to call the meeting to order, please.
Pursuant to Standing Order 108(2), we will be continuing today our study on natural resources and rural development.
I'm pleased that we have three groups represented today. From the Canadian Association of Petroleum Producers, we have Chris Peirce, vice-president; from the Canadian Gas Association, we have John Klenavic, vice-president, policy; and from the Canadian Electricity Association, we have Hans Konow, president and chief executive officer; and Veikko Kammonen, vice-president, customer services.
Welcome, and thank you very much, gentlemen.
The way we will work today is that I will ask each of you to make a presentation of up to10 minutes, and then we'll turn it over to the committee members to ask some questions.
I don't know who wants to go first. John, perhaps.
Mr. John Klenavic (Vice-President, Policy, Canadian Gas Association): Thank you,Mr. Chairman. Good morning.
Before beginning, I'd like to thank you for inviting our association to be part of your deliberations. We have provided the clerk with a submission, which I will abridge in the interest of staying within the ten minutes, Mr. Chairman.
I'll begin with a few words about our association. We currently represent 320 members from the distribution, transmission, and manufacturing sectors of the Canadian natural gas industry as well as others with an interest in the industry. Our members are located in six provinces, from British Columbia to Quebec, and in the United States and Europe.
As I'm sure this committee is well aware, Canada is able to call on its wealth of natural resources to create one of the highest standards of living in the world. Our abundant supplies of energy allow us, and indeed encourage us, to develop industries, create jobs, foster regional growth, and enhance Canada's global trading position.
The natural gas industry plays a key role in this framework. We have vast reserves, a modern, reliable and expanding pipeline network, and a market-oriented pricing regime that supports the growing demand for natural gas.
The majority of Canada's current natural gas supply is found in the Western Canada Sedimentary Basin. This has the largest established reserves of marketable gas in North America. Other areas of gas reserves are in the Mackenzie Delta-Beaufort Sea and the Arctic Islands of the Northwest Territories, and in the Sable Island area off the coast of Nova Scotia. Economics and technology will determine whether and when these sources of natural gas will be tapped and piped to markets.
As the Atlantic Canada members of the committee probably know, CGA members are currently actively engaged in studying the feasibility of developing Sable Island gas.
Pipelines and distribution systems are subject to federal and provincial regulatory review at all stages. This includes examining their need, economics, environmental effects, design, construction, operation and eventually abandonment. An essential part of regulatory review is determining whether or not a proposed pipeline is in the public interest.
Given the special character of these pipeline systems, they must be constructed and operated in ways that promote the safe, timely, and uninterrupted supply of natural gas. The local distribution companies in Ontario, for example, must prove to the Ontario Energy Board that the economics of providing natural gas service to unserved areas makes sense and that current local distribution company customers will not bear an undue financial burden.
So it is important to note that even if an LDC wants to provide service to unserved areas, they might be turned back by its regulator. In Manitoba, Quebec, Saskatchewan, and Alberta the natural gas industry has been active in providing service to rural areas.
With the enactment in 1973 of the Rural Gas Act, Alberta began a program of providing capital grants to cover part of the cost of expanding distribution systems to rural areas. At present, natural gas is available to about 100,000 households in rural Alberta.
Saskatchewan also has a rural gasification program that began in 1982. Ten years later, when the program finished, over 24,000 rural customers and 12,000 urban customers had received service under the program, and over 60,000 kilometres of pipeline had been laid. Saskatchewan's gas network currently serves about 90% of the province's homes and businesses.
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As part of the federal infrastructure program, two of our member companies undertook large rural gasification projects to bring natural gas to previously unserved areas.
Gaz Métropolitain in Québec undertook a $137 million project, of which $43 million came from the infrastructure funding, to extend natural gas availability to seven previously unserved, largely rural areas. The project started in February 1994 and is scheduled to finish in March of next year. It will build over 570 kilometres of new gas distribution pipeline.
Centra Gas Manitoba also took advantage of the infrastructure program to expand its service to 14 rural communities. Federal funding provided $6.9 million of the $26 million for natural gas expansion. Over the two-year project, close to 400 kilometres of line is being laid.
Among the benefits to the 14 communities were savings in energy costs to publicly funded buildings such as hospitals, schools, and recreation centres. Businesses also saw savings on their energy bills allowing for increased competitiveness and assisting with long-term viability of these rural communities. With access to natural gas, communities can now build or attract energy-intensive industries such as ethanol plants, straw processing, hog operations, and pasta plants.
This type of rural expansion could have been greater if infrastructure funding had applied to gas expansion projects in Ontario. Unfortunately, the provincial government decided the gas distribution expansion programs were not eligible for funding under that program.
Another area in which natural gas has contributed to rural development is through the establishment of co-generation projects. Co-generation uses natural gas to power a turbine that produces electricity. The residual heat, in the form of steam usually, can be used in the industrial process or for heating or generating more electric power.
One example, which was also coincidentally mentioned on the local radio station this morning, is the Seaway Valley Farmers' Co-operative in Cornwall. This fledgling co-gen ethanol plant will use natural gas to transform some 500 million bushels of Ontario corn into 50 million litres of ethanol and 40 tonnes per year of high protein livestock feed. Centra Gas Ontario, the local distribution company, will supply the natural gas required to produce ethanol once the plant is up and running.
Seaway Valley estimates that the $40 million plant will create up to 40 permanent jobs. It will assist the eastern Ontario corn farmers and it will ensure a continuous supply of ethanol for farm use and on-road vehicles. It expects to begin production next fall.
Gas-fired infra-red space heating systems for barns can heat animal shelters more efficiently as the individual radiant heat units require less energy to heat the entire space. Infra-red systems are extremely efficient in agricultural production sectors requiring constant warm temperatures, such as poultry farming.
Natural gas is a very effective and economical way to dry crops such as wheat and corn. It is used in greenhouses as an efficient source of heat and it helps to speed plant growth.
Although natural gas has yet to make great inroads as a motor fuel in agriculture, it is used extensively in the production of fertilizers, feed, and pesticides. It provides a cost-effective input towards nitrogen fertilizer production and represents about 75% of the costs of ammonia production, which is a key element in most fertilizers. It is also used in potash mining and phosphorous production. So it plays a role in all three fertilizer components: nitrogen, potash, and phosphorous. Eight percent of domestic natural gas consumption is attributed to fertilizer production.
