KPL-Rates & Electric Tariff- Exhibit A- 2 Response to Information Request No.1

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1 B-2 KYUQUOT POWER LTD Alberni Street, 4th Floor Vancouver, B.C. Canada V6G 2Z Fax January 5, 2006 Robert J. Pellatt Commission Secretary Sixth Floor, 900 Howe Street Box, 250, Vancouver, BC V6Z 2N3 KPL-Rates & Electric Tariff- Exhibit A- 2 Response to Information Request No.1 Below are responses to the BCUC s Information Request No.1 questions in the order they were asked as per letter dated December 22, Total Project and Financing Cost 1.1 The delay in completion of the project was a result of a request from the Ka: yu: k t h /Che:k:tles7et h Nation (the KCN ) to delay the project in order that the KCN would be able to solicit grants or other funds from the Federal Government, other governments or other government bodies. Kyuquot Power Ltd. ( KPL ) agreed to the request during a public meeting held in Houpsitas on March 22, The original request was for a one year moratorium on construction and was extended as the KCN had not been able to formalize an application for grants. Clearing of a portion of the powerline right-ofway had been completed as of March 15, During the early fall of 2004, KPL decided to end the delay and commenced tendering of additional clearing and thereafter construction of the project. (clearing was restarted in December 2004). During the summer of 2005, KCN submitted for grant funding for the project from the Federal Government. 1.2 Substantial completion of the project is scheduled to be achieved by March 30, Substantial completion may not include completion to all of the customers beyond the Houpsitas, as construction may be delayed by regulatory, permitting or other related issues. The powerline will be in-service soon after substantial completion, although connection of customers will also depend on the schedule of the customer (including any upgrading of the customer electrical system that may be required). 1.3 The total capital cost of the project is estimated to be $3.6 million as shown on the attached Schedule 1 1

2 1.3.1 The amount to be included in the 2006/2007 rate base (mid-year) is $3,720,000 which includes the estimated project cost plus an interest reserve of $50,000; a deposit fee for land licence at $20,000 and working capital of $50,000. The return on rate base is estimated at 8.75% which was determined using a debt to equity ratio of 50:50 and an after tax return on equity of 10% as shown on Schedule Financing details of the Kyuquot Grid Connection Project, debt and equity breakdown, and rate of return and interest on debt are shown in the attached Financial Forecast Schedule 2. These schedules are the same as those submitted as appendix E part of CPCN application, updated as necessary. Allowance for Funds Used During Construction (AFUDC) is included in the Construction Cost Estimate shown on Schedule 1. The interest rate applicable to AFUDC was 6% compounded monthly (0.5% per month) 1.5 KPL does not have a credit rating. Synex Energy Resources Ltd., the parent company, has been providing KPL with funds under a inter-company lending agreement. KPL is currently finalizing a lending agreement with the Canadian Western Bank (CWB), which is expected to be the permanent debt financing. KPL provided BCUC a copy of the commitment letter between CWB and KPL in a letter dated December 23, 2006 to Robert Pellatt. The letter of December 23, 2006 requested an early review of the financing in order that KPL could receive the first draw of funds against the agreement in early January In addition to the interest rate included in the debt financing proposal by CWB, Synex Energy is proposing to include a further annual interest charge of 0.5%, compounded monthly, on the debt amount with CWB to account for the security provided by the Synex group of companies. This interest charge will be deleted when KPL is able to secure non-recourse financing. 1.6 There were no contributions in aid of construction or other funding to offset the cost of the project. The KCN have requested grant funds from the Federal Government to be used to offset the cost of the project and KPL has advised the KCN that KPL would be prepared to have the KCN own a portion of the line and provide KPL a right of use and maintenance over that portion of line (the Federal Government indicated that contributions in aid of construction provided to KPL would not be acceptable as KPL is a private company). We are also providing some customers with an estimate of the customer contribution in aid of construction for circumstances where the customer wishes a more expensive design option for the powerline (generally where the customer wishes underground wiring or pad mounted transformers adjacent to their properties). However, none of these enquiries has resulted in a change in the design (or cost of project) to date. 1.7 The ongoing operations of the Company are self financing. In the event of a major equipment or other failure requiring capital expenditure, KPL would look to Synex Energy Resources Ltd for immediate funding (and follow up with CWB in order to maintain the 50:50 debt to equity ratio). 2 Customer Load and Billing 2.1 KPL has proposed the use of a single rate class. The forecasted number of customers and expected electricity consumption are as shown below. 2

