Episode 144: You Can't Change Geography: The Canada-US Electricity Relationship, with Andrew Shaw

[MUSIC] I think also in the bucket of what has not changed and what gives me hope looking to coming years. Miss Geography, our countries are extremely well connected and you can't change geography. [MUSIC] Francis here from electricity Canada, welcome to the flux capacitor. The podcast that explores the people, the ideas and innovation shaping the future of electricity. This is episode 144 of the flux capacitor. For decades, the electricity relationship between Canada and the United States has been one of North America's quiet success stories. Our grids are interconnected, power flows across the board of every day and electricity companies work together to keep the lights on for millions of people. But today, trade tensions, energy security concerns, rising electricity demand and shifting political priorities are raising new questions about the future of that relationship. What is Washington think about Canada today? What are the key issues affecting electricity trade and cooperation? And what might the next chapter of this vital partnership look like? To help answer both questions, I'm joined today by Andrew Shaw, no stranger to the podcast. He's a partner at Bracewell and electricity Canada's principal consultant in Washington, DC. Andrew, welcome back to the flux capacitor. Thanks so much, Francis. Great to be back and looking forward to our conversation. And the conversation at a particularly interesting point in time, right? The Canada-US-Electro-USD relationship, it's traditionally stayed well below the political radar and that doesn't feel like it's the case anymore. So maybe just starting off from your vantage point in Washington, how unusual is the moment that we're in right now? Well, I find it dime for every time. I said these are interesting times. You rich man, be living on some small island. And while it's a tried response, it is true. We are in an era of significant technological transformation with profound consequences for the economy, for society, and certainly for the energy sector. Same time, where you are in a period where that technological change along with other factors is resulting in significant political changes throughout the world, significant shifts geopolitically, the consequences and impacts. We will see play out over the coming decades. Yeah, and I will probably pull on on on both of those threats, but because both of them are having significant impacts and they are happening at the same time. But maybe let's start off with, what has changed for those who don't follow Washington closely? The relationship has changed over the past 18 months. How would you characterize and describe that change for somebody who doesn't follow Washington close? It has changed and I think there have been significant shifts. And then there are also things that have not changed. And so let's kind of start with the big changes. And it may be the 800 pound grill in the room, but we have a new administration here in DC. Now a year and a half into the second Trump administration. As you all know, there is also new leadership in Canada. Prime Minister Karney won election last spring on the spring of 2025. And your followers in Francis, you're closer to it than I am, but the election of Karney, at least from how it was perceived in the United States, was a reaction to President Trump. And Karney has really seen to galvanize the anger and concern that many Canadians have about both the rhetoric and the positions that the Trump administration has taken on a variety of issues, most notably a trade. I would say the issues that have been trade irritants are not new. The Biden administration complained about the Canadian digital services tax issues related to software lumber, dairy, have been a major trade irritants for a generation or generations. But the amplification of the trade issues is what has changed with this administration. I think also in the bucket of what has not changed and what gives me hope looking at the coming years and both midterm and longterm is geography. Our countries are extremely well connected economically from an infrastructure perspective, culturally. And you can't change geography. And so there have been significant political changes. There will be more on the horizon over the coming months and coming years. But that ingrained deep cultural economic infrastructure relationship, obviously in the electricity sector remains. And that gives us a starting point for more integration potentially, depending on how things go. And hopefully greater economic competitiveness as a hemisphere in partnership, but also individually as the U.S. and Canada as countries on their own. So, you mentioned some of the historical trade irritants, software lumber, dairy, digital services tax. And then the response by the administration on things like steel, aluminum, the auto sector. But I mean, is energy being caught up in these broader trade discussions at this stage? Some what? I think there's a record in that bucket with everything is being impacted. Yeah, I think that's right. I think there's a recognition amongst U.S. officials that energy is different. And electricity in the bucket that is energy is unique and different when it comes from a practical standpoint for assessing tariffs different than crude oil or uranium or something like that. But there is a recognition that energy is different that the relationship between the U.S. and Canada is a source of strength. That said, there clearly have been comments from politicians on both sides of the border that have implicated energy in the broader conversation about tariffs and trade from the president