In many other industries that rely on economic energy sources to keep them competitive, natural gas is a key element of production costs. As an example, it provides 33% of the energy used in the pulp and paper industry and the iron, steel, and mining industries. The cement industry relies on natural gas to provide 47% of its energy. The petroleum and chemical industries are also very heavily reliant on natural gas. Many of these industries, particularly the pulp and paper and the mining sectors, are based in small communities.
To conclude, the natural gas industry plays an important role in economic development. We are involved directly in the rural economy above ground, through fertilizers and other supports to agriculture, mining, and industrial activities, and below ground, through transmission pipelines. The industry creates employment and community spin-offs in both types of activities.
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Through rural gasification projects we are helping those who live in rural areas to have a choice in their energy. These rural gasification projects are helping smaller communities attract energy-intensive industries, which in turn help ensure their survival.
I'd like to thank you for this opportunity, and I am available later to answer questions.
The Chairman: Thank you very much, John. Maybe Chris could go next.
Mr. Chris Peirce (Vice-President, Strategic Planning, Canadian Association of Petroleum Producers): Thank you, Mr. Chair. I think the most efficient way for me to go through things is to review my presentation, which I think everyone probably has copies of now.
On behalf of the Canadian Association of Petroleum Producers, I am pleased to provide comments and insights on the contribution of the upstream petroleum industry to Canada's rural economic development.
Marlene, coming from an agricultural background, I've found that the metaphor that works best is that we're not the bakers who sell the bread; we're the farmers who grow the wheat in terms of the petroleum industry. We're the ones who find it and get it out of the ground.
This initiative of your committee, Mr. Chairman, provides a good focus for our industry to underline what we generally believe to be true: that we are a significant economic driver, in rural western Canada especially.
The upstream petroleum industry is a significant contributor to the Canadian economy in terms of both the impact of its activities and the benefits derived from its products. Beyond filling two-thirds of Canadian energy needs, the industry provides direct and indirect employment for nearly 190,000 Canadians. With virtually all production taking place in rural areas, it is safe to conclude that a significant percentage of this employment has a direct impact on rural residents.
The industry had expenditures of $24.9 billion in 1995. About $4.9 billion of this was paid to governments in the form of taxes, fees and royalties. The upstream petroleum industry is the second largest contributor to Canada's positive balance of trade, exceeded by forestry and followed by automobiles. It had net export earnings of about $11.6 billion in 1995.
Over $12.6 billion was reinvested by the industry in 1995 in the exploration and development of petroleum reserves, representing 17% of all Canadian non-residential investment. The industry has traditionally reinvested close to, or in excess of, all its after-tax cashflow. Conversely, it has historically not paid large dividends to shareholders.
The recent high level of reinvestment has occurred in spite of below average rates of return on capital. According to a study conducted by The Globe and Mail Report on Business, the oil- and gas-producing sector averaged 3.75% over the last five years versus 12.78% and 16.03% for electrical and gas utilities respectively.
Recent exploration activity levels reflect the inflow of equity capital from 1992 to 1994. Unfortunately the flow of equity funds to the industry declined substantially in 1995. This decline can be understood, given prices and the pricing outlook at the end of 1995. At that time Canadian crude oil prices had fallen back to 1974 levels in real terms, and natural gas prices had also fallen back from the highs of the early 1980s.
Buoyant crude oil prices and higher natural gas prices during the first quarter of 1996 brought unexpected and welcome relief to the Canadian petroleum industry, with crude oil prices climbing to nearly $25 a barrel in early April, the highest levels since the Gulf War in 1990. More bullish observers hold the view that current prices, now in the range of $19 to $20 a barrel, may be maintained, given increasing demand from both developed and developing nations.
Increased market access for both crude oil and natural gas are key long-term priorities for the industry, with slightly more than half of our crude oil and natural gas production now being exported to the United States. The upstream industry in Canada is dependent on access to export markets for virtually all future growth. There is an urgent need to expand pipeline capacity from western Canada to markets for both crude oil and natural gas. CAPP is now expecting total well completions for 1996 to be approximately 10,700, just 7% lower than 1995 levels.
In terms of industry employment, the upstream sector includes more than 500 exploration and production companies as well as hundreds of associated businesses, seismic drilling contractors, service rig operators, etc. In 1994 the industry, as I said, provided direct and indirect employment for nearly 190,000 Canadians. What follows is a brief description of direct and indirect employment, which I'm sure is not news to any of you.
To continue at the bottom of page 5, the petroleum industry has created jobs and economic activity in numerous communities and small towns through western Canada. Many of these areas are highly dependent on the industry for their economic well-being. As industry activity moves farther and farther north as well as offshore on the east coast, it will increasingly have an impact on rural residents in those parts of the country.
Grande Prairie in northwestern Alberta is a good example. Direct and indirect petroleum industry employment is 2,250 people in that community. This would be almost 17% of Grande Prairie's eligible workforce of 13,442.
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The next paragraph goes on to extrapolate that if you move on to induced employment, you can move from that 2,250 people in the example of Grande Prairie to a figure more like 4,400 induced jobs to people who provide services to the people who make money in the oil and gas industry.
Petroleum production and marketing contribute substantially to government revenues at all levels in Canada. Royalties, fees and taxes are a major revenue source for governments of the petroleum-producing provinces. Companies, contractors and employees pay substantial federal, provincial and municipal taxes. The major interprovincial oil and gas pipelines, for example, which span throughout rural Canada, paid $220 million in income taxes and $192 million in property taxes during 1992. Alberta surface access payments in 1994 totalled about $150 million. This includes payments to private landowners, grazing lessees, forest companies and the government for access rights. Approximately $140 million of this would have directly impacted rural areas, with$10 million of that going to government.
More than 20% of upstream revenues go directly to municipal, federal and provincial governments. These contributions to governments obviously contribute to the role of governments in rural Canada. Problems can occur, however, when governments see the industry as a cash cow and threaten to milk it past the point of viability. Producers are currently experiencing this in northeastern British Columbia, where industry is a big player in an almost exclusively rural setting, but must now evaluate whether it can continue to expand and invest in the face of a proliferation of charges, levies and property taxes.
To use some specific rural examples, I thought of one historical example, one big current example, and one new high-technology example.
The first is the historic example, Drayton Valley, Alberta. The town of Drayton Valley exploded when the Pembina oilfield was discovered in 1953. At that time it had a population of about 74 people, a post office and a small store serving a sparsely settled area of farmers and loggers. Within a year of oil being discovered, the population mushroomed to 2,000 people. Between 1953 and 1967 more than 70 oil companies set up field base operations in the town, and Drayton Valley today supports a population of approximately 6,000.
