Topic:"Cost Considerations" in M03413

Why do this project? The Nova Scotia Renewable Energy Standard (RES) requires that by 2011, 5 percent of Nova Scotia Power Inc:s energy sales will be supplied using renewable energy sources constructed after 2001. In 2013, the RES increase...

AI summary The RES mandates 5% (2011) and 10% (2013) renewable energy from post-2001 sources. This wind project, confirmed via the 2007 Renewables Solicitation, aligns with NSPI's interests and offers lower costs under the proposed ownership structure than the Original PPA.

5.3 Interconnection Costs - (a) Subject to section 5.3(d), the costs of interconnecting the Facility to the System are the responsibility of the Seller. Such costs comprise all costs incurred by NSPI (as computed in accordance with the nor...

AI summary Section 5.3 outlines that the Seller bears interconnection costs for connecting a Facility to the System, including studies, equipment, and system modifications. Costs are split into Facility Side (Seller-owned equipment) and System Side (NSPI-managed upgrades). NSPI may assume costs, triggering Energy Rate adjustments via section 13.4 if agreement cannot be reached.

"DEVELOPER" means 3240384 Nova Scotia Limited. "Direct Cost" means CONTRACTOR's documented and reasonable cost of material, equipment, labour, labour benefits, overhead associated with direct labour, and costs and expenses of Subcontractor...

AI summary The definition of 'Direct Cost' includes documented and reasonable expenses for materials, equipment, labor, benefits, overhead, and subcontractors, explicitly excluding profit and general administration. The term is defined by the DEVELOPER, 3240384 Nova Scotia Limited, in the context of contractual obligations.

3 Please provide the computation of each of the labour AO values for each of the four Digby

AI summary The text requests the computation of labour AO values for each of the four Digby entries, indicating a focus on detailed labour cost analysis within a regulatory proceeding context.

GENERAL - 01 Overhead expenses are integral costs associated with the construction of capital assets. Generally accepted accounting principles state that the cost of a capital asset not only includes direct construction or development cost...

AI summary Overhead costs for capital projects are allocated based on direct labour costs, per a 1982 Public Utilities Board ruling and subsequent UARB approvals. This method ensures fair distribution of overhead expenses across projects.

10 Shared Services Division Eligible Overhead Expenses and rates are calculated for each Shared Services Division deemed to have capital related labour and expenses. These eligible expenses include, but are not limited to, office supplies,...

AI summary The Shared Services Division's eligible overhead expenses, including office supplies, training, and rent, are calculated for divisions with capital-related labor and expenses. These expenses are part of determining rates for the division.

APPLICATION OF ADMINISTRATIVE OVERHEAD (CONTRACTED ASSETS) - 6235 12 The double application of the self-constructed overhead costs is avoided by applying the selfconstructed rate to the Eligible Overhead Expenses determined above and then...

AI summary The text explains a method to avoid double-counting self-constructed overhead costs by applying a self-constructed rate to eligible overhead expenses and then reducing those expenses by the calculated result, ensuring accurate cost allocation in the administrative overhead application process.

APPLICATION OF OVERHEAD 15 The overhead charged to a particular project is determined by multiplying the contract costs charged to the project by the overhead application rate related to the appropriate division. The charge is debited to a...

AI summary The overhead for a project is calculated by multiplying contract costs by the division-specific overhead application rate. This results in a debit to Capital Work Order and a credit to general ledger account 095 - Construction Overhead, which is categorized under Operating, Maintenance and General Expenses.

POLICY 04 The Company should apply "Capital-related Overhead Expenses" to capital projects based on the direct labour costs charged to those projects

AI summary The Company is advised to allocate 'Capital-related Overhead Expenses' to capital projects based on direct labour costs associated with those projects, ensuring accurate cost attribution.

IDENTIFICATION OF DIVISIONS 05 The first step in the application of overhead costs to capital projects is the disaggregation of NSPI's Annual Capital Expenditure Plan (ACE Plan) into several broad areas of responsibility with similar proje...

AI summary The document outlines the initial step in allocating overhead costs to capital projects by disaggregating NSPI's Annual Capital Expenditure Plan (ACE Plan) into three divisions: Customer Operations, Power Production, and Shared Services, each with similar project types and overhead expenses.

10 HEAD OFFICE RENT Head Office rent is allocated to the three operating divisions based on the square footage occupied by each division.

AI summary Head Office rent is distributed among three operating divisions according to the square footage each occupies, reflecting a method of cost allocation based on physical space utilization.

