Project Green District Energy Feasibility Study - Partners in Project ...

TRCA Pearson Eco-Business Zone District Energy Feasibility Study 10 April 2012
This dynamic does not lend itself efficiently to applications for rate revisions, e.g. to a provincial
authority, which are more suitable for monopolies and rate applications that will affect many
customers, most of whom have low bargaining power.
In Canada, as far as we are aware, the only provincial rate regulator with jurisdiction over DE is
the B.C. Utilities Commission. Even in BC, city owned utilities are self-regulated.
There are a few cases known to FVB where DE companies have lost control of rates, e.g.
where a customer or customers have significant local political influence. The results include
inequitable treatment of other customers and a weakened financial position for the DE provider
leading to little or no expansion and therefore sub-optimal achievement of associated
community goals such as energy self-sufficiency, sustainability and economic development.
One approach that can reduce this risk would be to establish a corporate governance structure
for the DES early in the development process (i.e. ideally prior to the need to negotiate
customer contracts). This would provide management with legal rights to support the decisions
that the business needs to make, specifically buying and selling of energy, and price setting.
Creating such a corporate structure allows for the development of a financially healthy DES.
Energy Commodity Prices
Energy commodity prices are usually of the utmost concern to a DE company from the
perspectives of both input costs and customer avoided costs (which affect revenue possibilities).
Over the 20 year life of a typical DE customer contract, both the input energy costs and the
avoided customer energy commodity costs may be the largest components of system costs on
one side and revenue on the other. These costs are unpredictable and can be volatile.
The most commonly used and effective energy commodity price risk mitigation measure is to
adopt a price formula that “passes through” input energy costs to the customers. In many
cases, the customers will still enjoy some mitigation of commodity risk because the DES is more
efficient, using less energy to provide the required thermal energy needed for heating and/or
cooling.
As discussed in the section on Contracts and Pricing, a Two Part Rate, consisting of a Capacity
Charge and an Energy Charge, with the Energy Charge tied to input commodity costs, will
protect the DE Company from commodity risk.
The other major commodity price risk mitigation strategy is to invest in more efficient and
renewable energy technologies that minimize dependence on energy commodities. This is
something that a DES can do on behalf of a whole community more effectively than could
individual building owners due to economies of scale and site issues.
For natural gas, commodity price risk mitigation together with many other factors relating to
minimization of delivery and storage costs would be managed better by a DES to the extent that
economies of scale warrant more management attention, including employment of gas
consultants.
For electricity, there is usually less scope for supply management but sometimes scope for
demand management. Again, the economies of scale of a district wide system may better
justify demand management systems.
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