September 10, Via Original via Mail. British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, B.C.

Transcription

1 C- Dennis Swanson Director, Regulatory Affairs FortisBC Inc. Suite 00 Springfield Road Kelowna, BC VY V Tel: (0) -00 Fax: Regulatory Affairs Correspondence electricity.regulatory.affairs@fortisbc.com Via Original via Mail British Columbia Utilities Commission Sixth Floor 00 Howe Street Vancouver, B.C. VZ N Attention: Ms. Erica M. Hamilton, Commission Secretary Dear Ms. Hamilton: Re: FortisBC Inc. (FBC) British Columbia Hydro and Power Authority (BC Hydro) Application for Approval of New Power Purchase Agreement (PPA) with FortisBC Inc. (FBC) (the Application) Response to the British Columbia Utilities Commission (BCUC or the Commission) On May, 0, BC Hydro filed the Application as referenced above. In accordance with the British Columbia Utilities Commission Order G-- setting out the Amended Regulatory Timetable for review of the Application, FBC respectfully submits the attached response to BCUC IR No.. If further information is required, please contact the undersigned. Sincerely, FORTISBC INC. Original signed: Dennis Swanson Attachment cc ( only): Registered Parties

2 Page TABLE OF CONTENTS Page No. 0 A. GENERAL... B. RATE DESIGN BONBRIGHT... C. RATE DESIGN HYBRID RELATIONSHIP... D. RATE DESIGN ENERGY AND CAPACITY... E. RATE DESIGN TWO TIERED RATE... F. RATE DESIGN COST OF SERVICE... G. RATE DESIGN IMPLICATIONS FOR OPERATIONS AND LOAD BALANCING... H. IMPLICATIONS FOR RESOURCE PLANNING... I. WAX CAPA... J. ENERGY EXPORTS FORTISBC S SELF-GENERATION CUSTOMERS... K. DISPUTE RESOLUTION...0 L. AMENDED AND RESTATED WHEELING AGREEMENT...0

3 Page 0 A. GENERAL.0 Reference: General Exhibit B-, p. Nature of BC Hydro/FortisBC Relationship Negotiation On page of the Application BC Hydro states: The agreements are the result of years of bilateral, arms-length and at times difficult negotiations between BC Hydro and FortisBC.. Are FortisBC s responses to questions in this proceeding FortisBC s own responses, or are they constrained in any way in order to support a joint position arrived at after negotiating with BC Hydro on RS 0 and the supporting agreements? If yes, please describe and explain if this could limit the ability of the Commission to obtain the evidence required to evaluate this application. FBC s responses to the questions in this proceeding are FBC s own responses.

4 Page B. RATE DESIGN BONBRIGHT.0 Reference: Rate Design - Bonbright Exhibit C-, BCUC IRs..,...,...; Reasons for Decision for Order G--, p. ; Reasons for Decision for Order G--, p. ; Reasons for Decision for Order G -, p. Fortis BC states in BCUC..: FBC believes that it should be treated fairly as a customer of BC Hydro. However, this does not necessarily equate to being treated the same as other BC Hydro customers... this rate and the associated agreements are first and foremost a power purchase agreement from the perspective of FBC. FortisBC states in BCUC...: given the nature of the relationship between BC Hydro and FBC, RS 0 does not lend itself easily to an examination informed by the Bonbright Principles, nor were these principles the subject of deliberate discussion during the negotiations. FortisBC states in BCUC...: The new PPA reflects, amongst other things, FortisBC s continuing access to power supply from the province s Heritage Assets. The Commission in its Decision between BC Hydro and West Kootenay Power and Light Company (Order G--) stated: In reviewing these submissions, the Commission has had regard to two overriding rate-making principles: efficient resource allocation and fairness. (p. ) The Commission states in its RS 0 Decision (Order G--): This Commission adheres to the general principle that it should diverge from cost-based principles of ratemaking only with extreme caution. (p. ) The Commission describes the eight Bonbright Principles on page of the Reasons for Decision for Order G--.. Given that FortisBC does not consider that Bonbright, as described in Order G- -, is appropriate to evaluate RS 0, please provide a detailed explanation of what principles, if any, FortisBC has followed in negotiating RS 0 with BC Hydro. As stated in the response to BCUC IR Q.., FBC s consideration throughout the negotiations was to protect the interests of its customers. As such the overriding principle FBC adhered to was that FBC customers have the right to similar benefits under the New PPA as would be realized through a simple renewal of the existing PPA.

5 Page However, given the decision of the Commission in 00 to order FBC and BC Hydro to continue negotiations and make every effort to achieve a negotiated solution (please refer to the response to BCUC IR Q.), it was necessary to show great flexibility in restructuring the New PPA to both maintain the level of benefits to FBC customers while at the same time meeting the requirements of BC Hydro. FBC believes this principle has been met and that the New PPA does indeed protect the interests of its customers as described in the response to BCUC IR Q FortisBC states that RS 0 reflects, amongst other things, FortisBC s continuing access to power supply from the province s Heritage Assets. Please explain the other things that are reflected in RS 0. The most important other thing is that the New PPA replaces the expiring PPA and ensures that FBC continues to have the right to power supply up to 00 MW from BC Hydro at embedded costs for the purposes of serving its customers as directed by the Commission in its decision. The above statement attributed to FBC s response to BCUC IR Q.., was part of an excerpt from FBC s Letter of Support (Exhibit C-, Page, lines - to page, lines -). The full excerpt was: Subsequent to the Decision, the Province established the Heritage Contract for British Columbians through the BC Hydro Public Power Legacy and Heritage Contract Act, SBC 00, c., and further refined and established it in perpetuity through the 00 BC Energy Plan and the Clean Energy Act, SBC 00, c.. The New PPA reflects, amongst other things, FortisBC s continuing access to power supply from the province s 0 Heritage Assets on behalf of the British Columbians served by FortisBC. This excerpt was provided specifically to highlight that approval of the New PPA is consistent with BC Energy Plan objectives in regard to the Heritage Contract. FBC provides a detailed description of all of the other things that is provided by the New PPA in its Letter of Support (Exhibit C-). The background section, in particular, (Exhibit C-, pages -) discusses the context in which the New PPA has been developed reflecting the history of agreements, between the Parties, Provincial energy policy considerations, and past decisions by the Commission. FBC believes that these considerations remain relevant today..

6 Page.. Where the other things were not a consideration in, please explain why they should be a consideration now. Where the other things were a consideration in, please explain why they should continue to be a consideration now. 0 Please refer to the response to BCUC IR Q..

7 Page Reference: Rate Design Bonbright Exhibit C-, pp., Retail Access FortisBC includes forecast Tranche and Tranche energy purchases (before and after retail access) in Exhibit C-, pp. and.. Please explain why Exhibit C-, page indicates that FortisBC does not plan to purchase the maximum allowed Tranche energy until 0. Specifically, does this indicate that the short-term market value of energy is lower than the Tranche energy price for all years until 0? The two principal factors are: FBC s current load forecast, and the expectation that there will be some opportunities to purchase more cost effective market energy at certain periods during any one year. As shown in the spreadsheet provided in Attachment.. in response to ICG IR Q.., FBC does not expect that the market value of energy on an average annual basis will be lower than Tranche for all years until 0. With respect to the short term market value of energy, it is important to understand that the market price of energy rate is not a fixed price for the entire year for all hours and in fact does fluctuate greatly on both a seasonally and hourly basis. Therefore, for certain hours of the year, FBC expects to rely on PPA purchases for both capacity and energy but for other hours of the year, more economical resources are expected to be available. However, as stated in the response to BCUC IR Q.., there is no long term resource available to FBC on comparable terms. The flexibility of the PPA to schedule in the amount of power that is needed when it is needed but to have the long term certainty as to both price and availability is very valuable. Even in years when the annual market price of power may be lower than PPA power, this will not be true over all hours and significant PPA purchases are still expected. While the depth of the market is not considered to be a significant factor in obtaining the volume of replacement power needed at the going market rate, it would be very risky to rely strictly on a short term market based strategy. The restrictions on increasing the Annual Energy Nomination year to year will therefore also play a factor in the amount of Tranche energy FBC nominates in any one year, in order to ensure it can return to the full 0 GWhs in a reasonable amount of time. In addition, any blocks of power that may be purchased to replace PPA supply in advance must be limited in size to what FBC knows will be required. In the very short term hourly markets, there is similar flexibility to shape supply as with the PPA but as the length of time increases, this flexibility drops off until after a couple of years out, it will even be difficult to arrange monthly

8 Page 0 blocks in advance without paying a substantial premium. At that point in time annual blocks would be required and they are therefore going to be limited in size to ensure that large amounts of power are not purchased that is not needed. For example, if a 00 MW annual market block was entered into to replace the first 00 MW of PPA capacity, FBC would be required to purchase GWh to obtain that 00 MW. This would create large amounts of surplus energy that may or may not be useful to FBC and therefore represents a considerable increase in risk even if the overall price of the energy is below the PPA rate. With the PPA, FBC has the flexibility to schedule in what is needed, when it is needed yet under the security of a long term contract. Finally, the Electricity available to FBC under the PPA is not affected by unit outages or transmission constraints, and therefore provides a high degree of reliability and security of supply which cannot be matched with market purchases For all years where Exhibit C-, page indicates that FortisBC does not plan to purchase the maximum allowed Tranche energy, please explain why FortisBC is purchasing any Tranche energy at all. In your response please describe the extent that this is due to: (i) restrictions on increasing/decreasing annual consumption levels under RS 0, (ii) risk tolerance (long-term contracts reducing price risk compared to shortterm contracts); and (iii) a lack of depth in the broader energy market (for example, if large energy volume purchases would not be able to be obtained at the same low price as smaller volume energy purchases). Please refer to the response to BCUC IR Q... Given FortisBC s estimate of use of RS 0 in Exhibit C-, page, does FortisBC consider that there would be a material effect on RS 0 if FortisBC

9 Page was not allowed to displace Tranche or Tranche energy with short-term market purchases (i) after 0, (ii) after 0, (iii) after 0? Please explain why/why not. 0 Yes, this would reduce the flexibility of the New PPA supply as compared to the existing PPA, and could result in a material impact to FBC s customers. It also reduces FBC s ability to mitigate the impact of future BC Hydro rate increases on its customers. It should also be clear, that FBC s acceptance of the cap on the availability of embedded cost of energy (i.e. Tranche ) and the overall pricing structure of the PPA is predicated on being able to maintain the flexibility to optimise the PPA resource as part of its overall power supply portfolio, avoid Tranche purchases, and mitigate costs through market displacements or other cost effective resources. FBC did accept that the level of FBC purchases from year to year created uncertainty for BC Hydro; however, the parties addressed this through the establishment of the Annual Energy Nomination and take or pay commitment structure. This allows FBC to maintain flexibility in how it manages its portfolio while at the same time providing BC Hydro greater planning certainty.

10 Page C. RATE DESIGN HYBRID RELATIONSHIP.0 Reference: Rate Design Hybrid Relationship Reasons for Decision for Order G--, p. ; Exhibit C-, BCUC IRs..,...,..; Exhibit B-, BCUC IR..; Exhibit B-, ICG IR.. The Commission, in its April, Decision (Order G--) on RS 0 stated: As a customer, [FortisBC] has a right to a specified amount of electricity from B.C. Hydro at the rates extended by B.C. Hydro to comparable customers. As an independent utility within British Columbia, [FortisBC] has the responsibility for its own resource planning and the right to meet all of its growing electricity requirements with purchases from B.C. Hydro at rates reflective of fair market arrangements on a utility to utility basis. (p. ) FortisBC states in BCUC..:... the New PPA represents FBC s relationship with BC Hydro as a customer. BC Hydro states in BCUC..: BC Hydro believes that there is no clear demarcation point [in RS 0] where BC Hydro s customer relationship with FortisBC ends and the utility-to-utility relationship begins. FortisBC states in BCUC... that the existing or proposed RS 0 does not include any compensation related to the Kootenay Canal Plant Agreement, or include compensation for any other purpose. FortisBC states in BCUC..:... the most significant change since is the development of open access to electricity transmission systems and the development of regional wholesale electric markets... FBC now has access to resource options other than powerplants located within its service territory of BC Hydro. BC Hydro states in ICG..:... the Heritage Contract Scheme became effective for BC Hydro fiscal year 00.. Does FortisBC consider that in FortisBC s reliance on BC Hydro to meet its load would have been a consideration in the design of RS 0, but that it is no longer a consideration as a result of FortisBC s access to the liquid electricity market in the Pacific Northwest from and (to a lesser extent) the ability to acquire additional entitlement capacity from the Waneta Expansion Project? If not, please explain why not.

