A Conversation with Nancy Southern, Chair & CEO of ATCO
This week, we are joined by Nancy Southern, Chair & Chief Executive Officer of ATCO Ltd., and Chair & Chief Executive Officer of Canadian Utilities Limited, an ATCO Company. ATCO is a publicly traded company that offers innovative and sustainable solutions to customers in various sectors, such as housing, real estate, energy, water, transportation, and agriculture.
Under Nancy’s leadership, ATCO is growing the EnPower division, which focuses on energy transition and includes hydrogen, CCS, water, energy storage, solar, wind, and hydro.
Peter and Jackie asked Nancy: How did ATCO start and what are the business lines today? How do you continue your father’s legacy and the corporate culture he established? Tell us about your Alberta hydrogen project and the potential for exporting hydrogen to Asia. Update us on ATCO’s recent final investment decision (FID) on the Atlas Carbon Storage Hub in partnership with Shell. What are your views on the federal government’s proposed Clean Electricity Regulations (CER) to achieve net zero electricity by 2035? What is your perspective on Alberta’s proposed changes to renewable power development, electricity markets, and transmission costs?
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Episode 249 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. Well, Stampede is over, and-
Jackie Forrest:
Yay.
Peter Tertzakian:
Yay, yahoo. I must say it was a great week. I mean, everybody was in such a good mood. I had a great time, but it’s done, it’s over. And like most people, I’m ready to check out for the summer.
Jackie Forrest:
Yeah, catch up on your sleep.
Peter Tertzakian:
Catch up on my sleep, catch up, get some rest. And as I said, a lot of people are now checking out for vacation, and I think it’s time for us to check out as well. So, this is our last podcast for the summer.
Jackie Forrest:
Mm-hmm. Yeah, we’ll be back at the end of summer.
Peter Tertzakian:
At the end of summer, say, end of August.
Jackie Forrest:
Yeah. Unless there’s some breaking news like last year, remember there was that renewable pause-
Peter Tertzakian:
Oh, the moratorium, yeah.
Jackie Forrest:
… that we had to come back for-
Peter Tertzakian:
Yeah.
Jackie Forrest:
… but hopefully, we’ll have a quiet summer. Yeah.
Peter Tertzakian:
Well, I don’t know. I’m not sure in the lead-up to the US election and all sorts of other things going on, we’ll have a quiet summer, but let’s hope so. We have a very special guest this week and will come to that in a minute. But Jackie, I know you wanted to talk about a few things. The Clean Fuel Regulations, there’s some news. Can you explain the Clean Fuel Regulations in like 30 seconds or less?
Jackie Forrest:
Well, for those that follow the podcast, we did in June have Doug Hooper on the podcast from Advanced Biofuels Canada, and we talked about the Clean Fuel Regs, which is aiming to reduce the emissions associated with our gasoline and diesel. He was going to give us an update and he said there was a report coming and it did come in June. So, I just wanted to highlight that it talked about what the carbon price was associated with that. So, if you chose not to reduce the emissions associated with your gasoline or diesel, you could buy credits if somebody had a credit.
Peter Tertzakian:
So, what was the price that he was suggesting at the time?
Jackie Forrest:
He actually didn’t have a price.
Peter Tertzakian:
Right.
Jackie Forrest:
I myself thought it would be fairly low because the existing biofuels, we already have made it at least this year, but it came out at around $130 per ton. No surprise, most of the credits have been in the biofuels area, and that’s what we expected. Yeah.
Peter Tertzakian:
Right. So just for clarification, under the Clean Fuel Regulations, it’s a different trading market than the levies that are in the Alberta TIER system, which is subordinate to the federal Greenhouse Gas Pollution Pricing Act, which is one branch of which is the industrial emitters carbon tax. This is all separate.
Jackie Forrest:
This is separate.
Peter Tertzakian:
This is yet another layer of carbon markets.
Jackie Forrest:
It is, but what’s interesting is they’re additive. So, if you’re in Alberta, you can get the credit. If you make an emission reduction in a refinery or something to do with the gasoline or diesel or even the upstream oil and gas, if it’s domestically used oil and gas, you can get this credit in addition to TIER. So, I found this interesting because we did learn about CCS on a refinery with the Shell project a few weeks ago, and to me this is very supportive of those types of investments around refineries.
Peter Tertzakian:
Right. So, we’ve got some other news Jackie, we’ve got some news from Strathcona Resources.
