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BRITISH COLUMBIA UTILITIES COMMISSION IN THE MATTER OF THE UTILITIES COMMISSION ACT S.B.C. 1996, CHAPTER 473 And BC Hydro – 2008 Residential Inclining Block Application Vancouver, B.C. June 16, 2008 PROCEEDINGS AT HEARING BEFORE: A. C. Pullman, Chairperson B. Milbourne, Commissioner L. O'Hara, Commissioner VOLUME 2 Allwest Reporting Ltd. 1125 Howe Street Vancouver, B.C APPEARANCES G.A. FULTON, Q.C. Commission Counsel J. CHRISTIAN British Columbia Hydro and Power Authority J. NYLAND J. SOFIELD J. QUAIL B.C. Old Age Pensioners' Organization, Council Of Senior L. WORTH Citizens' Organizations, Federated Anti-Poverty Groups Of B.C., West End Seniors' Network (BCOAPO) M. GHIKAS Terasen Gas Inc (TGI), Terasen Gas (Vancouver Island) Inc. (TGVI), and Terasen Gs (Whistler) Inc. (Collectively Terasen Utilities) M. LEYLAND FortisBC Inc D. SWANSON P. COCHRANE City of New Westminster R. CARLE R. B. WALLACE Joint Industry Electricity Steering Committee (JIESC) C. WEAFER Commercial Energy Consumers of British Columbia et al (CEC) D. CRAIG A. KEMP Rental Owners and Managers Society of B.C. D. BURSEY Corix Multi-Utility Services Inc. I. WIGINGTON W.J. ANDREWS B.C. Sustainable Energy Association, Sierra Club of Canada, British Columbia Chapter (BCSEA) L. BERTSCH Energy Solutions for Vancouver Island Society BC Hydro - RIB Volume 2, June 16, 2008 Page: 71 1 CAARS 2 VANCOUVER, B.C. 3 June 16, 2008 4 (PROCEEDINGS RESUMED AT 9:32 A.M.) 5 THE CHAIRPERSON: Please be seated. 6 Good morning, ladies and gentlemen. My 7 name is Tony Pullman. With me on the Panel today is 8 Commissioner Liisa O'Hara on my left, and Commissioner 9 Bob Milbourne on my right. 10 First let me introduce the Commission Staff 11 in attendance today. Lead Staff is Ms. Eileen Cheng. 12 Also in attendance from the Commissioner are Tony 13 Roberts and Staff Consultant George Isherwood. 14 Commission Counsel for this proceeding is Mr. Gordon 15 Fulton, Q.C., of the Boughton Law Corporation, and the 16 Hearing Officer today is Mr. Hal Bemister. 17 British Columbia Hydro & Power Authority, 18 better known as B.C. Hydro, filed its residential 19 inclining block application on February the 26th, 2008. 20 B.C. Hydro seeks an order that: (1) approves its 21 residential inclining block rate structure effective 22 October 1st, 2008, whereby Rate Schedules 1101 and 1121 23 shall be amended and filed with the Commission on or 24 before September 30th, 2008, to reflect a Step 1 25 threshold of 1600 kilowatt hours per bi-monthly 26 billing period, a basic charge of 12.38 cents per day, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 72 1 a Step 1 rate of 6.28 cents per kilowatt hour, and a 2 Step 2 rate of 6.98 cents per kilowatt hour; (2) 3 approves new Rate Schedules 1151 and 1161 for those 4 customers on exempt residential service showing a 5 basic charge of 12.93 cents a day and a flat rate of 6 6.55 cents per kilowatt hour; and (3) that directs 7 B.C. Hydro on or before February the 28th, 2009 to file 8 Rate Schedules 1101, 1121, 1151 and 1161 that are to 9 be effective April 1st, 2009, reflecting the revenue 10 requirement then applicable to the fiscal year 11 beginning April 1st, 2009. 12 On February the 28th the Commission issued 13 Order G-28-08, which established a procedural 14 conference to be held on April 28th, 2008, and which 15 was followed by Order No. G-31-08, which established a 16 regulatory timetable. Pursuant to Order No. G-31-08, 17 the first round of information requests was issued by 18 the Commission on March 18, 2008, and by intervenors a 19 week later on March 25th, and B.C. Hydro's response to 20 this round of IRs was received on April 18th, 2008. 21 Following the procedural conference, the 22 Commission issued Procedural Order No. G-76-08 dated 23 April 30th, 2008, which established that the 24 application would be heard in an oral public hearing 25 and which set out a revised regulatory timetable for 26 the oral public hearing process. A second round of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 73 1 information requests was issued by the Commission and 2 by intervenors on May the 5th, 2008. B.C. Hydro's 3 responses to this round of information requests were 4 received on May 20th and 22nd, 2008. 5 The only intervenor to file evidence was 6 Energy Solutions for Vancouver Island, which filed its 7 evidence on May the 27th, 2008 in accordance with an 8 extension granted to it by the Commission on a latter 9 date, May 23rd, 2008. 10 On May 29th, 2008 the Commission issued a 11 letter addressed to all parties seeking their views on 12 the need for a staff issues list and a panel issues 13 list in the present proceeding. Responses were 14 received from B.C. Hydro and from all intervenors 15 except one. The intervenors' responses did not 16 demonstrate any consensus, and the Commission issued a 17 letter dated June 4th, 2008 to all parties stating that 18 after reviewing the submissions, the Commission Panel 19 found that there was no need for either a panel issue 20 -- final issues list, or a staff issues list, given 21 B.C. Hydro's submission that it was prepared to 22 respond to topics and issues raised in the application 23 and in information requests. 24 June the 5th, 2008, the Commission Panel 25 issued its own information request to B.C. Hydro, with 26 an instruction that B.C. Hydro should use its best Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 74 1 efforts to reply by June 12th, 2008. This prompted a 2 response from Mr. Christian, B.C. Hydro's counsel, 3 which expressed a concern that a number of the panel 4 IRs implied that the Commission is considering the 5 establishment of rate structures that are not merely 6 variations on what B.C. Hydro has proposed in its 7 application, but are radically different from anything 8 B.C. Hydro or any other intervenor has proposed. 9 Proceeding Time 9:37 a.m. T01A 10 The Commission responded ton June the 11th, 11 2008, to Mr. Christian, stating in part that the 12 Commission Panel confirms, as it did in its letter of 13 February the 28th to the BCOAPO, Exhibit B-3, BCUC 14 1.1.1, attachment 1, that all views remain open for 15 active consideration in the regulatory process. 16 On June the 10th, the Commission issued 17 Exhibit A-14, which provided procedural information to 18 all parties from which you can see that following my 19 opening statement, Mr. Fulton will call the roll of 20 appearances, after which each party has the 21 opportunity to make an opening statement. 22 So without further ado, I'll ask Mr. Fulton 23 to call the roll. 24 MR. FULTON: Thank you, Mr. Chairman. Good morning, 25 Panel. 26 British Columbia Hydro and Power Authority. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 75 1 MR. CHRISTIAN: Good morning, Mr. Chairman, Commission 2 panel. Jeff Christian for B.C. Hydro and Power 3 Authority. With me today is Jennifer Nyland, N-Y-L-A- 4 N-D, temporary articling student with our firm, and 5 also next to me on my immediate right, Joanna Sofield, 6 Chief Regulatory Officer of B.C. Hydro. 7 MR. FULTON: B.C. Old Age Pensioners' Organization et al. 8 MR. QUAIL: Good morning, Mr. Chair and panel members. 9 Jim Quail appearing for BCOAPO et al, and with me is 10 Ms. Leigha Worth, also Mr. Bill Harper, our expert 11 consultant, or one of our expert consultants, is with 12 me. And I'd also like to introduce, for panel members 13 who may not have met him yet, Mr. Eugene Kung. He 14 articled with our organization and we're keeping him 15 on, so he's now on full-time staff as a newly-called 16 lawyer, and is here to catch the spectacle, I suppose. 17 THE CHAIRPERSON: Thank you, Mr. Quail. 18 MR. FULTON: Terasen Utilities. 19 MR. GHIKAS: Mr. Chairman, Commissioners, my name is Matt 20 Ghikas. I'm acting on behalf of Terasen Gas Inc., 21 Terasen Gas (Vancouver Island) Inc. and Terasen 22 (Whistler), known as the Terasen Utilities. 23 MR. FULTON: FortisBC Inc. 24 MR. LEYLAND: Good morning. Michael Leyland and Dennis 25 Swanson, representing FortisBC. 26 THE CHAIRPERSON: Sorry, how do you spell your name? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 76 1 MR. LEYLAND: Leyland, L-E-Y-L-A-N-D. 2 THE CHAIRPERSON: Thank you. 3 MR. FULTON: City of New Westminster. 4 MS. COCHRANE: Good morning, panel. Penny Cochrane, 5 Willis Energy Services, here representing the City of 6 New Westminster, to be joined by Rod Carle, general 7 manager of the electric utility at the New West -- 8 City of New Westminster. 9 MR. FULTON: Peace River Regional District. No response. 10 Joint Industry Electricity Steering 11 Committee. 12 MR. WALLACE: R. B. Wallace, appearing on behalf of the 13 Joint Industry Electricity Steering Committee. Thank 14 you. 15 THE CHAIRPERSON: Mr. Wallace. 16 MR. FULTON: Commercial Energy Consumers of British 17 Columbia. 18 MR. WEAFER: Good morning, Mr. Chairman and members of 19 the panel. Chris Weafer, appearing for the Commercial 20 Energy Consumers of British Columbia and assisted by 21 David Craig of Consolidated Management Consultants, 22 who consults for the Commercial Energy Consumers. 23 Thank you. 24 MR. FULTON: Rental Owners and Managers Society of B.C. 25 MR. KEMP: Good morning. My name is Al Kemp, the CEO of 26 the Rental Owners and Managers Society of B.C., Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 77 1 representing B.C.'s residential landlords. 2 MR. FULTON: Corix Multi-Utility Services Inc. 3 MR. BURSEY: Good morning, Mr. Chairman, Commissioners. 4 My name is David Bursey, representing Corix Multi 5 Services Utilities Inc., and with me today is Mr. Ian 6 Wigington, who is assisting me. Thank you. 7 THE CHAIRPERSON: Mr. Bursey. 8 MR. FULTON: B.C. Sustainable Energy Association, Sierra 9 Club of Canada, B.C. chapter. 10 MR. ANDREWS: Good morning, Mr. Chairman, members of the 11 panel. William J. Andrews, representing B.C. 12 Sustainable Energy Association and the Sierra Club of 13 Canada, B.C. Chapter. 14 THE CHAIRPERSON: Mr. Andrews. 