Presentation by Qulliq Energy Corporation 1

Presentation Overview  Corporate Overview  General Rate Application  Who Participates in a GRA?  Phase I GRA Filing  Phase II GRA Filing  2010/11 Cost of Service Study  2010/11 Rate Design  Rate Impact on Customers of Phase II Proposal  Levelized Rates in Canada  Other Phase II Application Matters  Conclusion 2

Corporate Overview Corporate Overview Qulliq Energy Corporation (QEC) is the sole generator and transmitter of electricity in Nunavut. QEC serves approximately 12,800 electricity customers in 25 communities. QEC currently provides services to the following customer classes:  Domestic (Government and Non-Government)  Commercial (Government and Non-Government)  Streetlighting

General Rate Application A General Rate Application is a request to change the overall level of rates (revenue requirement) and/or how rates are recovered from customers.  Phase I of a GRA deals with identifying revenue requirement.  Phase II of a GRA deals with how the required revenues are recovered from ratepayers.

Who Participates in a GRA?  QEC prepares the application.  Application is presented to Minister responsible for QEC.  The Minister forwards the application to the URRC for review and recommendations.  The URRC facilitates public consultations.  The URRC reviews QEC’s application and any submissions by interveners and the general public.  The Minister responsible for QEC considers the GRA Application and the URRC recommendations.  With Executive Council approval the Minister issues instructions to Qulliq Energy.

Phase IGRA Filing Phase I GRA Filing On October 4, 2010 QEC filed its Phase I General Rate Application. QEC’s Phase I application requested a rate increase to bring revenue in line with the costs to provide safe, reliable electricity service. The Minister responsible for QEC authorized a rate increase of 18.88% effective April 1, 2011, to all customer (rate) classes.

Phase II GRA Filing On September 9, 2011, QEC filed the Phase II portion of the 2010/11 GRA. A Phase II application is solely a rate rebalancing exercise:  Rebalances rates between communities and rate classes to collect revenue requirement approved in Phase I GRA.  Phase II does not seek to increase revenue, it determines how the approved 18.8% increase is collected from the various customer classes.

Phase II GRA Filing Phase II GRA Filing This is the first Phase II GRA filed by QEC since the division from the Northwest Territories Power Corporation (NTPC). The last Phase II GRA for Nunavut communities was conducted as part of NTPC’s 1995/98 GRA. Rate adjustments since the division of the territories have been implemented on an equal percentage basis across all customer classes. A Phase II Application usually consists of two components – a cost of service study and a rate design proposal.

2010/11 Cost of Service Study  A cost of service study (COS) measures the costs incurred to serve each customer class.  The URRC recommended that QEC include three approaches to the cost of service study in their Phase II Application:  A community based study that examines costs to serve each individual community.  A capital zone based study that combines capital costs into zones but keeps operating and maintenance costs separate for each community.  A territory wide study that combines costs across Nunavut.  QEC’s Phase II Application recommends adopting the territory wide study for ratemaking purposes based on fairness to customers throughout the territory, consistency with other jurisdictions, and administrative efficiency.

2010/11 Rate Design  Based on the recommended COS results, QEC developed a rate design proposal consistent with Territorial government policy objectives.  Rate design is a process that determines the rates to be charged to each customer.  QEC utilized the 8 Bonbright principles that are generally accepted for rate design.

2010/11 Rate Design  Each of the Bonbright principles is relevant in designing and evaluating a proposed rate structure.  However, it is acknowledged that no rate design can simultaneously satisfy all rate design principles.  The rate design process must balance each of the criteria and determine which criteria will be of primary importance.  Values and principles relevant to Nunavummiut are considered during the rate design process (e.g., Tamapta Action Plan for ).

2010/11 Rate Design The Phase II Application contains two main rate design recommendations:  That QEC should gradually move away from different rates for each community and toward levelized rates across the Territory.  For the current application, cap the maximum rate increase to any customer at 5% in order to limit the rate impact on customers. Rate increases for these customers/communities will be offset by rate decreases for others in order to implement the change to territory wide rates. QEC proposes further rebalancing will be undertaken in future General Rate Applications (GRA). The next GRA is scheduled for the 2013/14 test year.