Companies from around the world have set up operations in Drayton Valley and have provided the impetus for continued growth. Everything from welding to trucking to chemical analysis are performed in the town, with services growing in diversity every year. These companies produce and service more than 8,000 wells, including 24 sour gas plants, 53 sweet gas plants, over 1,500 oil production facilities and thousands of miles of buried pipelines. Exploration and production activities have generated an expanded tax base for the municipal government, and Drayton Valley has one of the highest incomes per capita in Canada. The oil industry has invested nearly $1 billion in the field, more than the cost of the St. Lawrence Seaway.
The second example is Caroline, Alberta, a large-scale current development. The Shell Canada Caroline project near Caroline, Alberta, which is a very small community 170 kilometres northwest of Calgary, is the newest and most technologically advanced of Shell's six gas processing facilities in western Canada. It consists of the gas field, 15 wells, 3 compressor stations, a major gas processing plant, and a sulphur forming and storage facility.
The plant is a classic example of how interwoven an oil and gas project can become with the surrounding community. The numbers are staggering. During the construction phase $1 billion was spent, generating 3,590 person-years of work, 26% of which were furnished by people in the project area. The annual operations and maintenance budget is $33 million throughout the 25-year life of the gas plant, with 64% of that amount being spent in the project area on staff wages; contractor services; purchase of materials, supplies and services; and municipal taxes. Although situated near Caroline, the project's economic benefit extends to the neighbouring rural communities of Rocky Mountain House, Sundre, Olds and Innisfail.
Fundamental to the economic benefit is the effort by Shell to become an important, continuing and positive presence in the community. Recognizing the impact of such a large-scale project on such a small rural community, Shell engaged in extensive community consultation beforehand and has participated in a thorough and continuing monitoring program with community representatives. Apart from the indirect economic benefit, the Caroline complex employs 145 permanent Shell people and approximately 40 contractors.
On the edge of new technology is Senlac, Saskatchewan, located halfway between Unity and Macklin, Saskatchewan. Senlac is the site of a leading-edge heavy oil development by CS Resources, a smaller company, which by July 1996 could be producing 4,500 barrels per day. While providing 12 permanent and skilled jobs directly, the project will inject an annual operating budget of $9 million into a local economy that is otherwise almost exclusively agricultural; will spin off ongoing employment for related services, such as maintenance and earth work for the projected 15-year life of the project; and will contribute upwards of $30 million to the provincial government through royalty payments.
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Even more important for the rural economy, however, is the fact that the new technology being developed and utilized by CS, steam-assisted gravity drainage, or SAGD, allows pools that were formerly uneconomic to be exploited profitably. CS Resources activity in Senlac, then, will offer a prototype for similar activity in numerous other sites across the rural west.
The upstream petroleum industry has for years been endeavouring to improve its environmental performance. Much progress has been made in this area, and the industry has a positive story to tell. For example, the industry has shown tremendous commitment in the area of climate change. CAPP signed the first MOU with Natural Resources Canada, committing parties to demonstrate leadership by limiting greenhouse gas emissions in the context of growing upstream activity and the need to maintain a competitive Canadian economy.
The upstream petroleum industry was the first to participate in the government's voluntary challenge registry to reduce greenhouse gas emissions. To date, 76 CAPP member companies, representing over 80% of Canada's petroleum production, have committed to this voluntary effort. Since the voluntary challenge was issued in October 1994, CAPP has seen reported among its members prevention or reduction of 3.62 million tonnes of CO2 equivalent emissions.
The industry has been innovative in developing new technologies for exploration and production and minimizing waste. Techniques such as directional drilling allow multiple wells to be drilled from a single pad, while low-impact seismic reduces the extent to which treed areas need to be cleared. Technology such as endless tubing, downhole rotary pumping, automation and computer technology improve the recovery of the reserves. Reinjection of greenhouse gases minimizes the wastes being expelled into the atmosphere.
Natural gas, as John mentioned, is recognized as an environmentally friendly fuel. Canadian production currently provides 14% of U.S. demand - a really remarkable market share - helping to displace other less clean-burning energy sources.
It is important that environmental policy and stances taken by the Government of Canada at the international level not risk sacrificing the growth of our industry. For example, the industry cannot realistically reduce overall emissions, as opposed to a per capita calculation, when production of oil and gas for export is rising, nor should this, in our view, be a goal when the export of natural gas is environmentally beneficial wherever the end user may ultimately be. As a nation, we fear Canada is not taking credit for its environmental contribution and is penalizing itself vis-à-vis the rest of the world.
In terms of policy concerns of the industry, inasmuch as the continued development of the industry is intertwined with rural economic development, the broad policy concerns of the industry are applicable in a discussion about the rural Canadian economy. As expressed to the government during the consultation process leading to the last federal budget, the oil and gas industry is global. Investment dollars, consequently, have legs and will migrate to areas where returns are most favourable. The Canadian fiscal regime and system of taxation must be globally competitive.
The oil and gas industry is currently constrained in marketing its product by a lack of pipeline capacity. Further growth in our export markets will be an important part of spurring continued exploration development and technological advancement. These activities will in turn continue to benefit more and more rural communities. Our regulatory system must allow for the efficient approval of appropriate applications for new pipeline capacity.
The oil and gas industry is committed to sustainable development of the nation's resources. Effective environmental stewardship can and does occur best in partnership between government and affected stakeholders, including industry. It does not occur via regulatory overlap and duplication within and across governments. Regulatory harmonization should remain a priority for governments at all levels.
The upstream oil and gas industry is likewise committed to the voluntary challenge registry. It is important to an export-reliant industry such as ours and to an export-reliant country like Canada that Canada not be comparatively penalized in the commitments it makes internationally in relation to those made by other nations. It is crucial that the Government of Canada take a cross-departmental approach in crafting its positions at international meetings on the topic of climate change and recognize the trade implications inherent in the positions being put forth by all nations.
Provided with an appropriate framework, which does not mean anything that could be termed a handout or a subsidy, the upstream oil and gas industry will continue to play an active and significant role in the rural Canadian economy. Contrary to the notion that oil and gas is a sunset industry in the course of rolling up the sidewalks and leaving, the industry is actually a high-tech developer of a far-from-mature resource base. In exploiting that base, the industry moves more and more comprehensively into rural Canada and develops a resource and the skills and technology that can be marketed to the world.
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I have to compliment the Prime Minister and the government on measures that were contained in the last budget, and on the Prime Minister's visit yesterday to Fort McMurray in Alberta.
Thank you, Mr. Chairman.
The Chairman: Thank you very much. Hans.
