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STERLING, COOPER CONSULTANTS INC. C O N S U L T I N G M E C H A N I C A L E N G I N E E R S
TRANSMITTAL/FAX MEMO
608 – 1166 Alberni Street, Vancouver, B.C. V6E 3Z3
Tel : (604) 734 -9338 Fax: (604) 737 -7102
E-mail: [email protected]
PER: CHI ZHANG
NOTE: If the number of sheets received differs from the number above, or if any of the transmitted material is not legible, please inform the above at once.
V:\8000\80\8002\DEU\Application\01 - TES Rates Filing - 2016 Initial\2017-03-14-Response_to_IR-3_COMPLETE\For Transmission\8002-171 Shannon Estates DES - BCUC IR3
Response.doc
COMMENTS: In the matter of the Shannon Estates Thermal Energy Systems Rates Application operating under the regulatory timetable established by BCUC Order G-193-16, please find enclosed:
• SETES response to BCUC IR#3
• Updated SETES response to SRG IR#3
• Generic Cost of Capital financial model as an appendix to BCUC IR #3 and editable .xls format
• Updated Thermal Energy Tariff in both clean and blacklined copy as an appendix to BCUC IR #3 with editable clean copy
This has been e-filed on BCUC’s website. Please note that Sterling Cooper Consultants Inc. (SCCI) is submitting on behalf of the applicant, Shannon Wall Centre Rental Apartments Limited Partnership. Please direct questions to George Steeves ([email protected]), Joseph Chow ([email protected]) and Chi Zhang ([email protected]).
PROJECT: SHANNON ESTATES THERMAL ENERGY SYSTEM
7199 GRANVILLE STREET
NO:
DATE:
8002-171
Mar. 23, 2017
X
ATTN: ERICA HAMILTON, COMMISSION SECRETARY & DIRECTOR
CLAUDIA MCMAHON, SENIOR REGULATORY SPECIALIST - RATES
BRITISH COLUMBIA UTILITIES COMMISSION
SIXTH FLOOR – 900 HOWE STREET, VANCOUVER, BC V6Z 2N3
FAX:
PHONE:
604.660.4700
604.660.1102
CC
SHANNON WALL CENTRE RENTAL APARTMENTS LIMITED PARTNERSHIP
1010 BURRARD STREET, VANCOUVER, BC V6Z 2R9
FAX:
PHONE:
CC ATTN: IAN WEBB
LAWSON LUNDELL LLP
1600 – 925 WEST GEORGIA STREET, VANCOUVER, BC V6C 3L2
FAX:
PHONE:
604.694.2932
604.631.9117
NO. OF PAGES INCLUDING THIS PAGE:
AS NOTED
B-17-1
Shannon Ratepayers Group IR No. 3
1.0 Reference: Exhibit B-1-1 (Application), Section 3.1 Sustainment Capital Fund Rate
Rider
Section 3.1 has been amended for both the CRF and ERF such that interest will accrue at a rate
of 0.15% per annum rather than the original 1.0% per annum.
1.1 Please clarify if this is interest that would be earned on a positive balance in the CRF or
ERF or if it is earnings that would accrue to SWCRA on a negative balance in the CRF or
ERF.
[SETES: All interest accrued in the CRF account would be automatically deposited into
the CRF principle.
All interest accrued in the ERF account would be automatically deposited into the ERF
principle.]
1.2 Please provide the rationale and supporting documents to justify the change from 1.0% to
0.15%.
[SETES: For the sake of analysis, the CRF interest was initially estimated based on a
long-term savings account. This was later reviewed and we determined that a business
chequing account was more appropriate with estimated interest rate of 0.15% or less.
Please see response in BCUC IR 3.78.9 for further details.]
2.0 Reference: Exhibit B-1-1 (Application), Section 3.2 Regulatory Deferral Account
Section 3.2 has been added to the application and discusses a Regulatory Deferral Account and
rate rider associated with estimated costs of $303,960.
2.1 What legal/regulatory authority does SWCRA rely on for the recovery of RDA costs
generally and specifically from rate payers?
[SETES: Regulatory costs are a normal cost of business for a utility. SWCRA
understands that it has been a long-standing practice of the BCUC to allow utilities to
recover their regulatory costs in rates.
Please refer to SWCRA’s response to BCUC IR 3.78.2.]
