September 16, 2005 Via Email Original via Courier Mr. R. J. Pellatt - - PDF document

FortisBC Inc. 1290 Esplanade PO Box 130 Trail, BC V1R 4L4 Tel 250 368 0313 Fax 1 866 605 9431 George.Isherwood@fortisbc.com www.fortisbc.com George Isherwood Director Regulatory Affairs

September 16, 2005 Via Email Original via Courier

• Mr. R. J. Pellatt

Commission Secretary British Columbia Utilities Commission Box 250 Sixth Floor, 900 Howe Street Vancouver BC V6Z 2N3 Dear Mr. Pellatt: Re: Canal Plant Agreement On September 15, 2005, FortisBC and BC Hydro held a workshop regarding their Applications to the Commission regarding the Canal Plant Agreement and related agreements. Please find enclosed a list of attendees as well as a copy of the presentation. Should you have any questions in this matter please contact the undersigned at 250 368 0313. Yours truly, (original signed by L. Humphrey for) George Isherwood Director Regulatory Affairs enclosed cc: Tony Morris Acting Chief Regulatory Office, BC Hydro Marcel Reghelini Director Regulatory Affairs, BCTC

B-3

BCH_FBC Canal Plant Exemptions Exhibit

Canal Plant Workshop Attendees September 15, 2005 Castlegar, BC

1 Robin Siddall 737 Elliot Street, Trail rgs07@shaw.ca 2 Alan Wait, Intervenor Box 2663, Grand Forks Ph 442 8341 3 Paddy Hatch, Line Contractors Association 12388 - 88th Ave, Surrey Ph 605 501 2232 4 Bob Rerie, BCUC 5 Elroy Switlishoff, Jetson Consulting 3569 14th Avenue, Castlegar, BC V1N 4J2 elroys@telus.net 250 365 8040 6 Paul Huszti, Retired TeckCominco Energy Co-ordinator 3557 Highway Drive, Trail BC V1R 2T9 Ph 250 368 3276 phuszti@telus.net 7 Jim Quail, Barrister & Solicitor, BC Public Interest Advocacy Centre 8 Raymond Masleck, Trail Daily Times Ph 250 364 1242 Ext 209 9 Dale West, Editor, Castlegar News Ph 250 365 9954 10 Peter Ostergaard, Assistant Deputy Minister of Electricity and Alternative Energy Division , Ministry of Energy, Mines and Petroleum Resources 11 12 BCTC Gerry Garnett Stephen Tran 13 14 15 TeckCominco Bill Duncan Richard Deane Cal Johnson, Fasken, Matineau 16 17 18 19 20 21 CPC Bruce Duncan Victor Jmaeff Wally Penner Llewellyn Matthews David Bursey, Bull Housser & Tupper Greg Lewis, Bull Housser & Tupper 22 23 24 25 BC Hydro Ken Spafford Doug Robinson Steve Eckert Jeff Christian, Lawson Lundell 26 27 28 29 30 31 FortisBC Don Debienne George Isherwood Wally Koschik Dan Egolf Dean O’Leary, Farris Lavern Humphrey 32 Russ Leslie, Nelson Hydro, IMEU 101 310 Ward Street, Nelson PH 250 352 8212 33 Norm Gabana 3850 Dogwood Trail V1R 2V5 Ph 368 3695

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CANAL PLANT AGREEMENT WORKSHOP

September 15, 2005 Castlegar, BC

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CANAL PLANT AGREEMENT 9:00 Introduction George Isherwood 9:15 Historical Context Cal Johnson 9:35 Overview of Agreements Wally Koschik 9:55 CPA Support Agreements Stephen Tran 10:05 Comparison of Old and New Agreements Ken Spafford 10:35 Break 10:55 Benefits - BC Hydro Perspective Ken Spafford 11:15 Benefits - FortisBC Perspective Wally Koschik 11:35 Reasons for the Exemption Cal Johnson 11:55 Discussion

AGENDA

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Historic Context of the Canal Plant Agreement

Cal Johnson

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CANAL PLANT AGREEMENT

CANAL PLANT AGREEMENT

Originally negotiated in early 1970s Amended and restated, and extended to December 31,

2035, during recent negotiations

The term “Canal Plant Agreement” refers to both the

• riginal form, and the amended, restated and extended

form, of the agreement

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CANAL PLANT AGREEMENT

Knowledge of the Legal and Historical Context of the Canal Plant Agreement Assists in Understanding:

The Canal Plant Agreement The broader provincial and national interests related to the

Canal Plant Agreement

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HISTORIC FACTS

CANADA-U.S. TREATY ARRANGEMENTS BOUNDARY WATERS TREATY (1909)

Foundation for resolution of water-related disputes between

Canada and the U.S.

