C1-2. ENGINEERING SERVICES Jerry Dobrovolny, P. Eng. Acting General Manager. August 5, 2015 BY ELECTRONIC MAIL

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1 C1-2 ENGINEERING SERVICES Jerry Dobrovolny, P. Eng. Acting General Manager August 5, 2015 BY ELECTRONIC MAIL British Columbia Utilities Commission Sixth Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Erica Hamilton, Commission Secretary RE: Application for a Certificate of Public Convenience and Necessity for a Low Carbon Neighbourhood Energy System for Northeast False Creek and Chinatown Neighbourhoods of Vancouver Please see the attached response to the Panel's Information Request No. 1 to the City of Vancouver ("CoV"). If you have any questions, please contact me at Kind Regards, Chris Baber, P. Eng. Neighbourhood Energy Manager Chris. baber@vancouver. ca City of Vancouver, Engineering Services Mailing Address: West Broadway Vancouver, British Columbia V5Z OB4 Canada tel: 3-1-1, Outside Vancouver fax: website: vancouver.ca/ engsvcs/ BC's Top Employers

2 RESPONSE TO BRITISH COLUMBIA UTILITIES COMMISSION PANEL INFORMATION REQUEST No. 1 TO CITY OF VANCOUVER These Information Requests (IRs) were initially provided to Creative Energy Vancouver Platforms Inc. {Creative Energy) with respect to the referenced Application. The City of Vancouver {COV) has a Franchise Agreement to receive utility services from Creative Energy. Creative Energy was asked these questions in the first round of IRs. Creative Energy declined to answer, suggesting that it was not within their specific knowledge, making reference to the COVin their reply. Each question below is cross-referenced to the specific Exhibit and IR previously asked. 1.0 Reference: CARBON OFFSETS Exhibit B-1, Schedule 2, Article 6 (See Exhibit B-10- Creative Energy Response to FAES IR ) Pursuant to Article 3.3(d)(ii) of the Neighbourhood Energy Agreement (NEA), FAES respectfully requests the COV to clarify the following COV policies, process and commitments applicable to this Agreement: 1.1 Please explain why the COV does not require Creative Energy to purchase carbon offsets to offer a Low-Carbon Alternative solution during Phase 1 of the NES. The CoV has been taking action to reduce greenhouse gas emissions since the Clouds of Change Report in 1990; in 2008 City Council passed a motion to reduce emissions by 80% over 2007 levels by 2050, and in the same year Vancouver signed the Climate Action Charter. That Charter, signed by 180 of BC's 188 local governments, committed the CoV to reducing GHG emissions. The Province of BC's 2008 "Green Communities" legislation required the CoV to develop an emissions reduction plan which became the foundation for the pathway laid out in the Greenest City Action plan (2011) that will see the city's carbon pollution reduced by 33% over 2007 levels by In July, 2011, Council adopted the Greenest City 2020 Action Plan, and directed staff to begin implementing the highest priority actions. The plan set a target of 33% reduction in greenhouse gas emissions by 2020 from 2007 levels, and also set the long-term goal to eliminate dependence on fossil fuels. One of the key actions to achieve this 33% reduction target is the large scale deployment of sustainable thermal energy systems for high-density, mixed-use neighbourhoods. In October, 2012, Council approved the Vancouver Neighbourhood Energy Strategy and Energy Centre Guidelines, to help achieve the Greenest City 2020 Action Plan objective of reducing 120,000 tonnes carbon dioxide per year through the deployment of sustainable thermal energy systems for high-density neighbourhoods. The Neighbourhood Energy Strategy identified a range of potential enabling tools to support the establishment of BCUC-regulated NES, including by-laws to secure the customer base for new systems. Further to this, in April 2015, Council approved a by-law to compel new developments to connect to a neighbourhood energy system in Northeast False Creek and Chinatown. CoV's Position on Carbon Offsets for the CPCN Application: The CoV's overarching policy objective is to reduce community carbon pollution 33% by 2020 from 2007 levels. Currently, the provincial standard approach for the calculation of community carbon Page 2 of 15

