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c Suite 1160, 1188 West Georgia StreetVancouver, British ColumbiaCanada V6E 4A2T 604-697-6700F 604-697-6703www.corix.com

January 28, 2011

BC Utilities Commission6th Floor - 900 Howe StreetVancouver, BC V6Z 2V3

Attention: Erica M. Hamilton, Commission Secretary

Dear Ms. Hamilton:

RE: ApPLICATION FOR A CERTIFICATE OF PUBLIC CONVENIENCE ANDNECESSITY FOR THE NEIGHBOURHOOD UTILITY SERVICE ("NUS") AT UNIVERCITY, BURNABY

CMUS RESPONSES TO THE COMMISSION'S IR NO.1

We enclose for filing 10 copies of Corix's responses to the Commission's IR NO.1.

Please note that responses to some questions requiring further analysis will be submitted once completed.

We will also be submitting an updated financial model as a working spreadsheet for use by Commission staff.This will be forwarded under separate e-mail to Mr. Philip Nakoneshny.

If you have any questions with respect to this application, please contact me at (604) 697-6702 or IvanaSafar at (604) 697-6747.

Yours truly,

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// v"//-"

----;r-{Jan igingtonDirector, Regulatory

Cc: Philip Nakoneshny, Director Rates and Finance, BCUCIvana Safar, Director Special Projects, Corix

Enclosed: 10 Hard Copies of the IR Responses

B-3

markhudsCorix UniverCity CPCN

1

Corix Multi‐Utility Service (CMUS, Corix) Responses to

BRITISH COLUMBIA UTILITIES COMMISSION Commission Information Request No. 1

UniverCity Development, Neighbourhood Utility Service (NUS)

CPCN Application (Application, Project)

1.0 Reference: Exhibit B‐1, Cover page, p. 1 and Section 5.7 Risk Analysis, p. 46

“Public consultations have been carried out to date, and the Project has received strong support from the community, Simon Fraser University (SFU), and the general public.”

1.1 Please provide supporting evidence to show support for this Project from the “general public.”

Response:

The level of support was evident from the attendees of Open Houses organized during the project development and feasibility assessment stage. Some of the feedback forms were provided as Appendix D. In addition to the public consultation completed to date, both SFU Trust and Corix presented on this project at various events and received positive feedback from the attendees. These events included:

• CDEA Conference – May 8, 2008 • 2008 National E3 Conference (Minnesota) ‐ November 17, 18, 2008 • AUREO BC Conference – April 26, 2009 • CDEA Halifax – June, 2009 • CDEA Conference North Vancouver – June 24, 2010 • PIBC Conference Kamloops (Sun Peaks) ‐ June 2, 2010 • CIP Conference, Montreal – October, 2010 • SFU Community Trust Board – 4 times per year, each time the NUS has been on the agenda and

discussed in length • SFU Board of Governors – discussed 3 times in the past 2 years

Multiple SFU‐based and Trust presentations (on UniverCity and NEU) were delivered throughout the Lower Mainland, BC, and the Pacific NW including, but not limited to:

• Victoria (Province of BC and Cascadia GBC) • Prince George (UNBC) • Whistler • Kelowna (Cascadia GBC) • Seattle (Cascadia GBC) • Bellingham (City of Bellingham) • Portland (Cascadia GBC) • Central Oregon (Bend, Eugene, Klammath Falls) ‐ Transformational Lecture Series

In addition to the public consultation process and presentations to different audiences, all interested purchasers of the new units being built at UniverCity have obtained an overview about the project and its scope. The developers indicated that the NUS concept including the green aspects of the energy system have resulted in a high level of interest.

CMUS NUS Application Response to BCUC IR No. 1 January 28 2011

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1.2 Explain why CMUS identifies Public Acceptance as a “risk” which requires mitigating actions (p. 46) given the above statement claiming support from the community, SFU and the general public.

Response:

The term risk was used in the context that a general level of public acceptance of the project will be required by the UniverCity Trust, the Commission and the utility for the project to move forward to development. From this perspective, without a general level of public support and acceptance, the development of the NUS would be at risk.

2.0 Reference: Exhibit B‐1, Section 2 Applicant, p. 8 and Commission Order C‐1‐08

“CMUS will be responsible for development and ownership of the UniverCity Neighbourhood Utility Service (“NUS”)…” (p. 8)

Recital D and E in Order C‐1‐08 for Dockside Green states: “DGE, the proposed utility, …is jointly owned by…Vancity, Windmill, Corix Utilities Inc. (“Corix”) and Terasen Energy Services…”

2.1 Similar to Dockside Green, has CMUS considered establishing a separate utility company for the proposed NUS? Why or why not? Please elaborate on the pros and cons.

Response:

Dockside Green was a partnership between several entities and therefore required the establishment of a separate utility. As a small utility operation, Corix believes that CMUS is the appropriate ownership structure for the UniverCity NUS because this will allow the utility to use established resources for both administration and operations.

3.0 Reference: Exhibit B‐1, Section 2.6 Project Team, p. 10 Experience

3.1 Provide a list of team members who have experience “at successfully delivering projects of similar complexity as the proposed UniverCity project and have extensive experience in designing and engineering district energy systems.”

Response:

In addition to the Corix internal personnel who were involved in developing and continue to be involved in operations of the district energy systems in the region such as Dockside Green and Lonsdale Energy Corporation(LEC), we have teamed up with FVB Energy, a consulting engineering firm focused on development of district heating and cooling systems as well as Combined Heat and Power systems in North America. FVB Energy was involved in the following systems design and engineering:

• South‐East False Creek district energy system, Vancouver, BC

• Revelstoke biomass based district energy system, Revelstoke, BC


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• Prince George downtown district heating system, Prince George, BC

On our team we also have as senior advisors Greg Chapman‐ (operations and maintenance experience with the local district energy system – LEC, Vancouver General Hospital, Children’s and Women Hospital;) and Derek Macartney with 30 year experience managing the district energy system in London, Ontario.

3.2 Identify the team members having “direct experience with the development of community based district energy systems in BC” of this nature.

Response:

Please refer to response 3.1

3.3 Provide additional information on FVB Energy.

Response:

In the past two decades, FVB Energy Inc. (FVB) has played a key role in the implementation of 19 new District Energy Systems (DES) in Canada alone, as well as others in the U.S. and Middle East.

FVB is an employee owned corporation specializing in engineering and business consulting for district heating and district cooling. Fjärrvärmebyrån ab, (FVB) was founded in Sweden in 1970 and has consulted in over 30 countries. It now has over a hundred employees with a range of technical skills focused on DES.

FVB’s experience encompasses both business and technical services. It has been primarily focused on establishment of new utility type DES, both in existing built‐up urban areas and in brown‐field or green‐field developments. It has helped develop both district heating and district cooling. It has designed most of the utility district cooling systems in Canada and has helped develop more CHP based district heating systems than any other consultant in Canada.

Organization Chart

Fjärrvärmebyrån ab

Sweden District Energy Consultants

FVB Energy Inc. (US) District Energy Consultants

FVB Energy Inc. (Canada) District Energy Consultants

Some of the project examples include:


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3.4 How many biomass plants of this type has Corix successfully implemented?

Response:

It is only in recent years that biomass energy systems of the type proposed for UniverCity have been considered for providing space and water heat energy for residential/commercial developments. Corix has been at the forefront of this activity in BC having developed the system at Dockside Green. District energy systems, albeit without biomass central energy plants, are more common for these types of developments. In addition to Dockside Green, Corix has been involved in the development of district energy systems in North Vancouver and Toronto.

