Keynote luncheon address II.

• Author: Marcello, Carmine
• Position: Conference: US and Canadian Energy Relationship

Introduction--J. Michael Robinson

Speaker--Carmine Marcello

INTRODUCTION

J. Michael Robinson

MR. ROBINSON: I am Michael Robinson, (1) and I am doing something very minor, just making an introduction for Carmine Marcello, (2) who is the Executive Vice President, Strategy at Hydro One, Inc., otherwise known in Ontario as WIRES. (3)

At one time, a prior government in Ontario thought that WIRES should be all privatized--prospects were being drafted, and province citizens were going to own it. (4) But then that all changed. Now, Hydro One is sort of half-pregnant; it is still fully owned by the Government of Ontario. (5) There is also Ontario Energy Generation, which is also wholly government-owned. (6)

I have a slight confession to make and a slight possible conflict. I do have an indirect role in Ontario's electricity generation policy because I am on a review board which hands out grants for community development of alternative energy sources. Ontario has advertised itself as being a leader in North America in this area because of our feed-in tariff in the Green Energy Act, (7) but my task is very easy. The rules say that if you come in with a good idea, here is a check. (8) So the Government is all for alternative energy.

Carmine is one of those executives who knows how to do things. He is an engineer. Of course, he has a Masters of Business Administration, as everybody has to have to have one of these senior executive jobs. But Carmine really knows how to make things. He has worked his way up for well over twenty years in many senior executive positions, using that engineering background, I am sure, and he started at Hydro One when it was quite a different beast way back in 1987.

So without further ado, I am going to let him explain what WIRES does and how it can perhaps get more involved in cross-border United States and Canadian electricity transmission.

KEYNOTE ADDRESS

Carmine Marcello

MR. MARCELLO: Thank you very much and I would like to thank Dan for inviting me. I fought it tooth and nail. I did not want to come and I will tell you a couple of reasons why.

As a starting point, I am an engineer and I like to get stuff done. I have heard a lot about policy and 900-page documents and all the rest. So part of the frustration was, how do you get all these policies aligned? And the last question from Governor Blanchard in the last session was, should we have a common approach? AI Monaco said, "No."

I will make a personal comment because I do work for Hydro One, (9) an agency of the Crown. We are completely owned by the government of Ontario. (10) We answer to our bondholders, so we care about what Standard & Poor (11) has to say and we do care about operating in a commercial manner, but these comments are my own.

Yes, we should have a common approach. When you think about electricity trade, water, and climate change, and then you take a regional entity, say the Northeast--and I am talking in terms of Quebec, the Maritimes, the northeast United States, Ontario, and from a technical term, I will say the ECAR TJM (12)--or the area we are in right now if you were to run this machine we call "the grid" in an optimal manner, the term "optimal" is very interesting.

If we had a common approach to what "optimal" meant, I would assume both price and reliability would be in included in that approach. Because, if I wanted to get someone's attention, all I had to do was flip the switch in the control room and my lights would go out. Before you knew it, everybody is asking, "What just happened?" So we can turn the lights back on. Thanks for the drama.

You have to remember that keeping the lights on is what folks like me are all about. Everything else is nice and interesting. The second those lights go out no one cares about anything. But with that said, think about a common approach. We have all agreed on the definition of reliability. We have all agreed on what is affordable. We have all agreed on what mechanism we are going to use to talk about clean. Then you sit back and turn it over to a bunch of engineers and you tell them to run this system.

I would venture that the system would look pretty interesting. You would have Hydro-Quebec (13) with huge opportunities to store water. I know we cannot store electricity in real-time but we can store water. (14) You have got huge interconnection capabilities between Quebec and the Northeast, between Ontario and Quebec, between the Northeast and Manitoba, and between Manitoba and the United States. (15) This grid is a huge machine with a lot of capability. There is a lot of, I will say, green. There is a lot of clean north of the border, which now runs that system in an optimal manner. Think about all the policy things that would have to take place to get to a point where you can just turn it over to a bunch of engineers and say, "Just make it happen."