to Premier Ford, even to recently EPA administrator Lee Zeldin talking about the new Champlain Hudson transmission line. Right. Okay. So yeah, let's maybe drill down a little bit on electricity because electricity I think is viewed differently than other traded commodities. Certainly, we see it operating somewhat differently as well. Is it seen as different than other traded commodities in Washington? I think it is. And again, this doesn't take away from some of the comments that have been out there from various politicians regarding electricity. But from my perspective, it is viewed differently. I think there's a practical challenge in contrast to something like crude oil in how you would actually, logistically and legally impose tariffs on the imports of electricity. And we've seen some changes contemplated by several regional ISOs and RTOs, New York ISO, ISO New England to be able to prepare themselves if there is the imposition of electricity tariffs from the Trump administration. But there's also the more, you know, kind of fundamental point. You know, the electricity relationship is something that's working in the US Canada energy file. We need more megawatts. grid reliability and resilience is a top concern. So I do think that that differentiates electricity from other commodities when we're talking about trade and tariff negotiations bilaterally and ultimately trilaterally. Yeah, and I mean, I wanted to roll down on that in terms of the electricity relationship and the importance of it. But before we kind of move off sort of some of the general things about that trade relationship and the particular point in time we're at today, what would surprise Canadians about how American officials are generally thinking about Canada today? Yeah, well, that's a great question. And Francis, you've been down in DC a lot. A lot of your career. There's no singular opinion about Canada from US officials. I will say that I think there is an appreciation on a bipartisan basis on Capitol Hill of the value of the US-Canada energy relationship and more broadly the US-Canadian trade relationship. I do think in certain parts of the administration and maybe some of those that are focused on trade, there is a desire though to address some of these longstanding trade irritants. And that viewpoint and wanting the Canadian government to engage constructively, not to say that they haven't been, but to maybe move past some of the rhetoric that is out there on both sides of the border and try to push for solutions on some of these longstanding issues. Yeah, yeah. We'll probably circle back to where we go from here and what likely will come next. But I wanted to spend a little bit of time just for the listener to give the listener a better understanding of what that electricity relationship looks like and why it matters. Maybe let's go all the way back to the beginning. Why do we even have cross-border trade in electricity in the first place? Where did that come from? What was sort of the origin and genesis of that trade relationship? Yeah, well, it's a great question and I think it speaks to the fact that our communities on the northern to here are pretty integrated from an economic perspective. Yeah, back to what you were saying earlier about geography. Geography is one of the things that doesn't change from North. I guess so that was the beginning of it. Yeah, and as you know better than anyone and as many of your listeners know, it is easier to trade electricity, North South, build transmission, North South, and it has been historically in Canada to do that. East, West, West, East, between provinces. There are some, I think as you look at where peak demand is, seasonal variations. There are some logical reasons for electricity trade between Canada and the U.S. and the U.S. generally summer peaking, Canada, winter peaking. So that the seasonal exchanges just make a lot of sense in trying to manage the grid. Hydro, big hydro is, there are significant capital costs to get it up and running. But once it's up and running, it's a great source, particularly in managing those variations. But also in providing reliable, affordable electricity that's important, obviously for households. But also for cost-sensitive industries and that's been important for upstate New York to the Pacific Northwest in helping to support industries. And I think the more and the larger arc of history, the more recent attractiveness of further integration of the relationship has been the need for clean energy. Canadian hydro in both in New England and New York is a significant part of the state in New York and Massachusetts. They're planned to decarbonize their grid or at least move to a cleaner generating portfolio. I mean, it's kind of crazy that in certain parts of New England, they're still using oil, particularly in peak demand times up to generate electricity. But it's an increased Canadian hydro imports can mitigate that. In fact, I think they did, according to some of the early estimates from the recent significant heat wave around July 4th here in the Northeast. Yeah, and we've seen that, you mentioned the sometimes matching demand based upon seasonality. We've seen quite a few examples of that over the years. So when we talk about the benefits of this, it isn't simply a question of relatively inexpensive Canadian hydro being sold in the United States. Is that trade back and forth across the border, which is one of the things that I've always found interesting when looking at the stats is the significant amounts depending upon the time of the year of electricity flowing from the United States into Canada to meet demand here. And I think it's one of the things that's not really understood or appreciated