Jackie Forrest:
Right. There was another CCS announcement. So Strathcona Resources announced that they’re going to spend up to 2 billion on carbon capture storage projects in partnership with the Canada Growth Fund. So, this one’s unique. The other ones were a contract for difference, but this is a little bit different that at least reading the press release, half of the money is going to come from Strathcona Resources and half of the money for the CCS project is going to come from the Canada Growth Fund. And Strathcona will have to repay the Canada Growth Fund with the cash flows that they get after they pay all their costs until they pay this back. So, it is a very different-
Peter Tertzakian:
Structure.
Jackie Forrest:
… sort of structure, but it is potentially going to see another $2 billion go towards CCS, not only in Alberta, but they have operations in Saskatchewan as well.
Peter Tertzakian:
Right. Now, they get investment tax credits on top of this?
Jackie Forrest:
Yeah, so the other half that Strathcona pays for, a lot of that will be recouped through the investment tax credits.
Peter Tertzakian:
Yeah, right.
Jackie Forrest:
So, in the end, Strathcona Resources, maybe there’ll probably be still some CapEx there, but a lot of it’s going to be covered between these two different government programs.
Peter Tertzakian:
And it seems CCS is on a bit of a roll with carbon capture storage. We’ve got another one, Entropy, with their announcement of the data centers.
Jackie Forrest:
So, I just wanted to highlight this didn’t make a lot of news, but I found it really interesting because I hadn’t seen it yet: We’ve got all this gas in Northern Alberta and there’s all this need for 24/7 power. So I actually had thought to myself, and I had discussion with a few others just to about a month ago, “Can you imagine we can see a bunch of data centers in Northern Alberta where we have all the gas?”, and so that’s kind of interesting-
Peter Tertzakian:
And it’s cool up there too. So it’s better for-
Jackie Forrest:
That’s right.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Well, and Thunder Said Energy, we talked about them, they just did a study that looked at all the different 24/7 power that you could have, and the cheapest by far, if it’s going to be low carbon, was natural gas with CCS compared to things like nuclear or small modular or geothermal or all the other things that you could do.
Peter Tertzakian:
As long as the CCS is close to the data center.
Jackie Forrest:
Yes, and of course it matters what it costs and what the carbon credits are, but yeah.
Peter Tertzakian:
So, putting the data center close to or near a reservoir that can take the carbon.
Jackie Forrest:
Yeah. And now, we don’t have to worry about building more pipelines, we’ll just send the data out, so there’s an advantage there in terms of not having to build pipelines. So, I thought it was interesting. Maybe we’ll see more.
Peter Tertzakian:
Okay. Well, stay tuned. And while we’re staying tuned, we are delighted to introduce our special guest, Nancy Southern, who is Chair and Chief Executive Officer of ATCO Ltd., and Chair and Chief Executive Officer of Canadian Utilities Limited, which is an ATCO company. Nancy, so delighted to have you. Welcome.
Nancy Southern:
Great to be here with you. It is a great honour. Thank you, Peter and Jackie.
Peter Tertzakian:
Mm-hmm.
Jackie Forrest:
Well, thank you. And congratulations on the news that you’ll be receiving the Order of Alberta in October. That was really exciting to see as well.
Peter Tertzakian:
Yeah, congratulations.
Nancy Southern:
It’s a great honour. I’m very humbled by that. Terrific honour.
Peter Tertzakian:
Mm-hmm, well, ATCO is an Alberta Legend. So, why don’t you tell us about the beginnings its major business lines today?
Nancy Southern:
Mm-hmm. Very humble beginnings. 1947, I’ve got a copy of the record of my dad signing the incorporation of the Alberta Trailer Sales Company, and he and my grandfather and my grandmother started renting out trailers, basically camper trailers and then modular homes. And that was all due to the big oil boom, Leduc No. 1, the Turner Valley gas, Bow Valley gas, and all of a sudden, the major oil companies were coming into Alberta, and people had no place to live except in farmers’ silos or tar-paper shacks. And actually, my grandfather on my other side was one of those drillers that lived in tar-paper shacks and silos.
Peter Tertzakian:
Well, I know the ATCO name became synonymous with trailers because when I started my career in the early eighties, I was working in the field, and it was ATCO trailers. It wasn’t trailers; it was ATCO trailers. It’s just like Kleenex or Scotch tape or Xerox: it’s just synonymous. And I think it still is in large part, people thought, but they’re much more refined today than they were back then.
Nancy Southern:
Yes, well, as-
Peter Tertzakian:
They’re much more luxurious
Nancy Southern:
As labour forces improve in terms of the quality of life they’re looking for, the camps have now become really, as you say, quite luxurious with fitness centers, swimming pools, dining rooms, 24/7 dining service. It’s more like a hotel. And I have to say today our largest facility that we built was for the building of Saadiyat Island in the Emirates at 20,000 beds. It was a whole village and it’s done very well.
