15th Real Property Institute of Canada C O N F E R E N C E JANUARY 29-31, 2003 OTTAWA CONGRESS CENTRE Modernization and Renewal: Federal Real Property, Careers and the Workplace Presentation by Edward Morofsky, PWGSC

Electricity Deregulation Options for Electricity Procurement Variable hourly price? Maybe Distributed Generation Managing Electrical Usage Summary and Conclusions

Procurement Policy - Pierre Adm, TBS Procurement - Raymond Carriere, PWGSC Procurement Options ftp://ftp.pwgsc.gc.ca/rpstech/Dereg/PWGSC%20Procurement%20Options.pdf Green Power Strategy ftp://ftp.pwgsc.gc.ca/rpstech/Dereg/GreenPower.pdf Hourly Prices at

Relying on the market price may be best bet Before you buy you must know: How much? When? Do you need it? What is your average cost? Profile? Meters in place?

Competitive electricity markets? 5 unique characteristics that frustrate the market Electricity can’t readily be stored : - generation and use must be matched - electricity spoils Electricity doesn’t travel well - “interstate” travel can double the price - high “shipping” losses (10% per 1000 km) Customer demand price inelastic Cost and complexity of generation limits suppliers Severe price volatility raises supplier risk premiums - Markets Monetize Risk

Ontario hourly prices in August up to 91 cents

August price frequency range and daily max, min and average

28 Aug 2002 through 03 Sep with a price spike of $1.02/kWh

Blue line is predicted price and green line is actual prices

Even a cold Saturday weekend can have relatively high hourly prices, 18 January 2003

Green bars show demand in kW and the black line indicates the hourly price. Average price is $0.045/kWh but the weighted price is $0.05/kWh

Accumulated hourly consumption of interval meters in Ottawa Consumption weighted by hourly price

Cut down on electricity purchases to become a smaller “target”: Demand Management Energy Efficiency Load Displacement Generation Reduce Your Exposure

Available Technologies Available Technologies Non-electrically driven cooling - desiccant cooling - absorption cooling Building controls electrical load shedding Energy efficient buildings HVAC Heat Pumps Distributed Generation Thermal Storage - ice or chilled water

Ontario Market Principles “The price of energy reflects the marginal electricity cost” “Market Participants should be compensated for the effects of constraints and actions that are under the control of the grid owners and the IMO.” Ontario’s physical delivery system didn’t change Pricing and payment systems are completely new

Electricity Price Average electricity (energy component) price in Ontario before deregulation was about 4.35 ¢/kWh now slightly above 5 ¢/kWh Compare with Alberta where “pool price” went from 2 ¢/kWh before market opening to 9 ¢/kWh in 2000 Greater spread between on peak and off peak prices.

Electricity Procurement The Six Options (requirements) 1. Standard Supply (the IMO and LDC take care of everything) 2. Competitive Retail Procurement (contracts with retailers) 3. Buy from IMO spot as a Wholesale Consumer (registration) 4. Buy from a Generator thru bilateral contracts (market savvy) 5. Bilateral contracts with non-generators (market savvy) 6. Self generate (risk capital or contracts with operators)

Standard Supply Service Available to all customers connected to distribution lines. SSS is a spot- market pass-through of the hourly Ontario electricity price (HOEP). The IMO, as the biggest “buyer” in Ontario, commands relatively good prices Small customers have the (old) indicating meters, monthly readings, and a “net system load shape” applied to their total energy use to yield a final bill Intermediate customers might decide to pay for the installation of hourly- interval meters, especially if their load shape is “better” than the default “NSLS” Large customers (>1000 kW) will be obligated to install hourly-interval meters ($1,000 to $2,000 each).

