FAES SOLO TES R ATES CPCN E XHIBIT B-5 SOLO District Development BCUC Streamlined Review Process December 17, 2013 1
SOLO District Development FAES Thermal Energy Service Public Utility Service in perpetuity 1. Own assets that produce heat and cold for the SOLO District Development Phase 1 (Stratus) 2. Meter thermal energy deliveries to Residential Strata and Commercial/Retail Units in exchange for compensation 2
SOLO District Development Relationships Commercial/Retail Units $ Title Appia Residential Strata $ Metered Thermal Energy Construction & Public Utility Purchase Service Agreement Service Agreements Energy $ System FAES 3
SOLO District Development Phase 1 - Stratus 4
SOLO District Development Schematic Schematic 5
SOLO District Development The Development http://www.youtube.com/watch?v=HTuKmpuG5q4 http://www.youtube.com/watch?v=nDMX05jwO6c 6
SOLO District Development Regulatory/Business Development Context SOLO District Phase 1 (Stratus) Regulation Kelowna DES TES Marine TELUS Garden Gateway Tsawwassen Springs 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 Occupancy Excavation Stratas Project SOLO Negotiations SRP Service FEI Transition FAES 7
SOLO District Development Review, Approvals & Light-Handed Regulation Meets the criteria of Light- handed Stream ‘A’ 1. On-site thermal energy system designed to serve: • Energy demands of Phase 1 (Stratus) • Two customers: Residential Strata & Commercial/Retail Units • Without use of public streets or Right of Way 2. New build as part of the SOLO District Development Phase 1 (Stratus) 3. Total capital costs of $7.3M are well below $15M and purchase price is fixed at $4.4M Still requires CPCN and initial rates approval 1. Approval of CPCN to purchase the energy system for $4.4M 2. Approval of initial rates and Service Agreements for the Residential Strata and the CRU • Update of forecast costs to reflect the results of the GCOC Proceeding 8
SOLO District Development “New” Stream ‘A’ TES Applicant Requirements FAES has met the Applicant Requirements for the SOLO District Development Phase 1: Filed a completed Registration Form as a Stream ‘A’ Utility, 1. 2. Demonstrated it is able to maintain reliable service & mitigate future rate shock/intergenerational issues related to capital replacements, 3. Provided and will provide adequate disclosure, 4. Ensured cost reasonableness, 5. Followed the TES Rate Setting Guide 6. Provided measures for consumer protection in the Service Agreements 7. Has and will ensure that rate schedules are publicly available 9
SOLO District Development FAES Registration Project - SOLO District Phase 1 (Stratus): • Developer is Appia Developments (2001) Limited • 45 story, 374 residential units (strata) and a commercial podium to be complete in Q2 2015 • Energy system is a geothermal loopfield, VRF pumps, natural gas boilers and cooling towers • Designed to serve heating &cooling needs of Phase 1 and is capable of interconnection • Metered heat and cold in exchange for compensation to: • Residential Strata • Commercial/Retail Units Loads - Heat, Cool & DHW Costs - $4.4M fixed price • $1.4M equipment replacement costs over next 20 years • Rates set to comply with the Rate Setting Guide 10
SOLO District Development Capital Replacement & Service Continuity FAES has access to capital • Growing portfolio of TES utility services • Is a wholly owned subsidiary of Fortis Inc. Capital Reserve Requirement & Provisions • Category 1 - replacement of the loopfield estimated to cost $4.5M • Failure of the entire loopfield is extremely unlikely • Complete backup and ability of the system to interconnect • Covered by insurance • Category 2 - replacement of assets that might fail or require replacement is $90k in any given year and $1.4M over 20 years • FAES has planned for sustainment and replacements capital investments No Capital Reserve Fund is necessary • Provisions are adequate to cover the requirements 11
