HomeMy WebLinkAboutDSD-2023-328 - Collaboration Space in the UW Innovation ArenaStaff Report
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Development Services Department www.kitchener.ca
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: August 14, 2023
SUBMITTED BY: Bluhm, Cory, Executive Director, Economic Development
519-741-2200 ext. #7065
Bennett, Brian, Manager Business Development
519-741-2200 ext. #7230
PREPARED BY: Brown, Jay, Economic Analyst, Economic Development
519-741-2200 ext. #7072
WARD(S) INVOLVED: Ward 9
DATE OF REPORT: July 27, 2023
REPORT NO.: DSD -2023-328
SUBJECT: Collaboration Space in the UW Innovation Arena
RECOMMENDATION:
That up to $450,000 from the Economic Development Investment Fund 2.0 (EDIF 2.0)
be allocated to support the completion of leasehold improvements for the City of
Kitchener's space to be located at 280 Joseph St West Unit 2A, Kitchener Ontario;
and further,
That the annual operating costs for Common Area Maintenance fees, estimated at
$17,500, be referred to the 2024 budget process; and further,
That the Mayor and Clerk be authorized to execute all documentation required to
complete the transaction, including the execution of a lease agreement, in
accordance with report DSD -2023-328, with said documentation to be to the
satisfaction of the City Solicitor.
REPORT HIGHLIGHTS:
The purpose of this report is to present the business case for the City of Kitchener to
invest up to $450,000 for leasehold improvements for the City of Kitchener's space to
be located in the University of Waterloo's Innovation Arena (Downtown Kitchener),
which would be operated by the Waterloo Region Small Business Centre (WRSBC).
The key finding of this report is that the establishment of a 5,000 square foot
collaboration space for use by the Waterloo Region Small Business Centre (WRSBC)
will support positive economic impacts by enabling health -based entrepreneurs and
small businesses access to the UW Innovation Arena while enabling the WRSBC to
provide co -work space, programming and supports tailored to health -based businesses.
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
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• The financial implications include an initial capital investment of $450,000 from the
Economic Development Investment Fund 2.0, and an annual operating cost of $17,500
to cover Common Area Maintenance fees. Additional staffing resources will be
contemplated through future budgets.
• During the development of Make It Kitchener 2.0, the community identified Health
Innovation as the top economic growth sector for the City to invest in.
• This report supports A Vibrant Economy by undertaking industry business cases.
BACKGROUND:
Throughout the community engagement that led to the creation of Make It Kitchener 2.0,
health innovation was identified as a top growth priority for our local economy. The
University of Waterloo (UW), in partnership and collaboration with the City of Kitchener, is
developing a new 90,000 square foot innovation facility focused on health innovation,
medical technology and deep science on the UW Health Sciences Campus located in
Kitchener's Downtown Innovation District (280 Joseph Street West). The new Innovation
Arena will include:
• Refurbishment of a 90,000 square foot warehouse already owned by UW on the
Health Sciences Campus.
• The new home for UW's Velocity program expanding into 45,000 sq ft on the second
floor
• Multi -use biosafety, clinical instrumentation, product development and wet lab space
for small and medium sized enterprises (SME's), entrepreneurs and innovators; and
• Co -location with the Waterloo Region Small Business Centre (through the City of
Kitchener) to support health entrepreneurs and practitioners grow their businesses.
Additional background information can be found in Attachment "A."
REPORT:
As part of the City's $8.5 million investment in the Innovation Arena, the City has the
opportunity to lease 5,000 square feet for use by the Small Business Centre. The City has
the option to for two 10 -year terms for $1 annually. The City would also be responsible for
50% of the common area maintenance (CAM) costs for the leased space including but not
limited to electricity, natural gas, water, and maintenance. The annual cost is estimated at
$17,500.
The City of Kitchener would be responsible for 50% of the leasehold improvement costs,
estimated at $450,000, which includes construction costs (ex: partitions, doors, finishes,
washrooms, kitchenette, etc.), furnishings and contingency.
The University of Waterloo is responsible for the procurement and project management of
the proposed leasehold improvements. Fit out costs per sq ft of $90 per sq ft compare
favourably to industry middle range buildouts of $81-135 per sq ft.
Business Case
City staff have developed a business case (Attachment "A") to assess the benefit of pursing
the proposed space. Based on the projected growth in the health innovation industry and
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the ability of the WRSBC to provide access to the Innovation Arena for non -tech health
businesses, including tailored programs and services, staff recommend pursuing a lease
agreement.
To support the required investment, staff recommend allocating up to $450,000 from
Economic Development Investment Fund 2.0 (EDIF 2.0).
Benefits for the Small Business Centre Clients:
The WRSBC would provide direct oversight of the space, utilizing existing programs, to
provide local entrepreneurs and small businesses with the following health -industry
focused supports:
• Programs & Training
• Advisory Services
• Hot Desk Space
• Networking
• Events
• Community Partners
• Collision of Ideas
Based on the WRSBC's current client base, it is anticipated that the following
entrepreneurs/businesses would utilize this space:
• Paramedical Services — acupuncture, massage therapy, chiropractic, etc.