Created the International Joint Commission (IJC) to address

issues related to water levels and flows across the Canada/U.S. boundary

IJC granted power to review and decide any diversion or use of

water in one country that would affect the natural level or flow of boundary waters in the other country

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HISTORIC FACTS

INTERNATIONAL BOUNDARY WATERS TREATY ACT (1911)

• Statute of Canada
• Gave effect in Canada to the Boundary Waters Treaty

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HISTORIC FACTS

IJC ORDER RE KOOTENAY LAKE

Issued in 1938 Authorized FortisBC (then West Kootenay Power) to operate

the Corra Linn Dam to store water in Kootenay Lake

Use of Kootenay Lake for storage is subject to operating

conditions that, amongst other things, specifies the maximum level of Kootenay Lake at various times of the year

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HISTORIC FACTS

COLUMBIA RIVER BASIN STUDIES

Canada and the U.S. request the IJC to conduct studies on

how best to use the water potential of the Columbia River Basin (1944). The IJC establishes the International Columbia River Engineering Board (ICREB) to undertake the study

The ICREB issues its report which includes plans to construct

large storage reservoirs to regulate the flows on the Columbia River (1959)

IJC recommends principles for determining the benefits from

cooperative use of water storage and electrical generation within the Columbia River Basin and the allocation of benefits between the two countries (1959)

These recommendations are used by Canada and the U.S. in

the subsequent negotiation of the Columbia River Treaty

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HISTORIC FACTS

COLUMBIA RIVER TREATY (1961)

The purpose of the Treaty is to maximize the power and flood

control benefits that are possible through the construction and coordinated operation of storage projects on both sides of the Canada/U.S. boundary

Pursuant to Article XI of the Treaty, the improvements in water

flows in one country brought about by the operation of storage constructed under the Treaty in the other country is not to be used for hydroelectric power purposes except, in Canada with the prior approval of the authority in Canada having jurisdiction (currently the Comptroller of Water Rights)

The Treaty contemplates the establishment of Canadian and

U.S. entities which are to be responsible for the coordination and cooperation required under the Treaty

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HISTORIC FACTS

HYDROELECTRIC FACILITIES IN THE REGION IN 1961

FortisBC (then WKP) owned the Lower Bonnington Dam (Plant

• No. 1) on the Kootenay River. FortisBC supplied power to the

West Kootenay and South Okanagan regions of B.C.

WKP was a wholly owned subsidiary of The Consolidated

Mining and Smelting Company of Canada Limited (Cominco)

Cominco owned the Upper Bonnington, South Slocan and Corra

Linn Dams on the Kootenay River

Cominco also owned the Brilliant Dam on the Kootenay River

and the Waneta Dam on the Pend d’Oreille River

B.C. Hydro had not yet been created. The B.C. Power

Commission supplied electricity to some parts of the Province. B.C. Electric supplied other parts

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HISTORIC FACTS

EVENTS IN THE 1960s

Canada and B.C. entered into an agreement relating to the

Columbia River Treaty (1963). The benefits of the Columbia River Treaty are assigned to B.C. and B.C. agrees to fulfill Canada’s Treaty obligations

B.C. Hydro is established (1964) B.C. Electric amalgamated with the B.C. Power Commission B.C. Hydro is for all purposes an agent of the Province B.C. Hydro is named as the Canadian entity under the

Columbia River Treaty and is to own and be responsible for

• perating the three Canadian Treaty dams (Duncan, Mica

and Keenleyside)

In 1967 construction of the Duncan Dam is completed. It

allows for the better regulation of water flows on the Kootenay River and the Columbia River

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KOOTENAY CANAL PROJECT British Columbia wished to obtain benefits associated with the

better regulation of the water flows on the Kootenay River that were available as a result of the Treaty

British Columbia proposes that the Kootenay Canal Plant be

constructed by B.C. Hydro on the Kootenay River

Economic operation of the Kootenay Canal Plant requires that

part of the water that would have flowed through the Corra Linn, Upper Bonnington, Lower Bonnington and South Slocan plants

• f FortisBC and Teck Cominco be diverted and instead flow

through the Kootenay Canal Plant

Construction of the Kootenay Canal Plant requires that B.C.