2.2 Please provide details of the remaining work by SCCI that forms the basis of the budget
of $52,000.
[SETES: Please refer to SWCRA’s response to BCUC IR 3.79.8.]
2
2.3 Please provide details of the forecasted “Accounting & Legal Services Budget” work that
forms the basis of the budget of $60,000.
[SETES: Please refer to SWCRA’s response to BCUC IR 3.79.2.]
2.4 What portion of SCCI’s fees of $164,970 are attributable to the involvement in this
application of Dean Thomas Fox/Shannon Ratepayers Group and other ratepayers?
[SETES: Resources spent addressing all intervenors that SWCRA understands are current
or future ratepayers are estimated to be $30,900 including taxes. This estimate does not
include costs for responding to this round of information requests.]
2.5 What portion of SCCI’s fees of $164,970 are attributable to the involvement of Fortis and
any other interveners?
[SETES: Resources spent addressing all other interveners that are not included in the
group defined in SRG IR 2.4; estimated to $53,400 including taxes. A further estimated
$80,700 including taxes was spent on other regulatory submissions.
Note:
Parties who participated as Intervenors were:
FortisBC Alternative Energy Services (FAES)
Mr. Robert Peden
Mr. Dean Thomas Fox / Shannon Ratepayers Group (SRG)
Several individuals also participated as registered interested parties, through the Letters
of Comment process.]
2.6 Were any regulatory costs for rate approval anticipated and included in the capital costs
for the project submitted in the CPCN Application? If yes, what was the amount? If not,
please explain why they were not anticipated?
[SETES: Regulatory costs for rate approval were not included in the capital costs
submitted with the CPCN application. The costs presented in the CPCN application
relate to the design/construction/commissioning of the thermal energy system.]
2.7 Does the fixed rate for SEFC, which is the basis for the SETES fixed rate, include
any costs associated with reports, presentations or other materials developed to gain rate
approval from the City of Vancouver?
[SETES: SWCRA has not been able to ascertain with certainty from the material it has
located whether the fixed rate for SEFC includes the costs for the elements listed in the
IR.
The City of Vancouver apparently would have ongoing administrative costs for
reoccurring year to year rates approval as there are reports filed by an Expert Rate
Review Panel1 but it is not known to SWCRA where the initial rate-setting costs would
1 Appendix A - City of Vancouver Administrative Report dated November 4, 2016 “Southeast False Creek
Neighbourhood Energy Utility (“SEFC NEU”) 2017 Customer Rates – Appendix D
3
have been recovered which would be comparable to SETES’s first rate-setting
application.
The City of Vancouver describes that the SEFC NEU Customer Fixed Capacity levy is
“related to the fixed capital and operating costs associated with the NEU.”2
The City of Vancouver’s Approved Rate-Setting Principles3 indicate that NEU’s rates are
structured to recover the following (in item 1.iii):
“iii. the share of City administrative overheads that are attributable to the NEU”
The administrative overhead could be considered an operating cost which then could
include the cost of the Expert Rate Review Panel, however, the City of Vancouver’s
exact budgeting and cost allocation is not known to SWCRA.]
2.8 What would the estimated regulatory costs be if SWCRA would have made residents of
its buildings aware of the regulatory process such that they could have been involved in
the entire process rather than having to extend the process?
[SETES: Please refer to SWCRA’s response to BCUC IR 3.79.8.]
2.9 If this process had not been extended due to the request by residents, how would
SWCRA have treated the regulatory costs associated with the Application process?
Would they have been a reduction in the earning to SWCRA?
[SETES: Please refer to SWCRA’s response to BCUC IR 3.79.8.1.
The regulatory costs would have been a reduction in the earnings to SWCRA.]
2.10 SCCI makes the following claim: “The use of SCCI is reasonable and prudent due to
SCCI’s complete knowledge of SETES due to its history as the designer and
commissioner of the TES as well as its sufficient capabilities and capacity to execute a
rates application.” How many TES/DES Rates Applications has SCCI presented to the
BCUC prior to this one?
[SETES: Shannon Estates is the first TES/DES Rates Application SCCI has presented to the
BCUC.]
2.11 SWCRA makes the following statement: “The costs SWCRA has incurred are not
negligible and SWCRA’s management incentive to control its own costs are strong as
SETES has only minimal cash assets as a new business and therefore depends on the
capital of parent structures.” Please provide all details of the “parent structures”.