11 Page No. In the Decision, the Commission recognised that FBC was responsible for its own resource planning and as a result determined that the power supply obligation from BC Hydro would be capped by the 00 MW customer demand limit and FBC would then be expected to plan for and develop other supply options to meet its continued growth. Subsequently FBC entered into the Brilliant Purchase Agreement in and the WAX CAPA in 00 in order to ensure it had access to long term firm resources to meet its continue growth. Both of these long term resources were reviewed and approved by the Commission in the context of FBC s overall power supply portfolio, which included the power supply arrangement with BC Hydro. FBC has also developed the ability to participate in the PNW market in response to market developments to allow it to be able to further optimise its overall power supply portfolio and to mitigate costs for customers, but access to market is not a substitute for having firm resources in place to meet firm load requirements. (It should be noted that BC Hydro, through its marketing arm Powerex, has similarly during this time expanded its ability to participate in the market in order to optimise its portfolio and realise savings for its customers). FBC also notes the following relevant points from the decision. On page 0, it states that WKP s reliance on BC Hydro was growing and on page the Commission ordered that to ensure competitive supply opportunities, BC Hydro provide reasonable access to wheeling service to FBC to allow it access to other supply options. The overriding consideration appears to be as acknowledged by BC Hydro on page that BC Hydro had an obligation to provide electricity to the customers of WKP, since they are British Columbians. This was confirmed by the Commission on page, In the Commission s view, B.C. Hydro has an ongoing obligation to serve WKP. Therefore, the fact that FBC has developed other resources would not seem to be materially different than what was expected in and in and of itself should not affect the ongoing obligation that BC Hydro has to serve FBC load. 0.. Does FortisBC consider that in some level of compensation for the Canal Plant Agreement assets may have been incorporated into the RS 0 rate, but that it is also no longer a consideration as a result of the creation of the Columbia Basin Trust in? If not, please explain why not.

12 Page As explained in the response to BCUC IR Q.., FBC does not consider that in the PPA included any compensation related to the Canal Plant Agreement or for any other purpose. As discussed in the response to BCUC IR Q., the decision was not compensation to FBC customers but rather recognition of their right as British Columbians to be supplied by power from BC Hydro Does FortisBC agree that, while the relationship between BC Hydro and FortisBC can still be described as a hybrid, in that FortisBC is partly a customer of B.C. Hydro and partly an independent utility, the ability of FortisBC to now access external markets market means that the new RS 0 need only describe the customer relationship between BC Hydro and FortisBC? Please explain why/why not. FBC does not agree that the hybrid relationship between the parties needs to be more narrowly defined to support the New PPA or any of the other agreements. The fact is that both parties are utilities that operate interconnected systems that serve end use customers in British Columbia and have many and varying overlapping interests and interactions both from an operational and commercial perspective. Although FBC does view the New PPA as primarily describing the customer relationship between BC Hydro and FBC, as was also the case for the PPA, FBC believes that it is appropriate that it is structured in manner that recognises the overall relationship. In the Decision, the Commission s characterisation of the relationship between BC Hydro and FBC as hybrid is relevant to the Commission s decision to cap BC Hydro s utility to customer obligation to serve FBC at the Customer Demand Limit of 00 MW and determine that above that limit FortisBC would be responsible for its own resource planning and any future arrangements with BC Hydro would be on a utility to utility basis. However the PPA also recognised the hybrid relationship through other rights and obligations in that agreement (e.g. the right for FBC to request power above the 00 MW limit, and flow through of any inadvertent flows of electricity or imbalances). Under the New PPA, BC Hydro s utility to customer obligation to serve FBC at embedded costs remains limited to 00 MW in any one hour and is further limited by the 0 GWh annual cap

13 Page 0 on Tranche energy. The New PPA and associated agreements provide for the other interactions between the parties, including the terms under which FBC would have an option to purchase additional energy at a price that reflects BC Hydro s LRMC. As indicated by BC Hydro in its Application (Exhibit B-, page, lines -), the PPA structure provides a price signal for FortisBC s long-term electricity supply planning purposes, which is similar to the intent of the 00 MW cap in the Decision. Nevertheless, although FBC expects that it can avoid any reliance on Tranche energy, having a firm option to purchase at fixed price provides value in terms of security and reliability of supply and was part of the overall negotiated package of agreements. 0.. If FortisBC considers that RS 0 also includes the utility to utility relationship with FortisBC, please explain (i) why there is a need to incorporate within RS 0 a utility to utility relationship when FortisBC can now access external markets and negotiate Energy Purchase Agreements with Powerex on non-discriminatory terms, and (ii) if the proposed RS 0 rate was changed to reflect only the BC Hydro/FortisBC customer to customer relationship, would the RS 0 price be lower than that proposed, and if not, why not. Please explain. Please refer to the response to BCUC IR Q. and Q.. Given that the New PPA caps BC Hydro s obligation to serve FortisBC at embedded costs at both 00 MW and 0 GWhs per annum, if the New PPA was to reflect only the customer to customer relationship, it would not change the RS0 price. However, it may mean FBC would no longer have an option to purchase any energy above the 0 GWh cap at a fixed price, and would decrease the value of the overall package of agreements to FBC. 0. If it was determined that (i) RS 0 should only reflect the customer relationship FortisBC has with BC Hydro, and (ii) FortisBC should be treated in a manner consistent with BC Hydro s other transmission customers, would there still be a requirement for the associated agreements filed as part of the new Power Purchase Agreement? For each ancillary agreement, please explain why/why

14 Page not, and what effect (if any) the above assumptions would have on those agreements. 0 0 Yes, all the agreements would still be required. As discussed in the response to BCUC IR Q., FBC believes that the New PPA and the PPA both describe the limit of BC Hydro s customer obligation to FBC, however the structure of New PPA and the other agreements together also reflect the overall relationship between the parties.. Regardless of how the relationship between the parties under the PPA is characterised, the unique nature of the overall relationship between FBC and BC Hydro does mean the services addressed by the ancillary agreements are required. The Energy Export Agreement is directly tied to the PPA in that it sets out the specific conditions whereby FortisBC can export energy using WAX capacity, while observing the principle that BC Hydro s embedded cost power should not be arbitraged. This provides the flexibility FBC required in order to be able to do its own resource planning to meet its requirements beyond what is provided under the PPA. The Imbalance Agreement establishes how inadvertent flows of energy between the BC Hydro System and the Entitlement parties system operated by FBC will be settled as imbalances will no longer flow through the PPA. The Master Accounting Agreement establishes the system accounting requirements for FortisBC and BC Hydro to track and account for the transactions occurring within the FortisBC Service Territory that impact BC Hydro s system or its contractual arrangement and also continues to be required.

15 Page.0 Reference: Rate Design Hybrid Relationship Exhibit B-, BCUC IRs...,.. (BCH BCUC IR..) 0 (BCH BCUC IR...). Given the changes identified in response to BCUC.. please explain why FortisBC still considers the directives and principals established in are still relevant today and should be applied to the New PPA and other associated agreements. Please refer to the response to BCUC IR Q. where the directives and principles from the agreement are tabulated and considered.

16 Page D. RATE DESIGN ENERGY AND CAPACITY.0 Reference: Rate Design Energy and Capacity Exhibit C-, p. ; Exhibit C-, BCUC IR..; Exhibit C-, ICG IR.. Build Component (Exhibit C-, p. ) 0 0 (BCUC IR.. to FBC). Please explain how the future build component of FortisBC s Resource Plans would change if the New PPA RS 0 allowed FortisBC to access the full amount of energy ( GWh/year) at RS prices (no Tranche price). FBC provided a full assessment of the potential impact of the New PPA to the 0 Resource Plan in its Letter of Support (Exhibit C-, Section, pages 0-). The referenced excerpt above is part of the conclusions of the assessment provided in that section and should be considered in full. As explained earlier in that section (page 0, line to page line ), the 0 Resource Plan assumed that BC Hydro PPA would be renewed on comparable terms as PPA. As such, the availability of energy would be the same as the scenario described above where the New PPA would allow FBC access to the full amount of energy associated with the 00 MW of capacity at embedded costs. As a result, there would be no change to the 0 Resource plan conclusions, including FBC s preferred combined build and buy strategy, assuming no other changes to overall supply availability or load expectations.

17 Page. Please confirm, or explain otherwise, that the reason FortisBC is forecasting that it will not have to use Tranche energy is because it is planning on building its own resources and not because it does not need the energy. (ICG IR..) 0 0 FBC can confirm that the energy is needed, but expects that there will be more cost effective resources than Tranche energy. This can be seen in the response to ICG IR Q. which provides in Table a forecast of the amount of Tranche energy that would be taken if no alternative resource was available. However, as discussed in the response to BCUC IR Q., given that FBC is already maximising its use of PPA in the winter season, it can only increase its purchases of PPA energy in the spring or summer periods. As such FBC expects that it can avoid any reliance on Tranche energy through market purchases and at this time has no plans to build new resources specifically for that purpose. As FBC has already maximised its use of PPA energy in the winter months, FBC cannot meet all of its load growth with PPA energy regardless of the pricing structure. As a result FBC will continue to evaluate all of its market and resource options to meet all growth on its system, including the need to offset Tranche energy, as part of its Resource Planning activities.. How certain is FortisBC that it will not actually ever have to use Tranche energy for any purpose other than for planning purposes? Please explain fully.

18 Page FBC has a high level of confidence that it will not be required to purchase Tranche energy as it believes the availability of Tranche energy is sufficient to meet FBC s requirements during most times of the year (as limited by the 00 MW capacity limit) and any incremental requirements would be during the freshet and summer periods when generally more cost effective resources are available. FBC has provided a full and detailed explanation of FBC s ability to manage its power supply portfolio in order to avoid or mitigate any exposure to Tranche pricing in FBC s Letter of Support (C- page to page ) and again in FBC s response to BCUC IR Q. referred to in the response to BCUC IR Q. copied above. The information provided in those references is also the basis for many other responses to various information requests from the BCUC and other interveners. While FBC is confident that it can avoid any reliance on Tranche purchases, it cannot guarantee that circumstances will never arise where it will not purchase Tranche energy. One circumstance where FBC may choose to plan on purchases of Tranche energy would be if market prices increased and were maintained at rates above the Tranche prices such as it became the most cost effective resource for FBC to meet its incremental requirements during the next freshet or summer season at the time it is making its Annual Energy Nomination prior to the beginning of each contract year. This is expected to be a very low probability scenario, and over the year could be mitigated down to the % take or pay commitment by taking advantage of market price fluctuations. Another possibility may be if a combination of circumstances occur concurrently where there are extreme market price spikes due to unexpected developments (such as the California crisis in 00), FBC s load during the spring/summer is much higher than expected and FBC s use of Tranche energy is already maximised. In this case, there may be some peak hours where Tranche energy becomes the most cost effective resource to meet incremental requirements, but this exposure would be limited in terms of volume and overall cost impact. It is possible, however, that there will be times over the term of the New PPA where market prices are below the Tranche rate but above the PPA embedded cost rate. However as discussed in the response to BCUC IR Q. the magnitude of this risk is fairly small even though there is a moderate chance of it occurring.. In order for the forecasts provided in ICG.. to materialize will FortisBC be required to build any new facilities?

19 Page In the forecasts provided in the response to ICG IR Q., FBC expects that the required energy to avoid Tranche purchases can be successfully purchased from the market. However, as explained in BCUC IR Q., Therefore, as part of its long term resource planning process, FBC will be assessing various short and long term options to allow it to cost effectively and reliably replace or displace any exposure to Tranche energy. Depending on the results of the 0 long term resource plan there could be a continuing reliance on the short term market or a long term approach such as new facilities could be the preferred option. Please also refer to the response to BCUC IR Q For each of the next 0 years what is FortisBC s best estimate of the incremental increase/decrease in the COE due to the New PPA? Please ensure that you provide a response to this request, even if only an estimate. In response to this question, FBC has assumed that the Commission is requesting further information regarding the potential impact to the cost of energy could be as a result of the changes in the New PPA relative to a renewal of the PPA on existing terms. There are four areas that may result in an impact to costs of energy in any one year during the term of the New PPA:. The 0 GWh cap on the availability of BC Hydro s embedded cost energy.. The Annual Energy Nomination and the 0% premium applied for energy taken above the nomination but below the Tranche amount.. The take or pay commitment requiring FBC to purchase up to % of Annual Energy Nomination.. The Imbalance Charges resulting from an inadvertent flow of electricity. As discussed in greater detail below, the impact of the first factor is dependent on the future cost of FBC s other supply options (i.e. market purchases or new resources) relative to BC Hydro s embedded cost rates (i.e. Tranche ) and/or Tranche rates. Based on current assumptions, FBC s best forecast is that any impact on the Cost of Energy would be minimal.