Hydro obtain the use of land and water rights from FortisBC and Teck Cominco

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AGREEMENTS LEADING TO THE CANAL PLANT AGREEMENT

1967 AGREEMENT

Between B.C. Hydro, FortisBC and Teck Cominco Recognizes that the Duncan Dam will affect the flows of water at

the dams of FortisBC and Teck Cominco on the Kootenay River

Provides that the benefits of the additional electrical energy

generated at the FortisBC and Teck Cominco plants on the Kootenay River and made possible by the operation of the Duncan Dam be shared between the parties

The agreement terminates when the Libby Dam commences to

affect the flow of water into Kootenay Lake

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AGREEMENTS LEADING TO THE CANAL PLANT AGREEMENT

1972 AGREEMENT

Between B.C. Hydro, FortisBC and Teck Cominco Recognizes that the operation of the Duncan and Libby

Dams will result in the generation of additional electrical energy at the FortisBC and Teck Cominco plants on the Kootenay River

Provides for the sharing of those benefits The agreement terminates when FortisBC and Teck

Cominco commence to receive the Basic Supply as described in the attachments to the Letter of Agreement between the parties dated August 13, 1971

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AGREEMENTS LEADING TO THE CANAL PLANT AGREEMENT

1971 AGREEMENT

On August 13, 1971 B.C. Hydro, Teck Cominco, FortisBC

and the Province of British Columbia enter into a letter agreement which sets out the Principal Points of Agreement between the parties to permit the construction of the Kootenay Canal Plant of B.C. Hydro

Recognizes that the improvement of stream flow in the

Kootenay and Duncan Rivers brought about by the construction and operation of Duncan and Libby Dams will make possible additional electrical generation on the Kootenay River and to take full economic advantage of this improvement in stream flow it is necessary to construct the Canal Plant

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AGREEMENTS LEADING TO THE CANAL PLANT AGREEMENT Sets out that B.C. Hydro proposes to construct and own the

Kootenay Canal Plant which will produce capacity and energy

• ver and above that which can be produced from the existing

plants on the Kootenay River

Recognizes that because the additional capacity and energy can

best be produced by coordinated use of the existing hydroelectric plants and facilities on the Kootenay and Pend d'Oreille Rivers it is proposed that FortisBC, Teck Cominco and B.C. Hydro will cooperate for the purpose of obtaining optimum generation

FortisBC and Teck Cominco will be ensured of a “Basic Supply” 18 CANAL PLANT AGREEMENT

CANAL PLANT AGREEMENT

Following the 1971 Agreement B.C. Hydro, Teck Cominco and

FortisBC negotiated the Canal Plant Agreement

Dated August 1, 1972 but executed June 1974 Is stated to be made pursuant to the August 13, 1971

Agreement

Part D which provides for the Basic Supply to FortisBC and

Teck Cominco is effective from the first date that the Kootenay Canal Plant affects Kootenay River water flows (October 1, 1975)

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CANAL PLANT AGREEMENT Fundamentally, the Canal Plant Agreement is an agreement

for the coordinated operation of the generating resources of FortisBC and Teck Cominco (expanded to now include Brilliant Power Corporation (BPC), Brilliant Expansion Power Corporation (BEPC) and Waneta Expansion Power Corporation (WEPC)) and B.C. Hydro to obtain optimum generation; the integration of the systems of the parties to allow the coordinated operation to occur; and the allocation of energy and capacity between the parties

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CANAL PLANT AGREEMENT

The Underlying Rationale for the Canal Plant Agreement is Summarized in the Recitals to the Original form of the Canal Plant Agreement. Amongst other background, the recitals state that:

B.C. Hydro was proposing to construct a hydroelectric power

project on the Kootenay River that includes a canal which has an intake on the intake of the pre-existing Corra Linn Dam

Teck Cominco and FortisBC operated storage in Kootenay

Lake and were the owners of generating plants on the Kootenay and Pend d’Oreille Rivers and the transmission facilities that interconnected those plants

The Kootenay Canal Plant of B.C. Hydro will produce capacity

and energy over and above that which could be produced from the existing plants of Teck Cominco and FortisBC

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CANAL PLANT AGREEMENT The additional capacity and energy can best be produced by

coordinated use of the Teck Cominco and FortisBC plants and related facilities and the Kootenay Canal Plant and its facilities, and cooperation for the purpose of obtaining optimum generation is desirable

The parties have agreed to cooperate in the operation of their

available storages and generating facilities for the purpose of

• btaining optimum generation

The Canadian and U.S. entities under the Treaty are required

to cooperate in the coordination of the operation of the Libby Dam with the operation of hydroelectric plants on the Kootenay River and elsewhere in Canada in accordance with the Treaty, and the U.S. entity has indicated a willingness to regulate the release from Libby Dam to improve generation on the Kootenay River

