blog2007

Speakers Urge Debate On Hydro-Quebec Privatization

Nickle's Energy Analects
29 August 2007

A conference today in Montreal was told that partial or full privatization of Hydro-Quebec would produce greater value for the Quebec's water resources.

Such a move would also enhance Quebec's energy efficiency and improve the health of its public finances, according to Marcel Boyer, vice president of the Montreal Economic Institute, and Claude Garcia, former president of Standard Life.

Deregulation of the North American energy market and a wider opening of the electricity sector on a continental scale have broadened the debate on new options for reform that could benefit all Quebecers, they suggested.

In Garcia's view, selling Hydro-Quebec would enable Quebec to eliminate its public debt, evaluated at $122.6 billion. A debt-free Quebec would save a total of $5.5 billion annually in interest charges, allowing for a 33% cut in income tax, he said. It would also create a highly competitive tax environment, stimulating economic growth, according to Garcia.

In the last few years, electricity rates have risen far more slowly than prices for oil products, and Quebecers are paying well below market value for their electric energy, he said. Electricity rates in Toronto are 75% higher than in Quebec and in New York electricity costs three times as much. Raising rates to market prices would result in energy savings and the kilowatt hours left unused in Quebec following a rate hike would easily find buyers in export markets, said Garcia.

Boyer would not go as far, suggesting that another option would be to consider a partial privatization of Hydro-Quebec. Selling 25% of the company, for example, would suffice in obtaining greater value for the province's energy resources, he said. This could be done by issuing shares and amassing a large quantity of new funds to finance future investments. Some of this could also be used to reduce taxes or repay part of the debt.

With the new shareholders represented on the board of directors, maximizing the value of shareholders' equity and selling electricity at market prices would lie at the core of Hydro-Quebec's mission, said Boyer. This change in mandate "would deny governments the right to reach into Quebecers' collective inheritance and squander their energy resources," he said.

Hydro-Quebec would have incentives to invest in any money-making project and to guarantee sound management of operations.

A rate increase could be spread over several years and if the government wishes to protect or subsidize certain groups of citizens or businesses, such as low-income households or aluminum producers, it would have to do so through direct subsidies rather than by manipulating electricity prices, according to Boyer.

www.energyanalects.com

Firm to build $6.2B nuclear plant in Alberta

Nuclear plant plan draws fire
Jamie Hall, The Edmonton Journal, 28-Aug-2007

Company seeks approval to build Alberta's first nuclear reactor
Jon Harding, Financial Post, 28-Aug-2007

Firm to build $6.2B nuclear plant in Alberta
Canadian Press, 27-Aug-2007

Alberta nuclear proponent has mystery power buyer
Jeffrey Jones, Reuters, 28-Aug-2007

Energy Alberta Corporation

Atomic Energy of Canada Ltd.

COMMENT: Mary Poppins' Umbrella

Energy Alberta Corporation (EAC) and Atomic Energy Canada Ltd. (AECL) have entered into a partnership. EAC says with respect to project funding:

"Energy Alberta Corporation is a privately held corporation and will fund the entire project in conjunction with third party investors. Energy Alberta Corporation is not seeking, nor plans to seek any government subsidies.

"Energy Alberta Corporation has an exclusive agreement with Atomic Energy Canada Ltd (AECL) to build the CANDU® reactors. They are comfortable with AECL's excellent track record of building Nuclear plants, using Canadian technology and Canadian expertise, around the world (Romania, Korea, etc.) on time and on budget.

"Energy Alberta Corporation will be looking to fixed price guarantees from AECL before proceeding with the plant."

The trick here is that Atomic Energy of Canada is going to build the project, with a fixed price guarantee. AECL is a federal crown corporation. It exists only because of government subsidies. $160 million in direct parliamentary appropriations. Another $137 million in Canadian revenues, mostly from Ontario nuclear facilities and all of them highly underwritten by the federal and provincial governments.

In effect the full AECL involvement in the project is a public subsidy. Possibly the scariest economic thing with this project is that AECL is taking on the full risk for cost-overruns. In an industry best known for overruns that never stop and projects gone bad, the roof on Montreal's Olympic Stadium will look like Mary Poppins umbrella before this thing is done.

(Can't remember the Big Owe? In 1970, it was going to cost $134 million. In 1976, when it was opened, only half done, for the Olympics, it had already cost $264 million. By 2006, total expenditures came in at $1.61 billion. The stadium project has never really ended. The first roof went on ten years after the Olympics; it's now on its third roof; the stadium is closed during winter months; and through its history parts of it regularly collapse.)

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Nuclear plant plan draws fire
Environmentalists question impact on area land and water; company touts 'clean, safe, reliable' power

Jamie Hall
The Edmonton Journal;
With files from the Calgary Herald
Tuesday, August 28, 2007

The Bruce A and Bruce B nuclear generating stations
on Lake Huron, about 250 kilometres southwest of Toronto,
are one of five operating Candu nuclear power sites in Canada.
CREDIT: Courtesy of Bruce Power, file

EDMONTON - Energy Alberta Corporation has chosen Peace River as the site of a proposed nuclear power plant.

The Calgary-based company Monday filed an application with the Canadian Nuclear Safety Commission to build a pair of twin-unit Candu reactors on private land adjacent to Lac Cardinal, 30 kilometres west of the town.

The move ends months of speculation about the intended site of the corporation's $6.2-billion nuclear power plant, which was said to be between Peace River and Whitecourt.

Energy Alberta president and co-chair Wayne Henuset says the decision marks "a historic moment for Canada, for Alberta and for the nuclear power industry" and touted the benefits of "clean, safe, reliable nuclear power."

Ontario currently operates five of the Candu 6 reactors, which AECL said were some of the top-performing units in the world last year, with greater than 95 per cent capacity factor rankings.

But environmentalists gave short shrift to the claims, expressing worries over impacts a reactor might have on the area's land and water.

"The nuclear power industry has a long history of over-promising and under-delivering, so I'm skeptical," said Marlo Reynolds, executive director of the Drayton Valley-based Pembina Institute.

"I'm still not convinced there's a need for nuclear power given all the other resources we have here in Alberta."

The institute won't support any form of government financial support for the project and Reynolds said all environmental impacts must be fully accounted for in the final cost of the facility.

"That business case has never been made clear... once you factor in the full environmental cost I don't believe nuclear power competes."

David Schindler has serious concerns, too.

"There are huge issues involved in building this," says Schindler, a professor of ecology at the University of

Alberta who teaches environmental decision-making, "and one of them is reactor safety.

"I would want to know where the waste is going to be stored, how it's going to get there and what the use of the power is supposed to be for.

"(Nuclear power plants) use a lot of cooling water, so I guess this is one reason for putting it in Peace River, so they can get water from the Peace. The needs are around a cubic metre a second, so it's like a small oilsands plant."

Elena Schacherl insists the proposed plant is "a far different beast" than the existing Candu reactors currently in Canada, which are located in Ontario, New Brunswick and Quebec.

"They're approximately half the size of just one of the (twin reactors) that are being proposed," says Schacherl, who represents Concerned Citizens Advocating Use of Sustainable Energy.

"What's being proposed has never been built before."

She fears the plant will get "fast-tracked" before "the other side" can fully air its arguments in front of an environmental assessment panel.

Henuset said the Peace River region was chosen because of its demonstrated support from the community, the existence of essential infrastructure and support services, and technical feasibility.

Lorne Mann, the mayor of the Town of Peace River, says the plant would bring economic stability to the region.

"Today's announcement ... has given our region an opportunity for a more vibrant, exciting and sustainable future," said Mann.

The corporation has partnered with Atomic Energy of Canada Limited, the federal Crown corporation and maker of Candu reactors.

Initially, Energy Alberta plans to build one twin-unit ACR-1000 that will produce 2,200 megawatts of electricity with a targeted in-service date of early 2017.

"Building a nuclear power facility is a long and rigorous process," said Henuset. "This is the beginning of a public and regulatory process that will include environmental, health and safety assessments."

Press conferences will be held in Calgary, Peace River and Whitecourt today to provide more details about the project.

jhall@thejournal.canwest.com
© The Edmonton Journal 2007

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Company seeks approval to build Alberta's first nuclear reactor

Jon Harding
Financial Post
Tuesday, August 28, 2007

CALGARY -- A private Calgary-based company aiming to build Alberta's first nuclear reactor took a step in that direction when it filed an application late Monday with the Canadian Nuclear Safety Commission for a licence to prepare a site for the facility.

Energy Alberta Corp., whose backers include Hank Swartout, founder of the country's largest oil and gas driller, Precison Drilling Trust, said in a release it has teamed with Atomic Energy of Canada Ltd. to build up to two twin-unit ACR-1000 Advanced CANDU Reactors, with the first slated for a site 30 kilometres west of the town of Peace River in the province's northwest Peace Country.

The facility would be in service by 2017, according to the company statement.

"This is an historic moment for Canada, for Alberta and for the nuclear power industry," said Wayne Henuset, president and co-chairman of Energy Alberta.

The first unit would ultimately produce a total net 2,200 megawatts of electricity.

© Financial Post 2007

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Firm to build $6.2B nuclear plant in Alberta

Canadian Press
Mon. Aug. 27 2007

CALGARY -- Energy Alberta Corporation has chosen Peace River, Alta., as the site for its proposed $6.2 billion nuclear power plant.

The site is on private land next to Lac Cardinal, about 30 kilometres west of Peace River, the company said in a release Monday night.

"We are proud to be pioneers in bringing the benefits of clean, safe, reliable nuclear power to Alberta,'' said Wayne Henuset, president and chairman of Energy Alberta.

The company had also looked at Whitecourt, Alta., as its possible site. But it delayed its decision three weeks ago when Woodlands County withdrew its letter of support for the facility after 300 residents signed a petition saying they wanted more information. Last week, Woodlands County said it would also hold a plebiscite for residents to vote on the proposed plant.

"Energy Alberta has chosen the Peace River region as its preferred site because of the demonstrated support from the community, existence of essential infrastructure and support services and technical feasibility,'' the release said.

The privately owned company has filed an application for a licence to prepare the site with the Canadian Nuclear Safety Commission.

The application is for siting up two, twin-unit Candu reactors. The company has partnered with Atomic Energy of Canada Ltd., the federal Crown corporation that makes Candu reactors, and says it has lined up financing and clients.

Energy Alberta says it plans to start with one twin unit that will produce 2,200 megawatts of electricity with a target start date in early 2017.

Henuset said the application is just one of many steps required to get the licences to build the plant.

He said there will also be environmental, health and safety assessments and public consultations.

Peace River Mayor Lorne Mann said in the release the announcement has "given our region an opportunity for a more vibrant, exciting and sustainable future.''

"We understand that this is just the beginning of a lengthy process and we welcome the chance to become more informed on nuclear energy.''

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Alberta nuclear proponent has mystery power buyer

By Jeffrey Jones
Reuters
28-Aug-2007

CALGARY, Alberta (Reuters) - Backers of the first nuclear power plant proposed for the western Canadian province Alberta sketched out their plans on Tuesday, but left questions unanswered including the identity of a mystery buyer for most of the electricity.

