Ottawa should put roughly a quarter of the national electricity-funding gap on the table — and legislate the terms up front, through a new Building Canadian Electricity Advantage Act, rather than negotiate them province by province.

Key Takeaways:

  • A federal contribution equal to about a quarter of the electricity funding gap — on the order of $5.4 billion a year in new money on top of the existing toolkit — is the right scale, modelled on the Canada Health Transfer’s roughly 21 per cent share of health spending.
  • The Building Canadian Electricity Advantage Act would legislate a standing, formula-based federal offer open to any province that meets the test — using refinancing, non-dilutive preferred equity, or a straight transfer depending on whether and how a province owns its utility — rather than one-off bilateral deals negotiated project by project.
  • Federal money would come with conditions attached — a productivity test, harmonized intertie funding, strategic-load sequencing, ownership neutrality, accountability reporting and cost containment — with provinces free to walk away if the terms are too onerous.

This is the third and final instalment in my series with New Economy Canada on financing the electricity build. In the first I set out the what and the why of a national strategy. In the second I argued that the objective for the next decade has to be a double one, to build on and retain our core advantages: still holding both the lowest net debt and the lowest power prices in the G7. In this last piece I want to help shed light on how and how much Ottawa should commit to this major nation-building exercise, so that the twin objectives of affordability and fiscal responsibility can be achieved in a decentralized federation like Canada’s. 

How much Ottawa should spend

A useful place to start is a program nobody thinks of as federal overreach. The federal government transfers about $57 billion a year through the Canada Health Transfer plus an additional $4 billion in bilateral financing measures for home care, workforce priorities and mental health support. In the late 1970s, before the Canada Health Act was even a concept, Ottawa also transferred tax points to provinces to help provide fiscal room to levy added funding for health care specifically (if provinces chose to use this room). Together, the cash contributions constitute roughly 23 per cent of what provinces spend on health (sometimes as high as a quarter), while the tax points add another 10 per cent or so. In other words, Ottawa funds about a third of the Canadian health care system, about a quarter of which has actual policy heft (CHT and bilateral cash transfers) because they each come with conditions. And yet despite this, much of it is not directly visible to Canadians day to day. 

But therein lies the beauty of the arrangement. The lesson here is that autonomy and fiscal capacity do not necessarily work in conflict with one another. Despite shouldering a significant portion of the funding burden for health care, no one seriously describes Ottawa as running Canada’s health system, and no premier believes the federal government is the primary funder of hospitals. Yet at its current funding share the Canada Health Act has indeed set the national frame for four decades and is a cultural and normative institution that helps cement how Canadians understand the very philosophy of public Medicare, something that remains one of our enduring national symbols and sources of fierce patriotism. The conditions attached to it, notably portability, universality and accessibility, have outlasted every government since. Twenty-one per cent (CHT specifically) was enough to buy national direction even though it was nowhere near enough to pay for the entire system, which was never the intention in the first place.

That is close to the right calibration for electricity, and as it happens it is roughly where the math lands anyway. The reason the health transfer is the right model is that it is a complement rather than a substitute to provincial policy making and administration. Ottawa sets the vision and attaches conditions, while the provinces keep both the primary funding responsibility and the day-to-day control over how the system actually runs. Ottawa retains a lever to come in and out of policy debates where it believes there are inconsistencies with the public’s expectations or a need to ensure national objectives are properly championed, but it is not dictating direct operational decisions or programming. 

A federal contribution to help close the electricity funding gap by a quarter works out to about $200 billion over twenty-five years, or $8 billion a year. The existing toolkit I costed in Part II is already worth around $2.6 billion a year on average, so the incremental ask to reach a one-quarter federal contribution is something on the order of $5.4 billion a year of new money. That would raise the current federal share of the gap by about seventeen percentage points on top of the 8 per cent the current tools are estimated to deliver.

It is worth holding that $5.4 billion a year up against a few other things Ottawa already does. It is a little under two-thirds of what the national child care system costs, somewhere around one per cent of federal revenues, and less than one-tenth of what Ottawa transfers every year for health. And because most if not all of it could be booked as capital, for reasons I will come to, it would not touch the operating balance at all in the federal government’s new budgeting framework. 