22 The improvement of streamflow in the Kootenay and Duncan

Rivers brought about by the construction and operation of Duncan and Libby Dams will make possible additional generation in Canada on the Kootenay River; to take full economic advantage

• f this improvement in streamflow it is necessary to construct the

Kootenay Canal Plant

B.C. Hydro, Teck Cominco and FortisBC have entered into

separate agreements concerning lands and related matters to allow the construction of the Kootenay Canal Plant to proceed

CANAL PLANT AGREEMENT

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EVENTS FOLLOWING EXECUTION OF THE CPA

PLANT OWNERSHIP TRANSFERS

Teck Cominco sells the Corra Linn, Upper Bonnington and

South Slocan plants to FortisBC (1982)

The Province and Cominco enter into the Power Asset Sale

and Development Agreement (PASDA) by which Teck Cominco sells the expansion rights of the Brilliant and Waneta Dams (1994)

Columbia Power Corporation was incorporated and the

Province assigns the expansion rights to CPC

The Province enters into an agreement with Teck Cominco (the

Canal Plant Benefit Extension Agreement of May 18, 1994) by which the Province agrees that Teck Cominco will continue to receive the benefits of the Canal Plant Agreement with respect to the Brilliant and Waneta facilities until December 31, 2035

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EVENTS FOLLOWING EXECUTION OF THE CPA The Province enacts the Columbia Basin Trust Act which

created the Columbia Basin Trust to manage the funding provided by the Province to CBT for the economic, environmental and social benefit of the Columbia Basin region (1995)

CPC transfers one-half interest in the PASDA expansion rights

to CBT Power Corp., a subsidiary of CBT (2000); the Brilliant expansion rights were subsequently assigned to BEPC and the Waneta expansion rights to WEPC

Teck Cominco sells the Brilliant Dam to CPC/CBT and the

rights and obligations under the Canal Plant Agreement and the Canal Plant Benefit Extension Agreement, to the extent those rights and obligations related to the Brilliant Dam, are assigned to and assumed by CPC/CBT (1996)

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EVENTS FOLLOWING EXECUTION OF THE CPA CPC/CBT assigns the Brilliant Dam and all related assets and

rights, including its rights under the Canal Plant Agreement and the Canal Plant Benefit Extension Agreement, to BPC (2004)

BEPC is currently in the process of constructing the Brilliant

Expansion Project which is to be completed in 2006

WEPC has commenced studies, planning and environmental

permitting and applied for a water licence for the Waneta Expansion Project

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2005 CPA AND TRANSITION AGREEMENTS

THE 2005 CANAL PLANT AGREEMENT AND TRANSITION AGREEMENTS

The 2005 CPA is effective February 1, 2006. The parties to it

are B.C. Hydro, FortisBC, Teck Cominco, BPC, BEPC and WEPC

A party to the 2005 CPA can give notice under section 13.3

which would cause the new agreement not to come into effect

The parties to the Original CPA have entered into the CPA

Extension and Transition Agreement (Tab J of the Application). This Transition Agreement extends the original Canal Plant Agreement to provide transition arrangements until the 2005 Canal Plant Agreement is in effect

The Transition Agreement also provides that commencing

August 1, 2005 the terms and conditions of the 2005 CPA replace the terms and conditions of the Original CPA, revised as necessary

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RESULT OF THE CANAL PLANT AGREEMENT

RESULT OF THE CANAL PLANT AGREEMENT

The Canal Plant Agreement has resulted in the integration

and coordinated operation of the generating facilities and systems of the parties to the Agreement with benefits to all parties

The optimization of generation required that the systems of

Teck Cominco and FortisBC be interconnected with the system of B.C. Hydro. Since the execution of the Canal Plant Agreement further interconnections of these systems have been constructed. These interconnections provide greater system reliability and other operational advantages

The optimization of generation required that the facilities of

the parties be operated in an integrated and coordinated manner

B.C. Hydro has provided operating instructions for the

plants of the other parties

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RESULT OF THE CANAL PLANT AGREEMENT The other parties no longer provide any independent system

load control

The practical effect of the interconnection, integration and

coordination under the Canal Plant Agreement is that for most purposes the plants of the parties to the agreement have been