• Health, Wellness & Beauty — fitness, dietician, cosmetics, etc.
• Health Food — pre-packaged foods, supplements, etc.
• Counselling and Therapy Services — mental health, speech, addition, etc.
• Registered Health Services — Registered Practical Nurse, midwifery, etc.
The WRSBC currently operates from the SDG Idea Factory. Should THE MUSEUM be
successful in developing a plan to expand its facility, the WRSBC may need to vacate the
Factory as early as August of 2025. In this case, the Innovation Arena could become the
primary location for the Centre.
STRATEGIC PLAN ALIGNMENT:
This report supports A Vibrant Economy by undertaking industry business cases. As part of
the 2019-2022 Strategic Plan, Council directed staff to foster a citywide network of
incubators, accelerators, and co -working spaces by undertaking business cases for
health/med-tech industries (among others).
FINANCIAL IMPLICATIONS:
Capital Budget — The recommendation would require an allocation of $450,000 from the
Economic Development Investment Fund 2.0.
Proposed Funding Allocation EDIF 2.0
Total allocation to support Health Innovation (Make It Kitchener 2.0) $10,000,000
Funding committed to date $ 8,500,000
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Proposed funding to support this space $ 450,000
Funding remaining for future allocation $ 1,050,000
Operating Budget — the proposed space would require an annual operating expense of
$17,500 to cover CAM fees. Staff recommend consideration of this expense as part of the
2024 Budget process. Should it be determined that additional staff resources could be
needed to best support this space, those could also be considered as part of a future budget.
In the meantime, existing WRSBC and City Economic Development budgets would support
the activation of this space.
As the University of Waterloo has agreed to cover 50% of the leasehold improvement costs
and 50% of the ongoing CAM fees, the proposed costs represent strong value to taxpayers.
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in advance of
the council / committee meeting.
CONSULT — as part of the development of Make It Kitchener 2.0, the community identified
Health Innovation as a key sector for the City to invest in. This proposed investment
supports this community direction.
PREVIOUS REPORTS/AUTHORITIES:
1) DSD -20-178: Make It Kitchener 2.0 —Health Innovation Partnership & Business Case
APPROVED BY: Justin Readman, General Manager Development Services
ATTACHMENTS:
Attachment A — Business Case: City Collaboration Space at UW Innovation Arena
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WRSBC HEALTH INNOVATION ARENA
TABLE OF CONTENTS
ExecutiveSummary................................................................................................................... 2
Background................................................................................................................................ 4
Vision........................................................................................................................................
Opportunity —The Business Case..........................................................................................
TheInvestment........................................................................................................................ 10
Conclusions & Recommendations........................................................................................ 12
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Canada's health sector spending reached $331 billion dollars or $8,563 per person in 2022
(representing 12.2% of Canada's Gross Domestic Product for 2022)'. As the Canadian
population continues to age, health sector spending will increase significantly. If per capita
public health spending were to remain the same, local spending on publicly provided health care
alone could double by 2041. As a result, opportunity exists locally to accelerate the growth of
companies and jobs to service this growing demand and/or develop innovations which create
more efficient service delivery.
The University of Waterloo (in partnership with the City of Kitchener, Province of Ontario and
Government of Canada) is currently developing the Innovation Arena - a new, state-of-the-art
facility in Downtown Kitchener to significantly grow the local health innovation and medtech
industries. The Innovation Arena is intended to be a communityof like-minded innovators, home
to multiple member organizations. The Waterloo Region Small Business Centre can play a key
role in enabling its clients access to the Innovation Arena community.
As part of the City's $8.5 million investment in the Innovation Arena, the City has the ability to
establish a new 5,000 square foot purpose-built space. Operated by the Waterloo Region Small
Business Centre (WRSBC), this space could accommodate 40+ entrepreneurs and small
businesses at any given time. These entrepreneurs would have an opportunity to-
- Access programs and services of the WRSBC;
- Access lab facilities within the Innovation Arena;
- Build their business alongside entrepreneurs tackling similar challenges; and,
- Progress to other acceleration programs.
The estimated cost of leasehold improvements for the new purpose-built facility is $450,000 of
which $386,000 is estimated for construction, $25,000 for furnishings and $39,000 for
contingency. Ongoing common area maintenance costs for the collaboration space would be
equally shared between the City of Kitchener and the University of Waterloo.
By investing in this space, the City of Kitchener would realize the following economic impacts:
• Support for non -tech based SMEs resulting in new companies, employment growth and
economic diversification;
• Retention of health sector expenditures in Kitchener -Waterloo -Cambridge
• Health innovations driven by SMEs resulting in improved healthcare services for
residents; and,
• Enable future partnerships between the region's various health focused stakeholders
including UW (Velocity), McMaster University, Waterloo Med Tech, Medical Innovation
Xchange, and Grand River Hospital.
1 Source: Canadian Institute on Health Information, National health expenditure trends 2022 -Snapshot
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WRSBC INNOVATION ARENA
Most importantly, the new collaboration space would ensure all health -based entrepreneurs
could access the Innovation Arena community.