Mr. Hans Konow (President and Chief Executive Officer, Canadian Electricity Association): Thank you, Mr. Chairman, members of the committee.
CEA appreciates the opportunity to meet with you to discuss the important issues relating to rural development. My remarks today will be in English, but I would be pleased to provide a French translation later in the week. I apologize, but I'm afraid this was done somewhat in a rush.
[Translation]
If some members want to question me in French, I'll do my best to answer them.
[English]
The modern electric utility industry began in the 1880s, evolving out of the existing gas and electric carbon arc commercial and street-lighting systems. Just over a century later, electricity has emerged as the key energy currency of the latter part of the 20th century, and gives every evidence that it will be crucial to successful economies in the 21st century.
In order to provide for Canadians' growing appetite for electricity, electric generation increased between 1947 and 1994 at an annual average of 5.2%. This significantly exceeded growth in gross domestic product, which equaled 4.1%, and population, which equaled 1.8%. The growth rate in electricity consumption has fallen sharply in recent years. Growth of 5% to 6%, once common in the 1960s and 1970s, is now running at just over 1%.
While economic recessions and booms have tended to greatly influence demand growth rates, recently there appears to have been a structural adjustment that has flattened the electricity demand curve. This is not inconsistent with the experience in other developed countries. By contrast, demand growth rates in developing countries can exceed 10% per annum.
Canada's electric power industry employs approximately 90,000 people, and has annual revenues in the area of $27 billion. It enjoys an asset base worth approximately $140 billion. Our annual capital investment of $7.2 billion in 1994 accounted for 48% of total investment in the energy sector and approximately 6% of total investment in the economy.
Canada's electricity supply industry is dominated by publicly owned utilities, and 83% of Canada's total installed generating capacity is owned by provincial crown corporations. There are five investor-owned utilities accounting for 7% of generating capacity and approximately364 municipally owned utilities, many of them very small, holding the remaining 2%. In addition, industrial and independent power producers account for 6% and 1% of Canada's installed capacity, respectively.
The Canadian Electricity Association represents both publicly and privately owned utilities, accounting for approximately 92% of generating capacity in Canada. CEA provides services to its members in areas such as technology development, joint projects, policy and regulatory advocacy, information exchange and skills development. We welcome the opportunity to join with our colleagues from other energy sectors in discussing the implications for rural economic development of emerging trends in our sector.
I would like to begin by providing you with a sense of our industry's historic contribution to rural development, follow that with an outline of the current situation, and then explore a little bit of what we see in the future.
In the past the electricity supply industry has played an important role in underpinning the rural economy. It did so in two distinct ways. First, the development of many large power facilities led to significant construction employment for limited durations and modest long-term employment. Where hydraulic resources were available, this has taken place in the form of dam and power line construction. Where the fuel resource was coal, it has taken the form of either combined mine-mouth facilities or separate mining and power project sites.
The second major way in which rural economic development was stimulated arose from the rural electrification programs mounted by virtually all of Canada's provinces. The large infrastructure investments required to serve low-density customers was deemed a societal priority, and support was provided through cross-subsidization or government incentives. Virtually all Canadians today have access to grid-supported electricity with only very remote sites being serviced through off-grid technologies, primarily diesel.
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Indirectly, electricity helped stimulate rural employment and economic development by providing crucial energy service to large natural resource extraction and processing facilities such as pulp and paper, mining, oil and gas fields, and farming or ranching.
Now often taken for granted, access to reliable electricity service prompted one midwest farmer during the rural electrification period to explain that the two most precious things in life were to have the love of God in your heart and electricity in your home. While not everyone would be moved to provide such a glowing endorsement of electricity today, I would venture to suggest that it is primarily because we have such reliable and reasonably priced electricity that people now take it for granted.
Today in Canada we are the second most intensive customers of electricity, behind Norway. What we share in common with our Norwegian cousins is a rich hydro endowment and relatively low costs, which has meant Canadians have selected electricity over other energy alternatives.
It does not mean Canadians are electricity gluttons or unusually wasteful. Canada is also a country whose natural resource endowment and the consequentially high level of resource processing result in a relatively energy-intensive economy.
Canada, the world's largest hydraulic generator of electricity, obtains 61% of its needs from that source, 19% from nuclear, 15% from coal, 3% from natural gas, and 1% from oil and renewable, respectively.
Today, the Canadian need for access to reliable commercial electricity has been met. Industries requiring electricity for process needs have no difficulty obtaining service. The overall reliability and dependability of the Canadian electricity system is world class. That these companies are known for both their technical and organizational skills around the world is evidenced by the demand for Canadian expertise now deployed on virtually every continent of the globe.
Having said that, it is also clear that success in the old paradigm is giving way to challenges of a new paradigm. The increasing interdependence of economies around the world, the emergence of regional trading blocs such as NAFTA, and the rapid development of the Pacific Rim economies have created a new global economic reality whose consequences are now being felt at the utility level.
Industrial and commercial customers are seeking lower prices for electricity, improved quality, and better service. Residential customers are wondering why they have no choice in service provider for electricity when they now have just such a choice in long-distance telephone service. Policy-makers are ruminating over whether electricity production, transmission, and distribution are all natural monopolies, or whether all facets of the business could be rendered competitive.
Issues such as stranded investment, market power, unbundling, and customer choice are being discussed inside and outside corporate boardrooms across North America and around the world. Regulatory reform is under way in the United States, opening up wholesale electricity markets to competitive options. Canadian utilities are joining North American regional transmission groups to offer reciprocal open access benefits.
It is evident from the foregoing that change is afoot in the utility industry. Utilities recognize they will have to become more efficient, more customer focused, and more technologically selective if they are to meet their customers' needs for a competitive energy advantage in Canada.
The pressures of global competition have arrived in the utility industry. The result has been that companies are reducing staffing, reorganizing for enhanced efficiency, seeking new business opportunities in adjacent or related fields, and bringing in experience from other industries to aid in the make-over of the industry.
With electricity demand relatively low, the prospect for future megaprojects looks very dim indeed. This is further exacerbated by advances in small-scale generating technologies such as combined cycle gas turbine and fuel cells. In addition, certain renewable technologies such as photovoltaics, wind and improved battery technologies suggest an increase in modular or dispersed approaches to capacity needs. The convergence and integration of electricity and communications technologies are also likely to have significant implications.
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Enhanced customer information will lead to efficiency gains, and electricity's role as the energy medium powering the so-called ``virtual office'' will help support telecommuting. This latter aspect may be of particular relevance to future communities, where office workers may be able to work from their homes rather than commuting into the city. Certainly the growth of the Internet in recent years has vividly illustrated the potential for people to work collectively from remote sites.