[SETES: Please refer to SWCRA’s response to BCUC IR 3.92.1 for details.]
2.12 SWCRA makes the following statement in Exhibit B-1-1, Appendix B1, s. 2: “The
applicant, Shannon Wall Centre Rental Apartments Limited Partnership (SWCRA) is a
single purpose Limited Partnership established to own and operate the 213-unit rental
property known as Shannon Mews & Apartments, and will also own and operate the TES
2 Appendix A - City of Vancouver Administrative Report dated November 4, 2016 “Southeast False Creek
Neighbourhood Energy Utility (“SEFC NEU”) 2017 Customer Rates – Page 2 3 Appendix A - City of Vancouver Administrative Report dated November 4, 2016 “Southeast False Creek
Neighbourhood Energy Utility (“SEFC NEU”) 2017 Customer Rates – Appendix C, pages 1-2
4
plant. The General and Limited Partner is Wall Financial Corporation. The developer,
Wall Financial Corporation (WFC) is a publicly traded real-estate investment and
development company incorporated in BC in 1969.” Does Wall Financial Corporation own
units in Shannon Condominium Developments Unit Trust and if so, how many. Please
provide us with a copy of the Shannon Condominium Developments Unit Trust agreement.
[SETES: The statements from Exhibit B-1-1, Appendix B1, s. 2 as quoted in the question are
not completely accurate, and are clarified as follows.
The Unit Trust is the developer for Phase 2 and does not have any ownership interest in the
TES. Also, the general partner of the SWCRA is not WFC, but rather, is Shannon Wall
Centre Rentals GP Inc., a company wholly owned by WFC. The developer is SWCRA and
not WFC.]
2.13 Please provide a breakdown of the “forecasted regulatory expenses” referred to in s. 3.2.
[SETES: Please refer to SWCRA’s responses to BCUC IRs 3.79.1 and 3.79.2.]
3.0 Reference: Exhibit B-1-1 (Application), Section 3.2 Regulatory Deferral Account
Section 3.2 has described the rate rider for the Regulatory Deferral Account as being designed
around a 60-month collection period.
3.1 Does SWCRA expect to file another rate application of the end of the 60-month
collection period? If not, when would the next rate application be expected?
[SETES: Please refer to SWCRA’s response to BCUC IR 3.91.1.1.
If the rates and regulatory accounts applied for are approved, SWCRA will not need to
apply to the Commission on an ongoing basis for approval of updated rates as would be
in a regulated cost of service mechanism; or make urgent requests to the Commission in
the event of unforeseeable, uncontrollable, and significant expenses. All of which,
reduces regulatory burden for the Commission, Customers, the Utility, and other
Stakeholders. Using more complex rate-setting mechanisms or holding additional
hearings would be expected to increase the application regulatory costs of SWCRA and
ongoing compliance costs of SWCRA.]
3.2 Given that the proposed rates have escalation factors allowing for annual increases in
rates, and there are anticipated rate riders for capital repairs and replacements, it may not
be necessary to file another rate application over a very long time period. What would
the rate rider be if the collection period was changed to 10 years? What would the rate
rider be if the collection period was changed to 20 years? What would the rate rider be if
the collection period was changed to 30 years?
[SETES: The following RDA recovery rates are calculated based on a simple annual
interest of 3.80%
5
Term RDA Rate Rider Simple Interest Incurred
10 Yr 4.394% $69,810
20 Yr 2.385% $140,290
30 Yr 1.814% $217,940
]
3.3 Costs associated with RDA are Capital Costs. Do the weighted average cost of capital
(WACC) rules apply?
[SETES: Costs recorded in the RDA will be funded by debt. We are proposing to apply
the weighted average cost of debt to the account.]
4.0 Reference: Exhibit B-1-1 (Application), Section 5.1 Financial Model
The Excel financial model referred to in Section 5.1 has estimated sales for space cooling, space
heating and domestic hot water (in kWh and GJ), electric usage for both energy (kWh) and
demand (kW) and gas usage energy (GJ). Estimates are provided for 2016 (half a year) as well
as 2017 and beyond.
4.1 Please provide the monthly sales from the initial start date through January of 2017 for
the sales for space cooling, space heating and domestic hot water in kWh and GJ.
