Government of New Brunswick

Detailed Methodology:
Beginning January 1, 2012 the Large Industrial Renewable Energy Purchase Program allows NB Power to purchase renewable energy generated by its largest customers at a rate of $95/MWh. This renewable energy will count towards meeting our Province’s renewable energy targets at a purchase price at – or below – the current market price for most forms of renewable energy.

The underlying premise of the Large Industrial Renewable Energy Purchase Program is to bring electricity costs for qualifying export-oriented companies in New Brunswick in line with the average cost of electricity in provinces where those companies’ competitors are located. 

The Large Industrial Renewable Energy Purchase Program is implemented in accordance with the provisions found in the Electricity from Renewable Resources Regulation – Electricity Act. The general requirements and parameters are set out in the Regulation but certain assumptions and methodologies are reserved for the Minister of Energy and Resource Development to determine. Those assumptions and methodologies are set out below.

 

 

A. Calculation of Canadian Average Rate

Section 26 of the Electricity from Renewable Resources Regulation makes reference to the Canadian average rate. The Canadian average rate is calculated as follows:

1. Determine the appropriate proxy customer profile
Industrial electricity costs are based not only on the rate and amount of electrical energy consumed, but also on other factors such as a customer’s maximum or peak power usage in a given billing period (demand), the capacity factor for each facility, and the connection voltage. Each industrial customer is unique in the combination of these factors, and each customer therefore pays a unique “average” rate.

In order to compare “apples to apples” in terms of this average rate, the same customer load characteristics must be applied to each province’s industrial rate tariff. For each industrial sector in New Brunswick that participates in the Large Industrial Renewable Energy Purchase Program, a “proxy customer profile” will be created based on the average consumption, demand, capacity factor and connection voltage of all potentially eligible customers in that industrial sector.

Currently, the only industrial sector with eligible customers is the pulp and paper mill sector. The calculated proxy customer profile for this sector is:

Consumption               35,089,583 kWh/month
Demand                        52,000 kW
Capacity Factor           92%
Connection voltage     138 kV
 

2. Select the appropriate provinces for comparison
The purpose of the Large Industrial Renewable Energy Purchase Program is to make New Brunswick’s export-oriented industries competitive with their competitors in other Canadian provinces. For each industrial sector participating in the Large Industrial Renewable Energy Purchase Program, the Minister of Energy and Resource Development will select appropriate criteria to determine which provinces are “competitive” provinces for that industrial sector.

Currently, the only industrial sector with eligible customers is the pulp and paper mill sector. The relevant selection criterion for this sector is the dollar value of exports of pulp and paper products. Those provinces with pulp and paper product exports greater than $100 million in the previous calendar year (as stated annually by Statistics Canada) will be included in the calculation of the Canadian average rate for this sector.
  

3. Calculate the Canadian average rate
The proxy customer profile calculated above is applied to each Canadian province’s published rate tariff to determine the average large industrial firm electricity rate that would apply to that “proxy” customer if it were located in a particular province. 

To reflect the fact that some provinces export much more than other provinces (and therefore represent increased competition to our New Brunswick companies), the electricity rates for each province are weighted according to the dollar value of that province’s exports for the relevant industrial sector. An appropriately weighted Canadian average rate is then calculated.

A small number of provinces do not offer fixed, regulated large industrial rates. In Ontario and Alberta, electricity is sold on a competitive supply basis, which means prices (rates) vary from day to day depending on market pressures such as supply and demand. For these jurisdictions, the calculated “average” large industrial rate will be based on the average market rate for the previous four calendar years (a four year average is used to better smooth short term rate volatility inherent in market based rates).

In Ontario, there is also a global adjustment mechanism (“Global Adjustment A”, or “GA-A”) to reflect costs imposed on the bulk electric system by large industrial customers.   The GA-A cost is allocated to large industrial customers based on their contribution to the top five coincident system peak hours for the year.  This presents an opportunity to the large industrial customers in Ontario to shift peak demand away from the system peak hours, yielding a lower average cost of electricity.  NB Power maintains Interruptible (and Surplus) rates that provide similar opportunities to NB large industrial customers. 

The proxy customer consumption is assumed to have a 68% firm and 32 % interruptible split for the purposes of the Ontario rate calculation. This firm/interruptible ratio is used along with NB Power’s large industrial firm and 4-year average of interruptible rates to convert the Ontario average rate (based on “GA-A”) to a comparable “firm” rate for Ontario.  NB Power’s interruptible rates are available here: https://www.nbpower.com/en/products-services/business/rates/historical-interruptible-prices/

The calculated “average” firm rates for each province and the resulting Canadian average rate for the pulp and paper mill sector (currently the only participating sector) using rates in effect as of April 1, 2017 are:
  

TABLE 1:
Large Industrial Renewable Energy Purchase Program
Canadian Average Rate Calculation
for the period April 1, 2017, to March 31, 2018
for the Pulp and Paper Mills Sector
Province
Average Rate
($/MWh)
Pulp and Paper
Exports 2016 $
NF & L
  $53.11
$146,186,625
NS
 $98.09
$420,552,990
QC
  $47.54
$6,193,066,005
ON
  $88.45
$2,751,481,041
MB
  $41.70
$214,713,896
SK
  $71.06
$238,444,668
AB
  $66.49
$1,793,920,697
BC
  $60.93
$3,935,644,798
Canadian
Average Rate
  $61.92
 
 

B. Calculation of Target Reduction Percent

Section 27 of the Electricity from Renewable Resources Regulation makes reference to the target reduction percent. The target reduction percent is calculated as follows:

1. Determine the New Brunswick rate
Using the same proxy customer profile used to determine the Canadian average rate, a comparative New Brunswick rate for each participating industrial sector is calculated using NB Power’s Large Industrial rate class rates and charges.

Currently, the only industrial sector with eligible customers is the pulp and paper mill sector. The current “average” New Brunswick rate for this sector using the proxy customer profile for the sector is $72.85/MWh.

2. Calculate the target reduction percent
As provided in s.27(a) of the Electricity from Renewable Resources Regulation, the target reduction percent is the percentage amount by which the New Brunswick average rate must be decreased in order to match the Canadian average rate for a particular industrial sector.

Currently the only industrial sector with eligible customers is the pulp and paper mill sector. The target reduction percent for the period April 1, 2017 to March 31, 2018 is calculated as shown here:

          

TABLE 2:
Large Industrial Renewable Energy Purchase Program
Target Discount Percent Calculation
for the period April 1, 2017, to March 31, 2018
for the Pulp and Paper Mills Sector
Canadian Average $61.92
NB Average $72.85
Target Discount % 15.0%

As provided in the Electricity from Renewable Resources Regulation, the Canadian average rate and the target reduction percent for each participating industrial sector will be determined in accordance with the methodology set out above prior to March 31 of each year (using posted rates to be in effect on April 1 of that year). The results of this annual calculation will then be applied to the Large Industrial Renewable Energy Purchase Program for the upcoming year beginning April 1.