SYNOPSIS and ARCHIVES
Energy '99
original Agenda in PDF

Introduction
Over 150 people attended Energy '99, our fourteenth annual technical and business seminar held at the Hotel Vancouver on January 21, 1999.

The theme of this year’s seminar was "Integration of Regional Energy Markets."  This was a natural extension of last year’s theme which dealt primarily with convergence of gas and electricity markets. However, the focus this year was on the geographic expansion and integration of markets and B.C.’s competitive position within those markets.

Evidence of regionalization is all around us. One of the strongest indications of market integration is the convergence of prices – that is the increasing tendency of prices in different regions to move in a parallel fashion, with interregional differences sustained only by transportation and other transaction costs. Even in electricity markets, which have tended to be more closed than natural gas, there is growing evidence of price convergence, either through expanded trade or through "backdoor" arbitrage – for example, basis differentials between gas and electricity prices and competition for investment and jobs created by mobile, energy-intensive industries.

Where regional price differentials persist, we see pressure from producers in low cost/low price jurisdictions to remove trade barriers and add new transport capacity. This is supported on the other side by consumers who want access to lower-cost supplies.

Regional market centres or hubs have evolved. As a result of the increased depth and liquidity of physical markets at these hubs, financial instruments have emerged to manage risk and arbitrage opportunities based regional or cross-commodity price differentials.

The rate of mergers and acquisitions has accelerated. Competition has caused companies to seek cost reductions through economies of scale and scope. Increased local competition has forced companies to expand into other jurisdictions in an effort to replace lost market share in their traditional markets. New investment and trade patterns have also emerged. Transportation capacity has increased (and continues to increase) in response regional price differentials. Production capacity in low cost regions has increased to take advantage of expanded markets. Trans-boundary trade has flourished (witness the growth of Canadian gas exports).

At the retail end we are beginning to see the evolution of universal service menus and regional, national or continental marketing programs. The telecommunications sector provides a reasonable foreshadowing of this trend.

In some cases governments and regulators are actually encouraging regionalization - as a means of expanding markets for local producers and a means of enhancing efficiency, service and choice for local consumers. In jurisdictions, it is happening in spite of government’s and regulator’s best efforts to thwart it.

Regardless of the drivers or barriers, regionalization poses significant challenges for all stakeholders in the industry. High cost players face new competitive pressure. Low cost producers face challenges in raising capital and developing new skills to take advantage of emerging opportunities. Consumers face a barrage of marketing campaigns and a dizzying array of new choices (and risks). Regulators and policy makers face increasing pressures to remove barriers to trade; to harmonize regulations, taxation, and royalty regimes to prevent distortions; and to strengthen cross-jurisdictional institutions/regulations to facilitate real efficient competitive. Policy makers must also address numerous equity considerations. For example, high cost jurisdictions face the prospect of stranded costs and low cost jurisdictions (such as Alberta and B.C.) facing the prospect of so-called stranded benefits.

What does all of this mean for B.C.? Where and how can B.C. add the most value in regional markets? Should B.C. encourage regional integration as a means of exploiting those competitive advantages? Or should B.C. seek to slow regionalization as a means of protecting local producers or consumers?

We assembled a cross-section of experts and industry participants to discuss and debate the issue of regionalization and its implications for British Columbia. We have included their biographies here.

Morning Session
The morning session began with an Outlook for North American Gas Markets. Robert Baron from ICF Kaiser presented an overview of the potential impacts of environmental policy, regulatory changes in the U.S. electricity industry, and increased take-away capacity from the Western Canada Sedimentary Basin on trade patterns and gas prices across North America. (Click here to see a copy of Robert Baron’s presentation).

George Given from the Canadian Energy Research Institute provided an overview of initial results of their multi-client study on the potential impact of alternative electricity restructuring scenarios on the North American gas industry. (Click here to see a copy of George Given’s presentation).

The second half of the morning focussed on Trade Patterns and Regional Price Dynamics in Bulk Electricity Markets. David Branchcomb from Henwood Energy Services examined the evidence for convergence of electricity prices in the western U.S. and Canada. (Click here to see a copy of David Branchcomb’s presentation).

Robert Michaels from California State University summarized the findings of a recent study he completed into the causes and implications of the price spikes observed in electricity markets in the U.S. Midwest last summer. (Click here to see a summary of Robert Michael’s paper or a copy of his presentation.)

Lunch
During the lunch program, Dave Porter, Chair of British Columbia’s new Oil & Gas Commission, provided an overview of the Commission and recent events since his appointment on October 27, 1998.

Also at lunch, Mike Sinclair presented the third annual CIE Energy Awards. These awards are intended to recognize excellence in energy-related activities in British Columbia. Three sorts of activities are recognized: student research; research and development; and implementation of innovative energy technologies or programs (DSM, alternative energy, etc.). This year’s winners were:

CIE Energy Scholarship Award – Rose Murphy, MRM Candidate School of Resource and Environmental Management, Simon Fraser University for research on Reduction of GHG Emissions from the Canadian Transportation Sector.

CIE Energy Research and Development Award – BC Research Inc. for their Adaptive Hybrid Electric Vehicle Control System.

CIE Applied Energy Innovation Award – Taylor Munro Energy Systems Inc. for the Lillooet Recreation Centre ESCo Solar Pool Heating Installation.

Mike also announced a new award.  The Vancouver Branch of the Canadian Institute of Energy will fund one
annual award of $250 for the British Columbia student (Grades 9 through 12) who achieves the highest standing for an energy-related innovation/invention project at the British Columbia Regional Science Fairs. This award will be open to a wide range of projects related to energy, including energy  extraction, transportation, conversion and utilization.

Afternoon Session
Following the lunch program, Rick Hyndman from the University of Alberta provided an overview of some of the challenges faced by regulators and policy makers as a result of regionalization. He also discussed some of the rationale and options for encouraging greater integration between B.C.’s and Alberta’s energy markets. (Click here to see a copy of Rick Hyndman’s presentation).

John Baine from Union Energy, a new subsidiary of Westcoast Energy, provided an overview of his company’s recent efforts to consolidate Canada’s highly fragmented HVAC and related energy services market (together with strategic gas distribution assets) under a single, standardized national brand. (Click here to see a copy of John Baine’s presentation).

The final session of the day consisted of a panel discussion on B.C.s competitive advantage in the regional energy market. Panel members included:

• Zak El-Ramly from ZE PowerGroup (Click here to see a copy of Zak El-Ramly’s presentation).
• Brain Wallace from Bull, Housser & Tupper, legal counsel for large industrial users (Click here to see a copy of Brian Wallace’s remarks or a copy of his presentation).
• Phil Carter from West Coast Energy (Click here to see a copy of Phil Carter’s presentation).

 Conclusions
Thank you to all those who attended Energy '99, and to those CIE volunteers who worked to make it such a success.

See you at "Energy 2000" next January!

Trent Berry, Seminar Chair