3 emissions does not account for the purchase of carbon offsets by any parties within the community. Instead, the CoV requires Creative Energy to establish a low carbon rate rider, which is intended to facilitate the transition to low carbon energy supply (referred to as {/Phase 2" in the Neighbourhood Energy Agreement). The low carbon rate rider establishes funding from the outset for a capital investment in the Phase 2 low carbon energy supply, and also serves to minimize the potential for customer rate shock transitioning from Phase 1 to Phase 2. Irrespective of the current treatment of offsets for calculation of community carbon emissions, the low carbon rate rider is the preferred approach for the CoV. This is because it serves to accelerate the adoption of low-carbon energy supply to the neighbourhood, with the associated carbon rate rider revenues to be contributed towards a capital investment that provides a utility asset with longterm value to customers (value to customers includes secured long-term low carbon footprint and reduced exposure to volatile/unpredictable natural gas costs). If the utility were required to purchase offsets in the beginning of phase 1, then the associated customer rate revenues would be directed away from the utility with no direct benefit to customers. The Neighbourhood Energy Agreement allows the CoV to direct Creative Energy to purchase offsets where a low carbon energy supply is not implemented or is significantly delayed. Thus, the purchase of offsets is considered only a fall-back alternative to achieve the contract Performance Requirements if the transition to a low carbon energy supply is not achieved as planned. The Commission may review any direction by the COV to Creative Energy to determine if the direction is reasonable in light of the Performance Requirements, the status of low carbon energy supply, and the cost and availability of offsets at that time. 2.0 Reference: NEFC AND CHINATOWN CONNECTION AGREEMENT Exhibit B-1, Schedule 6 (See Exhibit B-10- Creative Energy Response to FAES IR ) Pursuant to Article 3.3(d)(ii) of the NEA, FAES respectfully requests the COV to clarify the following COV policies, processes and commitments applicable to this Agreement. Therefore, the following Information Requests are addressed to the COV and not Creative Energy: No Alternate System or Service Provider. The powers and rights granted to Creative Energy under this Agreement are exclusive to Creative Energy and, except as expressly provided hereunder or in the Design Guide, the Owner will not itself perform, provide, install or realize, nor allow any other Person to perform, provide, install or realize any other system to provide primary domestic hot water or space heating to any Building, nor use or allow or consent to any other Person supplying or distributing Thermal Energy to the Lands. (p. 8)" 2.1 Please describe the public consultations held by the COV, if any, with the stakeholders that may be affected by section 2.2 above, in particular the developers' community, customer groups, other TES providers. Page 3 of 15

4 The CoV undertook extensive public/stakeholder consultation on (1) the City of Vancouver Greenest City Action Plan (2) The City of Vancouver Neighbourhood Energy Strategy {3) the Northeast False Creek neighbourhood planning and (4) the Chinatown neighbourhood planning. 1. City of Vancouver Greenest City Action Plan An extensive consultation process was undertaken to obtain input from community members and stakeholders to determine the best path forward. Over 35,000 community members participated in the process, with 9,500 actively contributing to determine the "best path forward", which included initiatives to establish new neighbourhood energy systems and convert existing steam heat systems to low carbon energy sources. Timing of this process was as follows: o o Phase 1 ran from June-October 2010 and was focused on collecting ideas from the community about how the Greenest City goals and targets might be achieved. Phase 2 ran from December March 2011 and was focused on collecting feedback on the draft Greenest City Action Plan in order to finalize the plans. For more information on the Greenest City Action Plan and related consultation processes, please go to 2. City of Vancouver Neighbourhood Energy Strategy The development of the Vancouver Neighbourhood Energy Strategy included two separate streams of stakeholder consultation: (A) to get input on the overall strategic approach for establishing systems and (B) to get input on the development of the Vancouver Energy Centre Guidelines, which establish the performance requirements for development and operations of new low carbon energy generating facilities in the city. Detailed information on the Vancouver Neighbourhood Energy Strategy and related consultation processes is available at For item (A), the CoV hosted workshops in December 2011 and May 2012 with stakeholders to get input on scope, objectives, issues, barriers and opportunities to be considered by the strategy. The following stakeholders participated in these workshops: Page 4 of 15

