The Canadian Pacific Railway (CP Rail) is famous for being the first transportation link to unite Canada from coast to coast. It also set the precedent as the first public-private partnership (P3) in Canadian history.
Shortly after CP Rail was incorporated in 1881, the federal government gave it a grant of $25 million, 25 million acres of land, and agreed to pay CP Rail’s surveying and tax bills for 20 years. A partnership between industry and government on such a scale has not been seen in Canada since the last spike was driven in 1885.
In late December 2014, the Alberta Electric System Operator (AESO) awarded one of the biggest P3 contracts in Canadian history with an estimated price tag of $1.5 billion to Alberta PowerLine. The company is a joint venture between the utility company ATCO and American infrastructure rm Quanta Services that was formed to design, build, own and operate the Fort McMurray West 500-kV Transmission Project.
The 500-kilometre transmission line will originate at a substation about 70 kilometres west of Edmonton and travel north through the North Central and Slave Lake regions of Alberta. The line will connect to a substation near the Hamlet of Wabasca before turning northeast for the final 100 kilometres and connecting to a substation just west of Fort McMurray in the Regional Municipality of Wood Buffalo in northeast Alberta. The project will add 700 megawatts of transmission capacity to the province’s electrical system—roughly enough to power 700,000 homes—when electrification takes place in 2019.
“This critical infrastructure project speaks to the confidence that exists across Alberta in the sustainability of Wood Buffalo for generations to come,” says Regional Municipality of Wood Buffalo Mayor Don Scott. “We welcome this investment and development in our region and look forward to working alongside all of our partners to ensure our region remains a great place to call home.”
The roots of P3 projects on this scale are simple. In the 1950s, Canadian governments spent slightly over three per cent of gross domestic product on the upkeep and expansion of infrastructure. That fell to less than half a per cent by the early 1980s. There have been moments when this downward march has been reversed, but the overall direction of the trend has been uniform.
Ownership has shifted over this time too. The federal government once owned much of Canada’s infrastructure, but a 2013 study from the Canadian Centre for Policy Alternatives found the federal government now owns 13 per cent. Local governments, which have far fewer funding levers available to them, now own almost half of the nation’s infrastructure.
Combined, these trends create a strong incentive for governments to look at alternative funding models, like P3s, for major infrastructure projects. That was the case for the Fort McMurray West 500-kV Transmission Line. In 2010, the Alberta government mandated AESO to develop and implement a new competitive procurement process aimed at finding a private firm to build the line.
“While it has many hallmarks of a traditional P3 process, it also contains a number of unique features,” says AESO public a airs manager Tara de Weerd. Among these are greater fairness and openness, efficient allocation of risk and minimizing life-cycle costs. AESO required that the winning firm agree to operate the line for a fixed cost for 35 years.
AESO engaged a fairness advisor in the design of its process and retained an independent panel of experts to evaluate proposals for the Fort McMurray project. The first stage of the three-part competitive process opened in late-2013 and attracted interest from around 30 parties from all over the world.
“This is an exceptionally large project that fits in very well with the company’s portfolio of infrastructure it owns, operates and maintains,” says Quyen Nguyen, vice-president of Alberta PowerLine. “The competitive nature of the project required ATCO to consider risk elements differently, and priced these into our bid.”
Investors voiced their confidence in the project in a major way in late-2017, when the project secured funding from the private sector through a debt funding competition administered by AESO. The debt issue for the project represents the largest P3 financing ever completed in Canada.
The success in securing P3 funding for a major electricity transmission project is a trend that has strong potential to continue in the future.