State of the Canadian Electricity Industry - Renewal 2021

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the act or process of renewing

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CONTENTS INTRODUCTION: STATE OF THE CANADIAN ELECTRICITY INDUSTRY RENEWAL 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 CHAPTER 1 NAVIGATING THE PANDEMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Navigating the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Working Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 CHAPTER 2 ELECTRICITY: THE SAFEST BET TO GET TO NET ZERO . . . . . . . . . . . . . . . . . 15 Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 What is Net Zero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Building Back Durable and for Tomorrow . . . . . . . . . . . . . . . . . . . . . . . . 16 CHAPTER 3 TIME FOR A JOLT: MODERNIZING PROVINCIAL AND TERRITORIAL ENERGY REGULATORY SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4Ds: The Changing Electricity Landscape . . . . . . . . . . . . . . . . . . . . . . . . . 23 Call to Action: Roadmap for Regulatory Efficiency in the Electricity Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 CHAPTER 4 THE PEOPLE: WITHIN AND AFFECTED BY THE ELECTRICITY SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Pursuing Equity, Diversity and Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . 28 Addressing Gender Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Supporting the changing Canadian customer . . . . . . . . . . . . . . . . . . . . . 31 CONCLUSION: LET THE RENEWAL BEGIN . . . . . . . . . . . . . . . . . . . . . . . . . . 34

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INTRODUCTION: STATE OF THE CANADIAN ELECTRICITY INDUSTRY RENEWAL 2021 Every year at the Canadian Electricity Association (CEA), we step back, take stock and, in our best attempt at punditry, endeavour to describe the state of the Canadian electricity industry. Punditry is involved, given that to effectively describe the state of Canada’s electricity industry requires not simply describing its current state, but also looking to the future of the sector. And to look forward, we must consider as the starting point not only where we are, but also where we have come from. This time last year, virtually nobody (except for Bill Gates in his now-famous March 2015 TED Talk) would have predicted the arrival of and resulting devastating global impact of COVID-19. Since then, much has been written about the pandemic: how it laid bare the fragility of global supply chains; how it showed how unprepared society is for a sustained emergency; how some sectors of the economy, once thought stable, have been shown to be precarious and easily devastated by economic instability; and how there are limits to the surge capacity in our healthcare system. On the other hand, the pandemic has also shown the resilience of our critical infrastructure. The economic impact on businesses and individuals due to the economic downturn was also unprecedented. The Canadian economy contracted more rapidly in March and April of 2020 than ever recorded. And for some regions of the country, the economic hit from COVID-19 compounded already devastating economic impacts, such as historically low prices for oil and gas. Shuttered businesses and rising 4 | State of the Canadian Electricity Industry: Renewal 2021

unemployment impacted electricity customers’ ability to meet their commitments. As the snow melted, overdue utility bills led to a rise in deferrals and past-due customers. In some jurisdictions, programs were introduced to ease the pressure on customers, but, in some cases, this simply transferred the cash flow pressures from customers to Local Distribution Companies (LDCs). This occurred against a backdrop of increasing political and social upheaval taking place in the United States, our most important trading partner and the country with whom we share custodianship of the North American bulk electricity system. Even COVID-19 became a political issue in the discourse south of the border. The politicization of mask-wearing at a time when infections were on the rise led to a massive disparity in the rates of infection and deaths between Canada and the United States, with infection rates in the United States nearly four times higher than in Canada, and fatalities two-and-a-half times higher.

The result has been an unprecedented border closure: since March 21, 2020, “the longest undefended border in the world” has been closed to all but essential traffic. In addition to the challenges of the pandemic, American society has been attempting to come to terms with the social turmoil arising from the deaths of unarmed African Americans at the hands of police. Protests, counter-protests and weekslong, encamped demonstrations in major cities characterized the pre-election period in the United States. Political and social unrest culminated in the assault on the United States Congress weeks before the swearing-in of the new president and vicepresident. In early 2021, severe winter weather brought painful and, in some cases, deadly reminders of the criticality of electricity reliability in the United States, especially in Texas’s ERCOT region. Support from Canadian electricity generators, as well as Canadian crews travelling to assist in restoration, were evidence of the culture of mutual assistance baked into the DNA of the sector. The causes and impact of the outages will be studied and lessons learned will be identified, but the evolution and current state of the electricity system in that state has already become politically contentious.

While Queen Elizabeth may have popularized the term annus horribilis to describe her view of 1992, for many, that descriptor best sums up 2020.

Meanwhile, in Canada, the political situation has been less volatile but not without contention. While initially praised by commentators for its response to COVID-19, the federal government’s signals about its priorities into the fall and winter became increasingly opaque, with suggestions that priority should be placed upon a “green recovery,” on fiscal prudence, or on preparing for subsequent waves of the pandemic. The good news about the rollout of vaccines, initially met with significant relief across the country, has since been tempered due to concerns about the availability of supply and vaccine scepticism, which must be overcome to ensure herd immunity. The federal government, focused for much of 2020 on the pandemic, moved at the end of the year on its two signature policy priorities. Two of its 2019 election commitments—net-zero greenhouse gas emissions by 2050 and implementing the recommendation of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP)— were addressed at the end of the year with the introduction of two legislative frameworks. While Queen Elizabeth may have popularized the term annus horribilis to describe her view of 1992, for many, that descriptor best sums up 2020. That’s not to say there was nothing positive in the past year: a global push to develop COVID-19 vaccines was successful in short order, with several vaccines approved or moving through regulatory approval processes; society recognized the criticality of and gained greater appreciation for healthcare and other essential workers; every day brought forth stories of humanity and empathy in the face of adversity; and while some sectors reeled due to the effects of the pandemic, Canadians saw how resilient our country’s infrastructure is. Now that 2020 is in the rear-view mirror, we at CEA are taking stock of what we learned and are looking to the future. A year ago, we expected 2020 to be a year of transformation—and we identified it as such for the state of the industry at the time. Instead, 2020 was a year of resilience, which had been our theme the year before. If resilience is the capacity to recover quickly from difficulties, this past year showed the Canadian electricity sector’s resilience.