4.0 Reference: Exhibit B‐1, Section 3.2 Load Analysis and Energy Demand Forecast, pp.14‐16 Phases 1 & 2 compared to Phase 3 & 4

“Based on the development schedule provided by SFU Trust and energy intensities of the different building types, the thermal load at completion of build‐out on the NUS is presented below.”

4.1 Provide the actual thermal energy (peak, average demand, annual consumption), thermal energy densities for Phases 1 & 2 as compared to estimated thermal energy (peak, average demand, annual consumption), thermal energy densities Phases 3 & 4 similar to that shown in Table 3 for both diversified and non‐diversified.

Response:

Phase 1&2 of the development were developed in previous years by individual developers and their engineering partners. The buildings use electric baseboards for heating and natural gas to provide domestic hot water and ventilation.

In-Service FVBDate Rol

eHeating Cooling

Cornwall

1994 D/ P/CS 11

5 Windsor 1998 D/ P/CS 2

020

6 Sudbury 1999 D/ P/CS 9 1 5 Markham - Warden 2000 D/ P/CS 1

516

8.5 Hamilton 2003 D/ P/CS 1

03.5 University of Rochester 2005 D/ P/CS 7

320 Sherwood Park CES 2006 D/ P/CS 1

3Markham - Clegg Road 2009 D/ P/CS 20

23Vancouver SEFC 2009 D/ P/CS 1

7Regent Park Ph 1 2009 D/ P/CS 4.7

3.6Waterfront Toronto - Interim EBF 2009 D/ P/CS 1.

26

Calgary 2010 D/ P/CS 60Markham - Birchmount 2010 D/ P/CS 50

51Bur Oak Energy Centre 2012 D 2

419

5 Waterfront Toronto - WDL 2012 D/P 2

720

5 Waterfront Toronto - EBF 2012 D 4

037

7

MWt

FVB District Energy Design, Procurement and Construction Support Experience

MWeDistrict Energy System Name


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The new buildings in Phase 3&4 will be constructed with the energy efficiency requirements exceeding National Energy Code, and those requirements were incorporated as design requirements by the City of Burnaby and included in the City’s by‐laws for Phase 3&4 of the UniverCity development.

We have obtained the information for one building from Phase 1 ‐ Aurora building and the data is provided below:

BCS 1993 Aurora Suite Area 8,678.7 m29266 University Crescent, Burnaby, B.C. Assumed Common Building Area 867.9 m2

Year Month Electricity Nat. Gas Total 9,546.6 m2(MWh) (GJ)

2007 Nov. 35100 382.9 Annual Gas Useage (GJ/m2 yr) 0.44 GJ/m2 yr2007 Dec 44400 424 Annual Thermal (kWht/m2 yr) 66.73 kWht/m2 yr2008 Jan 52500 915.8 Annual DHW Thermal 33.37 kWht/m2 yr2008 Feb 50700 481.1 Annual Common Thermal 33.37 kWht/m2 yr2008 Mar 43800 419.82008 6900 FVB Assumed DHW Thermal 27. kWht/m2 yr2008 Apr 336002008 May 32400 371.92008 Jun 288002008 Jul 26700 334.22008 Aug 29400 252.82008 Sep 30900 260.32008 Oct 33300 328.1

448500 4170.9

As “Table 2 summarizes the non‐diversified peak demand of the residential buildings according to the build‐out schedule of the UniverCity development as proposed by SFU Trust.”

4.2 Since a non‐diversified peak demand was used for Table 2 and the domestic hot water (DHW) was not separated out, provide the thermal peak demand per building for both the diversified and non‐diversified kW/kWh and add columns for DWH and thermal energy densities by building.


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Response:

Parcel No. Completion

Year

Max GFA1 (m2) Max Units

Space Heat Load (kW)

Diversified Load (kW)

Energy (MWh)

DHW (MWh)

22 2011 0 530 m2. childcare

27 2011 7,638 75 260 220 382 203

28 2011 7,638 75 260 220 382 203

23 2012 6,519 95 222 200 327 172

29 2012 4,679 46 140 120 159 122

17 2013 10,405 102 354 300 519 277

25 2014 17,780 258 519 440 631 475

16 2014 18,753 184 638 550 931 503

30 2014 4,986 49 150 130 168 131

35 2014 4,986 49 150 130 167 132

33 2015 3,030 24 91 80 105 77

41 2015 5,600 44 168 145 189 147

19 2016 8,493 83 288 245 424 225

39 2016 5,736 45 172 150 192 152

40 2016 6,830 53 205 180 230 180

20 2017 19,656 192 668 570 975 529

32 2017 5,588 44 168 145 188 147

18 2018 16,527 162 562 480 823 441

21 2018 8,000 78 272 230 399 213

31 2018 5,687 45 171 145 190 151

36 2018 5,958 58 179 155 200 157

24 2019 21,595 310 587 500 591 582

37 2019 4,920 39 148 125 166 129

38 2019 5,570 44 167 140 187 147

4.3 In Table 3, explain why the DHW is constant.

Response:

The domestic hot water (DHW) consumption is constant because the usage is a function of the occupancy and the number of appliances that use hot water, e.g. taps, laundry, etc. DHW use is not typically a function of the building envelope or space temperature setpoint

4.4 In Table 3, explain why DHW is 27 kWh/sq.m. instead of KWh/number of occupants.

Response:

The DHW value provided was modelled based on average occupancy for an average apartment size, as per Model National Energy Code for Buildings (1997). The values were tested against real data from similar type projects.

4.5 In Table 4, Annual Demand Forecast, is this the non‐diversified demand, if so, please provide the

1 GFA – Gross Floor Area


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diversified demand.

Response:

Table 4 refers only to annual energy usage (consumption). Energy usage is not diversified; it is cumulative. Table 4 should be labelled Annual Energy Usage, not Demand. Demand refers to the rate of energy usage with units of KW or MW, and represents the highest energy use in a one‐hour period. Demand is also known as Capacity. Demand is diversified as it has been shown from real world data that multiple buildings do not experience a peak Demand at the same time.

5.0 Reference: Exhibit B‐1, Section 3.2 Load Analysis and Energy Demand Forecast, p. 14; Electronic Financial Model; 3.9 Rate Design, p. 28 Sensitivity of Load and Energy Demand Forecast

Table 2 on page 15 provides the peak energy demand per building and each completion year. CMUS also states that “…the demand forecast is subject to a high level of uncertainty,” (p. 28)

5.1 Please provide the assumptions used to forecast the Energy Demand (7th column in Table 2). Are the demand forecasts based on the maximum number of units in each completed building being sold and occupied?

Response:

Assumptions are used for the fully occupied building.

5.2 How would the forecast energy demand vary if the occupancy rate was less than 100 percent in each completed building during the build‐out period? Provide a sensitivity analysis showing the range between 50‐90 percent occupancy rate for each building in 2011‐2019. Include the levelized rate impact in each scenario (File multiple spreadsheets if required).

