FINAL ARGUMENT YUKON ENERGY CORPORATION

Transcription

1 IN THE MATTER OF YUKON ENERGY CORPORATION ( YEC ) APPLICATION RE: THE POWER PURCHASE AGREEMENT BETWEEN YEC AND VICTORIA GOLD CORP. AND CORPORATION (COLLECTIVELY GROUP ) STRATAGOLD VGC FINAL ARGUMENT YUKON ENERGY CORPORATION December 22, 2017

2 TABLE OF CONTENTS PREFACE LIMITED SCOPE OF PPA APPLICATION CONSISTENCY WITH EXISTING APPROVED PPAS DIFFERENCES COMPARED WITH ALEXCO PPA PRINCIPLED BASIS FOR REQUESTED APPROVALS BASIS FOR FIXED CHARGE FOR SERVICE TO VGC GROUP MINE AS PERMITTED BY RATE SCHEDULE % ASSIGNMENT OF FIXED ANNUAL COST FOR TRANSMISSION FACILITIES INCLUSION OF SVC/STATCOM IN TRANSMISSION FACILITIES FIXED COST INCLUSION OF YEC S MCQUESTEN SUBSTATION COSTS IN TRANSMISSION FACILITIES FIXED COST IMPLICATION OF CHANGE TO THE 85% ASSIGNMENT BASIS FOR CUSTOMER CONTRIBUTION FOR CAPITAL COSTS RATEPAYER IMPACTS CONSISTENCY WITH OIC DIRECTIONS COST OF SERVICE RELATED OIC DIRECTIONS OIC DIRECTIONS THAT GOVERN CHANGES TO EXISTING RATES December 22, 2017 Page i

3 YUKON ENERGY CORPORATION ( YEC ) APPLICATION REGARDING THE POWER PURCHASE AGREEMENT ( PPA ) BETWEEN YEC AND VICTORIA GOLD CORP. AND STRATAGOLD CORPORATION (COLLECTIVELY VGC GROUP ) YUKON ENERGY CORPORATION FINAL ARGUMENT PREFACE OVERVIEW OF APPLICATION Yukn Energy ( YEC ) filed an applicatin (the Applicatin ) n Nvember 10, 2017 seeking an Order frm the Yukn Utilities Bard ( YUB r the Bard ) fr requested apprvals related t the implementatin f the Pwer Purchase Agreement ( PPA ) that Yukn Energy has recently cncluded with Victria Gld Crp ( VGC ) and StrataGld Crpratin ( StrataGld ) (cllectively VGC Grup ). The PPA was prvided as an Attachment A t the Applicatin (capitalized terms in this Argument that are related t the PPA are as defined in the PPA). Order directed the Applicatin t be f limited scpe and determined by way f a written prceeding with ne rund f interrgatries and written argument and reply. Jhn Maissan (JM) and Utilities Cnsumers Grup (UCG) are bth participating as intervenrs in this limited scpe review prcess, and prvided IRs t Yukn Energy n Nvember 28, 2017 which were respnded t n December 11, As nted in YEC s December 11, 2017 letter filed with the IR respnses, the respnse t YUB- YEC-1-28 prvided an update t infrmatin included in Sectin 6.0 f the Applicatin (including a revised Table 3 and revised text in Sectin 6.2). SUMMARY OF REQUESTED APPROVALS In relatin t the VGC Grup PPA, Yukn Energy is requesting an Order f the Bard apprving: 1. The custmer cntributin payments by VGC Grup t YEC under Sectin 6.1 f the PPA fr YEC Capital Csts, including payments fr: Actual YEC Capital Csts fr negtiatin and cnclusin f the PPA Agreement, estimated at $200,000; Actual YEC Capital Csts fr the Initial YEC System Imprvements, currently estimated at $1,677,883; December 22, 2017 Page 1

4 Actual YEC Owner s Csts fr the McQuesten Substatin, currently estimated at $483,240; and Actual YEC csts reasnably required fr design, engineering, prcurement, cnstructin and cmmissining f the Step Dwn Transfrmer at the McQuesten Substatin, shuld ne be determined t be required. 2. The Fixed Charge prvisins as set ut in Sectin 7.7 f the PPA, including: a. The initial Transmissin Facilities Fixed Cst f $118,621 per year, as dcumented in Attachment B t this Applicatin, fr use in determining the Fixed Charge under Sectin 7.7; and b. Prvisins t amend the Transmissin Facilities Fixed Cst after the Transmissin Facilities Develpment Operatin Date based n YEC s adjusted annual csts as apprved by the Bard fr depreciatin and return n rate base related t the Transmissin Facilities (which includes the Transmissin Facilities Develpment) plus the SVC/Statcm and YEC s McQuesten Substatin Csts ($930,563 as per Sectin 6.1(d) and Schedule B f the PPA) Any related amendments t the Rate Schedule 39 Firm Mine Rate as required t cnfrm with Attachment A t the PPA and t accmmdate the PPA. Yukn Energy s Applicatin and interrgatry respnses fully address and supprt the reasnableness and necessity f the requested apprvals. OVERVIEW OF YUKON ENERGY FINAL ARGUMENT Yukn Energy s Final Argument is divided int the fllwing sectins: Limited Scpe f PPA Applicatin Cnsistency with Existing Apprved PPAs; Differences Cmpared with Alexc PPA; Principled basis fr Requested Apprvals; Ratepayer Impacts; and Cnsistency with OIC Requirements. 1 The YEC McQuesten Substatin Csts will be held in WIP and will accrue AFUDC until the Transmissin Facilities Operatin Date. Under the PPA prvisins, these csts will then be included in the Transmissin Facilities Fixed Cst per year, with 85% f the annual cst included in the Fixed Charge (r shared between VGC Grup and any Other Industrial Custmers). December 22, 2017 Page 2