15 MR. FULTON: Energy Solutions Vancouver Island Society. 16 Proceeding Time 9:42 a.m. T2 17 MR. BERTSCH: Ludo Bertsch representing Energy Solutions 18 for Vancouver Island Society. Thank you. 19 THE CHAIRPERSON: Mr. Bertsch. 20 MR. FULTON: Is there anyone else here present this 21 morning whose name I have not called who intends to 22 appear and participate in these proceedings? 23 No response, Mr. Chairman. That concludes 24 the appearances for this morning. 25 THE CHAIRPERSON: Thank you, Mr. Fulton. There being no 26 further ado, can we start off with the opening Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 78 1 statement? 2 MR. FULTON: Yes, we can, Mr. Chairman, and I thought 3 what I would do, for the benefit of the Panel, 4 indicate who was making opening statements to the 5 Commission Panel this morning. And as I call the 6 names, that will be the order in which they make the 7 opening statements. British Columbia Hydro, BCOAPO, 8 Terasen Utilities, JIESC, Commercial Energy Consumers 9 of B.C., Rental Owners and Managers Society of B.C., 10 B.C. Sustainable Energy Association, and Energy 11 Solutions for Vancouver Island Society. And with that 12 introduction then, Mr. Chairman, I will turn the mike 13 over to Mr. Christian. 14 THE CHAIRPERSON: Thank you, Mr. Fulton. 15 OPENING STATEMENT BY MR. CHRISTIAN: 16 MR. CHRISTIAN: Thank you, Mr. Chairman. I only have the 17 briefest of opening comments to make. 18 B.C. Hydro's application for a residential 19 inclining block rate for its residential customers was 20 filed on February 26, 2008. That's Exhibit B-1 in 21 this application. The proposed residential inclining 22 block, what we'll be referring to as the RIB 23 throughout this proceeding, is a tariff structure that 24 is easy to understand; a suitable foundation for 25 further residential rate design; it satisfies the 26 eight rate design criteria accepted by this Commission Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 79 1 as the appropriate basis upon which to consider rate 2 structures in the 2007 decision; and finally, but not 3 least, provides some new material level of 4 conservation and therefore furthers the goals of the 5 2007 Energy Plan. 6 The evidence in support of those 7 propositions, of course, is in the application itself 8 and in the approximately 700 responses to information 9 requests that B.C. Hydro has filed since the inception 10 of this proceeding. 11 To answer questions with respect to all 12 those issues, we'll be putting up one panel of 13 witnesses. Beverly Van Ruyven is the executive vice- 14 president of customer care and conservation. She's 15 the senior policy witness on the panel. Ms. Bridgette 16 Zacharias, she's the director of customer care and 17 she'll be chairing the panel. Dr. Ren Orens, a 18 principal of Energy and Environmental Economics, a 19 consulting firm out of San Francisco that has been 20 retained by B.C. Hydro to assist in development of 21 this rate. And finally Mr. Ken Tiedemann, manager of 22 Power Smart Evaluation. Those witnesses would be 23 prepared to answer questions as stated in the letter 24 that I filed a few weeks ago now, I guess. The 25 Commission Panel is aware that there are some IR 26 responses that B.C. Hydro declined to respond to Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 80 1 relating to issues that it feels are more properly the 2 subject of the long-term acquisition plan filing that 3 B.C. Hydro did just last week, on June 12th I believe 4 it was. Whether or not any objections are taken to 5 the questions relating to that application in the 6 course of this proceeding remains to be seen, 7 depending on the question, of course. We're not just 8 stating it as a blanket rule we'll be jumping up to 9 talk about the LTAP one way or another. But just so 10 the Commission is aware that that is one area where we 11 have identified there have been some problems about 12 giving evidence in this proceeding. 13 I just want to also bring to the Panel's 14 attention one legal issue that I know is going to 15 arise. I'm not sure that it's going to necessarily 16 arise in the course of the oral phase of this hearing. 17 It'll certainly arise in the argument. The Panel is 18 aware that Mr. Quail on behalf of BCOAPO et al has put 19 on the record a recent decision from the Ontario Court 20 of Appeal regarding the establishment of Lifeline 21 rates in Ontario. I understand that Mr. Quail will be 22 raising that issue, that jurisdictional issue 23 effectively in argument and intends to address it in 24 argument. I would point out, though, there is no 25 proposal by any intervenor, of course, for any 26 particular Lifeline rate before the Commission at this Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 81 1 time. 2 Proceeding Time 9:47 a.m. T03 3 With that, is the end of my opening 4 comments. The only other thing I can add is that it 5 might be helpful for the Commission to know that we do 6 have some of the Commission Panel IRs prepared to 7 file, and we can do that before the witnesses are 8 seated or not, at the Commission's pleasure. So, I've 9 got a few ready to go, I'll have a few more later this 10 morning, and a couple other corrected IRs that are 11 also ready to be filed. And again, I'm in your hands 12 as to when the appropriate timing for that would be. 13 THE CHAIRPERSON: Why don't we wait until the end of 14 proceedings today, and you can put them all in? 15 MR. CHRISTIAN: That sounds excellent. 16 THE CHAIRPERSON: And we can read them overnight. 17 MR. CHRISTIAN: Good. Thank you. 18 THE CHAIRPERSON: Thank you, Mr. Christian. 19 OPENING BY MR. QUAIL: 20 MR. QUAIL: My friend, Mr. Christian, has pointed out the 21 RIB application was filed back in February. Since 22 that time a significant event took place, which in my 23 submission dramatically changes the picture, and that 24 was the introduction and enactment of Bill 15, 25 amending The Utilities Commission Act, which, in my 26 submission, changes the entire picture and the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 82 1 foundation for this application. Bill 15 being an 2 exceptionally prescriptive piece of legislative 3 intervention. 4 Backing up a little bit, it will be our 5 position, we believe the evidence will confirm that 6 the conservation potential of the residential 7 inclining block rate is highly uncertain. I submit 8 that if we're going to do this for the sake of 9 conservation, we have to ask ourselves, "Is this in 10 fact one of our better options to achieve 11 conservation?" Given that, for example, the RIB Step 12 2 exceeds its avoided cost in relation to DSM programs 13 in a newly-filed LTAP, that there may well be much 14 preferable ways, more economically efficient ways, of 15 achieving that objective, to the extent that the 16 purpose of this is conservation. 17 I submit that the RIB is an optional 18 strategy, one might say, in terms of the Commission's 19 discretion. And I say that, counterposed to the 20 implications of Section 64.04 of the newly-amended 21 Utilities Commission Act, which says that smart meters 22 are mandatory by 2012 with respect to the residential 23 sector. The only real variable is the possibility 24 that there could be a Ministerial order that in some 25 way tweaks the scope of universality of that 26 installation. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 83 1 I submit that the evidence will show that a 2 smart meter without a time of use tariff for it to 3 operate on is not a smart but is a dumb meter, and is 4 a waste of many hundreds of millions of dollars of 5 sunk cost. The legislature -- and I say this in 6 anticipation of what I've seen in terms of the direct 7 testimony of Ms. Van Ruyven. The legislature has 8 characterized the smart meters as a strategy for 9 energy security and the environment. That's the name 10 of the part of the new -- the newly-enacted part of 11 the Act that it falls under, Part 3.1 of the amended 12 Utilities Commission Act. 13 We submit that it makes far more sense for 14 the Commission and for B.C. Hydro to do the mandatory 15 business first, then see if there is a useful way to 16 add other rate strategies on top of it. That is, the 17 smart meters are coming, that's been enacted by the 18 legislature. They require a time of use tariff to 19 make any sense whatsoever. B.C. Hydro, again, in 20 their opening direct testimony, has raised the 21 possibility that they might install close to a billion 22 dollars of meters, but make it optional to residents 23 whether or not in fact they want to use the tariff 24 that makes the things work. Regardless of that fact, 25 if anything underscores the uncertainty of what the 26 time of use tariff is going to look like -- but it's Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 84 1 coming, in my submission. It is coming. And the 2 question of applying another strategy which has an 3 entirely different logic to it, if that's something 4 that makes sense, we say, wait and do the mandatory 5 business first, which is the foundation that's been 6 enacted by the legislature, then see if further 7 improvements can usefully be superimposed. But do not 8 first create the RIB so that becomes the foundation, 9 so to speak, for the time of use business. It's an 10 entirely backward way of going about the task. It is 11 irrational, and invites erroneous construction of 12 tariff structures. 13 Proceeding Time 9:51 a.m. T04 14 And just to expand on this perhaps somewhat 15 further, if we compare the Commission's decision, the 16 2007 rate design on the issue of flattening commercial 17 rates, where the Commission effectively said to B.C. 18 Hydro to go and consult more with customers, see if a 19 rate can be developed that meets its objectives in a 20 balanced way, we say that residential customers 21 deserve at least the same consideration. But in any 22 event, let's do the mandatory business first. Let's 23 deal with absorbing implications of Bill 15, and then 24 see whether there's icing that can be applied to the 25 cake of time of use, and not put the cake at the 26 bottom of the pan and try to drop a cake on top of it, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 85 1 to perhaps use that metaphor. 