20 Page For the second factor, FBC believes that the risk of an actual energy requirement above the Annual Energy Nomination is low. FBC is already maximizing its use of PPA energy over the winter, limited by the 00 MW hourly capacity amount. Any increase to load over the winter cannot be met with PPA energy and could not increase the PPA energy take. Any increases to load that could drive an increased PPA take would be in the shoulder seasons or the summer months. During this time, FBC has the ability to use its storage accounts under the CPA to shift energy when it is needed, and as such, can likely meet any increased energy requirement with lower cost market purchases. That being said, if load requirements and market conditions are such that FBC must take 0 GWh of PPA energy above its Annual Energy Nomination, it would represent an increased annual cost of $,00, calculated as follows: 0 GWh X $.0 (current tranche energy price plus rate rider) x 0% = $,00. On a planning basis, FBC does not expect any cost impact from the third and fourth factors. FBC will manage its portfolio planning and market assessment carefully to ensure that it has firm resources in place to support its Annual Energy Nomination and manage its PPA purchases within the % take or pay commitment. Likewise, inadvertent flows of electricity as a result of unexpected conditions will now be addressed under the Imbalance Agreement, and although there will be occasions when FBC cannot avoid Imbalance charges, there will now be no impact to the capacity ratchet charges under the PPA. On average FBC expects that this will result in overall lower costs to customers, but this would be impossible to forecast as it would be a result of an unexpected event. An example, however, was provided in the response to CEC IR Q.. With respect to the cap on Tranche energy, as long as there are periods during any year where the market provides opportunities to purchase energy at prices that are lower than Tranche prices, then it is expected that FBC will be able to meet its requirements below the 0 GWh cap, and therefore there would be no impact from the New PPA relative to the PPA. If FBC can only meet its incremental requirements during periods when market prices, or the costs of replacement resources, are above the Tranche price, then the cost impact is capped by the Tranche energy price. (i.e. if in this scenario market prices exceeded the Tranche price, FBC would exercise its right to purchase Tranche energy under the PPA). As discussed in considerable detail in the response to BCUC IR Q., FBC s potential exposure to Tranche energy to meet its incremental growth requirements is limited and FBC believes that it will be able to mitigate any material cost impacts through the acquisition of more cost effective resources or market purchases. The Tranche annual cap of 0 GWhs is based on the maximum energy FBC would have expected to take under the PPA absent any market mitigation for the contract year beginning in October, 0. In this scenario, FBC already relies on maximizing the use of the PPA during the winter months up to the full 00 MW of capacity, and any increase in energy take would be during the freshet or summer seasons when the full 00 MW of capacity is not yet required. This allows FBC to optimise purchases

21 Page under the PPA with the use of its other resources and allows for the purchase of market energy during lower price periods both on a seasonal and hourly basis. As a result, as discussed in the response to BCUC IR Q., based on current forecasts FBC s best estimate is that on average there will not be a change to the cost of energy due to the new PPA over the term of the contract. In order to be responsive, however, FBC has calculated the exposure to market prices based on three scenarios and using the same excel model provided in the response to ICG IR Q... The potential impacts to the annual cost of energy is provided in Attachment.. The first scenario is based on the BC Market Price used in its 0 Resource Plan, the second scenario is based on the 0 updated market price forecast, and the third scenario is based on the average prices of the two forecasts. Under the first scenario, the exposure is forecast to grow to $. million per annum by 0. Under the second scenario, there is no exposure since FBC would meet its incremental requirements with market purchases at times when the market price is expected to be less than the BC Hydro Tranche rates, and therefore would be the same under the terms of the New PPA and the PPA. Under the third scenario, the annual exposure is forecast to grow to be $. million by 0. In all cases, the model assumes that FBC will be able to purchase the energy in the shoulder seasons, and as such has used a % discount to the annual rate that was derived by calculating the average discount of market prices in the four lowest cost months compared to the annual average cost over the past five years. The model also assumes a % annual increase to BC Hydro rates. However, if the actual BC Hydro rate increases were % per year, the forecast exposure in the second and third market price scenarios would be zero, while the maximum exposure in the first market price scenario would be reduced to $. million per annum in Please confirm, or explain otherwise, that after year five of the New PPA, FortisBC expects an increase in the COE due to the New PPA. Not confirmed. Please refer to the response to BCUC IR Q..

22 Page 0. For each of the next 0 years what is FortisBC s best estimate of the incremental increase/decrease in the Rates due to the New PPA? Please ensure that you provide a response to this request, even if only a rough estimate is available. Provided in the Table below is the best estimate of FortisBC s incremental increase / decrease in Customer Rate Impacts for each of the next 0 years for the three different scenarios addressed in BCUC IR Q. (at various BC Market Rate at Shoulder Seasons) for the New PPA. The first scenario is based on the BC Market Price used in its 0 Resource Plan, the second scenario is based on the 0 updated market price forecast, and the third scenario is based on the average prices of the two forecasts. Please note that the response is a high level estimate only.

23 Page Year Total Revenue Requirement Average Revenue Requirement Increment PPA Scenario- (0 Resource Plan BC Mkt Price) New PPA Impact Tax Net Impact Rate Impact PPA Scenario- (0 Updated Market Price Forecast) New PPA Impact Please also note that the Average Revenue Requirement Increment above is the percentage increase in revenue requirement and not the actual rate increase. The Revenue Requirement Increment is reduced by load growth to determine the rate increase. Tax Net Impact Rate Impact PPA Scenario- (Average of PPA Scenarios - & ) New PPA Impact 0,0 Ref.: RRA % % % 0,0.% 0 Filing, () 0.0% % % 0,0.% Vol.-, Sch-E, () 0.0% % % 0,.0% Page 0 () 0.0% % % 0,0.% Line- 0 () 0.% % % 0,.0% () 0 0.% % % 00 0,0.0% () 0.% % () 0 0.0% 0,0.0%,0 () 0.% % () 0.0% 0,0.0%,0 (),0 0.% % () 0.0% 0,0.0%, (),0 0.% % () 0 0.0% 0,.0% Estimated at, (0), 0.% % 0 () 0.0% 0,0.0% Average %, (0), 0.% % (00) 0.% 0,.0% Increase at, (), 0.% % () 0.% 0,0.0% 0-0, (),0 0.% % () 0.% 0,.0% Levels,0 (,0), 0.% % () 0.% 0,.0%, (,), 0.% %, () 0.% 00 0,0.0%,0 (,),0 0.% %, (), 0.% 0,.0%,0 (,),0 0.% %,0 (),0 0.% 0 0,0.0%,0 (,),0 0.% %, (), 0.% 0,.0% % % % Tax Net Impact Rate Impact

24 Page 0.0 Reference: Rate Design Energy and Capacity Exhibit B-, Appendix G, p. ; Exhibit B-, ICG IR.0.; Exhibit B-, BCUC IR... Energy and Demand Charges The PPA decision stated that As a customer, WKP has a right to a specific amount of electricity from B.C. Hydro at the rates extended by B.C. Hydro to comparable customers. (Appendix G, Exhibit B-, p. ) In response to ICG.0. BC Hydro states BC Hydro confirms that the Decision directed BC Hydro to charge FortisBC the equivalent of RS energy and demand charges. In response to BCUC... BC Hydro states the following: In response to ICG.. FortisBC states the following: 0. BC Hydro states that the New PPA has the same basic parameters as the PPA existing RS 0 and the principals are still relevant today. Based on this statement please explain why the energy charge extended to FortisBC in the New PPA is not comparable to RS? The response to this question has been provided by BC Hydro in Exhibit B- (responses to BCUC IR No. ) as reproduced below.

25 Page

26 Page 0 0. If the principals are still relevant today please explain why the New PPA RS 0 includes a limit on the embedded cost energy (Tranche energy) when the PPA did not. The limit on embedded cost energy was a requirement of BC Hydro during the negotiation of the New PPA, and BC Hydro s requirement to impose a limit on embedded cost energy should be explained by BC Hydro. FBC accepted the limit on embedded cost energy as part of the overall agreement because it was necessary to move forward and conclude negotiations to renew the long term power supply agreement with BC Hydro prior to the expiry of the PPA. The capacity and energy available under BC Hydro PPA is a significant and critical part of FBC s overall power supply portfolio and FBC believes that its resource requirements can be managed within this limit on embedded cost energy with minimal rate impact. As the Commission has been made aware in previous submissions, a cap on availability of BC Hydro s embedded cost energy has been a central issue to the discussions regarding renewal of the PPA between BC Hydro and FBC for several years and in the past had been the biggest obstacle to reaching a negotiated agreement. In an effort to resolve this issue, in 00 FBC filed an application with the Commission for renewal of the PPA, and in that submission identified that the parties had been unable to come to agreement, and the central issue was the availability of energy under the agreement. In response to that application, and at the advice of the Commission, the parties attempted mediation to resolve the differences, but this was also unsuccessful. Ultimately the Commission declined to hear FBC s application pursuant to its October, 00 letter attached to this response, and encouraged the parties to continue to try to come to a negotiated solution.

27 Page 0 As a result of this decision by the Commission, and the importance of the PPA in its power supply portfolio, FBC refocused its efforts on ensuring that if it were to agree to BC Hydro s requirement that there would be a limit on embedded cost energy under PPA, that it must have the flexibility to be able to manage this cap in order to ensure it can mitigate any impact on customers to the best degree possible. For example, as described in the Commission s October, 00 letter, BC Hydro s original position had been that the availability of embedded cost energy would be subject to monthly caps which would have significantly increased the complexity and decreased the value of the power supply arrangement. In the final agreement, although FBC did agree to a limit on embedded cost energy, the parties agreed that this limit would be based on an annual cap, which provides FBC significant flexibility to manage and shape the capacity and energy it takes from BC Hydro in a way that will allow it to avoid taking energy above the Tranche cap in most circumstances.. In tabular form, please identify each directive and principal from the PPA decision and indicate if it is still relevant today and if it has been applied to the New PPA RS 0. Please include an explanation of why it has or has not been applied to the New PPA RS In order to respond to this question, FBC believes it would be beneficial to first describe the context of the proceeding leading to the Commission Decision, and how it applies now: The existing power supply arrangement that had been in place since was expiring and despite several years of negotiation, the parties had been unable to come to agreement on renewal terms. Finally, BC Hydro filed an application to terminate the previous PPA and the accompanying RS0 and for approval of a new PPA with a new rate schedule RS0. FBC (WKP at the time), did not agree to the terms of the new PPA proposed by BC Hydro. Much of the proceeding, therefore, was about establishing BC Hydro s obligations to serve FBC in the context of the unique relationship between the two parties, and laying out the principles on which a revised PPA should be based. BC Hydro and FBC were then then directed to negotiate an amended PPA and RS0 that was based on those principles. A similar situation occurred in 00, when FBC filed an application for renewal of PPA after the parties had failed to come to agreement on the terms of the on the renewal of the power supply arrangement after the expiry of the PPA in October 0. FBC was seeking certainty on the future terms of the power supply arrangement to support its long term resource planning. In this case, however, the Commission declined to make any determinations on the appropriateness of FBC

28 Page 0 or BC Hydro s positions and directed the parties to continue to attempt to come to a negotiated agreement (refer to the Commission s letter of October, 00 provided as an attachment to the response to BCUC IR Q.). A significant difference in this Application is that the agreements that are before the Commission have been agreed to by BC Hydro and FBC, and the Commission is not being asked to resolve any differences between the parties. FBC believes that these agreements continue to be consistent with the principles established by the Commission in the Decision as it related to the establishment of the PPA and to the direction the Commission provided to the parties in its letter of October, 00. The Commission s findings are provided in Section of the Decision dated April, and dealt with many issues that were beyond the scope of this proceeding (for example, the Commission was also being asked to resolve a billing issue under the then current power supply arrangement). In response to this information request, FBC has attempted to capture only the directives and principles arising from the Commission s findings that lead specifically to the PPA and RS0 largely captured in Section. titled Modified Rate 0. Please see Table BCUC IR Q. below for a summary of these findings and the relevance to the development of the New PPA. (Note that excerpts from the Decision included in the table are shown in italics).

29 Page Directive and Principle Section. (page ): In this section the Commission states its view of the relevance of the relationship between the parties in making its findings and states: It is the Commission s view that the ratemaking principle that most appropriately reflects the unique relationship between B.C. Hydro and WKP is one which characterizes that relationship as a hybrid in which WKP is partly a customer of B.C. Hydro and partly an independent utility. While B.C. Hydro has customer obligations to WKP, there are limits to these obligations. Beyond these limits, the relationship is to be that which would exist between two independent utilities. Section.. (page to ): In this section, having found that BC Hydro had an obligation to serve FBC, the Commission discussed the limit of BC Hydro s customer obligation to FBC and made a number of findings as follows: The Commission determines that, after September 0,, the Customer Demand Limit under modified Rate 0 is to be set at 00MW. The energy limit is to be determined by WKP s use of the available capacity. Section.. (page to ) cont d: The Commission requires that the PPA to accompany modified Rate 0 have a term of at least 0 years with a provision for negotiated renewals thereafter. Application to the New PPA FBC believes this still correctly describes the relationship between FBC and BC Hydro and formed the basis of the negotiations between the parties leading to the establishment of the New PPA and the related agreements. It remains relevant today. In the New PPA, BC Hydro s customer obligation to FBC at embedded costs continues to be limited by the 00 MW Customer Demand Limit, however, it is now also limited by the energy cap of 0 GWhs per annum. FBC continues to be expected to meet any growing requirements above that limit through other resources, however does have an option to acquire additional energy at a price that reflects BC Hydro s LRMC. Please see the response to BCUC IR Q. for a discussion on why FBC agreed to the energy limit in the New PPA. FBC agrees that finding remains relevant as it contemplated that BC Hydro s customer obligation to FBC extend beyond the term of the PPA. This expectation has also been the basis for FBC s long term resource planning, including the 0 Resource Plan. Under the New PPA, BC Hydro and FBC have negotiated the renewal of the power supply arrangement for an additional 0 years. Although there is no specific renewal provisions in the New PPA, FBC does expect that future renewal of the power supply arrangement with BC Hydro will be part of its future resource planning activities.

