FAES S OVEREIGN TES CPCN R ATES E XHIBIT B-5 Sovereign Development BCUC Streamlined Review Process August 20, 2014 1
Sovereign Development FAES Thermal Energy Service Public Utility Service in perpetuity 1. Own assets that produce heat and cold for the Sovereign Development 2. Meter thermal energy deliveries to Residential Strata , Hotel and Commercial/Retail Units in exchange for compensation 2
Sovereign Development Sovereign Thermal Energy System Project Description • Developer is BOSA Properties (Burnaby) Inc. • 45 story, 195 residential units (strata), a 169-unit hotel, and commercial /retail space • Occupancy scheduled for Q4 2014 • Hybrid energy system comprised of heat recovery heat pumps, distributed heat pumps, and high efficiency central natural gas boilers • Designed to serve heating and cooling needs of the Development • Metered thermal energy in exchange for compensation to: 1) Residential Strata, 2) Hotel, and 3) Commercial/Retail Units Loads - Heat, Cool & DHW Costs - $6.3 M (FAES purchases for $3.9 M maximum price) • Total FAES investment is $4.15 M and includes $250k development costs • $135k per year for sustaining capital commencing in the 6 th year of operation • $100k per year in Operations and Maintenance costs over the contract term 3
Sovereign Development Relationships Commercial/Retail Units Suppliers & Hotel Component $ Title BOSA $ Contractors Residential Strata $ Metered Thermal Energy Construction & Purchase Service Public Utility Agreement Agreements Service Energy $ System FAES 4
Sovereign Development 5
Sovereign Thermal Energy System Schematic FAES Thermal Key Hot Water Supply Energy System Cooling Boilers Tower Hot Water Return Chlled Water Supply Chilled Water Return Heat Pump Loop Supply Heat Pump Loop Return DHW ~ Fan Coils (Residential) DHW DHW Tanks Pre-Heat Tanks Heat Heat Recovery Heat Exchangers Units Exchangers ~ DCW Water to Water Make Up Air Heat Pumps Units Water to Air Heat Pumps (Hotel Rooms) Water to Make Up Air Heat Recovery Water Heat Units Units Pumps Water to Water Heat Pumps Boilers Pool Water to Air Heat Heat Pumps Dehumidification ( CRU’s ) Exchangers Unit 6
Sovereign Development The Development http://www.youtube.com/watch?v=Sgw3nwQHOE4 7
Sovereign 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 Sovereign Project Ownership by FAES Negotiations SRP Service FEI Transition FAES 8
Sovereign Development Approvals & Light-Handed Regulation FAES filed on June 18, 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 Agreements for the Residential Strata, the Hotel, and the Commercial/Retail Property pursuant to ss. 59-61 of the UCA. (corrected from the version distributed at the SRP) 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
Sovereign 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 • Three customers 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 Cit y of Burnaby’s building permit 2. process 3. Total capital costs of $6.3M 10
Sovereign 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 UCA. 11
Sovereign Development Regulatory Context of the Application For Sovereign, FAES proposes to use a rate design and Service Agreement identical as 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 Sovereign, the cover letter and the appendices supply the necessary information for the BCUC to grant the approvals sought. 12
Sovereign 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
Sovereign Development Customer Disclosure Meets the SOLO Requirements (C-3-14) FAES has provided disclosure of: • Service Agreements • Costs that customers may face through time • Plain language explanation of Service Agreement • BCUC Notice of Public Hearing Avenues of disclosure: • BOSA providing directly to pre-purchase unit holders (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 them to ask questions on the new rates 14
Sovereign 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 $135k per year starting in 6 th year ($2.025M 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
Sovereign Development TES System is Cost Effective Design and Construction - Maximum purchase price of $3.9M • BOSA Properties Inc. constructs and pays the difference between $3.9M 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
Sovereign Development Rate Design Components of the Rate Design: 1. Levelizing mechanism (20-year analysis term) 2. Initial rate in $/kWh ($0.110/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 $0.110/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
Sovereign 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 Cost) • 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
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