Response:

It is difficult to provide exact values for energy reduction without specific data samples. The consultant’s experience has shown that buildings with less than 100% occupancy will have both lower heating demand and annual energy needs. The heating demand (KW) reduction will be less than the reduction for annual energy. This is because there is less of an effect on the coldest winter day than when considering throughout the year. The annual energy need will be reduced more. The energy reduction on Domestic Hot Water would likely be linear with occupancy (70% occupancy would result in ~70% of annual DHW energy use). However, for space heating this reduction is not linear and would be somewhat less due to maintaining some level of temperature in the empty suites. Also, common areas would be kept at normal temperatures. This would be offset somewhat by less internal heat gain from people. The setup for ventilation and how it is controlled would also be a factor. A reasonable estimate would be to assume half the reduction, e.g. if occupancy was at 70% the space heating component would be 85% of fully occupied. For a typical building that would split its annual energy at 65% space heating and 35% DHW, the reduction at 70% occupancy could be estimated at 0.85*.65+0.7*.35=80%. Under these assumptions the scenarios at 90% and 50% occupancy during the build‐out period are as follows.


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5.3 Is CMUS aware of the sellout rate for Phase 1 and 2 developments? What is the current occupancy rate in Phase 1 and 2 developments?

Response:

Phase 1 and 2 started construction in 2001 and was complete in 2009. Population is currently estimated at 3,200 people. This means there is a community growth of approximately 400 people per year, and an absorption about 250 to 300 units per year, depending on size of unit. This is typically 3 residential projects per year. Trust expects the same, and they are on track for the same, in Phase 3 and 4. In 2010 3 development sites were leased with 300 units currently under design and development for 2011.

6.0 Reference: Exhibit B‐1, Section 3.3 Screening Analysis, Table 5: Results of the screening analysis, pp. 17‐18 Resource Options and Fuel Availability

6.1 For comparison purposes, please provide the levelized life cycle costs (LCC) for each of the potential resource options included in Table 5. Please provide a detailed explanation of the underlying assumptions used to calculate the levelized LCC, including the assumption regarding the discount rate used.

Response:

The purpose of the screening analysis was to identify the alternative energy option that would be the most feasible solution for the proposed development. The technical concepts were screened against the criteria that helped to identify the “winning” solution as well as the not favourable ones. We did not consider a detailed analysis (LCC) of all options prudent at the time of screening, which would have required substantial time and resource involvement. For the screening analysis Corix used the calculations of a simple payback and GHG emissions, and technical feasibility as a decision criteria.

6.2 Please clarify whether the costs related to ‘Maintenance and Staff’ and ‘Alternative Fuel’ are annual costs, average annual costs or at a specific date e.g., full‐build‐out.

Response:

The costs were estimated at a full build‐out and represent annual O&M and alternative fuel costs.

6.3 Please clarify whether the estimate for greenhouse gas (GHG) savings corresponds to an annual

90% Occupancy Scenario Base Case 90% Occupancy Change Change %

Development period demand (MWh) 47,819 44,525 (3,294) -6.9%2012 rate per MWh 144.61$ 147.11$ 2.50$ 1.7%20 year levelized rate per MWh 159.76$ 162.73$ 2.97$ 1.9%

50% Occupancy Scenario Base Case 50% Occupancy Change Change %Development period demand (MWh) 47,819 31,351 (16,468) -34.4%2012 rate per MWh 144.61$ 158.61$ 14.00$ 9.7%20 year levelized rate per MWh 159.76$ 176.45$ 16.69$ 10.4%


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reduction in GHG, an annual average or an estimate at full build‐out.

Response:

GHG reductions were calculated at the full build‐out and represent annual GHG savings.

7.0 Reference: Exhibit B‐1, Section 3.3 Screening Analysis, p. 17 and p. 19 Data Center Heat Pumps

CMUS states: “The potential resource options include the following: Extraction of waste energy from the Data Centre (planned to be developed by SFU Campus)” and “As a result of the screening analysis, both Biomass as well as the Data Centre Heat Pumps were considered for further evaluation. Due to the development risk related to the Data Centre, implementation of which is dependent on SFU capital planning and beyond Corix’s control, a biomass solution was recommended for detailed technical and cost analysis.” (p. 19) (Emphasis added)

“Corix is currently also working in close cooperation with Simon Fraser University on the evaluation of a larger central energy plant (a “combined solution”)...” (p. 6) (Emphasis added)

7.1 Since CMUS has a close working relationship with the Simon Fraser University (SFU), please explain in detail why this option was not more seriously considered and discussed with SFU?

Response:

Corix continues to work closely with SFU and to date no decision has been made concerning the data centre. Because of the level of uncertainty on whether the data centre will be developed, the utility believes it is prudent to include the data centre heat pump option as has been done in the application – as a possible option to be considered in the future if and when a decision is made by SFU concerning the data centre.

7.2 Please explain the development risk related to the Data Centre using current and relevant information from SFU Campus capital planning.

Response:

The Data Centre building was made available to SFU to develop the university’s data centre. The 5 year capital plan was prepared in 2008 for a facility development. Several studies were completed including a waste heat recovery from the future cooling units. The engineering study was complete that identified the changes and upgrades to the building required to accommodate the data centre. The application for funding to the Provincial Government was submitted but not approved, so SFU decided to complete building upgrades in phases meeting the requirements of the data centre development.

To date, several computer labs have been transferred with the 120 tone cooling capacity installed. The capital budget for the development is subject to funding being available, and this is creating uncertainty about the full build‐out capacity and the timing of the implementation.

7.2.1 When will CMUS know whether SFU Campus decides to go ahead with the Data Centre? What is the Data Centre’s construction lead time before operations can begin?

Response:


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Refer to Response 7.2. Some of the space is currently occupied, based on the information provided, there is no capital budget approved for this year. The development plan is 1‐2 years behind.

7.2.2 What flexibility does CMUS have before it has to choose a specific resource option to use in the permanent energy centre?

Response:

CMUS will continue to monitor developments related to the data centre. The NUS technical solution is flexible to incorporate the data centre, which should it be developed, will be evaluated at the time the decision on the technology needs to be made. The temporary solution could accommodate a load up to 4.3 MW, so the requirement for the alternative energy solution will need to be made before that capacity is reached, which is dictated by the actual development.

7.3 If recovery of waste heat from the Data Centre was pursued as a viable resource option (per the screening analysis), how would the use of this alternative energy source affect the proposed Project when compared to the Base Case?

Response:

Should the data centre develop and become a viable option Corix will complete a detailed analysis of this solution and compare to the base case. If the solution is shown to be more favourable, Corix would implement this solution and adjust customer rates accordingly.

7.3.1 Would waste heat from the Data Centre be recovered in sufficient quantity to meet the total energy demand required by the NUS?

Response:

Waste heat recovered from the data centre would only provide a base load, similar to the biomass option. The rest of energy demand would be provided by natural gas boilers.

7.3.2 Would the NUS be able to use a combination of waste heat recovery from the Data Centre and wood waste biomass to supply heat and domestic hot water to customers? Please discuss.

Response:

This option was evaluated in connection with the SFU Campus load. The SFU Campus distribution system requires higher temperatures and could be served by the biomass plant, while UniverCity residents could be served by the energy recovered from the data centre. The district energy system using waste heat would be a lower temperature system compared to biomass.

We have not considered a combination of the biomass and waste heat recovery for the UniverCity only as both technologies are capital intensive and the implementation of both in combination may not be the most cost effective application for the end users.