Another implication for rural communities lies in the technology advances noted above, where electricity can be produced in small increments close to the consumption site at roughly the same cost as large-scale supply carried over long transmission lines. When and if storage technologies become competitive, small-scale customers will have viable alternatives to grid service.
In summary, the electricity industry in Canada is going through a transformation from its historic model of large central plants linked to demand centres by complex transmission and distribution systems with service provided through monopoly territories, to a model characterized by smaller-scale technologies closer to demand centres providing power through competitive service providers to more informed and demanding customers.
Implications for rural economies include far fewer large construction projects and far more options for custom-fitting electricity supply solutions, including self-generation, all within a context of prices more closely reflecting the real cost of service.
Thank you, Mr. Chairman.
The Chairman: Thank you very much.
Next, gentlemen, we'll begin the questioning with the Bloc Québécois.
[Translation]
Mr. Canuel (Matapédia - Matane): I'm very happy and proud that representatives from the Canadian associations of oil, electricity and gas producers are here with us today.
It seems to me that there must be some disagreements between you. I find that in the field of electricity, Hydro-Quebec and Ontario Hydro make profits and invest part of these in research and development, although there is not much progress.
For heaven's sake, we can't even have cars working with electric batteries! Every year, or every ten years, the papers tell us that we will have them within a few years, or five years.
I am happy that you are gathered here, so I can ask you this question. Some Americans say that some corporations play against each other. If these battery-operated cars could be on the market within six months, or a year, it seems to me that oil companies, or others could object to them. There seems to be a game going on between the biggest three or four. Is it possible? You will probably answer no, since everyone does their own thing, but in my mind, and that of many, it's not that clear.
My constituents ask me these questions almost every week. Are there unknown games going on behind the scene, for the benefit of certain people? Someone may be benefiting, but, as far as they're concerned, the consumer never benefits. Take gasoline for example. As you were saying, you are producers and, consequently, the source. There are many steps afterwards that are overtaxed by governments.
How is it that, from one region to the other, the price of gasoline varies form 57 to 73 cents? When the price of crude oil increases, I suppose the price also increases at the pump. Iraq is coming back on the export market and it is expected that other crude oil producers may lower their prices. I'd like to hear your comments in this regard.
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I would also like you to give me some explanations concerning a paragraph you wrote, which I don't fully comprehend.
This paragraph reads as follows:
- It is crucial that the Government of Canada take a cross-departmental approach in crafting its
positions at international meetings on the topic of climate changes and recognize the trade
implications inherent in the positions put forth by all nations.
I will summarize my remarks this way. What can you do, in research and development, to help rural and regional communities to survive? Natural resources are everywhere, and it seems that these communities could benefit a little from them.
I listened closely to you and, although I admit that there is some effort on everyone's part, I'm still not convinced that the government and the producer associations really have the will to help rural communities, even a little.
We know very well that, by definition, a company exists in order to bring in profits. However, one must stop for a moment and think that there are also people who want to live decently and that they have the right to do so.
What can we do for them?
[English]
The Chairman: Gentlemen?
Mr. Konow: I'd be happy to comment on a couple of the issues, but I will leave the gas-related questions to my colleagues.
On the question of electric vehicles, you are probably aware that Hydro-Québec has been an active participant in the development of electric drive systems for electric vehicles and has a very successful model that it is continuing to develop and prove out.
The issue on electric vehicles, as has been painfully proven by entrepreneurs like Malcolm Bricklin and others - that will be familiar to anyone from New Brunswick - is that it is a big international company game, and almost no one else has proven that a new car product can be launched into the market. In my view, it essentially means that when the big companies decide electric vehicles are technologically viable and when the market is receptive to their deployment, they will happen.
In the meantime, Canadian companies are sinking vast amounts into research on batteries. I would cite for you Ballard in Vancouver and drive systems such as Hydro-Québec's. They will be well placed when the market opportunity emerges.
[Translation]
Mr. Canuel: It's so complicated! We go to the Moon, and everywhere. We are about to go to Mars. I am not a scientist, but I can't understand that it takes years to do this research and that it never succeeds.
[English]
Mr. Konow: I don't think it's fair to say that it's not getting anywhere. A good deal of progress has been made in battery technology. For instance, while I was in the southern United States, I was given the opportunity to drive an electric vehicle made by one of the Japanese car companies.
One of the issues has been the weight and power of batteries - the range within which they can go without being repowered - and, of course, it's rendered much more complex by the need for heat in our winter climate, because that is another drain on the capacity of the battery and a secondary energy requirement. Unless you have a gas motor or a hybrid motor of some sort, you are producing the heat to heat the cabin of the car through the electric batteries.
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So it is a complex challenge from an engineering point of view. As I say, some progress is being made. Cars are coming off the assembly line now, as I understand it. There is GM and their Impulse. All the big three have vehicles that will be marketed in small numbers in these initial few years.
I don't want to take everyone else's time. But in terms of rural development and what electricity can do, I would just point out the comments I made in my remarks about telecommuting. From the electricity perspective, I think it is fairly clear that megaprojects are unlikely to be as prevalent a feature in tomorrow's world as they were in the past because of slow demand growth and the business risks associated with bringing onstream large developments. This is not to say there won't be some. I suspect there will be, but certainly not in the number as in the past.
I find myself technologically challenged compared to my children. What is clear to all of us is the prevalence of computers in both the business and home lives of virtually every Canadian. I think we are seeing realization in the development of the potential to telecommute, as they call it, from home on a larger scale. Companies can save office costs by having people work at home. It isn't the right solution for every business in every circumstance. But more and more we are finding we derive services from people who work out of their own homes, who move material to the buyer through telecommunications.
What underpins all of this, of course, is a reliable electricity supply. It will be our challenge to ensure rural areas have the same quality of electricity required to allow computers and other sensitive equipment to function well.
The Chairman: Maybe I could ask the other two witnesses to briefly address this last point. What specifically are you doing for rural development?
Mr. Peirce: Go ahead, John.
Mr. Klenavic: Mr. Chairman, our programs are linked to market opportunities and our research is tied to market opportunities. We have a national natural gas technology development program integrated with the United States and, in fact, with some European consortia. Its purpose is to develop equipment that will serve market niches. In Canada, for instance, we are making progress on natural gas for vehicles, but that doesn't necessarily solely serve the rural market. In fact, it's concentrating on the large urban centres where fleet vehicles can take advantage of natural gas.