[SETES: See table below:
DHW Space Heating Cooling
2016 kWh kWh kWh
June 50,698 85,610 61,706
July 51,406 69,233 88,649
August 46,998 56,173 118,177
September 47,023 83,762 45,341
October 46,938 199,087 14,428
November 44,863 279,435 16,802
December 54,446 490,943 17,807
2017 -
January 59,393 476,554 12,338
Total (June 2016 to Jan 2017) 401,766 1,740,797 375,249
DHW Space Heating Cooling
2016 GJ GJ GJ
June 182.51 308.20 222.14
July 185.06 249.24 319.14
August 169.19 202.22 425.44
September 169.28 301.54 163.23
October 168.98 716.71 51.94
November 161.51 1,005.97 60.49
December 196.01 1,767.40 64.11
2017 -
January 213.82 1,715.59 44.37
Total (June 2016 to Jan 2017) 1,446.36 6,266.87 1,350.85
6
Initial start date is understood to be June 1, 2016 which is when rates became effective,
the reporting provides to the end of January 2017.]
4.2 Please provide the monthly electric usage from the initial start date through January of
2017 in terms of both kWh and kW.
[SETES: See table below:
Initial start date is understood to be June 1, 2016 which is when rates became effective.
Data collection periods do not align exactly with initial start date and January dates.]
4.3 Please provide the monthly gas usage from the initial start date through January of 2017
for the electric purchases in terms of GJ.
[SETES: We understand the question to be requesting monthly gas usage purchases (in
GJ), and not electric purchases. The information is provided in the table below:
Monthly gas usage from the billing period which includes June 1, 2016 to January 31,
2017 are provided.]
4.4 Please provide copies of monthly electric bills from BC Hydro and monthly gas bills
from Fortis Energy, Inc. from the initial start date through January 2017.
[SETES: Copies of the periodic electricity and natural gas bills for the billing periods
which include June 1, 2016 to January 31, 2017 are included.4 Information which could
compromise account security has been redacted which are the account numbers, invoice
numbers, meter numbers, and addresses.]
4 Appendix D - Invoices
Electricity kWh kW
Jan 18 - Feb 16 74,700 121
Dec 16 - Jan 17 84,600 205
Nov 17- Dec 15 82,800 214
Oct 18- Nov 16 85,500 201
Sep 16 - Oct 17 63,000 194
Aug 17 - Sep 15 62,100 143
Jul 16 - Aug 16 54,900 116
Jun 16 - Jul 15 54,900 116
May 17 - Jun 15 60,300 121
Gas GJ
Dec 28 2016 - Jan 27 2017 2,244.7
Nov 28 2016 - Dec 28 2016 2,233.0
Oct 27 2016 - Nov 28 2016 1,135.7
Sep 28 2016 -Oct 27 2016 1,521.4
Aug 26 2016 - Sep 28 2016 345.1
Jul 28 2016 - Aug 26 2016 600.7
Jun 24 2016 - Jul 28 2016 630.4
May 26 2016 - Jun 26 2016 618.7
7
5.0 Reference: Exhibit B-1-1 (Application), Section 5.1 Financial Model
These information requests by SRG disclose information that is the subject of the
confidential undertaking agreement signed by SRG members and their consultants.
The Excel financial model referred to in Section 5.1 has a performance degradation factor of 1%
per year included from 2016 through 2045.
5.1 Please explain how the performance degradation factor was used within the financial
analysis and how it impacted the amount of electric and gas purchases.
[SETES: The performance degradation factor is used to multiply against the coefficient
of performance predicted in any single year. The coefficient of performance is used to
calculate energy purchases of the Utility from the forecast energy consumptions. The
forecast energy consumptions may vary from year to year in the early periods. The
coefficient of performance is a function of the previous year, other than the inception year
of the Utility, and the performance degradation factor. The amount of electric and gas
purchases are affected by changes in the coefficient of performance where lower
coefficients of performance will increase electric and gas purchases while higher
coefficients of performance will decrease electric and gas purchases.]
5.2 Please provide supporting documents to justify the 1% performance degradation per year
for the project.
[SETES: SWCRA notes this information request by SRG discloses information that is the
subject of the confidential undertaking agreement signed by SRG members and their
consultants.
The 1% performance degradation is an engineering estimate and judgement.