Privately held Energy Alberta has agreed to supply a company with 70 percent of the 2,200 megawatt plant's output, but President Wayne Henuset declined to name the firm, its business or describe the stage of the deal, citing confidentiality agreements.

"(The agreement is) as solid as it gets, I guess, five years out," Henuset said at a news conference. He was referring to his goal of starting construction around 2012.

The C$6.2 billion (US$5.8 billion) plant had first been proposed to provide both electricity and steam for the booming oil sands industry in northeastern Alberta.

But Energy Alberta applied to Canada's nuclear safety authority on Monday to build it further west in the Peace River area and to provide just the power.

Since the company first floated the idea two years ago, it has sparked debate among residents and politicians in Alberta, an oil- and coal-producing province that had officially rejected the notion of nuclear energy.

Under the proposal, the debt-financed plant would start up in 2017. Government-owned Atomic Energy of Canada Ltd would build a twin-unit ACR-1000 Candu reactor and Energy Alberta would own and operate it.

Henuset said it could help solve a power supply crunch in Alberta, where he projected to jump by 400 MW annually. The capacity is about 20 percent of the province's current peak load.

"There are no doubts Alberta needs a large, reliable, clean power source to meet its current future needs and there is no doubt in our minds Albertans are ready for nuclear power," he said.

Radioactive waste would initially be stored near the plant, 30 km (19 miles) west of Peace River, but long-term storage is still being studied, said Stella Swanson, an environmental consultant to the project with Golder Associates.

She pointed out Canadian Energy Minister Gary Lunn recently approved the idea of burying waste deep underground at a single location. Environmentalists have condemned the idea as too risky.

Also attending the news conference were representatives of Citizens Advocating Use of Sustainable Energy, a group formed to oppose the plan.

Among its many criticisms is that the Peace River region is susceptible to seismic activity, said CAUSE member Jack Century, a geologist and consultant to the oil industry.

"Just to the west of the Peace River faulted area is Fort St. John (British Columbia), where oil fields have been inducing earthquakes as a result of conventional water-flooding. This is known to all seismologists, but sort of hidden in the oil patch," Century said.

Swanson said the backers have done geological and engineering studies "at a regional level in a preliminary nature" and plan to keep studying such risks.

"You're right, there have been earthquakes in the area, but it was not what we would call a fatal flaw for choosing this area," she said.

Henuset, a Calgary-based businessman, has run a series of oil field service businesses and car dealerships and has also established a chain of liquor stores.

His partner in Energy Alberta, Hank Swartout, founded Canada's biggest oil field service company, Precision Drilling, and is on the boards of a handful of other firms.

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Posted by Arthur Caldicott at 11:26 AM

Alberta Energy loses gas decision

National Energy Board approves new LNG terminal to be built in Quebec

Gordon Jaremko
Vancouver Sun,
21-Aug-2007

EDMONTON -- Alberta Energy has lost a quiet but hard-fought national duel with importers and consumers over the future of the province's top money-earner: natural gas.

In a July ruling described as "a signal to the global market," the National Energy Board rolled out the welcome mat to tanker cargoes of liquefied natural gas from overseas by approving a controversial cost-sharing scheme for a new LNG terminal to be built in Quebec.

On the heels of the decision, Andrew Pelletier, spokesman for Cacouna Energy -- a major player in the terminal project -- said, "Right now it's a green light. We're working towards a project announcement."

The company's statement -- expected by the end of the year -- will set out a final cost estimate and construction schedule for the Quebec import terminal that is to be developed by the Cacouna partnership of Trans-Canada Corp. and Petro-Canada.

The NEB's technical but far-reaching landmark ruling decided a fight over who will pay for a cornerstone of the project -- and possibly more like it -- over the next 20 years.

The contested item is a $738-million set of additions to Trans-Canada's national gas pipeline, including a 240-kilometre extension and other adjustments needed for markets to use the new tanker terminal at Gros Cacouna, on the south shore of the St. Lawrence River east of Quebec City.

Over vigorous resistance by Alberta Energy lawyer Brent Prenevost, the NEB sided with the Cacouna partners and their supporters, which include the Quebec government, Canadian Industrial Gas Users Association and Montreal distributor Gaz Metropolitain Inc.

The board ruled that the remote terminal is a "receipt point" for gas to enter TransCanada's pipeline, akin to conventional Alberta and Saskatchewan inlets along the main shipping route for gas to central Canada and the United States.

That status qualifies the Cacouna pipeline extension for a utility cost-sharing system known as the "rolled-in toll methodology." The $738-million bill for the LNG import terminal will become, in effect, an added mortgage to be paid off with tolls charged to all shippers, including Alberta gas producers and merchants.

TransCanada estimated the extra bill will be as little as two-tenths of a penny and no more than three cents a gigajoule by the time it is spread out over many years and all the traffic on the national pipeline system.

Alberta Energy argued the scheme creates a big subsidy for LNG imports by saving the terminal the expense of paying for its own pipeline link to Quebec, Ontario and U.S. markets.

In a strongly worded final argument before the NEB, Alberta Energy lawyer Prenevost predicted the rolled-in system will give LNG imports a competitive advantage of $1.10 per gigajoule against Alberta gas in Quebec.

He acknowledged the Alberta government was alone in resisting the scheme, but suggested it was no accident the gas production industry stayed conspicuously silent.

Gros Cancouna documents at NEB registry

Proposed plant in Cowlitz County to test pollution law

Craig Welch
Seattle Times
20 August 2007

When Gov. Christine Gregoire signed a new law in May to reduce greenhouse-gas emissions, she called it a "testament to the unique, broad-based coalition that came together - utilities and environmentalists, faith communities and business leaders."

Four months later, that coalition is already splintering over one of the first real tests of the new law: a fight about whether developers of a proposed power plant in Cowlitz County are trying hard enough to limit its climate-changing pollution.

The dispute highlights how efforts to reduce carbon emissions increasingly run up against a growing region that needs more and more electricity.

Energy Northwest has proposed a plant at the Port of Kalama that would burn gas made from coal. That process is cleaner than simply burning coal, but it still would emit millions of tons of carbon dioxide into the atmosphere each year.

At issue is whether Energy Northwest has made a sincere effort to find ways to trap the excess greenhouse gases in the earth - a process known as "carbon sequestration" - instead of spewing them into the sky.

The state Attorney General's Office and the Department of Ecology, environmentalists and some lawmakers insist the electricity suppliers behind the new plant are trying to bypass the intent of the law.

Those suppliers - including Seattle City Light and more than a dozen public-utility districts represented by Energy Northwest - say that's not true.

Under the new law, signed with great fanfare at the end of the last legislative session, new power plants have to trap their carbon emissions unless the utilities demonstrate, after a "good-faith effort," that it's impossible.

Only then can plant operators instead offset emissions, by buying rights to another utility's unused pollution capacity, for example. Lawmakers and Ecology officials have said such offsets should be a last resort.

When it submitted pollution-control plans to the state for the Kalama plant, Energy Northwest simply professed that sequestration remains unworkable in real-world practice. So until it is, the utility wants to pay to offset emissions.

"We represent openly and honestly the current state of technology for sequestration, and it's just not available yet," said Brad Peck, a spokesman for Energy Northwest.

State officials and environmentalists heatedly objected.

"This document is not a sequestration plan, it is merely a plan to have a sequestration plan," Assistant Attorney General Michael Tribble wrote. The Ecology Department said Energy Northwest's proposal was too deficient to even consider.

Both agencies urged a third state agency that reviews power-plant proposals, the Energy Facility Site Evaluation Council (EFSEC), to reject the plan as inadequate.

Instead, EFSEC agreed to move forward with a review. The panel plans to hear arguments about the issue next month.

"There's no good reason not to proceed," said Jim Luce, chair of EFSEC. "The first thing we're going to do is debate compliance with the law."

Now environmentalists worry that EFSEC will give utilities the benefit of the doubt and that if the utilities are allowed to move ahead without concrete sequestration plans, they may never develop such plans.

"I find it incredible that EFSEC rejected the rather explicit advice from the attorney general," said Marc Krasnowsky, spokesman for NW Energy Coalition, a Seattle-based environmental group that promotes renewable energy and conservation. "Once it's built, does anybody really believe politicians will demand the plant shut down?"

Energy Northwest's Peck responded that lawmakers knew sequestration was experimental when they passed the law, hence the provision for other options such as offsets.

"If anyone knows a sequestration technique that's available and viable, we'd appreciate them letting us know," Peck said.

Equally important, Peck said, is that the state needs more power. Even if economic growth slows, he said, utilities expect an increase in demand of 1,200 to 2,400 megawatts over the next six years - about how long it takes to get a new plant built and operating. The Kalama plant would produce about 680 megawatts.

"We don't see better options, and this one meets our criteria: reliable, affordable and environmentally responsible," Peck said.

But state Sen. Erik Poulsen, D-West Seattle, who chairs the Senate's energy committee, said the Legislature "had every expectation" that Energy Northwest would try to resolve technical issues with sequestration before pushing ahead.

"In winning the battle, they may lose the war," Poulsen added. "If they succeed in avoiding sequestration this easily, you can be sure the Legislature will put tighter restrictions on coal plants.

"As chair of the energy committee, I can virtually guarantee it."

The new dirty energy

It's big, it's growing -- and it's bad for the environment. Inside the other alternative-energy movement.

By Drake Bennett
Boston Globe
August 19, 2007

FOR THOSE WHO dream that high oil prices will help drive America toward a brave new world of clean energy, the MacKay River project in Alberta, Canada, offers a glimpse of the future.

The complex is a showpiece of cutting-edge engineering, wresting energy from beneath a swath of boreal forest. Under an unobtrusive spread of buildings, holes drilled at oblique angles free unprocessed fuel from the earth with jets of steam.

Thanks to government and private investment, the complex is providing more energy every year, and by 2020, Alberta as a whole is predicted to generate enough to replace a quarter of the United States's current daily oil usage. And as oil prices rise, projects like MacKay River become more and more cost-effective, and more popular.

The only problem: The thick, tarry petroleum that the Alberta project pulls from beneath that forest is far dirtier than oil.

Alternative energy wasn't supposed to look like this. For years, leading environmental thinkers have argued that high fossil fuel prices are good for the planet, driving investors and customers toward biofuels, solar power, and a host of new energy sources that will quickly become cost-effective.

But as oil prices stay high, the real beneficiary often turns out to be a very different alternative-energy industry, one focused on dirty fuel sources such as oil sands, oil shale, and coal. Environmentally speaking, the oil-sand plants of Alberta are no better than petroleum drilling, and in some ways decidedly worse. In North America, in terms of energy output, this so-called "unconventional oil" sector already dwarfs clean and renewable-energy technologies, and is poised to grow even faster in the next decade.

"To assume that high energy prices mean we'll switch to wind or solar or other renewables is simply unrealistic," says Amy Myers Jaffe, an energy expert at the James A. Baker III Institute for Public Policy at Rice University. "It only means that if we make that a concerted policy."