5 1.0 LIMITED SCOPE OF PPA APPLICATION CONSISTENCY WITH EXISTING APPROVED PPAS The VGC Grup PPA prvisins are generally cnsistent with existing PPAs apprved by the Bard between YEC and Mint Explratins Ltd and between YEC and Alexc. As is the case with the VGC Grup PPA, the Alexc PPA included multiple industrial custmer entities (namely: Alexc Ken Hill Mining Crp., ELSA Reclamatin & Develpment Cmpany, and Alexc Resurce Crp.). 2 YEC s respnse t UCG-YEC-1-18(f) describes key similarities and differences between the Mint, Alexc and VGC Grup PPAs. This IR als highlights the areas f risk included in the Mint PPA that required cmplex lan and security and take-r-pay arrangements that were nt required r included in the Alexc PPA. 3 With regard t the Alexc PPA and VGC Grup PPA, there is n cmparable new bulk transmissin required t be develped slely fr these custmers, n lan prvisins, and YEC is nt required t purchase any n-site diesel units. As nted in respnse t UCG-YEC-1-18(f), the Mint PPA as finally apprved by the YUB was used as the template fr the Alexc PPA; hwever, the Alexc PPA was cnsiderably simplified cmpared t the Mint PPA due t different circumstances surrunding the negtiatin f the respective agreements and prvisins f service t each f the mines. The VCG Grup PPA is based n the simplified apprach used fr the Alexc PPA, with mdificatins t address issues specific t the cnnectin f the VGC Grup mine and available Transmissin Facilities Develpment ptins. The VGC Grup Mine will receive Grid Electricity frm a segment f the same Yukn Energy transmissin facilities used t supply Alexc pursuant t the Alexc PPA, i.e., the existing May- Ken City 69 kv transmissin facilities. Cnsistency f the VGC Grup PPA with the apprved Alexc PPA was therefre sught and achieved, including cnsistency n the fllwing key prvisins: 1. Rates applied t Industrial Custmer (including Fixed Charge related t 85% f fixed annual YEC csts fr the May-Ken Transmissin Facilities) Cnsistent applicatin t the Industrial Custmer f Rate Schedule 39 as apprved by the Bard frm time t time, including a Fixed Charge specific t each Mine and based n the same principles as apprved by the Bard fr the Alexc PPA, i.e., 85% f YEC fixed csts fr the defined Transmissin Facilities (in this case, fr the segment frm May t McQuesten) with prvisin fr adjustment and sharing f the Fixed Charge (as apprved 2 See YUB-YEC-1-1 fr clarificatin f VGC Grup entities and directrs. 3 The Mint PPA included mre cmplex arrangements based largely n the fact that Yukn Energy was, under the Mint PPA, laning Mint the funds t prvide capital cntributins t the CSTP Stage 1 Line and Mint Spur line, and Mint was t repay these funds ver a 7 year perid. YEC was als incurring, under the Mint PPA, ptential net csts fr CSTP Stage 1 develpment, and sught security and minimum annual payments (take r pay prvisin) t ffset risks related t such csts. December 22, 2017 Page 3

6 by the Bard) when mre than ne Industrial Custmer is using these facilities. YEC s Alexc PPA Applicatin specifically addressed the limitatin f the Fixed Charge t the established May-Ken line, nting that Mint PPA prvisins fr a new industrial custmer cntributing t Carmacks Stewart Transmissin Prject (CSTP) capital csts wuld nt apply t Alexc. 2. Custmer Cntributins fr Capital Csts t Cnnect - Cnsistent cmmitment by the Industrial Custmer t pay n an equivalent basis fr all capital csts required t cnnect t the YEC grid, including cmmitment t pay fr: a. YEC s capital csts fr any new substatin r mine facilities spur facilities develped slely t cnnect the new Industrial Custmer (in VGC Grup PPA, as reviewed belw, the VGC Grup is directly undertaking the required wrks); and b. YEC s csts t negtiate and cnclude the PPA. 3. N Take r Pay Prvisins Cnsistent exclusin frm the Alexc and VGC Grup PPAs f any take r pay prvisins similar t thse included in the Mint PPA. As reviewed in respnse t YUB-YEC-1-26(a and b) and UCG-YEC-1-18(e), take r pay prvisins are nt required r apprpriate when the Industrial Custmer pays up frnt fr all YEC transmissin and substatin capital csts required fr the custmer t cnnect t the grid. 4. N Fixed Charge r ther Cst Assignment related t Incremental Generatin Csts Cnsistent exclusin frm the Alexc and VGC Grup PPAs (as well as frm the Mint PPA) f any fixed charge r ther cst assignment related t incremental generatin csts. As reviewed in respnse t YUB-YEC-1-20(e), there is n principled basis t include a prtin f YEC s fixed generatin csts in the fixed charge applied t an industrial custmer. As reviewed in respnse t UCG-YEC-1-17(a and b), within the current regulatry cmpact it wuld be cnsidered unfair, inequitable and rate discriminatin t make an individual custmer r class f custmers wh receive cmparable electrical service pay rates fr thermal generatin that were designed based n fundamentally different methdlgies, e.g., incremental csts versus average csts, new versus ld service. 2.0 DIFFERENCES COMPARED WITH ALEXCO PPA Differences in the VGC Grup PPA cmpared with the Alexc PPA reflect issues specific t the cnnectin f the VGC Grup mine and available Transmissin Facilities Develpment ptins. These differences d nt mdify fundamental principles adpted in the Alexc PPA. December 22, 2017 Page 4

7 Aside frm specific Cnditins Precedent set ut in the VGC Grup PPA t address steps fr final implementatin, the differences fr the VGC Grup PPA cmpared with the Alexc PPA include the fllwing: 1. Mine Facilities Spur VGC Grup (rather than YEC) will build and wn the Mine Facilities Spur, with the result that the tw PPAs differ as regards this element Decmmissining Prvisins The VGC Grup PPA des nt include any f the decmmissining prvisins that are included in the Alexc PPA and the Mint PPA. Such prvisins are relevant in a PPA nly when YEC builds and wns facilities (e.g., a mine facilities spur) that will need t be decmmissined when the Industrial Custmer n lnger receives service. In the case f the VGC Grup PPA, there are n such facilities (i.e., YEC will nt wn the Mine Facilities Spur, and YEC des nt plan t decmmissin the McQuesten Substatin when the VGC Grup n lnger needs service), and therefre there is n need fr any decmmissining prvisins. 3. Added Prvisins and Other Differences in VGC Grup PPA The VGC Grup PPA includes added prvisins nt fund in the Alexc PPA and ther differences t address issues specific t the cnnectin f the VGC Grup Mine as well as Transmissin Facilities Develpment ptins relevant t the current PPA. These added prvisins and ther differences include the fllwing: a. McQuesten Substatin As per Schedule B f the PPA and in rder t meet VGC Grup s prpsed timing, the VGC Grup PPA prvides fr this facility t be funded and develped by VGC Grup with a prvisin fr YEC funding f csts t enable 138 kv capability (YEC McQuesten Substatin Csts), and with prvisin t transfer t YEC wnership and peratin f the facility. 5 The PPA als prvides fr VGC Grup t fund YEC csts fr a Step Dwn Transfrmer if and when required by VGC Grup at the McQuesten Substatin, and fr YEC McQuesten Substatin Csts t be included in the Transmissin Facilities Fixed Cst after the Transmissin Facilities Develpment Operatin Date. The McQuesten Substatin was included in the Stewart Ken City Transmissin Prject ( SKTP ) as reviewed and recmmended by YESAB as part f the prpsed grid develpment t replace existing end f life transmissin (May- Ken) and t secure added ability t supply r mve pwer lads. 6 In this cntext, the VGC Grup PPA is facilitating accelerated develpment f a facility that was being planned in any event fr this prtin f the grid. 4 Respnse t YUB-YEC-1-2 cnfirms that VGC Grup will be respnsible fr all future maintenance activities and csts related t the Mine Facilities Spur. 5 See Schedule B f the PPA. Details reviewed in IR respnses include: YUB-YEC-1-27 and JM-YEC-1-2 re: ATCO Pwer Canada Limited rle; YUB-YEC-1-5(a), YUB-YEC-1-13(a-b), YUB-YEC-1-16, YUB-YEC-1-17(c), UCG-YEC-1-9, UCG-YEC-1-23 re: McQuesten Substatin capital csts, the ratinale fr YEC funding and recvering thrugh rates specific csts related t 138 kv capability, and ther related matters. 6 See respnse t YUB-YEC-1-12(b,c,d) and YUB-YEC-1-5(a,b,c,d). December 22, 2017 Page 5