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WRSBC INNOVATION ARENA
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MAKE IT KITCHENER 2.0
The City of Kitchener's economic development strategy —Make It Kitchener 2.0— identifies `Health
Innovation' as a key area of focus for economic growth. It identifies an ambition to collaborate
with industry and educational partners to become a global leader in the health industry. The
strategy envisions supporting "Difference Makers" through the creation of spaces and programs
that enable entrepreneurs to start, lead and scale new businesses, develop talent, and remain in
the Region.
To support investments in health innovation, City Council earmarked up to $10 million from
EDIF 2.0. $8.5 million has been allocated to the overall UW Innovation Arena development.
$1.5 million remains uncommitted and could be used to support an investment in this space.
UW VELOCITY
Velocity is a leading entrepreneurial and incubator program at the University of Waterloo. From
idea to product development to commercialization, Velocity provides the knowledge, tools, lab
space, mentoring and network that startups, scale ups and entrepreneurs require for
commercialization and success. The Velocity program in Downtown Kitchener has evolved from
software, to hardware, to medical technology and deep science. UW is recognized for their
leadership in technology, entrepreneurship, programming, research excellence and innovation.
Velocity's objective is to become a global leader for health innovation with a focus on deep science
and medical technology companies. Deep science companies can be described as follows:
• Life sciences/therapeutics/synthetic biology;
• Medical devices, tools, and diagnostics;
• Materials science, industrials, cleantech; and
• Hardware & electronic devices.
WATERLOO REGION SMALL BUSINESS CENTRE
As a regional leader in the development of small and medium sized enterprises, the WRSBC
serves thousands of entrepreneurs with the training and support necessary to start and grow
successful businesses. From concept, through start-up and early growth stages, the WRSBC is
a one-stop source for information, guidance, and professional advice on creating a successful
business. The WRSBC will be responsible for the delivery of support services and programming
in the Health Innovation Collaboration Space.
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WRSBC INNOVATION ARENA
UW INNOVATION ARENA
The University of Waterloo (UW), in partnership and collaboration with the City of Kitchener, is
developing a new 90,000 square foot innovation facility focused on health innovation, medical
technology and deep science on the UW Health Sciences Campus located in Kitchener's
Downtown Innovation District (280 Joseph Street West). The new Health Innovation Arena, driven
by the UW Velocity program, will include:
• Refurbishment of a 90,000 square foot warehouse already owned by UW on the Health
Sciences Campus;
• The new home for UW's Velocity program expanding into 45,000 sq ft on the second floor,-
*
loor;• Multi -use biosafety, clinical instrumentation, product development and wet lab space for
small and medium sized enterprises (SME's), entrepreneurs and innovators; and,
• 45,000 square feet of space on the first floor to support the co -location of health innovation
and medtech ecosystem partners.
PARTNERSHIP BETWEEN THE UNIVERSITY OF WATERLOO AND THE CITY OF
KITCHENER
As part of the City's $8.5 million investment in the Innovation Arena, the City has the ability to
establish a new 5,000 square foot purpose-built space. The City has the option to lease this
space for a 10 -year term at $1 per year (with an option to renew for a subsequent term of 10
years). The City would need to cover 50% of the capital improvements and 50% of the ongoing
Common Area Maintenance fees associated with this space.
FUNDING PARTNERS
To date, the following contributions have been earmarked to support the original buildout of the
Innovation Arena:
University of Waterloo
$12.5M
City of Kitchener
$8.5M
Government of Canada (Fedev)
$6.5M
Province of Ontario
$7.5M
Total Contributions
$35M
These investments are intended to support the overall building construction costs and the Velocity
space (including wet lab facilities). They do not cover the costs of improvements to partner
spaces, such as the space available to the City of Kitchener.
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WRSBC INNOVATION ARENA
The City of Kitchener and the University of Waterloo share a vision to establish a leading health
innovation ecosystem delivering support services and programming for small to medium sized
enterprises (SMEs). While Velocity will primarily support tech, deep -tech and science -based
businesses, the WRSBC can support a broad range of health -based entrepreneurs. Utilizing
five thousand (5,000) square foot commercial space, the WRSBC would deliver the following:
Programs & Training — provide early-stage business training (ex: business basics, Starter
Company, Digital Service Squad) and curate health industry specific seminars with industry
leaders;
Advisory Services —evaluation of business ideas or concepts with health industry entrepreneurs
resulting in detailed business plans moving the entrepreneur from research to testing to start-up
phases;
Hot Desk Space — provide physical space for individuals to launch their business, including
works space, meeting space, etc.;
Networking — facilitate collaborative opportunities for local entrepreneurs and small business
owners to develop relationships with Velocity companies, UW researchers, mentors, experts,
start-ups, and scale ups;
Events— host events (ex: speaker series, showcases, hackathons, etc.) with local partners;
Community Partners — provide opportunity for com m unity partners to connect with the
Innovation Arena community through events, co -location, etc.; and,
Collision of Ideas - facilitate the collaboration of technical and non-technical health professionals
resulting in early adoption of technology by practitioners and clinicians, access to commercial
markets for med-techs and engineers.