2010/11 Rate Design  QEC’s application notes that moving toward levelized rate across the Territory:  Helps mitigate rate increases in communities when new capital infrastructure is required.  Is consistent with territorial government policy objectives of ensuring access to essential services for all residents and providing assistance to those most in need.  Respects Inuit societal values.  Is consistent with other jurisdictions in Canada.

Impact on Customers - Community Based Rates Regardless of rate design approved by the Minister, increases in revenue stemming from the 2004/05 GRA and the 2010/11 GRA have to be rebalanced as the increases were applied equally across all customers. The implementation of community based rates will require the revenue increases from those two GRAs to be spread across communities based on the Cost of Service in each community. This will lead to some communities increasing dramatically and others decreasing.

QEC Rate Comparison-Residential 15

QEC Rate Comparison-Commercial 16

Rate Impact on Customers of Phase II Proposal  Under QEC’s proposed rates effective April 1, 2012:  Only 6 communities out of 25 will see a domestic rate increase of up to 5% (Rankin Inlet, Baker Lake, Iqaluit, Pangnirtung, Cape Dorset, Igloolik).  Only 5 communities out of 25 will see a commercial rate increase of up to 5% (Rankin Inlet, Iqaluit, Pangnirtung, Cape Dorset, Igloolik).  The largest increase in commercial bills for a monthly consumption of 2,000 kWh will be approximately $53 (Pangnirtung).

Rate Impact on Customers of Phase II Proposal  Under QEC’s proposed rates effective April 1, 2012:  All other communities will see a domestic and commercial rate decrease of up to 4%.  Commercial customers in 20 communities will see an average bill decrease of approximately $60 for a typical customer with a monthly consumption of 2,000 kWh.  Residential non-government bills, eligible for Nunavut Electricity Subsidy Program, will increase by 5% (approximately $10 per month for a typical customer with a monthly consumption of 700 kWh) due to an increase in the Iqaluit base rate.

Levelized Rates in Canada Other Jurisdictions Rate Design Practices:  Yukon Energy Corporation: Territory-wide rates within the same rate class for first 1000 kWh/month for domestic, and 2000 kWh/month for commercial customers.  NTPC: Rate structure based on four zones – two hydro, Norman Wells and thermal. Norman Wells will be incorporated into thermal zone at time of next GRA.  BC Hydro: Levelized rates for all customers throughout the interconnected service area.  SaskPower: Two rate categories – urban and rural. The difference in domestic rates is $7.25 in customer charge and $0.0027/kWh in energy charge.

Levelized Rates in Canada  Other Jurisdictions Rate Design Practices:  Manitoba Hydro: Uniform rates within the same rate class throughout interconnected service area.  Hydro-Quebec: Uniform rates within the same rate class without distinction as to interconnected or non-interconnected systems.  New Brunswick Power: Two rate categories – urban and rural. However, the only difference is $1.9 in monthly customer charge (rural higher than urban).  NALCOR: Same rates to domestic and commercial customers by rate class in isolated and interconnected communities up to an established seasonal cut-off (range from 700 to 1000 kWh).

Other Phase II Matters  In addition to the proposed base rate changes, QEC is requesting the following approvals: Minor adjustments to the operation of the Fuel Rate Stabilization Fund.  QEC proposes to remove the interest charged on the fund balance.  QEC proposes to change the format of the schedules used to file the FSR application Minor revisions to the Terms and Conditions of Service.  Making revisions to provide greater clarity and consistency, making the document easier to understand for customers.  Aligning the terms and conditions with current practices.

Moving toward Territory-wide Rates  allows necessary capital cost increases to be shared throughout the territory.  is better aligned with the government’s policy objectives of ensuring Nunavummiut basic needs are met, and a better standard of living for those most in need.  Honours the value Inuit people have for helping each other.  Is consistent with rate-setting in other jurisdictions throughout Canada.  Nunavut moves to making the delivery of Electricity, an essential service, equal cost for all Nunavummiut.

Conclusion QEC’s Proposal is to adopt the territory wide rate is based on fairness to customers throughout the territory, consistency with other jurisdictions and administrative efficiency. This review process is administered by the URRC at the request of the Minister. Based on feedback in these consultations, written submissions, and the URRC review, a recommendation will be given to the Minister. QEC encourages all Nunavummiut to contribute to this process.