8 b. Initial YEC System Imprvements, VGC Grup Pwer Facilities, and Operating Agreement - VGC Grup is funding YEC capital csts prir t Cmmencement f Delivery fr initial YEC system imprvements t accmmdate the sale f Grid Electricity by YEC t VGC Grup fr the Mine 7. The PPA includes ther prvisins t be in place prir t Cmmencement f Delivery related t VGC Grup Pwer Facilities (Schedule D) and an Operating Agreement (Schedule E). Cllectively, these PPA elements reflect prvisins t accmmdate the magnitude f the VGC lad and its lcatin at the nrthern end f the existing grid. c. Transmissin Facilities Develpment Optins - The VGC Grup PPA prvides fr cnnectin f a relatively large Industrial Custmer lad t an existing end f life transmissin facility that is serving the Ken regin, i.e., the existing 69 kv line between May and McQuesten. 8 i. As reviewed in Sectin 4.3 f the PPA Applicatin, a new line frm May t Ken City is required t replace the end f life existing 69 kv line cnstructed in the 1950s. With r withut the VGC Grup Mine, this existing line needs t be replaced. ii. The SKTP prpsal as reviewed and recmmended by YESAB addressed the requirement t replace existing end f life transmissin (May-Ken) and t secure added ability t supply r mve pwer lads in this regin; it included a new 138 kv transmissin frm Stewart Crssing t Ken City, with the McQuesten Substatin and peratin at 138 kv frm Stewart Crssing t McQuesten and at 69 kv frm McQuesten t Ken City. As a result, Sectin 4.5 f the VGC Grup PPA includes prvisin fr YEC t prceed n r befre Octber 1, 2018 with ne f tw identified Transmissin Facilities Develpment ptins 9 (under bth ptins, the existing 69 kv line between Stewart Crssing and May wuld remain, and at a minimum the existing May-McQuesten 69 kv segment wuld be replaced): iii. Default ptin - Prvide a new 138 kv line between May and McQuesten Substatin, t be perated at 69 kv; 10 r iv. Full SKTP develpment ptin Subject t securing external funding as needed, a new 138 kv line frm Stewart Crssing t Ken City, perated 7 See Schedule C f the PPA. Details were reviewed in respnse t UCG-YEC See respnse t YUB-YEC-1-4; YUB-YEC-1-12(b,c,d); and YUB-YEC-1-5(a,b,c,d). 9 Csts fr the tw ptins reviewed in YUB-YEC See YUB-YEC-1-13(c,d) fr clarificatins. 10 See YUB-YEC-1-6(a,b,c) re: minimal impact n line lsses f perating 138kV line at 69kV, and YUB-YEC-1-5(c) re: ability f the default ptin t supply the VGC Grup and Alexc lads. Fr added review f the default ptin, see YUB- YEC-1-17(a-c) and YUB-YEC-1-12(h) re: default ptin required t address current requirements. December 22, 2017 Page 6

9 at 138 kv between Stewart Crssing and McQuesten Substatin and at 69 kv between McQuesten Substatin and Ken City. 11 The VGC Grup PPA recgnizes that any Transmissin Facilities Develpment (as defined in the PPA) will be implemented as part f planned and required verall grid develpment, rather than slely fr the benefit f the VGC Grup Mine. d. Mre detailed prvisins related t the Fixed Charge The VGC Grup PPA includes mre detailed prvisins related t Fixed Charge adjustments in rder t accmmdate planned Transmissin Facilities Develpment ptins as well as ther cnditins nted in the PPA, e.g., recvery f SVC/Statcm csts and YEC McQuesten Substatin Csts. As with the Alexc PPA, the VGC Grup PPA prvides fr sharing f the Fixed Charge when there is ptential cncurrent use f Transmissin Facilities by VGC Grup and Other Industrial Custmers (including Alexc); hwever, the VGC Grup PPA is mre specific as t the basis fr such sharing, i.e., based n calendar year energy use. e. Other Ntable Differences Other ntable differences between the VGC Grup PPA and the Alexc PPA include: i. Meters The VGC Grup PPA addresses nly ne mine site and therefre des nt include the Alexc PPA ttalized metering prvisins. 12 ii. Lad Pwer Factr f 96% leading Sectin 5.1 f the VGC Grup PPA includes a lad Pwer Factr requirement f 96% leading PRINCIPLED BASIS FOR REQUESTED APPROVALS As reviewed in Sectin 4.2 f the PPA Applicatin, extensin f electric pwer service t new custmers seeking t cnnect t the Yukn Integrated System (YIS) is gverned by Terms and Cnditins f Service apprved by the YUB fr Yukn Energy and ATCO Electric Yukn (AEY). Maximum Utility Investment Levels (MILs) fr cnnecting new residential, cmmercial and industrial custmers were last reviewed in the jint Yukn Energy and Yukn Electrical 2009 Rate Applicatin and apprved in Order The current industrial MIL plicy fr Yukn, as apprved by the YUB, fcuses n the fllwing: Maximizing ptential industrial custmer investment t new transmissin facilities develped t extend service t them; and 11 Fr details n full SKTP ptin (including final recmmended apprval frm YESAB and Gvernment f Yukn acceptance f the recmmendatin), see YUB-YEC-1-10(a,b,c), YUB-YEC-1-11(a,b,c,d), YUB-YEC-1-12(e-h), YUB-YEC-1-13(c,d). 12 See JM-YEC-1-11 and UCG-YEC-1-24 fr review f Sectin 8.1 f the VGC Grup PPA regarding meter prvisins. 13 See YUB-YEC-1-18 fr a review f this requirement and the reasn fr its inclusin. December 22, 2017 Page 7