30 Page Directive and Principle Application to the New PPA The Commission directs that there shall be no Customer Demand Limit on the B.C. Hydro capacity and energy available for purchase by WKP from October, to September 0,. B.C. Hydro rates for all service during this period shall be those applicable to services below the Customer Demand Limit. Purchases during this period will also be governed by the amended PPA. Section.. (Page -) In this section the Commission discusses the conditions of supply to the 00 MW limit and makes two findings: The energy and capacity charges of modified Rate 0 shall be as applied for by B.C. Hydro. Changes in these will match those in Rate, or its equivalent. This finding was only relevant at the time to allow for a transition from the then current power supply arrangement to the PPA and to ensure that FBC had sufficient time to plan for or acquire other resources that may be required above the Customer Demand Limit of 00 MW. It has no relevance to the establishment of the new PPA. This principle is relevant to the New PPA and still applies to BC Hydro s customer obligation to serve FBC at embedded costs up to the 00 MW demand limit and 0 GWh annual energy limit. (Note that Rate has been replaced by RS for those customers that are exempt from stepped rates pursuant to Recommendation # related to Special Direction HC, section ()). Section.. (Page -) cont d The Commission agrees that, as B.C. Hydro moves toward load balance, and, through short-term exports and exchanges, to a fuller utilization of capacity, a more appropriate level for the demand ratchet is percent, in line with other transmission customers. However, the adjustment of the ratchet should occur gradually, to allow WKP time to evaluate and implement the demand and/or supply peaking options that may prove more cost-effective that meeting peaking requirements under the Rate 0. Therefore the demand ratchet will increase in equal increments from 0 percent in to percent in 000. Ater October, the size of the demand ratchet shall be identical to that under Rate. The transition to the % capacity rachet did occur and there is no need for a further transition period. The calculation of capacity charges under the New PPA continues to be based on the % demand ratchet and is consistent with the determination of the demand charges under RS.

31 Page 0 Directive and Principle Section.. (Page ) In this section, the Commission directs BC Hydro and FBC to negotiate amendments to the PPA to incorporate the findings and directions as set out in other sections of the Decision and to negotiate further amendments as may be necessary to address any ancillary issues. The Commission then lays out the process by which BC Hydro and FBC would file the amended agreement and for other interveners to provide any comments on the amended agreement. If the Parties could not come to agreement on the application of the principles, then they were each to file proposed language for any clauses that continued to be in dispute. Section.. cont d (pages 0-) On these pages the Commission lays out its observations and suggests how particular terms and conditions could be treated under an amended PPA, in an effort to facilitate resolution of some of the items that appears to be points of contention between BC Hydro and FBC. However these observations were not intended to restrict the negotiations between the parties to develop an amended PPA. Application to the New PPA This only directly applied to the agreement although the concept remains valid and is part of the New PPA and related agreements. FBC notes that, in this proceeding, BC Hydro s Application is for approval of the New PPA and the associated agreements that have been agreed to by both parties. In FBC s view, all of the Commission s observations and suggestions listed on pages 0 - of the Decision were largely observed or otherwise agreed to by BCH and FBC in the final form of the PPA. Each of these issues were also part of the discussions in the New PPA and in many instances were updated to reflect current scheduling practices. The Commission s obligations and the relevance to the New PPA and associated agreements are copied here from page 0: (i) With regards to the notice requirements for capacity nominations, the Commission s impression of the evidence submitted to date indicates that a five year notifications period is appropriate, on the basis B.C. hydro would use reasonable efforts to accommodate changes requested by WKP if such requests are made two years in advance of the proposed changes. While this principle remains relevant today, given that FBC has nominated 00 MW for many years and expects to continue to do so, a default nomination of 00 MW was agreed to in the New PPA. If FBC circumstances change, this can be lowered but if it is lowered it cannot be increased again, unlike the agreement.

32 Page Directive and Principle Application to the New PPA (ii) (iii) With regards to determination of WKP s annual peak, for capacity billing purposes, the Commission s impression of the evidence submitted to date supports the use of the coincident peak method but some adjustments may be required to recognize capacity constraints at various points of interconnections. With regards to the penalty charges for capacity demand taken in excess of the nominated amounts, the Commission s impression of the evidence submitted to date indicates that these charges should not be unduly punitive but should be sufficient to ensure prudent resource acquisition by WKP. In this regard, the Commission views the proposed percent charge as excessive. This billing method would have been complex, and was not adopted in the amended PPA. The PPA adopted the capacity billing structure of RS (now RS) after the transition period discussed in Section.. described above. The application of RS capacity billing structure remains relevant to the New PPA. The Excess Capacity charge under the PPA was set at 0%, and under the ratchet provisions could impact the capacity charge for the following months. This no longer applies under New PPA, as it relates only to nominated amounts. Under the New PPA, any inadvertent flows of electricity (capacity and energy) above the nominated amounts are settled through the Imbalance Agreement. (iv) (v) With regards to billing arrangements under modified Rate 0, the Commission s impression of the evidence submitted to date indicates that all energy purchases should be associated with capacity purchases. With regards to the pre-scheduling of WKP s energy purchase requirements, the Commissions impression of the evidence submitted to date supports the establishment of an energy take-or-pay pre-scheduling requirement with excess energy penalty charges. The Commission s view is based on the evidence that the monthly billing of entitlement and the 0 GWh account provide WKP with adequate flexibility, such that prudent scheduling would not result in excess charges. Similar to its view with respect to capacity nominations, the Commission believes that excess charges should be not unduly punitive but should be sufficient to insure prudent scheduling. In this regard, the Commission views the proposed percent charge as excessive. This principle applied in the PPA and continues to apply in the New PPA. In other words the electricity taken under the New PPA is a bundled product (energy and capacity). Under the final PPA, the penalty for taking Excess Energy was % taking into account the Commissions view that % was excessive. Under the New PPA, only scheduled energy is delivered under the PPA and Excess Energy is not available. The system balancing function for provided by excess energy to address inadvertent flows is now covered under the Imbalance Agreement under which imbalance energy is subject to a charge of at least 0% of the relevant market price. The New PPA continues to require FBC to take and pay for any pre-scheduled energy, however the FBC will now be scheduling a on a day ahead basis, which will allow for more accurate forecasting, and can also change its schedules by +/- MW on an hour ahead basis to meet changes in its forecast.

33 Page Directive and Principle Application to the New PPA (vi) With regards to either the storage or export sales of energy and capacity which WKP purchases from B.C. Hydro the Commission s impression of the evidence submitted to date indicates that such practices should be prohibited if there is sufficient flexibility in the monthly billing of entitlement and the 0 GWh account to accommodate over nomination or prescheduling. FBC accepts that the export sales of purchased BC Hydro PPA energy and capacity should be prohibited and this is part of the New PPA and related agreements. FBC also confirms that under both the PPA and the New PPA that all PPA purchases in any hour are used to meet load in that hour and are not stored. Section.. (Page -) In this section the Commission discusses its views of principles that should apply to FBC s access to BC Hydro and non BC Hydro resources above the 00 MW Customer Demand Limit. With respect to FBC s access to additional BC Hydro resources the Commission s finding on page was as follows Recognizing the special nature of the relationship between B.C. Hydro and WKP, the Commission directs that any additional agreements between B.C. Hydro and WKP for supply in excess of the 00 MW Customer Demand Limit shall be negotiated on a utility to utility basis, but filed with the Commission for approval pursuant to Section of the Act. The Commission will ensure, upon receipt of a filled agreement, that the terms and conditions thereof, including the rates therein, are reflective of fair market practices. In the New PPA, BC Hydro s customer obligation to serve FBC at embedded costs continues to be limited by the 00 MW capacity limit and is now further limited by the 0 GWh annual energy cap. (See the response to BCUC IR Q. for the discussion on why FBC agreed to the annual energy limit). BC Hydro and FBC have agreed that to give FBC an option, the optional additional energy under the 00 MW cap is at a price that reflects BC Hydro s LRMC (Tranche ). However FBC is not required to purchase this additional energy and has the ability to meet any incremental requirements through market purchases and or acquisition of other resources. BC Hydro, through Powerex, is FBC s biggest counterparty, and FBC has bought and sold energy products from Powerex from time to time. FBC files and seeks BCUC approval of its energy supply agreements under the appropriate sections of the Act.

34 Page Directive and Principle With respect to FBC s access to non BC Hydro resources, the Commission recognised that in order to ensure competitive supply opportunities, FBC needed access to other potential suppliers. To achieve this, FBC needed reasonable access to wheeling services from BC Hydro with wheeling charges that reflect fair market arrangements. As such the Commission s finding on page was as follows: The Commission directs B.C. Hydro to provide WKP with reasonable wheeling access and fair wheeling charges for non- B.C. Hydro electricity supplies intended to serve WKP s customers, be these supplies intra or extra provincial. Application to the New PPA While not directly a part of the New PPA, FBC believes this is in effect and is reflected in the General Wheeling Agreement (as amended by the ARWA) to allow for FBC to serve its customers. Since that time BC Hydro s OATT has also been put in place. This determination also demonstrates that the Commission recognised and expected that FBC would acquire other resources over and above what would be provided under the PPA.

35 Page Directive and Principle Section.. (pages -) In this section the Commission provides an overview of why it believes the Decision establishes the basis for a fair and balanced business relationship between BC Hydro and FBC. (i) (ii) (iii) (iv) (v) (vi) (vii) The obligations of B.C. Hydro to WKP are clarified and stabilised. B.C. Hydro receives more revenue from the resources allocated to it than it would have under the POA or Rate 0. WKP faces the provincial long-run incremental cost when conducting its integrated resource planning WKP partly and indefinitely retains its status as a customer of B.C. Hydro, which it would have lost under the POA. Relative to the POA, WKP s purchases from BC Hydro will be more costly in the short run but less costly in the long term with the continuing guarantee of the 00 MW customer limit. This guarantee reduces the risk that WKP s rates with exceed those of BC Hydro in the long term. The option of obtaining all incremental supply resources from BC Hydro reduces the risks to WKP rates of if its own resource options prove to be relatively more expensive than originally estimated. Future interaction between WKP and BC Hydro has an opportunity to be free of the misunderstandings and excessive regulatory and negotiations cost of the last decade. First the electricity price under the 00 MW Demand Limit is determined through BC Hydro s rate hearings and resulting changes to Rate. Second, the price for electricity above the Customer Demand Limit will be negotiated in the same way that BC Hydro or other suppliers negotiate contracts. With Commission oversight, and with wheeling access guaranteed by the Commission, WKP will be in a better position to ensure that negotiated rates are reflective of fair market arrangements. Application to the New PPA FBC believes that the views of the Commission in this section were relevant at the time of the Proceeding because BC Hydro and FBC had been unable to come to agreement on the terms of a long term power supply agreement between the parties. The Commission recognised this and made several determinations that it felt would establish a fair and balanced relationship on which to provide for the PPA. In the current proceeding, after another long period of difficult negotiations, BC Hydro and FBC have come to agreement on the terms and conditions on which the power supply arrangement will continue, and these observations remain relevant. In particular: Under the New PPA, the obligations of BC Hydro and FBC are clarified and should provide stability for the term of the New PPA. FBC continues to have to plan and acquire resources to meet its customers requirements above the 00 MW demand limit and 0 GWh tranche limit. The PPA does provide FBC a limited right to acquire additional energy at BC Hydro s LRMC (i.e. Tranche energy), however FBC is not limited from acquiring other resources from either BC Hydro/Powerex or other market participants. FBC status as customer of BC Hydro is retained indefinitely based on the continuing guarantee of the 00 MW Customer Demand Limit to serve its utility customers The electricity price under the 00 MW demand limit and 0 GW Tranche limit continues to be determined in relation to the Rate (now Rate ) The New PPA and the associated agreements have been agreed to by both parties and expect that it should reduce excessive regulatory and negotiations costs for some time in the future.

36 Page Directive and Principle Section. Page - In this section the Commission discusses the submissions of other interveners in the proceeding regarding whether BC Hydro rates to serve FBC should in part be based on regional rate making principles. For example, several interveners had argued that since BC Hydro had significant generation facilities in the Kootenay region and the rates charged to FBC should be lower. Others argued that the Kootenays are an economically disadvantaged region in the province, and that rates should be set to help certain regions. Application to the New PPA This conclusion of the Commission in the proceeding remains relevant today. BC Hydro s customer obligation to FBC under the New PPA continues to be based on BC Hydro s overall embedded costs and does not take into account regional differences. In conclusion the Commission stated that it did not accept the argument that the RS0 should be in part set in consideration of regional ratemaking and that in any case it was beyond the scope of the proceeding.