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And while the transformations that we expected to be on the brink of happening this time last year may have been put on pause, the fundamental and far-reaching social, environmental and political imperatives that will impact our future have not abated; they have simply been delayed as the world deals with the pandemic. In 2021, we will pivot to a new theme, that of renewal, which, by definition, means resuming an activity or state after an interruption, and the replacing or repairing of something that is worn-down or broken. As we emerge on the other side of the pandemic, we still find ourselves in a world in which: • A global consensus exists to address climate change, expressed through the Paris Agreement under the United Nations Framework Convention on Climate Change. • A Canadian government is commitment to implementing the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). • A rate regulatory regime is unable to accommodate emerging markets and technologies, and ill-suited to foster innovation. • A grid-edge is evolving to challenge traditional industry structures. • An evermore threatening cyber threat environment exists. We also see growing customer and societal expectations with respect to service, to consideration of environmental, social and governance issues, and to progress on equity, diversity and inclusion.

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01 NAVIGATING THE PANDEMIC Current Status The electricity sector is used to preparing for unforeseen challenges such as extreme and unpredictable weather, unanticipated maintenance and more. We plan ahead. We keep spares of critical equipment and reduce risks wherever possible. We practice what we do in extreme circumstances to be as ready as possible. And then we plan some more. COVID-19, clearly, is not a wildfire or hurricane. Normally, a problem is addressed in large part by throwing people at the challenge. That was precisely the wrong thing to do with the pandemic. The virus itself would not cause an outage but posed a risk to the system by threatening a scarcer resource: people. If a utility pole gets knocked down or a transformer needs to be replaced, replacements can be had. That is not true for workforces. When COVID-19 suddenly forced the world to adapt how we live and work, electricity companies pivoted rapidly to respond—not continuing to provide reliable power to Canadians (and critical infrastructure) was never an option. Thanks to a culture of safety, a commitment to secure and reliable power, and a resilient and adaptive electricity community, Canada’s electricity sector was—and remains—ready to deliver an essential service to Canadians.

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Navigating the Pandemic

Working Together

Safety first Like many workplaces, much of Canada’s electricity sector shifted very rapidly to a remote work environment. Zoom calls and kitchen tables replaced meetings and cubicles. This brought challenges that were faced by all organizations that pivoted to virtual work, including issues of mental health, cyber security, and maintaining an office culture. However, many jobs in the sector cannot be done remotely and required special precautions.

If safety is the first ethos of the sector, working together is the second. Members have existing arrangements to provide mutual assistance to assist in repairs from storms and extreme weather. This is true both within Canada and with the United States: if customers are without power, our collective objective is to help them get the lights back. So the electricity sector’s pandemic response benefitted from existing relationships and processes to respond to urgent challenges. This allowed the sector to share lessons learned, best practices and, where appropriate, share resources. Sectoral, governmental and international cooperation were central to this.

Safety has always been built into the culture of the electricity sector. Our work is essential but never without danger, be it from heights, heavy equipment or electricity itself. COVID-19 presented unique challenges for keeping employees and the communities we serve safe. Beyond the imperative to provide a safe work environment for staff, as a practical matter, operating the grid requires skill sets that are not easily replaced. Line workers, technicians in generation stations, and control centre staff are equipped with skills that are irreplaceable in the near term. Without them, there is no electricity system. The electricity sector adapted, finding ways to ensure we were able to continue operations safely. This included: • Limiting contacts among employees and creating cohorts/pods for work crews, meaning they work with the same people each day. • Limiting the number of people in vehicles when travelling to and from work sites. • Using backup control centres to allow for robust cleaning between shifts. • Sequestering critical workers on site in RVs or trailers to ensure safety. • Conducting regular temperature checks and, where appropriate, COVID-19 testing. This focus has paid dividends: Canada’s electricity sector has not experienced any COVID-19-related service interruptions. Nor have members experienced situations of pronounced COVID-19 spread within workplaces. 10 | State of the Canadian Electricity Industry: Renewal 2021

At CEA, we began coordinating information sharing between members just as the first COVID-19 cases were being identified in Canada. This included developing a list of key contacts from each member, carrying out regular information sharing updates with members through conference calls, and setting up a special web portal. In time, a weekly call of CEOs from across the sector was added. As a result, everyone in the electricity industry knew whom to ask when there were questions; they were also able to understand how peers were solving difficult problems by seeing what had worked elsewhere and what had not worked. The Government of Canada had a similar process. The National Cross Sector Forum (NCSF) is a government/ industry collaborative body under the auspices of Public Safety Canada that liaises and coordinates with and among critical infrastructure industries, including the electricity sector. CEA has long been an active participant in the organization, including serving as its current co-chair. Through regular virtual meetings, newsletters and a web portal, it collected information from industry and provided information across Canada’s critical infrastructures.