5 TABLE 1. STAKEHOLDERS CONSULTED FOR DEVELOPMENT OF THE NEIGHBOURHOOD ENERGY STRATEGY Utilities Developer/La'ndowner/Customer Governmentllnstitutions/NGO Cfmtral HGat Distribution Ltd. Urban Dgvglopm~mt.lnstitutg MGtro vancouvgr BC Hydro Urban Land lnstitutg City of l ~orth Vancouvgr FortisBC BGntalt City of Richmond Corix Wgstbank VancouvGrSchoolBoard Cofgly Park lam~ Univgrsit'} of BC Dalkia/VGolia Building Owm~rs and ManagGrs BC Ctimatg Action SGcmtariat Association BC Housing Condominium Homsownsr's Port Mgtro Vancouvgr Association Natural RGSOUfCQS Canada Cadillac Fairvigw Convgntion Csntrg BC Sustainabl.G Engrgy Association Navius Rgsgarch Community Engrgy Association The following table provides a list of stakeholders that were included in the development of the Energy Centre Guidelines (item B). These stakeholders were selected based on demonstrated interest and/or expertise in fields that relate to climate protection, air quality, resource use sustainability and utility industry. Stakeholders also included residents who have actively participated in past public engagement processes for neighbourhood energy projects or related policy. TABLE 2. STAKEHOLDERS CONSULTED FOR DEVELOPMENT OF THE ENERGY CENTRE GUIDELINES David Suzuki Foundation NGOs with environmental mandates: Pembina Institute Wilderness Committee Vancouver Coastal Health: Chief Medical Health Officer Government agencies: Metro Vancouver: Air Quality Policy, Regulation and Enforcement Division Fraser Valley Regional District: Board Member Academia providing expertise in air quality, UBC: Professor Douw Steyn, Professor Michael atmospheric science, public health and climate Brauer, Professor Stephen Sheppard protection: UVIC: Professor Andrew Weaver The Canadian District Energy Association Utility Industry: BC Hydro RiverDistrict Energy I Parklane Homes Residents from neighbourhoods served by existing False Creek South NES, or who have been involved in NES initiative False Creek East consultation Cambie corridor 3. Northeast False Creek Neighbourhood Planning The CoV managed feasibility studies to investigate the viability and technology approach options for a potential neighbourhood energy system to serve the Northeast False Creek area. These studies were managed in consultation with all of the Northeast False Creek land owners. These land owners participated in workshops and provided input at key steps of the technical and business analysis study process, to ensure that the studied technology approach and key Page 5 of 15

6 assumptions were consistent with expectations and needs of area developments. Consultation activities in the development of NEFC Neighborhood Plan included regular meetings with the NEFC Joint Working Group, made up of residents and developers in NEFC, as well as other stakeholders. The NEFC Joint Working Group met regularly during 2010 and There were also two public open houses, in December 2010 and June 2011 for the overall area plan amendments, which included the implementation of a low carbon neighbourhood energy system that all new developments would utilize for heating and hot water. These amendments were also considered in a public hearing process in February Chinatown Neighbourhood Planning Public engagement for the development of the Chinatown Design Guidelines and Rezoning Policy included extensive consultation in 2009 and 2010, including: Three public workshops between and seven community group meetings; two Public Open Houses; and nine Council Advisory body meetings. In April 2011, following an extensive stakeholder consultation process, Council approved the neighbourhood energy connection policy for Chinatown, which was embedded in the Rezoning Policy and Building Design Guidelines for the area. Under this policy, all new developments in Chinatown must be compatible with a neighbourhood energy system, and connect to a Citydesignated neighbourhood energy system if one is available. In April 2015, City staff provided letter notification by and regular mail to all property owners in the Chinatown area. The purpose of this letter was to: remind property owners of the Chinatown area plan and associated neighbourhood energy connection policy; Inform property owners that the intent of the proposed neighbourhood energy by-law is an administrative step to reinforce the current development policy and provide more clarity for building developers; Confirm which types of building developments neighbourhood energy connection requirement applies to; and Provide property owners with the opportunity to ask questions or share concerns with staff or Council prior to Council's consideration of the neighbourhood energy by-law. Following this notification, staff received calls from two Chinatown property owners. In both cases, property owners were seeking clarification on elements of the proposed by-law. No concerns were brought forward to staff or Council. Page 6 of 15