2 We say that, if -- notwithstanding what I 3 submit is the clear logic of proceeding in that 4 fashion, but if the Commission decides to go ahead at 5 this juncture with the implementation of a residential 6 inclining block, we say that it needs to be structured 7 to avoid inflicting hardship on low-income and fixed- 8 income consumers, especially those with electric space 9 and water heating in their homes. The evidence 10 appears to suggest that most low-income customers will 11 be marginally better off for the implementation of the 12 RIB than if we continued under the flat rate. That 13 is, marginally better off, but a minority -- and it's 14 a fairly large number of people, some 36,000 estimated 15 households, will be facing increases driven by the 16 RIB, and some of them very significant. 17 What we are really concerned about in this 18 process is, to pick an example, the elderly couple 19 living on a fixed pension, living in an older house 20 that's electrically heated, and particularly in a 21 region that's exposed to significant winter weather. 22 We are very worried for what this is going to do to 23 them. We're worried about what the prospect of the 24 increasing cost of household energy is going to do to 25 them anyway, and implementing the RIB significantly 26 compounds their problem. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 86 1 If their problem is fixed, to be frank, a 2 lot of our difficulties, at least in terms of the 3 alarm bells that we would ring, those bells will stop 4 ringing, whether or not in fact the RIB is in fact in 5 principle, the ideal way to go at this point. We say 6 there's a really urgent problem that needs to be 7 addressed in any event. 8 There's a number of -- and I should also 9 say that the evidence that's been filed shows very 10 significant rate impact for a proportion of customers 11 with electric heat, and B.C. Hydro has gone to the 12 extent of attempting to re-calibrate the whole concept 13 of rate shock. To sort of move the goalposts so that 14 the way they design this structure somehow doesn't run 15 afoul of those goalposts. And we'll show, in the 16 course of the hearing, that the actual policy of the 17 Commission is nowhere close to what seems to be 18 projected by B.C. Hydro. This was also, I note, 19 addressed in the Panel's Information Requests and 20 those were illuminating as well. 21 So in terms of -- again, the scenario, we 22 say "Don't do this at all." If the determination is 23 to proceed, there's a number of options that could be 24 explored to at least ameliorate the impact, and 25 perhaps produce a more efficient rate. One would be 26 to go to a three-step rate structure, with the lower Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 87 1 step 1, step 2 threshold, and a very high-priced step 2 3, aimed at gluttonous consumption. So we say if you 3 are -- if you're going to have a RIB, this would be a 4 preferable general way to design it. 5 Another option would be to simply lower the 6 step threshold which, even within the stepped -- the 7 two-step rate structure, which we believe the record 8 will show actually produces more conservation 9 potential than the 1600 kilowatt-hour per billing 10 period proposal. The evidence indicates there's a 11 higher conservation potential by dropping the step. 12 And it also reduces the amount of adverse impact on 13 people who rely on electricity to heat their homes, 14 and particularly again those in older single-family 15 housing, perhaps with a bunch of dependents, poorly- 16 insulated, who are facing a real thrashing under 17 what's been proposed by B.C. Hydro. 18 Proceeding Time 9:56 a.m. T5 19 Another option worthy of exploration, this 20 I note is another that has been touched on in the IRs, 21 is a seasonally differentiated rate structure. For 22 example, a higher Step 1, 2 threshold in the winter, 23 which would help to avoid as much Step 2 exposure for 24 people with electric heat. And again we're 25 particularly concerned about people with limited and 26 fixed incomes. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 88 1 I also submit that, again going back to our 2 initial point, do the smart meters first. The smart 3 meters are in place, it appears to us there's a 4 possibility for some real fine-tuning of some of these 5 systems. For example, the seasonal rate. A lot of 6 these things become possible if we have the technology 7 that can properly measure consumption in each 8 household. So this would be another reason to wait 9 until after 2012 and we've adjusted Bill 15. 10 Another option to look at would be a 11 differentiated heating rate, and again this is 12 something that seems to call for waiting for the smart 13 meters to come, to see whether they could be put to 14 good use for that kind of logic. Smart meters could 15 help facilitate identifying heating load and present 16 the possibility of a much better tuned and efficient 17 rate and more efficient price signal. And I'd also 18 point out there is a precedent for a heating load rate 19 in British Columbia's tariff, and that's the E-Plus 20 tariff. 21 Finally, we say that another option to be 22 explored is looking at customer-specific base load 23 system similar to the transmission level customers. 24 And again, smart meters may well make this much more 25 feasible. 26 There may be a number of anomalies that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 89 1 this gives rise to in the residential context, a lot 2 of extraneous factors that happen in people's lives 3 that could have a significant impact on their 4 consumption patterns. So it has its anomalies, but in 5 the balance might help to avoid even more anomalies 6 that flow from the one size fits all breaking point 7 between steps, as B.C. Hydro has proposed in their 8 application. 9 Now, setting aside a lot of the 10 justification that's been presented for the RIB, and 11 the justification advanced by B.C. Hydro, we say that 12 if we are going to have a stepped rate, it has 13 potential to be used as a vehicle to provide lower 14 rates for poorer households. That is, part of the -- 15 it could be part of the package of measures to protect 16 low income households from rising electricity costs 17 that are underway, even regardless of RIB. 18 So we're saying, aside from this 19 application, electricity is going to cost more and 20 more and more in this province. The era of relatively 21 cheap electricity in B.C. is coming very rapidly to an 22 end. The prospect is for several years of rate 23 increases well in excess of inflation. So whatever 24 the value RIB has as a tool for conservation, if it is 25 implemented it could be fashioned to do double duty to 26 provide a basis for rate relief for poorer households. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 90 1 And we say the way to do that would be to create a 2 tariff where all households at or below the Statistics 3 Canada low income cut-offs would be billed exclusively 4 at Step 1 for all of their consumption. And that 5 would mean that for those qualifying households, and 6 this is people basically below a very low threshold, 7 that it is a very low income poverty line, would have 8 their electricity rates basically geared to inflation 9 over the years. 10 We also say that there needs to be 11 significant targeted low income DSM, with no or 12 minimal customer contribution. For example, the 13 utility comes and repairs the envelope for the elderly 14 couple that I described earlier that we're concerned 15 about. It could be very cost-effective and efficient 16 measures taken that avoid this significant barrier to 17 low income people of participant expense or cost, up- 18 front costs of participating in Power Smart measures. 19 Proceeding Time 10:00 a.m. T06 20 And we say there could be other measures 21 taken dealing with bill management. One is an 22 amendment to the tariff to prohibit disconnections in 23 winter, and a review of the security deposit policy 24 and other bill management issues for low-income 25 consumers. 26 So aside from the RIB, we say that an Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 91 1 affordability crunch is coming very rapidly, and a 2 number of measures should be implemented to provide at 3 least some relief for those who are least able to deal 4 with it. 5 Now, aside from everything else that I've 6 said, we say that there is no way that this can be 7 implemented on the target date of October 1st, 2008. 8 This is a radical shift in the residential electricity 9 tariff from the flat rate that's been in place for 10 many years now, and B.C. Hydro's own evidence confirms 11 that public understanding and acceptance is vital for 12 it to work. However, B.C. Hydro, we think the 13 evidence will show, has no plan, no budget and no 14 timeline for public education and information, and we 15 will be comparing this in the course of the proceeding 16 with other tariff changes that have been implemented 17 by and under the auspices of the Commission, where 18 there has been a methodical process of public 19 education, with significant lead time. 20 Even if we consider the most optimistic 21 possible timeline for the approval of the application, 22 at best we have days or weeks between that time and 23 October 1st. And the notion that the customer base 24 would be educated, informed and ready to understand 25 what's happening, let alone respond intelligently to 26 the signals that are supposedly embedded in the rate, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 92 1 in our submission, is simply not a possibility, and 2 they are just off-target by a factor of at least a 3 year, in terms of their timeframe for bringing this 4 about. 