Standard Supply Service X X X = 750 = 600 = 450

Standard Supply Service Some aspects have hit large offices harder: The “Diversity Credit” better bulk rates for large customers has disappeared - about 1 cent/kWh lower Now everyone pays spot Untreated office load shapes (especially summer air conditioning) peak during the high-priced spot times

Competitive Retail Procurement Customers within an LDC can contract with an independent competitive Retailer for electricity. Your LDC will still meter and render an energy bill to your Retailer Your Retailer, in turn, will invoice you based on the particular terms of your contract Retailers will likely have their own long-term contracts with generators, and/or will trade in the market using various financial hedges, options, futures, etc.

Competitive Retail Procurement Some Retailers may offer fixed prices, or fixed time-of-use block rates to customers Forward fixed prices typically cost about 15% more than the expected spot price to cover the risk Retailer offers must be carefully compared (price, penalties, obligations, exit terms, etc.) If you’re large enough, you can write your own contract and tender it for competitive offers that meet your particular expected load profile

Matching Your Load to Blocks Competitive Retail Procurement

Generator Bilateral Contracts You can customize supply and pricing arrangements by contracting with individual generators You can choose to support certain types of generation Two kinds of contracts are possible: Physical Bilateral Contracts - Financial Bilateral Contracts IMO Registration private contracts: FUTURES

Efficiency & Cogeneration (Combined Heat and Power) Self Generation

Health Canada Lab Scarborough, 75 kW CHP

Self Generation Embedded generation in small sizes (under 1000 kW) is treated “lightly” under the new market regulations If generation competition is needed to keep prices down, large numbers of distributed or embedded generation sites can accomplish this task Traditional on-site generation is more expensive than central generation, but when useful heat is obtained too, efficiency rises, and costs and emissions fall Operate self generation to eliminate peak or spike charges

Self Generation Distributed Generation (DG) - small-scale, modular, power generation units located close to where the energy is used. Drivers: Electricity Price Volatility Environmental Concerns (Kyoto Protocol, Green Power Market) New Power Market Entrants (e.g. ESCOs) Higher Efficiency with on-site Cogeneration Power Quality Reliability of Supply Premium Power Applications Technology Development New DG Equipment Communications and Control Equipment

The Role of Renewables Some renewable energy sources that deliver on-peak (like solar) will compete more favourably with peak-time prices Ontario has mediocre wind resources, but good small hydro potential Contracts with renewable energy generators can stabilize long-term energy costs

Procurement Goals & Strategies Understand your building load shapes and analyze their effect on potential bills Rank your procurement goals: Lowest cost? Lowest risk? Reliability? Determine your range of financial risk tolerance Evaluate the trade-offs between different procurement choices: Price vs Risk Cost of altering load shapes Reliability and Services

Procurement Strategy Process Understand your load shapes and potential costs Data Rates Forecasts Core Supply Strategies Outline Energy Goals & Strategy Evaluate your Risk Profile Develop Portfolio Review all Purchase Alternatives Develop Preferred Supply Portfolio

Procurement Strategy Issues 1. Develop a strategy appropriate for your company’s goals 2. Set the benchmark for a “good deal” - what measure are you trying to beat? 3. Weigh contract length and exit clause because they can limit your future choices 4. Understand the financial implications for each party in each clause of the contract 5. Write your own contract (if you’re big enough)

Prepare to Shed Even if you’re not big enough to be a direct IMO market participant, you must be prepared to shed load during high-price hours. Install interval metering Watch “theIMO.com” Install Automatic Load Controls Practice “Curtailment Management” Don’t buy $1.00 kWhs!

Reduce Your Exposure Cut down on electricity purchases to become a smaller “target”: Demand Management Energy Efficiency Load Displacement Generation

National Gallery, 3 D

Aviation Museum Demand Profile

National Arts Centre

580 Booth, Peak Load Day

Conclusions Electricity Markets are volatile, Price Spikes will occur Electricity price predictability is gone Consumers must learn “price sensitivity” The hope is that with more generators, more dispatchable loads, more price sensitive consumers and less political interference markets will eventually lower prices Demand Management is the best investment