7 3.0 Reference: NEIGHBOURHOOD ENERGY BY-LAW FOR NORTHEAST FALSE CREEl< AND CHINATOWN Exhibit B-2, Administrative Report (See Exhibit B-10- Creative Energy Response to FAES IR , ) Pursuant to Article 3.3(d)(ii} of the NEA FAES respectfully requests the COV to clarify the following COV policies, processes and commitments applicable to this Agreement. Therefore, the following Information Requests are addressed to the COV and not Creative Energy: The Report Summary states on page 3 that the above referenced by-law was written in consultation with the Neighbourhood Energy Expert Panel. 3.1 Please describe the Neighbourhood Energy Expert Panel and its role and mandate, and please indicate who the members of this panel are. The Neighbourhood Energy Expert Panel ("Expert Panel"} is an advisory body, appointed by City Council. It was originally established in October 2010 with the mandate to provide CoV staff and Council with independent, objective advice to help the CoV to design rates for the Southeast False Creek Neighbourhood Energy Utility that strike an appropriate balance between the need to recover the CoV's cost for operating the system and the customer's need to receive fair and competitive rates for energy services delivered. In October 2014, the Expert Panel's mandate was expanded to also include providing staff and Council with advice on activities relating to the implementation of new neighbourhood energy systems in the Downtown, Cambie Corridor and central Broadway areas as part of the Vancouver Neighborhood Energy Strategy. Current members of the Expert Panel include Allison Rhodes (Expert Panel Chairperson- background includes six years as Commissioner for the BCUC}, Cameron Lusztig (extensive utilities industry consulting experience, including supporting role in development of BC Clean Energy Act), and Ron Cliff (extensive utilities industry consulting experience, including supporting clients in BCUC proceedings). 3.2 Please describe the nature of the consultation that took place with the Neighbourhood Energy Expert Panel to develop this by-law. The Expert Panel discussed concepts, reviewed drafts and provided input to the final version recommended to Council. 3.3 If the Commission does not approve the exclusive nature of the NEA, and instead approved a non-exclusive franchise territory, will COV staff still bring the by-law forward for Council enactment in late 2015? The bylaw would likely be brought forward by staff to Council for enactment regardless of whether or not the BCUC approves the exclusivity provisions in the Neighborhood Energy Agreement. Staff cannot speculate on the outcome of the Council's review. A mandatory connection by-law has been in place in the Southeast False Creek area since 2007, and use of similar by-laws is now a common practice in other Metro Vancouver area municipalities to support neighbourhood energy system development. The mandatory connection secures the Page 7 of 15

8 customer energy demand, creating sufficient economies of scale to cost-effectively establish a low carbon NES. The CoV also has authority to require connection and related conditions in rezoning or development permits. If the Commission does not approve the exclusivity provisions in the Neighbourhood Energy Agreement, the CoV's legislative authority to mandate connection continues. The Commission does not have authority over the CoV's land use and building policies. The by-law, as approved by Council, does not specifically reference Creative Energy, and is intended to be expandable to other areas of the city that may have other neighbourhood energy utility providers. 3.4 Please confirm that the COV SEFC NEU has used a low-carbon renewable energy source from the start of its service. Confirmed. The Southeast False Creek Neighbourhood Energy utilized a temporary natural gas boiler system to provide pre-occupancy construction heat to buildings between December 2008 to December From January 2010 onwards (post-occupancy) the system has been utilizing a low carbon energy source, which is waste heat recovered from untreated sewage. This early implementation of the low carbon energy source was enabled by a large-scale initial development (the Olympic Village), a $SM low interest loan from the Federation of Canadian Municipalities (FCM), and a $9.5M grant from the Union of BC Municipalities (UBCM). The SEFC system performance target is to achieve a greenhouse gas emission intensity of 66 kg C02 per MWhr. This target is based on 70% of the annual energy supply coming from the sewage heat recovery process. The system has consistently achieved this target. Page 8 of 15