10 Retaining direct assignment f annual capital-related transmissin csts fr existing facilities, where apprpriate, based n past practice in Yukn. This plicy reduces the risk f adverse ratepayer cst impacts t ther utility ratepayers fr new capital csts needed t cnnect a new majr industrial custmer, while facilitating enhanced transmissin facility develpment where this is feasible t reduce csts fr majr new industrial lads. Sectin 5.7 f the PPA prvides that the Terms and Cnditins f Service apply t the Parties with regard t Grid Electricity delivered by YEC t VGC Grup under the PPA including, withut limitatin, the prvisins regarding the respnsibility and liability f each Party. If there is an incnsistency between the Terms and Cnditins and this Agreement the Terms and Cnditins will gvern. The charges and capital cst cntributins t be paid pursuant t the PPA are cnsistent with the principles included in the Mint PPA (apprved by the Bard in Order ) and Alexc PPA (apprved by the Bard in Order and ), and the Terms and Cnditins as apprved by Bard Order Sectins 1 and 2 f this Final Argument have reviewed the cnsistency f the VGC Grup PPA with existing apprved PPAs, as well as key differences frm the Alexc PPA. Sectins 3.1 and 3.2 belw fcus n the specific apprvals sught frm the Bard regarding PPA prvisins fr the Fixed Charge and the custmer cntributin payments by VGC Grup t YEC fr YEC Capital Csts. The final specific apprval sught frm the Bard, i.e., related amendments t Rate Schedule 39 Firm Mine Rate as required t cnfrm with Attachment A t the PPA and t accmmdate the PPA, are nted in the PPA Applicatin (Sectin 5.5, page 14) t include the fllwing: 1. Revise the wrding fr the Fixed Charge t be applied t Alexc mine s as t enable amendment by the Bard based n the VGC Grup PPA; 2. Prvide fr a new Fixed Charge applicable t the VGC Grup; and 3. Edit the Available sectin as needed t reflect tday s Yukn Integrated Grid. 3.1 BASIS FOR FIXED CHARGE FOR SERVICE TO VGC GROUP MINE AS PERMITTED BY RATE SCHEDULE 39 Yukn Energy is requesting Bard apprval f the Fixed Charge prvisins as set ut in Sectin 7.7 f the PPA, including the initial Transmissin Facilities Fixed Cst f $118,621 per year, as dcumented in Attachment B t this Applicatin, fr use in determining the Fixed Charge under Sectin 7.7, and prvisins t amend the Transmissin Facilities Fixed Cst after the Transmissin Facilities Develpment Operatin Date based n YEC s adjusted annual csts as apprved by the Bard fr depreciatin and return n rate base related t the Transmissin December 22, 2017 Page 8

11 Facilities (which includes the Transmissin Facilities Develpment) plus the SVC/Statcm and YEC s McQuesten Substatin Csts ($930,563 as per Sectin 6.1(d) and Schedule B f the PPA). The Fixed Charge in Sectin 7.7 f the VGC PPA assigns VGC Grup, r the VGC Grup alng with any Other Industrial Custmer (defined as any ther Industrial Custmer using the defined Transmissin Facilities), 85% f YEC s annual depreciatin and return as apprved by the Bard (the Transmissin Facilities Fixed Cst ) fr the defined Transmissin Facilities, 14 the SVC/Statcm, and YEC s McQuesten Substatin Csts. 15 The remaining 15% f these annual csts are t be recvered thrugh rates charged t all ratepayers (including the VGC Grup and any Other Industrial Custmer). A Fixed Charge assignment adds t the direct bill f the affected Industrial Custmer s lng as the custmer is receiving service per Rate Schedule 39. Unlike a capital cst cntributin by an Industrial Custmer, after the custmer ceases t receive Rate Schedule 39 service the related annual YEC fixed csts will remain t be recvered thrugh rates charged t all remaining ratepayers. The basis fr each f the three elements in the Transmissin Facilities Fixed Cst, as well as fr the 85% assignment f this cst in the Fixed Charge, are reviewed belw % ASSIGNMENT OF FIXED ANNUAL COST FOR TRANSMISSION FACILITIES The basis fr the Fixed Charge in the VGC Grup PPA at 85% f YEC s fixed annual csts fr the defined Transmissin Facilities was established by the Alexc PPA related t Industrial Custmer use f these same transmissin facilities. The VGC Grup Mine will receive Grid Electricity frm a segment f the same Yukn Energy transmissin facilities used t supply Alexc pursuant t the Alexc PPA, i.e., the May- McQuesten segment f the existing May-Ken City 69 kv transmissin facilities. As reviewed in Sectin 5.5 f the PPA Applicatin, the Alexc PPA as apprved by the Bard (Order and Order ) included a fixed charge t Alexc at 85% f YEC s apprved annual fixed csts (depreciatin and return) fr the May-Ken transmissin, with prvisins t cllectively assign this charge t Alexc and ther industrial custmers cnnecting t these same transmissin facilities. Accrdingly, the VGC Grup PPA prvides fr VGC Grup t pay a Fixed Charge n the same basis as Alexc fr use f these same transmissin facilities. The VGC Grup PPA with regard t the 85% Fixed Charge related t Transmissin Facilities annual fixed csts includes the fllwing related prvisins: 14 The defined Transmissin Facilities at the utset are the May-McQuesten line segment; this segment cntinues t be the defined Transmissin Facilities with the default Transmissin Facilities Develpment ptin. If the full SKTP Transmissin Facilities Develpment ptin ccurs, the Stewart Crssing-McQuesten transmissin line becmes the defined Transmissin Facilities. 15 The latter tw items (i.e., the SVC/Statcm cst and YEC s McQuesten Substatin Csts) are included nly after the Transmissin Facilities Develpment Operatin Date. December 22, 2017 Page 9