by people that are not directly in the sector. That sort of symbionic relationship and it isn't a question of one being depended upon the other. It all depends on the season and the time of day, right? Completely. And you've seen over the last couple of years that balance between imports and exports become a little bit more equal. I think last year there were 32.7 terawatt hour of imports to the US and the US exported 22.1 terawatt hours of electricity. So if that relationship as far as balancing the grid is important on both sides of the border. Yeah, so we're talking about balancing the grid. We're talking about reliability. We're talking about affordability. You mentioned in some cases, states be using that trade relationship to meet their environmental requirements and commitments as well. But as the conversation around energy from a security standpoint and energy security standpoint continues to move forward and evolve. And it is evolving. I know the term increasingly being used in Washington is energy dominance as opposed to simply energy security. But how does electricity fit into these conversations about energy security or does it when you're hearing from policymakers in T.C.? Yeah, that's a great question. And I think the idea of energy security has shifted significantly in my adult lifetime. But I was younger in the US when there were discussions in D.C. around energy security. It was focused on crude oil and natural gas. But what we have seen with the unconventional oil and gas revolution in the US is North America essentially being energy secure when it comes from a crude oil natural gas perspective. Yes, the US and other countries do have impacts related to fluctuations in global crude prices. We're seeing that right now with the conflict in Iran and the closure off and on of the straighter for moves. But in the last 10 years or so, maybe longer, I think there's been a significant shift in thinking about energy security to the electricity sector. And I think that's for a couple of reasons. One, the electricity sector, as you know, Francis and as all the listeners know, is the backbone of our economy. And as the risk of cyber attacks, cyber-entrusions have grown, being able to mitigate those risks, respond where there's an incident really has become paramount. to economic security and certainly energy security. I think even before we started talking about load growth from AI and hyperscalers, the grid, particularly for those that were looking or are looking for significant changes in the reducing green house gas emissions, the grid was going to be the vehicle to achieve that. And so not only through closing older coal facilities, trying to transition away from fossil generation, you need additional generation. And many that have been pushing for climate action, I'm looking to electrify other parts of the economy, whether it be transportation, industrial processes, home heating, et cetera. And then obviously over the last several years, you've seen this dramatic rise in demand coming from hyperscalers and the needs of the AI sector. And that puts electricity at the forefront of discussions when it comes to energy security, economic competitiveness, national security, and geopolitics to a large extent. - Yeah, and the other thing that I think we've seen and we certainly heard that around the Washington policy forum that electricity can't hold every spring and that you're the guy that puts it all together for us. And Shepard just threw all of those meetings and conversations in Washington. I mean, it was clearly a shift in the conversation from what previously had been, the principle benefits of this relationship was almost solely about a dollar and cents and affordability to a much more significant focus on reliability of energy security. I mean, I think that was one of the things that came through in the conversations that we had this past spring. But what I'm wondering about is overall the environment in Washington not solely about electricity and energy, but sort of the background and the context within which this is happening. So if you were advising a Canadian audience, what are the issues that are actually occupying policymakers in Washington today? I know they don't wake up and think about electricity, but they're there, you know, this time last year, you were talking about like they're flooding the zone and there's so many things going on and it was hard for people on the outside to keep track. But what's occupying policymakers in Washington these days? Well, I'd say interestingly enough, electricity is actually at the forefront of a lot of policymakers minds these days, you know, issues related to data centers in their energy needs and water needs and the impacts that those are having either real or perceived on communities across the country is a page 1a above the fold issue. Oh, God. And so, you know, the electricity sector is at the kind of forefront of the discussion. There's a lot of anxiety, I think again, across the political spectrum regarding AI, what it's going to mean for society, what it's going to mean for the workforce, what it's going to mean for national security and geopolitics. But I think as Canadian interests look at engaging here in DC, I think it is obviously a different time but I think a similar message continues to resonate finding areas where there's mutual interest and trying to hone in on those issues and find areas where we can work together. This kind of economic nationalism that we've arguably seen during the Trump administration, there will be a new president come to 2029. But the interest in, I think the skepticism of free trade, of so-called globalization is going to persist. You know, that skepticism