9 4.0 Reference: DE STRATEGY CONSULTATION Exhibit B-1, pp. 51 and 52 (See Exhibit B-9- Creative Energy Response to CEC IR ) "Feedback from stakeholders included the following: There is strong support for the City to develop a Neighbourhood Energy Strategy. The Development community raised concerns around perceived cost premiums, sought clarity around connection policies and the development of new NES areas. City-wide standards and coordination is supported, with parameters for flexibility to incorporate different technologies and approaches based on local conditions and advances in technology. Clarify for the roles and responsibilities for NES in Vancouver is important. There is concern around lost opportunities in the absence of a strategy. There needs to be coordination between DE policy and other green building and land use policies to ensure optimal outcomes. There was some concern around siting larger energy centres within the city (land availability, public receptiveness). The role and considerations around City ownership of NEU was discussed. There was interest in partnership models as a way to leverage public and private involvement. There was strong support for city vision, coordination, and policy development. The Development community raised concerns around perceived cost premiums, sought clarity around connection policies and the development of new NES areas Please provide the cost comparisons for various potential service alternatives that were provided to the stakeholders as part of the consultation. The consultation process for the development of the Vancouver Neighbourhood Energy Strategy did not examine cost comparisons between various potential service alternatives. The purpose of the consultation was to inform the geographical target areas of the city and overarching policy framework to guide future implementation of systems (i.e. the consultation was not intended to evaluate the merits of specific systems or technology approaches). One of the key consultation outcomes of the Neighbourhood Energy Strategy is established CoV policy to ensure that new systems have customer rates that are affordable and cost competitive with other low carbon sources of energy, such as BC Hydro electricity. Every district energy project is assessed on those merits according to that principle. 4.2 Please provide an estimate of the 'cost premiums about which the development community indicated concerns. As per the response in 4.1 above, the CoV did not include cost comparisons or estimates of neighbourhood energy services in the consultation process, because the purpose of the process was to inform the target areas and overarching policy framework for new systems (i.e. purpose was not to evaluate the merits of specific systems or technology approaches). Page 9 of 15

10 However, the CoV did receive questions from development community participants related to cost premiums associated with construction of a (1} hydronic heated building, and (2} the potential customer rates of the service. To address questions about costs, the CoV provided the following information: (1} Regarding cost premiums associated with hydronic heated buildings: it is generally true that a hydronic heated building currently costs more to construct than a building that uses a combination of electric resistance heating for suites and natural gas for ventilation and domestic hot water heating. However, the magnitude of the premium varies greatly depending upon developer experience, specific hydronic system selection, and type of construction. The premium is also evolving with experience, market offerings and other changes in codes and green building policies. However, regardless of whether or not a building is in a neighbourhood energy area, new buildings in Vancouver generally utilize hydronic heating systems. In some cases, developers do so because of explicit CoV mandates for hydronic systems that are intended to preserve flexibility in heating technologies going forward within long-lived building stock. But developers usually utilize such systems to achieve minimum energy efficiency performance to meet the CoV's green building and associated LEED certification requirements. For example, a building with a geo-exchange or air-source heat pump system also requires some form of hydronic system. Therefore, the neighbourhood energy system provides the developer with the opportunity to avoid the cost of the heat and hot water production equipment, reducing overall construction costs. (2} Regarding customer rates: The CoV acknowledged the need for customer rates to be affordable and cost-competitive with appropriate low-carbon benchmarks, factoring in flail-in" lifecycle costs of service. This principle is reflected in the Neighbourhood Energy Franchise Agreement for Northeast False Creek and Chinatown, which sets limits on customer rates. The City recognizes the role of the BC Utilities Commission in the regulation of rates to ensure fairness and transparency to customers. The CoV has also targeted areas of the city with high growth and high density since these areas are expected to benefit from cost-effective neighourhood energy solutions. Independently, the CoV has validated the general benefits of neighbourhood scale solutions in dense areas with new growth through screening prefeasibility studies it has undertaken, or developers have provided in response to rezoning submission requirements. These studies examine both site-scale low carbon solutions (e.g. geo-exchange, air-source heat pumps} and neighbourhood-scale approaches. Based on these studies, for high-density and growth areas, the CoV is confident in the cost-competitiveness of neighbourhood-scale systems to achieve low-carbon policy objectives. Going forward, based on the analysis and experience to date, the CoV has elected to use the approach of specifically targeted areas (including core and conditional areas with extension tests} coupled with cost caps as an expedient and resource-efficient approach to planning for neighbourhood energy. Page 10 of 15