There are programs. For instance, the Saskatchewan Research Council has converted farm implements such as tractors and so on. Now that natural gas is widely available in the rural areas of Saskatchewan, they are studying the utilization of natural gas on farms.
Mr. Peirce: I should probably respond to the specific issue of gas prices.
The Chairman: We're a little beyond our scope here. Perhaps you could provide this afterwards or just very briefly now. I do want to stick to rural development side.
Mr. Peirce: Very briefly, I think the provincial variation in gas prices is almost wholly attributable to differential tax rates at the provincial level. It's certainly not related to the cost of crude oil, which is our concern. Beyond that, it's a matter for the downstream industry, those who market gas, unlike us who find it.
In terms of our direct contribution to the rural economy, I tried to give three very specific examples in my presentation of how the search for and production of oil and gas involve rural Canada directly, wherever the resource is found. This is stretching further and further north in the west. The areas include Alberta, Saskatchewan, some parts of Manitoba, northeastern British Columbia, Newfoundland, Nova Scotia and the offshore areas.
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Wherever we find the commodity, the rural economy is necessarily going to benefit. As indicated, a good percentage of expenditures are in the area. Research and development is a hugely important part of this task because the resource in Canada is tougher to get at than it is in other parts of the world. To the extent that we can encourage research and development activity, the reality will be more and more production in rural areas.
The Chairman: Thank you. We will go to Mr. Reed.
Mr. Bélair (Cochrane - Superior): I have a point of order. I think the question asked by our colleague Canuel should stand. The Canadian Association of Petroleum Producers certainly has something to do with this. Given that it is of national interest, I would be most interested in hearing what the witnesses have to say, especially Mr. Peirce.
The Chairman: He just provided his reply when he talked about the differential. I let him proceed with his reply.
Mr. Bélair: Well, I missed it.
The Chairman: It's in the record. He did make a reply to it.
Mr. Reed.
Mr. Bélair: I'll read the transcript, then.
Mr. Reed (Halton - Peel): I would like to state a couple of things at the outset before I lead directly into rural development with energy. One is to very proudly state the very first committed hydraulic utility in North America is located within a few miles of where I live on the Credit River in southern Ontario.
It was installed by the Deagle family in 1882. It followed an industrial installation further downstream in 1880, buried within a mile of where I now live. I've had some continuing interest in utilities.
I have one question that perhaps is worth clarifying. On page 3 in the second paragraph you talk about a ``hydraulic generator of electricity'' and then you go on and use the phrase ``renewable respectively''. It would appear, using those lines the way you do, that you don't consider hydraulic power to be renewable energy. I just thought we had better clear that one up.
Mr. Konow: I thank you for the question. It has been one of my bugaboos that there has been a conscious attempt to define major hydraulic generation outside the rubric of renewable. I totally reject this. Our major hydraulic facilities are unarguably renewable. We should be proud of them and we should refuse to play the game others play internationally of attempting to deny we are one of the largest purveyors of renewable energy in the world.
I thank you for the question. It was not intended in my remarks.
Mr. Reed: It's very important, because in the last budget the federal government created flow-through shares for renewable energy development. We want to make sure those flow-through shares apply to hydraulic development as well. They're part of this. This is solar energy at its best and its most concentrated.
Mr. Konow: I would absolutely agree with this. We did comment to certain officials in the department regarding this characterization.
Mr. Reed: Thank you.
I'll be fairly brief on this. In terms of rural development, there is a way utilities can play a very active role in rural development. This is through the diversification of investment. In Ontario, in 1979, I had the honour of serving in the provincial House. During that time, as energy critic, I was able to persuade Ontario Hydro to establish what are known now as NUGs, or non-utility generation. Since that time, with the abundance of supply, the emphasis has been diminished over the years - and I'll blame Local 1000 of the Ontario Hydro Employees' Union for carrying on part of that campaign. But I want to sensitize the utilities to the fact that you can play a very important role by accepting private development of small hydro in terms of rural development because of the diversification of investment.
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Hydraulic sites are where you find them. They're like mines. But they do exist in some abundance still in the province of Ontario and in Canada. All told, the Canadian Council of Professional Engineers in one of its early publications identified 125,000 megawatts of undeveloped hydro power in Canada. Since that time, perhaps 25,000 has been developed - more or less.
The smaller sites were considered uneconomic by large utility standards. In fact, we have found that private investment has been able to work within very tight parameters in terms of investing and turn-out of product of high quality and of consistent reliability, and also making use of that gift that is sitting there in some rural community.
I guess if I have no other message, it's to say to the utilities, for heaven's sake, open the door for private investment. It's not going to compete with your bottom line. It's not going to compete with the utility's bottom line. What it's going to do is put the utility in the position where it's making a major contribution to rural development.
Mr. Konow: I thank you for your comments. I think you've made a couple of very good points. One of the issues around the historic record of uptake of NUGs has been the reality that we have had, and continue to have, significant surpluses in the system. So it is not a terribly attractive proposition to buy a new supply when we have too much already.
Having said that, if you reflect on the message I've tried to leave here, the paradigm is fundamentally changing. In my view, at least, you will see more small-scale development in the future. You will see utilities that have no particular incentive to build as opposed to buy. I think the world for independent power production, or NUGs, will be much more driven by simple economics and business case than by dominant market position, which may have been a factor in the past.
So I think once the surpluses are drawn down, you'll see the realization of many of those small projects that are economic. I think there's a positive story, but I must say, I also think there's a short-term period in which surplus is going to make it difficult to launch those projects.
I don't know if Mr. Kammonen would have anything to add to that.
Mr. Veikko Kammonen (Vice-President, Customer Services, Canadian Electricity Association): No, I would just confirm that. Even recent experience in many utilities has been to go with RFPs, requests for proposal, for power from non-utility sources. That very much seems to be the trend of the future.
Mr. Reed: At the present time the sensitivity or the sense of social responsibility has certain limitations in the utility. For instance, I can sell under 5-megawatt power to Ontario Hydro, but at a price 25% less than I could on a contract signed six years ago, for instance. The argument being put forward is that we have all this surplus, but I would put it to you.... You talked about the age of the megaproject being essentially over. Quite frankly, the megaproject as it exists in Ontario, which is largely nuclear, has some generic problems, as you well know. We haven't had one live past the age of 20.
A comment was made about Ontario Hydro making a profit. Well, operation and maintenance-wise, probably yes, but when you factor in the $30 billion debt it's another story. So here we have nuclear plants being written off over 40 years when they won't live past 20 without being recapitalized or done away with. It's creative accounting at its very finest.