3 Customer Group Expected Number of Customers Total Forecasted Annual Consumption (kwh) Houpistas 1 440,000 School & Teacherages 1 200,000 Walters Cove ,000 Chamiss Bay 1 (potential 5) 70,000 Logging Camp 1 576,000 Fair Harbour 1 100,000 Total 1,586,000 The Total Forecasted Annual Consumption (kwh) is as shown in the CPCN. The studies for anticipated consumption in a test year have not been updated, however the following comments can be generalized: a) Houpsitas Reserve: the existing diesel generation plant contains one unit at 210 kw and two standby units at 115 kw. It is understood that a single standby unit is unable to provide all of the electrical requirements during an average day (the peak usage during the day will exceed about 90kw). Only one electric meter will be used to read the total Houpsitas Group power consumption. b) School and Teacherages: There have been no significant changes in the school population. The teacharges would not be billed and metered separately the school is responsible for the distribution without metering of individual accounts and the payment of the total power consumption. The total consumption is metered through the school electric meter. c) Walters Cove: There has been some upgrading of the buildings over the past few years and an anticipation that further upgrading will be done if grid electricity is available. d) Chamiss Bay: The mobile homes have been largely unoccupied over the last few years. However, there is an indication that they are to be re-occupied. There are 5 trailers in the area. One of potential customers has already shown interest in connecting to the service. e) Logging Camp: The Interfor logging camp has had minimal use over the last couple of years and the diesel plant has been decreased in size to a 60kw genset (there was also a 10kW genset for a while for use when the camp was on caretaker status). The camp is currently operating on a reduced basis although Interfor has stated that they anticipate a logging contractor will operate the camp on a more permanent basis. f) Fair Harbour: Fair Harbour is currently energized and has one existing customer. The electricity use is expected to average about 1.4kw in the winter with significantly 3

4 higher loads in the summer. Fair Harbour continues to attract significant tourist visits during the summer. The salmon farm(s) in Kyuquot Sound (that moved their product through Fair Harbour) ceased operations in the summer of 2005 due to economic considerations. 2.2 Yes, the monthly billings are prepared by KPL (through Sigma Engineering). The billings are generated using a billing model. In addition to generating invoices the model also generates operating revenue and monthly power consumption summaries broken down by account type, PST, GST, and meter readings reports. KPL will accept payment only by cheque or money order (not by credit or debit card), which are to be mailed to KPL head office. 2.3 KPL will hire local personnel as needed to undertake meter reading and any emergency response services. Meter readings are mostly generated by radio signal and will be ed to the KPL office in Vancouver. Repairs and maintenance to the powerline will be completed by qualified contractors (mostly based in Campbell River as is currently the case for repairs to BC Hydro lines in Zeballos) KPL will be preparing a Local Operating Order (LOO), which will contain and describes the emergency procedures. The LOO will also contain the names and contact numbers of key personnel at KPL and BC Hydro. 3. Operation Cost and Revenue 3.1 Personnel of Sigma Engineering, an affiliated company, will provide most of the services to KPL. Some of the services include customers account management, monthly billings, permitting issues, customer correspondence, day to day operation and maintenance tasks. In addition, personnel of Synex International Inc, the parent company of the Synex Group, will provide accounting and management services. The personnel of Sigma Engineering Ltd and Synex International Inc. will be billed at the prevailing inter-company rates. The intercompany rates are determined to be at a break-even basis (no profit) and are at approximately 2 times salary (or about 1.6 times payroll cost which includes benefits, rent and other minor items) 3.2 KPL s fiscal year end is June The regulatory schedules for fiscal 2005, fiscal 2006 and fiscal 2007 are shown on the attached Schedule 2 titled Financial Forecast 3.4 Attached as Schedule 3 are the financial statements of KPL to June 30, 2005 and the internally prepared monthly financial statements for the period July 1, 2005 to November 31, Electrical Tariff Pages 4.1 The energy charge of $0.35/kwh was determined based on the financial analysis of the utility as proposed in the CPCN filing. Should the electricity charges exceed an amount of $0.35 per kwh, there is a concern that major customers may self-generate on the basis that it is less costly (although KPL considers that an accurate determination of costs would demonstrate 4