That business has continued to be a world leader and it certainly has been our leading indicator economically and for resource development throughout the world.
Peter Tertzakian:
Yeah. Well, what other business lines?
Nancy Southern:
So we have a publicly traded company that ATCO is the majority shareholder in, and that’s called Canadian Utilities. And within Canadian Utilities, we have the electric transmission and a small distribution system in Alberta shared with AltaLink, and we also have ATCO Gas & Pipelines, and it serves about 88% of the province of Alberta. We also inside of Canadian Utilities have started developing our energy transition business outside of the regulated companies, which is renewables, storage, natural gas storage, ethane storage, and now we have proven out our salt caverns for hydrogen storage. And we have quite a large enterprise in Australia with a few power plants, gas-fired power plants, and a gas distribution network.
Jackie Forrest:
All right, so those ATCO trailers are going around the world. We’re going to come to your new energy business because we’re very interested, especially your work in hydrogen. But before we do that, we wanted you to tell us about your role at ATCO and how did you feel about carrying on the legacy of your father and the corporate culture he created? I know it’s been some time now, but I think people would be just very interested in that.
Nancy Southern:
Big shoes to fill, that’s for sure, Jackie. But I was really, really fortunate. My dad always allowed people, and this is quite unique for a founder in many regards to actually divest responsibility and really give individuals the opportunity to demonstrate their entrepreneurship, their leadership, their management skills. He would check for sure. But I really was able to start and hone my skills early on. I worked as an executive assistant in the early days of ATCO International, and then at Spruce Meadows, which became my mom and dad’s way of giving back to the community, I actually developed the media services business from nothing, and it taught me a lot about selling, developing a good product, having the right people, and managing people.
So, I felt I was pretty confident when I was moved into the role, I know nobody else was, but I had a great mentor and coach in my father, and I had a terrific board of directors who in a way gave me my master’s in business, the four Bs: Bill Britton, Baz French, Brian Drummond, and Bob Lund from Citibank. And those four individuals were very supportive and helped me. I was pretty green and there was a lot of passive resistance, but I decided as soon as I stepped into the CEO role that he couldn’t wear my high heels and I couldn’t wear his brogues. So, we were going to have a little bit of different management style, but our principles and our values remain the same.
Peter Tertzakian:
Mm-hmm. And the rest is history, as-
Nancy Southern:
And the rest is history.
Peter Tertzakian:
As they say. So tell us from a family perspective: ATCO is publicly traded-
Nancy Southern:
Yes.
Peter Tertzakian:
… but there’s still a fairly significant family component?
Nancy Southern:
Dual-class shares, so we have control through the voting shares, 35% total equity. And then, the same thing at Canadian Utilities: ATCO has 100% of the voting shares and 54% total equity. And that’s how we’ve been able to keep the company in Canada is having a long-term view and not being subject to rash, radical activism and the hollowing out of Canada that we experienced, as you’ll remember, in the eighties. I think without those dual class shares, I’m not sure that ATCO would’ve survived as it is today. It would’ve survived, but in a very different fashion. Part of our values, our family values, is the responsibility to the people that have helped build ATCO, and that there’s opportunity and prosperity for generations to come.
Peter Tertzakian:
I mean, you and your family’s sense of community is just so amazing. I mean, you also have the Spruce Meadows here and that whole operation, which is just such a family-oriented, yet such an international gathering place for people who love basically equestrian sports.
Nancy Southern:
We’re very proud of Spruce Meadows. It has gained international recognition. It’s judged as number one or two in the world in any given year against Aachen, Germany. We’re also very proud of the fact that it has never received any government funding, that it has been truly a labour of love and all of my mom and dad’s savings. My sister does a great job running it today. We have been able to build, well it’s not for me to say, but really a top international reputation.
Jackie Forrest:
Well, and a world-class facility and here in Alberta and a world-class company here in Alberta. I actually was just thinking as you said that, I started my career 25 years ago. I could just count all the headquarters that we’ve lost in that time and the lost opportunities for people to become CEOs in Alberta and Western Canada. I really appreciate what you’re saying there around maintaining companies like this in Alberta.
Nancy Southern:
I think it’s very important, Jackie. It really saddens me, actually, that our governments do a lot of things, but they have not been champions of Canadian business in many ways. It’s always great when they talk about foreign investment, but what about us that are really struggling?
We come from a relatively small pond in Canada. To be able to be an international corporation is tough because those are big competitors out there. Export Development Canada used to play a significant role in building Canadian business. It still does, but it has a very different type of mandate today. For example, we acquired the gas network in Western Australia. We have about 650,000 gas distribution customers.