Any single factor in a multiple input/multiple output calculation as this is, especially with
respect to long-term forecasts, should be understood as informative rather than exact
representations of reality – thus they are models. The 1% performance degradation may
be negated by climate change, human behavior, and building envelope degradation.
A mathematically equivalent description may also be derived by applying a performance
degradation factor to the building envelope effective thermal resistance which would
affect thermal energy loads.
For simplicity of calculation, all these factors, none of which can be known with certainty
in advance, are combined and represented by simplified figures. The outcome of which,
as described in SWCRA’s reply to SRG IR 3.5.1 is to convert a load (customer energy
consumption) into a utility energy purchase.]
5.3 The 1% annual operating degradation implies that the system will be running at an
efficiency approaching 50% in year 30. This, despite the fact that the operator is charging
/performing on-going maintenance and spending maintenance capital to the tune of over
$100,000 on average per annum over the 30-year horizon. Please provide a detailed
8
explanation of justifying the conclusion that the system will be running at approximately
50% in 30 years under these circumstances?
[SETES: SWCRA notes this information request by SRG discloses information that is the
subject of the confidential undertaking agreement signed by SRG members and their
consultants.
Overall performance is not forecast to decrease by 50% in year 30. The following
calculation demonstrates the overall performance decrease is 26.03%:
𝐾𝐶𝑂𝑃 ⋅ (100% − 1%)30 = 𝐾𝐶𝑂𝑃 ⋅ (1 − 0.01)𝑌𝑒𝑎𝑟 1 ⋅ (1 − 0.01)𝑌𝑒𝑎𝑟 2 ⋅
… ⋅ (1 − 0.01)𝑌𝑒𝑎𝑟 29 ⋅ (1 − 0.01)𝑌𝑒𝑎𝑟 30 = 𝐾𝐶𝑂𝑃 ⋅ 0.7397, 100% ⋅ (1 − 0.7397) =26.03%.
Please see SWCRA’s response to SRG IR 5.2, which explains that the degradation
expected may be from a combination of plant changes, building changes, operator
change, and also reflects growing uncertainty in future climatic predictions and evolving
societal practices and expectations (e.g. do the Customers of the future use hot showers
the same as now if the average temperature and humidity were to increase/decrease). For
simplicity in calculation, not every factor is separated to avoid an unwarranted perception
that sufficient and reliable data is available to quantify each factor individually and in
combination.]
6.0 Reference: Exhibit B-1-1 (Application), Section 5.1 Financial Model
The Excel financial model referred to in Section 5.1 has a line item “Utility carrying costs
(interest payments)” in the amount of $262,500 per year.
6.1 What was the original principal amount, borrowing rate and term associated with the debt
that is associated with this line item?
[SETES: Please see response to BCUC IR 47.3]
6.2 What is the Capital Cost Avoidance amount realized by not including space heating,
cooling and hot water tank/heater within each suite?
[SETES: Unitary HVAC and DHW heating was never an option, therefore, it is not
possible to calculate a Capital Cost Avoidance. The combined effect of a requirement to
meet City of Vancouver rezoning policies and development conditions for energy
efficiency, low-carbon requirements, and reporting obligations has led to the technical
implementation of SETES. The City of Vancouver chosen energy efficiency metric
applied is that of energy cost, which emphasizes the use of low cost per unit of energy
sources such as natural gas. The low-carbon requirements emphasize the use of site-
renewable energy, such as solar thermal, and high-technology devices such as heat
pumps. The requirements operate in parallel and severely limit the installation of other
technologies like electric resistance on a wide scale due to their impact on energy cost
(low coefficient of performance for higher cost energy source). The site is also analyzed
as a whole and consequently the requirement for heritage building conservation, which
9
requires minimal disruption to conserved portions, required the use of substantial
quantities of electric resistance which has increased the site’s energy cost and required
compensation in other areas.