11 4.3 What was the nature of the concerns around connection policies that required further clarification? Concerns were raised by some developer participants regarding the application of mandatory connection policies in areas where there is no existing Neighbourhood Energy System (e.g. Cambie corridor). There were also concerns raised regarding the cost of constructing neighbourhood energycompatible buildings with no system to connect to. In the Cambie Corridor, the timing of NES development was a concern. The CoV has undertaken competitive selection processes to identify the neighbourhood energy utility providers for the Downtown and Cambie Corridor areas. Subsequent to that, the City and the selected utility providers are undertaking feasibility study and implementation planning activities, in consultation with the developers in these areas. The outcome of these activities will provide clarity to developers in areas such as the Cambie corridor regarding availability of system to connect to, specific technologies used, updated connection policy (and related by-laws) and specific technical requirements for connection to systems. 4.4 Please provide an overview of the "responsibilities" for the NES in Vancouver. It is assumed that this question refers to the above DE Strategy consultation reference {{Clarity for the roles and responsibilities for NES in Vancouver is important". In 2011 and 2012, during initial neighbourhood energy strategy consultation, the specific roles and responsibilities for the neighbourhood energy utility provider had not yet been determined. Stakeholders requested that the CoV clarify the roles and responsibilities when implementing new neighbourhood energy systems, which CoV staff agreed to. The roles and responsibilities of the neighbourhood energy utility provider in Northeast False Creek and Chinatown are described in detail in the Neighbourhood Energy Agreement between the CoV and Creative Energy. A high-level summary of the responsibilities of the neighbourhood energy utility provider are as follows: To finance, construct, operate, maintain, and repair the energy utility system; To connect to, and supply heat to all new buildings in buildings in the Northeast False Creek area, and all new buildings economically feasible to serve in the Chinatown area; To undertake customer service, outreach and education on the utility services provided, and ensure technical integration between the utility and customer buildings; To seek appropriate approvals required by the BCUC in the development and operations of the utility; To implement a low-carbon energy supply in the franchise area by January 1, Page 11 of 15

12 5.0 Reference: CARBON REDUCTION RIDER Exhibit B-1, p. 77 (See Exhibit B-9- Creative Energy Response to CEC IR ) 5.1 Will the NES proceed in the absence of approval of the Carbon Reduction Rider? Please explain why or why not. CoV Response: The purpose of the Carbon Reduction Rider is to facilitate the transition to low carbon energy supply (referred to as "Phase 2" in the NEA}. The Carbon Reduction Rider establishes funding from the outset for a capital investment in the Phase 2 low carbon energy supply, and also serves to minimize the potential for rate shock transitioning from Phase 1 to Phase 2. If the Carbon Reduction Rider is not approved, CoV staff may seek direction from City Council on the appropriate action to take. CoV Staff will not speculate on what City Council will decide. Among the IRs to Creative Energy, some requested Creative Energy to comment on the significance of specific provisions in the Neighbourhood Energy Agreement, and the effect of conditions the Commission may attach to an approval, for example a condition that requires the Carbon Reduction Rider to be eliminated or the boundaries of the Franchise Area to be altered. The CoV will review its options if the Agreement is not approved or is approved with conditions. Page 12 of 15

13 6.0 Reference: CREATIVE ENERGY SUBMITTING BY-LAW UPDATES AND SCHEDULE 8 BCUC OVERSIGHT AND UTILITY RATES PAGES 7-8 (See Exhibit B-11- Creative Energy Response to FEIIR , and IR ) Because the rate structure and type of service of these energy providers vary, an "effective rate" is calculated for the purposes of comparison. This rate illustrates what customers will pay per megawatthour for heating. The preliminary estimated effective rate for the NEFC and Chinatown NES is $84 per MWh. This effective rate is lower than all of the other benchmarks listed/ with the exception of the existing Creative Energy Downtown steam system. This low cost is due to the very high development densities in NEFC, and the use of the established Creative Energy system for supply of initial heat to the new NES. TABLE 1. PROPOSED NEFC EFFECTIVE RATES, COMPARED TO OTHER PROVIDERS Energy Provider GHG Emission Intensity (kt C0 2 /MW.h) Estimat d Effective Rate 1 (SIMW.h) Year of Effective Rate Not s Fortis& (Nab.mll Gas) 220' $ Fuel costs, based on FortisBC lower Mainland Rate 3, with high efficiency boiler and factoring in conversion losses $39 per NW.h. Installation and replacement of bolter equipment plus maintenance.. $50 per NW.h. Total effe:tive cost $89 pernw.h Table 1 illustrates estimated Effective Rates for energy providers to deliver their respective fuel sources to customer buildings. "Effective Rate" is described in Exhibit B-2 as illustrative of what customers will pay. In the table/ an Effective Rate of $89/MWh is listed for FEI for natural gas provision to its customers. It is explained in the corresponding notes in Table 1 that $50/MWh of the estimated $89/MWh is attributed to "installation and replacement of boiler equipment plus maintenance." However, FEI neither installs nor replaces boilers for its customers. Installing and replacing boiler equipment is conducted by mechanical contractors and certified gas installers contracted by building owners and/or building developers. 6.1 How did the CoV arrive at this proposed rate (of $89)? The $89 figure is not a proposed rate. This figure is an estimated effective rate that incorporates all the up-front capital and operating costs for a typical multi-unit residential building in Southeast False Creek in the hypothetical case that it were served by 100% natural gas. The tables provided below describe how this figure was calculated. Page 13 of 15