5 So those are our submissions. We expect to 6 be taking some time cross-examining the B.C. Hydro 7 panel. A number of issues of significant concern to 8 our clients, obviously, this is home turf for our 9 clients like it is for nobody else in this proceeding, 10 and we look forward to a very interesting process. 11 THE CHAIRPERSON: Thank you, Mr. Quail. 12 OPENING STATEMENT BY MR. GHIKAS: 13 MR. GHIKAS: Mr. Chairman, Commissioners, the Terasen 14 Utilities support the residential inclining block rate 15 for B.C. Hydro and accordingly will not be filing -- 16 or calling a panel in this proceeding. 17 B.C. Hydro's residential customers 18 currently do not experience the full cost impact of 19 new electricity associated with increasing electricity 20 consumption. Price signals are masked under the 21 current flat rate structure by the blending of new 22 resources with a large proportion of low-cost heritage 23 supply. Among the learnings from B.C. Hydro's last 24 rate design application was that the residential class 25 of customers is the single largest contributor to the 26 winter peak on B.C. Hydro's system. That winter peak Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 93 1 is driving system expansion on B.C. Hydro's system. 2 The Commission commented in that decision, at page 3 191, that the implications of growth and demand in the 4 residential class, including for space and water heat, 5 were -- "were among the reasons that led the 6 Commission panel to encourage and guide B.C. Hydro to 7 implement an inclining block residential rate so that 8 customers received the correct pricing signal in this 9 regard." 10 I'll turn now to the preferred features of 11 the residential inclining block rate structure. The 12 Terasen Utilities believe, Mr. Chairman, that as a 13 general proposition the trailing block should reflect 14 the long-run marginal cost of new supply. It appears 15 to me that that was the logic that was inherent in the 16 strawman RIB rate design that was presented by the 17 Commission panel in the 2007 rate design decision. 18 Proceeding Time 10:04 a.m. T7 19 And B.C. Hydro has similarly acknowledged, 20 for instance, in BCOAPO IR 1.6.1 and BCUC 1.19.3, that 21 an efficient price signal should reflect the full 22 long-run original costs of new supply, since it will 23 encourage residential customers to make efficient 24 investments in energy efficiency. 25 However, the Terasen Utilities also 26 recognize that designing specific features of the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 94 1 residential inclining block rate structure requires 2 some trade-offs. With the legislative vacating of the 3 rate re-balancing orders in Bill 15, having a trailing 4 block that reflects the full long-run marginal cost of 5 new supply, and setting first block residually, would 6 mean that some customers will experience even lower 7 electricity bills, and the Terasen Utilities 8 acknowledge B.C. Hydro's concern that this sends the 9 wrong price signal to those customers. 10 On the whole, Terasen Utilities believe 11 that the decisions B.C. Hydro has made in designing 12 the residential inclining block rate are supported by 13 a reasoned analysis and are appropriate at the present 14 time based on the data available. 15 Potential refinements to B.C. Hydro's 16 residential rate structure can and should be 17 considered at a later date as we learn more about the 18 customer price response and the conservation benefits 19 yielded by the proposed rate structure. For instance, 20 the Terasen Utilities believe, as I said earlier, that 21 residential electricity rates should ultimately move 22 towards reflecting the full long-run marginal cost of 23 electricity. The Terasen Utilities will also be 24 interested in whether additional rate design measures, 25 either modifications to the RIB or otherwise, can be 26 designed to encourage conservation by customers who do Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 95 1 not typically see the Tier 2 rate because their 2 consumption falls below the Tier 2 threshold. 3 The companies continue to be interested in 4 the role that space heating plays in contributing to a 5 winter system peak load, and how that should drive 6 residential rate design. And the Terasen Utilities 7 continue to be interested in the role that connection 8 policies play in avoiding new residential space 9 heating load, as well as measures aimed at fuel 10 switching. Companies may pursue those matters in 11 future applications. 12 B.C. Hydro has also indicated that the 13 inclining block rate structure is an appropriate 14 initial measure to precede time of use rates, and 15 other more complex rate structures that would be 16 facilitated by the implementation of smart meters by 17 -- or by 2012. With the 2012 date being mandated by 18 Bill 15 for installation of the smart meters, it will 19 be at least 2012 and probably longer, at least four 20 years, until the time of use rates are actually 21 brought into effect. Time of use rates, in Terasen 22 Utilities' view, are not the proverbial silver bullet, 23 and backing away from residential inclining block rate 24 structures in anticipation of time of use rates being 25 implemented over four years from now, would represent 26 a foregone opportunity for energy efficiency and Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 96 1 conservation. 2 In sum, the Terasen Utilities support the 3 residential inclining block rate structure as an 4 immediate and appropriate response to the need for 5 conservation and energy efficiency and sending 6 appropriate price signals to B.C. Hydro's residential 7 customers and the marginal cost of electricity. 8 Thank you, Mr. Chairman. 9 THE CHAIRPERSON: Thank you, Mr. Ghikas. 10 Proceeding Time 10:08 a.m. T08 11 OPENING STATEMENT BY MR. WALLACE: 12 MR. WALLACE: Mr. Chairman, Commissioners. The Joint 13 Industry Electricity Steering Committee is 14 participating in this proceeding not out of concern 15 with the particulars of residential rates, but out of 16 concern for matters of principle. The RIB rate design 17 that has been presented clearly has some strengths, 18 but, in our submission, will be shown to have serious 19 weaknesses. In our submission, your challenge will be 20 to preserve the strengths while reducing the problems. 21 The Joint Industry Electricity Steering 22 Committee, I'll refer to it as JIESC; believes that 23 the proposed new rates must be fair and effective. By 24 "fair", we mean that customers generally will pay the 25 costs associated with the electrical service they 26 receive. By "effective", we mean that the rate design Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 97 1 has a reasonable possibility of generally achieving 2 the goals that have justified it. The JIESC is 3 concerned that if this Commission accepts unfair or 4 ineffective rates for one class, that those rates or 5 the arguments for those rates will be given 6 inappropriate credibility and will work their way into 7 the rates of others. 8 In our submission, based on the evidence 9 filed in this case, the residential inclining block 10 rate appears not to be particularly fair or effective. 11 The filed evidence shows that RIB is unfair, in our 12 submission. Those customers paying a simple one -- 13 Step 1 rate or principally a Step 1 rate, because 14 there is a gradient, will only get rate increases up 15 to the rate of inflation. All increases in B.C. 16 Hydro's cost of service in excess of inflation will 17 rest solely on the minority Step 2 rate customers, 18 something that, in our submission, given the absence 19 of a cost of service study supporting the rate, is not 20 fair, just or reasonable. 21 The costs that will be visited on the Step 22 2 customers are not minor and they are not short-term. 23 In its current revenue requirement application, B.C. 24 Hydro is requesting increases equal to roughly three 25 times the rate of inflation. JIESC expects, based on 26 its projections of B.C. Hydro costs, that revenue Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 98 1 requirements will continue to be -- will rise at a 2 rate two to three times the rate of inflation for the 3 next ten years. The rate design you set has to be 4 flexible enough in order to account for that, and to 5 reasonably implement it. 6 The JIESC submits that a fair allocation of 7 B.C. Hydro's costs in excess of inflation to Step 2 8 must be based on the cost of serving the customers 9 being asked to bear the costs. Unfortunately, the RIB 10 design is based solely on B.C. Hydro's desire to -- or 11 I should say principally, upon B.C. Hydro's desire to 12 design a rate that will create an inclining block rate 13 to encourage conservation, a worthwhile goal, but a 14 goal that we suggest can and must still be achieved 15 fairly. 16 The JIESC is concerned that not only does 17 RIB appear unfair, it also appears on its face to not 18 be as effective as it could be. B.C. Hydro indicates, 19 in the information responses, that most if not all 20 customers can reduce use if given proper price 21 signals. Yet in spite of that, B.C. Hydro is 22 presenting a rate where 50 percent of the customers on 23 that rate will never get a conservation signal, or for 24 that matter any indication of the fact that the cost 25 of electricity is rising much faster than the 26 inflation rate. At most they will get a signal that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 99 1 electricity costs are going to go up at or near the 2 rate of inflation, and that is to say, rates are 3 generally going to stay constant in real terms. 4 That's for 50 percent of the customers. 5 The next 25 percent of the customers will 6 get a Step 2 rate, and I quote Hydro, "sometimes". 7 Their signal will vary from weak and occasional, for 8 those taking electricity at the edge of the Step 2 9 rate, and taking it rarely, to a high signal and 10 frequent signal for those hitting Step 2 regularly. 