February 2, 2015 Honourable Robert R. McLeod Premier, Government of the Northwest Territories P.O. Box 1320 Yellowknife, NT X1A 2L9 Dear Sir: Re: 2014 Northwest Territories Energy Charrette Report released December 22, 2014 Thank you for the opportunity to provide comments on the 2014 Northwest Territories Energy Charrette Report. Northland Utilities Enterprises ( Northland Utilities ) wishes to take this time to: A. Correct public misinformation about Northland Utilities operations and rates arising from comments made at the 2014 Energy Charrette and in follow-up media stories; B. Recommend amendments to the way some electric utility industry costs are allocated to customers in effort to create greater rate equity throughout the Northwest Territories; and C. Propose solutions to lower electricity costs for all customers in the Northwest Territories through mutually beneficial three-way public, private and Aboriginal partnerships and initiatives. All of the recommendations offered in this response support the Government of Northwest Territories (GNWT) vision for an efficient, affordable and equitable electricity system and many of the principles outlined in the 2010 report, Efficient, Affordable and Equitable: Creating a Brighter Future for the Northwest Territories Electricity System, including: Residents and businesses should have a comparable level of access to affordable electricity; Affordable electricity is best achieved through energy conservation and an efficient electricity system that utilizes local sources of energy for electricity generation; Development of energy resources is best done in partnership with Aboriginal organizations; and Electricity rates should be established through a transparent public process. Northland Utilities has provided electricity services in the Northwest Territories (NWT) for more than 60 years. Our continued significant capital investment in the NWT s electrical system and our prudent business operations demonstrate our commitment to deliver safe, reliable and cost-effective power to residents and businesses in the NWT. Aboriginal ownership in our organization, through Denendeh Investments Incorporated which represents the 27 Dene First Nations, has been in place for more than 30 years and the Denendeh are currently in the process of further expanding their ownership share. This relationship is a proven business model for private and Aboriginal partnerships and offers an established venue for continued Aboriginal investment in the development of the NWT s energy resources. As a regulated utility, our costs and rates are tested through an arms-length, transparent public process administered by the Public Utilities Board. Northland Utilities has a deep commitment to the North and would like to discuss opportunities to continue to grow and contribute to continuous improvement in electricity costs and services in the Northwest Territories. We welcome the opportunity to speak to you, members of Cabinet, other elected officials and/or the public about this response in more detail upon request. Sincerely, R.L. (Bobbi) Lambright President Northland Utilities Enterprises Darrell Beaulieu Director, Northland Utilities Enterprises Chief Executive Officer, Denendeh Investments Incorporated Cc: Members of the 17th Legislative Assembly of the Northwest Territories; Dene Nation Grand Chiefs and Executive; Northwest Territories First Nation Chiefs, Band Managers and Senior Administrative Officers; Town of Hay River Mayor and Council.
1 Northland Utilities Response to 2014 Energy Charrette Report February 2, 2015 A. Correction of Public Misinformation Regarding Northland Utilities Rates and Operations During the 2014 Energy Charrette, misinformation about Northland Utilities treatment of Northwest Territories Power Corporation (NTPC) purchase power costs was shared with the audience. An event speaker asked: Is it acceptable (for Northlands) to purchase wholesale power at 9.8 cents (per kilowatt/hour) and resell it at more than triple the price at 34 cents (per kilowatt/hour)? Similar statements, attributed primarily to the same speaker, later appeared in Northern News Services, The Yellowknifer, Hay River Hub, Northern Journal and CBC Radio. To correct the record, Northland Utilities does not mark up the cost of purchasing power from Northwest Territories Power Corporation (NTPC) to resell it to customers. In situations where Northland Utilities purchases power from NTPC, that cost flows through to consumers at the same price paid by Northland Utilities to NTPC. Final rates to all customers, whether served by NTPC or Northland Utilities, include the power cost plus additional costs associated with delivery such as transmission, distribution and billing charges. All Northland Utilities charges are reviewed and approved by the GNWT s Public Utilities Board. Northland Utilities rates cover the following services in the communities we serve: Building, operating and maintaining the electric distribution system Operating and maintaining generation facilities (base-load and standby) and where applicable, transmission services Metering, meter reading, customer billing, services and administration 24-hour response to emergencies and power outages Communities also have the ability to collect franchise fees from their residents. The City of Yellowknife and the Town of Hay River, for example, set franchise fees that Northland Utilities collects on the Yellowknife and Hay River electric utility bills. Franchise fees are paid in full to the community, without additional markup or fees to Northland Utilities. As a regulated utility, Northland Utilities is allowed to earn a rate of return, set by the Public Utilities Board, on the electric utility assets it has in service in the Northwest Territories. All other costs are flow through and are also subject to full testing and approval in the regulated process. B. Proposed Cost Allocation Changes to Improve Rate Equity In the May 2010 GNWT report, Efficient, Fair and Equitable: Creating a Brighter Future for the Northwest Territories Electricity System, the GNWT outlined its vision for safe, reliable and affordable electricity and committed to provide an efficient, affordable and equitable electricity system for all of the businesses and residents in the Northwest Territories. While much has been done by the GNWT in effort to provide affordable and equitable rates to residents and businesses throughout the Territory, Northland Utilities believes that rate inequity still exists. Northland Utilities recommends the following actions be taken to create greater equity: 1. All hydroelectric generation and transmission costs related to the Taltson system be shared equally by Northland Utilities and NTPC customers served by the Taltson hydroelectric generation facility. 2. Allow the Public Utilities Board to conduct a public, transparent process to determine a full cost of service for NTPC including an allocation basis that follows cost causation for NTPC s headquarter and general operational costs.