CALCULATION OF OVERHEAD APPLICATION RATE 12 Once the Capital-related Overhead Expenses have been determined, the overhead application rate can be calculated. The application rate is simply the quotient, expressed as a percentage, of the Ca...

AI summary The overhead application rate is calculated by dividing Capital-related Overhead Expenses by capital labour costs, expressed as a percentage. Separate calculations are conducted for each division after determining the overhead expenses.

APPLICATION OF OVERHEAD 14 The overhead charged to a particular project is determined by multiplying the labour costs charged to the project by the overhead application rate. The charge is debited to a Capital Work Order while the credit i...

AI summary Overhead is calculated by multiplying project labor costs by the overhead application rate, with charges debited to Capital Work Orders and credited to specific general ledger accounts (095 and 092) under Operating, Maintenance, and General Expenses.

NON-CONFIDENTIAL 1 Request IR-8: 2 3 Were any overheads included in the costs of any of the four Digby projects in Appendix 2 4 computed differently for costs incurred by 324 NSL than for costs incurred by NSPI? 5 6 (a) Please explain and...

AI summary The proceeding addresses whether administrative overhead (AO) rates for NSPI's Digby projects differ from those of 324 NSL. The response clarifies that AO rates in Appendix 2 are specific to NSPI and not allocated to 324 NSL costs, indicating no overhead inclusion for the latter.

Renewable energy continued from / CL will be provided in January Some wind developers have ated electricity. The utility pays submit a price to be paid for the complained about the price NSP 6.5 to 7.2 cents per kilowatt hour. Mr. Tedesco...

AI summary Nova Scotia Power Inc. (NSP) faces challenges meeting renewable energy targets, with environmental groups urging legislative action. NSP warns of increased costs to comply with proposed regulations, estimating over $1.1 billion for new wind turbines. A bid by Scotian WindField Partners Corp. for 130 MW of renewable energy was rejected, while NSP highlights progress in adding 60 MW of renewable capacity.

7. PPA Annual Payment If all of the projects in the Recommended Group (a total of about 240 MW) are successful, NSPl's annual payments under the PPA's will total approximately $70 million. These payments will continue for the term of the P...

AI summary If all 240 MW of the Recommended Group projects are successful, NSPI's annual PPA payments will total ~$70M, reducing fuel costs but increasing capital charges. The net impact on revenue requirements could raise or lower customer rates. The Integrated Resource Plan prioritizes DSM and renewables, but wind integration may face technical/economic limits.

ificantly reduced because of recent changes in the financial and equipment supply markets as well as our inventory level of turbines. It is our intention to pass these savings on to Nova Scotia Power. I would be interested to meet with you...

AI summary SkyPower Corp. reports significant cost reductions due to market and inventory changes, intending to pass these savings to Nova Scotia Power. The letter proposes a meeting to discuss proposals, selection criteria, and potential immediate price reductions for NSPI.

$250.00 $200.00 $150.00 $100.00 $50.00 millions of dollars Estimated Cost of Imported Coal Used to Produce Electricity in Nova Scotia 2003 2004 2005 2006 2007 2008 Please note that prices are based on blended prices from multiple suppliers...

AI summary The text highlights rising costs and environmental harms of imported coal in Nova Scotia, emphasizing pollution, climate change impacts, and economic vulnerability. It outlines the Renewable Electricity Plan as a strategy to transition to renewable energy, improve affordability, and address environmental challenges, citing the Wheeler Report's recommendations.

Costs and Benefits he transition from imported fuels to renewable electricity and cleaner local fuels will increase power bills in the short term, but offer lower and more stable rates in the long run. Not making this transition would shac...

AI summary Transitioning to renewable energy increases short-term costs but offers long-term affordability and stability. NSPI's IRP studies confirm that renewable energy and efficiency measures are the least-cost options. Current DSM programs and future Efficiency Nova Scotia initiatives will offset some cost increases, though bills may rise 1-2% annually.

NON-CONFIDENTIAL 1 Request IR-8: 26 (iv) Please refer to Confidential Attachment 1. These are NSPI OM&G costs and, as 27 such, 324 NSL will not be paid for any of the costs. 1 Response IR-10: (cont'd)

AI summary The text references a request and response related to NSPI OM&G costs, indicating that 324 NSL will not be paid for any of these costs. The details are contained in a confidential attachment.

NON-CONFIDENTIAL 1 Request IR-11: 24 able to deliver energy as early as January 1, the full 2011 25 production from the Project would be able to count toward NSPI's 26 RES obligations. Having Guaranteed Substantial Completion by 27 Decembe...