A similar process to what was happening in Canada existed across the border in the United States. The industry-led Electricity Subsector Coordinating Council (ESCC) played a convening role to connect industry and government. Beyond receiving regular updates from the United States government on pandemic response, the ESCC developed a series of “tiger teams” to develop and promote best practices for the sector. The result was a playbook, which is a body of work that allowed the power sector to prepare for and take action in pandemic response. Existing cooperation between jurisdictions and direct Canadian participation in the ESCC allowed Canadian and American electricity sectors to work together seamlessly. Beyond any formal activities, each of these structures allowed the sector to identify solutions to the challenges of the pandemic through less formal and more nimble means. Knowing who had information and who was making decisions was essential to ensuring that our sector was able to respond rapidly and continue operations. The Canadian sector was able to work together on issues such as identifying what “essential workers” means, ensuring supplies of PPE and testing equipment, and addressing financial needs.

Key takeaways: • Acting early and thoroughly is important. Incremental steps against the pandemic were ineffective and may have been counterproductive. • Existing relationships within and across sectors are essential for ensuring a timely and effective response. At CEA, we developed these relationships by working together regularly with members of the Canadian electricity sector, with the NCSF and with the ESCC. The exercises we did to prepare for events, even if unrelated to a viral pandemic, have secured a higher level of preparedness. • Communication of needs and expectations is essential. Our industry benefitted from having clear and precise asks of government—be it for required supplies, financial support or clarity in addressing pandemic restrictions. Government responses were less clear at times, in part because of the evolving nature of the situation. But the timeliness of communicating requirements and the clarity on what is expected is the cornerstone of preparedness and response.

Like many workplaces, much of Canada’s electricity sector shifted very rapidly to a remote work environment . Zoom calls and kitchen tables replaced meetings and cubicles.

The pandemic is not over yet. At the time of writing, Canada will have spent a year of continuously working with some measure of public health restrictions. Yet there is light at the end of the tunnel. The vaccine supply is increasing, perhaps not as fast as some might hope, and governments have committed that everyone that wants one will have received one by the fall. Many of the most vulnerable and essential workers have already received their “jab.” Our country will get through this, and many parts of normal life will return. Some of the changes that COVID-19 precipitates, such as workplace flexibility for office staff, will continue in some form. Even as normality returns, the electricity sector will continue to experience implications of COVID-19 for some time. An economic slowdown will have implications for customers of all sizes, which in turn will impact the sector. Ongoing health protocols on work sites will impact near-term costs and the complexity of projects. And supply chains of goods could continue to be disrupted in the near term. Though no one was ready for COVID-19, the electricity sector’s culture of safety and preparedness meant that we had the processes and practices in place to respond quickly and nimbly. The experiences of COVID-19 will serve to make the electricity sector more ready for future challenges, whatever they might be.

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Powering Through Together Electricity Leadership on Navigating the Pandemic

Powering Through Together: Electricity Leadership on Navigating the Pandemic, is a joint report from the Canadian Electricity Association and Electricity Human Resources Canada. The report is based on interviews and surveys with electricity company senior management from coast to coast to coast. It looks at electricity sector experiences during the pandemic so far, and provides recommendations for moving forward.

The report highlights how experiences responding to the pandemic are already providing lessons on how the sector can work even better in the future. For example, the pandemic has offered lessons in creating a more resilient and mentally healthy workforce. The report also emphasizes that the electricity sector tradition of leveraging partnerships—within the sector, with government and regulatory partners, with other sectors, and with our counterparts in the United States—helps to ensure customers can depend on reliable power and that employees can remain safe. The pandemic is not over yet; there is still much to think about, including non-pandemic-related challenges and opportunities. That said, the experiences COVID-19 will serve to make the sector more ready to deliver a brighter future for Canadians as we look ahead.

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02 ELECTRICITY: THE SAFEST BET TO GET TO NET ZERO Current Status A government funded think tank, the Canadian Institute For Climate Choices, analyzed 60 pathways that it said could achieve net zero greenhouse gas (GHG) emissions by 2050. It characterized a variety of carbon-reduction actions as either “safe bets” or “wild cards.” All potential actions related to the increased use of electricity were in the safe bets category. 2021 looks to be the year when Canada really gets moving on addressing climate change. This year, the House of Commons is expected to pass legislation that will set a target of 2050 for achieving net zero emissions. The federal government has also made clear that building back better will be a feature of any pandemic economic recovery effort, including measures to address climate change. A down payment on this in December 2020 featured commitments for billions in funding for grid investments, electric vehicles and energy efficiency. A new climate plan, also released in December, identified the path the government will take. But it is not just Canada’s federal government that is now more aggressively addressing climate change. The United Kingdom has also set a path to net zero by 2050, and the European Union is using economic recovery efforts to grapple with climate change. Closer to home, the new Biden administration describes climate change as one of the four converging crises facing America, and has committed to building more renewable power to make the United States grid carbon-neutral by 2035.

Since 2000, the Canadian electricity industry has reduced its GHG emissions by


Other industries are also shifting in this direction. Shell announced that it expects to have reached peak oil production; and General Motors, which has historically resisted efforts for more stringent fuel efficiency, committed to have 30 EV models for sale by 2025. Canada’s electricity sector will be key to our country achieving net zero. Our country’s sector has already made substantial reductions in its emissions profile, and non-emitting electricity will be central to moving the rest of the economy along. But how do we do it? State of the Canadian Electricity Industry: Renewal 2021 | 15

What is Net Zero Net zero aims at having Canada, on balance, not emit any GHGs. That does not mean that nothing will emit GHGs, just that they will be offset by reductions elsewhere or through carbon capture technology. The federal government has committed to achieving net zero emissions by 2050.