Now in Western Australia, you don’t need natural gas for heating. It’s usually used for cooking. It’s used for some air conditioning, and it’s used for special features, also used for some industrial use. The only way that we could acquire that business, well over a billion dollars, was to get some financing. EDC was one of the syndicated financiers of that acquisition 11, 12 years ago.
Now, as the financing has been renewed, Export Development Canada has said, well, they can’t anticipate again because it’s natural gas. Canadian businesses in Western Canada have gained extraordinary knowledge and built tremendous value for Canada because of their affiliation with hydrocarbons, the natural gas and oil industry. It’s not that we produce natural gas. It’s that we’re delivering it for customers who want it, have chosen to buy it. I find that really disheartening as a Canadian corporation that we don’t have real champions for our corporations.
Peter Tertzakian:
Yeah, and I mean, natural gas, as we know, is not used just for combustion. I mean, it’s used for all sorts of petrochemicals and is in everything we use from our shoe soles to our phones to the glasses that I’m wearing and the frames.
Nancy Southern:
My lipstick.
Peter Tertzakian:
Your lipstick. So, there is something that is failing, I think, because we are definitely in an era where we cannot afford to see capital leave this country out the back door. We desperately need foreign investment to come in to help Canadian innovators and companies, but they’re not coming here because of a variety of reasons that we’ve discussed on this podcast. We need a much more concerted, holistic way of thinking about our industrial policy, our energy policies, to catalyze this kind of company that you, your father and family have built. I mean, we could go on and on about that, but it’s not as if you’re just a proponent of natural gas. You’re very much involved in the transition side of things. Let’s talk about that.
Nancy Southern:
Absolutely. We had the largest gas-fired power generation fleet in Alberta for a long period of time. We also had a couple of very large coal plants. We decided that it was the right thing to do was to retire the coal. I was really proud of all of the coal-fired producers in Alberta. We retired our coal well before it was even legislated to be retired. We moved to gas. We transitioned to gas. Then gas, in fairness, our units weren’t as competitive. They were always selling on the margin in terms of the power pool prices. We felt it was the right thing to do to recycle capital was to sell the fleet and thought that we would also participate in the renewable space as a result.
We have some wind, and we have some solar. We’ve got a little bit of hydroelectricity. But for me the most exciting is the development of a complementary business to natural gas through the production of hydrogen. I say that for a lot of different reasons.
First of all, the pipes are able to pretty much manage up to 20, 25% blend of hydrogen, which reduces the carbon emissions out of natural gas. It also, in a way, is a defensive strategy to make sure that the multi-billions, hundreds of billions of dollars of pipe in invested in the ground in Alberta are being used, that they’re not going to be stranded assets.
But the second most important part of it is that it is a second fuel coming out of natural gas that can be used around the world, whether it’s as pure ammonia for fertilizers or whether it’s used as blending for carbon reduction. Japan and South Korea are the most bullish on hydrogen usage as a blending product and as a direct product for power generation, 100% hydrogen power generation. They’ve had one auction already in Japan. The second auction will be later this fall for hydrogen coming out of wherever they can get the best price. In Alberta, because of our proximity to the natural gas resource, our relative proximity to the Pacific Ocean, we actually have a very, very competitive price to the Gulf Coast where companies like Exxon are doing major hydrogen plants.
Peter Tertzakian:
Let’s just talk about that for a second because you can take the hydrogen from the Gulf Coast complex, which is vast.
Nancy Southern:
Vast.
Peter Tertzakian:
I mean if you ever go there, it blows your mind because that whole Texas Gulf Coast industrial complex, they make hydrogen there from whatever means they make it, whatever color of hydrogen there is.
Nancy Southern:
The whole rainbow.
Peter Tertzakian:
They potentially convert it to ammonia. Is that what they do, and then tanker it out through the Panama Canal?
Nancy Southern:
Exactly.
Peter Tertzakian:
To Japan and South Korea. For us, are we going to convert it to ammonia as well?
Nancy Southern:
Yes, we will.
Peter Tertzakian:
Okay.
Nancy Southern:
We’ll convert it to ammonia here in Alberta, rail it to the Port of Prince Rupert. It’s a much shorter distance to Japan from Prince Rupert.
Peter Tertzakian:
Right, because of the bulge of the Earth by the Panama Canal, which is closer to the equator.
Jackie Forrest:
And you don’t have to go through this bottleneck with the Panama Canal, right, where’s it right on the ocean?
Nancy Southern:
That’s what Japan’s really concerned about; is how much traffic the Panama Canal is going to be able to sustain. It’s about a 35% discount on the transportation cost.