AI summary The discussion revolves around the benefits of early completion of the Digby Wind Project, including meeting Renewable Energy Standards (RES) obligations, ensuring maximum energy delivery during winter months, and reducing AFUDC costs. Early completion is seen as beneficial for customers and project efficiency.

Failures that occur in the initial period are covered by the manufacturer's warranty. The low-rate of failure that occurs during the useful life period is covered by the O&M arrangements that are in the annual forecast. The budget for sust...

AI summary The text discusses the coverage of turbine failures during different periods, noting that initial failures are covered by warranties, while wear-out failures in the last five years of a turbine's 20-year design life are addressed through O&M arrangements and sustaining capital. Data on older large turbines is limited, and the estimate for sustaining capital is based on industry discussions and experience.

- .1 stantial completion of the work. - .2 (6) months following delivery to the Place of the Installation. - .2 Owner, through the Engineer, shall promptly give the Vendor notice in writing of observed defects and deficiencies that occur d...

AI summary The text outlines warranty obligations and factory test requirements for electrical equipment, including procedures for reporting defects, correcting issues, and assigning warranties. It also specifies testing standards for circuit breakers, current transformers, and bushings.

- .2 CSA Standards - .1 C156.1, Ceramic and Glass Station Post Insulators - .2 G164, Hot Dipped Galvanized or Irregularly Shaped Articles - .3 W59, Welded Steel Construction (metal-ark welding) - .3 NEMA Standards - .1 Std. SG-6, Power Swi...

AI summary This document outlines the standards and submittal requirements for electrical components, including CSA, NEMA, ANSI/IEEE, and ISO standards, as well as specifications for operation and maintenance data and manufacturer drawings for disconnect switches.

9 IN-PLANT INSPECTION AND TESTING - 9.1 The Owner, Purchaser, Engineer, and/or their authorized agents shall have the privilege of inspecting and witnessing all testing at all times during the manufacture of the equipment or materials orde...

AI summary This section outlines the requirements for in-plant inspection and testing during equipment manufacturing, including the right to inspect, advance notice requirements, and the submission of test results to the Engineer.

- .8 Formwork: - .1 Forms: to CSA-A23.1, plywood and lumber, clean and free of loose knots, splits or metal. - .2 Form Ties: to CSA-A23.1, removable or snap-off metal ties, fixed or adjustable length. Form ties, tie wire, spacers or other...

AI summary The text outlines specifications for formwork and concrete mix, referencing various Canadian standards and testing methods. It details requirements for materials such as form ties, release agents, and curing compounds, as well as specifications for concrete mix proportions and air content.

- 7.7 Additional requirements shall apply to all "Large Transactions" with affiliates, which consist of those that meet the following criteria: - (a) One-time transactions with a value of$500,000 or more; - (b) Periodic, related transactio...

AI summary The text outlines requirements for 'Large Transactions' involving Nova Scotia Power Inc. (NSPI) and its affiliates, including definitions of what constitutes a large transaction and detailed procedures NSPI must follow, such as cost analyses and documentation of third-party solicitations.

[62] The CA questioned the contract price paid to EUS: We can only speculate as to how the original price was obtained for the contract. It is not probable that EUS and Emera did any negotiating. It certainly was not the situation of two u...

AI summary The CA questioned the contract price paid to EUS, suggesting it was based on an engineering analysis rather than competitive bidding. The CA argued that the EUS contract did not meet the Code's requirement for being the best available option for NSPI customers. Additionally, the timing of the bonus payment to EUS was also questioned.

Submissions - Intervenors [89] The CA argued that there was a failure on the part of NSPI to determine that the EUS contract was the best option available. He submitted: According to the evidence, EUS must have begun work by either the end...

AI summary The CA argues that NSPI failed to properly evaluate the EUS contract, which was selected without proper negotiation and based on a price picked from the market range. The CA also claims that NSPI did not investigate whether the contract price could be reduced and did not confirm that the EUS price excluded markups by EUS on subcontractor charges.

on't have the opportunity. The next project that comes along will be buying turbines, not out of the bankruptcy process at a discount but in a competitive market at market prices which are increasing. So we believe that there was a reason,...

AI summary The speaker defends the reasonableness of a renewable energy project's price, citing its low cost and the benefits of financing and tax credits. They acknowledge the Board's concerns about affiliate transactions but argue that the project's price is the lowest among similar agreements and justifies the investment for customers.

VI SUMMARY OF FINDINGS [161] In general, the Board finds that the acquisition of the DWP by NSPI from 324 NSL is necessary, subject to a disallowance of a $1 million bonus payment to EUS due to non-compliance with the Code and inadequate e...