The City of Vancouver prior-to conditions includes, among other things, in the
Engineering – NEU (Neighbourhood Energy Utility) section5 the requirement to:
Have a “system [which] shall supply at least 70% of annual heating requirements of the
development through low-carbon sources(s) and reduce greenhouse gas emissions by at
least 50% over a business as usual approach to heating and cooling.” In the Sustainability
section6, the requirement to have “at least three optimize energy performance points” as
measured by the LEED ® Gold rating system. The measurement system applied is the
Canadian Green Building Council’s LEED v2009 system whereby Shannon Estates
energy performance to meet the three optimize energy performance points is to be a 16%
improvement in energy cost compared to a baseline system defined by ASHRAE 90.1-
2007 Appendix G.
Supposing that Unitary HVAC and DHW Heating was allowed, Customers could expect
an increased impact on their quality of living from the installation of Unitary HVAC and
DHW heating inside of each suite:
1 – Installation of 40 to 80 US gallon domestic hot water heating storage tanks inside
suites introduces the possibility of 40 to 80 US gallons of water leaking in the event of
improper maintenance. All maintenance would now be subject to individual unit owner
practices.
2 – The addition of natural gas device domestic hot water heating devices would require
venting of combustion products, which although engineering controls exist, introduces an
additional source of carbon monoxide inside of the dwelling unit.
3 – Combustion flue would be required and necessitates additional cost to provide safe
venting away from air intakes, decks, and other areas where people may expect to
congregate.
4 – Gas domestic hot water heating devices would further be supplemented by either a
heat pump water heater or an electric resistance water heater in order to meet low carbon
development criteria and energy cost savings criteria. Installing multiple devices to
provide an equivalent level of service would not allow any cost savings as there would
also be increased complexity of controls and piping to allow the multiple devices to work
together.
5 – The use of localized cooling machinery would require the locating of compressors,
which are high speed rotating machinery, to be located close to sleeping areas. This
further affects neighbours who do not desire cooling but are now affected by their
neighbours who due to machinery noise.
6 – The use of localized cooling machinery decreases the distance to refrigerants which
are oxygen displacing which requires extra design to accommodate dwelling units where
occupants are expected to have periods of reduced alertness such as when sleeping.
5 Appendix B - City of Vancouver Development Permit Staff Committee Report dated June 20, 2012 for 7299
Granville Street (DE415627) – Appendix C – NEU Comments #2. 6 Appendix B - City of Vancouver Development Permit Staff Committee Report dated June 20, 2012 for 7299
Granville Street (DE415627) – Appendix A – Page 4 – Item #A.1.28.
10
7 – For suites with multiple fan coils, an equivalent level of service is provided by
installing multiple condensing units which require additional space.
8 – There would be a loss in useful space to machinery in each suite.
9 – Metering costs not avoided as the City of Vancouver requires the filing of a
Performance Monitoring and Reporting report7 which requires data on energy
consumption and energy generation. Customers would be obliged to report the
information back to SWCRA who would consolidate information to report to the City of
Vancouver.
10 – The use of individual systems precludes the use of the TES systems which allow
low-carbon thermal energy generation such as solar thermal fields, parkade exhaust heat
recovery, and sewage heat recovery. As a result, the remaining electric systems would
require the utmost premium in efficiency and would be expensive in themselves.
SETES has provided Customers a low-carbon system with centralized maintenance with
a “turn-key” interface, just a utility invoice, which has lessened environmental impact to
a business as usual scenario and delivers modern comforts. It enables Customers to have
more useful space in their dwelling units for the same gross floor area and avoids the
issues related to the installation of HVAC thermal generating equipment inside dwelling
units. The City of Vancouver policies have supported the development of society to be
more environmentally conscious and supports the use of local technological
developments, Thermenex, and workforces.]
6.3 What is the Timing of Capital Cost Outlays relative to the construction of Phases 1, 2 &
3.
[SETES: Estimated to be:
Completion of Phase 1 – approximately $4.0 Million
Completion of Phase 2 - approximately $3.5 Million
There is no Phase 3 construction nor development.
Please see SWCRA’s response to BCUC IR 3.86.3 for other related information.]
6.4 Given that the financial model accounts for these interest payments on the debt portion of
the capital, does that mean that the resulting earnings would apply only to the equity
portion of capital? If not, why not?
[SETES: Agreed the maximum return on equity under a cost of service rate model would
apply to the equity portion of capital. The BCUC’s Generic Cost of Capital (“GCOC”)
Stage 2 Proceedings Final Decision provides that small utilities, like TES utilities, may
use a deemed equity ratio of 42.5% and a deemed debt ratio 57.5%. Accordingly, the
analysis of the SETES financial model relies on the provisions which BCUC has
undertaken a process to develop reasonably universal factors.]