The reality is that even a consistent definition of reliability does not exist. We do not know what a fair price is. We can keep debating it. I have been in conferences where nuclear is clean and where nuclear is the devil. I have been in conferences where big Hydro-Quebec is the devil but coal is clean. You can understand it from local political reasons, but all those things need to be brought together. Again, that is my personal comment, and I am saying it for the record because in a minute I am going to get into some of the prepared text.

Back to my comment, Dan convinced me to come. I came reluctantly because I really did not know what to say from an Ontario perspective.

So now that I have said that, we do have a place in terms of energy trade. I do want to focus on what can be done when there is some clarity. I am going to talk about Ontario as a case study. You can extrapolate it if you like, but the one thing we do have in Ontario, I think, is a fairly clear policy when it comes to green. I do want to highlight some of the actions that we have been able to take with that clear policy. I am not making a value judgment on the policy. Some of you are going to say that was brilliant. Some of you are going to say that was just the craziest thing you have ever heard. But the fact is, it is clear and actions can take place.

This morning David Crane mentioned what we know and what we do. You cannot do anything if you do not know anything. So getting that common approach or that clarity, I think, is the first step and then everything else can fall into place.

At this point, I will probably move into the reason I was allowed to come, as I promised for our legal people. You guys will all appreciate this, that being an agency of the Crown and, yes, being an engineer, I will try to stick to the prepared text as much as possible.

You heard earlier the Feds are having an election and energy really is not on the table. (16) Provincially, energy will be an election issue and I would argue that the issue will be centered around price. (17) Again, before I go on in much detail, I do want to highlight a couple of stereotypes. Usually, stereotypes are very dangerous things to talk about but sometimes they are quite informative.

All my travels have been in circles with the North American Electric Reliability Council. (18) Reliability is what we are all about and when we get there and talk, Canadians and Americans, a lot of times what we find is the inferiority complex that A1 talked about. We will fly into a beautiful American city and sit in a room like this and talk about issues; and then you will realize it is a bunch of Canadians sitting in a room in the United States. You realize there is not a single American in the room and we are talking about working together. So the other reason I was happy to come here is we are actually going to have a meaningful dialogue. Yes, I think the Canadians might be outnumbered. We are outnumbered, which is great.

When you mention green in some of these reliability conferences and you talk about Canada, folks think environment. Canada is green. Hydro and electric clean, and I am talking in electricity context here. When you mention green within a United States context and you ask the Canadians, they think the dollar, maybe the environment, but more important than anything and, again from a grid transmission perspective, they think military green.

Following the blackout of 2003, (19) the move towards cyber-security has been tremendous. It is back to my little joke here where I flicked off the lights. The second those lights go out all this policy talk about clean environment goes out the door, so keep in mind that security is front and center in all of this.

I think the energy industry as a whole, not only electricity but as a whole, have done such a tremendous job at keeping the lights on or delivering supply that people have taken it for granted. That is a good thing and that is the luxury that allows us to have some of the debates we are having today.

With that, I will start moving into some of the more prepared comments. A little bit about Hydro One. We are the WIRES Company. We move the power around. We will take anybody's electron. So if it is a nuclear one, if it is a green one, if it is a wind one, if it is a coal one, it is on our system and we move them around. (20) We are indiscriminate. We take them all.

Our territory is quite big and that provides us some very unique challenges. We are roughly twice the size of Texas with our actual geography. (21) And when you think about that, you think about all our customers. We have 1.1 million direct customers, largely rural, and we have large cities like Toronto, which have their own infrastructure. (22) We have car plants, oil plants, and all kinds of refinery and industry at one end. (23) We also have Mom-and-Pop farms and roof top solars. (24) We have huge wind farms as well. (25) Enbridge has, I think, the largest solar farm in North America. (26) We cover the gambit there, so the territory and the challenges are quite unique.

The other...