Canada starts in a strong position. Our country’s electricity grid is one of the cleanest in the world. More than 80 percent of Canada’s electricity is already non-emitting, and the sector has reduced emissions by more than 47 percent since 2005. The sector has already done more to decarbonize Canada’s economy than any other sector, and will play an even larger role in the future. A strong position does not mean our country’s electricity industry can rest on its laurels. A Healthy Environment and A Healthy Economy, the Government of Canada’s new climate plan, projects that achieving net zero will mean two to three times as much clean power as Canada currently produces. To achieve this, the federal government will need to enable building capacity immediately.

Breakdown of Canadian Electricity Generation by Source, 2018


Building Back Durable and for Tomorrow

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Fortunately, there is movement to expand the electricity system. The Government of Canada has been clear that any post-pandemic stimulus efforts will be structured not just to get Canadians back to work, but also to advance broader issues, including addressing climate change. If we are going to build back, it makes sense to build back better.









Non-Hydro Renewables


Today, Canada emits about 730 Mt of GHGs each year. How does the government balance this as the economy and population grows? This is no small lift, and the actual path to net zero will depend on how and when modern technologies emerge and become economically viable. No matter what, though, getting to net zero starts with more electricity.

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As noted, the Biden administration is also placing a high priority on GHG emissions, flagging climate change as one of the four converging crises facing America. Already, the United States has taken action by re-joining the Paris Climate Accord; and the first day Executive Order that directed the federal government to advance climate goals commits to a non-emitting electricity sector by 2035. And with Democratic Party control of both the House of Representatives and the Senate, there is a likelihood of broader legislative changes. This is a unique opportunity, with both Canada and the United States moving in the same direction on climate issues and electricity. Working together, we can advance North America as a powerhouse of clean energy, providing reliable and affordable electricity throughout.

Where should Canada prioritize investments? In 2020, CEA identified a list of actions for achieving net zero. Collectively, they represent a framework for developing a focused electrification plan to help achieve net zero. This framework should: This should: • Reflect regions. As with all things Canadian, federalism means that we have 13 different electricity systems. The needs of each are unique, as are opportunities to connect to each other. A flexible approach is needed. • Ensure customer affordability. Every action should be measured against how it affects the price that Canadians pay for electricity to ensure that these actions do not inadvertently impact affordability.

• Help scale-up nascent technology. Establish partnerships with industry partners to invest in utility-scale battery storage pilots, small modular reactors (SMRs), hydrogen fuel, micro-grids and other distributed energy resources (DERs) to efficiently use low-carbon energy resources and prepare for the grid of the future without creating adverse impacts on electricity prices or reliability of the system. • Commit to national and international emissions trading. Emissions credit trading will be critical to putting the “net” in net zero. Canada must develop national and international emissions trading regimes and establish a transparent, cost-effective and verifiable credit creation system that conforms with 2050 goals.

• Promote efficient use of energy. Engage with residential, industrial and commercial electricity customers, and other stakeholders, to support energy efficiencies, including updating of energy efficiency codes and standards.

The Government of Canada’s new climate plan projects that achieving net zero will mean two to three times as much clean power as Canada currently produces. To achieve this, the federal government will need to enable building capacity immediately.

• Support research, development and commercialization. The electricity sector needs policy support and clear regulatory pathways for innovative technologies that could develop new markets for Canada, including intelligent grids, utilityscale storage, carbon capture, utilization and storage (CCUS), hydroelectricity, SMRs, hydrogen and other technologies. Accelerating research, development and deployment (RD&D) means expanding the role for federal and provincial/territorial grants, tax credits and investments in emerging low-emissions technologies and ancillary services to enable an intelligent electricity grid of the future. Where the government has introduced implementation strategies, they should be appropriately funded. • Modernize provincial and territorial regulatory models. Electricity markets and rates are regulated by provincial/territorial regulatory commissions. These legislative frameworks must be updated to allow for electricity industry innovation and diversification of activities in support of efficient electrification. A subsequent chapter addresses this in greater detail. • Invest in climate resiliency. As Canada relies more on electricity to provide our energy needs, our country must make sure the system remains reliable. The federal government should work with local governments and stakeholders to accelerate current efforts to understand long-term climate variability projections and facilitate utility investments in climate change adaptation and grid resiliency. Canada’s electricity grid is growing, driven by consumer demand and evolving technology. For Canada to reach net zero, our country will need to develop policies that encourage the grid to grow even further. Canada’s electricity sector invests billions of dollars annually to upgrade and maintain the grid. Targeted support from government, including clear policies around electrification, will help expand further and faster while ensuring the system remains sustainable, reliable and affordable.

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Emerging technology Grid-Scale Storage: The ability to store electricity for later use will be an important asset as Canada increases demand and changes how it generates power. Storing unused capacity for later will allow for more efficient use of variable renewables and increase system reliability. Small-scale examples are installed in Canada already, including in remote communities, where they help reduce the use of diesel. Small Modular Reactors (SMRs): SMRs offer the opportunity to provide affordable, dispatchable electricity where it is needed. They could be used to backstop variable renewables such as wind and solar, replace diesel generation, and support heatintensive industrial processes. They are still a nascent technology, but they represent an opportunity to provide non-emitting baseload power in the future. A market for SMRs will develop around the world, presenting an opportunity for Canada’s nuclear industry. Hydrogen: Hydrogen might be the simplest atom, but it is a more complex energy solution. Produced with non-emitting energy or in conjunction with carbon capture, it is a clean fuel with a variety of uses. This makes it a bit of an energy chimera— excess wind power that makes hydrogen, which is then turned back into electricity when demand warrants is energy storage. Hydrogen, which is used to fuel heavy transportation and industrial processes, or is mixed with traditional natural gas, amounts to electrification of those sectors. Carbon Capture, Utilization and Storage (CCUS): Building the grid of tomorrow will not just mean scaling up new non-emitting generation technologies. It is also going to have to mean identifying ways of making existing technology nonemitting. Carbon capture, utilization and storage will help Canada’s sector put the “net” in net zero by diverting carbon emissions created from electricity generation from entering the atmosphere. Canadian electricity companies are leaders in CCUS already. In 2014, SaskPower’s Boundary Dam facility became the first power plant in the world to integrate carbon capture and storage technology. The next step is to move beyond just storing carbon and begin using it productively. Capital Power expects to begin commercial production of carbon nanotubes at its Genesee Generating Station in late 2021. Carbon nanotubes—which are conductive, stronger than steel, lighter than aluminum, and can be used to make materials such as concrete stronger—offer an opportunity to turn waste into a high-value product. CCUS will help ensure a clean, stable and balanced generation mix, complementing variable renewables with baseload power.