• perated as parts of a single integrated system to optimally

utilize provincial water resources to serve provincial load

The development of the systems of the parties since the

execution of the Canal Plant Agreement in the early 1970s means that it is neither practical nor economical to “dis- integrate” the systems and operate them separately as they were before the execution of the Canal Plant Agreement

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Overview and Inter-relationship

• f Agreements

Wally Koschik

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2005 CANAL PLANT AGREEMENT OVERVIEW Renewal of the Original CPA for a 30 year term Basic Purpose: Coordinated operation of the parties’

generation resources in order to optimize output

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OVERVIEW OF CANAL PLANT AGREEMENTS

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2005 CANAL PLANT AGREEMENT OVERVIEW

SUMMARY OF JOINT OBLIGATIONS & RIGHTS

B.C. Hydro provides operating directions Entitlement Parties (EPs) make actual output of plants

available to B.C. Hydro

B.C. Hydro provides EPs with Entitlement Capacity and Energy Coordination transfers Ancillary Service requirements Information Exchange

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2005 CANAL PLANT AGREEMENT OVERVIEW

SUMMARY OF JOINT OBLIGATIONS & RIGHTS - CONTINUED

• Reductions to entitlement for
• Outages and derates
• Transmission Constraints
• Constraints on Entitlement usage
• Minimum Take
• Interchange Scheduling Constraints
• Control of Interchange Schedules
• Flexibility
• +/- 7% adjustments to monthly entitlement
• Exchange Accounts (Storage)

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2005 CANAL PLANT AGREEMENT OVERVIEW

SUMMARY OF JOINT OBLIGATIONS & RIGHTS - CONTINUED

• B.C. Hydro ensures Control Area Services
• B.C. Hydro ensures reserves sharing participation
• EP provides adequate transmission for B.C. Hydro to optimize

the generation

• B.C. Hydro ensures availability of Kootenay Interconnection

OASIS scheduling point

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2005 CANAL PLANT AGREEMENT OVERVIEW

MISCELLANEOUS PROVISIONS

Operating Committee (BCTC participation) Negotiate Inclusion of Waneta Expansion Dispute Resolution General Provisions 36 2005 CANAL PLANT AGREEMENT OVERVIEW

OPERATING PROCEDURES

Detail needed to administer the CPA, while maintaining the

parties other obligations

Developed by Operating Committee Binding

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2005 CANAL PLANT AGREEMENT OVERVIEW

SCHEDULE A

Entitlement calculations method and procedures Input data, e.g. streamflows Entitlement tables Entitlement adjustments tables

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2005 CANAL PLANT AGREEMENT OVERVIEW

SCHEDULE B

Describes the POIs that comprise the Kootenay

Interconnection

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KOOTENAY INTERCONNECTION

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2005 CANAL PLANT AGREEMENT OVERVIEW

SCHEDULE C

Teck Cominco CPA Scheduling Agreement Teck Cominco agrees to implement CPA

Interchange Schedules on a flat block basis, i.e., with no real-time changes in exchange for increased entitlement

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2005 CANAL PLANT AGREEMENT OVERVIEW

SCHEDULE D

• BEPC CPA Scheduling Option Agreement
• Provisions similar to TCM Scheduling Agreement but subject

to flexibility option

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2005 CANAL PLANT AGREEMENT OVERVIEW

FORTISBC ENTITLEMENT ADJUSTMENT AGREEMENT

Resolved disagreement regarding

FortisBC entitlement in view of new efficiency data FortisBC’s ability to upgrade its plants and obtain increased

entitlement

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2005 CANAL PLANT AGREEMENT OVERVIEW

FORTISBC ENTITLEMENT ADJUSTMENT AGREEMENT

• Net increase of 25 GW.h per year retro-active to June 2004

and an annual average of about 6.4 MW

• Incentive to operate more efficiently
• Future upgrades designed for expected actual stream flows

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2005 CANAL PLANT AGREEMENT OVERVIEW

CPA SUB AGREEMENT - PURPOSE

• Allocates joint obligations and rights from CPA to individual

EPs

• Transmission rights and congestion on parallel transmission
• System losses
• Operating Committee
• Negotiate inclusion of Waneta Expansion
• Dispute resolution
• General provisions

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2005 CANAL PLANT AGREEMENT OVERVIEW

CPA SUPPORT AGREEMENT

• CPA requires B.C. Hydro to ensure that the EPs receive

certain transmission services

• These can no longer be performed by B.C. Hydro and can
• nly be delivered by BCTC,
• CPA Support Agreement sets out B.C. Hydro’s and BCTC’s

respective rights and obligations arising from certain of the transmission related provisions of the CPA