For the past two years, oil prices have been fluctuating around historic highs. Although $3-per-galllon gasoline may be frustrating to drivers, it has been welcomed by environmentalists and many economists, who see expensive oil as a crucial spur to the clean-energy business. In announcing last fall that he was dedicating $3 billion to fight global warming, the British billionaire entrepreneur Richard Branson said of high oil prices, "Thank God it's happened. . . .A high oil price is what we needed to actually wake up the world" to deal with climate change.

When oil is expensive, biofuels start to look more affordable by comparison, and investors start seeking ways to make them more affordable still. When natural gas -- used primarily for generating electricity -- is expensive, it adds to the appeal of wind and solar-generated electricity. The best-selling author and New York Times columnist Thomas Friedman, among others, has gone so far as to advocate an oil price floor to ensure that oil never gets cheap enough to undercut alternative energy sources.

In part, the expectations of Branson, Friedman, and others are starting to come true. Investments in renewable energy by governments, corporations, and venture capitalists have surged in recent years, driven in part by the cost of oil. A United Nations Environment Programme study released in June reported that, worldwide, $70.9 billion was invested last year in clean energy generation, about a third of that in the United States.

But these renewable sources still supply just a fraction of the world's energy needs, and many of them remain high-tech speculations. The best-known, like wind and solar, are for electricity generation, not vehicle fuel, the role oil currently plays. And according to Department of Energy figures, ethanol, the only widely available biofuel, currently meets only 1.6 percent of American vehicle fuel needs.

Meanwhile, the high price of oil has given a dramatic boost to a very different set of energy sources -- one of which is now generating fuel on a huge scale. These "unconventional oil" sources pull carbon out of the ground in forms that were once too expensive, or too technically difficult, to compete with cheap oil.

By far the most developed of these are the oil sands of Canada. A thick slurry of sand, water, and a hydrocarbon tar called bitumen, oil sands -- also called tar sands -- can, with enough processing, be refined into something very similar to the petroleum pumped out of the Saudi Arabian desert.

The discovery of tar sands in what would become northeastern Alberta long predates the internal combustion engine: Native Americans found the tar seeping from the ground and used it to caulk their canoes. Efforts to mine the sands for oil go back to the 1960s, but were never economically competitive with oil drilling, and the early mines struggled. No longer.

"With higher prices there's a terrific interest up there," says David Pommer, a spokesman for Chevron Canada, co-owner of one of Alberta's largest oil-sands mines.

Geologists estimate that Alberta's oil sands contain 1.7 to 2.5 trillion barrels of oil -- more than Saudi Arabia -- a few hundred billion of which are recoverable using current technology. (A similarly vast oil-sands reserve lies beneath Venezuela, but remains mostly undeveloped.) Already today, Alberta's oil-sands industry produces a million barrels of oil a day, most of which comes to the United States.

Environmentalists see this as a growing disaster. The oil in oil sands is not easily separated out, and the immense amounts of heat required are usually generated with natural gas, giving the oil-sands industry a greenhouse gas footprint much larger than the traditional oil business -- estimates range from 40 percent more to five times the emissions. The process also uses enormous amounts of water: a study by the Pembina Insitute, a Canadian environmental watchdog organization, found that, depending on the method of extraction, every barrel of oil produced requires 2.5 to 4 barrels of water, all of which is then rendered too polluted to return to the water supply. And most oil-sands operations are mines, not steam wells like the MacKay project, making them very disruptive to surrounding ecosystems.

Behind oil sands, two other "unconventional oil" technologies, at this point far less developed, wait in the wings.

One of them is oil shale, a sedimentary rock impregnated with solid bitumen. Three-quarters of the world's known oil shale deposits lie in the western United States, concentrated in Colorado, Utah, and Wyoming, giving the country an immense hidden oil reserve of around 1.8 trillion barrels. To extract the bitumen and turn it into oil, however, requires a massive amount of heat. Either the rock is mined, then crushed and cooked in huge pressurized caldrons, or the bitumen is melted out by physically heating the earth that holds it to temperatures above 600 degrees Fahrenheit.

Energy and emissions estimates for oil shale are hard to come by, since there are no large-scale production facilities, but the energy expenditure to cook the oil shale is likely to be considerable. Terry O'Connor, a vice president of Shell Unconventional Resources, insists that the company is looking at ways to cut down on both energy and emissions. "That's the reason we're still years away from making a commercial decision," he says.

An even bigger wild card is liquid fuel made from coal. The United States and China, the countries with the world's largest energy appetites, also contain the world's largest deposits of coal. While the basic technology to turn coal into fuel is nearly 90 years old, in the past it was too expensive to be anything but a last resort for fuel-starved countries such as Nazi Germany and apartheid South Africa.

A few firms in the United States and China are trying to use new technology to make the process economically competitive with oil, but again, the environmental costs are high. The favored coal liquefaction method today requires first turning solid coal into a gas at very high temperatures; combined, the production and consumption of coal-derived diesel releases roughly twice as much carbon into the atmosphere as traditional oil -- though various research efforts are underway to capture these emissions. It also uses more than a dozen barrels of water per barrel of fuel produced, according to a recent Department of Energy study. And coal mining takes a toll on landscapes and animal habitats.

The lesson for policy makers is that economics alone won't help solve the world's greenhouse-gas problems. The markets care about money, not the environment, so the most important alternatives to oil will be the biggest and cheapest, not the greenest.

What's needed, say many clean energy advocates, isn't just high oil prices, but high carbon prices. If fuels were taxed on their carbon content, climate change would be priced into the economics of energy production.

"If you have a carbon tax, or some other concerted carbon policy," says Mike Jackson, an energy analyst with Stanford University's Freeman Spogli Institute for International Studies, "then high oil prices drive industry toward clean technologies."

Otherwise, he says, "you're just going to see more people building these wacky projects that are a disaster for the environment."

Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.

© Copyright 2007 The New York Times Company

Royalties: As Big Oil pumps Alberta

COMMENT: This is an excellent essay on Alberta’s royalty review, with a bad sub-heading. Too bad you can’t read it from the bottom up, because many of the reasons why royalties should be increased, appear later in the report.

Don Gunderson, speaking to the royalty review panel summed up thus: “I think the most solid evidence that the current royalties are too low is the fact that the oil companies are happy with the current rates.” He continued, “We don't want a fair price; we want the best price.”

Industry is quick to whine about how tough things are, and an increase in royalties will surely lead to investment going elsewhere. But investment is flooding into Canada, and more specifically to the oil sands, irrespective of royalties, high exchange rates, and everything else industry might complain of. It is coming because US investors see safety and stability in Canada, and they see a huge secure supply of oil. The oil industry is engorged on profit in recent years. So enough of the whining and the empty threats.

Some of the things that are wrong with royalties:

- as oil (and gas) prices rise to unprecedented levels, royalty rates don’t rise with them. They’re capped. Free lunch for shareholders. Bag lunch for citizens.

- a vast and generous array of allowable costs, which are deducted from the nominal royalty payable, are another free lunch for shareholders.

- North America is already the most profitable jurisdiction in the world for oil producers

Meanwhile, in Newfoundland, Premier Danny Williams “is close to introducing new legislation that would require state participation in all developments.”

And what of British Columbia? Still looking to Alberta for guidance in all things with oil and gas, BC is probably going to follow whatever lead Alberta takes. For the record:

- in fiscal 2006, BC produced 12.69 million barrels of oil and took in $127 million in royalties. The nominal price of oil was US$66.06 per barrel. That’s a net royalty of US$10 per barrel and a net royalty rate of 15.15%

- in fiscal 2006, BC produced 1,095 petajoules of gas and took in $1,392,000,000 in royalties. The nominal price of gas was $5.65/gigajoule. That’s a net royalty of $1.27 per gigajoule and a net royalty rate of 22.50%.

Most of this is from the 2007 Budget, Table A10
http://www.bcbudget.gov.bc.ca/2007/pdf/2007_Budget_Fiscal_Plan.pdf

The 2006/07 forecast oil production is from MEMPR’s 2005/2006 Annual Service Plan Report
http://www.em.gov.bc.ca/DL/GSBPubs/AnnualReports/AR2005-2006.pdf

As Big Oil pumps Alberta for profit, the province's royalty take is shrinking.
Is it time to get greedy?

DAVID EBNER
Globe and Mail
August 18, 2007

Royalties have existed as long as humans have spun wealth from the world's underground riches, digging and drilling to produce personal and collective fortunes. The first royalty believed to have been collected occurred in ancient Greece, creating great wealth for Callias, a top aristocrat whose home was the finest in Athens and was the setting for one of Plato's dialogues.

Callias owned silver mines at Laurion, which is now a suburb of Athens but was once the chief source of revenue for the Athenian city state, where slaves mined the ore. Callias received royalties on the production and the mine operators took their slice. This division of wealth became the foundation of a fiscal system for the sharing of dollars generated from the extraction of natural resources that is generally unchanged more than two millennia later.

The owner of a resource, be it silver in Greece or oil and natural gas in Alberta, receives a royalty as a right of ownership from the person producing the resource and aiming for their own profits. But what the rate should be is a difficult debate, as the arguments are relative in the absence of absolutes – reflected in the fact that there are a thousand or so royalty systems for energy around the world. The question is also clouded and confused by the word at the heart of the argument: Fair.

Royalties paid on oil and natural gas production in Alberta are one of Canada's most crucial economic calculations. Within two weeks, the provincial government receives an extensive report from a six-member panel that conducted a public review of royalties, taxes and other fees paid by energy producers – with a core mandate to determine if citizens are getting their fair share. The report, and what rookie Premier Ed Stelmach's government does with it, could have significant repercussions across the Canadian economy.

“This is a critical issue,” said Frank Atkins, an economist at the University of Calgary.

Hitting the right note on royalties helps spur development, bringing wealth to Alberta and to all Canadians. But getting it wrong means kicking over an economic domino with countrywide repercussions. The energy business obviously has enriched Alberta but it has also very much made the nation wealthier, starting with federal taxes that get shared east, centre, west and north, to things such as auto sales, with Alberta recently underpinning record domestic vehicle sales, an engine of the Ontario economy. The oil sands, in fact, pay more corporate income taxes to Ottawa than Edmonton.

In sleepy sessions from Grande Prairie to Medicine Hat, the unprecedented public review started in late April and ended mid-June but occurred beyond the attention of many Albertans and most Canadians. The panel heard more than 100 public presentations, with roughly half of those made by industry players. Another 224 submissions were made on paper.

Greg Stringham, a vice-president at the Canadian Association of Petroleum Producers, was one of the people near the heart of the debate helping lead the industry lobby, but he made his points without thumping his chest or threatening impending doom, as was the case with so many other Alberta oilmen. Mr. Stringham knows there isn't one easy answer.

“Our answer to the question of whether it is fair, we'd say yes,” Mr. Stringham said in an interview. “But fair is a nebulous word, it's hard to define.”

Figuring out fair is critical for Alberta because royalties aren't just one little thing in a much bigger picture: They are the thing. Resource revenues are the province's No. 1 source of income, ahead of corporate and personal income tax. In 2006-07, Alberta collected $9.8-billion in oil, natural gas and oil sands royalties, as well as $2.5-billion from the sale of new exploration rights – accounting for one-third of the province's income.

