Assessing Utility Mix Risks/Exposure UCD Training February 28, 2019

Risk Analysis Purpose To assess the potential long-term budget risks of future utility rate escalation Three areas of risk: Electricity prices Natural gas prices Carbon prices Rationale Balancing the utility mix will provide the ability to deal with potential future changes e.g. planning to replace all electric heating with gas heating equipment: carbon price and budget risk

Agenda Electricity e.g. policy change risk is a key driver Natural gas short-term volatility drivers e.g. weather Carbon prices e.g. policy – federal and provincial dynamic 2030 consensus that carbon needs to be US$100/tonne Water e.g. steadily increasing ~ 3 - 8% each year

Electricity Risk Policy Focus on reducing price Limited options for real reductions Potential changes to market rules like capacity markets Changing mix of nuclear generation Other Local electricity distributor delivery costs moving toward fixed rates (from volumetric rates) i.e. from current $/kWh per month to $ per month.

Electricity Projection Annual Change

Electricity Projection Cumulative Annual Change

Natural Gas Risk Market Prices remaining relatively steady for foreseeable future, however, weather and political events will lead to short-term volatility putting stress on budgets e.g. spiking when current weather forecasts are updated, pipeline delivery constraints, extreme weather, fracking

Natural Gas Projection Annual Change

Natural Gas Projection Cumulative Annual Change

Natural Gas + Carbon Risk Policy Federal government introduced carbon tax beginning April 2019 Will result in increase to all fossil fuel costs 2030 consensus that carbon price needs to be US$100/tonne

Natural Gas + Carbon Risk Carbon Tax vs Cap and Trade – Brief Background Ontario had a Cap and Trade program from 2017 to Sept 2018. This market-based system set a price on carbon based on auctions With the cancellation of the Cap and Trade system in the absence of an alternative pricing system for carbon, Ontario is subject to the federal Carbon Tax as of April 2019 A Carbon Tax puts a government-set price on a tonne of GHG emissions. In 2019 that is $20/tonne or about $0.039/m3 natural gas. The federal price will increase by $10/tonne per year to $50 by 2022

Gas + Carbon Projection Carbon price $20/tonne increasing to $130/tonne by 2030 Increases gas cost considerably Annual Change

Gas + Carbon Projection Cumulative Annual Change

Budget Impact Potential For the following slides of board tables, these unit costs were used: 1 excluding carbon cost Unit Cost $ 2019 2025 2030 Electricity 0.176/kWh 0.187/kWh 0.218/kWh Natural Gas1 0.21/m3 0.23/m3 0.27/m3

Budget Impact Potential Small Board Annual Electricity Consumption (kWh) Annual Electricity Cost ($) Annual Natural Gas Consumption (m3) Annual Gas Cost Total Annual Cost 10,000,000 $ 1,760,000 2,000,000 $ 420,000 $ 2,180,000 Year Electricity Cost ($/kWh) Natural Gas Cost ($/m3) Natural Gas + Carbon Cost Annual Electricity Cost ($) Annual Natural Gas Cost Annual Natural Gas + Carbon Cost Total Annual Cost (incl. Carbon) Cost Increase (%) Ratio Elec/Gas Cost 2019 0.18 0.21 0.25 1,757,633 414,600 492,800 2,250,433   4.2 2020 0.20 0.26 398,600 515,900 2,273,533 1% 4.4 2025 0.19 0.23 0.38 1,865,506 449,400 762,200 2,627,706 16% 2030 0.22 0.27 0.53 2,183,547 546,000 1,054,300 3,237,847 23% 4.0

Budget Impact Potential Medium Board Annual Electricity Consumption (kWh) Annual Electricity Cost ($) Annual Natural Gas Consumption (m3) Annual Gas Cost Total Annual Cost 25,000,000 $ 4,400,000 3,000,000 $ 630,000 $ 5,030,000 Year Electricity Cost ($/kWh) Natural Gas Cost ($/m3) Natural Gas + Carbon Cost Annual Electricity Cost ($) Annual Natural Gas Cost Annual Natural Gas + Carbon Cost Total Annual Cost (incl. Carbon) Cost Increase (%) Ratio Elec/Gas Cost 2019 0.18 0.21 0.25 4,394,081 621,900 739,200 5,133,281   7.1 2020 0.20 0.26 597,900 773,850 5,167,931 1% 7.3 2025 0.19 0.23 0.38 4,663,766 674,100 1,143,300 5,807,066 12% 6.9 2030 0.22 0.27 0.53 5,458,868 819,000 1,581,450 7,040,318 21% 6.7

Budget Impact Potential Large Board Annual Electricity Consumption (kWh) Annual Electricity Cost ($) Annual Natural Gas Consumption (m3) Annual Gas Cost Total Annual Cost 50,000,000 $ 8,800,000 10,000,000 $ 2,100,000 $ 10,900,000 Year Electricity Cost ($/kWh) Natural Gas Cost ($/m3) Natural Gas + Carbon Cost Annual Electricity Cost ($) Annual Natural Gas Cost Annual Natural Gas + Carbon Cost Total Annual Cost (incl. Carbon) Cost Increase (%) Ratio Elec/Gas Cost 2019 0.18 0.21 0.25 8,788,163 2,073,000 2,464,000 11,252,163   4.2 2020 0.20 0.26 1,993,000 2,579,500 11,367,663 1% 4.4 2025 0.19 0.23 0.38 9,327,532 2,247,000 3,811,000 13,138,532 16% 2030 0.22 0.27 0.53 10,917,736 2,730,000 5,271,500 16,189,236 23% 4.0

Forewarned is Forearmed Analyze your mix of electricity and gas intensities Scenario 1 Electricity: high Natural gas: low Which leaves you most vulnerable? How should this influence your energy efficient investment decisions? What activities should be prioritized to reduce costs and risks? Intensity Electricity Natural gas

Forewarned is Forearmed Analyze your mix of electricity and gas intensities Scenario 2 Electricity & Natural gas: similar intensity Which leaves you most vulnerable? How should this influence your energy efficient investment decisions? What activities should be prioritized to reduce costs and risks? Intensity Electricity Natural gas

Forewarned is Forearmed Analyze your mix of electricity and gas intensities Scenario 3 Electricity: low Natural gas: high Which leaves you most vulnerable? How should this influence your energy efficient investment decisions? What activities should be prioritized to reduce costs and risks? Intensity Electricity Natural gas

Water Risk Market Most municipalities have recognized that their water service infrastructure is underfunded Electricity costs are also increasing The result is increasing costs for water supply and sewage Rates are expected to increase at around 3 - 8% per year for the next several years for many municipalities e.g. City of Ottawa rates projected to rise 4.4 – 5.2% per year over the next 10 years

Assessing Utility Mix Risks/Exposure Send your questions to the UCD Help Desk Email: ucdb@aegent.ca Phone: (416) 622-9449 ext. 115