Peter Tertzakian:
To go from here?
Nancy Southern:
To go from here, from, well, Prince Rupert to Japan versus the Gulf.
Peter Tertzakian:
Talk about the rail cars. I mean, ammonia is not exactly your first choice because of its toxicity.
Nancy Southern:
Sure.
Peter Tertzakian:
If a tanker full of oil spills, it’s one thing, but ammonia is really-
Nancy Southern:
It is very toxic.
Peter Tertzakian:
It’s very toxic.
Nancy Southern:
Yes, but ammonia is shipped by rail-
Peter Tertzakian:
All the time.
Nancy Southern:
…every day, every single day. By the time we get our particular project to full production, we will need a full unit car, so over 100 cars. These ammonia cars need to be, as we’ve seen oil tankers be-
Peter Tertzakian:
Upgraded.
Nancy Southern:
…upgraded, double-hulled, triple-hulled. We’ll need to do that with the ammonia cars as well. But the wonderful thing, Peter and Jackie, I think about the whole nascent hydrogen industry is our ability to bring our First Peoples of Canada along as part of the development of this industry. Whether it’s the pipelines, whether it’s the hydrogen storage, whether it’s the manufacturing of the hydrogen, whether it’s owning the ammonia cars themselves, participation in the port, we have this wonderful opportunity. I know that everybody doesn’t see it the same way as I do, but I think this is where you actually get economic development, long-term prosperity for our Indigenous communities right from the ground up. The production of the natural gas, using the natural gas in the manufacturing, being able to store the hydrogen, converting it to ammonia, railing it-
Peter Tertzakian:
The terminals.
Nancy Southern:
…the whole gamut. That, for me, is what’s most exciting about this nascent industry, which I know as most pundits like yourself would say, it makes no sense to produce hydrogen because you lose so much energy caloric content versus natural gas, but it does a lot of things for us.
Peter Tertzakian:
Well, that’s a whole separate conversation. The flip side to it is there are a lot of inefficient systems in our society. Here’s yet another one by virtue of the necessity of which is to have the energy carrier in this instance conform to environmental and other social considerations. But I want to pick up on this word nascent because it’s not so nascent in a sense. I mean, Alberta by virtue of its refining complex, has been dealing with hydrogen for a long time.
Nancy Southern:
Very long time.
Peter Tertzakian:
We know how to handle this stuff.
Nancy Southern:
Absolutely.
Peter Tertzakian:
It’s not really nascent.
Nancy Southern:
It is nascent in the sense of an export-
Peter Tertzakian:
From an export.
Nancy Southern:
… or a new commodity to trade.
Peter Tertzakian:
But not so much in terms of handling what is really quite a difficult atom. It’s not even a molecule, it’s an atom.
Nancy Southern:
It’s an atom. You’re-
Peter Tertzakian:
So that it has a propensity to leak very easily, ’cause it’s-
Nancy Southern:
Very tiny,
Peter Tertzakian:
… number one on the periodic table. So small that containing it. But we know how to do that.
Nancy Southern:
We do. And I guess the difference, and the reason that I call it nascent is, hydrogen is being used for manufacturing processes.
Peter Tertzakian:
It’s kind of interesting that given the necessity of scale, given the necessity and the advantage of previously entrenched infrastructure and being able to handle hydrogen, that there are only a handful of places in the world that can really do this. I think the Middle East is getting into the game in a big way, but they have refineries. They know how to use hydrogen and transport it. There aren’t that many places that have the combination of the resource in the ground that is inexpensive combined with-
Nancy Southern:
The infrastructure.
Peter Tertzakian:
… the infrastructure, and also the CCS kind of knowhow and everything put together. I mean the American Gulf Coast certainly is one of those places, but there just isn’t that many.
Nancy Southern:
No.
Jackie Forrest:
They haven’t done a lot of CCS down there. Right? We’re ahead right now. That’s going to change, but-
Nancy Southern:
Yeah, it will change.
Peter Tertzakian:
Yeah.
Jackie Forrest:
But I mean we have a lot of experience.
Peter Tertzakian:
It’s CCS week, Jackie. It was CCS week.
Jackie Forrest:
Yeah. And that’s right.
Nancy Southern:
Yes.
Jackie Forrest:
But we haven’t got to yours yet. Right?
Nancy Southern:
Yeah.
Jackie Forrest:
That’s announcement you made-
Peter Tertzakian:
That’s right
Jackie Forrest:
… in conjunction with Shell on your new CCS hub.
Peter Tertzakian:
Okay, it’s CCS month.
Nancy Southern:
It’s a pretty exciting project for us.