14 Table of Key Assumptions Building floor area 10,000 m 2 Selected as a typical multi-unit residential building in Southeast False Creek Unit peak energy demand 48 W/m 2 Typical peak energy demand intensity factor for a intensity factor SEFC multi-unit residential building Unit annual energy demand 110 kwh/m2/yr Typical annual end use energy intensity factor for intensity factor [kwh/m2/yr] a SEFC multi-unit residential building Redundancy of natural gas 100% Typical for a mid-sized multi-unit residential boiler equipment capacity building to ensure reliable and continuous supply of heat and hot water year-round Installation capital cost per kw $500 The capital cost factor is a blanket input to collect of installed natural gas boiler all the central plant mechanical, electrical, and capacity architectural upgrades required for a building to produce heat and hot water by natural gas boilers, rather than be served by district energy. This includes a larger mechanical room, boiler flues, fire rated walls, gas supply, the cost of the boilers and associated mechanical equipment. Customer discount rate 8% Anticipated boiler life 25 years Boiler efficiency 85% Seasonal efficiency for a high efficiency natural gas boiler Annual maintenance cost 2% Percent of upfront capital costs as an estimate of factor average maintenance costs over the life of a boiler Summary Table of Calculated Building Parameters Peak building energy demand 480kW Annual energy used by building and produced by boilers 1095 MWh Annual volume of natural gas purchased 1288 MWh Boiler plant capital cost $480,000 Unit cost of natural gas (2014) $32.9 I MWh Summary Table of Annualized Costs Annual cost of natural gas $42,369 Annualized capital cost of boiler capacity (annual payment necessary on $45,000 the capital costs at discount rate to fully recover capital cost over 20 years) Annual maintenance cost $9,600 Total annual cost $96,969 Page 14 of 15

15 Summary Table of Effective Rate Cost of energy, factoring in natural gas cost and boiler efficiency Total capital and maintenance cost Effective Rate per MWh $38.7 /MWh $49.9 /MWh $88.6/ MWh For reference, for the Delta School District thermal energy system developed by FAES, an initial market rate of $89/MWh of heat supplied was established, based on the avoided cost of using conventional natural gas boilers at 19 different school facilities. This cost was mutually agreed to as accurate by the school district and FAES. Regardless, in consideration of City Council's established low carbon policy objectives for new developments, a (high-carbon) natural gas boiler system is not an appropriate benchmark for which to judge the rates of a low carbon system. The costs of low carbon heating are best compared to other low carbon benchmarks capable of achieving the City's carbon emission reduction policy objectives. These low carbon benchmarks include BC Hydro electricity, geo-exchange and air-source heat pump systems and other established low-carbon neighbourhood systems. 6.2 Please confirm that the CoV used the figure of $89/MWh for its recommendation to City Council that is appended to the Application. The CoV referenced this effective rate benchmark in the Council Report {{Neighbourhood Energy By-law for Northeast False Creek and Chinatown, along with benchmarks for other low-carbon and carbonintensive providers. As stated above in response to 6.2, this carbon-intensive natural gas boiler cost reference is not a benchmark for an energy source that complies with the CoV's greenhouse gas emission mandate, and, in CoV staffs opinion, was not material in the recommendation to Council to implement a neighbourhood energy by-law for Northeast False Creek. Page 15 of 15