6.5 What is the NPV of the EBITDA line over 30 years discounted at 5.7%?
[SETES: The net present value of the EBITDA line of the model which was submitted to
SRG/BCUC in Exhibit B-1-2 when based on a discount of 5.7% for all years is
7 Appendix B - City of Vancouver Development Permit Staff Committee Report dated June 20, 2012 for 7299
Granville Street (DE415627) – Appendix C – Page 3 – Item #4.
11
$7,821,466.09. Calculation was based on the Excel function NPV8 with input of
NPV(5.7%,F31:A131) for tab “Acc. Summary”.]
6.6 In Exhibit B-5, s. 47.1, SWCRA states that the WACC is 8-10%. What is the actual
discount rate used in the economic model?
[SETES: The financial model does not use a discount rate. The assumptions for inflation
rates and others are provided in the Rates Inputs and Usage Inputs tabs.]
6.7 The Equity shown in the financial model starts at $7.5 million and increases from there.
Does that mean that the project was financed with 100% equity? If not, please explain
why the full capital cost was listed as equity for purposes of modeling and calculating the
ROE.
[SETES: The project was not financed with 100% equity. For the purposes of analyzing
the rate, as if it was a cost-of-service rate which it is not, the deemed debt and equity ratio
established by the BCUC’s GCOC Stage 2 Final Decision is reasonably applied. ]
7.0 Reference: Exhibit B-1-1 (Application) – Financial Model Carrying Costs
7.1 Using the Generic Cost of Capital (GCOC) developed in the Creative Energy application,
can the applicant calculate and provide the ROE for this project; the key assumptions are
below:
57.5% debt/ 42.5% equity
WACD 3%
WACE 3%
WACC 5.7%
Capital Cost Allowance rate(CCA) 8.0%
Income tax 26%
[SETES: SWCRA does not find the above assumptions applicable to SETES.
The key assumptions have been updated to:
Deemed debt ratio: 57.5%
Deemed equity ratio: 42.5%
Weighted Average Cost of Debt: 3%
Weighted Average Cost of Equity: 3%
Weighted Average Cost of Capital: 5.7%
Capital Cost Allowance: 4%
To honour the request of SRG, calculations using a CCA of 8.0% were performed as well for
comparative purposes only. SWCRA notes the calculations performed with SRG’s assumptions
for CCA are not valid for analysis of SETES.
8 Appendix C – Microsoft Help for Excel – NPV function
12
Please refer Generic Cost of Capital financial model associated with this round of IR responses.
We further remark that SWCRA believes the financial model is highly speculative in the later
years as BC Hydro’s currently anticipated rate changes are to the year 20199 and SEFC’s
currently announced rate forecasts are 3.2% thru 2018.10 Additionally, the uncertainty
compounds into the future. As such, SWCRA has no expectation that the calculated returns will
be achieved over the 30 years presented and there is no reason to assume that either BCUC or
SWCRA would not take action if the rates and costs become too misaligned.]
7.2 Under the above assumptions what is the annual carrying cost of WSCRA debt at the
current long-term interest rate, noting that Fortis Inc. completed a $500 million unsecured bond
offering in December, 2016 with a December 16, 2023 maturity and with a coupon of 2.85%.
[SETES: Estimated to be 4%. The comparison to Fortis Inc appears unreasonable considering
SWCRA has a total final capital of $7.5 million, which is on the order of 66 times smaller than
the bond Fortis Inc. has issued.]
7.3 The CORIX (NDES) project is forecast to generate a 9.5% ROE. Why is the SETES
variable/commodity rate for year 1 set at 0.1036 per kwh when the CORIX(NDES)
comparable variable rate is set at 0.038? Why is the SWCRA variable rate almost three
times greater than the 9.5% ROE yielding CORIX (NDSE) rate over the entire project
life?
[SETES: SWCRA has not undertaken an analysis to compare the detailed differences
between SETES and other utilities like Corix other than what was provided in previous
portions of the IR responses. The analysis which has been undertaken is to support the rate
setting process for the utility SETES.]
7.4 Why is the fixed component rate not set to ensuring a “pure” return against the capital
invested?
[SETES: If another rate setting mechanism was selected, such as cost-of-service, this could
be an option.]
7.5 Why does the capital levy increase every year when the actual amount of invested capital
does not change until year 25?