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MODERNIZING PROVINCIAL AND TERRITORIAL ENERGY REGULATORY SYSTEMS Current Status 2020 was an inflection point. It was a year when the entire world felt a tremendous jolt to its conventional ways of thinking and doing things. This jolt, caused by the onset of the COVID-19 pandemic, reminded us of the importance of being agile and of thinking outside the box to enable flexibility in anticipation of future challenges and opportunities. The time has come for governments, particularly at the sub-national level, to prepare for the future by modernizing the frameworks that regulate their respective energy sectors. While wholesale change to the regulation of provincial and territorial electricity systems is not required, there is an urgent need to update regulatory mandates to enable clean energy innovation; support electrified transportation and related charging infrastructure; facilitate the integration of information and communications technologies to optimize operations; and modernize the electricity grid to efficiently meet the needs of customers. Modernizing the current regulatory construct is necessary to address the evolving expectations around decarbonization, decentralization, digitalization and democratization (4Ds) of the electricity system. While these are complex issues, provincial and territorial governments must start the regulatory change process promptly. Failure to act may not only throw a wrench into industry’s progress, but also contribute to our next catastrophe—global climate change and its associated impacts and vulnerabilities on people, communities and businesses.

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In fact, the lessons learned from the COVID-19 pandemic have accelerated both the urgency and desire to reduce global anthropogenic GHGs through energy sector transformation. As noted in chapter 2, many countries, including Canada, have already made international commitments to exceed their 2030 climate change targets and aim for net zero emissions by 2050. The same countries are now investing billions of dollars in existing and emerging clean-tech solutions—including smartgrid technologies, electric vehicles, hydrogen and small modular reactors—to accelerate this transformation, while also supporting economic recovery. Thus, regulatory innovation to enable the integration of these technologies is a major imperative. While the federal government has an important footprint in certain areas of the electricity sector, constitutionally the bulk of legislative and regulatory authorities are sub-national.

The policy levers determining the function of wholesale and retail electricity markets, cost of service to customers, and key infrastructure investment decisions are held at the provincial and territorial levels of government. In most jurisdictions, energy regulatory boards, commissions or administrative tribunals adjudicate such matters. Their mandates are guided by provincial/territorial legislative frameworks, which have traditionally been focused on delivering the lowest marginal cost of service when assessing infrastructure investments. For much of the past century this system has served its purpose well. However, with growing importance now attached to broader societal considerations, such as reducing carbon emissions and other pollution, absent modernization, these regulatory systems have become poorly equipped to address the challenges of the day, not to mention of the future. A significant gap has resulted between how the electricity sector is regulated and how it should be regulated. The current regulatory systems were simply never intended to address broader policy objectives.

2021 Outlook and Implications for Regulatory Policy •

The federal government is expected to accelerate climate action through federal funding for electrification, storage, hydrogen, small modular reactors, smart-grid technology, distributed energy resources and other renewable energy sources. Electricity companies need the support of provincial and territorial governments and regulators to capitalize on these initiatives and effectively integrate these technologies.

With the election of a new United States administration, joint action on climate change between Canada and the United States is more likely. Canadian electricity companies will need regulatory flexibility to rapidly adjust to any policy changes, including new transmission-related initiatives.

The world is moving toward greater integration of distributed generation resources, renewable energy and storage options. Governments need to provide the frameworks required so regulators can support utility innovation to integrate these resources, including convergence of information technology and operational technology systems, as appropriate, to ensure resiliency, adequacy and reliability of the distribution system.

There is a rapid growth in demand for electric vehicles and fast-charging infrastructure. Regulators need the ability to allow electricity companies the opportunity to invest in charging infrastructure (where that is not the case now) and address rate design issues.

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Many electricity companies in Canada are uniquely positioned to support the growth in electric transportation—not only through power production, but also through strategic investments in distribution and fast-charging infrastructure.

4Ds: The Changing Electricity Landscape The electricity industry is undergoing consequential change driven by the evolving customer and societal expectations around decarbonization, decentralization, digitalization and democratization. • Decarbonization is the most prevalent trend in the industry, given the urgency to act on climate change and the meteoric rise of clean energy investments. • Decentralization is driving the adoption of microgrids and other distributed energy resources, especially in remote communities with limited access to provincial and territorial grids. • Digitalization is propelling tremendous improvements in communications technology to optimize system operations, using advanced technologies such as artificial intelligence, blockchain and robotics. These technologies have reduced costs and enabled greater efficiencies for both energy producers and consumers. • Democratization in some jurisdictions is enabling new players to enter the electricity market. These trends are having a transformative impact on the electricity industry. However, there is a lack of consideration for companies pivoting to address these emerging trends within the existing rateregulated systems.