Peter Tertzakian:
Well, tell us about it.
Nancy Southern:
It’s called the Atlas Hub. And Shell and ourselves are 50/50 partners. For phase one, so we have FID already committed, phase one, we’ll use about 650,000 million tons per annum of carbon captured from their Polaris that you spoke about at the top of the show, Jackie. The upgrade in their refinery at Scotford.
And then phase two, we’ll see us build out this carbon hub to seven to 10 million tons per annum that can be delivered into the hub. It’ll be an open access hub, phase two. So our hydrogen project will deliver about a million tons a year. And then the open access hub will be available just like natural gas storage is at Carbon or Big Eddy today in Alberta.
Jackie Forrest:
Yeah. And just to put that in perspective, I actually counted up how much we’re injecting today between the existing CCS and the enhanced oil recovery projects. It’s about 4 million. So you’re almost talking about, if you can fill out, doubling what we’re doing today. So, it’s very significant, if you can fill the second phase.
Nancy Southern:
It is. And it’s a very, very large reservoir. And it’s interesting, I think the provincial government has done a very good job on scoping out the reservoir. Obviously, Shell has done a lot of geology on it as well. And then the concept of open access. So, we can’t just build it for ourselves, and it is reservoir of the Crown. It’s pretty exciting for us. Of course, we’re very fortunate to have Shell as our partner because that takes a lot of stress off the initial economics of the project. And it gives us time to build our hydrogen plant.
Peter Tertzakian:
Yeah, I think this brings to the fore, another underappreciated element of things like carbon capture. We’ve spent in hydrocarbon producing regions over a century, creating the regulatory infrastructure, the rules, the regulations, the ownership of the fields, the mineral rights agreements, the royalty agreements, and so on. These I consider to be regulatory infrastructure. There was really no carbon capture infrastructure for putting the carbon back into the ground. We had all sorts of infrastructure for pulling the carbon out of the ground, and things like, well, who owns the carbon once it’s in the ground? What are the rules and regulations? Is it open access? Is it private access? And I agree with you, the province latched onto this only a few years ago. And now we do have that regulatory infrastructure, which again, is something that not a lot of other regions have.
Nancy Southern:
No. And I think also what’s really impressive that the province has done is as a result of the abandoned well situation. Not that we really liked it, Shell or us, but they put in a significant amount of indemnity that we had to put up, we’ve had to put up, for eventual closure of the hub, if that ever happens. And I think that that comes not just in, you’re putting a little bit of cash away for your provision, it’s an actual line of credit.
Jackie Forrest:
And I think we’re ahead in the US. And we always talked about the fiscal framework was the thing that was missing between the Canada Growth Fund, learning about the Clean Fuel Regulations, and the potential price of carbon. I think finally we’re starting to see some projects go, which is exciting.
Now I want to talk to you about the regulatory process. One of the things about big projects in Canada has been this regulatory process for obtaining environmental approval for these large projects has been slow and uncertain and many, many years now. There was some revisions to the Impact Assessment Act in this Bill C-69 that just recently passed. Just what are your thoughts in terms of your project or other projects you’re looking at in Alberta? Do think that that will be a barrier in terms of going forward?
Nancy Southern:
Hydrogen has been excluded from the Impact Assessment Act for Alberta because of the fact that we do know how to do hydrogen in Alberta. So luckily, we don’t have that process. And as I said earlier, I think our ability to partner with Indigenous communities gives us a huge advantage in developing our projects. Also, we have experience in developing linear projects and agreeing to have the Indigenous partners come in as partners, but not taking on the risk of construction and commissioning. And that’s worked really well.
There’s a trust built up there for our Alberta power line, which is about 300 kilometers from Edmonton to Fort Mac. We had no interventions, and the communities along that line own 40% of that power line now. And I think that has been a hallmark of ATCO actually, that has given us great advantage in being able to get projects pushed along.
Jackie Forrest:
I want to mention you’re the Honorary Chief of the Kainai Blood Tribe and your given name is Brave Woman. Which I think you must be pretty brave with this hydrogen project. So, maybe just tell us a little bit about that. You’re obviously very close to some of these communities.
Nancy Southern:
I am. And I’m very, very honored that Chieftainship was given to me by former Chief Weaselhead, Charles Weaselhead. And the Kainai who gave me my headdress in the powwow ceremony are part of the Blackfoot Confederacy, which is another really interesting opportunity. And as we see more confidence and more capabilities being developed in Indigenous communities, we’re starting to see a number of more mature communities make their own laws. And so, we have to be very much aware and develop our relationships as Canadians as a whole, because they’re not waiting for truth and reconciliation to happen to them. They are going to make it happen, which they should.