12 1. Updated YEC Annual Fixed Cst f $118,621 fr 2019 (Attachment B t PPA Applicatin): Bard apprval is sught fr an updated 2019 annual cst f $118,621 fr the existing Transmissin Facilities as calculated in Attachment B t the VGC Grup PPA Applicatin, based n frecast csts fr The 2019 annual amunt fr the Transmissin Facilities Fixed Cst wuld be fr the first year f VGC Grup Mine peratin, and wuld nly include annual YEC fixed csts fr the Transmissin Facilities, i.e., n csts wuld yet be applicable in any rates fr the SVC/Statcm r YEC s McQuesten Substatin Csts. YUB-YEC-1-23(a,b,c) prvides details n the ttal assets included fr 2017 and 2018 estimates used in Attachment B, and the timing ptins fr Bard apprval f updates t these csts after the Transmissin Facilities Develpment Operatin Date, i.e., where feasible Bard review and apprval wuld ccur as part f a YEC GRA, but a limited scpe prceeding wuld be cnsidered if necessary. 2. Determinatin f initial Fixed Charge f $8,402 per mnth: The mnthly Fixed Charge f $8,402 that is initially applicable in the VGC Grup PPA (as shwn in the PPA Applicatin) is derived per Sectin 7.7(c)(i) f the PPA as ne-twelfth f 85% f the Transmissin Facilities Fixed Cst. YUB-YEC-1-21(b) prvides a detailed calculatin f this mnthly Fixed Charge, which wuld apply t VGC Grup when it is receiving Grid Electricity prir t the Transmissin Facilities Develpment Operatin Date and there are n Other Industrial Custmers. 3. Fixed Charge fr Transmissin Facilities after Transmissin Facilities Develpment: Sectin 7.7(b) f the VGC Grup PPA prvides fr YEC, after the Transmissin Facilities Develpment Operatin Date, t apply t the YUB t amend the Transmissin Facilities Fixed Cst based (amng ther factrs) n YEC s adjusted annual csts fr depreciatin and return n rate base related t the Transmissin Facilities. The PPA Applicatin prvides an example at page 22 f ptential impacts frm an assumed $25 millin added t YEC rate base fr a default ptin Transmissin Facilities Develpment (the amunt in effect als included prvisin fr SVC/Statcm csts and YEC s McQuesten Substatin Csts). Overall, the example shws an increase in VGC Grup Fixed Charge t $1.402 millin per year ($116,833 per mnth), and all ratepayers (including Majr Industrial Custmers) being respnsible fr the remaining 15% ($0.248 millin per year). YUB-YEC-1-3(a) reviews hw this change may vary depending n the Transmissin Facilities Develpment ptin that ccurs. Overall, any csts fr the Transmissin Facilities Develpment that is nt therwise externally funded will be used fr the purpses f the calculatin f the Fixed Charge t be paid by the VCG Grup r any Other Industrial Custmer served cncurrently with VGC Grup by the Transmissin Facilities. YUB-YEC-1-3(b) ntes that any change t Transmissin Facilities Fixed Cst will require YUB apprval, either as part f a YEC GRA, r thrugh a limited scpe prceeding if such was necessary. December 22, 2017 Page 10

13 4. Fixed Charge fr Alexc and any Other Industrial Custmer: The VGC Grup PPA Fixed Charge is mdelled after the Alexc PPA Fixed Charge, and includes prvisin t adjust the Alexc Fixed Charge at such time as Alexc resumes service as an Industrial Custmer at a time when VGC Grup is als receiving Grid Electricity. On the same basis, prvisin is made t adjust the Fixed Charge when any Other Industrial Custmer is receiving electricity frm YEC by way f the Transmissin Facilities during a calendar year when VGC Grup is als receiving Grid Electricity frm YEC. YUB-YEC-1-22(a,b) cnfirms that the Alexc PPA allws fr changes in the Fixed Charge, and that YUB apprval is required fr such changes affecting Alexc r VGC Grup. This respnse als ntes that Sectin 7.7(c) f the VGC Grup PPA sets ut prvisins t address allcatin f fixed annual csts amng VGC Grup and Alexc (and any Other Industrial Custmer) based n the prtin f the Majr Industrial Custmer MW.h lad n the Transmissin Facilities during the calendar year. YUB-YEC-1-22(c) reviews the prvisin fr YEC t use cmmercially reasnable effrts t btain Bard apprvals as required, and ntes that this same prvisin is in the Alexc PPA as apprved by the Bard. YUB-YEC-1-22(d) prvides an estimate f the amended Alexc Fixed Charge (if Alexc was an Other Industrial Custmer cncurrent with VGC Grup receiving Grid Electricity), using 2020 as an example with $118,621 assumed as the Transmissin Facilities Fixed Cst and with lads fr each mine as assumed in PPA Applicatin Table 3 fr 2020, i.e., Alexc lad at 23.17% f ttal fr Majr Industrial Custmers using the Transmissin Facilities. Based n these assumptins, the Alexc Fixed Charge fr 2020 wuld be $1,947 per mnth (versus the current Alexc Fixed Charge f $7,298/mnth), and the VGC Grup Fixed Charge wuld be $6,455/mnth. Regulatry Backgrund The regulatry backgrund fr the Alexc PPA 85% assignment f annual fixed csts fr the Transmissin Facilities t a Fixed Charge fr Alexc, as well as ther related issues fr the VGC Grup Fixed Charge, were reviewed in respnse t varius IRs, including the fllwing IR respnses: UCG-YEC-1-15(a-d) The respnse reviews at a high level the regulatry basis fr the 85% allcatin and threshld, based n principles apprved by the NEB and YUB fr specific cases where the mine lad n the specified transmissin facilities exceeded 95% f the ttal lad using the facilities. YUB-YEC-1-7(a-d,f) The respnse reviews the basis fr cnsistency with the Alexc PPA Fixed Charge and 85% allcatin f YEC fixed annual csts fr the Transmissin Facilities. It includes reference t the fllwing: YEC is nt aware f any change in cnditins r circumstances that wuld justify adpting at this time a different threshld fr use f these transmissin facilities t supply the VGC Grup Mine. December 22, 2017 Page 11

14 Evidence and Bard determinatins in the earlier Alexc PPA that lead t apprval f the Alexc Fixed Charge (a cpy is attached f the 1985 NEB reprt re: NCPC and the Far Mine fixed charge, and references are prvided t YUB reprts r Orders in 1992, 1993, 1996 and 2010 related t review f this matter). The Fixed Charge and 85% threshld must relate t a specific segment f transmissin where there is clear evidence f develpment and dminant use specifically fr industrial purpses, i.e., the Alexc PPA did nt apply any Fixed Charge derived frm the May-Dawsn line, r frm the CSTP facility being develped; the earlier Far Mine fixed charge was limited t the WAF segment frm Whitehrse t Far, despite this mine s large verall share f all lad n the balance f WAF; the VGC Grup cst allcatin wuld similarly nt in principle apply t the segment frm McQuesten t Ken City (r t the May-Dawsn 69 kv line, the CSTP, r WAF). YUB-YEC-1-20(a-d,f) Re-iterates that there is n basis fr an industrial custmer t make similar Fixed Charge assigned cst cntributins twards ther grid infrastructure beynd facilities either built specifically fr the custmer r used almst exclusively fr the custmer, including additinal references t the NEB 1985 reprt. The determinatin f the apprved Alexc Fixed Charge is reviewed in detail, with attachments, including reviews frm that prceeding f the basis fr limiting the Fixed Charge csts t the May-Ken line. The fllwing summary cnclusins were prvided: Fr the VGC Grup PPA Yukn Energy did nt cnsider any ther alternatives in setting the 85% threshld fr the Fixed Charge determinatin. The 85% threshld fr VGC Grup Fixed Charge is based n well-established Yukn precedent dating back t the mid-1980s, and the specific PPA related prvisins apprved by the Bard fr Alexc with regard t industrial use f the same specific transmissin facilities. The reasnableness f this threshld was reviewed during the 2010 Alexc PPA prceeding and apprved by the Bard as a result f the prceeding [see Order and Order ]. As the VGC Grup s Eagle Gld mine is planned t perate in the same regin as Alexc, using the same infrastructure, it was nt cnsidered apprpriate at this time t cnsider alternatives t the 85% threshld INCLUSION OF SVC/STATCOM IN TRANSMISSION FACILITIES FIXED COST As reviewed in Sectin 6.1 f the PPA Applicatin (pages 18-19), the SVC/Statcm t be installed at Stewart Crssing Suth Substatin befre the Transmissin Facilities Develpment Operatin Date will prvide vltage supprt equipment (a Static-Var Cmpensatr r a Statcm) that enhances the May Dawsn transmissin grid imprt ability frm WAF fllwing cntingencies. December 22, 2017 Page 12