had a home on the left before it had a major voice in the Republican Party with the rise of Donald Trump. But that kind of populism on the left in right is I think surging clearly. And certainly on the democratic side as well. So, you know, the old kind of discussions of free trade, I think are going to be harder to make, not to say that there aren't folks both and on the Democratic and Republican side who see the value of it. But I think again, you know, Canadian entities that are engaging in DC looking at what the benefits are for the US of us working together, I think is, is will continue to be important messaging forward. - So clearly attention being paid to AI, low growth, attention being paid to energy security, reliability, cybersecurity, what about supply chains and how much is that if it's resonating as an issue broadly but also in the context of what it may mean for our sector. - Yeah, I think supply chains, I mean, we're still living in the specter of COVID and supply chains, I think during COVID, definitely underscored the vulnerability that the US has broadly to overseas countries that may not be aligned with us, the challenges that that impacts when it comes to economics rising up costs. So supply chains are critically important and obviously they're important in the electricity space when you're trying to build complex high capital projects whether it be offshore wind or nuclear or even gas, new gas power plants where there's a backlog for turbines, you know, three and five years. So supply chains are really important and I think that's an area where I think again, that there's an inherent reason for the US and Canada to work together to bolster those supply chains to strengthen them, reduce cost to increase our economic security. - Right, the challenge is, you know, in the current context and the current state or those conversations is a lot of what feeds into those supply chains are things that are now being hit with sectoral tariffs and steel and aluminum and some of those other things. So it just, it makes it that much more complex to try and approach it from a partnership in North American partnership standpoint while these are, these irritants are still out there. So, you know, overall, what do you see is the bigger risks to that Canada, US, electricity relationship right now. If we, you know, hone in specifically on electricity. - Yeah, well, I think tariffs and trade is certainly a risk, but I think it in some ways that is a tip of the spear to disrupt, you know, more regular kind of coordination and cooperation between industry on both sides of the border and government to government. And, you know, I guess as I look at this, you know, obviously an issue that you've been quite involved in through the years, you know, cyber. You know, we haven't, fortunately, we haven't had a major cyber intrusion or incident in the last several years, but our respective governments and industries deal with that on a day-to-day basis. and that dialogue, that partnership, that sharing of Intel, to be able to prevent those incidents or respond when they do occur is important. So, you know, ensuring that that continues, notwithstanding the broader tensions, when it comes to tariffs and trade, I think is really important. And I would also say, and some of this is a, impacts the US-Canada electricity relationship, but is also an issue, I think, for both our respective electricity sectors, is finding a way for our to do big things together, and we do big things individually. And we see a spirited debate and negotiations right now in Washington on permitting reform. Right. I know that there have been efforts in Canada to speed permitting processes. We need to get that right. We have significant demand that that's coming through, you know, from hyper-scalers. And I think more fundamentally, as two democratic governments, small D, we have a need to be able to demonstrate that we can actually do big things, individually as countries, but also collectively as partners. And that's being able to build things, build new generation, be able to advance cutting edge technologies, being able to build infrastructure like transmission lines. I think the failure to do that has broader ramifications. Obviously, we're trying to meet electricity demand, but again, we're trying to demonstrate that democracy can deliver in this time of significantly shifting views, and significantly significant challenges from our rivals like China and Russia. Yeah, I like that. Democracy and the rule of law, if we can show that it is consistent with the ability to actually build big things and get big things done, or like that. Well, and I think there's a, yeah, clearly Republicans have been focused for a long time on some of the challenges with things like National Environmental Policy Act, other Ben Rock environmental statutes. I think there's a recognition amongst Democrats too that environmental review processes have stymied growth in renewables. And you know, that does have ramifications for the US-Canada electricity relationship. Yeah. Celebrating the fact that the Champlain Hudson transmission line is now operational and it's great, but it also took 15-plus years to get there. Yeah. And that's hard to marshal meet whatever energy demand, climate needs when you're, when these processes are open-ended without any certain endpoints. Yeah. Yeah. All right. So we talked about, you know, some of the broader challenges here from a trade and tariff standpoint. How vulnerable do you think the electricity sector is to becoming collateral damage in this broader trade dispute if things go sideways? It's certainly vulnerable. I mean, we've seen the statements from politicians on both sides of the