Canadian Pensions May Boost Electricity Debt Investments

Canada’s pension funds are looking to increase investment in electricity companies that will need to raise C$350 billion ($317 billion) for infrastructure financing by 2030, according to Jim Burpee, head of a national industry group.

Power generators and distributors will rely mostly on bond sales to finance that spending, Burpee, president of the Canadian Electricity Association, said in an interview yesterday at Bloomberg’s Ottawa newsroom. The association, established in 1891, represents publicly-traded utilities such as Halifax, Nova Scotia-based Emera Inc., Edmonton, Alberta’s Capital Power Corp. and TransCanada Corp. of Calgary.

Electric utilities, which sell debt that’s often backed by provincial governments and generate revenue from regulated contracts, would be attractive investments for pension fund managers seeking assets to match longer-term liabilities, Burpee said. Capital investment in the electrical grid is rising to about C$15 billion a year from an average of about C$10 billion over the last four decades, Burpee said.

“They are all looking for opportunities in this space,” Burpee said of the pension funds. “Our revenue model is very different and hence our financing model is very different than a lot of other industries.”

Hydro One

Pension funds may boost equity stakes in electricity ventures, similar to Ontario Municipal Employees Retirement System’s January purchase of a 31.6 percent interest in the Bruce Power Ontario nuclear site, he said. They could also be key bidders if governments overcome public reticence about selling assets such as Toronto-based Hydro One Inc., said Burpee, who worked at Ontario Power Generation Inc., the government owned utility formerly known as Ontario Hydro, for three decades before joining the association in 2012.

Ontario is considering selling assets to help pay for new infrastructure, the Globe and Mail newspaper reported yesterday, citing people it didn’t identify. Past discussions on the topic have included the potential sale of Hydro One, the newspaper said. Toronto mayoral candidate Karen Stintz said she may sell or lease part of Toronto Hydro Corp. to fund an expanded subway network.

“I don’t see a large appetite of Canadians to support privatization,” Burpee said, referring to electricity assets. “That’s a very legitimate position to take, but you are saying I will take all the cash now versus a stream of cash.”

Energy Mix

Canada would be better able to choose the future mix of fossil fuels versus nuclear and renewable energy sources if there were a North American price for carbon emissions, something Prime Minister Stephen Harper’s Conservative government has opposed, Burpee said.

“It would make everyone make better decisions throughout the whole chain, but this government isn’t going there, we recognize that,” he said. Canada would probably lose manufacturing production and jobs to the U.S. if it set a carbon price alone, he said.

Consumers don’t want big increases in their power bills for environmental or other reasons, Burpee said. The electricity association has begun an information campaign to counter public anger over rate increases that utilities have put in place to fund investments and ensure a reliable grid for future generations.

“There’s no question that everything has become highly politicized,” he said.

Hydroelectric projects produced 63 percent of Canada’s electricity in 2012, followed by 15 percent each from nuclear and coal or natural gas-fired plants, the group says.

Canada and the U.S. are working together to protect energy assets from cyber attacks, he said.

“You never know where it’s going to come from,” Burpee said. “A lot of it at this stage is probably as much commercial as anything, people looking for commercial advantage or stealing commercial secrets.”

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