[SETES: There is no line item for “capital levy.” The monthly capacity levy addresses, in
part, costs which are invariant from any single period of energy consumption. The monthly
capacity levy has been pegged to the SEFC rate which is forecast to change with time and its
variation reflects that. The monthly capacity levy varies in value in initial years due to
variations in served customer base as people are anticipated to not move-in instantly and as
Phase 2 has yet to be completed. As the rates are pegged, SWCRA cannot ascribe each
component to the same level of specificity as the City of Vancouver does but confirms that
the entire rate applied for is intended covers all expenses.
9 Shannon Estates Reply Submission July 15, 2016 - Appendix E1 – Province of BC Order in Council No. 097,
Direction No. 7 - Page 8 10 Exhibit B-17 Appendix A – City of Vancouver Administrative Report dated November 4, 2016 “Southeast False
Creek Neighbourhood Energy Utility (“SEFC NEU”) 2017 Customer Rates – Page 6
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It is unclear how the determination of the invested capital not changing until year 25 was
derived. The financial model forecasts on the “Acc. Summary” tab on Excel row 18 that there
are capital expenditures. The invested capital is changing in all years.]
7.6 Is the term “Capital Levy” a correct description, or is it another revenue line for
SWCRA?
[SETES: There is no “Capital Levy” line item and therefore this is incorrect. There is a
“Monthly Capacity Levy”. See SWCRA’s response to SRG IR 3.7.5 for what the Monthly
Capacity Levy is collected for.]
7.7 Why has the applicant not calculated a detailed income tax summary, encompassing a
CCA into the model?
[SETES: The applicant has developed a model suitable for its purposes in demonstrating
financial aspects of SETES which did not require a detailed income tax summary in previous
IR’s. A CCA will be added into the Generic Cost of Capital financial model developed for
this round of IR’s.]
8.0 Reference: Exhibit B-1-1 (Application) - Capital Cost
8.1 The estimated capital cost of the TES is $7,508,234. How much of this amount has been
incurred to date and which legal entity has paid these capital costs? Please provide
complete documentary evidence of all capital costs incurred to date.
[SETES: The amount expended to December 31, 2016 is approximately $4.0 million.
The applicant is obliged to protect confidential and competitive quotes but directs readers
to the Confidential Financial Model for an estimated breakdown of various components.]
9.0 Reference: Exhibit B-1-1 (Application), Section 5.1 Financial Model
The Excel financial model referred to in Section 5.1 has a line item “Capital Expenditures (from
CRF)” totaling $2,177,835 from 2016 through 2045.
9.1 Is this intended to correspond to the amount of $2.75 million CRF requirements discussed
on page 6 of the Application? If so, please explain the difference in the numbers. If not,
please explain if they are additive and what is included in each component.
[SETES: $2.75 million is the calculated maximum amount the CRF is forecasted to
require to ensure there are adequate funds throughout the life of the Utility to avoid close-
availability, high interest loans. $2,177,835 is the estimated expenditure of the CRF. The
CRF requirements assume a conservative scenario and has closely spaced, large draws of
money from which there is little opportunity to recover from rates. The CRF expenditures
in the forecast are distributed according to cost and probability of failure. As the CRF
expenditures is calculated on a distributed occurrence they experience a smoothing which
may be considered more reasonable when observed on an average base but may not be
reflective of any single short-time period and thus the CRF requirements are set
accordingly to allow for more “peaks.” Please see response to BCUC IR 3.87.1 for a
more in depth explanation.]
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9.2 These expenses are subtracted from revenues in the financial model in order to determine
the EBITDA. There are no revenues associated with rate riders in the financial model.
Please confirm that the revenues expected before rate riders are deemed to be sufficient to
cover these expenses in the financial model.
[SETES: The revenues expected before the sustainment capital fund rate rider is expected
to be sufficient to cover the expenses in the financial model if circumstances unfold as
assumed in the financial model for the forecast 30 year period. The rate rider is provided
in the event costs significantly deviate from forecasts and is requested in advance of such
an event actually occurring so fewer applications are necessary to be submitted to the
BCUC.]
9.3 Please explain the discrepancy between requesting a rate rider to cover CRF amounts
when the financial model appears to subtract these expenses from revenues before any rate
riders.
[SETES: If we understand the question correctly, it is no longer applicable given the
amendments in Exhibit B-1-1. The rate riders are collected after the expense has occurred.]