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I hope the utilities take into account the future of those megaprojects and what happens when, say, one unit has to close down on a permanent basis and be mothballed, at Bruce Nuclear, for instance, and what would be there to replace it. You can say surplus will take that one up, and surplus may take the next one up, but there is a limit somewhere down the line. It takes time for these things to be replaced. We can't even build a NUG in six months. The approvals process sometimes take six years.
Mr. Konow: Those are good points. Without wanting to get into a long debate on nuclear, the track record of nuclear in Canada is still I think quite positive. The cost of it is also well documented. The overruns on Darlington can be attributed to a number of different realities. I won't go into it here.
I would just draw to members' attention the likelihood that the Macdonald commission will report on June 6. That may or may not still be a good date, but it will be within a week or so. I commend to your attention the output of that body.
In terms of the future for small hydro and the kinds of prices you're likely to see, as I said earlier, you're quite right; surplus is the issue being brought forward. As I mentioned earlier, the pressures on the industry as a whole are to drive our costs down. Current costs are not good enough, according to many of our industrial and commercial customers who look at competitive electricity rates in selected jurisdictions south of the border. I say ``selected'' because we know we're very competitive with many.
If you want to locate an auto plant, you don't have to locate it in New York City. As we know, you can locate it in Tennessee or wherever you can get the right balance of financing and costs.
For us to remain competitive, we have a complex set of challenges that have to be faced. I still hold with my prediction, however, that small will be beautiful and that you will find, as you've said, as we begin to retire some of the old plants - and we built an awful lot of them in the 1950s - that there will be opportunities, significant opportunities, to bring on new generation at that point.
Mr. Reed: Thanks very much, Mr. Chairman.
The Chairman: Mrs. Cowling.
Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman.
It would appear from the witnesses we have heard before this committee that most of the resource sector industries are located in rural Canada. We've had recommendations come to this committee that because that is so, that perhaps because of the economic spin-offs to large urban centres, there should be a need for urban Canada to help some of those rural communities survive. I'm wondering what your reaction is to that.
As well, what we are seeing happen in rural Canada is depopulation, many people leaving rural Canada. When they leave they tend to take dollars with them. I'm wondering what you would recommend to this committee with respect to rural Canada to keep rural Canada alive and well. What would you recommend to us, coming from your particular sector and the industry you represent? What would you recommend we do as a committee to ensure that we continue to keep rural Canada alive, where in fact many of those resource sectors are located?
Mr. Peirce: I think in the example of oil and gas and the exploration activity therefor, that balance between urban and rural that you mentioned is an important one. The Senlac project I referred to in my materials is a good example of that. There you had the physical plant fabricated in Edmonton, a large urban centre, and then trucked to Senlac to be placed, thereby creating an ongoing rural benefit.
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I suppose you could say that this fabricating activity should be going on in rural Canada, that it shouldn't be happening in Edmonton. But I think it would be chasing a false god, that type of activity going on in rural Canada. What we want is to have the most cost-effective means for our companies to continue their exploration and production, which we know will all happen in rural Canada.
Apart from the broader-scale type of project that the Prime Minister was involved in yesterday in Fort McMurray, the Senlac example is a smaller-scale type of project. If it works, and the company has every confidence that it will, it has the chance of rolling throughout the rural west in other little pods, which will likewise create not as great but ongoing economic activity that's going to last for a good number of years.
It seems to me that when you talk about the megaproject being gone, our sector is another example of that. The key to rural development in our view would be more incremental, more permanent, longer-term development. That's the message we're trying to convey in our dialogue with first nations, and I think the same goes for rural Canada beyond - not to fool yourself by thinking that a lot of the capital-type work is going to suddenly happen in rural Canada. It will with examples like this Caroline project, where there is a big development happening, but more likely the more fundamental growth will be on a smaller scale. With advances in technology, that smaller-scale activity becomes economic and can work.
The Chairman: Mr. Bélair, do you have a question?
Mr. Bélair: No.
The Chairman: I have a number of questions.
Chris, let's take your example of Drayton Valley, Alberta, which was a very good example. You mentioned that seventy oil companies are operating in that community. Could you tell me where their lawyers, their accountants and so forth are operating from?
Mr. Peirce: I'm sure, Mr. Chairman, that not all but a good portion of the lawyers are probably in Calgary. As a lawyer I would be quick to add that probably if you asked most of the community of Drayton Valley, it wouldn't be the lawyers they wanted in their town. The real growth, and the types of jobs I understand the government is trying to create, are the jobs that involve the technical skills, the value-added jobs that create services that are exportable to the world as well. Those are the jobs I list as the types of jobs provided in Drayton Valley.
The Chairman: You're absolutely right, but we need all kinds of jobs in rural Canada. This is not unique to the oil patch, but if all your production and extraction is taking place in rural Alberta and other rural areas, the fact that your legal, accounting and other business service infrastructure resides in Calgary is indeed a point of frustration for those of us from rural Canada. If the basis of their business is from the rural area... obviously they can't locate in all sixty communities that might be involved in extraction, but certainly there are two or three communities that could benefit from it rather than having it all go to a major urban centre.
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One of our earlier witnesses pointed out that this is a big hole in rural Canada. The business service aspect of supporting natural resources, be it mining or energy or forestry, ends up a long way away from where these companies are actually doing business.
Mr. Konow: There's a reasonable case to be made that where business has located its support functions, it probably did so for fairly sound business reasons.
The point I try to make in my papers is that I think there's a shift under way. It's being facilitated by the evolution of technologies that allow people, be they accountants or lawyers, to link and discuss via electronic means in a virtual office, as people tell me it's called. I'm afraid I'm not of the generation that understands all of that. But it's kind of an office without walls, as it were.
It's not tomorrow or the next day, but I would venture to guess that within five years you'll see people making very sensible decisions that allow lower costs for housing such capacities. There are lifestyle choices; I'd much rather live in the country than in the city if I could manage it. I think you will see a renaissance for many rural communities based on that. Now, that's my vision, but I suspect there's a good prospect for it.
The Chairman: I hope you're clairvoyant. John.
Mr. Klenavic: Mr. Chairman, I'm not sure it's as dismal as you might paint. With the gas utilities, for instance, the Union Gas head office is in Chatham, Ontario. The head office of Centra Gas is in North York, which is obviously urban, but it does have a number of regional offices including Kingston, Thunder Bay, North Bay, and I believe Timmins. I think you'll find that the other gas utilities have a similar pattern. Their regional offices are spread out basically along their pipelines and their customers.
