FAES R ATE A PPROVALS TES A RTEMISIA CPCN E XHIBIT B-4 Artemisia Development BCUC Streamlined Review Process August 20, 2014 1
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 2
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 3
Artemisia Development Relationships Suppliers & $ $ Title Boffo Residential Strata Contractors $ Metered Thermal Energy Construction & Public Utility Purchase Service Agreement Service Agreement Energy $ System FAES 4
Artemisia Development Site 5
Artemisia Development The Development http://www.artemisiavancouver.ca/gallery/ 6
Artemisia Development Schematic 7
Artemisia Development Regulatory/Business Development Context Regulation Kelowna DES Sovereign TES Marine TELUS Garden Gateway Artemisia Tsawwassen Springs SOLO Delta SD TES Scaled Framework AES Inquiry/Report 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 Excavation Occupancy Strata Ownership by FAES Artemisia Project Negotiations SRP Service FEI Transition FAES 8
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) 9
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 New construction approved under City of Vancouver’s building 2. permit process 3. Total capital costs of $587,000 10
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 11
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. 12
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) 13
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 14
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 15
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 16
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 $0.095/kWh (in 2014) escalated at 2% each year and adjusted every five (5) years by the Performance Ratio and will include the fuel Rate Rider which will be adjusted positively or negatively each year. ” 17
Artemisia Development Initial Rate Setting (Same as SOLO) 1. Initial Rate set so that, over a 20-year analysis period: PV(Revenues from Rates) = PV(Forecast Costs) • using a rate that escalates each year by 2% (inflation) • and FAES WACC as the discount rate 2. The result is a rate that is level throughout the 20-year analysis term on a real basis Identical rates throughout the term of service ensures intergenerational equity 18
Artemisia Development Future Rate Adjustments (Same as SOLO) 1. 5-Year Performance Terms 2. After each 5-year term, rates will be adjusted for the upcoming 5-year term using a Performance Ratio: Ratio of the actual cost of thermal energy ($/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 or review to administer 19
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 20
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