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America's Canadian Problem

U.S.-Canada electricity trade is shrinking, and some American companies may be left without their megawatts for the summer.
Fortnightly Magazine - April 15 2003

U.S.-Canada electricity trade is shrinking, and some American companies may be left without their megawatts for the summer.

The megawatt flow to the United States from Canada is winding downward despite the continuing U.S. requirement for substantial peak demand, energy experts say. This downward trend in cross-border electricity trade is due in large part to rising demand from Canada's economic growth. And with more natural gas-fired generation starting up on both sides of the border, signs also indicate that during the rest of the decade, the United States and Canada increasingly will become less dependent on one another for peak demand electricity needs.

Traditionally, as U.S. summer peak demand drives the market to attractive, if not volatile, pricing levels, Canada exports between 6 percent and 8 percent of its total electricity generation to a host of U.S. states. Then, during the winter (Canada's peak demand period, except for heavily air-conditioned Ontario), U.S. generators export electricity across the well-connected border to the north, in a natural complement of seasonal trade.

Last year, Canada exported a total of 36.7 million megawatt-hours (MWh) to the United States, at an average price of Cdn$46.00 (about US$30.00) per MWh, according to statistics compiled by Mary-Jane Sam, the statistical research officer in the Commodities Business Unit at Canada's National Energy Board (NEB), in Calgary. And in 2002, Canada imported 13.9 million MWh from the United States at an average price of Cdn$36.18 per MWh. This trade resulted in a net Canadian export of 20.8 million MWh, which netted some Cdn$1.4 billion, mostly for hydroelectric generators, which purchase electricity from the United States when prices are low and pump water up into reservoirs with available capacity.

Comparing 2002 trade with 2001, net U.S. imports are down. During full-year 2001, Canada exported 40.1 million MWh at an average price of Cdn$100 per MWh, while importing 17.9 million MWh at an average price of Cdn$101. The net result in 2001 was 22.3 million MWh of Canadian exports worth Cdn$2.4 billion.

Looking forward for at least the mid term, the trend in net imports by the United States will continue downward, says Ivan Harvie, a senior engineer at the NEB, in Calgary. "The number one reason why trade will decline is that 70 percent of Canadian exports come from hydro and it takes many years to bring on new hydro capacity. So as the demand load grows in Canada, it will leave less available for exports to the United States," he says.

Keeping pace with demand growth in both the United States and Canada was once a higher strategic priority for Canadian generators. "There was a time when Ontario wanted to develop as a hub for the (cross-border) region and be a big player in the export market; they even were looking at buying transmission assets in the United States. But after the Enron and California effects, the exuberance has dropped off," Harvie says. According to a recent draft NEB analysis of Canada's future energy demand through the year 2025, total electricity exports are projected to drop to less than 4 percent