I want to be careful not to undersell a number that size by making it sound trivial, because $5.4 billion a year is still significant new money and will add to the federal government’s own gross debt burden over time. But the scale is what is important. At this level, Ottawa has real potential to help transform Canada’s electrification into a tool for nation-building that will connect provincial markets, accelerate decarbonization and reduce climate risks, while also creating massive industrial economic development potential in a number of key industries. If instead provinces are left to do this alone, the result is predictable: our efforts will be less ambitious and more costly, more focused on serving stand-alone energy systems without tapping into the vision of One Canadian Economy and less consequential from a long-term economic planning perspective. 

Concentrated on the uses I set out in Part I, the same money does something quite different. My own rough allocation is that advanced manufacturing and clean materials, defence industrial capacity, sovereign compute and quantum, and health innovation together account for something like 78 to 121 terawatt hours of the roughly 620 terawatt hours of new annual demand that doubling the grid implies. That is between 13 and 20 per cent of the growth, and six to ten per cent of the whole 2050 system, with capital attached on the order of $170 to $260 billion. A quarter of the national gap, spent only there, is in the same range as the entire capital cost of the strategic slice being thought of here for the federal government. In these areas, Ottawa could exercise significant potential to drive national ambitions in a way that provinces alone simply can’t and won’t. 

For a sense of scale, Canada's existing aluminium industry runs on about 45 terawatt hours a year, close to seven per cent of the entire national grid, from nine smelters, eight of them in Quebec. That is one industry taking seven per cent of the grid, in a form the United States cannot readily reproduce at any price, and it is a fair picture of the kind of thing the next hundred terawatt hours ought to be making possible.

Which brings us back to the Newfoundland deal I flagged in Part II. One federal dollar in seven of the total project cost is a ratio Ottawa just chose on its own, and got two premiers to endorse it. Read that against the health-transfer comparison and a natural funding corridor appears, running from about one in seven at the low end to one in four at the high end. Where within that band a given project should land is not something I think should be arbitrary. It ought to track the conditions attached. A contribution near the floor can afford to be lighter touch, enough to get a good project over the line and ask for little in return. Whereas a contribution near the ceiling, or beyond it, has to buy something concrete for the country, whether that is pricing that holds the line for consumers, or a sequencing of strategic load, or a productivity test that drives down to its industrial uses. The federal share and the conditions attached to it need to move together, so that a bigger contribution on any given project comes paired with more of those conditions rather than with Ottawa simply writing a larger cheque and asking for nothing further (as is sometimes the history with these things).

The Building Canadian Electricity Advantage Act

If money is going to be conditional, the conditions have to be legislated rather than negotiated one project at a time. The trouble with dealing project by project, in bespoke and largely bilateral negotiations that turn heavily on who and what is being discussed behind closed doors, is that it is precisely what gave us the collapse of the Atlantic Loop and the long unravelling of Churchill Falls in the first place. What we need instead is something closer to the logic of postwar hospital construction, which is to say a standing, formula-based federal offer that is open to any province whose project meets the test, with some federal discretion over how that money is used to achieve different but interchangeable federal objectives – be they affordability, climate, productivity or industrial development. 

This is what I call the Building Canadian Electricity Advantage Act.

The Act would authorize the federal government to enter statutorily into a financing arrangement with a province for any project or grid transformation plan that meets pre-established strategic criteria, without needing a fresh cabinet decision or a new funding program each time. That automaticity is the whole point, and it is the thing the current toolkit most conspicuously lacks. A province that meets the test would know, before it commits a single dollar of pre-development money, what Ottawa's share could be, on what terms, and in what form of federal support cash would be targeted. That is what actually makes market conditions favourable, and it takes Ottawa out of the business of choosing between an Ontario-Quebec line, an Atlantic reliability line and a western tie.

The financing itself should be able to take three different forms, because the provinces are not the same and any single instrument would fit some of them badly.

Where the binding constraint is a crown utility's balance sheet, as it is in Manitoba, Newfoundland and New Brunswick, Ottawa should be able to help implicitly refinance provincial infrastructure buildout on federal terms. This is the cheapest form of federal help per dollar of new investment it unlocks, because it monetizes the spread between federal and provincial borrowing costs rather than spending new money, and it frees up working capital that is currently tied up servicing decades-old assets. How this is operationalized would not be a direct bailout or debt assumption itself but either a form of enhanced funding to support new investment across a whole grid so that pre-existing debt is not a constraint for the provincial utility, or a federal loan facility to help enhance working capital. This would be targeted to new projects and not simply financially rearranging existing ones that have gone over budget.  