So the Blackfoot Confederacy, which goes across the 49th parallel, well into Montana, it’s the largest confederacy. They’re actually talking about their own independent energy system. They do have some oil and gas in Southern Alberta. Well actually, fair bit.
Peter Tertzakian:
Fair bit.
Nancy Southern:
Yeah. The ability to do their own power generation, do their own wires and pipes.
Peter Tertzakian:
Lots of wind and sun.
Nancy Southern:
Lots of wind and sun, which is pretty exciting. And they’re talking about, and they have already, they’re exporting many of their agricultural products. And to be dependent on blue-eyed white person’s electricity grid or pipeline system is not necessarily where they want to be.
Peter Tertzakian:
Right.
Nancy Southern:
So, I think it’s really interesting to see how this developing.
Peter Tertzakian:
It really is. No, it’s very exciting to see how it’s all developing. I want to leave hydrogen and move on to electricity.
Nancy Southern:
Okay.
Peter Tertzakian:
But before we do that, what are the Japanese and the South Koreans doing with the hydrogen?
Nancy Southern:
They are blending it with nat gas, but their intent over the next, I think they’ve set a seven-year horizon, is for pure hydrogen power generation. And Siemens and GE are just developing their turbines for pure hydrogen. We have another very large hydrogen project going on in South Australia. Its renewables with electrolyzers. Neither Siemens or GE have been able to test for a period of time, pure hydrogen driven in their turbines. There’s warranties and reps that they’re offering, but that’ll be a big test. I think, I’m sure the Japanese will figure it out.
And hydrogen derived electricity is just one alternative. I don’t believe there’s one silver bullet. And I think you’ve all talked about these things in the podcast that you’ve hosted. There’s not one silver bullet. We need everything. If we want to continue to have the prosperity that we’ve had, if we want to be able to let our kids do their homework at night with light, and heat our homes, then we’re going to need it all.
Peter Tertzakian:
And our data centers.
Jackie Forrest:
We have to ask you about electricity and your thoughts on the Canadian Electricity Regulations that came out draft. And we’re still waiting for the final rules, but the goal of it is to put CCS on all of our natural gas generation for power. But maybe incent more growth in renewables and clean electricity. What are your thoughts on that regulation?
Nancy Southern:
It’s untenable. It’s an impossibility, that regulation. And I actually have said that. I had a meeting last week with the Clerk of the Privy Council. The problem with that regulation and the way that it has been drafted. It’s going into second reading and it’s supposedly going to have a whole bunch of amendments made to it. The problem is the modeling. The modeling is all based on historic modeling, and it is a bread-and-butter model.
Peter Tertzakian:
You’re talking economic models.
Nancy Southern:
The economic model for CER as to why it can work and why the government thinks it works. It’s 40 years of historic averaging across the country. Now, this country has varying climates, extreme climates. And the modeling doesn’t take into account future weather events, as we’ve seen far more frequent, very significant weather events. In Alberta in January of 2024, we had a deep cold snap. Three weeks. The electricity grid had an amber alert. You remember our phones all went off? And we have a lot of natural gas in this province. We had 24 hours of natural gas left in the utility systems to keep-
Peter Tertzakian:
People warm.
Nancy Southern:
… people warm and lights on. We turned all the plants down 20%. And in that cold snap, a lot of things can go wrong. A major valve in TransCanada’s transmission system didn’t allow gas to come into the south of the province. When you have an average temperature of -31 during that three weeks, average temperature, a lot of stuff happens.
Now, you go to the Lower Mainland in BC, you’re not going to have three weeks of -30 weather. So, you have a completely different jurisdictional requirement. And that reg is a peanut butter blanket reg that is supposed to apply to everybody across the country, and it’s not going to work. And we’re going to find that the provinces feel that it’s interfering with provincial jurisdiction, and we’re going to see all kinds of Supreme Court cases.
And quite interestingly, Ontario itself just put in a new Minister of the Utilities Energy in Ontario, Minister Lecce. And he said, “Ontario can’t abide by the way it’s written today.”
Peter Tertzakian:
Yeah, it’s not just an Alberta, Saskatchewan kind of thing.
Nancy Southern:
No, no. It’s right across the board.
Peter Tertzakian:
Yeah. But see, you talk about the economic modeling, and I agree. I’ve even seen some of that modeling. But to me, it’s the physics. The laws of physics and the physics modeling further to your comments about our climate. I mean, we go from -40 to +40. And that variation of 80 degrees, the requirement to deliver thermal power, the rate of delivering heat energy goes up exponentially as you get to the margins. And natural gas is about the only way you can do that when you have a geographically distributed population such as we do. You can’t deliver that kind of energy through, what is it, a one-inch wire that you can in a 36-inch pipe. So, it just-
Nancy Southern:
It doesn’t make sense.