Based on the WRSBC's current client base, it is anticipated that the following
entrepreneurs/businesses would utilize this space:
- Paramedical Services — acupuncture, massage therapy, chiropractic, etc.
- Health, Wellness & Beauty — fitness, dietician, cosmetics, etc.
- Health Food — pre-packaged foods, supplements, etc.
- Counselling and Therapy Services — mental health, speech, addition, etc.
- Registered Health Services— Registered Practical Nurse, midwifery, etc.
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STAFFING
Initially, this new space would be staffed by existing staff of the WRSBC and the City's
Economic Development Division. As programming develops over time, including a greater
understanding of demand for this space, the City may need to consider additional options for
optimizing the potential of this space. This could include, for example, adding future program
assistant and business advisor roles.
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WRSBC INNOVATION ARENA
Canada's health sector spending reached $331 billion dollars or $8,563 per person in 2022
(representing 12.2% of Canada's Gross Domestic Product for 2022)2. As the Canadian
population continues to age, health sector spending will increase significantly. If per capita
public health spending were to remain the same, local spending on publicly provided health care
alone could double by 2041. As a result, opportunities exist locally to accelerate the growth of
companies and jobs to service this growing demand and/or develop innovations which create
more efficient service delivery.
In 2020, City Council considered a business case which outlined the future economic opportunity
within the health innovation ecosystem (DSD -20-178). Key highlights include:
• Demand in the health innovation sector is projected to increase by 180% over the next
twenty (20) years driven by a growing population aged 65+, greater societal awareness of
preventive health and wellbeing;
• Kitchener's population aged 65+ spent $446M on health products and services in 2021
with projections reaching $802M by 2041;
• University of Waterloo's Velocity program has incubated 400+ health tech businesses
generating 2600+ jobs with total business investment of $1.3B; and,
• UW's Velocity program is projected to support over 100 start-up and scale -up health tech
companies in the next five years -,4000 post -secondary students graduate each year from
health-related programs in the Kitchener -Waterloo region. The pool of educated graduates
is the key com ponent to attracting and expanding the health innovation sector in Kitchener.
OPPORTUNITY FOR THE WATERLOO REGION SMALL BUSINESS CENTRE
With limited capacity and strict guidelines for applicants, the UW Velocity program is unable to
fulfil the demand for business support services and programs in the health innovation sector.
The UW Velocity program accepts on average only 20% of business applicants. The gap in
health innovation programming has restricted the growth of small to medium-sized enterprises
(SMEs) and non-OHIP health practitioners. The Waterloo Region Small Business Centre
through the collaboration space in the UW Health Innovation Arena could achieve the following
outcomes in the first year of activation:
• Up to 200 business advisory service consultations with tech and non -tech health
entrepreneurs;
• Up to 100 business referrals from UW Velocity program and health sector partners;
• Up to 25% occupancy of the co -working space including hot desks, labs, and
collaborations spaces;
• Up to 24 networking and education events; and,
z Source: Canadian Institute on Health Information, National health expenditure trends 2022 -Snapshot
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WRSBC INNOVATION ARENA
• Up to 12 business development seminars and programs.
As the collaboration space reaches the end of year five activation, with additional staff
resources, the WRSBC projects it could achieve the following outcomes:
• Up to 400 business advisory services consultations with tech and non -tech health
entrepreneurs;
• Up to 200 business referrals from UW Velocity program and health sector partners;
• Up to 75% occupancy of the co -working space including hot desks, labs, and
collaborations spaces;
• Up to 48 networking and education events; and,
• Up to 24 business development seminars and programs.
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WRSBC INNOVATION ARENA
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The City of Kitchener and University of Waterloo have committed to the development of the
health innovation collaboration space, as part of the Health Innovation Arena partnership,
dedicated to the development and retention of health sector SMEs, as follows:
TERMS OF LEASE AGREEMENT: 280 JOSEPH ST. WEST — UNIT #2A(5000 SQ. FT.)
The City of Kitchener has the ability to enter into a lease agreement with the University of Waterloo
for a 10 -year term with an option to renew for an additional term of 10 years. The first term lease
rate would be $1 annually for the initial 10 -year term, and $1 annually for the optional 10 -year
extension. The City of Kitchener would be responsible for the 50% of the capital costs to fit -up the
5,000 square foot space. Annually, the City of Kitchener would be responsible for 50% of the
common area maintenance (CAM) including, but not limited to, electricity, natural gas, water, and
maintenance, with these costs to be determined when the Innovation Arena is built out. As
occupancy is expected in Q3 2024, CAM and operating costs will likely be considered as part of
the 2024 Budget. The University of Waterloo would be responsible for the remaining 50% of CAM
costs for the space.