border. You know, that said, you know, kind of to go back to the beginning of the discussion. Electricity is different. I think it's different. Then other commodities, I think energy broadly is viewed in a different vein than other products that are bought and sold and traded on both sides of the border. There are, as we talked about, logistical challenges to imposing tariffs on electricity. And then I think more broadly at a time in which at least the US, and I think Canada's in need of every last megawatt to a demand, the idea of imposing tariffs, I think it kind of flies in the face of that. And so a little bit different than this may anchor some of your colleagues in the Canadian oil and gas sector. But the US production surging, we still have a need for Canadian crude oil. But the electricity side is the need is so great that I think it does fly in the face of that. But of course, when we're in the midst of a heated at times, discussion about the broader trading relationship. Electricity is always at risk of being collateral damage. So we've touched on quite a few issues here, but if we were recording this podcast three years from now and looking back, what issue would prove to have been the most consequential? Well, I'm going to take two, which is bad. But I, you know, one that we haven't really talked about yet, but I think is really important. And I think illustrative of the partnership between the US Canada. And that's nuclear. Okay. Yeah. There is a significant opportunity for the US and Canada to work together and deploying new nuclear. That's not just here in North America, but also globally. So looking back three years from today, you know, I know that OPG is hoping to have three GE, a US company, Bernova, SM Mars online. So that would be a great milestone. You have two Canadian companies, Camico and, and Brookfield that own Westing House. We saw an exciting announcement a couple of weeks ago on a conditional loan. And I think that's a commitment from the Department of Energy to rebuild that supply chain. But I think, you know, three years from now, you know, seeing progress on the beginning of construction. On, on new AP 1000s, new large light water reactors in the US can be really helpful. And I think that's really important, but I think it's really important. And for the US, we're going to have a big impact on the U.S. and the US. And that's really important. And as the US and Canada look to compete in global civilian nuclear markets for new builds demonstrate that we can play a part in that if we have to show that we can do it at home. But if we can do that, I think we can compete with the Chinese and Russians and some of these emerging markets throughout the world. You know, the second issue, which, you know, probably not a surprise to folks that they closely watch the, the industry is just, you know, where load growth is. And where this debate regarding data centers. And goes over the coming years and through the democratic primary that we're going to see unfold over the coming years, you know, growing, growing calls for moratoriums. And then we'll announce the new government announcement from the New York governor a couple days ago on for a moratorium on new data center deployment for up to a year to allow the state to promulgate new regulations addressing their energy and water usage. And then the global growth goes where that that how that debate shapes up regarding data centers, I think impacts the broader electricity relationship as well. So let's let's let's look to the future. What should we be looking for, but at least the Canadian listeners, which, which what should we be keeping our eye on over the next 12 to 24 months in this, this, the conversations about our trade relationship. Yeah, well, I clearly as expected, the US decided not to renew the US MCA or Casima. as it's referred to up north, but that does not change the fact that the trade agreement remains in place. It will, nothing is done if it will remain in place until 2036. It probably will not surprise your listeners to hear that the Trump administration enjoys the leverage that they have through this review process. And I think you're going to see this review process continue to be used as a way to extract concessions. It also addressed some of these long-term trade irritants between the two countries and address some of the broader, you know, tricunctry issues related to rules of origin. So continued leverage. I think that's right. You know, the president has expressed, and whether this is real or as a point of negotiating tactic, ambivalence regarding the USMCA, which of course, the president and his team negotiated during his first term. But you know, his focus is not squarely on this trade deal. I think other issues are more animating him. I do think one thing to watch over the next couple months, certainly, and you know, something that we'll see potentially play out over the remainder of his term as it relates to the USMCA is if there is a political shift in DC with the midterms and Democrats regain control of one or two chambers of Congress, I think it's very likely, and I think it's probably very likely right now, that any changes that we see to the USMCA are not going to be in the USMCA will be in the form of agreements between the three side side letters, but not changes to the underlying agreement because -- Otherwise, yeah. -- would likely necessitate submitting the agreement to Congress. Right. And I think there's a reluctance to do that on the Trump side. And I think some bad memories from the first go around replacing the app with USMCA where Democrats were at least in the Trump administration's view were able to exert changes to the agreement once they