Although many electricity companies have started to build innovation-based capacities and business offerings through non-regulated subsidiaries, there is a public imperative to allow these innovations to occur within the rate-regulated systems as well. The failure to allow greater risk-taking and innovation by electricity companies to adapt to these changing conditions would be a hindrance not only to industry’s progress and modernization, but also detrimental to customers in terms of the rates they pay, how services are delivered, and the energy management options they have. The most significant issue within this 4Ds transformation is the evolving government and societal expectations around electrification of transformation. This shift to electrification of transportation is accelerating worldwide, and the ability of the electricity sector to effectively meet this growing demand is pivotal to its long-term success. Many electricity companies in Canada are uniquely positioned to support the growth in electric transportation—not only through power production, but also through strategic investments in distribution and fast-charging infrastructure. This again requires greater regulatory innovation through provincial and territorial government directives, in some jurisdictions more than others, to create appropriate rate classes for different charging needs and allow companies to rate-base upfront infrastructure costs associated with deploying fast charges. State of the Canadian Electricity Industry: Renewal 2021 | 23

Call to Action: Roadmap for Regulatory Efficiency in the Electricity Sector Federal Government • Establish a mechanism for federal/provincial and territorial electricity policy coordination: The current federal/provincial and territorial ministerial forums on energy (Energy and Mines Ministers Conference, or EMMC) and environmental issues (Canadian Council for Ministers of the Environment, or CCME) have not been successful in driving regulator approval of innovative electricity industry projects. Thus, it is imperative that the two forums prioritize this issue at their upcoming meetings, consider creating a joint consultative mechanism to coordinate policy responses to issues of national interest, and secure provincial and territorial buy-in for subsequent directives to energy regulators. The federal government is well suited to collaborate with provinces and territories on issues such as smart-grid investments, small modular reactors, battery storage, electrification and hydrogen. Provincial and territorial directives would help electricity companies advance the policy objectives of the respective governments. • Simplify innovation-related funding: Instead of creating winners and losers through burdensome government funding application processes, identify priority issues (e.g., energy efficiency, electrification, hydrogen), find delivery agents (e.g., electricity companies) and allocate federal dollars based on an appropriate formula (e.g., on a per capita/customer basis). This would be a win-win-win proposition for government, companies and customers. Provincial and Territorial Governments • Issue policy directives to regulators: Go beyond traditional electricity-related statutes (e.g., Energy Board Act) and issue timely policy directives to encourage regulatory innovation and related processes. This would allow regulators to consider innovative electricity sector projects to meet government policy objectives, support research and development efforts, enhance nimbleness and agility in the regulatory processes, and reduce time and costs associated with rate applications. • Establish non-adversarial regulatory systems: This would enhance trust and collaboration among key players, with the aim of achieving government policy priorities and providing value to customers. Provincial and Territorial Energy Regulators • Take a system-based approach to regulatory approvals: Consider the role of the electricity industry in meeting national decarbonization goals and allow for innovative initiatives that would help achieve broader environmental, social and economic goals. • Incentivize digital transformation: Current regulatory constructs do not incentivize investments in digitization. For instance, cloud services, because they are not bricks and mortar investments, are often not eligible for regulated rates of return; therefore, investments in these systems are not prioritized, despite such investments often offering cost-savings and efficiency benefits. 24 | State of the Canadian Electricity Industry: Renewal 2021

Provincial and Territorial Regulatory Pain Points • Regulatory systems lack the nimbleness and agility needed to respond to international, national, provincial and territorial policy directions and trends. Mandates should also include broader social objectives, such as reducing carbon emissions. • The current regulatory constructs hinder consideration of innovative initiatives, with higherrisk profiles based solely on economic variables and potential cost to customers. There is a lack of appreciation for environmental and social factors associated with innovation. • Regulators are hesitant to support research, development and demonstration projects due to the possible failure of future innovations. Like those in other sectors, electricity companies should be enabled to make regulated investments in RD&D. • Unnecessary costs are incurred (and passed on to customers) as a result of regulatory systems that actively promote adversarial proceedings, pitting electricity companies versus intervenors. • Regulatory filings by electricity companies face significant delays, and the resulting financial costs ultimately impact ratepayers. • There is a lack of recognition that the customer hierarchy of issues has changed. As much as customers care about affordability, they also value environmental, reliability and resiliency attributes, and the ability to manage their energy use. Price is just one factor in the hierarchy.

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AND AFFECTED BY THE ELECTRICITY SECTOR Current Status 2020 was a year of social upheaval, as governments, politicians and all Canadians looked inwards at their own social biases and potential positions of privilege. Beyond the health crisis caused by the pandemic, the George Floyd protests prompted by police brutality and social inequality in the United States reverberated around the world. In Canada, protests occurred in every province, territory and major city. Every industry across Canada must now consider how to respond to the social turmoil that was brought to centre stage in 2020. The past year saw the advancement of several timely initiatives at CEA, including the finalization of a commitment to working with member companies on Equity, Diversity and Inclusion (ED&I) in the workplace; closing the gender gap in the skilled trade workforce of the industry; and fostering a greater understanding of the changing Canadian customer.

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Pursuing Equity, Diversity and Inclusion Canadian Electricity Association’s Commitment to Equity, Diversity and Inclusion (ED&I) Promote Inclusive Work Cultures: •

CEA members recognize the critical role inclusion plays in effective ED&I programs.

Focus on Talent and Equal Opportunity: •

CEA members recognize the importance of talent recruitment, succession and retention without discrimination or bias.