Without energy, Alberta's gross domestic product would be about half the size, according to economists Robert Mansell and Ron Schlenker of the University of Calgary, who added that without royalties, a provincial sales tax of 16 per cent would be needed to make up the revenue. And they said the calculations were probably understated, alluding to the fact that without energy, there'd be hardly any economy at all in Alberta, with no need for all the engineers, lawyers and accountants, never mind all the restaurants and Canadian Tires.

It is this dependence that backstopped the don't-choke-the-golden-goose argument issued by industry, which is powerful in sound bites, because who dares ruin a good thing? It was these comments that gained the most attention in the local media. Jim Buckee, the gruff retiring chief executive officer of Talisman Energy Inc., employed rhetoric when he sat before the panel in May in Calgary, saying a zero per cent royalty generates zero dollars and a 100 per cent royalty also produces zero, as it drives all activity elsewhere. “The current regime has worked and it's best left alone,” Mr. Buckee declared.

Also in Calgary, Steve Laut, president of Canadian Natural Resources Ltd., the country's No. 2 producer, said: “What we have to be very cognizant of is any significant change – or any change – to the royalty system could [produce] a drastic – I mean drastic – reduction in activity in Alberta.”

The review looked at all aspects of oil and gas in the province but the focus was clearly on the oil sands. The giant resource, concentrated in the remote boreal forest of northeastern Alberta, has commanded the energy world's attention after being recognized several years ago as the second-largest reserve of oil after Saudi Arabia.

It is a huge change from a decade ago when the oil sands languished unloved, considered a fringe resource with the price of crude at a quarter of today's level.

Industry, hoping to jump-start the near-dead business, sponsored a national task force to find ways to overcome development challenges to seize the alluring promise of enormous long-term potential. A key idea, proposed in 1995, was an enticing royalty regime, quickly adopted by Alberta. The province takes just 1 per cent of gross revenues until an oil sands plant has recovered the billions of dollars it took to build the operation, a rate that then rises to 25 per cent of revenues minus costs.

The system, then and now, is among the world's most generous regimes.

And it worked: Oil sands production reached one million barrels a day in 2004 – a milestone that had been forecast for 2020. According to current projections, by 2020 the oil sands could produce four million barrels a day, which would make Canada the No. 4 oil producer in the world behind Saudi Arabia, Russia and Iran.

While the royalty regime was a spark for the boom, it is one of several important factors that attracted billions of dollars of investments. The most important element was the price of oil, which has surged fourfold. Among the other important changes is markedly improved oil sands technology, as well as fewer opportunities for large projects elsewhere.

For global oil companies, royalties are one component in a complicated equation with the key variable – oil prices – in constant and often extreme flux. Given this, even with Alberta looking at royalties, some of the world's biggest oil companies have made major moves since the review began. Statoil ASA of Norway, looking to expand beyond the North Sea, an oil region in decline, spent $2.2-billion in April for an undeveloped oil sands project, making Alberta its top international expansion priority. Royal Dutch Shell PLC has pinned much of its future growth on the oil sands, spending $8.7-billion this year to buy the part of Shell Canada it didn't already own, and this month it announced it is looking to spend an additional $27-billion to build a giant new upgrader to process raw oil sands output.

In May, Brian Straub, Shell's senior vice-president of oil sands, added his voice to the chorus of industry warnings but conceded higher royalties won't stop Shell. “They're not going to drive us out of the province,” he said to reporters after presenting to the review panel, “but certainly our ability to invest is put in jeopardy.”

CHAPTER ONE

FROM BUST TO BOOM … TO BUST TO BOOM

When Alberta became a province in 1905, natural gas had already been discovered around Medicine Hat, in the southeastern corner of the young jurisdiction. There was also an oil strike near Calgary in 1914 that sparked a mini-boom, but the frenzy fizzled quickly. However, for the fledgling province, most of the resources were still owned by Ottawa, as well as a small portion held by private hands.

It was not until 1930 that the federal government relinquished its ownership of regional natural resources to Alberta and the other western provinces.

At the onset of the Depression, Alberta was sparsely populated, mostly poor and dependent on agriculture. The initial royalty rate was set at a flat 5 per cent, not that it particularly mattered, as the province produced little oil and gas. The birth of the province's modern industry, and its launch to “have” province from long-time “have not,” came in the late 1940s, when a gusher of crude, and then another, were discovered near Edmonton.

The royalty rate was tinkered with several times and by the 1960s, the province had used its newfound status as a significant oil producer to demand more from energy companies, which at the time were mostly American. Royalties had been raised but the high end was capped at 16.7 per cent of gross revenues – which was undone in the early 1970s by then-premier Peter Lougheed as the price of oil jumped far higher after the Middle East flexed its new muscle.

Having unseated a government that ruled for more than three decades, Mr. Lougheed, a left-leaning Conservative who began the dynasty that still exists today, tied royalties more closely to the price of the commodities and jacked up the maximum rates past 30 per cent. Ron Ghitter represented downtown Calgary in those days and recently recalled the reception from oilmen in a radio interview. “They cried bitter tears,” he said, half-joking that he had to use back alleys to avoid confrontations.

But higher royalties didn't deter industry from chasing growth and riding soaring commodity prices. In the six years after royalties were raised, before the global energy boom of the '70s peaked, oil and gas production in Alberta remained strong, the number of wells drilled each year doubled and money spent to acquire new exploration rights exploded tenfold. The industry only came undone when commodity prices collapsed.

During the 1980s bust, the royalties scale began to tilt back, with programs created to encourage activity as the price of oil and natural gas remained low. In the early 1990s, desperate to spur new exploration, the government of then-premier Ralph Klein cut royalties, charging less than 10 per cent when prices were low or, significantly, when a well's output was modest.

Even with the last overhaul, a goal of taking 20 to 30 per cent for royalties was in place, and the province's take bounced around the low end of the range, averaging 22.4 per cent from 1995 through 2003. In 2002, seeing that 30 per cent was out of reach with the system as is, the province reduced its ambitions, cutting the range to 20 to 25 per cent.

The take continued to fall, slipping below the bottom end of the goal to 19 per cent in 2004, where it remains three years later. A senior Alberta Finance official warned in April that the figure could fall further. Industry says Alberta needs to recalibrate the goal, lowering it to align with what it says is the reality of a changing business.

This year's provincial budget acknowledged that the system as it stands will return citizens less each year, warning royalties could fall by a third to $6.6-billion in 2009-10 from the $9.8-billion received in 2006-07.

Part of the story behind the numbers is the fact that explorers have carefully combed over the Western Canada Sedimentary Basin since Leduc No. 1, the first big oil discovery in February, 1947. All of the easy oil and natural gas and most of the big hits have been uncovered, leaving each new find smaller than those in years past. Even just a decade ago, the typical oil or gas well was relatively prolific and many generated a high rate of royalties. But as the years passed, the average well's output fell. Initial production of a natural gas well today, for instance, is less than half of what it was in the mid-1990s.

So as the system Mr. Klein's government put in place sees more oil and gas wells paying citizens less, energy companies are still chasing profits furiously, emboldened by high commodity prices and testified by the more than 17,000 or so wells drilled in Alberta last year.

Even this year, during a slump, almost 13,000 holes are expected to be cranked into the earth. This slowdown, due to low natural gas prices and high drilling costs, is much less brutal than crashes of the past – and record oil prices has ensured the search for crude remains robust.

Compounding the money situation for the province is that royalties were capped at prices that are far lower than current market rates, though the cap was well above the market when the system was drawn up. Further exacerbating Alberta's new reality is the emergence of the oil sands and the low royalties paid there, steadily replacing higher royalties previously paid on conventional crude and natural gas.

CHAPTER TWO

THE MYTH OF PROFITABILITY?

While Alberta's royalties take sits at 19 per cent now, energy companies are making the biggest profits they have ever enjoyed, led by EnCana Corp., the sector's No. 1 player, which in 2006 made $6.4-billion, the largest profit in Canadian corporate history. Add on Suncor Energy Inc.'s $3-billion profit, and two large oil and gas companies made about as much in profit as the entire industry paid the province in royalties last year.

All in, the five most profitable energy companies in Canada saw their bottom lines shoot up more than 50 per cent in 2006 from 2005. And despite rising costs and other challenges, the trend is still very much intact.

PricewaterhouseCoopers, in its annual Canadian energy survey in June, said the positive trend is one that “we don't see changing any time soon.” EnCana's operating profit this year is up about 50 per cent from a year earlier and cash flow has climbed more than 20 per cent.

Canadian Natural in early August said its cash flow has surged 35 per cent higher to a record of $3.1-billion.

These results contrast with the main argument of industry, that energy companies are hardly as profitable as they appear to be and are in fact struggling with soaring costs and worried about eroding profit margins – so they simply can't afford an increase of royalties, adding that such a change would ruin Alberta's reputation as a dependable place to do business.

“It's a myth out there that this is a hugely profitable business,” Mr. Laut of Canadian Natural told the royalty review panel.

Mr. Laut routinely presents a different picture to investors. Canadian Natural next year will begin production at a $7.6-billion oil sands mine. In every presentation marketing the company, Mr. Laut said its Horizon project will produce a “wall of cash flow” of nearly $1-billion annually (with oil at $45 [U.S.] a barrel) that will be “sustainable for decades.”

Mr. Lougheed, whose blue eyes still sparkle, remains a champion of the people. At a luncheon at Rouge, a restaurant housed in the home of one of Calgary's founders, Mr. Lougheed – who as a boy watched his family lose his grandfather's home due to debts in the Depression – worried about the average person: “People are not having an easy time in this province that aren't tied into the oil industry.” Over a meal, he gave a primer to a group of British journalists visiting to tour the oil sands. Mr. Lougheed began with 1930, stressing that Albertans are the owners and oil companies lease rights to do their work.

He was specifically skeptical about the many costs deducted from gross oil sands revenues to produce the net number from which royalties are calculated. “My instinct,” he said, “tells me they've been allowing a system where the operators, the lessees, have been deducting too aggressively – and that has been hurting the royalty flow to the people of Alberta.”

Suncor Energy, the second-largest oil sands miner, estimates that with oil at $60 a barrel, it will pay as little as 6 per cent in royalties on its gross oil sands revenue in the coming years.

Sensing widespread skepticism, the Canadian Association of Petroleum Producers midway through the review tried to bolster public support, issuing two short books outlining the benefits of the oil sands and conventional production, and the message was simple: Without us, there is nothing – don't dare touching the goose at all.

The association also put out the results of two poll questions conducted for it by Ipsos Reid, one of which asked whether the billions of dollars collected from the energy industry was too low, about right or too high. The question, posed to 800 Albertans, did not mention that the province's percentage take was in decline. Half of those surveyed said the money collected seemed to be “about right.”

Asked whether the lack of context in the question was unfair to those surveyed, Pierre Alvarez, president of the industry association, was aggrieved and invited The Globe and Mail to conduct its own poll, asserting the results would be the same, concluding: “Is any poll perfect? No.”