37 Page.0 Reference: Rate Design Energy and Capacity Exhibit B-, BCUC IR..; Exhibit B-, ICG IR..,..0; Exhibit B-, Celgar IR..; Exhibit C-, BCUC IR...; Exhibit C-, p. ; Exhibit C-; BCUC IR...; Exhibit C-, pp. - Heritage Energy (BCUC IR.. to BCH) 0 (ICG IR.. to BCH)

38 Page (Celgar IR.. to BCH) (ICG IR..0 to BCH) (BCUC IR... to FBC)

39 Page (FBC Support Letter - Exhibit C-, p. ) (FBC Support Letter - Exhibit C-, pp. -) (Exhibit C-, BCUC IR... to FBC) 0 (Exhibit C-, BCUC IR.. to FBC) It appears from the IR responses provided by FortisBC and BC Hydro that the interpretation of the Heritage Contract as it relates to RS 0 capacity and energy entitlement differs.. Does the Heritage Contract entitle all British Columbians access to Heritage capacity and energy? If so please provide a reference. It is clear that the Heritage Contract includes BC Hydro ratepayers, including those under BC Hydro s RS 0, and at times there have been specific references to British Columbians having continued access to sufficient supplies of dependable low-cost electricity.

40 Page 0 0 In 00, the Government of British Columbia launched Energy for Our Future: A Plan for BC. It stated in the Solutions section that BC Hydro ratepayers will benefit from a legislated heritage contract that locks in the value from existing low-cost generation (heritage energy), and from the continued use of trading revenues to supplement domestic revenues. Order in Council No specified the Terms of Reference for the Commission inquiry into the terms and conditions of the heritage contract legislation. Section (b) of Schedule A states The classes of customers that are eligible to benefit from the Heritage Contract are those set out in Schedule B, as may be amended from time to time to reflect the introduction of new rate structures or options We note that Schedule B includes BC Hydro s transmission services, including RS 0. On October, 00 the BC Utilities Commission issued the report An Inquiry into a Heritage Contract for British Columbia Hydro and Power Authority s Existing Generation Resources and Regarding Stepped Rates and Transmission Access. In the Executive summary, page (i), the second paragraph states The Commission was requested to make recommendations on two key policy initiatives in the Energy Plan. First, benefits attributable to the existing low cost generation of BC Hydro are to be secured for British Columbians by the means of a Heritage Contract. However, in Section., page it states. Policy Action # directs the implication of a legislated Heritage Contract that will essentially lock in the value of existing low-cost generation for the benefit of all BC Hydro ratepayers. Under the 00 Energy Plan, the government passed the BC Hydro Public Power Legacy and Heritage Contract Act to ensure continued public ownership of BC Hydro and its heritage assets, including BC Hydro s generation, distribution and transmission systems. The BC Hydro Public Power Legacy and Heritage Contract Act provided enabling legislation to allow Government to require a Heritage Contract. The Heritage Contract was implemented by the Heritage Contract Special Direction #. The second line in Appendix A states: AND WHEREAS the Energy Plan outlines certain policy actions designed to ensure British Columbians have continued access to sufficient supplies of dependable low-cost electricity. 0.. If yes, what amount of Heritage capacity and energy would FortisBC be entitled to? How should these amounts be determined? Section.. of the Decision (pages -) defines the limit of BC Hydro s customer obligation to WKP. The Commission determines that, after September 0,, the Customer

41 Page 0 0 Demand Limit under modified Rate 0 is to be set at 00 MW. The energy limit is to be determined by WKP s use of the available capacity. It further states The Commission requires that the PPA to accompany modified Rate 0 have a term of at least 0 years with a provision for negotiated renewals thereafter. FortisBC believe that this would be an appropriate baseline for the Heritage capacity and energy it should be entitled to, without consideration of the tradeoffs in negotiated PPA. In terms of the rate structure, Section () of Heritage Contract Special Direction # states: In designing rates for the authority's transmission rate customers, the Commission must ensure that those rates are consistent with recommendations # to # inclusive in the commission's report and recommendations to the Lieutenant Governor in Council dated October, 00. Please refer to FBC s response to BCUC IR Q.. 0. If FortisBC is entitled to Heritage capacity and energy should it be provided through the New PPA RS 0? If yes, why? If not, why not? Yes, FBC believes it is appropriate for BC Hydro to provide FBC access to Heritage capacity and energy through the New PPA RS 0 since this was the way established in for FBC customers to benefit from BC Hydro resources and it remains the most logical and straightforward approach to accomplish this in FBC s view.. If FortisBC is entitled to Heritage capacity and energy is it appropriate for this capacity and energy to have restrictions placed on it as established in section. of the proposed New PPA and the Export Agreement? If yes, why? If not, why not? 0 Yes, it is appropriate. The restrictions on how FBC can use BC Hydro resources in the form of PPA power in section. are prompted by the same principle that motivates restrictions on other BC Hydro customers in their use of BC Hydro power, in that BC Hydro s embedded cost

42 Page power is not to be arbitraged against the market. Section. is the means by which the parties determined to avoid arbitrage in this case.

43 Page Reference: Rate Design Energy and Capacity DCAT Reasons for Decision to Order G--, pp. -00 Obligation to Serve BC Hydro provides that all members of BC Hydro s rate classes, regardless of when they joined the rate class, are entitled to receive benefits of low cost heritage energy. (Exhibit B-, p. ) BC Hydro further suggests that new load ought not to be discriminated against, with respect to rate or service. BC Hydro s rates, and the related terms and conditions of service, do not distinguish between customers based on the use to which power is put. (Exhibit B-, p. ) Such a distinction would be a significant deviation from its obligations, and would require extensive consultation with 00 stakeholders. Further, BC Hydro states that its obligation to serve is an essential part of its mandate. Mr. Sanderson, BC Hydro s legal counsel, suggests that the obligation to serve is absolute; Mr. Sanderson went through the origins of the obligation to serve, tracing its origins to the Magna Carta, citing Chastain v. BC Hydro ((), DLR rd, at ). In that case, BC Hydro attempted to collect security from customers who were poor credit risks. This case provided that a public utility cannot discriminate against customers. Mr. Sanderson states: Hydro must serve all those who come to it ready, willing and able to meet the requirements that this Commission has said are necessary for customers to meet in order to be entitled to service. (T:). Does FortisBC consider that BC Hydro has an absolute obligation to serve FortisBC? If not, please explain. FBC does not consider that BC Hydro has an absolute obligation to serve it (in terms of unlimited energy and capacity). FBC has described its views on its right to Heritage capacity and energy in response to BCUC IR series above, which establishes an obligation by BC Hydro to serve FBC. In particular, FBC s response to BCUC IR Q.. identifies a limit to BC Hydro s customer obligation to FBC.. If BC Hydro has an obligation to serve FortisBC does it have the right to place restrictions on it as established in section. of the proposed New PPA and the Export Agreement? If yes, why? If not, why not? Please refer to the response to BCUC IR Q..

44 Page E. RATE DESIGN TWO TIERED RATE 0.0 Reference: Rate Design - Two Tiered Rate Exhibit B-, BCUC..,.. Comparison of New PPA 0 0. The New PPA RS 0 energy volume is more restrictive for FortisBC than other BC Hydro transmission customers. Other than stating that it was the result of negations, is FortisBC satisfied with the amount of energy volumes available to them under the proposed RS? Would FortisBC have preferred to have the full amount of energy volume available at Tranche rates? Please explain. Of course FBC would have preferred to have the option to purchase the full amount of energy volume available at Tranche rates. However, given the overall structure of the New PPA, FBC is satisfied with the 0 GWh cap on the amount of energy volumes available to it at the Tranche rate.

45 Page The New PPA provides FortisBC continued long term access to a cost effective, secure and reliable long term firm power supply resource while still providing the flexibility to participate in the market to manage and mitigate costs of its overall power supply portfolio on behalf of its customers. This allows FBC not only to avoid any reliance on Tranche power, but also further mitigate the costs of Tranche power in response to favourable market conditions to the benefit of customers. Please also refer to the response to BCUC IR Q Would FortisBC prefer if the New PPA RS 0 energy charge was base completely on RS? Other than stating that it was the result of negations, please explain why or why not. Assuming all other relevant provisions of the New PPA remained the same, yes, of course FortisBC would prefer the full amount of energy associated with 00 MW be available at the RS rate. However the parties did not agree to this option and FBC has accepted the proposed structure as part of the overall package of agreements (please also refer to the responses to BCUC IR Q. and Q0.). As described in Section.(d) of the BC Hydro Submission, the Tranche energy pricing is intended to provide a LRMP price signal, and as FBC s load grows FBC will plan to avoid taking that high cost energy if lower cost opportunities, including market purchases, are available and make sense. If the Tranche incremental amount between 0 GWh and, GWh were available at RS pricing, there would be a higher likelihood that that power would be competitive with FortisBC s marginal cost of market purchases, with the additional benefits of increased reliability and flexibility. However, given that FBC can only grow into this energy during the shoulder seasons and freshet (when prices are on average low), even at RS rates that rate may not always be FBC s the lowest marginal price for firm power If the New PPA RS 0 was a flat rate what energy volumes does FortisBC think it should be entitled to?

46 Page 0 If the New PPA RS 0 flat rate is based on the embedded cost rate (i.e. the current Tranche rate), then FortisBC believes that it should it should apply to the all energy purchases associated with its use of the 00 MW capacity limit as it is under the PPA. The full energy amount associated with the 00 MW capacity is, GWh so it could not exceed that amount, but would vary from year to year in response to customer load and the availability and pricing of FBC s other resource options. However the parties did not agree to this option and FBC has accepted the proposed cap on embedded cost energy (i.e. Tranche ) as part of the overall package of agreements. Please refer to the responses to BCUC IR, Q0. and Q0.. 0 Yes. 0.. If the New PPA RS 0 was a flat rate does FortisBC consider that RS would be an appropriate rate? 0 0. Other than stating that it was the result of negations, does FortisBC consider the Tranche energy charge is fair? If so, please explain why. If not, why not? Yes. The RS 0 Tranche energy rate is based on BC Hydro s RS, which is the embedded cost rate for BC Hydro s transmission customers who are exempt from tiered rates. BC Hydro s RS is the other existing pricing model for transmission customers. The RS Tier rates are adjusted downward as their Tier rates go up to achieve revenue neutrality with BC Hydro s embedded cost. However those industrial customers do not have the same flexibility as FBC to avoid taking the second tier rates. If RS 0 had the same structure, with the flexibility FBC has in the New PPA to avoid taking Tranche energy the company could

47 Page potentially get its power from BC Hydro at below its embedded cost. Therefore setting FBC s Tranche rates at BC Hydro s embedded cost is reasonable Other than stating that it was the result of negations, does FortisBC consider the Tranche energy charge fair? If so, please explain why. If not, why not? Please included in your response reference to other LRMC rates that the Commission currently has approved for BC Hydro. Neither BC Hydro nor FBC expect FBC to take Tranche volumes, and as such FBC is relatively indifferent to the Tranche price. However if the situation was that FBC had no choice but to purchase its energy supply from BC Hydro, including both Tranche and Tranche, then it would view the Tranche price as unfair given that the Tranche price already represents BC Hydro s full embedded cost. As discussed in the response to BCUC IR, Q., over the last few years of often very difficult negotiations, BC Hydro has been consistent in its view that that the supply of energy at embedded costs rates would be capped and FBC should seek other resources to meet its load growth. In order to come to an agreement, FBC had to accept that principle, but worked hard to maintain sufficient flexibility to ensure it could manage its requirements under an annual cap. As such, FBC views the New PPA as fundamentally being highly reliable supply of electricity at BC Hydro s embedded costs capped at 00 MW in any hour and 0 GWHs in any year and does not view the Tranche energy as a resource on which it will base any of its long term planning. Nevertheless, the fact that FBC effectively has an option to call on Tranche energy if required does provide another level of supply security to its overall power supply portfolio. The Tranche energy price is set at BC Hydro s LRMC for new clean resources, as determined by the 00 Clean Power Call and may be updated from time to time, down or up, to reflect new information regarding BC Hydro s marginal costs. As a price signal to the cost of BC Hydro s new clean generation, it will achieve the BC Hydro s desired result to encourage FortisBC to plan for and acquire alternative supplies of electricity as its load grows. FortisBC believes it can acquire power at a lower cost than the Tranche rate, and based on this price signal plans to avoid taking Tranche power. Exhibit B-, BC Hydro Application for Approval of New Power Purchase Agreement with FortisBC Inc.,

48 Page 0 0. In response to BCUC.. BC Hydro provided the calculation for the Tranche rate. Other than stating that it was the result of negations, does FortisBC consider this calculation to be appropriate? If so, please explain why. If not, why not? Yes, the LRMC calculation is appropriate for the calculation of BC Hydro s LRMC based on the Clean Power Call. The calculation is consistent with Table - in the BC Hydro report Clean Power Call Request for Proposals Report on the RFP Process dated August, 00, and starts with the weighted average firm energy plantgate price, and includes an adjustment for transmission line losses and inflation. Please refer to the response to BCMEU IR Q..