took power in the House and after the 2018 midterms. Yeah. All right. So just a couple of -- this is a little lightning round that I've now put in here just looking for a short, you know, one word or a couple of words answers to a couple of questions and then we get to the wrap up. So what's the biggest misconception that Canadians have about Washington? That there is one uniform view of Washington. And frankly, that there is one uniform view of this administration and frankly of any administration. You know, power, even when you see it consolidated like it arguably is now in the executive branch and within the executive branch in the White House, there is -- the federal government remains diffuse with a lot of different views and power sectors. Gotcha. Okay. What about the biggest misconception that Americans have about Canada? I think there's probably a lack of appreciation at times that our two countries have more and common than we have in difference. And you know, particularly you think of the middle parts of the United States and the middle parts of Canada, there are a lot of similarities, you know, big oil and gas industries, farming, mining and such. So I think Canada is a diverse and diffuse country just like the U.S. Okay. One energy policy file everybody should watch. Is it nuclear? I guess you mentioned that a couple of minutes ago. Well, I think the nuclear file is really, really exciting and really important. And it's one issue where there is bipartisan support in DC and frankly on the state level, we have everyone from New York, Democratic governor, Kathy Hogle, Texas, Republican governor, Greg Abbott, calling for new nuclear reactors. Okay. All right. Now your prediction for the Canada-US energy relationship, Brian, five years from now. Well, I think it will look largely like it does today. Okay. I think those commercial, those market considerations and integration that we've seen develop over decades, in the case of electricity sector, 100 years of history are hard to rip up and replace. But I think the challenge is not being where we're at today, at least in the electricity space, it's trying to be where we need to be five years from now. And if we, I think there's a tremendous opportunity with low growth, with the need to transition to a cleaner grid to work together more. So if we're still, we're at today, five years from now, I'm not sure that that's a win. Yeah. And to the day, are you more optimistic or pessimistic about the future of our Canada-US electricity relationship? Well, I'm optimistic. I think the, yes, there are big ticket issues that the two heads of our respective governments will need to work out. There have always been trade air tense and there are emerging trade issues. But I think the electricity sector is so important. There's such a need for reliable, clean electricity. And because of that, I do think that the relationship in this space is special. And so I remain optimistic that notwithstanding tensions and sometimes noise, then we're going to continue to rely on one another and find ways to work together to meet the needs of our companies and households on both sides of the border. All right. So you don't get to leave the podcast without giving me your book recommendation. And the last time we chatted, your book recommendation was Thomas Frank's book, What's the Matter with Kansas? How conservative is one the heart of America? So today, what book are you going to add to our reading list? Yeah. Well, I'm going to add a book that I am currently reading. So I haven't finished it. But it's been a really interesting read. And it's the last days of Budapest by Adam Labore. I'm actually traveling to Budapest here in August with my family, which I'm looking forward to. But I think it's an interesting story about how a country like Hungary, in their case, failed to navigate great powers during the run up to World War II through World War II and following World War II. Wow. OK. So you've done it twice now. Twice, you've recommended a book that I hadn't heard of before. And so this one is also new to me. So it's the last days of Budapest by Alan Labore. Oh, yeah. Yeah. Terrific. So listen, Andrew. I mean, I want to thank you. You know, always great to catch up. But we always have interesting conversations, you know, among my takeaways is that while the headlines often focus on the trade disputes, that Canada, US relationship is ultimately, it's about reliability. It's about resilience. It's about customers. It's about mutual benefits. The two countries have built this integrated system, you know, over a century that delivers value on both sides of the border. So we did talk about challenges that are real, but we also talked about some opportunities. So thank you once again for being a guest on the flux capacitor. My pleasure. Thanks so much. [MUSIC PLAYING] beginning and those that have joined along the way. Thanks for listening. Please take the time to rate the podcast on whatever platform you use to listen and let me know what you think of the flux capacitor. You can find me on Instagram as the Brad Bradley, on LinkedIn and through our website at electricity.ca. The website for this pod is the fluxcapacitor.ca and it includes links for this episode on the show page, this being episode 144. And while you're there, check out the book club page which provides info on and links to the books which have been recommended by guests on the fluxcapacitor. Including Andrew's recommendation, the last days of Budapest, the destruction of Europe's most cosmopolitan capital in World War II by Adam Labore. And let's continue the electricity conversation on our Facebook page on Instagram and at electricity.ca. (gentle music) (gentle music)