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8.0 Reference: Exhibit B‐1, Section 3.3 Screening Analysis, Table 6: Benefits/Challenges of Different Alternative Energy Concepts, pp. 18‐19 and Section 3.5 Debt and Equity Financing, p. 24 Business Risks and Return on Equity (ROE)

CMUS states: “Natural Gas Boilers: low performance risk” (p.18) and “Biomass: known and well proven conversion technologies available; the biomass option is proven in existing district heating schemes” (p. 19).

CMUS states: “The business risks inherent in the project are discussed in Section 5.7 and include the following: […]; System performance risk ‐ related to new technology […]” (p. 24).

8.1 In light of the citations above regarding the low performance risks associated with natural gas boilers and the biomass conversion technology, please explain CMUS’s rationale to justify part of the requested risk premium on a ‘new technology’ performance risk.

Response:

Biomass technology, while proven in a variety of applications, is a less common application for district energy systems when compared to natural gas boiler technology. Biomass is a preferred option for UniverCity due to the inherent environmental benefits. More innovative energy systems are required to be installed in these types of applications if the province is to move off of its reliance on fossil fuels. This technology is inherently more risky than traditional natural gas boiler technology. It is reasonable and appropriate to compensate the utility fairly for assuming risk to in an effort to achieve British Columbia’s energy objectives, as reflected in the Clean Energy Act and the Utilities Commission Act.

9.0 Reference: Exhibit B‐1, Section 3.3 Screening Analysis, pp. 16‐20

“An initial screening analysis was completed based on using an alternative energy load of 2.1 MW for a peaking capacity of 6.2 MW. In a subsequent screening analysis using a revised demand forecast based on an updated development schedule, the alternative capacity was sized at 2.5 MW with overall diversified peaking capacity of 5.7 MW. The alternative capacity will satisfy up to 85% of annual energy requirements.”

9.1 Explain how the Data Centre HP scored 2,300 tonnes in GHG savings compared to the Base Case.

Response:

The GHG savings for the screening analysis were calculated comparing various scenarios with the base case (natural gas boilers). The use of natural gas for the base case was estimated at 63,275 GJ and for the data centre option at 17,880 GJ, which represents the use of natural has for peaking. The GHG emissions intensities were assumed to be 0.051 tCO2e / GJ

63,275 – 17,880 = 45,395 * 0.051 = 2315 t GHG savings (rounded to 2,300 t)

9.2 Considering the favourable payback of the Data Centre HP, please explain why this option was not more fully pursued and developed as an alternate in this application.

Response:

As discussed in the response to 7.1, there is considerable uncertainty as to whether the data centre will


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be developed. The application provides for a phased approach to developing the DES, and allows for decisions to be made on alternative options as build‐out occurs. Corix believes this is the most prudent approach to developing the system. If and when a decision is made on developing the data centre, a more thorough analysis based on actual design parameters for the facility can be done at that time and a decision made as to how best to make use of the available energy. Corix believes that this phased approach provides the greatest degree of flexibility to incorporate all available alternatives as the system is developed with build‐out.

9.3 For Table 5, provide the GHG emissions in tonnes for the Base Case, Sewer HR + GSHP, Data Centre HP, biomass, NG Cogen NG options.

Response:

Base Case Sewer HR+GSHP Data Centre Biomass NG CHP

GHG emissions (rounded)

3,200 t 830 t 900 t 830 t 7,500 t

9.4 Were there any other combinations of alternates considered but not presented, i.e. Data Centre + GSHP, or Data Centre + distributed NG? If so, please explain what combinations were considered and why they were discarded.

Response:

No other combinations of alternatives were considered during the analysis

9.5 For Table 5, provide the air contaminant emissions in tonnes for the Base Case, Sewer HR7 + GSHP8, Data Centre HP, Biomass, NG Cogen NG options.

9.5.1 Provide sulphur (SOx), nitrogen oxide (NOx), carbon dioxide (CO), volatile organic compounds (VOC), fine particulate (PM 2.5), fine particulate (PM 10), mercury (Hg), any others that may cause human health issues, etc.

Response:

The exact combustion products of the technologies ultimately chosen will depend on several factors, including the technology deployed and the composition of fuel feedstock. Any system or combination of systems chosen will be installed in the Metro Vancouver airshed and will be subject to stringent air quality guidelines.

9.5.2 Were there any other combinations of alternates considered that would minimize the air contaminant emissions other than the biomass option?

Response:

Only technologies included in the screening analysis were evaluated. The requirement for an alternative solution is not needed until 2016 based on the current development schedule, which provides enough flexibility to assess other technologies if they become available or prove to be more beneficial for the end customers while providing a long term sustainable utility.

9.5.3 Does Table 5 contain the estimated amount of GHG emissions for the fuel


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transportation cost and disposal of bottom ash (220 tonnes/year)? If not, please provide using additional lines in Table 5.

Response:

The Table 5 does not include the GHG emissions for transportation because the fuel would be sourced locally and the impact on the GHG emissions would be minimal.

9.6 Provide forecasted thermal growth at the Data Centre between 2010 and 2020.

Response:

The information recently provided by SFU is that the cooling capacity could reach 240 tonnes but the final cooling requirements are contingent on the final build‐out capacity of the data centre and whether or not it would provide services to SFU only or potentially attract third parties.

9.7 In Table 5, as the Data Centre continues to expand, explain why this is not the more attractive option if the goal is to reduce GHG.

Response:

Refer to Response 9.2.

9.8 Would the Data Centre option, when combined with other passive technologies such as GSHP provide lower air contaminant emissions and GHGs than either the base case or Biomass options?

Response:

The combination of the data centre with other passive technologies was not evaluated due to the reasons provided above. As discussed in several of the previous responses, the Data Centre, whether as a standalone option or in combination with other options, will be evaluated if and when it is developed and as the load on the NUS develops.

9.8.1 In Table 5 format , provide the outcome for a combined GSHP plus Data Centre HP options.

Response:

As discussed above, this combination was not evaluated.

9.9 In Table 5, why is the NG Costs higher for the Data Centre option when compared to the Biomass and GSHP options?

Response:

With the information available at the time of screening, the data centre would only provide 73% of annual energy compared to 75% provided by other alternative technical concepts.

9.10 In Table 5, why is the electric cost for the Data Centre HP $148,000? Explain in detail.

Response:


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Corix estimated that the annual power requirements for the operation of the heat pumps would be 2,970 MWh, which at the assumed electricity price of $50/MWh is $148,500 (rounded to $148,000)

9.11 In Table 5, why was the electricity rate assumed at $50/MWh and the NG price used $37/MWh?

Response:

For the purpose of the screening analysis we have not completed a full energy price forecast but rather used the current rates at the time of the screening. Although the commodity prices may not be accurate, the fact that all scenarios used the same assumption, including commodity prices, allowed a comparison of O&M costs including fuel costs, and provided a simple payback and other relevant screening criteria.

9.12 Explain why a solar thermal system on the roof on the buildings in Phases 3 & 4 was not included in the proposal while it is being proposed for the future childcare facility.

Response:

Refer to response 29.1. The solar thermal for the Childcare facility also enables the building to be energy neutral.

“As a result of the screening analysis, both Biomass as well as the Data Centre Heat Pumps were considered for further evaluation. Due to the development risk related to the Data Centre, implementation of which is dependent on SFU capital planning and beyond Corix’s control, a biomass solution was recommended for detailed technical and cost analysis.”

9.13 In Table 6, provide evidence that integrating the operations of the NUS with the Data Centre and the development schedule for implementation of Data Centre are challenges that determined the biomass option should be the successful option.