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2005 CANAL PLANT AGREEMENT OVERVIEW

CPA & CPA SUB AGREEMENT EXTENSION AND TRANSITION AGREEMENTS

• Allows the parties to operate under the 2005 CPA

and CPA Sub Agreement as of August 1

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Canal Plant Agreement

Support Agreement

Stephen Tran

Page: 48

CPA Support Agreement

• The EPs’ Systems no long function as a Control Area
• Control Area Operator needs to be able to:
• Balance generation resources and load real-time
• Control tie-line flows
• Comply with NERC’s control performance and disturbance

control standards

• Schedule energy flow between control areas
• Share contingency reserves with members of Northwest Power

Pool

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Page: 49

CPA Support Agreement

• B.C. Hydro agree to integrate EPs’ Systems into BC Control Area
• B.C. Hydro contracts BCTC to fulfill its transmission obligations
• Under this Agreement, BCTC will provide Control Area services
• Regulation to meet generation-load balance
• Responsible for tie-line control
• Ensuring adequate operating reserves
• Scheduling Service
• Contingency Reserve Sharing

Page: 50

CPA Support Agreement

• Consistent with OATT and BCTC’s mandate
• Ensures sufficient transmission capability to accommodate

Coordination Transfers

• Transmission charges made in accordance with BCTC’s OATT

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Comparison of Original and 2005 CPA

Ken Spafford (BC Hydro)

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COMPARISON OF ORIGINAL AND 2005 CPA

Reference

Application Tab H.

What has not changed?

The fundamental nature of the agreement - A coordination agreement, with an entitlement accruing to

FortisBC, Teck Cominco and CPC/CBT and actual generation accruing to B.C. Hydro.

Integration of the systems to allow coordinated operation The balance of benefits between the parties. Both the Original and 2005 CPA are made pursuant to the 1971

Agreement.

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COMPARISON OF ORIGINAL AND 2005 CPA

CHANGES INCLUDED IN THE 2005 CPA TO REFLECT:

Administrative items. Technical decisions implemented over the life of the old CPA. Electric industry developments over the life of the old CPA. Improved clarity with respect to system improvements. 54 COMPARISON OF ORIGINAL AND 2005 CPA

ADMINISTRATIVE ITEMS

Term - evergreen contract to at least December 31, 2035, but

can be terminated after that date on 5 years notice.

Arbitration provision (Section 12). Terminology and format

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COMPARISON OF ORIGINAL AND 2005 CPA

TECHNICAL DECISIONS

Numerous Technical Decisions were implemented over the life

• f the Original CPA. These were all reviewed and either

discarded where no longer appropriate or incorporated into the 2005 CPA and/or its operating procedures.

Examples: Maintenance provisions. Minimum Take provisions. Basic Supply increases related to Waneta and Brilliant

Upgrades.

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COMPARISON OF ORIGINAL AND 2005 CPA

ELECTRIC INDUSTRY DEVELOPMENTS

New project owners. Elimination of Part B of Original CPA - superceded by the

implementation of the Power Purchase Agreement in 1986.

Elimination of Part C of Original CPA - no longer operative. Creation of BCTC – B.C. Hydro must contract with BCTC to

satisfy its transmission-related obligations under the CPA, hence the CPA Support Agreement.

Need for rigorous data interchange to support increased trading

activity by all parties.

Added provisions to address issues related to energy

schedules into, and out of, the Entitlement Parties’ system.

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COMPARISON OF ORIGINAL AND 2005 CPA

IMPROVED CLARITY

Provides a more detailed description of data and methodology used to determine Entitlements and how Entitlements are re- determined when changes are made to plant characteristics.

Virtually no changes to the Base System as defined in the

Original CPA from 1975 through 1995.

Developed a specific agreement in 1994 related to

determining entitlement increments for Waneta Upgrades.

Negotiated specific arrangements with CPC/CBT related to

Brilliant Upgrades and Brilliant Expansion.

The 2005 CPA implements all of these arrangements and

provides documentation on how the Entitlements are computed.

Required modeling changes and individual firming factors to

ensure each Party maintained their balance of benefits.

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Benefits - BC Hydro Perspective

Ken Spafford (BC Hydro)

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BENEFITS - BC HYDRO PERSPECTIVE

Reference

Application Section IIC (pages 15-17).

Benefits to BC Hydro Customers (including FortisBC)

1971 Agreement facilitated the development of Kootenay Canal. Realization of stream flow regulation benefits under the Columbia

River Treaty.