PROPOSED LEASEHOLD COSTS AND FUNDING: 280 JOSEPH ST. WEST — UNIT #2A
The following is a cost and funding summary based on the competitive bid price submitted to the
University of Waterloo by Melloul-Blamey Construction Inc. (September 2022) for the proposed
leasehold improvements for Unit #2A (5,000 square feet):
Proaosed Leasehold Construction Costs
Partitions, doors, glazing, finishes, washroom, kitchenette $385,390
Contingency (10%) $ 39,610
Furnishings $ 25,000
Total Leasehold Costs $450,000
As a result of inflationary pressures and supply chain challenges on construction projects a
contingency of 10% has been incorporated.
Proposed Funding Allocation EDIF 2.0
Total allocation to support Health Innovation (Make It Kitchener 2.0) $10,000,000
Funding committed to date $ 8,500,000
Proposed funding to support this space $ 450,000
Funding remaining for future allocation $ 1,050,000
UW will be the Project Manager for the space and Melloul Blarney will be the contractor. Fit out
costs per sq ft of $85 per sq ft compare favourably to industry middle range buildouts of $81-135
per sq ft.
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WRSBC INNOVATION ARENA
PROPOSED PROGRAM DELIVERY
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Initially, the Waterloo Small Business Centre will oversee program delivery including staff to
oversee the space, with support from the City's Economic Development Division. As much of
the WRSBC funding is dependent on grants from multiple levels of government, should the
WRSBC experience a decrease in funding support, the City may have to increase programming
supports to the space. However, given the WRSBC's ability to deliver services virtually and
utilizing online training resources, it is possible for the WRSBC to support use of the space with
limited human resources.
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Based on the projected growth in health care spending across Canada, opportunity exists for
local company and job growth. While Velocity will support growth of tech -based health
companies, opportunity exists for the City to enable access to the Innovation Arena to a broader
diversity of health -focused entrepreneurs. The WRSBC is well positioned to provide modest
training and oversight supports to enable a high volume of use by local entrepreneurs. Given
that the University of Waterloo will be share in 50% of the buildout costs and CAM fees, the
proposed investment represents a modest and sound use of tax -payer funding.
Based on the foregoing, staff recommend entering into a lease agreement with the University of
Waterloo to secure the space, and an initial investment of $450,000 to outfit the proposed
space.
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'Staff Report r,.
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Infrastructure Services Department www.kitchener.ca
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: August 14, 2023
SUBMITTED BY: Greg St. Louis, Director, Gas & Water Utilities, 519-741-2600 ext. 4538
PREPARED BY: Khaled Abu-Eseifan, Manager, Gas Supply and Engineering, 519-741-
2600 ext. 4826
WARD(S) INVOLVED: All Wards
DATE OF REPORT: August 4, 2023
REPORT NO.: INS -2023-334
SUBJECT: 2023/2024 Natural Gas Rates
RECOMMENDATION:
That the supply component of the natural gas rate be decreased to 16.70 cents per cubic
meter from 20.85 cents per cubic meter for system gas customers of Kitchener Utilities
effective November 1, 2023; and,
That Kitchener Utilities' natural gas variable and fixed delivery rates be approved as
proposed in report INS -2023-334 - Attachment A, for all Kitchener delivery customers
effective November 1, 2023; and further,
That the supply rate of natural gas be reviewed quarterly against market conditions and
necessary changes to be brought forward for Council approval.
REPORT HIGHLIGHTS:
• The purpose of this report is to provide an update and recommendations for the natural gas
supply and delivery rates of Kitchener Utilities for the remainder of 2023 and 2024.
• The key finding of this report is that the supply rate is recommended to decrease from 20.85
cents per cubic meter to 16.70 cents per cubic meter to respond to lower market prices in
updated forecasts. The report also recommends increasing the delivery rate components as
proposed in attachment A; to cover various capital, operations, and financial requirements.
• The financial implications to Kitchener Utilities residential customers will be savings of
approximately $53.00 or 6% in 2024 compared to 2023.
• This report supports the delivery of core services.
BACKGROUND:
Kitchener Utilities (KU) is committed to delivering natural gas using a rate setting approach that
focuses on rate stability for our customers. We follow the Council endorsed Gas Purchase Policy
for the procurement of natural gas. The policy outlines how much of our natural gas portfolio can
be purchased in advance and on the spot market. It provides the ability to blend our natural gas
rate with fixed and market price natural gas. The blending of fixed and market price natural gas
is used to reduce volatility in prices to keep rates stable for customers. It is also used to respond
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
Page 112 of 122
to significant changes in market prices within a reasonable time frame. This is a key feature
which softens spikes in market prices and provides longer range rate stability while allowing KU
to respond to long term sharp market changes.
Other natural gas utilities, regulated by the Ontario Energy Board, purchase natural gas on the
market and adjust rates quarterly, due to the volatility of natural gas. This strategy provides rates
that are more reflective of market prices, but also includes more frequent rate fluctuations.
Kitchener Utilities last natural gas rate change was in January 2023. At that time, the supply rate
was decreased with a plan to review the prices more frequently due to the anticipated volatility
in market prices and delivery rates were increased. This report aims to revise the rates based
on updated market conditions and the requirements to deliver safe and reliable natural gas for
Kitchener Utilities customers. Kitchener Utilities is in a very good storage position and the
proposed changes aim to timely adjust rates to benefit customers, avoid significant rate spikes
and ensure reasonable rates are maintained for longer periods of time.