Response:

See response 7.1. The phased approach being proposed in this application allows all viable options to be considered at the time when the energy supply is required. If and when the data centre is developed, the viability of accessing energy using heat pumps will be evaluated. Since a biomass option was a known, technically viable option at the time of application, a more detailed cost analysis was performed on the biomass option.

“Since the NUS will be developed in phases with alternative technology being developed at a later stage, the opportunity exists to revaluate waste heat recovery from the Data Centre should this be developed prior to implementation of the alternative energy source.” (Exhibit B‐1, pp. 19‐20)

9.14 Why was this Data Centre HP proposal not more fully developed using other passive technology or distributed natural gas?

Response:

Corix did not think that it was prudent to do a detailed analysis of an option that may or may not be developed. The phased approach being taken allows all available options to be evaluated if and when they become available and as they may be required to supply energy.

In Table 5, p. 17, the Data Centre NG/Electricity is shown as 17,880 GJ.


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9.15 Please explain the year that this amount is available and the growth by year going forward to 2020.

Response:

17,880 GJ represent the natural gas consumption for peaking at a full build‐out. The screening analysis did not consider any development schedule, rather it compared various technological options at full build‐out.

9.16 Please explain if the 16,270 GJ includes the handling and transportation of the wood waste and the disposal of bottom ash to and from the facility.

Response:

16,270 GJ is the estimated annual natural gas consumption for peaking. Natural gas will be bought from Terasen Gas.

In Table 6, please explain the following challenges and their impact on the proposed option:

9.17 Securing sufficient supply of fuel at the “right” price.

9.17.1 What is the right price for “fuel”?

Response:

Term “right” was considered to be an acceptable price for fuel that would ensure the option would be financially viable.

9.17.2 What is the price of “fuel” obtained from the Data Centre HP?

Response:

The fuel for the HP is waste heat form the data centre. We have not assigned any price to that source and considered waste heat to be available free of charge for reuse.

9.18 Meeting stringent emission requirements – new regulations are now in place for the Metro‐Vancouver region pertaining to use of biomass in energy plants.

9.18.1 Please rate the risks for biomass when it comes to securing this permit.

Response:

Meeting all necessary permits, including those from Metro Vancouver related to emissions, would be included as a requirement for a vendor being selected to supply the biomass facility.

10.0 Reference: Exhibit B‐1, Section 3.4 Financial Modeling and Inputs, pp. 20‐24, p.45 and Appendix B Capital Contributions and Incentives

“Corix and BC Hydro are in the process of developing an Incentive Agreement, to be in place by the end of 2010 under the terms of which BC Hydro would provide a capital contribution towards the NUS and


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which would be paid once the alternative energy source is implemented.” (p. 21)

10.1 Please provide a status update on the incentive agreement with BC Hydro. If an agreement has been signed, please file a copy to the Commission (in Confidence, if required).

Response:

BC Hydro has confirmed the funding would be provided to the UniverCity NUS development and is currently completing the technical and business analysis and determining the level of capital incentive per kWh of electricity savings. The Incentive Agreement was drafted by BC Hydro and will be presented to CMUS for comments.

We expect to obtain the incentive levels by early February with the Incentive Agreement negotiated by the end of February.

In Table 8 on page 21 of the Application, Corix forecasts the BC Hydro incentive to be $1.3 million in 2016.

10.2 Please confirm that this financial contribution by BC Hydro is only available if and when the future biomass plant is implemented.

Response:

This is correct, the incentive will be available only upon implementation of the alternative energy solution. Biomass received a high score and was received well by BC Hydro. Tthe GSHP and other technologies using heat pumps, which require more electricity to operate, would receive lower scores.

10.3 If the forecast load does not materialize to justify the implementation of the future biomass plant in 2016 and the plant is deferred, how will this affect the levelized rate being charged to ratepayers? Please provide supporting calculations.

Response:

A scenario was calculated in which it is assumed that development ceases at the point where customer demand is equal to the capacity of the temporary gas plant. In this scenario the levelized rates required are 2.5% higher than the base case rates. The results of this scenario are included in the attached financial model and summarized below for Year 10 of the forecast period.


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11.0 Reference: Exhibit B‐1, Section 3.4 Financial Modeling and Inputs, pp. 21‐23; Section 3.13.1 Combined CEP Solution for UniverCity and SFU Campus, p.33 Combined Solution

“Corix, SFU and SFU Community Trust are working together on the assessment of a combined solution which would provide thermal energy to UniverCity residents as well as the SFU campus. Under this scenario a biomass based central energy plant would be implemented earlier than the smaller scale NUS central energy plant. As of August 2010, Corix and SFU Campus have applied for funding for the combined solution to PSECA funding, Innovative Clean Energy (ICE) Fund and P3 Infrastructure Fund. The applications are currently in a review process.” (p. 21)

“Implementation of a single combined CEP for both the Campus and UniverCity results in less capital deployed compared to two separate solutions (requiring two central energy plants developed, one for SFU Campus and other for the UniverCity development), results in higher energy efficiency as well as provides additional cost savings from synergies related to operations and fuel supply logistics.” (p. 33)

11.1 Given that the combined solution is clearly more desirable and that the applications for funding of the combined solution are already being reviewed, please clearly explain why Corix did not wait to submit a CPCN for the combined solution instead of just the stand‐alone NUS?

Response:

As discussed in Section 5.4, phase 3 of the UniverCity development is proceeding and the initial heating requirements for the initial building will be required in 2011. A ruling by the Commission is required by May 2011 in order that construction on the natural gas temporary solution can be completed in time to provide service to these initial customers. The final decision on the combined solution may not be made before the construction of the initial phase of the NUS commences.

11.1.1 Is CMUS simply looking for a temporary solution to supply energy to the residential developments scheduled for completion in the fall of 2011 while other longer term solutions are being reviewed concurrently? Please discuss.

Response:

Corix continues to discuss a single combined CEP with SFU, which would provide benefits to all parties.

Low Demand Scenario for ($thousands) Base Case Low Demand Change Change %

Total capital costs 9,758$ 3,252$ (6,506)$ -66.7%

Example of cost of service (Year 10)Capital carrying costs 1,094$ 345$ (749)$ -68.5%Operating costs 405 101 (303) -75.0%Biomass fuel 230 - (230) -100.0%Natural gas 133 379 246 184.6%Electricity 51 30 (21) -41.7%Property taxes 89 27 (63) -70.2%Franchise fees 63 27 (36) -56.5%Total cost of service 2,066$ 909$ (1,157)$ -56.0%Demand (MWh) 14,020 5,884 (8,136) -58.0%Cost of service per MWh 147.35$ 154.45$ 7.10$ 4.8%

Rate charged in Year 10 per levelized rate proposal 158.16$ 162.15$ 3.99$ 2.5%


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The solution proposed for UniverCity is flexible to accommodate the timing required for development and implementation of the combined CEP plant. The main focus is on the core customers at UniverCity and meeting the energy demand as required through a temporary plant with the proposed biomass plant expected to be built in 2016 as an overall thermal energy solution. The combined CEP for UniverCity and SFU Campus would only change the size and implementation of the biomass solution providing additional benefits to the core customers.

“During the assessment of the combined solution and its need for the biomass fuel as early as 2012, discussions were initiated with Urban Woodwaste Recyclers…” (p.23)

11.2 Please confirm that the implementation of a combined solution (as early as 2012) would eliminate the need for the stand‐alone NUS that is proposed in this Application?