Where what is being asked for is support for a specific project, Ottawa should be able to take non-dilutive equity, structured as preferred shares that carry a fixed return but no control, no votes and no board seat. Preferred equity sits above the ratepayer in the capital structure, which means it lowers the revenue requirement of a particular line or plant rather than subsidizing a utility in general, and it can be sized to the project rather than to the province.

This is the instrument I would reach for a good deal more often than we did in Newfoundland. The $10 billion there went in as financing and a federal guarantee, which does get the project built but leaves the taxpayer holding some risk that the projects will underperform and very little of the return if it works out. 

Where a project throws off a regulated return for forty years, as a hydro plant or a transmission line does, Ottawa should be taking that return in the form of non-dilutive equity rather than a loan or a guarantee. This will not fit every case, to be clear. But as a default it is the tool that best squares a federal contribution with fiscal discipline, for the straightforward reason that the money comes back, and Ottawa should be reaching for it far more readily than it has so far.

And where the province does not own and operate the utility at all, which really means Alberta above all, there is nothing to take equity in and no crown debt to restructure. There, a straight formula-based transfer will likely have to be considered on fairness grounds, paid in exchange for the policy changes, which in Alberta's case means a large-load interconnection framework, enhanced commitments to emissions reduction and accelerated renewables build out, and clear rules on who pays for what.

It is important as a foundation of our economic union that this Act respect the principle of ownership neutrality. Ottawa will need different tools to work for different jurisdictional circumstances. But each instrument has to work identically to achieve the same overall objectives. A framework that in effect rewards provinces for the debt their crown utilities happen to carry, or worse still absorbs it, will not fly in Alberta and should not fly anywhere. At the same time, the Alberta government is not itself an actor without agency or purpose. It has to be directly implicated and play a key role in helping to achieve the same objectives we care about in Ontario and Quebec, while ensuring that what it funds makes sense locally. The Act is also a voluntary policy instrument to set national policy where provinces desire federal cash. If Alberta or Saskatchewan – or anyone else – finds these conditions too onerous, they are not obligated to take the tax dollars of Canadians elsewhere in Canada. 

In exchange for any contribution, a province would take on responsibility for pricing. What I have in mind is not a vague commitment to affordability but a published regulation and strategy that has to do two specific things, namely keep costs low for households and small business, and sequence industrial access to power toward areas of the economy that will use power for strategic development. That means, for example, large-load interconnection frameworks that price and sequence access, data centres paying the full system costs they cause or bringing their own generation, and a published methodology showing how industrial rates relate to actual system cost. Ottawa should not set provincial rates and in any case cannot. What this will do is make a federal contribution effectively contingent on a province having a clear rate strategy, which most do not, and on that strategy being made public. Provinces will still have to defend to their ratepayers how and in what manner they’ve chosen to balance these different considerations; it is not up to the federal government to involve itself directly in policing how rates are set per se. But the goal here is for the federal government to demand clear, long-term plans that rationalize how users will retain affordability. Provinces that fail to provide plans that ensure Canada remains the most affordable place to build and operate power in the G7 will have to go back to the drawing board. 

There is one technical point here that is more consequential than it sounds. Because the government now distinguishes capital from operating spending in its budget framework, and has committed to balancing the operating budget, how these payments get classified is not just an accounting exercise ex-post. It matters up front to what the federal government negotiates and how. 

Equity, concessional loans and capital transfers for assets with forty-year lives are capital by any reasonable definition and should be booked that way in the budget framework. This is exactly the kind of spending the capital and operating distinction was designed to make possible. It does not compete with the operating balance, most of its forms earn a return, and what it produces is an asset the country will still be using in 2070. And because the conditions attached run to pricing, the same dollars end up carrying a second objective, which is holding the price line for consumers. It is not often that a federal capital instrument has price suppression as a secondary purpose, and that is a feature worth stating openly rather than leaving buried in the design.