15 This enhancement, alng with the upgrade f cnductrs n at least the May-McQuesten line, will enable the Maximum Electric Demand limits in the PPA t be increased t supply all f the VGC Grup Mine s frecast requirements, and will als enhance significantly Yukn grid lng-term capability t supply custmers n the nrthern grid. 16 YEC csts fr the SVC/Statcm (i.e., csts that are nt therwise externally funded) are included in the Transmissin Facilities Fixed Cst used t determine the Fixed Charge under the VGC Grup PPA, reflecting the cncurrent requirement fr this transmissin facilities imprvement in rder t prvide reliable service t Industrial Custmers thrughut the nrthern prtin f YEC s grid. As per the prvisins f the VGC Grup PPA, 85% f YEC s fixed annual csts fr this facility will be assigned t the Fixed Charge shared amng Industrial Custmers served by the Transmissin Facilities INCLUSION OF YEC S MCQUESTEN SUBSTATION COSTS IN TRANSMISSION FACILITIES FIXED COST As reviewed in Sectin 5.4 f the PPA Applicatin (pages 13 and 14), YEC s McQuesten Substatin Csts t enable this substatin t perate in future at 138 kv will be retained in YEC s Wrk in Prgress (WIP) and will accrue AFUDC in accrdance with current plicy until the Transmissin Facilities Develpment Operatin Date. After that date, these csts will be added t YEC s rate base and included in the Transmissin Facilities Fixed Cst, whereby 85% f YEC s fixed annual cst will be included in the Fixed Charge applicable t VGC Grup and any Other Industrial Custmer using the Transmissin Facilities. As reviewed in YUB-YEC-1-17(c), the McQuesten Substatin was included in the SKTP prpsal as reviewed by YESAB prir t develpment f the VGC Grup PPA. This facility is assumed t be a key element f the SKTP prpsal, with r withut the VGC Grup Mine. The McQuesten Substatin develpment timing (i.e., prir t funding decisins related t the full SKTP, as well as prir t ther new Transmissin Facilities Develpment) is the ne thing triggered by the VGC Grup Mine develpment, reflecting the need fr a cnnectin f this mine t the existing grid prir t any new transmissin facilities develpment such as the SKTP prpsal. As reviewed in YUB-YEC-1-13(c,d), the tw Transmissin Facilities Develpment ptins identified in the VGC Grup PPA each include installatin f 138 kv transmissin capability t the McQuesten Substatin frm either May r Stewart Crssing. Accrdingly, it is necessary fr YEC t ensure that the initial McQuesten Substatin develpment by VGC Grup includes full 138 kv capability. This capability, hwever, is nt required fr VGC Grup cnnectin t the existing 69 kv grid, and YEC s McQuesten Substatin Csts fr this capability will nly be brught int rate base when the Transmissin Facilities Develpment Operatin Date ccurs with 138 kv 16 As nted in ftnte 25 f the PPA Applicatin, these tw enhancements are estimated t increase the L180 (May t McQuesten Substatin) capability t supply the VGC Grup Mine frm 9.7 MW t 16.7 MW and increase the MD imprt limit frm WAF frm 11 MW t 19 MW. The frecast VGC Grup Mine peak lad in year six f peratin is apprximately 12.7 MW (see Table 1 f PPA Applicatin). December 22, 2017 Page 13

16 transmissin t this substatin. Regardless as t whether initial peratin after that date is at 69 kv r 138 kv, the facilities are a critical part f the new transmissin facilities develped in this regin and will increase the ttal transmissin capacity f the line t facilitate additinal (future) industrial lad and/r lcal renewable resurce supply develpment. In summary, YEC s McQuesten Substatin Csts will in effect be treated as part f the Transmissin Facilities Develpment that results in establishing new facilities int the McQuesten Substatin with 138 kv capability. T the extent that such csts are nt therwise externally funded, the YEC annual fixed csts related t rate base will be included in the Transmissin Facilities Fixed Cst applicable t Fixed Charge determinatins per the VGC Grup PPA IMPLICATION OF CHANGE TO THE 85% ASSIGNMENT YUB-YEC-1-7(g) addresses the impact n the VGC Grup PPA if the Bard des nt accept the 85% threshld and suggests a different threshld. The 85% threshld is a key element f the VGC Grup PPA fr which Yukn Energy is seeking Bard apprval. Absent such apprval, a key precnditin t the PPA wuld nt be met, and VGC Grup and YEC wuld need t review and determine n what basis (if any) they might be able t cntinue with a revised PPA. In summary, the fllwing impacts wuld need t be cnsidered: Remval r reductin f the 85% threshld and related Fixed Charge wuld reduce csts assigned t VGC Grup and increase csts t be recvered frm all ther ratepayers, and create incnsistencies with the apprved Alexc PPA and with the earlier Far mine threshld and fixed charge. Increase f the 85% threshld and related Fixed Charge wuld increase csts assigned t VGC Grup and reduce csts t be recvered frm all ther ratepayers, and create incnsistencies with the apprved Alexc PPA and with the earlier Far mine threshld and fixed charge. As reviewed in respnse t YUB-YEC-1-21(a), the existing Alexc PPA wuld be impacted if the Bard were t direct an allcatin ther than 85%; hwever, there wuld be n impact n the existing Mint PPA. 3.2 BASIS FOR CUSTOMER CONTRIBUTION FOR CAPITAL COSTS Yukn Energy is seeking apprval f the Bard fr the custmer cntributin payments by VGC Grup t YEC under Sectin 6.1 f the PPA fr YEC Capital Csts, including payments fr: Actual YEC Capital Csts t negtiate and cnclude the PPA, estimated at $200,000; Actual YEC Capital Csts fr the Initial YEC System Imprvements as set ut in Schedule C f the PPA, currently estimated at $1,677,883; December 22, 2017 Page 14