Diversion of water from FortisBC plants to Kootenay Canal. Coordinated storage operation Kootenay Lake and Duncan storage operated jointly for

enhanced benefit.

Use of Seven Mile forebay to maximize Waneta generation More efficient dispatch of Provincial resources - transfer of

generation control duties from local generation (Brilliant and Waneta) to projects more suited to that function (Mica, Revelstoke and G.M. Shrum).

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BENEFITS - BC HYDRO PERSPECTIVE

OTHER BENEFITS

Simpler than many other coordination approaches: Does not require detailed studies of system operation

using actual water conditions - benefits are preset based

• n the historic record of flows.

Parties remain responsible for their plants and for ensuring

legal obligations are satisfied.

Maintains sufficient flexibility to adapt to water conditions (e.g.

provisions for re-scheduling maintenance, use of entitlement, etc.)

Permits environmental benefits such as minimizing the spill of

water at Brilliant and Waneta and maintaining a more constant Waneta forebay and discharge level.

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Benefits – FortisBC Perspective

Wally Koschik

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BENEFITS TO FORTISBC

• Avoids forecast and weather risk
• Avoids control area costs
• Reduced maintenance costs
• Avoids load-following Inefficiencies
• Economic Power Purchases (now from the PPA)

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FORECAST AND WEATHER RISK

• Entitlement based on historical streamflow ‘averages’, does

not vary with actual streamflows

• Avoids having to forecast energy availability
• Avoids costs of over/under purchases due to energy forecast

errors

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FORECAST AND WEATHER RISK

• Avoids costs from price differentials between sales of

surpluses and purchase of shortfalls

• Avoids costs of staff to forecast energy and manage the

additional sales/purchases

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67 68

AVOIDANCE OF CONTROL AREA COST

• Infra-structure costs
• Computer systems
• Telecom & metering
• Generator modifications (AGC)
• Back-up control center
• Compliance Costs
• WECC monitoring and reporting
• Operator training

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REDUCED GENERATOR MAINTENANCE

• Reduced flow means reduced generator
• perating hours

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AVOIDS LOAD-FOLLOWING INEFFICIENCIES

• Following load with real generators involves operating

at inefficient dispatches

• FortisBC plants not well suited for this function

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ECONOMIC POWER PURCHASES

• Original CPA led to PPA
• Economic 200 MW supply based on B.C. Hydro

embedded cost

• No limits on energy take
• Expires in 2013

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73 74

Reasons for Exemption

Cal Johnson

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TWO APPLICATIONS

TWO APPLICATIONS FOR EXEMPTION

• A joint application by FortisBC and B.C. Hydro to be

exempted from all provisions of the Utilities Commission Act, to the extent that the Act may apply to the Canal Plant Agreement and to the FortisBC Entitlement Adjustment Agreement

• An application by FortisBC to be exempted from all provisions
• f the Utilities Commission Act to the extent that the Act may

apply to the CPA Subagreement

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TWO APPLICATIONS

Both Applications are made Pursuant to Section 88(3)

• f the Utilities Commission Act
• Section 88(3) of Utilities Commission Act provides: the

commission may, on the conditions it considers advisable, with the advance approval of the Lieutenant Governor in Council, exempt a person, equipment or facilities from the application of all or any of the provisions of this Act or may limit or vary the application of this Act.

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TWO APPLICATIONS

• At Tab “A” of the Application is a draft of the Order that

FortisBC and B.C. Hydro are seeking

• FortisBC and B.C. Hydro will continue to be regulated by the

BCUC under the Act if the exemption request is granted. The Canal Plant Agreement, the CPA Subagreement and the Adjustment Agreement will not be subject to revision by the Commission, but the allocation of costs and benefits between the two utilities and their respective customers arising from the agreements will be subject to Commission review in revenue requirement proceedings

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BASIS FOR EXEMPTION

BASIS FOR EXEMPTION

• The arrangement between the parties set out in the Canal

Plant Agreement and its related agreements reflects a balance of interests that supports and is informed by interests that are broader in scope than those the Commission normally considers under the Utilities Commission Act;

maximizes provincial and federal benefits arising under

the Columbia River Treaty

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BASIS FOR EXEMPTION reflects the Provincial policy of maximizing the value of