Promote Community Engagement: •

CEA members understand the importance of being active members of the communities they serve, and establishing meaningful relationships with community-based organizations.

Support Education and Awareness: •

CEA members recognize that education plays a key role in addressing unconscious bias, stereotypes and other barriers to achieving ED&I goals.

Promote Sustainable Procurement: •

CEA members can be progressive voices to further embed ED&I into supply chains.

To read the full commitment, click here.

The Canadian electricity sector is hard at work addressing social inequality, gender gaps, Indigenous reconciliation and the diversity of the workplace. Central to the sector’s exploration of these issues is the changing Canadian customer and the sector’s evolving workplace. In November 2020, CEA’s Board of Directors approved an ED&I statement that solidifies two years of work in the area and shows consensus around these critical issues that affect Canada’s electricity workforce. While the industry is making progress on attracting, retaining and promoting diverse employees, there remain opportunities to improve. Over the next five years, CEA will work with member companies to build and nurture a sector in which ED&I is embedded in member business strategies. Consensus around this statement from the electricity sector has a substantial impact. By sharing best practices, establishing partnerships among organizations and creating a digital community of practice, the sector will accelerate tackling systemic issues of race and gender, while promoting practices of diversity and inclusion.

Addressing Gender Diversity In 2019, the Canadian Electricity Association became a signatory. Equal by 30 is a global initiative dedicated to equal pay, equal opportunity and equal leadership for women by 2030. Twelve nations and hundreds of individual organizations have signed on. With Natural Resources Canada leading the initiative, CEA has made multiple commitments, including creating opportunities for growth, serving as a venue for sharing best practices on gender equity, and promoting gender diversity and equity within the electricity sector. Employing women in leadership positions is only one aspect of gender diversity within the energy sector.

In 2020, CEA’s Distribution Council undertook a study of women in the skilled trades, barriers to entry, and a path forward for education and training programs. Research on the broader skilled trades sector revealed that women currently make up less than 10 percent of the Canadian workforce. This needs to be addressed for both business and societal reasons. According to a 2016 report by the Canadian Apprenticeship Forum, the numbers are even smaller when it comes to women of colour: half of red seals trades have no visible minority women whatsoever. The other half has between one and 12 percent. Several historical and cultural reasons have led to the current situation. They include recruitment practices, male-focused support networks, limited numbers of female mentors, and practices with built-in biases. Encouragement for girls to take STEM-related classes in high school can open the door to greater opportunities.

Electricity companies are successfully promoting more women in the trades by: • Changing recruitment practices; • Building support networks; • Developing education and training programs; and • Assessing tools, equipment and attire. The electricity sector knows that an increased number of women within the skilled trades will lead to more organizational strength through improved diversity, inclusion and collaboration. The social upheaval of 2020 amplified the need to create a diverse workforce, ensure a respectful and psychologically safe workforce, and acknowledge that diversity and inclusion practices make organizations stronger.

Within the electricity workforce, companies need to prioritize equity, inclusivity and diversity, and ensure all workers feel safe, supported and empowered.

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Supporting the changing Canadian customer It is not just the electricity sector workforce that is changing. In 2020, surveys revealed that the Canadian customer—the consumer of electricity—is also changing. The COVID-19 pandemic has shifted preferences and interest in new technologies, changing the way electricity companies interact with and respond to customer needs. CEA members were quick to respond and support customers impacted by the pandemic by halting disconnections and collections activities, offering payment options and increasing payment flexibility through targeted programs. One utility launched a COVID-19 relief fund that allowed eligible customers who have experienced job loss to receive three months of credit on their hydro bills. Electricity suppliers have a more direct relationship with larger commercial and industrial customers. Throughout the pandemic, they have worked with these customers on a one-to-one basis to assess individual needs and provide support accordingly. CEA members helped by providing flexible payment options and payment deferrals, and by suspending disconnections and collections activities. Special funds and targeted programs were also established. One member returned security deposits to help businesses with cash flow issues, and another gave eligible small businesses that needed to close due to COVID-19 up to three months of electricity charges waived. The Canadian Electricity Association 2020 National Customer Survey demonstrated that these direct actions by utilities helped increase residential customer satisfaction, with important gains made in brand trust, corporate citizenship, transparency, caring about customers and consulting customers before making decisions. The general economic environment and the government’s handling of the pandemic in 2020 also helped customers view their electric utilities in a positive light. Customers are starting to see more value for money regarding electricity. 2020 delivered improvements in perceptions of price and value. The pandemic continues to be a challenge for everyone. The 2020 Commercial and Industrial (C&I) survey found 81 percent of C&I customers felt somewhat confident

that their organization would survive a second pandemic wave; 16 percent were not confident. This is a significant challenge for utilities, as Canada struggles with economic recovery and timely vaccine rollout. However, our results show that C&I customers saw a role for utilities in economic recovery. Sixty-nine percent supported utilities providing targeted rate assistance to companies directly impacted by COVID-19, and two-thirds support utilities looking for opportunities to buy Canadian. A majority of businesses support moving up planned infrastructure investments to create jobs now. This support is highest in the manufacturing/industrial sector (62 percent). Against this backdrop, CEA surveys also delved into the views of Canadians regarding further greening of energy use, against a backdrop of recent government announcements on net zero. In addition to improvements in customer perceptions of price and value, results show that customers support shifting to a greener economy. Three in five support further electrification; of those that support this shift, a majority tend to be more familiar with the electricity system. As a result, communicating with customers, as well as governments and regulators alike, on how the electricity system operates, the impending challenges faced by the industry in achieving net zero by 2050, as well as educating customers on innovations already underway to achieve further emissions reductions, is key in 2021 and beyond. Within the electricity workforce, companies need to prioritize equity, inclusivity and diversity, and ensure all workers feel safe, supported and empowered. Much work is needed to build back better, and skilled people of diverse backgrounds are needed to fill the gap. Organizations should continue to promote opportunities for women to join support groups, find mentors and create inclusive environments. The focus of electricity service providers in 2021 is to be more aware of the changing Canadian customer. Providers will take opportunities to apprise customers of the value of electricity, demonstrate efforts to decarbonize to support customer expectations and government climate commitments, and respond appropriately to disconnects and other COVID-19-related customer impacts. State of the Canadian Electricity Industry: Renewal 2021 | 31