17 Actual YEC Owner s Csts fr the McQuesten Substatin as set ut in Table B-1 f Schedule B t the PPA, currently estimated at $483,240; and Actual YEC csts reasnably required fr design, engineering, prcurement, cnstructin and cmmissining f the Step Dwn Transfrmer at the McQuesten Substatin, shuld ne be determined t be required. Based n Yukn precedent (including the Mint and Alexc PPAs and the Terms and Cnditins f Service as apprved by Bard Order ), industrial custmers are required tday t make cntributins twards new transmissin infrastructure built specifically t prvide industrial service t their mine site. In additin, based n the Alexc PPA, industrial custmers are required tday t make cntributins twards YEC s csts t negtiate and cnclude a PPA with the custmer. Each f the abve YEC Capital Csts items t be recvered frm VGC Grup under Sectin 6.1 f the PPA are either csts t negtiate the PPA r new transmissin infrastructure t be built r installed specifically t enable industrial service t be prvided t the VGC Grup Mine. Accrdingly, past precedent and practice prvide the basis fr Bard apprval f these PPA prvisins. 17 Sectin 4.2 f the PPA cmmits the Parties t develp and turnver the McQuesten Substatin t YEC under the terms and cnditins set ut in Schedule B t achieve the McQuesten Substatin Operatin Date n r befre February 28, Schedule B f the PPA prvides that VGC will fund all f the related csts fr the McQuesten Substatin, except fr the csts assciated with the McQuesten Substatin being able t perate at 138 kv (which amunt will be payable by YEC t VGC at the time the Substatin is transferred t YEC). Based n these prvisins, there is n requirement fr Bard apprval f VGC Grup cntributins t fund the cst f the McQuesten Substatin. Sectin 6.1(d) f the PPA prvides fr VGC Grup t invice YEC fr the YEC McQuesten Substatin Csts f $930,563 under Sectin B.4 f Schedule B f the PPA assciated with the McQuesten Substatin being able t perate at 138 kv. As reviewed in respnse t YUB-YEC-1-5(a) and YUB-YEC-1-17(c), the fllwing factrs indicate that there is n basis under the current circumstances fr VGC Grup t be required t cntribute under Sectin 6.1 f the PPA t YEC s Capital Csts fr these specific facilities at the McQuesten Substatin: The YEC McQuesten Substatin Csts relate nly t incremental fees, csts and expenses assciated with the McQuesten Substatin being able t perate at 138 kv vltage. This feature is nt required tday fr the VGC Grup t cnnect t the grid, and therefre there is n basis tday t require VGC Grup t fund this feature. YEC is prviding the initial funding as needed t ensure that this feature is cst effectively included in the initial substatin design t accmmdate the planned Transmissin Facilities Develpment which will result in 138 kv transmissin capability being cnnected t the McQuesten Substatin frm either May r Stewart Crssing. 17 UCG-YEC-1-22(c), UCG-YEC-1-23(a) and (b), and UCG-YEC-1-24 review YEC invice status related t these YEC Capital Csts. December 22, 2017 Page 15

18 As reviewed in the PPA Applicatin (Sectin 5.4, page 14), the YEC McQuesten Substatin Csts will be held in WIP until the Transmissin Facilities Develpment Operatin Date, and then included in the Transmissin Facilities Fixed Cst that determine the Fixed Charge fr VGC Grup and any Other Industrial Custmer using the Transmissin Facilities. 4.0 RATEPAYER IMPACTS The PPA Applicatin and subsequent respnses t IRs cnfirm that VGC Grup Mine peratin with the PPA is expected t prvide psitive benefits t all ther nn-industrial ratepayers and that the PPA als prtects ther ratepayers frm hang ver cst risks when the VGC Grup Mine clses. Ratepayer Impacts frm VGC Grup Mine Operatin Sectin 6.2 f the PPA Applicatin, with updates t Table 3 and related text as prvided in YUB- YEC-1-28, fcused n three years (2020, 2021 and 2025) t prvide an indicatin f ratepayer impacts frm the VGC Grup Mine cnnectin ver a range f reasnably high ptential grid lad cnditins that culd ccur in the initial six years f VGC Grup Mine peratin and absent any new renewable generatin capability. The analysis was nt intended t prvide a frecast f what lad is likely in each year, i.e., the lads in 2020 and 2021 in this analysis assumed material industrial mine requirements at bth Mint and Alexc, neither f which has been cmmitted at this time. As reviewed in YUB-YEC-1-28 and UCG-YEC-1-5(a), YEC des nt have infrmatin needed t prvide useful additinal analysis regarding frecast verall rate levels in future years r ratepayer impact variances due t the VGC Grup Mine fr each f the six years f initial peratin, the expected minimum further fur years f peratin, r the expected five years f clsure activities. In summary, the 2021 case in Table 3 as revised (YUB-YEC-1-28) demnstrates ratepayer impacts with a high ptential industrial lad (assumed at apprximately 127 GW.h sales) where incremental LTA thermal generatin accunts fr 64% f the incremental generatin needed fr the VGC Grup Mine. Fr each f the ther tw cases examined in Table 3 (2020 and 2025, each with lwer verall grid lad due mainly t lwer industrial lad levels), incremental LTA thermal generatin accunts fr a lwer share f the incremental generatin needed fr the VGC Grup Mine highlighting the extent t which verall industrial lad levels and timing are determinative f material changes in LTA thermal generatin impacts amng each f the first six years f VGC Grup Mine peratin. Table 3 as revised shws the VGC Grup impact n YEC net csts t be recvered frm all ratepayers beynd direct revenues frm VGC Grup. Based n this assessment, the verall net impact f the Mine under the assumptins adpted is t reduce future rate increase pressures. YEC net revenue requirement amunts that need t be recvered frm all ratepayers are reduced as fllws with the VGC Mine lad: $1.96 millin reductin in 2020, when assume ttal grid lad includes Mint and Alexc mines; December 22, 2017 Page 16