5 that the cost of self-generation significantly exceeds $0.35 per kwh for these customers). In the CPCN analysis, deferred depreciation was utilized to limit the energy charge to $0.35 per kwh and this deferral has been increased to be initially nearly 85% deferral as shown on Schedule 2. A reliable and convenient source of electricity supply should contribute to an increase in electricity use in many homes and businesses. An approximate 2 % annual increase in electricity use after commencement of supply from the grid connection was assumed. Each time a service is disconnected a minimum reconnection charge of $50.00 is applied to the customer s account. A monthly charge of $5.00 will ensure that the account will remain connected even when no or minimal power is used (unless the customer requests to close the account). This minimum fee encourages customers to keep their accounts open and therefore avoid any reconnection fees. 4.2 Cost of the HPS Luminaries: The cost of the HPS luminaries was determined as sum of the energy cost and a fixed base cost for the appropriate Luminaire size. The energy cost is determined using an energy cost of $0.35 per kwh based on a Sodium Vapour Unit being lighted for 12 hrs/day. The fixed cost is the difference between the calculated energy cost and the charge for the appropriate luminaire size as per BC Hydro Electric Tariff. Example, as per BC Hydro Electrical Tariff the rate for a 100 Watt lamp is $10.62/month which breaks down to energy cost of 36.6 kwh x $0.0605/kwh = $2.21/month,. The actual BC Hydro s charge is $10.62, therefore the fixed amount is $8.41/month. At KPL rate of $0.35 kwh the monthly cost gives an energy charge of $12.81 plus a fixed charge of $ 8.41 for a total cost of $21.22/month. The same principal is used for different fixture sizes. 4.3 A Temporary Service would generally be defined as a customer who receives a temporary electrical permit from the Electrical Safety Branch. 4.4 The definition of single family dwelling matches the definition of a dwelling unit in the BC Building Code and may be used for multi-use complexes with more than one meter. 4.5 Customer facilities may not be satisfactory to KPL if they do not conform to the Canadian Electrical Code. KPL does not have its own standards with regards to customer facilities and will accept the facilities should they be passed by the Electrical Safety Branch. 4.6 With regard to the statement a customer has no right to assign any service agreement to another individual or person means that the customer may not assign his account to another individual or company. Should someone else request service at the same location, the new person or entity is required to submit an application directly to KPL 4.7 The $ is the minimum fee to cover for an estimated two months power consumption of a residential account. 5

6 4.8 The most likely situation is where a second dwelling is electrically connected to the first dwelling and the first dwelling has the only electric meter. The discretion of the Company is whether to increase the basic charge (say double the basic charge). 4.9 If the customer wants his meter tested, a written request is to be submitted to KPL with a $75.00 meter removal charge. Additional shipping and test charges may be applied. KPL will ship the meter to the Electricity Meters Inspection Branch of the Department of Consumer and Corporate Affairs of Canada for testing. If the customer meter fails to comply with the test requirement, and there is no indication of physical or evidence of fraud and criminal acts, KPL will refund all charges and address any overcharging due to the faulty meter, otherwise no amounts are refunded to the customer Paragraph (f) (c) applies to a Customer who receives service through a special arrangement as opposed to under Rate Schedule There are currently no provisions for such service which would be subject to review by the BCUC 4.11 This section is in error as there are no current provisions for demand billing The Sentence in page 24 of the Electric Tariff Suspenton of Supply will be corrected to say Suspension of Supply 4.13 The contribution maximum was determined by assuming that a single family dwelling would use 1kw on average (8760kwh per year) multiplied by the non-direct costs of service (about $0.22 per kwh) over a 2.5 year period. The extension allowance is not expected to be available to non residential customers. A significant commercial customer may wish to negotiate an arrangement with KPL, however any such arrangement would be subject to the approval of the BCUC. Further to the Tariff page 20, we are suggesting that the statement In addition to payments for electricity be revised to be In addition to any rates and charges as set out in this Tariff and in Rate Schedule 1101 page 30 delete sentence Available to any non-federal government residential customer within the community of Kyuquot, BC, requiring a single phase service in a single family residence or an individual apartment where service is taken through one meter. Not applicable for any commercial or industrial use, and replace by Available to any residential or commercial customer requiring single phase service where service is taken through one meter. 6

7 SCHEDULE 1

8 Schedule 1 Kyuquot Grid Connection Construction Cost Estimates Sub-Totals Oclucje to Fair Harbour Clearing and Decking 156,601 Poles & Line Construction 840,251 Fair Harbour to Markale Chamiss Bay Submarine Cable Supply 326,016 Cable Laying 174,000 Terminations and Misc 25,495 Chamiss Bay to Houpsitas Clearing 105,683 Poles & Line Construction 525,449 Misc 5,000 Distribution Submarine Cable 130,000 Cable Laying 223,000 Ploes & Line Construction 201,000 Misc.(including Transformers and meters) 30,425 Project Management and Indirect Costs Project Costs to June 30, 2005 excl IDC 226,812 Synex and Sigma Engineering Services 267,332 Other Engineering Services 25,100 Travel, Site and Accomodation Expenses including Labour 51,737 Interest During Construction - Equity and Debt 146,752 Insurance 41,863 BC Hydro and LWBC fees 12,137 Financing Fees 17,136 Legal 20,260 Contingencies 47,952 $996,852 $525,511 $636,132 $584,425 $809,128 $47,952 TOTAL $3,600,000