REPORT:
Kitchener Utilities natural gas rates have two components: gas supply, and gas delivery. The
gas supply program is responsible for the purchase of the gas commodity and transportation of
natural gas to Kitchener and is a pass-through cost program. The delivery program is responsible
for delivery of natural gas to customers. This includes billing, meter reading, capital,
maintenance, and operating costs of the distribution system.
The following are key highlights of this natural gas rate change report:
• Natural gas supply rate decreases for system gas customers;
• Delivery rate increases as proposed in Attachment A;
• With the proposed rate changes, an average residential customer will see an overall rate
decrease of approx. $53.00 or 6% for the period from November 1 st, 2023 to October 31 st
2024 compared with the current rates.
Gas Supply:
The natural gas market prices usually fluctuate with supply, demand, and weather factors.
Kitchener Utilities relies on its purchasing policy to create a blended portfolio of hedging (fixed
price contracts) and market price purchases. Along with the purchase policy, KU relies on the
stabilization reserve to absorb sudden price increases and soften rate spikes. In 2023, the supply
rate was set to maintain the stabilization reserve in anticipation of high volatility in market prices.
Actual market prices were lower than projected and the stabilization reserve is forecasted to be
over the maximum limit by the end of 2023. As the supply program is a pass -though -cost
program, the rate should be reduced to benefit customers. The recent dip in market prices is
forecasted to be short lived and prices are projected to increase in 2024. These conditions
indicate the need to reduce the supply rate in 2023 while maintaining the stabilization reserve
balance at the maximum limit at the end of 2024 given the uncertainty in market prices and the
desire to avoid sudden rate shocks. This would provide financial benefits to customers as well
as sufficient funds in the stabilization reserve to absorb market volatility and maintain rate
stability. Depending on actual market prices, the ability of KU to continue to secure reasonably
priced deals and actual gas consumption volumes, the supply rate should be reviewed frequently
and changed as needed subject to Council approval. Therefore, staff recommends the following:
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• Decrease the supply rate from 20.85 cents per cubic meter to 16.70 cents per cubic meter
effective November 1St, 2023,
• Maintain the stabilization reserve at the maximum limit at the end of 2024,
• Continuously monitor market prices and recommend changes to supply rate if needed.
Figure 1 below shows historical and forecasted supply rate changes for Kitchener Utilities
compared with market prices and Enbridge rates. KU's gas supply rate continues to be lower
than Enbridge's gas supply rate for 2023. The forward market prices are provided by KU's
consultants. These consultants are natural gas subject matter experts who are hired to provide
natural gas market analysis, forecasts, gas models and assist in purchasing KU's natural gas
portfolio.
50.0
45.0
40.0
35.0
30.0
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W M O -1 (14 M 1:* Ln l0 r� W M O r -I N M RI U) (D r- W M O .--i N M 1:* U) l0 I-
Q) al O O O O O O O O O O
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1
KU Gas Rate - cents per m3 — — — — Enbridge Gas rate - cents per m3 Market
Figure 1: Natural gas supply rates comparison
Gas Delivery:
There are two components to the delivery charges: a daily fixed charge, and a variable rate.
There are four Delivery Rate Groups: M1, M2, M4 and M5, (complete definitions are in
Attachment A). These rates service customers of different volumetric requirements. Delivery
rates are usually changed in January; however, KU staff recommends changing delivery rates
this time in conjunction with the supply rate starting November 1St, 2023. This would support
customer preference for rate stability by combining the rate changes and avoid confusion from
consecutive rate changes. The proposed delivery components of the natural gas rates starting
November 1St, 2023, are shown in Attachment A. The key drivers of delivery rate changes are
the following:
Page 114 of 122
Market
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— — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1
KU Gas Rate - cents per m3 — — — — Enbridge Gas rate - cents per m3 Market
Figure 1: Natural gas supply rates comparison
Gas Delivery:
There are two components to the delivery charges: a daily fixed charge, and a variable rate.
There are four Delivery Rate Groups: M1, M2, M4 and M5, (complete definitions are in
Attachment A). These rates service customers of different volumetric requirements. Delivery
rates are usually changed in January; however, KU staff recommends changing delivery rates
this time in conjunction with the supply rate starting November 1St, 2023. This would support
customer preference for rate stability by combining the rate changes and avoid confusion from
consecutive rate changes. The proposed delivery components of the natural gas rates starting
November 1St, 2023, are shown in Attachment A. The key drivers of delivery rate changes are
the following:
Page 114 of 122
• Additional resources that are needed to meet Bill 93, Getting Ontario Connected Act,
2022 requirements,
• A significant increase proposed by Enbridge to its rate that is applied to Kitchener Utilities
as part of its rebasing application (2024-2028) submitted to the Ontario Energy Board
(OEB). KU staff are intervening in the OEB proceeding and revising Enbridge contract
parameters to reduce the impact of the proposed increases,
• Additional funding to support Kitchener Utilities energy transition plans,
• Critically low delivery stabilization reserve that should be increased to mitigate financial
risks to the gas utility,
• Inflationary increases to operating and capital expenditures.