The second question was about the oil sands, where by industry and government calculations, about 50 per cent of revenues, after costs, goes to governments, a figure that includes royalties, taxes, cash to get mineral rights for exploration, and other levies. Asked whether the 50 per cent number was fair, but without any further context, more than half of those surveyed said “about right.”

However, the oil sands question did not mention that the industry-led national task force on the oil sands in the 1990s that created the 1 per cent/25 per cent royalty regime envisaged the overall take, royalties, taxes, et cetera, at 60 per cent, not 50. The take has been whittled lower because of corporate tax cuts in Edmonton and Ottawa.

Pedro van Meurs, a top consultant on fiscal matters in energy, considers government takes of less than 60 per cent to be low, though in a report to the Alberta government in April he added that low doesn't necessarily mean unfair. Industry argues that a lesser take from the oil sands is necessary because it is expensive to build and operate projects around Fort McMurray.

Mr. van Meurs, however, noted that an important issue underlying the oil sands royalty is that it doesn't generate a higher percentage for the state when prices are high, that the take is essentially “flat” regardless of high or low oil prices. The price of oil is at about $70 a barrel currently and has been at more than $60 for most of the past several years.

“At $60 a barrel or higher, oil sands projects generate unusually high total profits for investors,” Mr. van Meurs wrote. “This makes these projects very valuable. There are few projects in the world creating such attractive total values to investors at these price levels.”

Because of the corporate tax cuts, Canada is the only major energy jurisdiction in the world to actually reduce its take from oil and gas in the past five years, according to Wood Mackenzie, another leading energy consultancy.

A similar picture was inadvertently painted by Mark Nelson, head of Chevron Corp.'s Canadian arm, when he spoke at the review's stop in Edmonton. One presentation slide showed a list of 16 countries, including the United States and the United Kingdom, and all 16 had increased their take since 2002.

His point was that Alberta has to be careful to position itself competitively but also showed that all other jurisdictions have capitalized on high energy prices while only Alberta hasn't.

Afterwards, while Mr. Nelson said he would like to see the existing system unchanged, he said higher royalties would not deter Chevron's expansion plans in Canada, though he did say it could slow the influx of money.

“We are committed regardless of the outcome of the royalty review. We have to be. We have to get our customers oil and energy.”

CHAPTER THREE

ALL THE MAKINGS OF A CASH MACHINE

In Russia, where the Kremlin late last year seized control of a large development from Royal Dutch Shell for a pittance, the state takes 90 cents of every dollar when oil is above $29 a barrel.

In Venezuela, which produces less oil than Canada, President Hugo Chavez in June officially seized control of several developments similar to those in the oil sands. Multinational companies, such as Statoil and France's Total SA, acquiesced, deciding it was a better to stay in an onerous situation rather than depart altogether. Others, including Exxon Mobil Corp., said forget it: And by doing so will take billions of dollars in income statement writedowns as they walk away from their investments.

In Alberta, where the state takes less and less and energy corporations make more and more, the Finance Minister of less than a year, small-town doctor Lyle Oberg, adopted the arguments of industry in May, telling The Globe and Mail that he worried that the time was not right to ask oil companies to pay more given various stresses, higher costs and such (which in fact are seen around the world).

Mr. Oberg is the arbiter of the question of fair in Alberta, as the panel's report goes to him at the end of August, with a fast decision expected in the fall – to limit the amount of “uncertainty” industry frets over. Mr. Oberg has been skeptical about the need for a review. At a speech to investors last month in Calgary, he apologized for the uncertainty created by the review, saying he had to do it because of political pressure.

Watching Venezuela and Russia, Fadel Gheit, a leading energy analyst on Wall Street at Oppenheimer & Co., said the world's energy producers will have to reassess their futures as the political skies darken almost everywhere.

Mr. Gheit said the oil sands are obviously one of the best opportunities in North America, offering big reserves and long-term sustainable production – in short, a cash flow machine.

“North America, the world's largest energy market, is also the most profitable,” Mr. Gheit told his clients in a report after Mr. Chavez waved goodbye to Exxon (which has stakes in two of the oldest oil sands operations and is developing a new $8-billion [Canadian] oil sands mine).

“We expect [that] restricted access to large energy resources and unstable fiscal and political regimes to force major oil companies to reshape their business strategies with increased focus on North America,” Mr. Gheit said in a report.

This dynamic, for many Albertans, is clear. “In Alberta, we have safe oil. Industry should be paying for that,” said Carolyn Kolebaba, an official with the Alberta Association of Municipal Districts and Counties, representing all the small towns that see energy companies use their civic resources but wonder where the riches go as roads are worn down from the heavy truck traffic and hospitals strain to serve under the severe demands of the boom.

The oil companies all urged Alberta to maintain its reputation for fiscal stability. The argument was made straight-faced, as though the rest of the world was a peaceful and predictable place where stability is the defining theme, and industry presentations often were underpinned by quiet threats: Should Alberta dare to raise royalties, it would be Alberta that would become the planet's black sheep.

Lino Ramirez rejected this view.

Mr. Ramirez, a computer science graduate student, came to Alberta from Venezuela eight years ago, leaving as Mr. Chavez became president, watching from afar as his home country exercised its power. Mr. Ramirez, a quiet man with a big smile who doesn't endorse the expropriation of Mr. Chavez, wants his adopted home, where he hopes to start an energy services firm, to start “speaking up.”

“Where are these companies going to go? We have the opportunity here and when we know what's happening in the world, we have to use it for our benefit,” Mr. Ramirez said in an interview after a thoughtful presentation making the same, strong point to the panel in Edmonton.

CHAPTER FOUR

EVEN IF IT'S FAIR, IS IT FAIR ENOUGH?

The public review visited six Alberta cities and the six-member panel works through the summer to produce its report. Chaired by a retired forestry executive, the panel also included two university economists, one industry economist, a technology entrepreneur and a former oil executive. The group has been alternately praised and criticized. Some say it is too much in the pocket of industry; others say the members have the right mix of smarts and experience, as this is not easy territory to navigate.

Throughout the review, the sextet has mostly appeared as impartial as could be, asking the same probing and skeptical questions of all that came before them. And spending a summer sifting through thousands of pages of information is an unenviable task, attempting to quantify fair. Their pay was not disclosed by the government but it is likely not the most profitable way to spend one's time – they are doing duty as citizens, as Albertans, as Canadians.

“The Premier's mandate is he wants to find out what Albertans think,” Bill Hunter, the panel chair and self-described “simple logger,” said in an interview as the review began. “We're going to put a lot of effort to make darn sure we collect that.”

Mr. Hunter is a man with a warm, bearded face, carrying a happy girth, never in a tie, a man who sincerely thanked every presenter and reserved particularly warm thanks for the average Albertan. But how to mull the mix of opinions, as the panel sits for the summer to calculate a conclusion? Every piece of information would be weighed seriously, he promised, from the numbers of industry experts to the evocations of those that spoke from the soul.

In Newfoundland, the state is wrestling with fair, too, but does so with more boldness than Alberta, where politicians since Mr. Lougheed have been leery of offending industry. Newfoundland Premier Danny Williams, knowing of the riches off the shores, last year refused to sign a deal with Exxon, Chevron and others on the proposed Hebron project when the corporations wouldn't agree to allow the province to take a small equity stake – and Big Oil walked.

At the time, Mr. Williams, a Conservative in the tradition of Mr. Lougheed, was lambasted by all corners, unflatteringly compared with Mr. Chavez, a socialist, and accused of a disastrously aggressive negotiation strategy that would forever drive away companies with so many great opportunities elsewhere.

A year later, Exxon and Chevron are back, ready to restart negotiations. Mr. Williams' government, meanwhile, is close to introducing new legislation that would require state participation in all developments, fairly sharing in the ups, and downs, of oil and gas.

A local Newfoundland economist, Wade Locke of Memorial University in St. John's, this year published a paper trying to answer whether his province is getting its fair share. “At best,” he wrote, “it is a value judgment or opinion that can neither be refuted nor proven.”

Thus, on his main question, whether his home is getting what it deserves, in a presentation he said: “That is not a question an economist can answer. It would simply be an opinion.”

In the nebulous world of relatives and no absolutes – where just about the only absolute is that Russia and Venezuela are rougher places to do business than Alberta – Don Gunderson may have had the most incisive observations among the Albertans who made public presentations.

Mr. Gunderson, an auditor with no energy industry experience, sat down in Edmonton, beginning by saying: “I'm here just as an ordinary citizen. … What you're going to get here is just opinion and impressions.”

He settled in, growing more confident, made a wry joke before delivering the best assessment of fair heard during the public review in its two months and six stops.

“I think the most solid evidence that the current royalties are too low is the fact that the oil companies are happy with the current rates,” Mr. Gunderson said with a quiet smile.

“[This] may be simplistic but I think [it's] accurate,” he continued.

“We don't want a fair price; we want the best price.”

In Alaska, scandal flows like crude

In Alaska, scandal flows like crude
Scott Martell, Los Angeles Times, 17-Aug-2007

Stevens and Alaska, a Longtime Partnership
William Yardley, New York Times, 17-Aug-2007

Ex-legislator asks for separate trial from co-defendant
Lisa Demer, Anchorage Daily News, 17-Aug-2007

Kott: "I had to get 'er done. So, I had to come back and face this man right here," pointing to Allen. "I had to cheat, steal, beg, borrow and lie."

Allen: "I own your ass."

Also, check out this earlier posting, in which we dare to wonder how far BC is from its neighbours: Alberta, where government agencies hire spies to watch energy project opponents; and Alaska, where legislators take money to support industry-accommodating legislation.
Alaska legislators still stumping for Veco

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In Alaska, scandal flows like crude

Many of the investigations lead to oilman Bill J. Allen. The scope of corruption threatens to reshape the state's political landscape and touch Sen. Stevens.

Scott Martell
Los Angeles Times
August 17, 2007

There are generally two views here about the career trajectory of Bill J. Allen, an oilman and political wheeler-dealer who over four decades built his VECO Corp. into one of the state's largest and most influential companies.

He was driven by greed, or by a thirst for political power.

How Allen wielded his considerable influence is a major strand in a knot of political scandals that have touched both of Alaska's U.S. senators -- including longtime powerhouse Republican Ted Stevens -- its sole congressman and at least six members of the Legislature.

And the scandals -- some overlapping, some stand-alone -- have shaken the state's small political world to its core.

Allen's relationship with Stevens is key to some of the inquiries. The VECO executive oversaw the 2000 renovation of Stevens' home in Girdwood, a picturesque enclave about 40 miles south of Anchorage. Federal agents searched the house in late July. Stevens has declined to discuss the investigation other than to say that he has done nothing wrong.

But in a sign that the investigations are broadening, National Science Foundation spokesman Dana W. Cruikshank confirmed Anchorage Daily News reports Thursday that the FBI was looking into $170 million in contracts VECO won beginning in 1999 to support foundation polar research programs. When the first contract was awarded, Stevens was an influential member of the Senate Commerce Committee, which oversees the foundation.

Cruikshank referred questions on the investigation to the FBI. Officials there did not respond to a request for comment.