Indigenous Reconciliation The Canadian electricity industry is committed to building strong, mutually beneficial relationships that advance economic reconciliation with Indigenous peoples. Over the last several decades, CEA members have demonstrated their commitment to reconciliation through a range of initiatives, including conducting meaningful early consultations with local Indigenous communities; providing equitable access to employment, education and training; taking part in infrastructure project partnerships/joint ventures; and providing intercultural competency training for company management and staff. These initiatives are fundamental in moving toward genuine reconciliation with Indigenous peoples. The Truth and Reconciliation Commission report, released in 2015 and supported by the Government of Canada, outlines 94 calls to action that urge all levels of government and the corporate sector to work together to change policies and programs in a concerted effort to repair the harm caused by residential schools and move forward with reconciliation. Specifically, recommendation 92 of the report calls upon the private sector to commit to meaningful consultations; respectful relationships; providing equitable access to employment and training; and educating management and staff on the history of Indigenous peoples.

This recommendation aligns with the electricity industry’s commitment to working with Indigenous communities. CEA’s 2020 report, Taking Action: Collaborating with Indigenous Communities, highlights some of the key CEA member initiatives, including Indigenous-based cultural competency training; employment and training opportunities to local Indigenous communities through scholarship grants and Indigenous-specific job boards; and dedicated engagement and involvement within Indigenous communities and a commitment to seek early and ongoing meaningful engagement. The electricity industry is also a major economic driver for many Indigenous communities across Canada. This includes joint ventures, supplying goods and services, and employment and training. According to Accelerating Transition, a recent report by Indigenous Clean Energy, there are nearly 2,500 Indigenous-affiliated clean energy projects in operation or in planning stages, including 197 mediumto-large renewable generation projects. Looking ahead, the Conference Board of Canada estimates that the electricity industry will need to invest roughly $1.7 trillion by 2050 to ensure a resilient, lowcarbon energy future. This unprecedented investment the industry must undertake represents a tremendous opportunity for Indigenous communities.

Long overdue, Canada is certainly on a new path to reconciliation with Indigenous Peoples. Not only have the political, legal and policy landscapes toward recognition of Indigenous rights and the re-affirmation of relationships between Canada and Indigenous Peoples grown significantly over the last few years, but also has Indigenous inclusion within the energy industry. Thus, CEA supports the Government of Canada’s recent efforts to advance reconciliation with Indigenous peoples, which includes implementing the spirit and intent of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) through Bill C-15. However, the implementation of such an international declaration requires study, consultation and deliberation. In this regard, CEA believes it is important that the intent, scope and process for implementing UNDRIP are clearly defined and delineated in the implementing legislation. Such clarity would enable the industry to continue to work together with Indigenous Peoples and continue to work toward genuine reconciliation.

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CONCLUSION: LET THE RENEWAL BEGIN 2020 laid bare many weaknesses and deficiencies in Canada. Above all, Canadians discovered their country is unprepared to weather a sustained emergency. Some large sectors of the economy are still in precarious situations. Healthcare lacks the surge capacity to handle widespread illness. Many supply chains include fragile links. That is the bad news. Canadians also learned the country’s critical infrastructure is resilient. Resilience hinges on two factors: first, the capacity to withstand difficult conditions, which the electricity industry showed in 2020; and second, the ability to renew after a period of prolonged stress, which the industry must exhibit in 2021. Renewal means applying the lessons learned from the COVID-19 pandemic. The electricity industry learned the enduring value of working together throughout the sector, country and continent; learned the need to communicate clearly with governments about needs and expectations; and learned again the benefits of safety and preparedness, which will enable the industry to respond quickly and nimbly to the next crisis. Renewal means improving and enlarging the electricity grid now. For Canada to achieve net zero greenhouse gas emissions by 2050, the industry needs to invest billions of dollars annually to upgrade the electricity grid. At the same time, Canada needs to put in place policies that encourage the sector to expand the grid quickly, reliably and affordably. Renewal means the modernization of the provincial and territorial energy regulatory frameworks. If the Canadian electricity industry is to meet the evolving societal expectations around decarbonization, decentralization, digitalization and democratization (4Ds), provincial and territorial governments must provide greater guidance and direction to their energy regulators. Modernization of these regulatory frameworks will not only enable greater ingenuity in the industry, but also help create a more reliable, safe, resilient, flexible and cost-effective system for Canadians. Renewal means industry businesses must think even more clearly about the needs of others. All businesses must place reconciliation with Indigenous peoples at the forefront of operations. They also must attract more women to their ranks and make sure these recruits are safe, supported and empowered. And sector businesses must continue to engage with customers to understand their changing preferences and respond to their evolving needs. Equipped with this understanding of renewal, the Canadian electricity sector and its partners must and will devote 2021 putting this knowledge into action—not merely to recover lost ground, but more so to build back better than ever before. Let the renewal begin. 34 | State of the Canadian Electricity Industry: Renewal 2021

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