B.C.’s hydroelectric resources

reflects Provincial commitments to parties affected by the

construction of B.C. Hydro’s Kootenay Canal Plant

reflects Provincial commitments relating to the creation of

the Columbia Basin Trust and Columbia Power Corporation

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PROVINCIAL INTERESTS

THE INTEREST OF THE PROVINCE IN THE ARRANGEMENTS

• The interest of the Province in the Canal Plant Agreement

arrangements is manifest in many of the documents:

the 1971 Agreement (to which the Province is a party)

provides the framework for the coordination of hydroelectric resources which is reflected in the Canal Plant Agreement

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PROVINCIAL INTERESTS the Columbia Basin Accord and the agreements and

enactments that gave effect to the Columbia Basin Initiative

the Power Asset Sale and Development Agreement

(1994) by which the Province acquired the expansion rights at Brilliant and Waneta and then assigned those rights, which are now held by CPC/CBT subsidiaries

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PROVINCIAL INTERESTS Exemption Orders that have been granted to CPC/CBT

and Teck Cominco which provide that their hydroelectric generation and systems are not subject to regulation by the Commission

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83

CANAL PLANT BENEFIT EXTENSION AGREEMENT

CANAL PLANT BENEFIT EXTENSION AGREEMENT

• Made as of May 18, 1994
• The original parties are the Province and Teck Cominco
• The benefits of the agreement as they relate to the Brilliant

Dam have been assigned to Brilliant Power Corporation

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CANAL PLANT BENEFIT EXTENSION AGREEMENT

• The Agreement (Section 2.1) provides that if on the Expiration

Date of the original Canal Plant Agreement the Canal Plant Agreement has not been extended to at least December 31, 2035 then from and after the Expiration Date the Benefit Extension Agreement will incorporate such amendments as are required to make the Canal Plant Agreement apply to and bind the Province, Teck Cominco and Brilliant Power Corporation and to extend the expiration date to December 31, 2035

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85

CANAL PLANT BENEFIT EXTENSION AGREEMENT

• The effect of the Benefit Extension Agreement is that if the

CPA with B.C. Hydro are not extended to December 31, 2035 then the Province will become a party to the CPA arrangements, replacing B.C. Hydro

• Teck Cominco and Brilliant Power Corporation would

continue to receive the benefits of the Canal Plant Agreement and be bound by its obligations

• FortisBC and B.C. Hydro would be removed from the Canal

Plant Agreement

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CANAL PLANT BENEFIT EXTENSION AGREEMENT

• Brilliant Expansion Power Corporation and Waneta Expansion

Power Corporation would not be parties to the Canal Plant Agreement, and the Expansion Projects would not be plants under the Canal Plant Agreement

• Since neither FortisBC nor B.C. Hydro (public utilities

regulated by the Commission) would be parties to the Benefit Extension Agreement the provisions of the Benefit Extension Agreement would not be subject to regulation by the Commission

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ROLE OF THE COMMISSION

ROLE OF THE COMMISSION

• The Commission’s mandate under the Utilities Commission

Act is to balance the interests of public utilities and the customers they serve, primarily through the establishment of schedules of rates and terms and conditions of service

• The Commission does not have a legislative mandate to

advance broad provincial interests that arise in the context of these agreements

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ROLE OF THE COMMISSION

• The Canal Plant Agreement and related agreements are best

characterized as integration and coordination agreements; they are not in the nature of public utility tariffs relating to the service provided by a public utility to its customers

• In the normal course of the Commission’s regulatory function it

would not exercise any jurisdiction over the Canal Plant Agreement or the related agreements

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89

NO HISTORY OF REGULATION OF THE CPA

NO HISTORY OF REGULATION OF THE CANAL PLANT AGREEMENT

• The Commission and its predecessors have had no

involvement in the 1971 Agreement to which the Province is a party and that provides the framework for the Canal Plant Agreement

• The Commission has never, in the history of the Canal Plant

Agreement, approved or otherwise purported to exercise jurisdiction over the Canal Plant Agreement or any of the agreements related to it

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NO HISTORY OF REGULATION OF THE CPA

• There are relatively few substantive differences between the

Original CPA and the 2005 CPA and the changes that have been made do not alter the fundamental nature of the Canal Plant Agreement

• The Canal Plant Agreement continues to be, fundamentally,

an agreement for the coordinated operation of the generating resources of the parties to obtain optimum generation; the integration of the systems of the parties to allow coordination to occur; and the allocation of energy and capacity

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CONCLUSION

• The Application seeks to maintain the status quo regarding

the regulatory status of the arrangements between B.C. Hydro and the other parties to the Canal Plant Agreement

• The public interest will be served by granting the exemption
• Failure to grant the exemption will create significant

uncertainty regarding the continuation of the CPA arrangements