Response:

Confirmed.

11.3 If the combined solution proceeds but subsequent to the proposed stand‐alone NUS, how will this affect the planned infrastructure for the stand‐alone NUS? Will there be any redundant capital? If so, what is the value? Will there be any stranded capital? If so, what is the value?

Response:

As proposed in the application, if the stand alone system proceeds, it would not make sense to proceed with the combined solution. Any decision to provide service to SFU subsequent to developing a stand‐alone NUS and as part of the regulated utility would need to be made on the basis of the impact on core market (NUS) customers. Corix has not undertaken such an analysis.

11.3.1 What is Corix’s proposed treatment of any redundant / stranded capital?

Response:

Costs associated with redundant or stranded capital would be transferred to the deferral account. Any proposal that involved redundant or stranded capital would only proceed if the impact, including the costs associated with any redundant or stranded capital, could be demonstrated to be of net benefit to core market NUS customers.

11.4 Will Corix have any ownership of the combined solution’s infrastructure should it be successfully implemented in the future? If so, fully explain how the levelized rate charged to customers would change. Provide sample calculations if appropriate.

Response: IS

Under the combined solution the biomass central energy plant would change in size to accommodate the SFU Campus load. Corix will be the owner of the NUS including the central energy plant. The various scenarios and impact on the rates are included in Table 20 in Section 3.13 (p.32) of the application.

12.0 Reference: Exhibit B‐1, Section 3.4 Financial Modeling and Inputs, pp. 22‐23 Fuel Supply and Costs

12.1 Provide references and explanations to justify each of the commodity price inputs as shown on


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Table 10 – Fuel Unit Costs on page 22.

Response:

The biomass price used in the model is based on preliminary discussions with the fuel suppliers. The other commodity prices use current and forecast prices. The commodity price forecasts change frequently and the assumptions will be updated to reflect any significant changes.

12.2 Under Table 11 ‐ Fuel Requirements on page 23, explain the energy consumption line of “Lighting and parasitic.”

Response:

Lighting and parasitic load includes electricity consumption related to auxiliary equipment not directly connected to the boiler (e.g. water treatment, valves, pumps, and lighting).

“The City of Burnaby indicated an interest in providing to the Project any acceptable wood waste that the City creates as an alternative to the current practice of land‐filling the wood waste.”

“During the assessment of the combined solution and its need for the biomass fuel as early as 2012, discussions were initiated with Urban Woodwaste Recyclers…”

12.3 Please clarify what is meant by “any acceptable wood waste that the City creates”: Does CMUS refer to the wood waste generated from the City of Burnaby’s own operations or the wood waste generated within the City of Burnaby’s boundaries? Provide examples (i.e. Urban development, brushing and trimming).

Response:

The wood waste generated within the City’s boundaries such as tree trimming, but also the wood waste from City’s operation, such as wood pallets are of the interest.

12.4 How many suppliers in the Lower Mainland are able to source wood waste at the required specifications for this biomass plant?

Response:

Currently there are several suppliers in the Lower Mainland area that would be able to meet the fuel specifications required. Companies like BC Wood Recycling, Cloverdale Fuel and Urban Wood Waste Recyclers or several tree services companies like Davey Tree or Bartlett Tree are prospective suppliers.

12.5 Does the City of Burnaby currently create enough wood waste at the appropriate specifications to act as a sole supplier for the NUS or will it only be one of many suppliers?

Response:

A specific amount of wood waste that could be available for the project was not discussed. We assume that the City would be one of the suppliers.

12.6 Since Metro Vancouver has jurisdiction over waste management in the region, has any discussion also been initiated with Metro Vancouver with respect to the potential supply of wood waste


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biomass? If not, why not?

Response:

To date Corix has held discussions with the local municipality and several suppliers. As yet Corix has not initiated discussions with Metro Vancouver. As the project progresses and a fuel supply study is undertaken, we will look at various options to supply the fuel, including Metro Vancouver.

12.7 Urban Woodwaste Recyclers’ letter of interest provided in Appendix B did not mention the delivered price of wood waste supply. Has there been any discussion on a delivered price per tonne? How does this price factor into the forecast biomass cost of $30/tonne as described in Table 10 on page 22.

Response:

The price of $30/tonne was included based on the preliminary discussion with the fuel suppliers in 2009. The price from UWWR was not finalized because this will be affected by fuel specifications and requirements. We are in the process of discussing the supply for the UnvierCity development that would be required in 2016 as well as SFU Combined solution, which if implemented would be required in late 2012. We will consider all options of securing the fuel supply for the core customers including a long term contract and possible hedging of fuel prices but will evaluate risk and benefits before any commitment is made.

12.8 If CMUS is not able to secure the supply of wood waste for reasonable prices in the future for whatever reason, what are its plans for the planned biomass plant? Will it seek supply from more expensive sources or delay the implementation of the biomass plant? Please discuss.

Response:

Prior to a decision to implement a biomass solution, Corix would enter into negotiations to secure a reliable long term commitment to supply biomass, including pricing provisions. All pricing and supply provisions would form part of the evaluation of the biomass option.

12.9 Please thoroughly discuss BC Hydro’s phase I and phase II bio‐energy call in 2009‐2010 and what impact this request for proposal had on the forestry industry in BC in terms of wood waste supply.

Response:

To date Corix has not undertaken any analysis of the impact on wood waste supply related to the BC Hydro bio‐energy call. Corix will be undertaking a wood waste supply study in 2011, and we will continue to be in contact with potential wood suppliers to keep current on the availability of potential wood waste supply should a decision be made to proceed with a biomass solution.

12.10 Other competing uses for the local supply of clean wood waste in the Lower Mainland (e.g., UBC’s biomass combined heat and power system) could increase the demand for this resource and create upwards pressures on its price. Please explain what strategy CMUS will adopt to mitigate the potential impacts of other competing projects on the resource availability and price?

Response:

Corix will continue to monitor the wood waste supply market and enter into long term agreements for suitable wood waste supplies if and when the biomass option is developed.


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13.0 Reference: Exhibit B‐1, Section 3.4.3 System Operating Costs, pp. 21‐22; and Section 5.1, p. 39 Trucking and Storage Costs

13.1 Please explain where the biomass trucking costs are included? Is it included in the biomass fuel cost per tonne shown in Table 10? If so, please provide a breakout between the material cost, additional processing costs, trucking/delivery cost, etc. If it has not been included in the life cycle cost analysis, explain why.

Response:

As discussed in the response to Q 12.7, the fuel cost estimate of $30/tonne was based on preliminary discussions with suppliers and would be the cost delivered to the plant. We currently do not have a breakdown of the fuel costs. This will be completed during the fuel supply study and assessment of various supply sources in Lower Mainland to be conducted in 2011.

13.2 Please explain where CMUS has included the operating costs for the trucking and removal of bottom ash. If it has not been included in the life cycle cost analysis, explain why.

Response:

Response to follow.

“The system has been designed to provide biomass fuel storage allowing for 72 hours coverage during peak heating periods.” (p. 39)

13.3 Please explain where the storage facilities are located and whether there are incremental storage costs required?

Response:

Fuel storage would be located at the biomass facility and these costs have been included in the cost estimates for the biomass facility.