SOLO District Development Disclosure FAES has provided disclosure of: • Service Agreements • Costs that customers may face through time • Plain language explanation of service • BCUC Registration and Review Process Avenues of disclosure: • Appia providing directly to potential and pre-purchase unit holders • FAES and Appia Websites • Appia Sales Centre FAES has submitted edits to Service Agreements to BCUC to enhance disclosure 12
SOLO District Development Cost Reasonableness Fixed purchase price of $4.4M • Appia constructs and pays difference between $4.4M and actual costs • Prior to purchase, system must be fully functioning as designed Five-Year Performance Terms • Fix 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 13
SOLO District Development Rate Setting Guide Guiding Principles • Balances forecast risk and reward between FAES and customers • Minimizes regulatory burden and ability for FAES to pass costs on to customers • Provides rate stability and predictability Initial Rate • Real levelized rate (escalated at 2%) • Negotiated to be competitive in the market • 100% variable rate on metered thermal energy deliveries • Includes an 80% minimum annual consumption that adjusts on a three-year rolling basis Future Rate Adjustments • Formula based adjustments every five years based on a performance ratio without the need for reopeners or future BCUC approvals • Rate rider adjusted annually for changes in fuel costs 14
SOLO District Development Forecast Productivity First Performance Term 2015 2016 2017 2018 Total Forecast Cost of Natural Gas 64 68 71 73 276 Cost of Electricity 59 62 65 67 253 Operation and Maintenance 77 92 94 96 358 Property Taxes - - - - - Depreciation Expense 163 163 163 163 651 Amortization Expense - - - - - Income Taxes - - - - - Capital Carrying Costs 328 322 311 300 1,261 Total 691 707 703 699 2,799 MWh 5,717 5,717 5,717 5,717 22,868 Forecast Cost $/kWh $ 0.121 $ 0.124 $ 0.123 $ 0.122 $ 0.122 15
SOLO District Development Actual Productivity First Performance Term 2015 2016 2017 2018 Total Notes Actual Forecast Cost of Natural Gas 64 68 71 73 276 1 Forecast Cost of Electricity 59 62 65 67 253 1 Operation and Maintenance 90 92 94 96 371 2 Property Taxes - - - - - 2 Depreciation Expense 163 163 163 163 651 2 Amortization Expense - - - - - 2 Income Taxes - - - - - 2 Capital Carrying Costs 328 322 316 295 1,261 3 Total 703 707 708 694 2,812 MWh 5,189 6,538 6,224 6,517 24,469 Actual Cost $/kWh $ 0.136 $ 0.108 $ 0.114 $ 0.106 $ 0.115 1 - Fuel variances are captured in the annual Rate Rider 2 - Actual Costs 3 - Updated to reflect changes in net book value and the benchmark rate using 45% equity and 75bps premium 16
SOLO District Development Performance Ratio & Rate Adjustment $ 0.122 Performance Ratio 106.4% $ 0.115 First Performance Term 2015 2016 2017 2018 2019 Forecast Rates $ 0.105 $ 0.108 $ 0.110 $ 0.112 $ 0.114 Actual Rates $ 0.105 $ 0.108 $ 0.110 $ 0.112 $ 0.114 Second Performance Term 2020 2021 2022 2023 2024 Forecast Rates $ 0.116 $ 0.119 $ 0.121 $ 0.124 $ 0.126 Actual Rates $ 0.109 $ 0.112 $ 0.114 $ 0.116 $ 0.118 17
SOLO District Development Consumer Protection FAES Responsibilities • Provide Public Utility service in perpetuity at the rates set out in the Service Agreement as per the Utilities Commission Act • Applies to FAES, successor, liquidator, or receiver • FAES must renew if customer chooses Customer Responsibilities • Be able to take service with safe, reliable equipment • Pay for services delivered by FAES • Do not fuel switch Termination • Customer makes payment to ensure that effect on other customer and FAES are minimized during term in effect • System serves more than one customer 18
SOLO District Development Make Rates Publicly Available FAES has and will post rates on the website and file rates with the BCUC as they change 19
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