Peter Tertzakian:
What is it that this potential legislation that is about to be passed does not understand about geographic circumstance?
Nancy Southern:
I’m not sure, and I’m not sure why so much resistance. Peter, I think you know, we’ve been working on this with them for well over two years on what would be appropriate. What I am encouraged by is that there will be senior people this week in a meeting with industry and the electric system operators across the country from ECCC to look at and review and really do the due diligence on the assumptions put into the ring.
Peter Tertzakian:
Yeah. And I’m going to get back to this because it’s so important, this difference between modeling the physics of the situation and modeling the economics. You can’t even get to the economics until you satisfy the physics and the circumstances in which we live.
Nancy Southern:
I agree with you. The actual physics of building stuff to get there, yeah you might be able to get there, but at what cost and at what level of reliability?
Peter Tertzakian:
Mm-hmm.
Nancy Southern:
And isn’t 24/7 power what we want for industrial development? Yes. It’s what we want to attract data centers. It’s what we need to keep our industrial-
Peter Tertzakian:
Well, okay. Look, I’m going off Maslow’s hierarchy before I get to any of that. We’re talking about freezing to death at -40. The thermal power, the rate at which we distribute heat to how many million people do we have in this province now? I don’t know. Four and a half, five? I’ve lost count.
Nancy Southern:
Close to five. Yeah.
Peter Tertzakian:
Close to five. I’ve lost count. I mean, this is now a major base of population that is struggling to keep its infrastructure delivering the energy it needs, whether it’s electrical, thermal, or otherwise. And I just find that legislation like this is so absent of the realities of the physics and engineering to start with, let alone get to the economics of whether or not it’s affordable.
Nancy Southern:
And you know what’s really interesting is that the electricity industry in Canada has already decarbonized. They’re at 93%. And this reg is only going to get us to 96%. Because we’re still going to have to have diesel in our Arctic communities. We still have diesel in remote communities.
So, I’m not sure. I mean, I guess there’s no sense of risk-reward. There is no sense of the 80/20 rule. Unfortunately, Gazette II is going in, and I don’t think there’s much time to change anything.
Jackie Forrest:
All right. Well, this has been a fascinating conversation. Unfortunately, our time is running out. But I did want to ask you. I know you’ve made a major investment in renewables in this province. You said you sold off your natural gas generation, but you’ve also redeployed that capital into a lot of renewables. That was mostly done before all these changes in Alberta, the announcement of the moratorium last summer and the new market redesign and the potential for generators to have to pay for transmission in the future. So how are you looking at investment in power, especially in renewables, in Alberta with all these changes?
Nancy Southern:
In the last 25 years since deregulation in Alberta occurred, we’ve seen many iterations of transmission regulations. As generators, we have paid for transmission, then we didn’t pay for… then load paid for transmission. It’ll all wash out. We’re fortunate enough that our projects already had permit and license, so they can go ahead.
The question is offtakes. And electricity is a commodity just like oil and gas, and that we have a lot of electricity today with the new gas-fired generators coming on. When it’s really cold, there’s no sun and there’s no wind. So, it’s a very intermittent business and as a result, it’s not where we are betting everything. We feel we should be an important investor in renewable power generation, but we’ve also made very important investments in ports. We have 18 ports throughout South America and North America, with our partner. We’ve just acquired 12 new manufacturing facilities for housing. And so, I think the essential services that ATCO has provided for many years are going to play a bit of a physical hedge for us.
Obviously, there’s a housing crisis right now and we are able to produce factory-built homes on a very rapid basis. Transportation will always be critical, and there is a great opportunity for energy transition in the ports and with the marine industry in general, and then power generation and natural gas use of the products to create new products. So, ATCO’s feeling very good. I’m feeling very good about our investments around the world in what are essential services for the long term.
Peter Tertzakian:
Well, I’m feeling very good that you’re here, that ATCO is here. You serve us Canadians and Albertans very well, and delighted to have you as you provide us with what I said earlier, which was Maslow’s hierarchy, the very top is shelter. And whether it’s the housing units you provide or the energy to heat and light our homes and everything you do, thank you so much.
Nancy Southern:
Well, thank you. Thank you very much for the opportunity to talk with you both.
Peter Tertzakian:
Yeah.
Nancy Southern:
Really appreciate it, Peter and Jackie. Thank you.
Jackie Forrest:
Thank you. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us. And have a great summer.
Announcer:
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