14.0 Reference: Exhibit B‐1, Section 3.4.3 System Operating Costs, p.22 OMA Costs & Boiler Safety Authority

“If the facility is installed and started on one or two natural gas boilers, limited off site supervision via remote access and alarm monitoring may be acceptable to the Boiler Safety Authority.”

14.1 If the limited off site supervision is unacceptable to the Boiler Safety Authority, please explain the impact to the OMA costs.

Response:

We are confident that the temporary plant would be registered as a “General Supervision” plant meeting the requirements of Section 55 of Safety Standard Act BC Reg. 104/2004.


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15.0 Reference: Exhibit B‐1, Section 3.4.3 System Operating Costs, pp. 21‐23 and Section 3.13 Sensitivity Analysis, Table 20: Sensitivity Analysis, p. 32 Fuel Price and Supply

CMUS states: “Preliminary discussions with biomass fuel suppliers were used to establish the forecast price of the fuel as well as future availability of supply. The City of Burnaby indicated an interest in providing to the project any acceptable wood waste that the City creates as an alternative to the current practice of land‐filling the wood waste. Since the requirement for biomass is not expected until 2017, a detailed fuel supply study will be completed in 2011 with preliminary contractual arrangements negotiated at that time with the City and with fuel suppliers. The impact of any changes in the fuel prices is provided in Section 3.13 – Sensitivity Analysis” (p.23) and CMUS states: “Scenario 1 – Base case with 20% increase in biomass fuel prices.” (p.32) 15.1 Please provide the high and low scenarios for the price of biomass for each year during the

period 2016 to 2031 and, in each case, your confidence level that the price will be within that range.

Response:

We have a reasonably high confidence level that the prices for biomass will fall within the range of plus 50% to minus 50% of the base case forecast as follows.

The rate impacts for these scenarios are as follows.

15.2 When in 2011 does CMUS plan to have the detailed fuel supply study completed?

Response:

The fuel supply study will be completed by the end of Q2/2011.

16.0 Reference: Exhibit B‐1, Section 3.4.3 System Operating Costs, p. 22; Section 5.6 Human Resources Requirement, p. 44; and Section 8 Additional Requirements for New Service Areas, p. 53 Human Resources

CMUS states: “Since the central energy plant will be built over time as new residential load is added, the

Biomass Cost Scenarios 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031Low case 17.23 17.57 17.93 18.28 18.65 19.02 19.40 19.79 20.19 20.59 21.00 21.42 21.85 22.29 22.73 23.19 Base Case 34.46 35.15 35.85 36.57 37.30 38.05 38.81 39.58 40.38 41.18 42.01 42.85 43.70 44.58 45.47 46.38 High case 51.69 52.72 53.78 54.85 55.95 57.07 58.21 59.38 60.56 61.78 63.01 64.27 65.56 66.87 68.20 69.57

Changes in Biomass Fuel Costs Base Case Scenario Change Change %

Biomass cost per tonne (Year 10) 38.05$ 19.02$ (19.02)$ -50.0%2012 rate per MWh 144.61$ 137.78$ (6.83)$ -4.7%20 year levelized rate per MWh 159.76$ 152.21$ (7.55)$ -4.7%

Biomass cost per tonne (Year 10) 38.05$ 57.07$ 19.02$ 50.0%2012 rate per MWh 144.61$ 151.44$ 6.83$ 4.7%20 year levelized rate per MWh 159.76$ 167.31$ 7.55$ 4.7%


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facility may not require a full time operator until the biomass boilers are installed.” (p. 22)

CMUS states: “Based on our interpretation of the current regulation and the concept proposed, the energy centre would be classified as a 5th Class Low Pressure Fluid Plant requiring a 5thClass Operator as Chief. Additionally, a 5th Class plant under 500 m2 boiler surface area is eligible for general supervision status, which is key to a viable business case for this scale of system. General supervision allows for scheduled inspections of an operating plant rather than 24 hour supervision. However, the final ruling on the status is determined solely by the BC Safety Authority.” (p. 44)

CMUS states: “Once the biomass facility is built, a dedicated Operations Manager and full‐time Plant Operator will be assigned to the project.” (p. 53)

16.1 When is the final ruling by BC Safety Authority expected on the classification of the permanent energy centre?

Response:

The Province of British Columbia has recently introduced Alternative Safety Approaches into the BC Safety Standards Act. Alternative Safety Approaches allow an owner or operator to operate a facility under a Safety Management Plan, consistent with the objectives of the Safety Standards Act in place of complying with the prescriptive requirements in the regulations. This optional approach provides stakeholders with the opportunity to design and operate facilities that are both safe and viable. Safety Management Plans will initially be introduced in the bioenergy sector with wider application considered over time. Corix will evaluate the suitability of implementation of this alternative approach for the UniverCity project and identify an impact on the overall plant classification. The final decision on the plant classification and the approach to safety will be made in the plant design stage.

16.2 Please clarify whether CMUS’s projected operating costs after implementation of the permanent energy centre will include a full time operator or whether they only include the costs associated with general supervision.

Response:

Currently we are proposing a full time operator on site (1.5 FTE; which includes 0.5 FTE allocated to business side of NUS operation). This will be adjusted accordingly in the later stage as provided in response 16.1.

16.2.1 If the operating costs only include the costs associated with general supervision, as the quote on p. 44 seems to indicate, how would the inclusion of a full‐time operator change the financial analysis of the Project?

Response:

Corix has included the cost for a full time operator in this project. A final ruling will determine if the plant would be eligible for general supervision only.

17.0 Reference: Exhibit B‐1, Section 2.2 Financial Capacity, p.9; Section 3.5 Debt and Equity Financing,


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p. 24; and Commission Order C‐1‐08, Appendix A, p. 9 Financing and Interest Rate

CMUS states: “CMUS expects to finance 60% of the rate base with deemed debt and the remaining 40% of the rate base with common equity. The interest rate on the debt is expected to be 7% based on a 20‐year term.” (p. 24)

In Appendix A to Order C‐1‐08 for Dockside Green, the Commission on April 17, 2008 approved the long‐term debt financing rate of 6.5% for Dockside Green and required that any debt instrument be filed with the Commission.

CMUS explains its ability to interim finance on page 9: “Through its credit facilities, Corix has borrowing capacity of $150 million through a $100 million revolving credit facility and a $50 million accordion to its credit facility. This capacity is readily accessible and will be used to support Corix’s growth investments.”

17.1 Please provide the rationale and support for CMUS’s proposed deemed capital structure of 60% debt and 40% equity.

Response:

Corix is proposing a capital structure similar to that applied to other utility operations.

17.2 Please provide the source and detailed information on the long term‐debt instruments that CMUS plans to use to fund the NUS Project (i.e., amount, loan type, amortization, rate, fees, security, reporting, and covenants).

Response:

Response to follow

17.2.1 Has CMUS pledged or plan to pledge any of the assets in the NUS for any debt borrowing? If so, please provide the details.

Response:

Response to follow

17.3 What percentage of the capital structure is financed by short‐term debt? What is the source of the short‐term borrowing and the short‐term debt rate?

Response:

Response to follow

17.4 CMUS states on page 11: “Long‐term debt financing costs estimated at 7.0%.” This is 0.5% higher than the one that was proposed and approved for Dockside Green at 6.5% on April 17, 2008. When will CMUS be able to finalize the actual long‐term interest rate for inclusion into NUS’ cost of service?