49 Page.0 Reference: Rate Design Two Tiered Rate Exhibit B-, BCUC...; Exhibit B-, BCSEA.., ICG..0 Tranche price (BCUC IR...) (BCSEA IR..) 0 (ICG IR..0). Given that BC Hydro uses a different LRMC for different applications how will BC Hydro and FortisBC determine which Commission approved LRMC is most appropriate for RS 0? Section.(a) states that it shall reflect BC Hydro s most recent proxy for long run marginal cost for firm energy. If BC Hydro determines that there is better generally applicable proxy for BC Hydro s LRMC for firm energy, and it is accepted by the Commission for rate making purposes, it will form the basis for RS 0 Tranche rates.

50 Page. Will the Tranche price change if any of these three LRMC changes? If BC Hydro updates any of these three Tier rates utilizing a proxy for LRMC for firm energy which is more recent than the proxy for LRMC based on the 00 Clean Power Call, and it is approved by the Commission, then yes, the RS 0 Tranche price would change. 0. Does FortisBC have any concerns regarding section. of the New PPA Tranche Energy Price not being more prescriptive regarding the establishment of the appropriate LRMC for Tranche energy? 0 No, as BC Hydro indicated in their response to ICG IR Q.0 quoted above, there are many different factors involved in setting Tier energy rates for various customer rate classes. BC Hydro has agreed to apply to the Commission to amend the FBC Tranche rate if and when it becomes appropriate to do so.

51 Page 0.0 Reference: Rate Design Two Tiered Rate Exhibit B-, BCUC.. HC 0 Recommendation # states That Aquila, New Westminster and UBC, as entities that distribute all or a significant portion of their load to others, be exempt for the application of stepped rates at this time and from a new rate schedule(s). Special Direction HC, section () states that in designing rates for BC Hydro s transmission customers the Commission must ensure that those rates are consistent with recommendations #- thru #.. Please confirm that Recommendation # applies to FortisBC (previously Aquila). Recommendation # includes reference to Aquila, which is now FortisBC, and thus does apply to FortisBC. However, the application is consistent with Recommendation #. 0. Please explain why this exemption no longer applies to FortisBC.

52 Page 0 0 As noted above, Recommendation # does apply to FortisBC. However, as also noted above, the application is consistent with Recommendation #. Recommendation # and section of Heritage Special Direction No. HC ( Consideration in designing rates for transmission rate customers ) relate to BC Hydro s obligations to serve FortisBC as a customer. That customer obligation had been enshrined at the 00 MW limit for 0 years by the time of the Recommendation # and HC. The 00 MW limit was determined in the Decision as the cap on BC Hydro s obligation to serve FBC at its average costs and in effect established the limit of FBC s customer relationship with BCH. There is no stepped rate within the 00 MW limit in the new PPA or within the 0 GWh annual cap on embedded cost energy (Tranche ) that also limits BC Hydro s utility to customer obligation in the new PPA. FBC does have an option to purchase additional energy at a different price above this cap. This is not a stepped rate within the meaning of Recommendation #. As stated by BC Hydro in the Application (Exhibit B-, page, lines -), the Tranche price is intended to be a price signal for FortisBC s long-term electricity supply planning purposes. BC Hydro believes this pricing structure appropriately recognizes the hybrid relationship between FortisBC and BC Hydro. The Commission has not previously suggested that Recommendation # and the parties approach in the new PPA could be inconsistent, and they are not. In 00, after Heritage Special Direction No. HC was in effect, the Commission referred FBC and BC Hydro back to direct negotiations (please refer to Attachment BCUC IR Q.), for the sole purpose of concluding successful negotiation of their key issues. In so doing, the Commission was fully aware that in BC Hydro s view the key condition, monthly energy caps, is not negotiable and that any energy FBC would take above the monthly caps would be at a higher rate. 0.. Is an amendment to HC required in order for Recommendation # to no longer apply to FortisBC? If not, why not? If yes, has there been one? Please refer to the response to BCUC IR Q..

53 Page 0. Does FortisBC consider the application of stepped rates from Recommendation # to mean that the identified entities are exempt from having stepped rates apply to them or are exempt from the application of Recommendations # thru # when designing a stepped rate for them? No matter which of the above interpretations is given to Recommendation #, it does not have a bearing on the Commission s determination in this case. Please refer to the responses to BCUC IR Q. and Q.. If it were relevant, FortisBC would consider that the intent of Recommendation # was that the named entities are exempt from having stepped rates apply to them. However, this would only be in relation to the customer obligation. 0. Please confirm, or explain otherwise, that in order for the Commission to be in compliance with Heritage Special Direction HC a transmission stepped rate design has to either follow Recommendations # thru # or under Recommendation # be exempt from a stepped rate, but there is no possibility for a transmission customer to be exempt from Recommendations # thru # and have a stepped rate. 0 Please refer to the response to BCUC IR Q.-Q.. compliance with Heritage Special Direction HC in this case. There is no question of non-

54 Page 0 F. RATE DESIGN COST OF SERVICE.0 Reference: Rate Design Cost of Service Exhibit C-, BCUC.. IT Solutions In response to BCUC.. FortisBC states that the rate impact due to the additional IT solutions and programming cannot be broken out of the total O&M costs.. Given that FortisBC should have some idea of the costs Commission staff would like FortisBC to provide an estimate for the additional IT solutions and programming that FortisBC anticipates will be required in order to manage the terms of the New PPA RS 0. The estimated incremental cost of the IT solutions and programing to accommodate the New PPA is $,000 in each of 0 and 0.

55 Page.0 Reference: Rate Design Cost of Service Exhibit C-, Figure, p. ; Exhibit C-, BCUC. Impact of Lower Demand Limits FortisBC provided a forecast of the costs of energy from various sources (Exhibit C-, Figure ). 0 0 FortisBC states that its preferred resource strategy in its 0 Resource Plan is a combined Buy and Build strategy, where in the short term and medium term FortisBC expects to meet any capacity and energy gaps through market purchases, and in the long term FortisBC expects to build new energy and capacity resources to meet its firm requirements. As illustrated in Figure, in the short to medium term, planned New PPA take above the Tranche cap of,0 GWh is relatively small, does not occur in winter months and is expected to be able to be displaced through market purchases or other short term supply resources. It should not impact the Preferred Resource Strategy in the short term and medium term. However, in future resource plans FortisBC will be examining options to replace or reduce any reliance on Tranche energy over the long term with more cost-effective resources or increased market purchases. (Exhibit C-, p. ) The most significant factor that has the potential to impact Power Purchase Expense over the term of the New PPA is the,0 GWh annual cap on energy available at BC Hydro s embedded cost rates (Tranche ) and the cost of PPA energy above that amount (Tranche ). However the potential timing and size of this impact is dependent on a lot of factors, including but not limited to the size and shape of FBC s load growth, market power availability and price, hydro conditions, transmission availability, cost of BC Hydro supply, and the feasibility of new resource opportunities. (Exhibit C-, BCUC..)

56 Page 0. Please provide a forecast of the average Power Purchase Expense for FortisBC in $/MWh, related to acquiring supply from all resources over the period covered by the 0 Resource Plan, that reflects the terms of the New PPA, namely the 00 MW limit and the,0 GWh Tranche cap. In this response, FBC has provided high level estimates for the 0 year term of the New PPA as the terms of any replacement power supply arrangement for the remaining term of the period covered by the 0 Resource Plan is unknown at this time. The impact of the different scenarios described in BCUC IR Q.., Q.., Q.., and Q.. are also included in this response. The power purchase expenses involved include the resources and requirements from the 0 Resource Plan: the energy cost for PPA energy below Tranche cap, the energy cost for displaceable PPA energy above Tranche cap, the PPA capacity cost, the energy cost to meet planned energy gaps, and cost of base resources that are common for all scenarios, but does not include FBC owned resources, only purchased power. 0 0 The planned PPA energy and capacity, as well as the energy gaps are calculated using the 0 Resource Plan model with its existing assumptions of load forecast and resources. The Company intends to displace PPA energy above the Tranche cap with energy acquired from the market or from other resources. For the purpose of calculating costs in this IR, the BC market is assumed for this displaceable PPA above Tranche cap, however, if the MW cap is lowered below 00 MW, the Company would likely have to replace that capacity with a new long term resource as relying on the market may not provide the required level of reliability. As the analysis for this IR and similar ones (BCUC IR Q..-Q..) is looking at the differential between several scenarios with different PPA entitlement capacity and Tranche cap values, it is necessary to limit the changes to the values that are being studied and as such no displacement below the 0 GWH embedded cost energy cap has been examined in this analysis. The Company expects that the average annual market price will be somewhere between the price curve in the 0 Resource Plan and the updated price curve in 0, hence the annual market rate used in this analysis as the base is assumed to take the average of these two rates (as provided in the attachment to ICG IR Q.). The assumed escalation for the PPA Tranche energy and PPA capacity rates is %. Since PPA energy above Tranche is typically displaced

57 Page 0 0 during shoulder months when market prices are lower, the rate for displaced PPA energy is assumed at % of the average annual market rate in use. On the other hand, energy gaps normally occur in the non-shoulder months, especially the winter months, which see prices higher than the average annual rates. For this reason, the market rate to meet energy gaps is set at % of the assumed annual market rate. Details of the calculation are given in Table below with the working spreadsheet provided Attachment.. Columns with labels (a, b, etc.) are self-explanatory. The average energy cost per MWh during the PPA horizon (0-0) is found to be $./MWh. For comparison purposes, this rate and the ones for similar IRs (BCUC IR Q..-Q..) are displayed in Table. Since this analysis doesn t take into account the ability to displace below Tranche, it is not a forecast of what FBC expects the actual average cost of energy will be. While it is a simplified model, it is a valid representation of the trends in the cost of energy under various planning assumptions of the PPA capacity limit and the cap on embedded cost energy. The analysis shows that if the embedded cost capacity (MW) and energy amounts of the PPA are lowered, then the average cost increases and as the size of the PPA increases, the average cost declines up to a point. Looking at the yearly numbers, it is seen that the existing 00 MW block is close to optimum but within a few years the 0 MW block results in a lower average cost due to the fact that there is sufficient winter capacity to close the winter energy gap and therefore avoid the higher cost winter energy market purchases. The 00 MW block can also result in a lower average cost, but not as low as the 0 MW block. This is to be expected since the Company does not require either the energy or the capacity and as such the increased capacity costs associated with the larger block result in higher overall costs.

58 Page Table : Summary of Power Purchase Costs and Cost Impacts at the Base Market Rate Summary of Power Purchase The Assumed Market Rate** ($/MWh) Cost Impact Compared to. ($000s) Total Energy (00MW, 0 GWh) (0 MW, GWh) (00MW, GWh) (0MW, 0 GWh) (00MW, GWh) (GWh) (0 MW, GWh) (00MW, GWh) (0MW, 0 GWh) (00MW, GWh) 0 $. $.0 $. $. $., 0 ($) ($) $, $, 0 $0. $0. $0.0 $. $.,0 0 ($) $ $, $,0 0 $. $. $.0 $. $., 0 $ $, ($,) $ 0 $. $. $. $. $.,00 0 $0 $, ($,) $ 0 $. $. $. $. $.0,0 0 $, $,0 ($,) $ 0 $. $.0 $. $. $.,0 0 $,0 $, ($,0) $ 00 $. $. $0.0 $.0 $.,00 00 $, $, ($,) ($) 0 $.0 $0. $. $. $.,0 0 $, $, ($,) ($0) 0 $0. $. $. $. $0., 0 $, $, ($,0) ($) 0 $. $. $. $. $., 0 $,0 $, ($,) ($0) 0 $. $.0 $. $. $., 0 $,0 $, ($,0) ($,0) 0 $.0 $. $. $. $., 0 $, $, ($,) ($,) 0 $. $. $. $. $., 0 $, $0, ($,) ($,) 0 $. $0. $. $.0 $.0, 0 $, $,00 ($,) ($,0) 0 $0. $. $. $.0 $., 0 $, $,0 ($,) ($,) 0 $. $.0 $. $.0 $0., 0 $,0 $, ($,) ($,) 00 $. $. $0.0 $0.0 $.,0 00 $, $, ($,0) ($,) 0 $. $. $0. $. $., 0 $,0 $, ($,) ($,) 0 $. $0. $0. $. $.,0 0 $, $, ($,00) ($,0) 0* $0. $0. $. $0. $0.0,0 0 $, $, ($,0) ($,) Average $. $.0 $. $0. $., Total $, $, ($0,) ($,) Notes: * 0 is for Q-Q only. ** The average of the market rates in the 0 RP and the 0 market update.