2 Northland Utilities Response to 2014 Energy Charrette Report February 2, 2015 Recommendation #1: All hydroelectric generation and transmission costs related to the Taltson Hydroelectric Facility be shared equally by Northland Utilities and NTPC customers served by the Taltson hydroelectric generation facility. One of the key actions outlined by the GNWT in its 2010 report was to eliminate community-based rates and develop seven rate zones (NTPC Thermal, NTPC Normal Wells, NTPC Taltson, NTPC Snare, NUL (NWT) Thermal, NUL (NWT) Hydro and NUL (YK)). While this action has helped to lower electricity rates for some residents and businesses, Northland Utilities believes that in order for the GNWT to fully achieve it vision of an efficient, affordable and equitable electricity system and for residents and businesses to have a comparable level of access to affordable electricity services, the GNWT needs to further refine the NTPC Taltson and NUL (NWT) Hydro rate zones. All customers served by the Taltson hydroelectric generation facility, regardless of whether they are served by Northland Utilities or NTPC, should equally share and pay for all hydroelectric generation and all transmission costs related to the Taltson system. As the rates are currently designed, Northland Utilities customers who pay the NUL (NWT) Hydro rate pay a significantly higher portion of transmission costs as compared to NTPC customers who pay the NTPC Taltson rate. Northland Utilities customers pay the entire cost of the Northland Utilities owned transmission line from the Pine Point substation to Hay River. These customers also pay a share of the transmission facilities owned by NTPC. On the other hand, NTPC customers only pay for the NTPC owned transmission system in the area. This effectively penalizes customers based on the distance they are located from the generation source, contrary to the principle of a rate zone. The principle of allocating transmission costs to all customers regardless of their distance from generation is currently practiced by NTPC within their NTPC Talston rate zone. For example, NTPC customers in Fort Smith pay for a share of all NTPC owned transmission facilities in the area even though they do not use the portion of line from Fort Smith to the Pine Point substation. To create more fair and equitable NTPC Taltson and NUL (NWT) Hydro rates, NTPC customers should pay a fair share of the Northland Utilities owned transmission line from Pine Point to Hay River. To do otherwise is inconsistent and unfair. The May 2010 report states that separate rate zones are required in the Taltson region as it avoids the need for complex (and possibly contentious) inter-utility cash settlement mechanisms. This matter has been successfully addressed in other jurisdictions while still achieving overall rate equity. For example, in Alberta, regulated transmission costs from four separate utilities are subject to a cost averaging mechanism that creates equitable rates for all consumers benefiting from this infrastructure backbone. By taking this approach, all customers pay the same for transmission regardless of the distance they live from generation facilities. The current GNWT model places a higher cost burden on those customers that live further from generation. Recommendation #2: Allow the Public Utilities Board to conduct a public, transparent process to determine a full cost of service for NTPC including an allocation basis that follows cost causation for NTPC s headquarter and general operational costs. Another action taken by the GNWT in 2010 to create efficient, affordable and equitable electricity system was to allocate NTPC s headquarter and general operational costs to all customers in the NWT on the basis of energy. Although the Public Utilities Board (PUB) did review and partially replace this directive, Northland Utilities believes the execution of this directive has not achieved it original purpose and has instead led to greater inequity in rates across the Territory. Two of the largest communities served by hydroelectricity are served by Northland Utilities, not NTPC. In addition to paying 100% of Northland Utilities headquarter costs, these customers must also pay a significant share of NTPC s headquarter and general operational costs.
