Impact Study Kick-off Meeting Mississauga, Ontario, Canada - - PowerPoint PPT Presentation

London Economics International LLC

Industrial Electricity Rate Economic Impact Study

Prepared for the Canadian Manufacturers & Exporters (“CME”)

March 18, 2019

Kick-off Meeting

Mississauga, Ontario, Canada **DRAFT**

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Agenda

Agenda 2 ***Draft***Draft***Draft***

2

Scope of the project

3

Discussion with stakeholders

1

Introduction of the team

www.londoneconomics.com ► Extensive

experience related to renewable energy policy design and asset valuation, including

▪ Micro-grids ▪ Cogeneration ▪ Micro-grids

► Renewable energy policy design,

procurement, modeling, and asset valuation

▪ Solar, wind, biomass, and small hydro ▪ Demand response ▪ Energy efficiency ▪ Emissions credits trading ▪ Energy storage technologies

3

LEI is a global economic, financial and strategic advisory professional services firm specializing in energy, water, and infrastructure

LEI Introduction ASSET VALUATION, PRICE FORECASTING & MARKET ANALYSIS REGULATORY ECONOMICS, PERFORMANCE

• BASED

RATEMAKING

& MARKET DESIGN EXPERT TESTIMONY & LITIGATION CONSULTING RENEWABLE ENERGY PROCUREMENT DISTRIBUTION

AND

TRANSMISSION ► Exhaustive sector knowledge and a

suite of state-of-the-art proprietary quantitative modeling tools

▪ Wholesale electricity market models ▪ Valuation and economic appraisal ▪ Due diligence support ▪ Cost of capital database ▪ Contract configuration matrices ► Market design, market power and

strategic behavior advisory services

▪ Electricity

► Incentive ratemaking

▪ Quantify current and achievable

efficiency levels for regulated industries

▪ Convert findings into efficiency targets

mutually acceptable to utilities and regulators ► Reliable testimony backed by

strong empirical evidence

► Expert witness service

▪ Material adverse change ▪ Materiality ▪ Market power ▪ Contract frustration

► Designing, administering,

monitoring, and evaluating competitive procurement processes

▪ Auction theory and design ▪ Process management ▪ Document drafting and stakeholder

management ► Creating detailed market

simulations to identify beneficiaries and quantify costs and benefits from proposed distribution and transmission lines

▪ Valuing D&TS ▪ Transmission tariff design ▪ Procurement process and contract design ▪ Cost of capital ▪ Tax valuations ▪ Natural Gas ▪ Water

***Draft***Draft***Draft***

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Applicability of PBR to Ontario Power Generation (“OPG”): LEI was engaged to support senior management through regulatory processes related to performance-based rates.

Ontario experience

LEI has been active in the Ontario market since 1998

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Review of transmission rate methodology: retained by the OEB to review its uniform transmission rate methodology to determine whether it remains appropriate for Ontario. Conservation and demand management in electricity distribution rates: assisted the OEB in identifying options for a ratemaking framework that accounts for electricity distributor conservation and demand management (“C&DM”) in electricity distribution rates. Design of second-generation Incentive Rate-setting (“IR”): advised the OEB

• n the design of second-generation IR for electricity distribution companies.

Impact of Distributed Energy Resources (“DERs”): LEI performed a review of the growing responsibilities for distribution control centers ("DCC"), in particular due to the growth of Distributed Energy Resources ("DER").

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• Mr. Goulding will lead the engagement team and will serve as the

principal interface with CME

Team members » Organization chart 5 ***Draft***Draft***Draft***

Support Staff LEI staff in Toronto, Chicago, and Boston Mugwe Kiragu Consultant AJ Goulding President Tianying Lan Consultant Adam Hariri Project Manager

▪ Has led various engagements with industry associations, including a comparison of electricity prices and economic analysis of retail markets ▪ Over the course of his career, AJ has been continuously involved in the Ontario electricity markets ▪ His experience in Ontario includes a breadth projects on behalf of all types of major market players, including the OEB, the Independent Electricity System Operator (“IESO”), the former Ontario Power Authority (“OPA”), various local electric and gas distribution companies (“LDCs”), private generators, think tanks, and other market stakeholders

AJ Goulding

▪ President of London Economics International, (1999-present) ▪ Adjunct Professor at Columbia University, teaching electricity market design (2003–present) ▪ Member of the OEB’s Advisory Committee on Innovation (“ACI”) ▪ More than 20 years of experience in energy consulting Project Thought Leader

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Agenda

Agenda 6 ***Draft***Draft***Draft***

2

Scope of the project

3

Discussion with stakeholders

1

Introduction of the team

www.londoneconomics.com Scope

LEI will conduct a study on Industrial Electricity Rate Economic Impact in Ontario’s manufacturing sector