59 Page However if the annual market rate is as per the 0 Resource Plan, then the difference in average rate is more pronounced and the value of the PPA power to protect against rising market rates is evident with the annual savings rising to $ million in 0 compared to the 00 MW scenario

60 Page Table. Summary of Power Purchase Costs and Cost Impacts at the 0RP Market Rate Summary of Power Purchase the 0 RP Market Rate ($/MWh) Cost Impact Compared to. ($000s) Total Energy (00MW, 0 GWh) (0 MW, GWh) (00MW, GWh) (0MW, 0 GWh) (00MW, GWh) (GWh) (0 MW, GWh) (00MW, GWh) (0MW, 0 GWh) (00MW, GWh) 0 $. $. $. $. $., 0 $, $, $,0 $, 0 $0. $. $.0 $. $.,0 0 $, $,0 $, $, 0 $. $. $.0 $. $., 0 $, $, ($,) ($0) 0 $. $. $. $. $.,00 0 $, $, ($,) ($) 0 $. $.0 $0. $. $.,0 0 $,0 $0,0 ($,0) ($) 0 $. $. $. $. $.,0 0 $, $, ($,) ($) 00 $. $.0 $. $.0 $.,00 00 $, $, ($,) ($,) 0 $0.0 $. $. $. $.,0 0 $, $, ($,0) ($,) 0 $. $. $0. $. $0., 0 $, $, ($,0) ($,) 0 $. $. $. $. $., 0 $,0 $, ($,) ($,) 0 $. $.0 $.0 $. $., 0 $, $,0 ($,0) ($,) 0 $.0 $. $. $. $., 0 $,0 $,0 ($,) ($,00) 0 $.0 $. $.0 $.0 $., 0 $0, $,0 ($0,) ($,) 0 $.0 $. $0.0 $. $., 0 $, $, ($,0) ($,) 0 $. $. $0. $.0 $., 0 $, $, ($,0) ($0,) 0 $. $0. $0.0 $.0 $0., 0 $, $,0 ($,) ($,) 00 $. $0. $. $. $.,0 00 $, $, ($,) ($,0) 0 $00. $0. $. $.0 $., 0 $, $, ($,) ($,) 0 $0.0 $0. $. $. $.,0 0 $, $,0 ($,0) ($,) 0* $0.0 $. $. $0. $0.0,0 0 $0, $, ($,) ($,0) Average $. $. $. $0. $., Total $, $,0 ($,) ($,) Note: * 0 is for Q-Q only.

61 Page 0. Please provide a forecast of the average Power Purchase Expense in $/MWh over the period covered by the 0 Resource Plan that reflects the terms of the New PPA, except for:.. a 0 MW limit and a GWh (,0 GWh x 0/00) Tranche cap. Please refer to the response to BCUC IR Q a 00 MW limit and a GWh (,0 GWh x 00/00) Tranche cap. Please refer to the response to BCUC IR Q a 0 MW limit and a,0 GWh (,0 GWh x 0/00) Tranche cap. Please refer to the response to BCUC IR Q.... a 00 MW limit and a, GWh (,0 GWh x 00/00) Tranche cap. Please refer to the response to BCUC IR Q.. 0

62 Page If FortisBC were to replace GWh of energy, and 00 MW of capacity provided by the New PPA, with market supply sourced from the BC wholesale market, what impact would that have on the prices of supply in the BC wholesale market? There is no formal wholesale energy market hub in BC, wholesale power sold in in BC transacts through bilateral trades between counterparties. As discussed in the Midgard Energy and Capacity Market Assessment Report included in FBC s 0 Resource Plan, BC wholesale market energy prices are influenced by the cost of electricity in neighbouring jurisdictions where there are liquid and transparent markets. The Mid-Columbia electricity market is one of the most important electricity trading hubs in North America and, as measured by volume on the Intercontinental Exchange, the third largest electricity trading point in the US and second largest in the WECC region. FBC benefits from its proximity to this large liquid and price transparent Mid-C market and is able to obtain market supplies of energy priced against the Mid-C index. Because of the limited transmission linkages between BC and Alberta relative to those between BC and the United States, Alberta s electricity market price curves play only a limited role in determining the expected cost of energy (and capacity) in British Columbia. For Resource Planning purposes FBC uses the British Columbia Wholesale Market Energy Forecast Curve as a proxy for the expected cost of accessing market power at Mid-C and delivering it to its service territory. As discussed in the Midgard Report, this curve was developed by taking the Mid-C Forecast Price Curve as the starting point, adding the cost of transmitting power from Mid-C to FBC territory, and then converting the resulting price into Canadian dollars. Given the prominent role that natural gas prices play in determining the marginal cost of generating electricity at Mid-C, the expected cost of electricity in the future is forecast to be closely associated with the expected cost of natural gas during those same time periods. If FBC were to secure this power from the Mid-C market and deliver it to BC, given the large liquid Mid-C market, it would have no material impact on Mid-C prices, and therefore FBC s BC wholesale market energy price. Note that FBC could not replace GWh of energy and 00 MW of capacity provided by the New PPA with market supply purchased in the BC wholesale market or at Mid-C on terms sufficiently similar to the PPA to allow it to replace the PPA. In the first place, as discussed in the response to BCUC IR Q., a purchase of 00 MW block of market supply to replace PPA would result in the purchase of GWhs per annum. In addition, the PPA is a long term FortisBC 0 Long Term Resource Plan, Appendix B, Section, page 0-0 (of )

63 Page resource, and it is very unlikely that FBC could purchase a firm 00 MW block of market power for 0 years at a similar price. If FBC were to seek a fixed price contract, as opposed to a price linked to the Mid-C index, it would pay a significant premium. In addition, a market block of power would not provide the same level of flexibility or reliability of supply as is provided by the BC Hydro PPA. 0.. If this energy and capacity was purchased at Mid-C, what impact would those purchases have on prices at Mid-C? Please refer to the response to BCUC IR Q..

64 Page G. RATE DESIGN IMPLICATIONS FOR OPERATIONS AND LOAD BALANCING No IRs H. IMPLICATIONS FOR RESOURCE PLANNING No IRs I. WAX CAPA No IRs J. ENERGY EXPORTS FORTISBC S SELF-GENERATION CUSTOMERS.0 Reference: Energy Exports FortisBC s Self-Generation Customers Exhibit B-, p. Section. of the New PPA No Restrictions on FortisBC s Customer s Export BC Hydro describes the conditions under which FortisBC may sell New PPA power to a self-generating customer: The New PPA also includes refinements that allow FortisBC additional flexibility for serving its self-generating customers while still protecting against increases in New PPA purchases arising from the sale of self-generated power. Specifically, FortisBC will be allowed to sell electricity purchased under the New PPA to a self-generating customer that is selling electricity if a portion of the customer s load equal to or greater than the customer-specific baseline is being served by power from resources other than the New PPA. (Exhibit B-, p. ). If the terms of the New PPA placed no restrictions on the sale of power to serve that portion of the load of customers with self-generation capability that is greater than their customer baseline, what would the costs be to FortisBC and its ratepayers for the incremental energy supplied to FortisBC under the New PPA resulting from the unrestricted export activities of FortisBC s self-generating customers? Provide all calculations and assume that Tolko is able to exercise its GBL and Celgar is able to have its full load serviced by FortisBC.

65 Page 0 0 If FBC were able to serve the customers full load based on the assumptions in the question, without any restriction, it would increase FBC gross load by approximately 00 GWh per year, and increase FBC monthly peak demand by 0 MW. This would result in an increased use of BC Hydro PPA energy and capacity, other than in periods that PPA is already fully maximised, increased use of market energy purchases and a reduction to surplus sales, as shown in Table BCUC IR Q. below. The estimated costs are compared to the power purchase expense forecast provided in FBC s PBR application filed on July, 0. For this analysis, no attempt was made to displace allowable embedded cost PPA purchases to meet the increased load and no Tranche energy was purchased. It was also assumed that the incremental requirements are met by buying market power. While the current Application for Stepped and Stand-By Rates for Transmission Customers requires a -year commitment on the part of the self-generation customer to take utility supply, if longer term commitments were to occur, FBC may also consider acquiring or contracting a new resource as part of its future resource planning activities. Market energy costs are based on current forecasts of short term market energy prices over this time period. Purchasing longer term blocks may incur a price premium. Actual power purchase expense will depend on the actual costs of acquiring additional resources to meet the incremental energy and capacity requirements.

66 Page Table BCUC IR Q. PPA Energy (GWh) FBC PBR Filing 0 As For BCUC IR Difference 0 Average Cost ($/MWh) $.0 $.0 $.0 $.0 $.0 Total Cost ($000) $,0 $, $,0 $, $, Market Energy (GWh) FBC PBR Filing 0 As For BCUC IR Difference 0 Average Cost ($/MWh) $. $. $.0 $ 0. $. Total Cost ($000) $ $, $,0 $, $, Surplus Sales FBC PBR Filing As For BCUC IR Difference Average Cost ($/MWh) $.00 $.00 $.00 $.00 $.00 Total Cost ($000) $ $ $ 0 $ $ PPA Total MW Months (MW) FBC PBR Filing 0 0 As For BCUC IR.. 0 Difference 0 Average Cost ($/MW) $,0. $,0. $,0. $,0. $,0. Total Cost ($000) $,. $,000. $. $ 0. $. 0 Total Cost ($000) $,. $,0.0 $,. $,. $,. The forecast market prices are based on a combination of published and non-published sources, and is the forecast FBC used to estimate power purchase expense in its PBR Application. In 0, the market cost is higher than in 0 to 0 because the 0 increased energy requirement is only GWh in July when prices are higher. In 0 through 0, the market energy requirement increases into lower cost months, in addition to July, and the average cost is reduced. PPA Total MW Months is equal to the sum of the monthly purchases of PPA capacity. Based on FBC s current available resources and market expectations, the increase to FBC load would increase the power purchase expense forecast by between $. and $. million per year. If market prices were to increase 0% there would be little impact in 0 and 0 but in

67 Page 0 market costs would be $. million higher and in 0 and 0 they would be about $. million higher... What would the impact be on rates for FortisBC customers? 0 Based on the high level assumptions for modelling the above analysis, the cumulative rate reduction for FortisBC customers during the 0-0 period would be approximately 0.%. If market rates were to significantly increase beyond the forecast prices, then upward rate pressures would be expected.

68 Page.0 Reference: Energy Exports FortisBC s Self Generating Customers Exhibit B-, BCUC IR.0.; Exhibit B-0, Celgar IR... Section. of the New PPA Impact on FortisBC s Customers (BCUC IR.0.) 0 (Celgar IR...). Please confirm, or explain otherwise, that section. of the New PPA restricts what FortisBC is able to do with the power it purchases under RS 0. Section. places a restriction on FortisBC such that it cannot use power purchased under the New PPA to supply a self-generating customer when that customer is exporting power not in excess of a customer-specific baseline.

69 Page 0. Please confirm, or explain otherwise, that those restrictions would in fact have to impact on the rates established by FortisBC for generating customers who are exporting energy less than the customer specific generator baseline, which was agreed to by BC Hydro and FortisBC for the purposes of section. of the New PPA. The Company assumes that, impact on the rates means that rates for the self-generator would be different than if the restriction on purchases did not exist. It is possible that the restriction on FortisBC purchases that form part of Section. of the New PPA could have a rate impact on self-generators. However, this would not always be the case and would not likely be the case at the current time. Under the Company s proposal for stepped rates for transmission customers that is currently before the Commission, there would be no rate impact as long as any matching purchase made to serve the self-generators load did not result in costs that are incremental to those that the Company would have incurred were the purchases allowed under the terms of the New PPA. If no such incremental costs are present, the self-generator would be charged rates exactly equal to the embedded cost rates charged to any other customer on the same rate schedule. 0.. Please confirm, or explain otherwise, that the customer specific generation baseline as agreed to between BC Hydro and FortisBC will have a direct impact on these customers. This is not confirmed for the reasons discussed in the response to BCUC IR Q. above. 0 (BCUC IR.0.). Please confirm, or explain otherwise, that some level of customer involvement will be required in order for FortisBC and BC Hydro to agree on an appropriate

70 Page customer specific generator baseline for the purposes of section. of the New PPA. 0 The Company agrees with the response provided by BC Hydro to the referenced Information Request in that a customer would likely provide factual input given that there is no real reason for such requested information to not be furnished. It is however, not required. The Company is able to discern the basic elements of service required to set a customer specific baseline (such as load and generation information) and if the customer was unwilling to provide other information, could proceed with setting the customer specific baseline in agreement with BC Hydro.