The conditions

Here, then, is what I would attach to every federal dollar under this Act.

  1. A productivity test. Federal support should flow to projects that raise economy-wide productivity, meaning integration, and generation tied to industrial load in tradable sectors, not to whatever sits atop a province's capital wish list. If a project would proceed anyway, or serves purely intra-provincial convenience, provincial ratepayers and treasuries can carry it. Federal fiscal room is already being consumed by defence and housing; what remains is for what the country gets that no province would buy alone.
  2. A harmonized federal contribution to interties. This is, dare I say, the most interesting idea in the consultation paper: a standard federal contribution toward interprovincial transmission. Adopt it, similar to how we built postwar hospitals, as a fixed, formula-based share available to every line that meets the federal, provincial and territorial cost-allocation framework. A standing formula takes Ottawa out of the politics of picking: no choosing between an Ontario and Quebec line, an Atlantic reliability line or a B.C. and Alberta tie. Nothing makes market conditions favourable like a predictable federal share. And be practical about what east-west means. A megawatt will not travel from Newfoundland to British Columbia; what we are building is a series of regionally integrated systems, and a two-track grid, maybe three, is simply the nature and complexity of our federation. Conditions should bind outcomes, not impose uniformity.
  3. Strategic-load. Provinces drawing federal support should publish large-load interconnection frameworks that price and sequence access to power. Data centres pay the full system costs they cause or bring their own generation, the principle New York is now legislating under duress, adopted here before the backlash rather than after. Priority interconnection goes to advanced manufacturing, materials processing, defence production, quantum and health innovation, EV and battery network build out, plus a deliberate, bounded allocation of sovereign compute.
  4. Ownership neutrality. Every instrument must work identically for crown utilities, municipally owned distributors, private vertically integrated utilities and Alberta's energy-only market. Fairness within the federation is not a courtesy on this file. It is the price of keeping ten governments at the table. This runs both ways – it is a foundational principle of how the federal government itself engages in the file, but it also means that as and if provinces themselves receive cash, they have a binding obligation to impose any “deal” on other parts of their own system and cannot escape accountability for what happens overall.  
  5. Accountability and transparency. To ensure these objectives are carried out in a manner consistent with Parliament handing over statutory entitlements to such a large amount of spending, the federal government would be required to release supporting details of each investment made under the Act and to publish detailed technical, commercial and legal information to demonstrate how each investment will work, what it will achieve and why it has fulfilled the basic objectives of the Act. Parties receiving federal contributions would in turn be required to file regular public reports with respect to use of funds and progress against established KPIs. The federal government would retain its ability to suspend transfers if a project or investment has materially breached its contractual outcomes. 
  6. Cost containment. The degree of build out envisioned by the electricity strategy runs the risk of significant cost overruns the likes of which we have tragically witnessed in various public transit and public sector IT projects of late. As part of any investment provinces and utilities would need to demonstrate how they are adopting best practices to ensure construction costs are managed effectively. This should include forcing these entities to consider the adoption of standard energy system designs, and employing specialized expertise in repeat builds.  

None of this is the National Energy Program's ghost, which haunts every federal sentence containing the word energy. The NEP failed because Ottawa tried to commandeer a provincial resource. This framework commandeers nothing. Provinces keep the power they hold today, and federal money, which no province is owed, goes only where it adds what no province can do alone: integration across borders, industrial allocation at national scale, and the discipline of comparison.

As the federal policy consultation runs its course, the temptation will be enormous to go about things with the status quo: thirteen governments, thirteen capital lists, all jockeying for a federal chequebook that wants to do everything. Every incentive points toward buying peace project by project. My message to federal policymakers is to resist it. 

For thirty years the federal government's role in electricity was largely to stay out of the way; for the last ten, it has been to write cheques from behind the scenes and not ask for much. The opportunity now, the one I suspect we will look back on decades from now as the moment that mattered, is to orchestrate a nation-building vision in our time of rupture, to help work to make ten grids behave more like one Canadian economy, and to make sure the power we build powers the right things. 

In a world where our electricity potential will soon determine our economic potential, that’s what I mean by Canada’s electricity advantage. We have the lowest cost power and the lowest cost of debt. Now let’s build it out purposefully. 

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