11 Proceeding Time 10:12 a.m. T9 12 The final 25 percent will get a very strong 13 signal all of the time and very large increases, as 14 shown in the evidence. In our submission, hitting a 15 minority of customers hard, while giving the majority 16 little or no signal, does not appear to be an 17 effective way to proceed. In our submission, it 18 appears there is a better solution, segmenting the 19 residential class into its two main elements: 20 customers that use electricity for space and water 21 heating, and those that do not. And again there are 22 information responses addressed to that. 23 Customers that use electricity for space 24 and water heating use considerably more electricity 25 per year and particularly in winter. In our 26 submission, that is not properly taken account of in Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 100 1 B.C. Hydro's RIB proposal. These customers will face 2 increases that far exceed the Commission's 10 percent 3 rate shock proposal in the two years in question, and 4 that's when you combine it with the revenue 5 requirements and for many years to come, while other 6 customers don't -- will not even be paying the 7 increasing cost of providing service to them. 8 It appears to JIESC that heating customers 9 should each -- or that heating and non-heating 10 customers should each have their own two-step rates 11 based on their own fully allocated cost of service and 12 through their own RIB rate. If this is done, we 13 suggest that Hydro will, one, recover its cost of 14 services from all customers based on the cost to serve 15 those customers, which is fairer; and second, will 16 reach many more customers with its second-tier rate, 17 and in our submission that would be more effective. 18 B.C. Hydro in its responses says that it 19 does not have the information to segment the 20 residential class in the way proposed, and that 21 getting the information to do so would be expensive. 22 In our submission that expense is likely worth 23 incurring. Clearly rates are becoming more 24 sophisticated, and if we are going to move away from a 25 situation where all residentials pay the same rate per 26 kilowatt hour, then we need to get more sophisticated Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 101 1 in our rate class segmentation, ensuring that people 2 pay both a rate that properly reflects the cost of 3 serving them, and achieves conservation goals. 4 The RIB that has been proposed has good 5 aspects to it, but in our submission, by choosing not 6 to segment the residential class B.C. Hydro chose 7 expediency and simplicity over fairness and 8 effectiveness. In our submission that is wrong, and 9 we hope that in listening to the evidence in this 10 matter, you will recognize the problems and that you 11 will require B.C. Hydro to amend its proposal in a 12 manner that will be both more fair and more effective. 13 Thank you. 14 THE CHAIRPERSON: Thank you, Mr. Wallace. 15 OPENING STATEMENT BY MR. WEAFER: 16 MR. WEAFER: Mr. Chairman and members of the Commission, 17 the CEC has been actively involved with B.C. Hydro and 18 its rate working group, electricity conservation and 19 efficiency consultation committee of B.C. Hydro and 20 has been involved with the process of rate design with 21 B.C. Hydro for several years. And so we come to this 22 proceeding, while this is a residential inclining 23 block rate application, the CEC believes that while 24 this may be Mr. Quail's home turf, everybody is 25 playing on the same field. And how the Commission 26 deals with a rate design proceeding for residential Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 102 1 customers potentially affects all classes of 2 customers. That's our primary reason for being here. 3 With respect to support or lack thereof for 4 the application by B.C. Hydro, the CEC has not formed 5 a definitive conclusion on the point. We are 6 sensitive to concerns raised by Mr. Quail on behalf of 7 his clients. We also support the comments of Mr. 8 Wallace with respect to the fairness in terms of how 9 B.C. Hydro has come up with establishing the Step 1 10 and Step 2 rates and the impacts on customers. 11 Proceeding Time 10:16 a.m. T10 12 So, with respect to the proceeding, I'm 13 going to highlight to you the nine areas that we're 14 going to be involved in, in terms of our argument 15 and/or cross-examination, in terms of where we believe 16 B.C. Hydro may be able to strengthen what they've put 17 on the record to date. And at the end of the 18 proceeding we'll determine our level of support or 19 lack thereof. 20 One, the customer communication regarding 21 the RIB, its impact and potential mitigations. We 22 think B.C. Hydro can improve what it has proposed so 23 far over the course of this proceeding. 24 Two, the ability to leverage non-rate 25 components from the rate design. We are concerned by 26 the carving off of demand-side management initiatives Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 103 1 from the RIB application, while recognizing they -- 2 the desire to separate them and keep this proceeding 3 more straightforward, there's a significant investment 4 involved in implementing the RIB and where incremental 5 steps can be taken to improve the effectiveness of the 6 rate filing they should be taken. 7 With respect to level of both impacts and 8 potential fairness issues, these are highlighted in 9 CEC IR 1.7.1. Mr. Wallace commented on them. They're 10 clearly going to be a significant part of this 11 proceeding in terms of the fairness of the bill 12 impacts resulting from the application. 13 Four, the conservation effects, the value 14 of the savings and elasticity estimates. These are 15 summarized in BCUC IR 2.73.1, in terms of where the 16 opportunities are for customers to achieve the 17 conservation effects. We don't believe those have 18 been fully fleshed out by B.C. Hydro and we intend to 19 flesh those out through cross-examination. 20 Five, specific impacts of electric heating 21 on the B.C. Hydro peak load requirements. 22 Six, alternative rate design options and 23 the appropriateness of the RIB choices. The concern 24 the CEC has here is while there is comments with 25 respect to the quality of the B.C. Hydro application, 26 the CEC did not see its role to be to come up with an Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 104 1 alternative approach. The challenge we have in 2 assessing the evidence before the Commission is, there 3 really isn't another alternative on the table. There 4 really -- except for the ESVI evidence. So we're 5 really struggling a bit with assisting the Commission 6 in what is a good alternative, in light of the fact 7 there isn't another alternative for us to cross- 8 examine on, but for the ESVI. It's a challenge for 9 B.C. Hydro. It's a challenge for anybody who's 10 advocating an alternative as well. 11 Seven, the specific DSM saving responses 12 and therefore the potential mitigation. 13 Eight, the potential for revenue collection 14 over and under impacts on other customer classes. And 15 here, where the CEC has an interest, it is unclear to 16 us at this point as to what the impacts will be on 17 other customer groups if B.C. Hydro's forecasts of 18 conservation are inaccurate. And we will be pursuing 19 that with the B.C. Hydro panel in terms of how their 20 application, if inaccurate in terms of impact, will 21 impact other customer groups. As the Commission is 22 well aware, the commercial class already has a 23 significant concern with respect to cross-subsidy 24 between residential and commercial customers, and the 25 last thing we need is a RIB application result which 26 may, over time, accentuate that cross-subsidy. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 105 1 So those will be the major issues pursued 2 by the CEC in the proceeding, Mr. Chairman. Thank you 3 very much. 4 THE CHAIRPERSON: Thank you, Mr. Weafer. 5 Proceeding Time 10:20 a.m. T11 6 OPENING STATEMENT BY MR. KEMP: 7 MR. KEMP: Mr. Chairman and Commission members, as CEO of 8 the Rental Owners and Managers Society of B.C., I will 9 speak to you today on the effect that approval of the 10 RIB application would have on a critical B.C. 11 industry, the residential rental industry that 12 provides homes to approximately one-third of British 13 Columbians. 14 Our industry has no army of analysts to 15 review thousands of pages of data. We have no legion 16 of lawyers to examine and cross-examine at this 17 hearing. So perhaps my submission will be viewed as 18 naïve. However, my concern is genuine and my 19 objective is sincere, to inform the Commission and 20 B.C. Hydro of what may well be an unintended impact of 21 the proposed conservation rates on the owners of 22 multi-unit rental buildings. 23 We agree with the goals of the RIP rate. 24 However, the effort to achieve these goals must be 25 within the ability and the control of those who pay 26 the bills. The residential rental industry is unique Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 106 1 in two fundamental aspects. The person paying the 2 electricity bill is not the consumer, and increased 3 costs cannot be recovered through increased prices. 4 Let me explain. The owner of a multi-unit 5 building is B.C. Hydro's customer, but the tenants in 6 that building are B.C. Hydro's consumers. Therefore, 7 in this context the building owner is essentially a 8 re-seller of electricity. Any other re-sellers could 9 simply pass through their cost increases to their 10 customers by increasing their sale prices. Landlords 11 cannot. Their sole source of revenue is the rents 12 they receive from their tenants. And through rent 13 controls, the B.C. government prevents landlords from 14 increasing their revenue to recover cost increases. 15 Rental building owners are prohibited from increasing 16 rents by more than 3.7 percent annually. 