9 SCHEDULE 2 Includes the following tables: Table 1 - Table 2 - Table 3 - Table 4 - Rate Base Income and Expenses Capital Structure Income Taxes

10 Schedule 2 Kyuquot Financial Forecast Table 1 Test years are 2006/07 onward UTILITY RATE BASE KPL KPL KPL 2005/06 06/07 07/08 Plant at Year Start 0 3,600,000 3,610,000 Net Additions 3,600,000 10,000 10,000 Disposals Plant at Year End 3,600,000 3,610,000 3,620,000 Add: Work in Progress Less: Excess over RBase Accum Depn 0 (20,000) (40,000) Net Plant at Year End 3,600,000 3,590,000 3,580,000 Net Plant at mid-year 1,800,000 3,595,000 3,585,000 Current Assets at mid-year 90, , ,000 Current Liab at mid-year (10,000) (15,000) (25,000) UTILITY RATE BASE - Mid Year 1,880,000 3,700,000 3,680,000

11 Table 2 FOR YEARS ENDING JUNE 30 UTILITY INCOME AND RETURN Schedule 2 Kyuquot Financial Forecast KPL KPL KPL 2005/06 06/07 07/08 Energy Sales in MWh Average Cents per kwh % Increase in Rates 0.00% 0.00% -0.75% UTILITY REVENUE Energy Sales 122, , ,778 Other Income BC Hydro Rate per MWh BC Hydro Charges 20,043 94,315 99,482 GROSS MARGIN 102, , ,296 EXPENSES Depreciation (30 yr straight) 60, , ,333 Deferred Depreciation (60,000) (100,000) (100,333) Interest on Long-Term Debt 45, , ,000 Selling, General and Administrative: Communications 300 1,000 1,000 Contract Services - SEL 10,000 30,000 30,000 Contract Services - SXI 2,000 8,000 8,000 Contract Services - Others 8,000 30,000 30,000 Customer Collections Delivery 200 1,000 1,000 Distribution O & M 0 6,000 6,000 O/H Powerline O & M 1,000 8,000 8,000 Submarine Cable O & M 0 1,000 1,000 Insurance 5,000 25,000 25,000 Leases, Licenses & Fees 100 1,700 1,700 Meters/Street Lighting O & M Office & Miscellaneous Travel & Promotion 250 2,500 2,500 TOTAL EXPENSES 72, , ,300 Utility income before Tax 29, , ,996 Income Tax Expense 0 0 2,676 Add Long Term Interest 45, , ,000 EARNED RETURN 75, , ,321 UTILITY RATE BASE 1,880,000 3,700,000 3,680,000 RETURN ON RATE BASE 4.02% 8.80% 8.73%

12 Schedule 2 Kyuquot Financial Forecast Table 3 KPL KPL KPL CAPITAL STRUCTURE (MID YEAR) 2005/06 06/07 07/08 Notes Payable (Notional) 940,000 1,850,000 1,840,000 Proportion 50.00% 50.00% 50.00% Rate of Return 7.50% 7.50% 7.50% Cost Component 3.75% 3.75% 3.75% Interest Amount 45, , ,000 Common Equity & Retained Earnings 940,000 1,850,000 1,840,000 Proportion 50.00% 50.00% 50.00% Rate of Return 3.17% 10.09% 9.96% Cost Component 1.58% 5.05% 4.98% After Tax Income 29, , ,321 Mid Year Utility Rate Base 1,880,000 3,700,000 3,680,000 Mid Year Return on Rate Base 4.02% 8.80% 8.73% Table 4 KPL KPL KPL INCOME TAXES 2005/06 06/07 07/08 Util Income before Tax (60,232) (3,865) 7,432 Accounting Income (60,232) (3,865) 7,432 Less: Timing Diff TAXABLE INCOME (60,232) (3,865) 7,432 Income tax rate 36.00% 36.00% 36.00% INCOME TAX EXPENSE 0 0 2,676 After Tax Income (60,232) (3,865) 4,757

13 SCHEDULE 3 FINANCIAL STATEMENTS FOR THE PERIOD ENDING JUNE 30, 2005

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20 SCHEDULE 3 FINANCIAL STATEMENTS FOR THE PERIOD STARTING JULY 1, 2005 ENDING NOVEMBER 30, 2005

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