It is anticipated at this time that there will be no further delivery rate change in January 2024.
Comparison with Enbridge:
For an average system gas residential (Ml) customer, the total KU gas bill cost in 2023 is
forecasted to be 12% lower than the cost of similar customer in Enbridge franchise area.
Enbridge is proposing a significant increase to its M1 rates in 2024 however, a comparison for
2024 cannot be achieved now as Enbridge's supply and delivery rates have not been finalized
yet.
STRATEGIC PLAN ALIGNMENT:
This report supports the delivery of core services.
FINANCIAL IMPLICATIONS:
For an average system gas residential (M1) customer consuming 2,000 cubic meters annually,
the proposed natural gas rates result in a decrease in the overall annual bill by approx. $53.00
for the period November 1St 1, 2023, to October 31St, 2024. This excludes the Federal Carbon
Charge.
The increase in delivery rates is necessary to mitigate financial risks to the delivery stabilization
reserve. The stabilization reserve balance is forecasted to be below the 2023 budget estimate.
This reserve is needed to absorb variances in revenues due to weather factors, (colder weather
increases revenue and warmer weather decreases revenue) and to maintain rate stability
through out the year. The 5 -year operating budget projection for gas delivery is presented in
Attachment B.
The natural gas supply stabilization reserve balance is forecasted to be higher than the 2023
budget estimate and therefore, a decrease in the supply rate intends to keep the balance towards
the maximum benchmark of the reserve in 2024. The supply stabilization reserve is needed to
absorb fluctuations in market prices and soften rate spikes. Due to uncertainty and volatility of
gas markets, this reserve should be at the maximum balance to avoid rate shock for KU
customers. The 5 -year operating budget projection for gas supply is presented in attachment C.
Kitchener Utilities supports the Waterloo Region Energy Assistance Program. This program
offers support to customers facing challenges paying their utility bills. The program is
administered by the Region of Waterloo and offers support for both electricity and natural gas
bills.
Page 115 of 122
COMMUNITY ENGAGEMENT:
INFORM - Kitchener Utilities will work with the Corporate Communications and Marketing
Division to ensure that the rate change details are included in the Council Key Decisions media
brief. A bill insert will be distributed with utility bills along with posting information on the Kitchener
Utilities' and City websites. An on -bill message will also appear on October 2023 natural gas
bills.
This report has been posted to the City's website with the agenda in advance of the council /
committee meeting.
PREVIOUS REPORTS/AUTHORITIES:
• INS -2022-486: 2023 Natural Gas Rates
APPROVED BY: Denise McGoldrick, General Manager Infrastructure Services.
ATTACHMENTS:
Attachment A — Natural Gas Rates
Attachment B — 5 -year operating budget projection — Gas Delivery
Attachment C — 5 -year operating budget projection — Gas Supply
Page 116 of 122
APPENDIX A
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
GENERAL SERVICE RATE M1
Applicability
To residential and non -contract commercial and industrial customers that consume less than 50,000 m3 per year.
Rate
Daily Fixed Charge
And
$ .7600
SUPPLY COMMODITY VARIABLE DE LIVERY NET RATE
¢/m3 ¢/m3 ¢/m3
16.7000 10.7371 27.4371
Meter Readines
Gas consumption by each customer under this rate schedule shall be determined by periodic meter readings, provided that in
circumstances beyond the control of the Corporation, such as strikes or non -access to a meter, The Corporation may estimate
the monthly consumption between the meter readings and render a monthly bill to the customer.
Effective
November 1, 2023
Policv Relatine to Terms of Service
1) Gas purchased under this rate schedule shall not be resold, directly or indirectly by the customer, unless resold as "motor
vehicle fuel gas", as that term is defined in Ontario Regulation 805/82.
2) Customers who temporarily discontinue service during any twelve consecutive months without payment of the monthly
fixed charge for the months in which the gas is temporarily disconnected shall pay for disconnection and reconnection.
Page 117 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
GENERAL SERVICE RATE — M2
Applicability
To residential and non -contract commercial and industrial customers that consume 50,000 m3 and more per year.
Rate
Daily Fixed Charge
And
$2.4500
SUPPLY COMMODITY VARIABLE DELIVERY NET RATE
RATE
¢/m3 ¢/m3 ¢/m3
16.7000 9.5023 26.2023
Meter Readings
Gas consumption by each customer under this rate schedule shall be determined by periodic meter readings, provided that in
circumstances beyond the control of the Corporation, such as strikes or non -access to a meter, The Corporation may estimate
the monthly consumption between the meter readings and render a monthly bill to the customer.
Effective
November 1, 2023
Policy Relating to Terms of Service
2) Gas purchased under this rate schedule shall not be resold, directly or indirectly by the customer, unless resold as "motor
vehicle fuel gas", as that term is defined in Ontario Regulation 805/82.