Stevens' success in steering federal money to Alaska projects is legendary.

So is Allen's reputation for getting his way with state political leaders.

The power that the two men wield across this vast state is demonstrable.

Former state Rep. Jim Whitaker visited Stevens' Senate office in Washington about four years ago and noticed a framed newspaper page that ranked Alaska's most powerful men. Stevens was No. 1.

Right behind him: Bill Allen.

"I doubt that paper's still there," said Whitaker, a Republican who is now mayor of the Fairbanks North Star Borough.

The scope of the scandals is staggering in a state with fewer than 700,000 residents -- smaller than San Francisco.

Allen and VECO Vice President Richard L. Smith have pleaded guilty to bribing or attempting to bribe five state representatives, three of whom have been indicted.

Allen and Smith said in court documents that they illegally funneled more than $400,000 to political candidates, including about $243,000 to an unidentified politician believed to be Ben Stevens, Ted Stevens' son and the former head of the state Senate. He has not been charged.

Search warrants have been executed on several businesses and homes -- including those of Ben Stevens -- as investigators try to untangle connections among Allen, the Stevenses, Rep. Don Young (R-Alaska) and state politicians.

In another unrelated controversy, Alaska's other U.S. senator, Republican Lisa Murkowski, recently announced she was returning 1.27 acres she had bought along the Kenai River for $179,000, or about $100,000 less than what local real estate experts reported it might be worth, according to an overview in a complaint filed July 24 with a Senate ethics panel.

Of all the scandals and investigations, the one that has drawn the most attention here -- and that could lead to a watershed change in Alaska politics -- centers on Allen, a high school dropout from Socorro, N.M., who arrived in Alaska in the 1960s as a welder.

When oil was discovered in Prudhoe Bay in 1968, Allen formed the VECO oil-services company with a partner who later left, and then rode the roller-coaster economy of the Alaska oil fields.

"For whatever reason, probably because he was around in the early days, [Allen] had a good relationship with the major oil companies," said Robert C. Ely, an Anchorage lawyer who did work for VECO until 1983. "He provided what the oil companies wanted in terms of service. You know: 'No problem,' 'Right away sir,' 'We'll get right on it.' They liked that responsiveness."

Still, VECO tumbled into bankruptcy protection in the early 1980s after the price of oil dropped and expansion attempts failed.

VECO held on, though, and when the Exxon Valdez ran aground in 1989, spilling millions of gallons of oil into Prince William Sound, Exxon tapped VECO as the main contractor to clean it up.

By then, Allen had become a political player, though Ely said Allen was more interested in pro-development policies than partisan politics.

"His politics was essentially his relationships with the people who made the decisions about the projects in the North Slope," Ely said.

"That wasn't political politics, that was good-customer- relations politics."

But the "political politics" was there too.

In 1983 Allen collected $41,080 in political donations from 415 VECO employees and doled the money out to five candidates selected by VECO, an action that the Alaska Public Offices Commission ruled illegal. Allen paid a $28,000 fine.

His pro-development philosophy toward the North Slope in particular came out during his deposition in that case. "If there's not any work up there, people can't work up there," Allen said. "If there's not a market, they sure can't work for me or anybody else."

Allen's biggest effect has been through political fundraising and the access that buys. Allen used his wealth to become the oil industry's chief lobbyist, and was so entrenched in Juneau that when he ran afoul of state lobbying regulations, he got them changed.

"To me he was one of those tall, gruff cowboy types who I always thought lived by a code," said former state Rep. Ethan Berkowitz, a Democrat. "It was his own code."

And Allen was the face of Big Oil in Juneau, even if the companies maintained their own lobbyists.

"They knew what he was doing and they could have reined him in," Berkowitz said. "There's no question that his business was dependent on their good graces."

Allen's guilty plea to bribery charges came as a shock even to politicians who had seen Allen at work.

"Everybody knew that VECO had an inordinate amount of weight in the Legislature, but very few of us knew that they were actually putting out anything other than campaign contributions," said former state Rep. Harry Crawford, a Democrat. "Rick Smith, he was good for buying drinks any time in Juneau, that sort of thing. You knew that was there but didn't know that he was providing actual money."

Court records paint a sordid picture of bribes big and small. Allen and Smith regularly booked Suite 604 of the Westmark Baranof hotel in Juneau, where they talked over deals both legal and illegal.

Both men admitted to handing out bribes of a few hundred to several thousand dollars to unidentified legislators, promising jobs and agreeing to fraudulent schemes to hide the flow of cash.

At times, it seemed as though Allen was a member of the Legislature himself. Crawford recalled a showdown over an oil-tax measure near the end of the 2006 legislative session. Crawford offered an amendment establishing an oil tax at a higher rate than Allen and the oil industry wanted, a measure that Crawford's colleague, Rep. Bruce Weyhrauch, a Republican, had just voted for.

"The minute we got that amendment passed the speaker slammed down his gavel" and called for a brief recess, Crawford said.

"Weyhrauch went back and talked to Bill Allen and talked to other legislators."

Crawford said Allen was also passing notes to legislators on the floor, using GOP Rep. Tom Anderson as a courier -- a practice barred by House rules. Anderson has since been convicted of accepting bribesin an unrelated scandal.

"A few minutes after Bill Allen had passed the notes, they called us back into session again and Weyhrauch stood up and moved to rescind our action," Crawford said.

"There was very little I could do, but I could tell who was in charge of the floor that night."

Weyhrauch has been indicted on charges he accepted Allen's bribes. The indictment includes allegations that Weyhrauch cast his first vote mistakenly, then maneuvered to get the amendment squelched.

Observers suggest no one was forced to take Allen's bribes.

"It was easy to avoid Bill Allen, and Rick Smith, and the oil industry in general," said Whitaker, the former legislator. "It was clear they were there to protect their own interests first, at the expense of the state. For me it wasn't a difficult thing" to maintain distance. "For others, it was."

The repercussions from the scandals are wide, and deep.

Republican Sarah Palin won the governor's seat in November largely based on agenda of reform, and has been pushing for tougher ethics policies.

Stevens, 83, was appointed to his Senate seat in 1968 and won it on his own two years later. Young has been the state's sole House representative since winning a special election in 1973.

Both had been considered shoo-ins for reelection in 2008.

But with the stain of corruption spreading, other Alaskan politicians are beginning to talk of challenging Stevens and Young for their seats. Berkowitz is mulling a run, though he is not certain whom he would challenge.

And Ray Metcalfe, a former Republican state representative who has been one of Stevens' loudest critics, said he would probably challenge Stevens in next year's Republican primary.

"The landscape has changed markedly," said Metcalfe. "I would be crazy not to."

scott.martelle@latimes.com

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Stevens and Alaska, a Longtime Partnership

By WILLIAM YARDLEY
New York Times
August 17, 2007

ANCHORAGE Senator Ted Stevens, 83 years old, 39 years in office and all but eternal in the minds of many Alaskans, notwithstanding a couple of prickly months in the spotlight, is home again.

Congress is in recess. Summer rules. And so does "Uncle Ted."

"I think they are making a big thing out of nothing," John Fields, 81, a retired construction worker said of questions of corruption surrounding the senator.

"Without him," Mr. Fields said, "I don't know what Alaska would be."

Mr. Stevens is the longest-serving Republican in the history of the Senate. His former interns are now executives, lobbyists and community leaders. The airport here is named for Mr. Stevens. Runways and windmills and septic systems in remote Alaska Native villages were built with money he helped push through Congress.

In the more than six years that he was chairman of the Senate Appropriations Committee, the money that Alaska received from the federal government doubled. The state still receives more money per capita than any other.

Yet fears of the unknown have been stirring in the outsize soul of the Last Frontier. Last month, federal agents searched Mr. Stevens's house in Girdwood for clues to his relationship with a businessman who recently pleaded guilty to bribing state lawmakers. The senator's son Ben has been accused of accepting bribes when he was president of the State Senate. Neither senator nor son has been charged with a crime, but indictments in Alaska politics suddenly seem to come as often as earmarks, the pork-barrel federal spending and state security blanket that the senator has long made a specialty.

Still, set aside those noisy protesters outside the annual pig roast fund-raiser Senator Stevens attended the other day for Representative Don Young, and it almost seems like old times.

"It was just a bunch of crazies," Bill Sheffield, a former governor and the host of the pig roast, said of the approximately 70 protesters. "Look, nobody's guilty until they're convicted."

Speak to the rotary club? Standing ovation for Mr. Stevens. Visit Elmendorf Air Force Base to celebrate the arrival of the new F-22 Raptor fighter jet? This would not be possible without you, Senator. Meet old friends and political contributors for that regular fund-raiser out at the fish camp? Bait will be provided.

Democrats are talking boldly, and even some Republicans suggest, that all the public taint has pushed Alaska politics to a turning point for the better. "Maturity" and "transparency" are the words often used. But no well-known candidate has announced plans to challenge the senator as he seeks his seventh full term in 2008.

"It's not just a political calculation," said Ethan Berkowitz, a Democrat considering a challenge to Mr. Young. "There's a real genuine respect for his ability. He's good at what he does."

The senator has long played on state worries that, without his loud, powerful voice in the Senate, Alaska would be an afterthought in Washington.

In his remarks to the Anchorage Downtown Rotary Club this month, the senator defended his use of earmarks and ran off a long list of projects he said he had helped make possible, including modernizing Alaska Native villages and fisheries restoration. A day after the rotary meeting, Mr. Stevens was the only elected official on a small stage with military leaders at the Elmendorf base when six of the new F-22 jets rumbled into the blue overhead, marking their formal arrival at the base. The senator noted that plans for a precursor to the plane first gained momentum in 1981, "my first year as chairman of the Defense Appropriations Subcommittee in the Senate."

The senator has made clear that he thinks little of the investigation and the news media's coverage of it. At the rotary club luncheon, he said he was proud of his work in the Senate, "regardless of the slings and arrows I've faced attacking what I've tried to do for Alaskans in Alaska."

All three members of Alaska's Congressional delegation are under scrutiny. Mr. Young is under federal investigation for his ties to VECO, the oil services company that until recently was headed by Bill J. Allen. Mr. Allen, who oversaw renovations to Senator Stevens's house in Girdwood, a ski resort outside Anchorage, is one of two VECO executives to enter plea deals. Lisa Murkowski, the state's junior senator, is the focus of an ethics complaint for her purchase of a house on the Kenai River from a longtime friend at what critics say was a below-market rate. Ms. Murkowski, a Republican, has since said she will sell the house back.

Gov. Sarah Palin, a Republican elected last fall in part for her promise to make ethics reforms, has steered clear of the problems and distanced herself from the party establishment.

Asked about fears that the state would be at risk without Mr. Stevens in the Senate, Governor Palin, sitting in her Anchorage office on a sofa draped with the skin and skull of a grizzly bear her father shot, said: "I will never be that pessimistic to think that the state's future hinges on one individual or on government dollars to sustain us. We should not be afraid of change."

One place where Senator Stevens has apparently not been seen during his August homecoming is at his home in Girdwood, a modest two-story dwelling that had been one story before the renovations. Mr. Stevens has told friends that he was given notice that investigators were going to conduct a search and that he offered them a key. They declined and found their own way inside.