A small problem is that the gas utilities are not really a labour-intensive organization, so the very nature of the industry means a relatively small number of people. Obviously they want to keep it small to make it efficient.
The Chairman: To move to a different topic, whenever we get into natural resource extraction in rural Canada and communities are created, it's like getting hired as a hockey coach. The one thing you know for sure as a hockey coach is that you're going to be fired. The one thing you pretty well know for sure is that at some point the natural resource will be exhausted in that site and you'll move on.
That's the whole question of single-industry towns. Do you think it would be appropriate that a major harvester of the natural resource set up a legacy upon the development of that community so that the community can have something to service beyond the natural resource?
Mr. Peirce: One of the legacies of the oil and gas industry is that in excess of 100% of its after-tax net cash is reinvested in the search for new resources in the Western Canada Sedimentary Basin, and the resource is still largely an immature one. The legacy is investing in research and development as well so that ``exhausted'' doesn't mean 20% of the resource under the ground. We are able to get more from what we thought would have been exhausted a few years ago.
That might be a corollary to the point Hans was making. When you talk about mobility, you can't solely look at the rural Canadian economy as meaning establishing permanent plans that will be there for good. We have to get around the notion that there are going to be things that are economically viable that will involve some mobility and some movement. That doesn't mean the rural economy can't be sustained. The gas plant in Alberta will say that its best employee is a farm boy from Saskatchewan who is looking for off-farm income.
The Chairman: Let me give you a rationale for this. You go into a small community that might have 1,000 people. You're going to set up some sort of extraction facility and the town is going to grow to 10,000. As a result the town invests in substantial infrastructure. It creates a water system, a sewage system and other kinds of infrastructure. Then you walk away from it and the town is saddled with a twenty-year debenture.
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When it leaves, does that resource company have an obligation to that community to deal with some of those issues it's going to leave behind just like that?
Mr. Peirce: I don't think you'll find too many examples in the rural west where you have that kind of abandonment happening, where you have that type of infrastructure being built up and then being abandoned. Drayton Valley is a good example of that not happening.
Secondly, 20% of revenues - $5 billion annually - is going to governments from the oil and gas industry, mostly to provincial and local governments. So to the extent that infrastructure is being created, that infrastructure is being paid for in pretty significant measure by the companies that are coming into town, which isn't to say that I don't.... I agree with your point. I just think that to a great extent the point is being addressed whenever the type of development that calls for that type of investment is going on.
The Chairman: Okay. Basically, you're saying your doing it, but you're already doing -
Hans.
Mr. Konow: I think that companies do try to be reasonably responsible, but I also think the developments that take place in certain locations cannot be overburdened by long-term responsibilities or they won't happen at all. Again, it's for competitive reasons. There may be a choice between some of those short-term jobs and whether the investment is going to take place.
That said, where there have been very large investments - in the electricity field, I cite the much maligned James Bay agreement - there has in fact been a legacy of the creation of businesses that live on after the initial blush of construction has gone. Air Creebec and Cree Construction are two companies essentially funded out of the James Bay agreement that continue to exist. They were attempts to create a viable base of business in the region.
So the objective is really to create some of those long-term jobs that will continue to pay into the local tax base over time. It's not easy and they don't always flourish.
I think we're all sympathetic to the point you're making. The attempt should be made to leave behind long-term jobs that will continue to sustain the tax base.
The Chairman: I have a last question. Very briefly, if you were to ask me to talk to Paul Martin about changing one thing in the tax act that would allow you to increase harvesting in rural Canada - and I use the word ``harvesting'' in the broadest sense - what would it be?
John, you're first.
Mr. Klenavic: A continuing source of friction was the Public Utilities Income Tax Transfer Act, which existed as an attempt to level the playing field between Crown-owned and privately owned utilities. This act was cancelled by the federal government in the budget two budgets ago and has resulted in increased costs, particularly for consumers in Alberta.
It turned out that Alberta was the only province actually passing the money back to the consumers. And that was one of the reasons the federal government cancelled it. Let me just add that in the coming deregulation between hydro companies and gas companies, that could become an issue as they move closer together in terms of provision of energy services.
The Chairman: Chris.
Mr. Peirce: It's a timely question in view of the business taxation review committee announced by the Mr. Martin in the last budget.
My advice is don't: don't take the notion that the oil and gas industry is a sunset industry. You should recognize that it is a high-tech industry that continues to grow. So don't be chasing off after something like renewable energy sources to the exclusion of oil and gas without recognizing that the oil and gas industry will flourish as long as it's given the type of playing field that it's had in the recent past to further develop.
The Chairman: Hans.
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Mr. Konow: I would echo John's comment. The cancellation of the PUITTA tax return for the privately owned companies has had an impact on certain areas of the country, and continues to have an impact where some of the current crown corporations are being valued for potential privatization. It does have an impact on that.
The Chairman: Mr. Reed has a brief follow-up.
Mr. Reed: I have just a brief comment.
I think you should be examining the tax act in terms of electrical utilities. The only one I really understand is Ontario Hydro. They don't pay taxes, but private generators do. In some municipalities they are the largest taxpayer. So it's not a level playing field. When you're evaluating the price of electricity private generators should be paying, it seems to me that's just one passing consideration.
Mr. Konow: That's why I make the comment about PUITTA, which attempted, in some measure, to rebalance that. I would note, however, that utilities do pay sales and other taxes. While it's true they don't pay income tax, you might be surprised at the dividend flows and other charges made by governments ``in lieu of taxes'' they are called upon to pay. I'm not claiming it's an absolutely level playing field, but I am saying you need to do careful accounting before you see the tax burden versus tax relief crown ownership provides.
Mr. Reed: If we're going to get this into the rural development realm, those are things that are quite critical.
Mr. Konow: I'm entirely sympathetic with the point that a review of the tax implications of the ownership structure, private, public, would be useful to examine exactly what the truth of the matter is.
Mr. Reed: I have one brief and final question. Who do we have to lobby to persuade that hydraulic power is a renewable resource? Who do I have to hit over the head in this bureaucracy? Just give me a warm body and I'll go and do it.
Mr. Konow: I'm sure if you simply make your views known to the Minister of Natural Resources she would be more than sympathetic to the view.
Mr. Reed: Thank you.
The Chairman: Thank you very much, gentlemen. We certainly appreciate your testimony. We'll be meeting again tomorrow at 3:30 p.m., because the House isn't sitting on Thursday. We'll be hearing from the forestry sector and the mining sector.
We're adjourned.