Artemisia Development BCUC Streamlined Review Process August 20, - - PowerPoint PPT Presentation

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Artemisia Development

BCUC Streamlined Review Process

August 20, 2014

B-4 FAES RATE APPROVALS TES ARTEMISIA CPCN

EXHIBIT

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Artemisia Development

FAES Thermal Energy Service Public Utility Service in perpetuity

1. Own assets that produce heat and cold for the Artemisia Development 2. Meter thermal energy deliveries to Residential Strata in exchange for compensation

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Artemisia Development

Artemisia Thermal Energy System

Project Description

• Developer is Boffo Developments (Hornby) Ltd.
• A boutique collection of 21 luxury condominium residences located at 1102 Hornby St.
• Occupancy granted in April 2014
• Energy system consists of a geo-exchange loop field with pumps and heat exchanger, a central

natural gas boiler for peak heating, and a natural gas make-up air unit

• Designed to serve heating and cooling needs of the Development (excluding domestic hot

water)

• Metered thermal energy in exchange for compensation to 1 customer, the residential Strata

Loads – Heat and Cool Costs - $587,000 (FAES purchases for $100,000)

• Total FAES investment is $105,000 and includes $5,000 development costs
• $11k per year for sustaining capital commencing in the 6th year of operation
• $14k per year in Operations and Maintenance costs over the contract term

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Artemisia Development

Relationships

Boffo FAES Residential Strata Construction & Purchase Agreement $ Energy System Title $ Service Agreement $ Metered Thermal Energy

Public Utility Service

$ Suppliers & Contractors

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Artemisia Development

Site

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Artemisia Development

The Development http://www.artemisiavancouver.ca/gallery/

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Artemisia Development

Schematic

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Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Negotiations

TES Scaled Framework

Artemisia Development

Regulatory/Business Development Context

SRP Strata

Delta SD

Excavation Occupancy

Marine Gateway Kelowna DES Tsawwassen Springs TELUS Garden

Service

Artemisia Project TES Regulation

FEI Transition FAES AES Inquiry/Report SOLO Artemisia Sovereign

Ownership by FAES

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Artemisia Development

Approvals & Light-Handed Regulation

FAES filed on June 24, 2014 and TES Regulatory Framework Guidelines (TES Guidelines) still pending Project is transitioning between two regulatory regimes Approvals sought:

1. CPCN to purchase, own and operate the energy system pursuant to ss. 45-46 of UCA 2. Rates established in the Service Agreement for the Residential Strata pursuant to ss. 59-61 of UCA 3. Exemption from long-term resource planning requirements pursuant to s. 44.1 of the UCA 4. Ongoing regulatory oversight on a complaint basis, consistent with BCUC Order G-54- 14 for SOLO

Decision Needed by September 30, 2014

(per the Thermal Energy System Construction and Purchase Agreement)

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Artemisia Development

Stream A TES System Meets the Stream A TES System Characteristics

1. On-Site thermal energy system designed to serve:

• Thermal load located on the same site
• One customer (Strata) on the site but no shared or common thermal

generation or distribution facilities beyond the boundaries of the site

• No use of public rights of way or public streets

2. New construction approved under City of Vancouver’s building permit process 3. Total capital costs of $587,000

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Artemisia Development

Regulatory Context of the Application SOLO Regulatory Construct

1. In Order C-3-14 (February 25), the BCUC granted the CPCN pursuant to ss. 45-46 of the UCA and noted:

“The Panel is satisfied that the evidence provided by FAES in its Application, information request responses and Streamline Review Process is adequate given the specific circumstances of the Application.”

2. The BCUC denied the rates but found the rates would be just and reasonable if FAES amended its Service Agreements to address the issues raised in Order C-3-14 and accompanying Decision. 3. On March 27, FAES filed an application for the approval of the rates established in the Amended Service Agreements to comply with BCUC Order C-3-14. In Order G-54-14 (April 15), the BCUC approved the rates as just and reasonable under ss. 59-61 of the Act

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Artemisia Development

Regulatory Context of the Application

• For Artemisia, FAES proposes to use a rate design and Service

Agreement identical to those approved in Order G-54-14 (i.e., amendments made for SOLO were also made for Artemisia)

• In light of Orders C-3-14 and G-54-14 for SOLO, FAES submits that

the completed Registration Form for Artemisia, the cover letter and the appendices supply the necessary information for the BCUC to grant the approvals sought.

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Artemisia Development

Appropriate for Light-Handed Regulation

The proposed TES System meets the description of an On-Site TES System, as defined in the TES Guidelines. The proposed TES System is associated with an approved single development / building permit. The proposed TES System capital cost is $15 M or less.

(Appendix A to June 12, 2014 TES Regulatory Framework Guidelines, page 4)

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Artemisia Development

Customer Disclosure Meets the SOLO Requirements (C-3-14) FAES has provided disclosure of:

• Service Agreement
• Costs that customers may face through time
• Plain language explanation of Service Agreement
• BCUC Notice of Public Hearing

Avenues of disclosure:

• Boffo providing directly to unit owners (notice of public hearing, summary of service

agreement)

• FAES Website

Ongoing Disclosure (Clause 20)

• FAES will provide an information package to its customers at least 6 months prior to

implementing a rate change to explain the calculation behind the rate changes

• Within 4 weeks of sending this package, FAES will give notice to its customers and

convene a meeting to allow questions to be asked on the new rates

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Artemisia Development

Capital Replacement & Service Continuity

• 1. FAES currently has a growing portfolio of TES Systems and plans for

replacement capital in the forecast costs to provide the service:

• Replacement of assets that might fail or require replacement is estimated at $11k

per year starting in 6th year ($165,000 over 20 years)

• 2. FAES has access to capital (wholly-owned subsidiary of Fortis Inc.)
• 3. FAES provides 24-hour service 7 days a week and is responsible for

the operation and maintenance for all FAES-owned equipment.