AI summary The Board finds that the acquisition of the DWP by NSPI from 324 NSL is necessary, despite non-compliance with the Code in certain aspects. A $1 million bonus payment to EUS is disallowed, and construction costs are reduced. The Board also accepts the economic analysis provided by NSPI and finds the transmission interconnection contract with EUS acceptable.

Appendix 2 – Capital Application Approval Sheets (Cost details page) The specific cost per turbine is confidential according to an agreement with the supplier. The construction cost information is also confidential. The protection of this...

AI summary The specific cost per turbine and construction cost information are confidential due to agreements with suppliers. This confidentiality is essential for NSPI to negotiate favorable terms for customers, as customer rates are based on costs. A redacted version of the information is provided.

NON-CONFIDENTIAL 1 Request IR-5: 2 3 Please explain the meaning of the abbreviation "COPS" in Appendix 2. 4 5 Request IR-6: 6 7 Please explain the nature of the "Thermal & Hydro Contracts AO" in Appendix 2. 8 9 a. overheads, or something e...

AI summary This document contains a series of requests related to the explanation of abbreviations, the nature and derivation of specific cost allocations, and the approval status of methods used in financial calculations for the Digby Wind Project and related projects. The requests focus on overhead allocations, cost computations, and regulatory approvals.

NON-CONFIDENTIAL 1 Undertaking U-2: 2 3 Inquire whether the cost of work performed by subcontractors was subject to a mark-up 4 by EUS. 5 6 Response U-2: 7 8 NSPI has been advised that EUS did not mark-up specific subcontracts. EUS' overal...

AI summary The response to Undertaking U-2 indicates that EUS did not apply a mark-up to specific subcontracts, though their overall pricing accounts for the risk and effort involved in managing subcontractors.

NON-CONFIDENTIAL 1 Undertaking U-3: 2 3 Inquire whether NSL, Emera, or anyone followed up on the suggestion referenced in CA 4 IR 3, CONFIDENTIAL Attachment 1 that doing a comprehensive value engineering 5 analysis would likely result in a...

AI summary The document discusses a follow-up on a suggestion for a comprehensive value engineering analysis, which led to a significant reduction in construction costs for a project. NSPI confirmed that NSL conducted this analysis through CBCL, resulting in lower costs than initial tender responses.

NON-CONFIDENTIAL 1 Undertaking U-8: 2 3 Provide a comparison of the achieved cost in the O&M contract with the embedded cost in 4 the financial model and advise if it affects the application in any way. 5 6 Response U-8: 7 8 Please refer t...

AI summary NSPI provided a response to Undertaking U-8, comparing the achieved O&M contract costs with the embedded financial model costs. The updated contract, signed in November 2010, has lower costs than originally forecast, increasing the project's NPV by $1.5 million and reducing the levelized cost by $1.79/MWh.

1 Undertaking U-12: 2 3 IN CAMERA - Redo analysis using XXXX MWh of annual production and using a 4 midpoint which NSPI can choose. 5 6 Response U-12: 7 8 In the table below NSPI is providing an update to the economic analysis filing to re...

AI summary NSPI provides an updated economic analysis filing reflecting updated O&M costs, construction costs, and PPA pricing, noting that construction is now complete and costs are at least $2.0 million lower than initially anticipated.

REDACTED 1 Response U-12: (cont'd) 2 3 In addition, NSPI updated the above sensitivities to reflect the lower construction costs and 4 revised O&M costs noted above. The results are as follows for sensitivities 3 and 4:

AI summary NSPI updated sensitivity analyses to reflect lower construction and revised O&M costs, providing revised results for sensitivities 3 and 4.

January 14, 2010 1 2 TABLE OF CONTENTS 3 4 5 1.0 SUMMARY 2 6 2.0 APPROVAL OF THE PROJECT, AS FILED, IS APPROPRIATE 3 7 2.1. The Project is Low Cost under Reasonable Assumptions 11 8 2.2. The Affiliate Transactions Brought Value to NSPI Cus...

AI summary The document outlines a project approval request, emphasizing that the project is low cost under reasonable assumptions and that affiliate transactions provided value to NSPI customers. It includes a summary and a request for project approval.

1 non-compliance and, quite frankly, it's just our practice and policy and 2 desire to comply with the laws and regulations. So we work hard to do 3 that. 4 5 The Digby project is only one example of the hard work that we've done 6 to ensu...

AI summary The speaker emphasizes the importance of compliance with regulations, citing the Digby project as an example of efforts to meet the Renewable Energy Standard. They argue the project was economically viable, supported by the community, and provided significant eco-energy credits. The price is deemed reasonable due to low financing costs and tax benefits.

