C4-2 Bull, Housser &Tupper LLP 3000 Royal Centre. PO Box 11130 1055 West Georgia Street Vancouver BC Canada V6E 3R3 Phone 604.687.6575 Fax 604 641 4949 www.bht.com Reply Attention of: David Bursey Direct Phone: 604.641.4969 Direct Fax: 604.646.2564 E-mail: DwB@bht.com Our File: 99-4715 Date: November 18,2005 BC Utilities Commission 6th Floor - 900 Howe Street Vancouver, BC V6Z 2V3 Attention: Robert J. Pellatt Commission Secretary Re: British Columbia Hydro and Power Authority ("BC Hydro")/FortisBC Inc. ("FortisBC") Application for Exemptions pursuant to Section 88(3) of the Utilities Commission Act (the "Act") regarding the Canal Plant Agreement ("2005 CPA), the FortisBC Entitlement Adjustment Agreement, and the CPA Subagreement Further to the Commission's order G-95-05, we submit the following comments on behalf of Columbia Power Corporation ("CPC"). CPC represents the interests of Brilliant Power Corporation ("BPC"), Brilliant Expansion Power Corporation ("BEPC") and Waneta Expansion Power Corporation ("WEPC"). 1. Summary of the interests of CPC, BPC, BEPC and WEPC CPC and CBT Energy Inc., a wholly owned subsidiary of Columbia Basin Trust ("CBT), jointly own BPC, BEPC and WEPC. CPC is the manager of the CPCICBT joint venture companies, BPC, BEPC and WEPC. BPC owns the Brilliant Dam, Brilliant Generating Station and related hydroelectric facilities located at Brilliant on the Kootenay River. BEPC is constructing the Brilliant Expansion Project adjacent to the Brilliant Dam. WEPC is developing the Waneta Expansion Project adjacent to the existing Waneta Dam at Waneta on the Pend d'oreille River. The Brilliant Expansion and the Waneta Expansion were identified as core projects under the Columbia Basin lnitiative to be developed jointly by CPC and CBT. The main goal of the Columbia Basin lnitiative is to provide benefits to the Columbia Basin region in recognition of the impacts borne by that region as a result of the Columbia River Treaty dams.' 1 Application pages 10 and 11 explain the background in more detail.
BPC, BEPC and WEPC are signatories to the 2005 CPA and the CPA Subagreement, and are Entitlement Parties pursuant to the 2005 CPA. BPC became a party to the original CPA following its purchase of the Brilliant Dam from Teck Cominco. BEPC and WEPC are being added as parties to the 2005 CPA which amends and restates the original CPA. The 2005 CPA assists CPC and CBT in fulfilling their public interest mandate related to the Columbia Basin Initiative. In particular, the operational integration provided for in the 2005 CPA is a necessary foundation for the development of the Brilliant Expansion project and the Waneta Expansion project. The Brilliant Plant and the Brilliant Expansion will have to be operated in a coordinated fashion in order to realize the full hydroelectric potential of the water flowing in the Kootenay River. Likewise, the Waneta Plant of Teck Cominco and the Waneta Expansion will have to be operated in a coordinated fashion in order to realize the full hydroelectric potential of the water flowing in the Pend d'oreille River. The 2005 CPA provides the basis for such coordination.* These core CPCICBT projects also have significant environmental benefits by optimizing the generation potential from water that would otherwise be spilled. Minimizing the spill of water benefits fisheries by reducing total dissolved gas downstream of the pr~ject.~ 2. CPC response to the issues outlined by the Commission The three issues outlined by the Commission in order G-95-05 are as follows: (a) (b) (c) Does the Commission have the jurisdiction to approve, with the prior approval of the Lieutenant Governor in Council, the exemption requests in the Application? If so, should the requested exemptions under section 88(3) of the Act be granted? Should approval, pursuant to section 61(1) of the Act, be granted for the Canal Plant Support Agreement? (a) Does the Commission have the jurisdiction to approve, with the prior approval of the Lieutenant Governor in Council, the exemption requests in the Application? Yes. The application seeks relief under section 88(3) of the Act. The Commission's authority to issue exemptions from all or any of the provisions of the Act flows directly from section 88(3). BC Hydro and Fortis BC seek to be exempted from all the provisions of the Act, to the extent the Act might apply to the 2005 CPA and related agreements. Given the comprehensive nature of 2 Application pages 18 and 19. 3 Application page 19.