3 Northland Utilities Response to 2014 Energy Charrette Report February 2, 2015 Utility headquarter and general operational costs are incurred to support the primary generation, back-up generation, transmission and distribution activities of each respective company. The PUB ruled that NTPC should identify the head office and general operational costs related to distribution and exclude those costs from the allocation of the remainder of head office and general operational costs to customers on the basis of energy. Only NTPC customers would then be allocated distribution related head office and general operational costs. Two problems remain with this allocation. First, the NTPC determination of distribution related head office and general operational costs was done on a best effort basis in 2010 (Decision 16-2010) with very little additional evidence presented in NTPC s compliance filing or in its application for final rates in 2011 to validate the costs or allocation to customers. In a letter dated February 16, 2011 to the PUB, NTPC states that it will revisit the identification and allocation of direct distribution costs at the time of its next Phase II Application. Four years later, NTPC still has not filed a Phase II Application to validate these costs or the appropriate allocation to customers. Second, NTPC head office and general operational costs related to standby generation should also have been excluded from costs allocated to Northland Utilities customers paying the NUL (NWT) Hydro rate. Northland Utilities provides standby generation services to these customers, not NTPC. Headquarter and general operational costs incurred by Northland Utilities to provide standby generation to these customers are already included in their rates. Allocating similar NTPC charges on top of the charges Northland Utilities customers pay for headquarter and general operational costs related to standby generation is neither fair nor reasonable. NTPC has been directed by the PUB to file a Phase II GRA filing by May of 2015. The testing of this application, including a full cost of service study, should be required to address this allocation issue as well as the revenue to costs ratio for each rate zone. Allowing revenue to cost ratios to go untested, as has been the case for well over a decade, may lead to inequality of rates between neighboring communities. As well, requiring NTPC to complete a full cost of service study directly supports the sixth principle outlined in the GNWT s May 2010 report, Electricity rates should be established through a transparent public process. C. Proposed Solutions for Lower Electricity Costs (Through mutually beneficial three-way public, private and Aboriginal partnerships and initiatives) Participants at the 2014 Energy Charrette identified Affordability as the number one energy planning objective, with Environment, Economy and Energy Security closely following. Participants also made several suggestions to increase the involvement of the private sector and to develop mechanisms that would provide opportunities for community governments, Aboriginal development corporations and residents to participate in ownership of local and regional energy projects. Northland Utilities believes it is best-positioned to support the Government of the Northwest Territories achieve these objectives through the implementation of four initiatives in the Northwest Territories and a partnership model that includes government, Aboriginal communities and private investment. As co-owners of Northland Utilities, ATCO Ltd. and Denendeh Investments Incorporated (DII) share equal interest in the responsible and sustainable development of NWT s electricity system. ATCO Ltd. is considered one of Canada s premier organizations with assets exceeding $18.0 billion, access to private capital investment and A+ credit rating, and more than 100 years of experience of prudent project management and building, operating and maintaining safe, reliable and profitable electrical systems. Denendeh Investments Incorporated represents the 27 Dene First Nations in the NWT and was created to hold for-profit investments made collectively by the Dene First Nations. Northland Utilities proposes the following initiatives to lower electricity rates for NWT consumers, decrease reliance on diesel, increase investment and use of renewable green electricity, and create new markets for NWT electricity. 1. Conversion of diesel generators to Liquefied Natural Gas (LNG) or bi-fuel The introduction of LNG or bi-fuel generators in some thermal communities (e.g., Fort Providence) has the potential to offer an interim solution for communities looking to transition from diesel to hydro. It provides an opportunity for communities to utilize lower cost energy sources while longer term transmission infrastructure can
4 Northland Utilities Response to 2014 Energy Charrette Report February 2, 2015 be built to connect the community to hydro. Having LNG facilities in a community requires all-weather road access, one reason why LNG may not be suitable in all communities. Development of LNG storage facilities do, however, create opportunities for a piped gas system to be established and used right-away or at a later date for home and business heating. A feasibility study looking at the economic benefits and feasibility of LNG in different communities in the NWT is required to understand the full economic benefits of these initiatives. 2. Biomass District Heat Continue to investigate the feasibility of using biomass in localized district energy systems for use as a source of heat in homes and buildings. 3. Community-Based Renewable Energy Generation Continue to explore community-based generation opportunities that use renewable energy technologies such as hydrokinetic and wind energy. Work with Aboriginal partners to identify and invest in solutions that are economically and technically feasible to lessen community reliance on diesel. 4. Development of Northern Hydroelectric Generation Advancing development of new large scale hydroelectric generation in the NWT through a GNWT/ATCO/Aboriginal joint venture provides significant opportunities to reduce energy costs in the Territory over the long term. In response to the Government of Canada s directive to phase out coal-fired generation, Canadian markets continue to seek emission-free reliable sources of base-load energy to replace electricity currently produced by coal. Development of hydroelectric generation in the NWT provides a sustainable source of clean energy for export to southern Canada and allows for a diversification in the fuel mix of future electric generation. The GNWT s share of the profits from the sale of hydroelectricity can be utilized to further reduce the cost of energy in the NWT. Developing hydro and selling surplus capacity to other markets has been a successful strategy in a number of other Canadian jurisdictions including British Columbia, Manitoba and Quebec. 5. Continuous focus on cost efficiency and productivity improvements In order to deliver value to its shareowners and drive down cost to consumers, Northland Utilities is highly motivated to continuously focus on opportunities to increase efficiency and improve operations. The company has access to highly skilled industry expertise and established processes and technology through its relationship with ATCO Ltd., a benefit that flows through to its customers at a much lower cost than would be required if it was solely dependent on external consultants and resources to supplement its northern teams for special initiatives and projects. Northland Utilities is open to discussion with the GNWT government on a wide range of future opportunities for cost efficiency and streamlining and remains committed to delivering safe, reliable and cost effective service to its customers.