3) Customers who temporarily discontinue service during any twelve consecutive months without payment of the monthly
fixed charge for the months in which the gas is temporarily disconnected shall pay for disconnection and reconnection.
Page 118 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
FIRM INDUSTRIAL AND COMMERCIAL CONTRACT RATE — M4
Applicability
To a customer who enters into a contract for a minimum term of one year, that specifies a daily contracted demand (CD) as follows:
Between 2,400 m3 and 140,870 m3.
Rate
1. Bills will be rendered monthly and shall be the total of
i) A Fixed Demanc
ii) A Variable Deli
iii) A Monthly Gas
Charge:
First 8,450 m3 of the daily contracted demand, 67.9000 ¢/m3
Next 19,700 m3 of the daily contracted demand, 30.8000 ¢/m3
All m3 over 28,150m3 of the daily contracted demand, 16.8000 ¢/m3
very Charge (incl. storage):
First 422,250 m3 delivered per month 2.0000 ¢/m3
Next volume equal to 15 days use of CD 2.0000 ¢/m3
Remainder of volumes delivered in the month 2.0000 ¢/m3
2. Over -run Charge
Authorized overrun gas is available provided that it is authorized by the Corporation in advance. The Corporation will not
unreasonably withhold authorization. Overrun means gas taken on any day in excess of 103% of contracted daily demand.
Authorized overrun will be available April I through October 31, and will be paid for at the rate of 4.5813 ¢/m3 for the delivery
and, if applicable, the federal carbon charge and the total gas supply rate of 16.70 ¢/m3.
Unauthorized overrun in any month shall be paid for at the rate of 9.2371 ¢/m3 for the delivery and, if applicable, the federal
carbon charge and the total gas supply charge for system -supplied volumes at the rate of 16.70 ¢/m3.
3. Minimum Annual Charge
In each contract year, the customer shall purchase from the Corporation or pay for a minimum volume of gas equivalent to
150 days use of contracted demand. Overrun gas volumes will not contribute to the minimum volume. In the event that the
customer shall not take such minimum volume, the customer shall pay an amount equal to the deficiency from the minimum
volume times a rate of 2.497 ¢/m3, and if applicable, a total gas supply charge of 16.70 ¢/m3.
In the event that the contract period exceeds one year, the annual minimum volume will be pro -rated for any part year.
Effective
November 1, 2023
Policy Relating to Terms of Service
Gas purchased under this rate shall not be resold, directly or indirectly by the customer.
Page 119 of 122
CORPORATION OF THE CITY OF KITCHENER
NATURAL GAS
INTERRUPTIBLE INDUSTRIAL AND COMMERCIAL CONTRACT RATE — M5
Applicability
To a Customer who:
A) Enters into a contract for a minimum term of one year that specifies a daily contracted demand between 2,400 m3 and 140,870
m3 inclusive and,
B) Has an alternate fuel supply and combustion system available.
Rate
1. The price of all gas delivered shall be determined on the basis of the following schedules:
i) Monthly Fixed Charge $750.00
a. and
ii) Delivery Charge (incl. storage):
Dailv Contracted Demand Level (CD
2,400 m3
< CD <
17,000 m3
3.5539 ¢/m3
17,000 m3
< CD <
30,000 m3
2.7611 ¢/m3
30,000 m3
< CD <
50,000 m3
2.6859 ¢/m3
50,000 m3
< CD <
70,000 m3
2.6332 ¢/m3
70,000 m3
< CD <
100,000 m3
2.5955 ¢/m3
100,000 m3
< CD <
140,870 m3
1 2.5584 ¢/m3
iii) A Monthly Gas Supply Charge:
Supply Commodity 16.7000 ¢/m3
2. Over -run Charge
Overrun gas is available provided that it is authorized by the Corporation in advance. The Corporation will not unreasonably
withhold authorization. Overrun means gas taken on any day in excess of 105% of contracted daily demand.
Unauthorized overrun gas taken in any month shall be paid for at the rate of 10.7371 ¢/m3 for the delivery and, if applicable,
the federal carbon charge and the total gas supply charge for system -supplied volumes at the rate of 16.70 ¢/m3.
Unauthorized Overrun Non -Compliance Rate:
Unauthorized overrun gas taken any month during a period when a notice of interruption is in effect shall be paid for at the
rate of 234.72 ¢/m3 ($60 per GJ) for the delivery.
3. Minimum Annual Charge
In each contract year, the customer shall purchase from the Corporation or pay for a minimum volume of gas equivalent to
150 days use of contracted demand. Overrun volumes will not contribute to the minimum volume. In the event that the
customer shall not take such minimum volume, the customer shall pay an amount equal to the deficiency from the minimum
volume multiplied by 4.0299 ¢/m3 for the delivery charge and if applicable, a gas supply charge of 16.70 ¢/m3.
Effective
November 1, 2023
Policy Relatine to Terms of Reference
Gas purchased under this rate shall not be resold, directly or indirectly by the customer.
Page 120 of 122
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