& lt;sup>16 Transcript, page 197, line 18 – page 198, line 11. 1 renewable energy through avoided fuel costs of approximately $300,000-$500,000 per 2 month. 17 There was risk associated with this being lost for every month that constructio...

AI summary The text discusses the financial implications of a renewable energy project, including avoided fuel costs and risks due to potential construction delays. It also addresses NSPI's acquisition of the project and the inclusion of incentive payments in the EPC contract, with a focus on industry practices and evidence presented during the proceeding.

19 MR. BENNETT: 17 an appropriate market range: 29 33 21 different today than it was even contemplated at the time of these 22 bids and we have re-analyzed the bids and done a comparison that 23 shows that the final cost of the project con...

AI summary NSPI argues that the final cost of the project construction is significantly lower than initial bids and is within an appropriate market range. They emphasize that conclusions should be based on factual evidence, not generalizations.

14 Transcript, page 198, lines 3-11. NSPI, is compliant with the criteria set out in the Code of Conduct. Section 6.7 of the Code of Conduct states: NSPI will charge and be charged prices which reflect fair market value (FMV) for all nonre...

AI summary The document discusses NSPI's compliance with the Code of Conduct, specifically sections 6.7 and 6.8, which require fair market value pricing for affiliate transactions. EUS price is deemed to reflect FMV through comparisons with CBCL analysis and competitive tenders. The Avon Group argues that competitive solicitation is necessary, but the response clarifies that alternate methods are acceptable under the Code.

22 4.0 CONCLUSION 23 24 NSPI has brought forward a low cost renewable project which is required for 2013 RES 25 compliance. NSPI's evidence confirms that its actions and those of its affiliates have 26 preserved the value in an otherwise f...

AI summary NSPI has completed a low-cost renewable energy project ahead of schedule and under budget, benefiting customers. The affiliate transactions associated with the project align with the Code of Conduct, which emphasizes demonstrable benefits to customers. NSPI requests approval for a $82.8 million capital expenditure and confirmation of compliance with the Code of Conduct.

h review and analysis, this Decision will be based on the answers to the following straightforward, commonsense questions: - 1. Is NSPl's acquisition of the DWP necessary for customers and for NSPI? - 2. Is the $82.8 million cost of the DW...

AI summary The Board has determined that NSPI's acquisition of the DWP is necessary for customers and NSPI, but the $82.8 million cost requires reduction due to non-compliance with the Code of Conduct and insufficient evidence for a $1 million bonus payment. The total cost will be further reduced by at least $2 million based on final construction costs. Despite affiliate transactions, the acquisition is considered the 'best available deal.'

[62] The CA questioned the contract price paid to EUS: We can only speculate as to how the original price was obtained for the contract. It is not probable that EUS and Emera did any negotiating. It certainly was not the situation of two u...

AI summary The CA questioned the contract price paid to EUS, suggesting it was based on an engineering analysis rather than competitive bidding. The CA argued that the EUS contract did not meet the Code's requirement for the best available option and questioned the timing of a bonus payment to EUS.

[90] Avon questioned the evidence put forward by NSPI, stating: Even looking at the pricing comparators offered by NSPI ex post-facto, the evidence is slim that this is the "best option" for customers. To justify the value of the EUS contr...

AI summary Avon questions the evidence provided by NSPI regarding the EUS contract, arguing that the comparison between the CBCL estimate and the EUS price is not an apples-to-apples comparison and that the contract may not be the best available option due to lack of competitive bidding and preferential treatment of an affiliate.

on't have the opportunity. The next project that comes along will be buying turbines, not out of the bankruptcy process at a discount but in a competitive market at market prices which are increasing. So we believe that there was a reason,...

AI summary The speaker defends the price of a renewable energy project as reasonable and among the lowest in the province, citing effective execution and financing. The Chair raises concerns about the Board's historical concerns regarding affiliate transactions and the lack of competitive tendering, noting the need for more than just the speaker's opinion to justify the price.

Sensitivity Adjusted MWh (Annual Production) MWh Profile Capital ($ Millions) NPV ($ Millions) Levelized Cost ($/MWh) PPA Price Comparison ($/MWh) 1 85,600 Flat $82.8 ($12.1) $111.49 $92.00 2 100,000 Flat $82.8 ($2.3) $95.65 $92.00 3 85,60...

AI summary The document presents a table of sensitivity analyses for a demand-side management program (DWP), showing variations in adjusted MWh, capital costs, NPV, and levelized costs. The analyses are based on different construction costs and energy output assumptions, including a 120,000 MWh annual output as estimated by the Garrad Hassan Report.