71 Page 0.0 Reference: Energy Exports FortisBC s Self Generating Customers Exhibit B-, BCUC IR...; Exhibit C-, BCUC IR.0.. Section. of the New PPA Celgar s Contracted GBL In response to BCUC... BC Hydro states the following in regards to Celgar s contracted GBL: In Response to BCUC.0.. FortisBC states: 0 0 Based on the IR responses noted, it appears that BC Hydro is of the opinion that Celgar s BC Hydro Contracted GBL would not necessarily be the same as the customer specific baseline used for section. of the New PPA while it appears that FortisBC if of the opinion they would be the same.. Please confirm, or explain otherwise, that BC Hydro and FortisBC do not agree on how the customer specific baseline will be established for Celgar. There is no disagreement between FBC and BC Hydro on how a customer specific baseline for Celgar, if required, would be established. Both parties have agreed that, as specified in Section. of the New PPA, such baseline shall be determined in a manner consistent with how BC Hydro establishes a generator baseline for its own customers. In responding to the original Information Request, FBC assumed that the current Celgar BC Hydro Contracted GBL, which was established pursuant to BC Hydro s GBL process, would persist. BC Hydro s response only differs in explaining that if conditions regarding Celgar had

72 Page changed since 00 it may result in a customer specific baseline that differs from Celgar s BC Hydro Contracted GBL. Were this to occur, and the differing circumstances resulted in a different number, the Company expects that that new number would be suitable for the purpose of FBC s compliance with Section. of the New PPA. 0. Please explain why the Commission should approve a section of the New PPA when the application of that section cannot be agreed to among the two parties to the contract. Please refer to the response to BCUC IR Q.. There is no disagreement between FBC and BC Hydro on this point. If BC Hydro establishes a GBL for a FBC customer for the purpose of an EPA, and does so in a manner consistent with how BC Hydro establishes a generator baseline for its own customers, it is likely that this number will be used for the purpose of Section. of the New PPA. FBC did not state that the current Celgar GBL would be held to by the Company regardless of whether or not BC Hydro reaffirmed or otherwise changed its GBL determination for Celgar. 0

73 Page.0 Reference: Energy Exports FortisBC s Self Generating Customers Exhibit B-, BCUC IRs..;...;... Section. of the New PPA Tolko s Commission Approved GBL In Response to BCUC.. BC Hydro states the following when asked if Tolko s GBL is set in a manner consistent with how BC Hydro establishes GBLs for its own customers: 0 In Response to BCUC... and... BC Hydro states the following:

74 Page In response to BCUC.0.. FortisBC states: 0 Based on the IR responses noted, it appears that BC Hydro is of the opinion that Tolko s Commission approved GBL would not be the same as the customer specific baseline used for section. of the New PPA while it appears that FortisBC is of the opinion that it would be the same.. Please confirm, or explain otherwise, that BC Hydro and FortisBC do not agree on how the customer specific baseline will be established for Tolko.

75 Page 0 FortisBC submits that Tolko already has a GBL, approved by the Commission, which in the opinion of the Company should be considered to be adequate for the prevention of arbitrage. Such a consideration is contemplated by Section.(b) of the New PPA. BC Hydro and FortisBC agree on the meaning and purpose of Section. in its entirety, however the Tolko GBL is a unique legacy issue. Going forward, the Company does not expect that circumstances similar to those related to Tolko will recur. FortisBC acknowledges that BC Hydro does not agree with this position and expects that the Commission will make a determination on the issue. If the Commission does not approve the MW GBL for Tolko as specifically applicable to Section.(b) of the New PPA, then a Customer Specific Baseline will agreed upon by FBC and BC Hydro per Section.(a) of the New PPA.. FortisBC states that Only FBC can be seen as complying or not complying with this portion [section.] of the agreement. Please further elaborate on this statement. Does FortisBC mean that it is solely up to FortisBC to determine if they are or are not in compliance with section. of the New PPA? 0 The statement was only intended to clarify that only BC Hydro and FBC, as the parties to the Agreement can be in compliance or non-compliance with its terms. Tolko, which is not a party to the PPA, cannot. FBC assumed that the question intended to ask whether or not Tolko s GBL could be relied upon by FortisBC to ensure its own compliance with the PPA and responded on that basis.

76 Page.0 Reference: Energy Exports FortisBC s Self Generating Customers Exhibit C-, BCUC IR.0. Section. of the New PPA Section. of the New PPA reads as follows: In response to BCUC.0. FortisBC states the following:

77 Page. Please explain what FortisBC considers the term except as otherwise approved by the Commission in section. (b) of the New PPA to mean. FBC considers the term except as otherwise approved by the Commission in section. (b) of the New PPA to mean that notwithstanding any term or condition placed upon the parties by the preceding language contained in Section.(a)ii, a determination of the Commission would take precedence and need to be complied with by both parties to the PPA Does FortisBC believe that BC Hydro and FortisBC agree on the interpretation of section. (b) of the New PPA? If not, please explain. In the opinion of FBC, the language of section. is clear and BC Hydro and FBC agree on its purpose and interpret the clause in a similar manner. The difference in opinion between FBC and BC Hydro is specific to its application with respect to the GBL granted to Tolko by the Commission and whether or not such approval should be relied upon for the purpose of section. of the PPA 0. Given that it appears that the parties to the contract cannot agree on the interpretation of section., please explain why FortisBC does not think that the language should be revised to provide more clarity. Please refer to the response to BCUC IR Q.. Attempting to add clarity in order to deal with one situation is not practical. In the opinion of FBC there is adequate information on the record

78 Page in this and other related processes for the Commission to make a determination to resolve the issue related to Tolko s GBL. In Response to BCUC... and... BC Hydro states the following: 0. If the Commission were to establish a GBL for Celgar that was less than what BC Hydro would consider appropriate for the application of section. of the New PPA would FortisBC consider itself in compliance with the section. of the New PPA? BC Hydro and FortisBC agree on the meaning and purpose of Section. in its entirety. However, the Tolko GBL is a unique legacy issue. Going forward, we expect that the circumstances outlined above would be unlikely to arise. The Company expects that if in the future, the Commission were to approve a GBL for a FortisBC customer that differs from the Customer Specific Baseline agreed upon by FBC and BC Hydro, such approval should also be clear on the GBL s applicability to the PPA. 0. If the Commission were to establish a GBL for Celgar that was less than what BC Hydro would consider appropriate for the application of section. of the New PPA would BC Hydro consider FortisBC to be in compliance with section. of the New PPA because of the except as otherwise approved by the Commission language? FBC cannot respond on behalf of BC Hydro. 0

79 Page 0.0 Reference: Energy Exports FortisBC s Self Generating Customers Exhibit B-, CECBC IR.. Net of Load Please confirm, or explain otherwise, that the replacement of section. of the existing PPA with section. of the New PPA means the net-of-load methodology no longer applies when determining the restriction on the uses of RS 0 power to FortisBC. Section. of the existing PPA prevents FBC from purchasing power under the PPA if that power would be used to serve the load of a FBC customer while that customer is exporting power not in excess of its load. In the absence of any mechanism by which FBC could demonstrate that such sales were not occurring, self-generating customers have been served on a net-of-load basis since Commission Order G--0 was issued. In contrast, Section. of the New PPA provides a mechanism (the customer specific baseline) through which FBC can continue to purchase power from BC Hydro when an FBC selfgeneration customer is selling power not in excess of load provided that such sales are above the customer specific baseline. This provision accommodates the addition of incremental customer-owned generation. In the absence of a Commission determination which would satisfy.(b), service on a net-ofload basis remains the default position and in the absence of a customer specific baseline would still apply. 0.. If not, and the net-of-load concept is still relevant, please explain why the net-of-load language is not included in section. of the New PPA.

80 Page The Company notes that the term net-of-load does not appear in the existing PPA and in this context has been used to generally describe the conditions imposed by section. of that agreement. As discussed in the response to BCUC IR Q0. above, the New PPA contains a similar set of restrictions that additionally provides a mechanism for avoiding service on a strictly net-of-load basis. The net-of-load concept is still relevant as a base-case requirement, but the provisions of section. are different and the updated language reflects the changes If not, is the omission of the net-of-load concept language in section. of the New PPA misleading? FBC does not consider the new language to be misleading. The language of section. of the new PPA is necessarily different than section. of the existing PPA and accurately describes the provisions contained in that section of the Agreement. 0

81 Page 0 K. DISPUTE RESOLUTION No IRs 0 0 L. AMENDED AND RESTATED WHEELING AGREEMENT.0 Reference: Amended and Restated Wheeling Agreement Exhibit B- Process. Does FortisBC consider that, whether FortisBC has a customer, utility, or hybrid relationship with BC Hydro, this would affect the design of the Amended and Restated Wheeling Agreement (ARWA)? If FortisBC does consider that the nature of the relationship between FortisBC and BC Hydro does affect the ARWA, please explain how. The existing GWA, as amended from time to time, has been in effect since October, pursuant to BCUC Order G--. The term of existing GWA expires in 0 and therefore, unlike the New PPA, the ARWA was not required to replace an expiring agreement. As discussed in BC Hydro s July, 0 letter (Exhibit B-), the ARWA is an amended and restated version of the existing GWA and does not change the fundamental terms or structure of the GWA. As such, the nature of the relationship between BC Hydro and FBC does not affect any of the updates to the GWA incorporated in the ARWA. The changes to the existing GWA that are incorporated in the ARWA are summarised on pages and of BC Hydro s letter. As the New PPA and the other agreements were been developed, the parties recognised that amendments to the GWA would be required to ensure alignment and FBC provided input into that process. As the principle commercial or operation terms or structure were not impacted by these changes, FBC does not view the process of developing the ARWA as a negotiation. 0. Please describe the process FortisBC underwent to develop the ARWA. In particular, please state if FortisBC would consider the process to be negotiation with BC Hydro (i.e., to arrive at consensus) or consultation (i.e., to provide input only).

82 Page Please refer to the response to BCUC IR Q If FortisBC negotiated with BC Hydro in developing the ARWA, please describe: (i) the key principles developed by FortisBC (i.e., how would FortisBC determine that it had obtained a satisfactory result), (ii) if FortisBC obtained BC Hydro s agreement to these key principles, and (iii) if Bonbright principles were not used (specifically those of fairness and efficiency), please explain why not. Please refer to the response to BCUC IR Q Does FortisBC have alternative options to taking ARWA service? If yes, please describe. Yes, FortisBC could purchase firm transmission services from BC Hydro under the Open Access Transmission Tariff (OATT). However, the existing GWA and updated ARWA, provide the wheeling service at a much lower cost to FortisBC than what the cost under the OATT would be for the portion of the load met through GWA wheeling. FBC does actively use OATT service to supplement GWA service under peak load conditions if the reserved GWA wheeling nomination is not enough to meet the load. This creates a considerable cost savings for this portion of the load requirement since service is only needed for a few hours a year.

83 Attachment. REFER TO LIVE SPREADSHEET MODEL Provided in electronic format only (accessible by opening the Attachments Tab in Adobe)

84 Attachment.

85 ERICA M. HAMILTON COMMISSION SECRETARY web site: SIXTH FLOOR, 00 HOWE STREET, BOX 0 VANCOUVER, B.C. CANADA VZ N TELEPHONE: (0) 0 00 BC TOLL FREE: 00 FACSIMILE: (0) 0 0 Log No. VIA regulatory@fortisbc.com October, 00 Mr. Dennis Swanson Director, Regulatory Affairs Regulatory Affairs Department FortisBC Inc. Suite 00, Springfield Road Kelowna, BC V V Dear Mr. Swanson: Re: FortisBC Inc. Application by FortisBC Inc. regarding the proposed renewal of the Power Purchase Agreement made as of October, between British Columbia Hydro and Power Authority and West Kootenay Power Ltd. (now FortisBC Inc.) On May, 00, FortisBC Inc. ( FortisBC ) submitted its 00 Resource Plan suggesting that it may file an application with the Commission regarding renewal of the Power Purchase Agreement ( PPA ) with British Columbia Hydro and Power Authority ( BC Hydro ). FortisBC stated in its 00 Resource Plan that it does not believe an agreement is imminent. As a hybird customer of BC Hydro, FortisBC believes it and its ratepayers are entitled to the benefit of the Heritage Contract and it is seeking to negotiate inclusion in the renewed PPA an acknowledgement of FortisBC s right to receive 00 MW of firm capacity and all associated energy at embedded cost rates. On June, 00, BC Hydro provided comment on FortisBC s comments regarding renewal of the PPA and the affect on the 00 Resource Plan. While BC Hydro believes that the positions of BC Hydro and FortisBC are not far apart on most of the key elements of a renewed PPA, there continue to be areas of significant disagreement. In BC Hydro s view, a renewed PPA should include monthly energy caps such that FortisBC energy purchases from BC Hydro up to the 00 MW capacity cap in a given hour, and up to the monthly energy cap in a given month, would be reflect BCHydro s embedded cost. The energy FortisBC purchases from BC Hydro in excess of the capacity cap in a given hour, or the monthly energy cap in a given month, would reflect BC Hydro s cost of new energy. BC Hydro also stated that a number of ancillary technical issues need to be negotiated that relate to the administration of a renewed agreement. BC Hydro believes that it is in a better position to bring forward to the British Columbia Utilities Commission (the Commission ) a proposal for a new rate schedule rather than the Commission proceeding with the FortisBC application. On June, 00, FortisBC submitted an application to renew the October, PPA (the Application ) stating that it is FortisBC s view that the parties have reached an impasse in negotiations. FortisBC states that a further delay by the Commission s hearing of an application regarding the renewal of the PPA would not only be fruitless but that the delay would be detrimental to FortisBC s 00 Resource Plan. /