17 Simply stated, B.C. Hydro's proposed RIB 18 rate will place rental building owners in an untenable 19 position. The stated intent of RIB rates is to create 20 an incentive for customers to reduce electrical 21 consumption. In my home I can act to do so. In my 22 apartment building I cannot. Nor can I realistically 23 influence my tenants, the actual consumers of the 24 electricity for which I pay, to reduce their 25 consumption. The cost of electricity is invisible to 26 them because it is included in their rent. Neither Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 107 1 can I use price increases, the foundation of the 2 incentive of RIB rate, for them to change their 3 consumption behaviour. 4 So accepting that I cannot directly reduce 5 their consumption, can I absorb the higher RIB rate in 6 my 3.7 percent rent increase? That additional 3.7 7 percent must pay for the cost increases of property 8 taxes, insurance, waste disposal, recycling, and 9 labour, each of which has increased by at least five 10 percent in the past year. I must already attempt to 11 absorb a 6.56 percent increase in B.C. Hydro rates. I 12 must already attempt to absorb an 11 percent increase 13 in Terasen Gas rates recently approved by the 14 Commission, on top of the 5 percent increase effective 15 January 1st this year. And I must plan for an 16 exorbitant increase of 8.21 percent in B.C. Hydro's 17 rates effective next April. 18 We can support the Commission approving 19 B.C. Hydro's application, where the RIB rate will 20 apply to those consumers who can act to reduce 21 consumption. We cannot support its application to 22 consumers who cannot take that action. We must 23 protect the ability of rental building owners to cost- 24 effectively provide homes to their tenants, and 25 therefore we are respectfully seeking exemption of the 26 RIB rate from Class 1121, multi-unit buildings on Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 108 1 single meters. And I will provide the Commission with 2 a written submission in this regard tomorrow. 3 Thank you. 4 THE CHAIRPERSON: Thank you, Mr. Kemp. 5 Proceeding Time 10:24 a.m. T12 6 THE CHAIRPERSON: Mr. Andrews? 7 OPENING STATEMENT BY MR. ANDREWS: 8 MR. ANDREWS: BCSEA and SCCBC are organizations with 9 members in British Columbia who are ratepayers of B.C. 10 Hydro in the residential ratepayer category. They 11 participate in these proceedings on this point in 12 particular as ratepayers, and also because of their 13 interest in the public interest in taking action 14 regarding climate change, reducing air pollution and 15 all of the environmental and social costs of excessive 16 use of energy, electricity in particular. 17 Of course, BCSEA and SCCBC strongly support 18 conservation and efficiency measures where they are 19 cost-effective, and I want to note that although I 20 will often use the terms "conservation" and 21 "efficiency measures", unless I say otherwise I'm 22 implying cost-efficient conservation and efficiency 23 measures, because BCSEA and SCCBC have no interest in 24 seeing good conservation and efficiency measures being 25 displaced by bad ones, ones that are not cost- 26 effective. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 109 1 In the 2007 rate design application, BCSEA 2 and SCCBC, and PVEA at the time, took the position 3 that Hydro's approach was correct at that time in the 4 sense of deferring a conservation-oriented rate design 5 structure, in that proceeding. And as a result, they 6 didn't participate actively when the Panel said that 7 they would be highly unlikely to receive PACA funding 8 on that -- on the basis of supporting that position. 9 The outcome of that was the Panel's decision, of 10 course, and the RIB application which is before us 11 now, and so in that sense the timing issue arises 12 again. And so for BCSEA, the first major issue is 13 whether the time is right now. And in that respect, 14 BCSEA/SCCBC are very aware that delay in the 15 implementation of a RIB program has serious 16 opportunity costs in terms of lost conservation 17 opportunities. 18 In terms of public awareness, the time is 19 now. Public awareness is high. The legislature has 20 recently given its imprimatur to conservation measures 21 in general and to rate measures designed to promote 22 conservation specifically. Action on climate change 23 is in the news in all sorts of different ways. Now is 24 the time when customers are going to be receptive to 25 the message that there are things that they can do 26 that will reduce their exposure to Step 2, in a RIB Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 110 1 design. 2 BCSEA and SCCBC are aware of the argument 3 that the time of use rates that may come with the 4 smart meters should be done first, before a RIB rate. 5 BCSEA and SCCBC don't have a stated position on that. 6 They await the evidence. It's not clear, however, at 7 this point in time what exactly the harm would be to 8 moving ahead with a RIB application and then later 9 superimposing a TDOU rate on top of it. 10 Proceeding Time 10:28 a.m. T13 11 So the timing issue is, in some sense, the 12 major -- the largest issue. The next one is the 13 cluster of design issues. That is, issues that 14 involve -- and as a starting point, the premise -- I 15 don't think anybody has disagreed that the RIB should 16 be revenue-neutral to the residential customer class. 17 But there are four factors that go into the balancing, 18 which make this something other than a sort of win- 19 win/lose-lose type negotiation. There's a balancing 20 involved. 21 One factor -- one is that a higher Step 2 22 intrinsically boosts the conservation impact of the 23 rate. But factor two is that a lower Step 1, if it 24 goes too low, can send a negative price signal. But 25 of course, the lower Step 1 is, the higher potential 26 there is to make Step 2 higher. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 111 1 A third factor is that rate shock, as a 2 term used -- as almost defined by some unacceptable 3 level of rate increase, is accepted by BCSEA and SCCBC 4 as something that is a realistic factor. That is, 5 there are potential conservation** rate designs that 6 would not be feasible, because of their impact on 7 rates, described as rate shock. Exactly how that gets 8 defined is for further discussion. 9 And then the fourth of the factors that 10 need to be balanced is that, other things being equal, 11 as many customers as possible should be seeing the 12 Step 2 rate. Or it may also be said, would see the 13 Step 2 rate if they didn't take conservation and 14 efficiency measures, given that overall consumption is 15 increasing. 16 There's a third category of issues that 17 BCSEA/SCCBC see in this hearing, and they're what I'll 18 refer to as "differential impact issues". That is, a 19 differential impact of a RIB rate as it affects low- 20 income people versus higher-income people, regional 21 residents, commercial -- I mean, excuse me, 22 residential customers, that is, the effect is arguably 23 different on one region than another. And differences 24 in terms of heating type. 25 The fundamental principle that we start 26 with is the postage-stamp principle, and the concept Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 112 1 that electricity consumption is the basis for 2 determining equity. That is, customers who consume 3 equity -- consume electricity in a like manner within 4 the customer class pay a like rate. That is the basis 5 against which any other proposals for measuring 6 fairness need to be compared. And I think though 7 we've -- SCCBC and BCSEA have heard a number of 8 criticisms of a lack of fairness, what remains to be 9 on the table, either in cross or in other evidence, is 10 a proposal that would replace equity based on 11 electricity consumption with something that can be 12 examined in its impact across the board, and not just 13 how it would benefit the allegedly-disadvantaged 14 component. 15 Proceeding Time 10:32 a.m. T14 16 And for example, the idea of segmenting by 17 heating type is attractive on some level, but it also 18 has to contend with the fact that people who don't 19 heat water and space electrically use some other type 20 of fuel. In most cases that may be natural gas, the 21 price of which is rising at least as fast as the price 22 of electricity. So that would obviously have to be 23 taken into account in examining that as an 24 alternative. 25 So in conclusion, BCSEA and SCCBC are not 26 expressing a position on the application as such at Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 113 1 this time. They will await the evidence and the 2 arguments. They are very attuned to the importance of 3 acting quickly, now that the RIB proposal has come 4 forward and that in their view, subject to whatever 5 contrary evidence emerges, it appears that the time is 6 right but they will await evidence and argument. 7 Thank you. 8 THE CHAIRPERSON: Thank you, Mr. Andrews. 9 OPENING STATEMENT BY MR. BERTSCH: 10 MR. BERTSCH: Good morning, Commission Panel, B.C. Hydro. 11 My name is Ludo Bertsch representing ESVI, the Energy 12 Solutions for Vancouver Island. ESVI is a not-for- 13 profit society whose purpose is to pursue and promote 14 solutions for meeting Vancouver Island's energy needs. 15 We do this by supporting and promoting energy 16 conservation efforts on Vancouver Island. ESVI 17 encourages energy conferences and communicates with 18 various partners. 19 One of our key interests is to concentrate 20 on maximizing demand-side management efficiency, but 21 demonstrating that it not only helps the environment 22 and conserve our limited resources, but also benefits 23 the economy. By concentrating on solutions for 24 Vancouver Island, we hope to not only find that it 25 deals with our unique challenges of the Island but 26 also is applicable to other areas of the province. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 114 1 We've been intervenors in our conservation research 2 initiative, the residential time of use, the 2007-2008 3 RRA, and the IEP/LTAP, and I'm also a member of the 4 B.C. Hydro's rates working group. 