On a recent afternoon, a white van from Action Locksmith was parked outside the house in a light rain. The man driving the van said he had come to change the locks on the house.

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Ex-legislator asks for separate trial from co-defendant

Attorneys are mum on reasons for the motion.

By LISA DEMER
Anchorage Daily News
August 17, 2007

Three weeks before the corruption trial of former state Reps. Bruce Weyhrauch and Pete Kott is set to begin, Weyhrauch wants a judge to split his case from that of his co-defendant.

The motion and supporting documents were filed under seal, out of public view. It's the same story with much of the legal maneuvering in the case. Lawyers involved say they couldn't talk about the issues even if they wanted to.

"There's a lot going on behind the scenes and it involves evidence that we can't discuss before the trial," said Doug Pope, one of Weyhrauch's attorneys.

The trial is scheduled to begin Sept. 5, though that could change. U.S. District Court Judge John Sedwick has yet to rule on several sealed motions.

The corruption case involves accusations that officials with oil field services contractor Veco Corp. bribed the legislators to help push an oil-production tax favored by the industry through the Legislature in 2006.

Veco's former chief executive, Bill Allen, and vice president, Rick Smith, have pleaded guilty to bribery and conspiracy involving four legislators: Kott, Weyhrauch, indicted former Wasilla Rep. Vic Kohring and former Senate President Ben Stevens, who was described but not named in court documents. Kohring has an October trial date. Stevens hasn't been charged.

Allen and Smith are now cooperating with the government and are expected to be key witnesses at the trial. They've resigned from Veco.

It appears from the indictment that the FBI used electronic surveillance of Veco's suite in Juneau's Baranof Hotel to collect evidence.

Kott is accused of taking payoffs totaling $8,993 and the promise of a job from Veco in exchange for doing the company's bidding. Weyhrauch is accused of soliciting legal work from Veco.

Generally, one reason a defendant tries to split off his case is so he won't be tainted by his co-defendant, said Rex Butler, a prominent Anchorage criminal defense attorney not connected with the Kott-Weyhrauch case.

"First of all, one person might be really knee deep in the trouble while the other person is a surface player," Butler said. "The problem is, in a joint trial, if a juror takes one down, they almost always will take both people down."

The specifics of the accusations against Kott and Weyhrauch differ, though they were indicted together May 3 and face similar charges: conspiracy and bribery against both; extortion and wire fraud against Kott; attempted extortion and mail fraud against Weyhrauch.

Kott is described in the indictment as willingly doing Veco's bidding and meeting with Allen and Smith in the Baranof's Suite 604 to plot strategy.

As laid out in the indictment, Weyhrauch's role was smaller. But he is accused of following Kott and Allen's instruction to change his vote on an amendment opposed by the oil industry. He had mistakenly voted the wrong way, the indictment says.

The charging document quotes a conversation between Kott and Allen in Suite 604 after the amendment was defeated on May 7, 2006:

Kott: "I had to get 'er done. So, I had to come back and face this man right here," pointing to Allen. "I had to cheat, steal, beg, borrow and lie."

Allen: "I own your ass."

Co-defendants may want to point the finger at each other, but that can backfire in a joint trial, Butler said.

"Both parties will end up convicting each other," he said.

Defense lawyers also may end up stepping on each other's toes. And there can be problems with evidence when one defendant has made incriminating statements against the other, Butler said.

Plus, defense lawyers like looking like the little guy up against the government with all of its power and resources, Butler said. The image doesn't carry as well with a table full of defense lawyers.

Jim Wendt, who represents Kott, said he probably won't oppose the motion to sever the cases, but he won't join in, either.

As to Kott's defense, "You'll have to wait and see, but our defense is basically that our guy is not guilty," Wendt said.

Weyhrauch attorney Pope said that his client is innocent and never sold his votes.

Prosecutor Jim Goeke declined to comment on the upcoming trial or the maneuvering.

Jury selection is scheduled to begin Sept. 5 with a bigger-than-normal pool of 120 potential jurors from Southcentral Alaska and beyond. Judge Sedwick has ordered that potential jurors be pre-screened with a questionnaire. It asks whether they know the defendants, lawyers or key witnesses; what they've read, seen or heard about the case; and whether they already have opinions about Kott and Weyhrauch.

Kott is a former House Speaker from Eagle River first elected in 1992 and defeated in the 2006 Republican primary. He now lives in Juneau. Weyhrauch is a Juneau attorney who served two terms and didn't run again in 2006.

Find Lisa Demer online at ldemer@adn.com or call 257-4390.

And then there were six!

Joe Anglin, Vice-Chair
Lavesta Area Group
16-Aug-2007

On June 8, 2007 landowners opposing the AltaLink’s 500 KV export transmission line uncovered four private investigators spying on their group. The Alberta Energy Utilities Board (EUB) subsequently admitted on Monday June 11, 2007 to hiring four private investigators for security purposes and denied the private investigators were spying or collecting information..

Now landowners have identified the names of six private investigators. The Alberta Electric Systems Operator (AESO) admits to hiring a private investigator but, (similar to the EUB), denies they were spying on the landowners. AltaLink has denied under oath ever hiring any private investigators.

Recently obtained documents, under the Freedom of Information and Protection of Privacy Act (the FOIP Act) now shows the EUB, AESO, and AltaLink may not be telling the truth. A copy of an E-mail dated may 9, 2007 from Ray Ambler, head of EUB Security, advises the EUB Board panel that an undercover private investigator was retained to covertly provide intelligence gathering about the landowners opposing the AltaLink export line. The E-Mail also informs the Board members that AltaLink and AESO have retained personnel for security too.

Landowners now question AltaLink’s testimony and want to know - did AltaLink executives commit perjury when they denied hiring any private investigators? The EUB security personnel were definitely under the impression AltaLink had hired private investigators just as the EUB and AESO did.

Landowners maintain the security concerns of the EUB were fabricated and exaggerated, and used as an excuse to violate their rights. Copies of E-Mails, now confirm the head of EUB security, Ray Ambler, obtained access to the password protected conference calls between landowners and their lawyers. This revelation contradicts Mr. Ambler’s and the Board’s earlier statements denying any knowledge of landowner conference calls. Additional E-mails confirm the EUB collected information on a Global Warming Activist Camp, held west of Edmonton in June and they collected information on the Alberta Environmental Network’s efforts to call for a public inquiry. None of these events had anything to do with security in Rimbey and landowners want to know why the EUB engaged in these activities? Landowners also maintain undercover personnel were in attendance at the July hearing in 2006 and at the pre-hearing last November. The EUB, AESO and AltaLink currently refuse to answer questions surrounding these events.

The hiring of private investigators by the EUB violates the basic principles of due process of law. By proactively investigating landowners, the EUB undermined the entire process in what appears to be, to the advantage of the industry.

Landowners are calling for the dismissal of all the EUB Board members and they want to know what role the Alberta Department of Energy has played in the use of Private Investigators. Evidence has now surfaced the Ministry of Energy may have utilized or engaged the services of a private investigator. Landowners want a complete and full public inquiry in to this matter.

Joe Anglin
Vice-Chair Lavesta Area Group

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Landowners want police to look into spying accusations

CBC News
July 10, 2007

A central Alberta landowners' group is calling for a criminal investigation into accusations that Alberta's Energy and Utilities Board hired private investigators to spy on them during recent hearings.

On Monday, Energy Minister Mel Knight ordered an independent review of the allegations. Alberta's information and privacy commissioner, Frank Work, as well as the Office of the Ombudsman are also investigating.

Jason Chance, a spokesman for Alberta Energy, said former Court of Queen's Bench justice Del Perras will take on the independent review and complete his investigation by September.

Joe Anglin, a spokesman for the Lavesta Area Group, said his group doesn't believe any of the investigations will be truly independent, and are demanding a fourth investigation.

"[If] we get to the point where maybe we get the RCMP involved, or some real serious judicial body that will open this up, then we might have a level of trust that might be restored."

He said the hearings should also be restarted. Continue Article

Alberta's Energy and Utilities Board is considering a controversial proposal from AltaLink to build a 500-kilovolt power line between Calgary and Edmonton.

Landowners living near the proposed site of the power line are concerned about possible health effects and have complained that the board has already decided to approve it.

In April, board staff alleged they were physically threatened in three incidents at a public hearing into the project. Afterward, the board decided to accept only written submissions and close the courtroom in the central Alberta town of Rimbey.

Landowners were moved into a nearby recreation centre to watch the proceedings on TV.

In June, board spokesman Davis Sheremata admitted the energy regulator had hired "security personnel" to keep an eye on the landowners watching the hearings in the recreation centre.

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Will Electric Utilities Be the Fueling Stations of the Future?

Bulletin of the Northwest Public Power Association
http://www.evworld.com/news.cfm?newsid=15786
June 2007

What if you could buy a car that got over 100 miles per gallon (100+ MPG), emitted almost no greenhouse gases, and helped free America from its addiction to foreign oil? Instead of paying $3.50 a gallon to fill up your car, you could pay the equivalent of about 50 cents a gallon? Instead of foreign oil, what if your car ran on clean northwest electricity and biofuels? What if electric utilities become the gas stations of the future?

A year ago that car was just a concept when Professor Andrew Frank of UC Davis, Mark Duvall of the Electric Power Research Institute, Felix Kramer of CalCars, and a few others made prototypes of plug-in hybrid electric vehicles (PHEVs). For example, Kramer took an existing Toyota Prius and added a larger rechargeable battery and got a 100+ MPG car. It was a Prius on steroids! That was last year.

This year everything has changed. It’s now time to buckle your seat belts and drive into the future.

According to Buzz Rodland, president of Rodland Toyota Inc. in Everett, Wash., “We are going to witness the electrification of the automobile.

These cars are real and they are coming faster than most people think.” And that may be faster than the typical planning horizon for electric utilities.

The 2007 Cascadia- Microsoft Conference on Transportation, Technology, and Energy, “Jump Start to a Secure, Clean Energy Future,” held at Microsoft’s Redmond campus on May 7, not only featured Prof. Frank, Duvall, and Kramer, but it also featured Nick Zielinski, the chief engineer for the GM Chevy Volt, and Bill Reinert, Toyota’s chief U.S. engineer. Toyota and GM have announced that they both will be making PHEVs. As soon as 2009, GM may make a plug-in version of its Saturn Vue and in the following year will roll out its hot Chevy Volt. GM has said that most drivers of the Chevy Volt may never have to fill up their gas tanks again.

At the Cascadia-Microsoft Conference, Rodland said, “Year to date, the Toyota Prius is the number one selling car in the Northwest. Not just hybrid cars, but all cars. People are coming into Toyota showrooms and asking for a Prius they can recharge at night in their garages.” Reinert showed that the competition for world oil from China and India along with the decline in production from existing oil fields means the price of oil will continue to rise. “It is clear we need to displace petroleum by tapping into diverse energy sources with affordable technology,” said Zielinski. “That is GM’s going-forward strategy.” Toyota is betting that the company’s future will no longer be oil driven. Currently 25 percent of Toyota passenger car sales in the Northwest are hybrids; Toyota has committed to offering a hybrid drive system as an option on all future redesigned models.