Response:


25

Response to follow

17.4.1 Will the long‐term interest rate, once finalized, change during the first 20 years? If so, please explain the circumstances and how this will affect the revenue requirement and levelized rate charged to customers?

Response:

Response to follow

17.4.2 Please provide additional justification of the long‐term debt rate of 7.0%.

Response:

Response to follow

17.4.3 Please elaborate on the changes in circumstances of why the long‐term interest rate for NUS is 0.5% higher than for Dockside Green?

Response:

Response to follow

17.5 What is the interest rate on CMUS’s credit facility to interim finance the NUS? When would the credit facility funding for the NUS be replaced by long‐term debt?

Response:

Response to follow

17.5.1 Please provide the full company name of the Corix company that has obtained the revolving credit facility stated on page 9.

Response:

Response to follow

17.5.2 Please confirm that the revolving credit facility would be the financing vehicle to fund the flows of capital expenditures from 2011 to 2019 as per Table 7 on p. 20.

Response:

Response to follow

18.0 Reference: Exhibit B‐1, Section 3.5 Debt and Equity Financing, p. 25

CMUS states: “This hypothesis has been corroborated by studies in various countries. Additional research specific to utilities has been published by M. Annin of Ibbotson and Associates (Public Utilities Fortnightly, October 15, 1995).”

18.1 Please provide the references for the various countries’ studies referred to above.


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Response:

Response to follow

18.2 Please provide the 1995 paper by M. Annin of Ibbotson and Associates. Have other papers been published more recently on this subject matter?

Response:

Response to follow

19.0 Reference: Exhibit B‐1, Section 3.5 Debt and Equity Financing, p. 25 Risk Premium

CMUS states: “The question arises as to whether findings from cost of capital studies within the U.S. equity markets can be applied in Canada given that the Canadian equity market has a smaller population of entities and Canadian companies also tend to be smaller than the U.S. companies.”

Please provide the following information on small utilities in Canada:

19.1 For small British Columbia utilities, the premium over the benchmark utility ROE and capital structure (e.g., Dockside Green, ski resort utilities, etc.); and

Response:

Response to follow

19.2 For other small utilities in Canada, if available, the premium over the benchmark utility ROE and the capital structure (e.g., small Ontario municipal utilities, etc.).

Response:

Response to follow

19.3 Please comment on the comparability (similarities and differences) between the NUS and the utilities identified above.

Response:

Response to follow

20.0 Reference: Exhibit B‐1, Section 3.5 Debt and Equity Financing, p. 24 and p. 26; Section 5.7 Risk Analysis, p.45; and BCUC Order C‐1‐08 Rate Structure and Risk Premium

CMUS states: “CMUS expects to finance 60% of the rate base with deemed debt and the remaining 40% of the rate base with common equity” and “CMUS is requesting a risk premium of 200 basis points.”

Recital M in Order C‐1‐08 for Dockside Green states: “The proposed levelized rates are based on an


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annualized rate of return over the 20 years equal to the low risk benchmark utility return plus 100 basis points or 9.62 percent.”

Directive No. 5 in Order C‐1‐08 for Dockside Green states: “Subject to DGE holding a CPCN for the DES, the Commission approves the revenue requirements methodology as set out in the Application and supporting materials, including that the revenue requirements will be calculated using a capital structure that has 40 percent equity, a return on equity (“ROE”) that is 100 basis points higher than the benchmark ROE that the Commission establishes for a low‐risk benchmark utility, and DGE’s actual interest rate.”

20.1 On page 45 of the Application, CMUS states: “CMUS will draw on internal experience with the development of the similar systems/concepts (i.e. Dockside Green, Regent Park)…” Dockside Green was approved a 100 basis point risk premium. CMUS seeks a 200 basis point risk premium for the NUS, a 100 basis point differential from Dockside Green. Please elaborate on the business risks of the NUS Project that would require an additional 100 basis point risk premium above Dockside Green.

Response:

Response to follow

20.2 Please fill out the comparative table below with a brief description of each criterion for the NUS and Dockside Green. This table should identify the similarities and differences between the NUS and Dockside Green.

Response:

Response to follow


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Criteria NUS Dockside Green

Project Differential

Impact on NUS Risk Level

System performance risk associated with chosen technologies

Total square footage in proposed development

Capital structure (debt and equity)

Fuel cost risk

Real estate development risk

Developer/customer connection risk

Small company risk

Construction cost risk

Operating cost risk

Public acceptance risk

Fixed/variable rate structure

Other relevant comparators

20.3 Based on the above table, please rank in order of importance the top six criteria that would have the most impact on the overall risk of the NUS.

Response:

Response to follow

21.0 Reference: Exhibit B‐1, Section 3.5 Debt and Equity Financing, p. 26 and Section 5.7 Risk Analysis, p. 46 Risk Premium

“This modest financial incentive which helps to compensate for the investor’s risk is consistent with the province’s goals of promoting green renewable energy solutions for the citizens of British Columbia.” (p. 26)

21.1 Please discuss who bears the risk (utility, ratepayers, developer) if the developments do not proceed as planned and there is stranded capital in the NUS.


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Response:

The proposal for the NUS is to minimize to the extent possible the risk of stranded capital by implementing a temporary solution using natural gas boilers until such time as build‐out and load are sufficient to support a biomass or alternative energy system. Corix believes this is the most prudent approach to mitigating development risk. Assuming the utility follows prudent practice, Corix would expect to be treated as any regulated utility if unforeseeable circumstances result in additional operating costs. Prudence involves an exercise of reasonable and careful judgement. The prudence of the decisions should be judged as of the time of the decisions are made with the information available then, not afterwards with perfect hindsight.

22.0 Reference: Exhibit B‐1, Section 5.7 Risk Analysis, p. 46 Risk Assessment

Page 46 states “CMUS also proposes that the non‐controllable costs be flowed‐through in future rates, which include:

1. changes in commodity costs including biomass, natural gas and electricity; 2. changes in operating costs resulting from changes in regulatory and legal requirements;

and 3. any change in law.” (p. 46)

22.1 The above statement appears to suggest that the Company is protected from financial risks

involved with this CPCN. How can ratepayers be assured that any non‐controllable costs are prudently incurred when there is no limit to its spending? Please discuss.

Response:

Corix disagrees that the reference sited protects the utility from all financial risks. The sited reference has to do with costs which are not within the control of the utility and as such cannot be prudently accounted for. The utility is still subject to other financial risks including potential cost overruns with capital projects.

23.0 Reference: Exhibit B‐1, Section 3.6 Income Taxes and Section 3.12 Financial Projections, pp. 30‐31 Income Taxes

“The combined corporate income tax rate has been assumed at the current BC rate of 31.0% over the entire forecast period.” (p. 26)

23.1 Provide justification /source for the combined corporate tax rate of 31.0% and explain why this is appropriate for the entire forecast period.

Response:

The tax rate of 31.0% assumed in the financial model is incorrect. According to substantively enacted tax rates the combined corporate tax rate in British Columbia is expected to be reduced to 25.0% by the year 2012. A scenario assuming the 25.0% tax rate was calculated and the results show a 0.9% reduction in the levelized rates as summarized in the following table.


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24.0 Reference: Exhibit B‐1, Section 3.7 Revenue Requirement, p. 27 and Electronic Financial Model Depreciation

24.1 Please discuss ho

(cmus,€¦ · c suite 1160, 1188west georgia street vancouver, british columbia canada v6e 4a2 t...

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