5 ESVI believes in that the least power is 6 the power we don't use. In order to achieve the 7 levels of savings that we need in the province, we not 8 only need to do programs aggressively but we must do 9 them wisely and provide education along the way. We 10 believe we have a huge task in front of us and it'll 11 take leadership and courage. We believe that rates as 12 a mechanism for conservation is a good thing if it's 13 done correctly. 14 In these proceedings we have developed a 15 three-prong approach for involvement in the RIB 16 application, much like a three-legged chair. Our 17 first leg is to analyze and understand how the RIB 18 rates suggested by B.C. Hydro could affect Vancouver 19 Island. After all, the Island will be the hardest hit 20 from an impact bill point of view. We must -- we 21 believe that it's important not only to look at the 22 test years in the application but also look into the 23 future. After all, we're building a foundation for 24 hopefully a long-term conservation rate. We've 25 entered evidence to help us in this analysis. We also 26 believe that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 115 1 Proceeding Time 10:36 a.m. T15 2 We also believe that Vancouver Island has 3 unique challenges, because of its limited on-island 4 generation, which of course, necessitates expensive 5 submarine cables. But also, it's unique in the point 6 of view of the high use of electric heat for space and 7 water. 8 Our second leg of the chair -- so, the 9 first one is to analyze, from a Vancouver Island point 10 of view, what the issues are and the ramifications of 11 the RIB rate. The second leg of the chair is, we want 12 to take a look at how the RIB rate could be improved. 13 We've heard a little bit about this before from other 14 intervenors. We're very interested in looking at what 15 the variations of the thresholds, and the response to 16 that will be. We're also very interested in looking 17 at the seasonal rates or perhaps even electric- 18 specific rates. 19 There's some improvements that can be made 20 through demand-side management, or Power Smart 21 programs, or linking them to those programs. We 22 realize some of these improvements might fit directly 23 into this application now. In other cases we 24 understand that there's information or studies that 25 are missing, and may need further work. In those 26 cases, we'll be looking for assurances that concrete Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 116 1 commitments will be made to obtain that information, 2 and perform the studies in the future. This is so 3 that we will not be in the same position that we are 4 now. That is, lacking the information that we so 5 desperately need. 6 Our third leg will be our final submission. 7 We will hopefully get to the point where we can see a 8 possible RIB application, perhaps with changes or 9 modifications, that will not only deal with the issues 10 of Vancouver Island, but also for the benefit of B.C. 11 Hydro and the rest of the province. We believe that a 12 successful RIB rate can help with energy savings, but 13 we also need to give the public support -- we also 14 need to get the public support that rates are an 15 appropriate mechanism for conservation. And I think 16 if we do, in the next few days, our homework and with 17 an open view, that we can perhaps get a successful RIB 18 application that will do both of those things. 19 Thank you very much. 20 THE CHAIRPERSON: Thank you, Mr. Bertsch. Mr. Christian, 21 how long do you need to get your panel up? Ten or 22 fifteen minute break? 23 MR. CHRISTIAN: Oh, thank you. Probably ten will be fine 24 to get them up, but -- 25 THE CHAIRPERSON: We'll break for fifteen minutes, then. 26 (PROCEEDINGS ADJOURNED AT 10:40 A.M.) Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 117 1 (PROCEEDINGS RESUMED AT 10:52 A.M.) T16 2 THE CHAIRPERSON: Please be seated. 3 Before you begin, Mr. Christian, if it's 4 okay with everyone I'd like to sit till 4:30 today. 5 MR. CHRISTIAN: That's fine with B.C. Hydro. 6 THE CHAIRPERSON: Thank you. If there are no other 7 matters, why don't you proceed. 8 MR. CHRISTIAN: Thank you. As I mentioned in my opening 9 comments, B.C. Hydro has one witness panel. I've 10 introduced them already to you. They're all here now. 11 I'm going to take the opportunity to have them adopt 12 their direct testimony. And then Ms. Van Ruyven will 13 be delivering an opening statement, one that was 14 circulated on Friday morning. 15 So if each of the witnesses could please 16 have before you Exhibit B-12. 17 THE CHAIRPERSON: Do you want them affirmed first? 18 MR. CHRISTIAN: Oh. Thank you. 19 KENNETH H. TIEDEMANN, Affirmed: 20 REN ORANS, Affirmed: 21 BRIDGETTE ZACHARIAS, Affirmed: 22 BEVERLY VAN RUYVEN, Affirmed: 23 MR. CHRISTIAN: Thank you, Mr. Chairman. 24 THE CHAIRPERSON: Please proceed. 25 EXAMINATION IN CHIEF BY MR. CHRISTIAN: 26 MR. CHRISTIAN: Q: If I could have the witnesses turn Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 118 1 to Exhibit B-12, that's the letter filed over my name 2 on Friday. After that is the direct testimony of each 3 of you. I'll start with you, Ms. Van Ruyven. Do you 4 have your direct testimony before you? 5 MS. VAN RUYVEN: A: I do. 6 MR. CHRISTIAN: Q: Do you have any changes you'd like 7 to make to it? 8 MS. VAN RUYVEN: A: No, I don't. 9 MR. CHRISTIAN: Q: Do you adopt it for the purposes of 10 this proceeding? 11 MS. VAN RUYVEN: A: I do. 12 MR. CHRISTIAN: Q: Ms. Zacharias? 13 MS. ZACHARIAS: A: Yes. 14 MR. CHRISTIAN: Q: Do you have your direct testimony 15 before you? 16 MS. ZACHARIAS: A: Yes. 17 MR. CHRISTIAN: Q: Are there any changes you'd like to 18 make to it? 19 MS. ZACHARIAS: A: No. 20 MR. CHRISTIAN: Q: And do you adopt it for the purpose 21 of this proceeding? 22 MS. ZACHARIAS: A: Yes, I do. 23 MR. CHRISTIAN: Q: Dr. Orans, do you have your direct 24 testimony before you? 25 MR. ORANS: A: Yes, I do. 26 MR. CHRISTIAN: Q: Do you have any changes you'd like Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 119 1 to make to it? 2 MR. ORANS: A: No, I do not. 3 MR. CHRISTIAN: Q: And do you adopt it for the purpose 4 of this proceeding? 5 MR. ORANS: A: Yes, I do. 6 MR. CHRISTIAN: Q: And finally Mr. Tiedemann, do you 7 have your direct testimony before you? 8 MR. TIEDEMANN: A: Yes, I do. 9 MR. CHRISTIAN: Q: And are there any changes you'd like 10 to make to it? 11 MR. TIEDEMANN: A: No, there are not. 12 MR. CHRISTIAN: Q: And do you adopt it for the purpose 13 of this proceeding? 14 MR. TIEDEMANN: A: Yes, I do. 15 MR. CHRISTIAN: Q: Thank you. And Ms. Van Ruyven, you 16 have your copy of your opening statement before you? 17 MS. VAN RUYVEN: A: I do. 18 MR. CHRISTIAN: Q: And if you could read it into the 19 record, that would be -- much obliged. 20 MS. VAN RUYVEN: A: Yes, thank you. 21 MR. CHRISTIAN: Q: Thank you. 22 MS. VAN RUYVEN: A: Good morning, Commission Panel. My 23 name is Beverly Van Ruyven and I am the executive 24 vice-president of customer care and conservation for 25 B.C. Hydro. I'm pleased to be here today to testify 26 in support of B.C. Hydro's residential inclining Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 120 1 block, the RIB, rate application. 2 The fundamental driver of this application 3 is the 2007 Energy Plan, which reiterates and 4 underscores the provincial energy policy of meeting 5 future energy needs through a focus on conservation. 6 In particular, Policy Action Number 1 establishes for 7 B.C. Hydro an ambitious conservation target of 8 acquiring 50 percent of incremental electricity needs 9 by 2020 through conservation, and Policy Action Number 10 4 expressly endorses the development of new 11 conservation rate structures. 12 B.C. Hydro's 2007 rate application -- rate 13 design application, was filed in early 2007, within 14 weeks of the 2007 Energy Plan. That application was 15 the subject of criticism by the Commission, by this 16 Commission Panel, for among other things its failure 17 to address through rate design the conservation 18 objectives of the 2007 Energy Plan. It is with this 19 background that I point to the RIB application and can 20 say that B.C. Hydro has made enormous strides in the 21 last year regarding the use of rate design, to help 22 achieve the conservative objectives of the 2007 Energy 23 Plan. From the time B.C. Hydro first publicly spoke 24 about the prospect of the RIB application in the oral 25 phase of the hearing into the 2007 RDA, to the filing 26 date of this application, was a mere seven months. If Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 121 1 implemented in the fall as B.C. Hydro hopes, the time 2 to develop and implement the rate will have been just 3 just over a year. Of course, B.C. Hydro had the 4 benefit of a Commission order requiring a RIB 5 application to be filed before the end of March 2008 6 to assist in keeping it on course. 7 Proceeding Time 11:02 T17 8 The RIB application was not just developed 9 in a very timely manner. B.C. Hydro could have taken 10 the easier, more expedient route and filed an 11 application based on the RIB structure that was found 12 to be in the public interest by the Commission in the 13 2007 RDA decision. Instead it stepped back and 14 invested a significant amount of analysis and 15 consideration into the development of a RIB rate 16 structure that it believes will assist in achieving 17 the conservation objective of the 2007 Energy Plan, 18 and that will also stand its own as a rate structure 19 preferable to the existing flat rate structure. The 20 result is an application that we, at B.C. Hydro, are 21 rightly proud of. 22 Nevertheless, one of the issues that has 23 arisen over the course of the hearing into the RIB 24 application is whether its timing is right. Mr. 25 Quail, on behalf of the B.C. Old Age Pensioner's 26 Association, and other organizations representing low Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 122 1 and fixed income customers has already stated that the 2 RIB rate structure should be postponed to some future 3 time in light of the impending implementation of smart 4 meters. His clients and other participants in this 5 process have also asked questions regarding the 6 interplay between this RIB application and issues that 7 are properly the subject of the recently filed LTAP 8 application, such as the trade-offs between 9 conservation rates, such as the RIB, and non-rate DSM, 10 and the relationship between conservation rates and 11 greenhouse gas emissions. 