7 ***Draft***Draft***Draft***

Objectives Main Task Approach Results

Study performed for CME

to demonstrate practical, implementable options to achieve a competitive, predicable manufacturing electricity rate to assess the resulting economic benefits from each option extensive stakeholder outreach will be conducted throughout the study to take in feedback from CME members and other stakeholders in Ontario data-driven and objective perspective on the viability of different options to analyze how to effectively lower electricity costs for all manufacturers and how the recommendations could be implemented to be used as a foundational body of work to support CME’s advocacy work, manufacturing and energy policy positions in government and public forums

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LEI believes the engagement breaks into five key tasks

Scope 8

Review of current Ontario industrial electricity rates and rate designs Assessment of competitive electricity rate levels Development of options to change rates in a manner consistent with rate setting principles that is beneficial to industrial consumers and the Province Quantification of economic benefits from appropriate rate adjustments Consultation with relevant industry and government officials and experts throughout the project

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► to discuss rate levels and rate designs ► to examine regional differences and assess experiences across different Ontario local

distribution companies (“LDCs”)

► to create 3 to 4 proxy customers of varying load profiles and size; analyze rates and bill impact ► to apply the proxy customer descriptions to 2-3 LDC territories, including at a minimum one

urban and one rural utility

► to identify five jurisdictions which account for locations of manufacturers of key goods currently

made in Ontario

► to assess rates, rate impact, and incentives on similarly situated customers in those

jurisdictions

► to identify the magnitude and source of differences in rates between Ontario and the

competing jurisdictions, and assess the extent to which the factors result in lower rates elsewhere

► to provide an understanding of which rate designs result in the most competitive rates, where

“competitive” is defined as rates consistent with customer cost causation and system impact

Scope

LEI will commence with a review of current industrial rates, followed by assessing rates in jurisdictions that compete with Ontario

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Review of current Ontario industrial electricity rates and rate designs Assessment of competitive electricity rate levels

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► to address current mandates which result in uneconomic spending through rates ► to spot those areas where rate designs fail to accurately correlate cost with system impact,

resulting in industrial consumers paying more than their fair share of system costs

► to be attentive to other ways in which rates can be redesigned or adjusted in order to provide

fair benefits to industrial consumers

► to propose alternative rate designs that address the concerns of industrial ratepayers ► to deploy a macroeconomic impact model such as the Jobs and Economic Development

Impact model (“JEDI”) to calculate the potential benefits of the rate design changes, including impacts on GDP, investment, and employment in the province

Scope

LEI will then develop options to change rates and quantify economic benefits from appropriate rate adjustments

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Development of options to change rates in a manner consistent with rate setting principles that is beneficial to industrial consumers and the Province Quantification of economic benefits from appropriate rate adjustments Consultation with relevant industry and government officials and experts throughout the project

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Agenda

Agenda 11 ***Draft***Draft***Draft***

2

Scope of the project

3

Discussion with stakeholders

1

Introduction of the team

www.londoneconomics.com Comparators selection

Germany, Ohio, Illinois, Indiana, and Michigan are selected for further comparison with Ontario, subject to further discussion

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Source: Statistics Canada. Sales

• f goods manufactured

Identified manufactured key goods in Ontario Reviewed jurisdictions that compete with Ontario Checked data availability Discussion with CME and stakeholders

• Transportation

equipment manufacturing

• Food

manufacturing

• Chemical

manufacturing

• China
• US
• Germany

Source: European Automobile Manufacturers Association. International Trade

• Centre. etc.
• California (computer electronic)
• Texas (chemical)
• Ohio (chemical/ motor vehicle)
• Illinois (chemical/ food)
• North Carolina (chemical/ food)
• Indiana (chemical/ motor vehicle)
• Michigan (motor/ machinery)

Source: National Association of Manufacturers

• Germany
• Ohio
• Illinois
• Indiana
• Michigan

Jurisdictions covered in previous CME report

• Pennsylvania
• California
• Iowa
• PJM
• Entergy Texas
• Germany
• Ireland
• Nova Scotia

Assessment of competitive electricity rate levels

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LEI seeks stakeholders’ insights and input for the following items

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Review of current Ontario industrial electricity rates and rate designs We need your input for:

► determining representative customers’ profile - small/ medium/ large ► template bills to construct profiles to create proxy customers ► load profiles include peak load/ daily and seasonal profiles

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hours

Indicative hourly load profile

Energy consumption

Customer A Customer B

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► What aspects of electricity rate design do you believe are most inconsistent with your

impact on the system?

► If you operate across multiple LDC service territories in Ontario, are these differences in

the way similar load is treated in the territories in which you operate?

► If you operate outside of Ontario, what (if any) attributes of rate design in those external

jurisdictions do you think should be adopted in Ontario?

► Do you take advantage of onsite generation or load shifting programs? ► Would you be willing to accept lower service quality in return for a discount, or conversely,

pay more for higher than targeted service quality?

► Do you have any other observations regarding rate design?

Discussion

Questions:

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