London Economics International LLC Industrial Electricity Rate Economic Impact Study Kick-off Meeting Mississauga, Ontario, Canada Prepared for the Canadian Manufacturers & Exporters (“CME”) **DRAFT** March 18, 2019
Agenda www.londoneconomics.com 2 Agenda ***Draft***Draft***Draft*** 1 Introduction of the team 2 Scope of the project 3 Discussion with stakeholders
LEI Introduction www.londoneconomics.com 3 LEI is a global economic, financial and strategic advisory professional services firm specializing in energy, water, and infrastructure R EGULATORY A SSET E CONOMICS , E XPERT V ALUATION , P ERFORMANCE T ESTIMONY P RICE - BASED & F ORECASTING L ITIGATION RATEMAKING & M ARKET & M ARKET C ONSULTING A NALYSIS D ESIGN ► Exhaustive sector knowledge and a ► Market design, market power and ► Reliable testimony backed by ***Draft***Draft***Draft*** suite of state-of-the-art proprietary strategic behavior advisory services strong empirical evidence quantitative modeling tools ▪ Electricity ▪ Natural Gas ▪ Water ► Expert witness service ► Incentive ratemaking ▪ Wholesale electricity market models ▪ Material adverse change ▪ Valuation and economic appraisal ▪ Quantify current and achievable ▪ Materiality ▪ Cost of capital efficiency levels for regulated industries ▪ Due diligence support ▪ Market power ▪ Tax valuations ▪ Convert findings into efficiency targets ▪ Cost of capital database ▪ Contract frustration mutually acceptable to utilities and ▪ Contract configuration matrices regulators D ISTRIBUTION R ENEWABLE P ROCUREMENT AND E NERGY T RANSMISSION ► Creating detailed market ► Renewable energy policy design, ► Extensive experience ► Designing, administering, related to simulations to identify procurement, modeling, and asset renewable energy policy monitoring, and evaluating design beneficiaries and quantify costs valuation and asset valuation, including competitive procurement and benefits from proposed processes ▪ Solar, wind, biomass, and small hydro ▪ Micro-grids distribution and transmission lines ▪ Demand response ▪ Cogeneration ▪ Auction theory and design ▪ Valuing D&TS ▪ Energy efficiency ▪ Micro-grids ▪ Process management ▪ Transmission tariff design ▪ Document drafting and stakeholder ▪ Emissions credits trading management ▪ Procurement process and contract design ▪ Energy storage technologies
Ontario experience www.londoneconomics.com 4 LEI has been active in the Ontario market since 1998 Applicability of PBR to Ontario Power Generation (“OPG”): LEI was engaged to support senior management through regulatory processes related to performance-based rates. 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"). 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 on the design of second-generation IR for electricity distribution companies.
Team members » Organization chart www.londoneconomics.com 5 Mr. Goulding will lead the engagement team and will serve as the principal interface with CME AJ Goulding President Adam Hariri Project Manager ***Draft***Draft***Draft*** Mugwe Kiragu Tianying Lan Consultant Consultant Support Staff LEI staff in Toronto, Chicago, and Boston AJ Goulding ▪ Has led various engagements with industry associations , ▪ President of London Economics including a comparison of electricity prices and economic International , (1999-present) analysis of retail markets ▪ Adjunct Professor at Columbia ▪ Over the course of his career, AJ has been continuously University, teaching electricity involved in the Ontario electricity markets market design (2003 – present) ▪ His experience in Ontario includes a breadth projects on ▪ Member of the OEB’s Advisory behalf of all types of major market players , including the Committee on Innovation OEB, the Independent Electricity System Operator (“IESO”), Project (“ACI”) the former Ontario Power Authority (“OPA”), various local Thought ▪ More than 20 years of electric and gas distribution companies (“LDCs”), private Leader experience in energy generators, think tanks, and other market stakeholders consulting
Agenda www.londoneconomics.com 6 Agenda ***Draft***Draft***Draft*** 1 Introduction of the team 2 Scope of the project 3 Discussion with stakeholders
Scope www.londoneconomics.com 7 LEI will conduct a study on Industrial Electricity Rate Economic Impact in Ontario’s manufacturing sector Objectives Main Task to demonstrate practical, to analyze how to effectively lower implementable options to achieve a electricity costs for all competitive, predicable manufacturers and how the manufacturing electricity rate recommendations could be ***Draft***Draft***Draft*** implemented to assess the resulting economic benefits from each option Study performed for CME Approach Results extensive stakeholder outreach to be used as a foundational body of will be conducted throughout the work to support CME’s advocacy study to take in feedback from CME work , manufacturing and energy members and other stakeholders in policy positions in government and Ontario public forums data-driven and objective perspective on the viability of different options
Scope www.londoneconomics.com 8 LEI believes the engagement breaks into five key tasks 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
Scope www.londoneconomics.com 9 LEI will commence with a review of current industrial rates, followed by assessing rates in jurisdictions that compete with Ontario Review of current Ontario industrial electricity rates and rate designs ► 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 Assessment of competitive electricity rate levels ► 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 www.londoneconomics.com 10 LEI will then develop options to change rates and quantify economic benefits from appropriate rate adjustments Development of options to change rates in a manner consistent with rate setting principles that is beneficial to industrial consumers and the Province ► 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 Quantification of economic benefits from appropriate rate adjustments ► 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 Consultation with relevant industry and government officials and experts throughout the project
Agenda www.londoneconomics.com 11 Agenda ***Draft***Draft***Draft*** 1 Introduction of the team 2 Scope of the project 3 Discussion with stakeholders
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