Bull, Housser & Tupper LLP the requested exemptions, it is unnecessary for the Commission to first determine which provisions, if any, of the Act might apply to the 2005 CPA and related agreements before deciding whether to issue an exemption. That effort would be a purely academic exercise that would be rendered moot by the issuance of the exemptions. Section 88(3) gives sufficient authority by itself to issue the requested exemptions. (b) If so, should the requested exemptions under section 88(3) of the Act be granted? Yes. The exemptions should be granted. The follow sections explain why. (i) Continuing the CPA benefits The CPA is an agreement for the coordinated use of the water rights and the related generation operation of the generating systems of the Entitlement Parties and BC Hydro. By coordinating the operation of the respective systems through BC Hydro, the provincial water resources in the region can be used efficiently to achieve optimum generation. This coordinated operation benefits all the parties to the CPA since each shares in the synergies that are achieved, including the additional generation and the reduced cost of operation. The Application elaborates on the specific benefit^.^ The CPA has been a successful arrangement that has delivered benefits for more than thirty years. The 2005 CPA will continue these benefits in substantially the same manner as before, but under an improved and simplified contract structure. The changes in the 2005 CPA refine and clarify certain aspects based on the experience gained from many years of operation.= In addition, BEPC and WEPC are being added as parties to the 2005 CPA, and the Brilliant Expansion and Waneta Expansion projects will be added to the resource base supporting the 2005 CPA. Because the fundamental nature of these agreements relates to coordinated use of water rights and generation, they are not appropriately within the scope of BCUC regulation. The original CPA has never been regulated by the Commission, but has been filed for information purposes with the om mission.^ (ii) The CPA serves provincial and national interests that are beyond the scope of the Commission's mandate The Application describes the provincial and national interest implications of the CPA related to the Columbia River Treaty and the 1971 Agreement. The Province is in the best position to 4 Application pages 13 to 19. 5 Application page 23 and Tab H. 6 Application page 23.
ensure that the 2005 CPA and the related agreements achieve the goals of the Treaty and the 1971 Agreement. The Province's approval is a pre-condition to the issuance of a section 88(3) exemption. Accordingly, the Province has a direct role in deciding whether the requested exemptions serve those provincial and national interests. CPC understands that the Province supports the 2005 CPA and related agreements. Adding BEPC and WEPC to the 2005 CPA helps the Province realize the value of the Brilliant and Waneta expansion rights purchased from Teck Cominco in 1994, which in turn helps fulfill important objectives of the Columbia Basin Initiative. As noted previously, the Brilliant Expansion and Waneta Expansion projects will deliver significant economic, social and environmental benefits to the Columbia-Kootenay region by generating electricity from water that would otherwise be spilled. Capturing the hydro-electric potential of that water also optimizes the value of upstream Columbia River Treaty water flow regulation. (iii) The interests of FortisBC and BC Hydro ratepayers are protected FortisBC and BC Hydro will continue to be regulated by the Commission under the Act if the exemption request is granted, and while the 2005 CPA, the CPA Subagreement and the FortisBC Entitlement Adjustment Agreement will not be subject to revision by the Commission, the allocation of costs and benefits between the utilities and their respective ratepayers arising from the agreements will continue to be subject to Commission review in revenue requirement proceeding^.^ (iv) Preserving the carefully negotiated balance of interests among the signatories The 2005 CPA negotiations took many years to achieve agreement. Any alteration of the 2005 CPA will upset the careful balance of obligations and rights that took so much time and effort to achieve. The exemption will assist in preserving that balance for the duration of the 2005 CPA. BPC, BEPC, WEPC and Teck Cominco have been exempted from the Act by ministerial orders. The Commission cannot compel them to accept changes to the 2005 CPA. BPC and Teck Cominco also may invoke their rights under the Canal Plant Benefit Extension Agreement with the Province. From both a commercial and legal perspective, they have alternatives to the 2005 CPA. If there is a risk that the Commission may change the 2005 CPA or related agreements, then one or more of the parties will most likely exercise their rights pursuant to section 13.3(c) of the 2005 CPA. In that event, the benefits of the CPA arrangements might be lost for all but BPC and Teck Cominco. The requested exemptions are intended to remove the risk of that outcome over the term of the 2005 CPA. 7 Application page 2.
Bull, Housser & Tupper LLP While some alternate arrangement may ultimately be achieved among the remaining parties, the results would be suboptimal because of the reduced resource base and coordination of only some of the generating systems in the Columbia Basin. The benefits would likely be less and the effort and cost to renegotiate a new arrangement would certainly be substantial. The 2005 CPA parties were knowledgeable and able to represent their interests in the negotiations. They believe the resulting agreements represent a fair and reasonable outcome and likely the best than can be achieved. The 2005 CPA must be viewed as a package that should not be reopened. (c) Should approval, pursuant to section 61(1) of the Act, be granted for the Canal Plant Support Agreement? Yes. The Commission should approve the Canal Plant Support Agreement. All of which is respectfully submitted. Yours truly, Bull, Housser & Tupper LLP David Bursey DWBlsglI 367992 Copy to Registered parties