• FAES has access to contracted qualified contractors able to provide emergency

response respecting the operation of all thermal energy systems.

No Capital Reserve Fund is necessary

• Provisions are adequate to cover the requirements

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Artemisia Development

TES System is Cost Effective Design and Construction - Fixed purchase price of $100,000

• Boffo Developments Ltd. constructs and pays the difference between $100,000 and actual

costs

• Prior to purchase, system must be fully functioning as designed

Operation - Five-Year Performance Terms

• Predictable rates for customers for five-year periods
• Create incentives for FAES to reduce costs in each performance term
• Enable customers to share in efficiencies gained over the long run

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Artemisia Development

Rate Design Components of the Rate Design:

1. Levelizing mechanism (20-year analysis term) 2. Initial rate in $/kWh ($0.095/kWh in 2014) 3. 2% annual escalation rate (inflation target) 4. 5-year performance terms 5. Performance ratio 6. Fuel deferral account & rate rider 7. Single variable rate for thermal energy 8. Minimum Annual Charge

“The initial rate will be $0.095/kWh (in 2014) escalated at 2% each year and adjusted every five (5) years by the Performance Ratio and will include the fuel Rate Rider which will be adjusted positively or negatively each year.”

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1. Initial Rate set so that, over a 20-year analysis period: PV(Revenues from Rates) = PV(Forecast Costs)

• using a rate that escalates each year by 2% (inflation)
• and FAES WACC as the discount rate

2. The result is a rate that is level throughout the 20-year analysis term on a real basis

• Identical rates throughout the term of service ensures

intergenerational equity

Artemisia Development

Initial Rate Setting (Same as SOLO)

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• 1. 5-Year Performance Terms
• 2. After each 5-year term, rates will be adjusted for the

upcoming 5-year term using a Performance Ratio:

• Ratio of the actual cost of thermal energy ($/kWh) in the previous 5

years to the originally forecast cost of thermal energy ($/kWh) for the same period

• FAES will multiply the rates originally forecast for the upcoming 5-year

term by this Performance Ratio

• 3. Formula-based mechanism does not require any judgment
• r review to administer

Artemisia Development

Future Rate Adjustments (Same as SOLO)

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Artemisia Development

Fuel Costs (Same treatment as in SOLO)

Deferral Account Treatment

• natural gas and electricity
• price and volume

Rate Rider

• Annual reset to minimize intergenerational

concerns

• Smaller component of cost of service

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Artemisia Development

Minimum Annual Charge Provision (Same as SOLO)

Service Agreement includes a Minimum Annual Charge:

• Calculated by multiplying the applicable Energy Rate by 80% of the

Annual Demand

• Initially, the Annual Demand is equal to the load forecast (MWh),

but once actual data is available, it will be adjusted to equal the weather normalized average annual demand for the previous 3 years

• If the actual annual consumption is less than 80% of the Annual

Demand (in MWh), the difference would be multiplied by the applicable Energy Rate and added to the next bill.

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Artemisia Development

Forecast Performance

Particulars 2014 2015 2016 2017 TOTAL Revenue Requirement Cost of Natural Gas 10 10 11 11 42 Cost of Electricity 3 4 4 4 14 Operation and Maintenance 14 14 14 14 56 Property Taxes

• Depreciation Expense

11 3 3 3 21 Amortization Expense

• Income Taxes
• Earned Return

6 6 6 6 24

• Annual Revenue Requirement

45 37 37 38 157 MWh 410 410 410 410 1,639 Forecast cost $/kWh 0.109 $ 0.090 $ 0.091 $ 0.093 $ 0.096 $ First Performance Term

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Artemisia Development

Actual Performance

Particulars 2014 2015 2016 2017 TOTAL NOTES Revenue Requirement Cost of Natural Gas 10 10 11 11 42 1 Cost of Electricity 3 4 4 4 14 1 Operation and Maintenance 10 15 13 12 50 2 Property Taxes

• 2

Depreciation Expense 11 3 3 3 21 2 Amortization Expense

• 2

Income Taxes

• 2

Earned Return 6 6 6 6 24

• Annual Revenue Requirement

41 38 36 36 151 MWh 450 390 410 400 1,650 Actual cost $/kWh 0.090 $ 0.098 $ 0.089 $ 0.089 $ 0.092 $ First Performance Term

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Artemisia Development

Performance Ratio & Rate Adjustment

0.096 $ Performance Ratio 104.6% 0.092 $ 2014 2015 2016 2017 2018 Forecast Rates 0.095 $ 0.096 $ 0.098 $ 0.100 $ 0.102 $ Actual Rates 0.095 $ 0.096 $ 0.098 $ 0.100 $ 0.102 $ 2019 2020 2021 2022 2023 Forecast Rates 0.104 $ 0.106 $ 0.109 $ 0.111 $ 0.113 $ Actual Rates 0.100 $ 0.102 $ 0.104 $ 0.106 $ 0.108 $ Second Performance Term First Performance Term

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Artemisia Development

Benefits of the Rate Design

• 1. Provides an equitable balance of risks & rewards between FAES and

customers

• 2. Meet the need for efficient regulation
• 3. Short-term efficiency incentive for FAES as it keeps the savings if

performing better than forecast

• 4. Long-term benefit for customers as rates in future performance

terms are reduced if FAES performs better

• 5. FAES takes risk on costs and energy deliveries within each 5-year

test period (except fuel costs)

• 6. Level rate throughout the contract term ensures intergenerational

equity