That’s a big commitment.

PHEV technology converges with political reality In the U.S., 97 percent of all transportation is based on oil consumption – a dependency that we can no longer afford. We import 60 percent of that oil from some of the least stable places in the world. Burning oil for transportation creates 40 percent of all greenhouse gases in the U.S.

The U.S. Supreme Court, Congress, the White House, and the governors in most of the western states have all in their own way said that we must end our addiction to oil. There is a growing political recognition that the most promising way to do this is with flexible-fueled PHEVs.

The move from oil to electricity in transportation has strong and growing bipartisan support. Sen. Orrin Hatch (R–Utah) spoke at the Cascadia- Microsoft Conference to discuss a PHEV incentives bill that he is working on with Sens. Maria Cantwell (D–Wash.) and Barack Obama. (D–Ill.) Reps. Dave Reichert (R–Wash.) and Jay Inslee (D–Wash.) have introduced legislation that would help set up a northwest pilot project for PHEVs. Officials from the U.S. Department of Transportation and the U.S. Department of Energy spoke of pilot projects as did Bill Rogers of the Idaho National Laboratory and Michael Kintner-Myers of the Pacific Northwest National Laboratory.

It’s not hard to imagine the consumer demand for an extreme gas mileage car. Some makers of all electric plug-in cars such as the Tesla Roadster and cars from Hybrid Technologies can be purchased now. Hymotion also now sells battery conversion kits that can turn a regular Prius into a plug-in hybrid in two hours. New York State announced last summer that it will convert 600 of their state-owned Prius cars into PHEVs. But the tipping point will occur when one or several manufacturers offer PHEVs in volume. How will PHEVs be recharged? Most manufacturers suggest that they can be recharged using a standard 120- volt home outlet. It is expected that these batteries will power vehicles 20 to 40 miles on a single charge. Since half of the cars on the road are driven 25 miles or less each day, this would eliminate the need for gasoline for most Americans. And at today’s northwest electric rates, the cost of electric fuel vehicles is equivalent to about 50 cents a gallon compared to $3.50 a gallon for gasoline. This means that an owner of two cars (one a PHEV and the other a conventional gas-engine vehicle) will probably drive the plug-in significantly more. Once you buy a plug-in, the operating costs are 1 to 2 cents a mile compared to 12 cents or more for a gas engine car.

How much load might PHEVs place on northwest utilities? According to U.S. Department of Transportation data, there are about 9.2 million lightduty vehicles in operation in the states of Washington, Oregon, and Idaho.

PHEVs could place nearly 7,000 megawatts of load on northwest utilities in the first hour of charging. This assumes that half of the 9.2 million light-duty vehicles were PHEVs that had randomly traveled between 0 and 20 miles before plugging into a common household 120-volt, 15- ampere outlet with a timer that delays charging until 10 p.m., which is about the latest that charging can start with the assurance that each PHEV is fully charged prior to the next morning’s commute. After 10 p.m., charging load diminishes as PHEV batteries reach their full charge.

Graphic 1 shows actual northwest regional loads as provided by the Northwest Power and Conservation Council for February 20-21, 2002, (a typical winter day) overlaid with PHEV charging loads. The chart illustrates that PHEVs could significantly increase our region’s peak load which could require new power plant and transmission line construction. This 7,000-megawatt peak could be four times higher (that’s 28,000 megawatts) if, as some have suggested, PHEVs are charged using 240-volt, 30-ampere outlets like those that are commonly used for clothes dryers and ovens.

However, if the PHEV charging load is actively managed, the same amount of energy can be delivered to each PHEV without exceeding the native load’s peak demand, thus not requiring additional new power plants to meet peak loads. It is important to start active load management when commercial sales of PHEVs first begin so vehicle owners understand that management of PHEV charging is part of the deal when purchasing these vehicles. If managed properly, the load could look as it does in Graphic 2.

What to do next?

Northwest electric utilities should prepare for a new class of customer: the mobile customer driving PHEVs. These mobile customers have different needs than utility static customers. It is important that electric utilities be prepared to serve them and make it easy for PHEV owners to plug in anywhere: at home, at work, when shopping, and when visiting friends and family across town, across the state, or across the nation.

There are plans being prepared for a Northwest PHEV Pilot Project to explore the ways in which this load can be optimally managed. The Northwest Power Planning and Conservation Council has requested a more detailed briefing in the next few months on what would be included in such a project.

In general, the pilot project will study how best to integrate PHEVs with the power grid and with the transportation system. It will help create a roadmap to maximize the benefits and reduce the costs of electrifying transportation. Thoughtful integration into the electric power grid will produce the most benefits for customers, the environment, and our nation’s electric utilities. To minimize new infrastructure demands, such as new power plants and T&D lines, the daily charging of large numbers of plug-in vehicles will require active management and coordination between vehicles and the utilities supplying the charging energy.

The question is no longer whether we will replace most of our imported oil with domestic electricity and biofuels in transportation; it is now a question of how best to do it. The Northwest with its clean sustainable electric power grid and its history of cooperation among its electric utilities can be a leader in making this transformation creating a model for the rest of the nation to follow. We can look forward to electric utilities becoming the gas stations of the future and to a future that is cleaner, greener, and more secure. And that future is not far away.

Juxtaposition in the oil sands

Western Oil Sands directors approve $6.6-billion Marathon deal CanWest News Service Wednesday, August 01, 2007 CALGARY -- Calgary-based Western Oil Sands Inc. announced on Tuesday that its board of directors has approved a plan under which Marathon Oil Corp., the fifth-largest refiner in the U.S., will acquire all its outstanding shares for $6.6 billion. The offer, a mix of cash and stock options, includes a $736.1-million debt accrued by Western. Under the deal, shareholders of the Calgary-based junior will receive $3.8 billion in cash -- $35.20 per share -- and 34.3 million shares of Marathon's common stock and securities valued at $2.0 billion. In addition, each shareholder will also receive one share and one-tenth of a warrant to purchase shares of WesternZagros Ltd. WesternZagros is 100-per-cent owned by Western Oil Sands and has exploration rights to an oil concession in Kurdistan, Iraq. "The transaction is the result of a rigorous and thorough process conducted with the oversight of an independent committee of the board," said Western president Jim Houck. "It accomplishes the key objective of capturing an integrated downstream and upstream opportunity." "The Athabasca Oil Sands Project [in which Western has 20-per-cent interest] is a world-class asset with multi-billion barrel, long-life potential," said Clarence Cazalot, Marathon's president. "Our strategically-advantaged U.S.-Midwest downstream business is well positioned to provide both near and long-term solutions to maximize bitumen resources. We are joining an ongoing and expanding project with strong partners." The Royal Dutch/Shell Group, leader of AOSP with 60-per-cent interest, aims to increase bitumen production from its oilsands assets in Athabasca to 770,000 barrels per day from a previous target of 500,000 bpd. © The Vancouver Sun 2007 Suncor ramps up oil sands plans Company files application for $4.4-billion expansion that is expected to use new mining technology NORVAL SCOTT Globe and Mail August 1, 2007 CALGARY -- Suncor Energy Inc. has become the latest company to advance its oil sands plans, filing an application with regulators yesterday to build an expansion to its mining operations in northern Alberta that could cost $4.4-billion. The proposed Voyageur South mine not only would be the next step in Suncor's plans to increase its crude output to 550,000 barrels a day by 2012, but could change the way that bitumen is mined from the oil sands. The new project is expected to utilize mobile ore preparation equipment, instead of current truck and shovel systems, an advance that could reduce noise pollution, air emissions and require fewer workers. "We believe the project has firm benefits for Suncor and for the regional, Alberta and Canadian economies," said Rick George, president and chief executive officer. "As we work to manage the impacts of industrial development, we're also working to mitigate environmental and social impacts of the project through new technologies." According to the filing, construction of Suncor's 120,000 b/d Voyageur South mine would begin in either 2009 or 2010, with the project being brought on stream between 2011 and 2013, subject to regulatory approval and a final investment decision from Suncor. The announcement follows Royal Dutch Shell PLC saying on Monday that it plans to construct a 400,000 b/d upgrader in the oil sands that could cost up to $27-billion. Suncor, which currently produces around 260,000 b/d of crude from the oil sands, is already expanding its oil sands operations in order to produce 350,000 b/d in 2008, and has also previously proposed the construction of a new upgrader to process its extra future output. Approximately 20 per cent of the accessible bitumen in Alberta's oil sands can be produced through surface mining, and companies like Suncor and Syncrude already use truck and shovel systems to extract the crude, digging the granite-like bitumen out of the earth with giant power shovels, which load the product into gigantic trucks that haul it away for processing. The system is labour-intensive, so any technological improvements could produce substantial cost savings. Suncor is keeping its cards close to its chest about how exactly its new mobile ore preparation equipment technology will improve operations, in part because other oil sands mining companies are believed to be developing similar advancements. However, according to documents on the company's website, shovels at Voyageur South will feed ore to a mobile ore-preparation system - pictures of which bring to mind enormous movable factory conveyer belts - that will first crush and then slurry ore for transport to the extraction plant. As a result, the company will require a smaller trucking fleet, producing fewer emissions and less noise, while it also hopes to make improvements with how it deals with waste products like tailings, said spokeswoman Patti Lewis. About 1,800 contractors are expected to be hired during the construction of Voyageur South, which will create a permanent work force of 650 once completed. Although the mobile ore technology is expected to reduce the number of new workers the company will need at the oil sands, it won't result in reductions in the company's existing work force, Suncor has said.

Greenpeace comes to Edmonton Nicki Thomas Edmonton Sun 31-Jul-2007 Greenpeace is setting up shop in Edmonton with their sights set on shutting down Alberta’s tarsands. “The tarsands are one of the most environmentally destructive projects in Canada, if not the world,” said tarsands campaign organizer Geeta Sehgal. Sehgal said the tarsands create 40 million tons of carbon dioxide emissions every year, ensuring Canada can’t meet its commitments to the Kyoto Protocol. “The tarsands are also taking their toll on Albertans,” said Mike Hudema, Sehgal’s colleague. “Increased homelessness rates, urban construction shortages, skyrocketing housing prices and pollution-related health problems can all be attributed to the development of the tarsands.” Sehgal said Greenpeace would like to see an end to tarsand development immediately. But the industry shows no signs of slowing. Tuesday, Suncor announced it has filed a regulatory application to expand the company’s oilsands mining operations. Suncor, the first company to commercially develop the oilsands, claims their new plan includes “detailed environmental and socio-economic impact analyses.” They say the project will use new technology that will reduce air emissions and requires a smaller workforce, “which mitigates the social impact on the community.” Suncor spokesman Patti Lewis said Suncor has a vision for oilsands development that includes reducing the environmental impact. “(Suncor and Greenpeace) don’t necessarily have to be opposing forces,” she said, adding that they’ve worked together in the past and will again in the future. The new Greenpeace office opens at Calgary Trail and Argyll Road on Thursday. Greenpeace