19 $1.93 millin reductin in 2021, when assume three mines in peratin (shws scenari where the increase in LTA thermal cst mre than ffsets the increase in revenues frm higher VGC Grup lad); and $3.33 millin reductin in 2025, when assume VGC Grup Mine is the nly mine n the grid (shws impact f higher revenues due t higher VGC Grup lad, cmbined with lwer LTA thermal cst per kw.h VGC Grup sales due t lwer verall grid lad withut Mint r Alexc mine lads). The abve Table 3 ratepayer benefits wuld be increased in 2020 and 2021 if nn-vgc Grup industrial lads (Mint and Alexc) are less than assumed in this analysis. Ratepayer benefits wuld als be increased in each f these years t the extent that new renewable generatin capability is develped (independent f the VGC Grup Mine cnnectin) that reduces the incremental LTA thermal generatin assciated with the additinal VGC Grup Mine lad. As reviewed in Sectin 6.2 f the PPA Applicatin, the abve Table 3 assessments d nt address ptential impacts frm any Transmissin Facilities Develpment csts that YEC may need t be included in rate base. The high level assessment prvided at page 22 f the PPA Applicatin indicates that, assuming apprval f the Fixed Charge prvisins in the PPA, an assumed $25 millin added t YEC rate base fr such transmissin develpment culd add $1.4 millin per year in Fixed Charge cst t VGC Grup and Other Industrial Custmers, and $0.248 millin per year t all ratepayer general rates. In summary, based n the assumptins in Table 3 as revised, even if the Transmissin Facilities Develpment results in an additin f $25 millin t YEC s rate base the verall impact n all ratepayers frm the PPA, the VGC Grup Mine lad and the new facilities develpment wuld still be a reductin in YEC net revenue requirement amunts t be recvered frm ther nnindustrial ratepayers. The respnse t JM-YEC-1-8 addresses ptential reductins in secndary sales revenues assciated with increased grid lads frm industrial and ther custmers, and ntes that the maximum ptential impact n secndary sales revenue reductin is clearly less than the Table 3 ratepayer savings frm VGC Grup sales. The respnse t YUB-YEC-1-29 ntes that the expected reductin in VGC Grup Mine lad during the 90-day winter perid indicates that this Mine wuld likely nt be cnsidered as a winter peaking lad custmer. The respnse als ntes that YEC des nt anticipate that VGC Grup s summer lad will have any material impact n YEC s ability t stre water ver the summer mnths t prduce a reliable winter peak capacity f 70.5 MW. Sectin 4.1 (page 5) f the PPA Applicatin ntes that cnnectin f the VGC Grup Mine and ther ptential industrial lads will nt affect the dependable capacity planning assessments based n the N-1 criterin (which excludes cnsideratin f winter peak industrial lads), and is als nt expected t change the assessment that dependable capacity n the grid currently satisfies the Lss f Lad expectatin (LOLE) capacity planning criterin s lng as the N-1 criterin is met. This assessment is re-enfrced by the expectatin, as set ut in Sectin 5.1(d) f the PPA, that Mine Electric Demand during an apprximate 90 day perid between December 22, 2017 Page 17

20 December 1 and March 31 f every year will be reduced s as nt t exceed apprximately 6,000 kv.a. The respnse t JM-YEC-1-3 prvides added infrmatin n the referenced 90-day perid, and the extent that VGC Grup is nt expected t run at peak lads during the cldest perids in December. Ratepayer Prtectin frm Hang Over Cst Risks The PPA prtects ther ratepayers frm hang ver cst risks when the VGC Grup Mine clses. This prtectin relates directly t the PPA Sectin 6.1 prvisins fr VGC Grup custmer cntributins and funding t cver all new capital csts directly related t cnnectin f the VGC Grup Mine t the YEC grid. As reviewed in respnse t JM-YEC-1-9(b), when the VGC Grup Mine clses, the lss f sales eliminates the net benefits t all ratepayers that ccur with the Mine perating. Aside frm lss f these net benefits, hwever, there are n hang-ver transmissin facilities csts directly due t the Mine that wuld adversely impact remaining ratepayers. This respnse nted the fllwing in this regard abut SKTP csts: Csts related t the Stewart Ken City Transmissin Line Prject (SKTP) are nt directly due t the VGC Grup Mine. As reviewed in the PPA Applicatin, the VGC Grup Mine is prviding added impetus fr the SKTP nw t prceed, in whle (the full SKTP) r at least (with the default ptin) fr the end f life line frm May t McQuesten Substatin. If external funding is cnfirmed sufficient fr the full SKTP t prceed, there will be n material new rate base csts t affect ratepayers. If nly the default ptin is develped, hwever, the rate base csts fr this required line replacement will directly affect YEC rates. In the event that the default ptin is what is implemented, there is an pprtunity ver the perid that the VGC Grup s Eagle Gld mine is perating fr this industrial custmer t make significant cntributins (i.e., 85%) thrugh the Fixed Charge twards the annual YEC depreciatin and return expenses related t the rate base cst fr these new Transmissin Facilities. Specifically, absent the cnnectin f the Eagle Gld mine and/r an Other Industrial Custmer using these same Transmissin Facilities, the cst fr upgrade t, and/r replacement f, these facilities wuld be paid fully by all ther ratepayers. In this respect, the VGC Grup Mine cnnectin (as well as any Other Industrial Custmer cnnectin) prvides an added verall benefit t ratepayers during its peratin by reducing the csts that ther ratepayers wuld therwise have t cntribute twards the line in its initial years f peratin. After these initial years f peratin, the rate base cst fr this new line will als have been reduced by the depreciatin t date, and cnsequently the return csts t be brne by ther ratepayers will be reduced cmpared t the initial years f peratin. December 22, 2017 Page 18

21 5.0 CONSISTENCY WITH OIC DIRECTIONS The Bard is required, when cnsidering rate related changes in the PPA, t cmply with existing OIC directins that affect rates, including: Cst f Service related OIC directins specific t industrial custmer rates; and OIC directins that gvern changes t existing rates. PPA cnsistency with each f the abve OIC directins is reviewed belw. 5.1 COST OF SERVICE RELATED OIC DIRECTIONS Sectin 4.5 f the PPA Applicatin ntes that OIC 1995/90 requires that rates t majr industrial custmers must be sufficient t recver the csts f service t that custmer class determined by treating the whle Yukn as a single rate zne. Respnses t YUB-YEC-1-8(a-e), as well as YUB-YEC-1-7(e,f) and UCG-YEC-1-13(c), address issues related t available cst f service (COS) study infrmatin, the timing and requirements fr any new cst f service study, and the verall ability fr the Bard at this time t address this OIC requirement with regard t industrial custmer rates with and withut the VGC Grup Mine and PPA. In summary, the evidence and Bard determinatins in the 2009 GRA Phase II prceeding prvide a slid basis fr determining that industrial custmers served by YEC in 2009 (and tday) are paying mre than the current csts (as determined by a cst f service cnsistent with the Bard s directins, nrmal regulatry principles, and OIC 1995/90 directins) t serve them. The respnse t YUB-YEC-1-8 reviews in detail Appendix A t Bard Order , and ther available infrmatin n changes since that time, and in summary prvides the fllwing cnclusins: The Bard s reasns fr rejecting the 2009 COS as filed in the riginal 2009 GRA Phase II applicatin f YEC and YECL (the Cmpanies) related t lad factrs fr the nnindustrial classes and (ptentially) t the impact f OIC 2008/149 rendering n specific need fr apprval f a COS study at that time. In cntrast, Appendix A t Bard Order did nt identify any specific issues in the 2009 COS study relating t lad factr estimates fr the industrial class COS assessment, and als prvided directins n the bulk pwer COS assessments that determine ver 95% f industrial csts f service in The industrial COS can be separately assessed n this basis fr the purpse f the OIC directin withut the need fr cncurrent determinatin f COS fr ther custmer classes. The available evidence fr 2009, including the COS update prvided in the Cmpliance Filing by the Cmpanies in February 2011 in respnse t Bard Order , indicates that there is nthing t suggest any basis n which the industrial class revenue t cst (R/C) rati fr 2009 culd pssibly be estimated at anything but being greater than 1.0. December 22, 2017 Page 19