12 Regarding the potential for delay for smart 13 meter related reasons, B.C. Hydro does not believe it 14 has any merit. Implementation of smart meters is 15 lawfully required by the end of 2012 and B.C. Hydro 16 believes it will need all that time to get the meters 17 in place. Any mandatory TOU rate based on smart 18 meters is therefore likely to take that long, and at 19 this stage, B.C. Hydro has not even determined one way 20 or another whether time of use rates should be 21 mandatory. Further, it's not clear at this time 22 whether time of use rates can deliver the energy 23 conservation that B.C. Hydro believes can be delivered 24 from inclining block rate structures. Thus, B.C. 25 Hydro sees no inconsistency between moving forward on 26 the RIB now and the development of time of use rate in Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 123 1 the next few years. Indeed, B.C. Hydro sees the RIB 2 as a necessary first step along the path of 3 residential rate restructuring that will facilitate, 4 rather than hinder, the coming development of 5 residential time of use rates. 6 The LTAP related issues present a different 7 type of problem because one can appreciate how 8 participants to this application may want to know how 9 inclining block rates compare to non-rate DSM and 10 whether rates that might encourage greenhouse gas 11 emissions run counter to government energy policy. 12 These are good, legitimate questions. The fundamental 13 problem, however, is not whether the question should 14 be asked, but whether answers to those questions are 15 required in this proceeding before the Commission can 16 be persuaded that the RIB ought to be approved. 17 In B.C. Hydro's view, the answer is no. In 18 light of the 50 percent conservation by 2020 target in 19 the 2007 Energy Plan, time is of the essence. Waiting 20 for the resolution of these questions will cost at 21 least a year of incremental weight induced 22 conservation, delay the beginning of an important 23 dialogue with B.C. Hydro's residential customers and 24 is based on the flawed premise that there are 25 determinative correct answers to these questions. 26 Conversely if this RIB proceeds now and the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 124 1 Commission forms the unlikely conclusion, after the 2 LTAP proceeding, that conservations rates are 3 unwarranted because of greenhouse gas related issues, 4 or because they are not as economic as non-rate DSM, 5 the RIB rate could be terminated. 6 Related to the issue of timing is the issue 7 of scope. Of course many IRs have been asked about 8 variations to the proposed RIB and such IRs raise 9 legitimate issues. However, some IRs have been asked 10 that suggest that B.C. Hydro could, and perhaps 11 should, have embarked on a more fundamental 12 reconsideration of what the residential rate structure 13 might look like. One example is a series of IRs 14 relating to rate structures based on an express 15 allocation of Heritage resources. I can assure the 16 Commission Panel that this application simply was not 17 going to get file if it was necessary to consider the 18 universe of all possible alternatives to an inclining 19 block rate structure. 20 Proceeding Time 11:02 a.m. T18 21 The prospect of restructuring the 22 residential tariff on the basis of an express 23 allocation of the benefits of the heritage resources 24 alone would have resulted in many more development 25 months, as it necessarily would have required B.C. 26 Hydro's engagement with the provincial government Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 125 1 throughout. 2 The RIB application is what it is, a 3 quality analysis of a rate structure that B.C. Hydro 4 began evaluating only last summer, was directed to 5 develop by the Commission for a March, 2008 filing, 6 and was developed in the context of a simple RIB 7 proposal suggested by the Commission as a first step. 8 In these circumstances, B.C. Hydro makes no apologies 9 for the fact that the RIB application doesn't address 10 all the other possible ways in which the residential 11 tariff could have been restructured. 12 Finally, I conclude these opening remarks 13 by observing that fundamentally there appear to be two 14 rate design issues at play. The first is whether B.C. 15 Hydro has appropriately balanced the conservation 16 objective with the resulting bill impacts. The second 17 is whether the proposed RIB rate unfairly 18 discriminates between segments of B.C. Hydro's 19 residential customer base. Of the two, the former is 20 a matter almost solely of judgment to be exercised 21 ultimately by the Commission. The latter issue is 22 also one of judgment, but has a significant factual 23 underpinning. 24 With its end use information, B.C. Hydro 25 believes that there is no basis to conclude that any 26 customer segment is unfairly treated. It follows that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 126 1 the RIB can be expected to assist in achieving the 2 conservation goals of the 2007 Energy Plan in a manner 3 that conforms to accepted rate design principles. 4 Thank you for your consideration of my 5 opening comments. 6 MR. CHRISTIAN: The panel is available for cross- 7 examination. 8 THE CHAIRPERSON: Thank you, Mr. Christian. 9 MR. FULTON: While Mr. Quail approaches the cross- 10 examiner's microphone, Mr. Chairman, I wanted to note 11 that I had circulated an order of cross-examination 12 for the B.C. Hydro panel, and you and the Panel 13 members should have a copy of that order before you. 14 I've also circulated that order within the room, and 15 there is one addition to the order which changes the 16 order of cross-examiners. After Corix Multi-Utility 17 Services Inc. in position five, if you could add the 18 B.C. Sustainable Energy Association in the sixth 19 position, and then place Energy Solutions for 20 Vancouver Island Society in position seven. 21 THE CHAIRPERSON: Thank you, Mr. Fulton. 22 CROSS-EXAMINATION BY MR. QUAIL: 23 MR. QUAIL: Q: Good morning, panel. I'd like to refer 24 you to the application, Exhibit B-1, Appendix F. 25 While you're looking at that, I'll say to the Panel, 26 it's my preference where I can to produce a handy Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 127 1 digested collection of reference materials, but in 2 this case there's simply too many, and I'd simply be 3 photocopying a large part of the record, so -- if you 4 could turn to Appendix F, please. And specifically, 5 page 1 of 3. 6 And there, footnote 1 says that 7 "The rates working group is a subcommittee 8 of the electricity and conservation 9 efficiency advisory committee, EC&E. The 10 RWG members in the organizations or 11 constituents that they represent are 12 included in the RWG terms of reference at 13 attachment 1 of this appendix." 14 And then if you turn to page 2 of 3, the second series 15 of bullets, it says that: 16 "RWG feedback at the December, 2007 and 17 January, 2008 meetings included the 18 following point. Although B.C. Hydro needs 19 to be sensitive to low-income customers, the 20 role of providing financial assistance lies 21 with government rather than with the 22 utility." 23 So, do you have that? 24 Now, you really don't need to turn to this 25 but, for the record, attachment 1, appendix 1 of 26 Appendix F, page 10 and 11, lists me as a member of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 128 1 the rates working group. Are you familiar with that? 2 Proceeding Time 11:06 a.m. T19 3 You can check if you want. I'm listed as 4 one of the members. 5 So is B.C. Hydro saying that I am a member 6 of a subcommittee of B.C. Hydro's Electricity 7 Conservation and Efficiency Advisory Committee? 8 MS. ZACHARIAS: A: My understanding is that when the 9 rates working group was set up, participation was 10 invited from a number of constituents of the Energy 11 Conservation and Efficiency Group. Our understanding 12 as well is -- I'm not sure if BCOAPO has been 13 participating, which is why, on page 1 of 3, in 14 addition to speaking to the rates working group, we 15 specifically also outreached to BCOAPO in individual 16 meetings. 17 MR. QUAIL: Q: Yes, we had a couple of meetings, very 18 interesting meetings over the last few months, between 19 November and March in particular, that I'm sure we all 20 remember. But I put it to you in fact I am not and my 21 clients are not represented on the rates working 22 group. Do you accept that or -- 23 MS. ZACHARIAS: A: I accept that you were not at those 24 rates working group meetings, yes. 25 MR. QUAIL: Q: Okay. Has anyone at B.C. Hydro ever 26 asked me if I think that the role rests solely with Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 129 1 government to look after B.C. Hydro's low income 2 customers? 3 MS. ZACHARIAS: A: I can't recall if we've ever asked 4 you that question directly. 5 MR. QUAIL: Q: If I suggest to you that you never have, 6 would you contradict that suggestion? 7 MS. ZACHARIAS: A: If your memory is better than I'm, 8 that's fine with me. 9 MR. QUAIL: Q: If the rates working group had opined 10 that the utility does have a role providing financial 11 assistance to low income customers through rates, what 12 would B.C. Hydro have done with that information? 13 MS. ZACHARIAS: A: We would have shared with the rates 14 working group that our position is that, under the 15 current legislation, that that is not our role. 16 MR. QUAIL: Q: Okay, but what you're saying is that it 17 is -- that's based, I take it, on B.C. Hydro's 18 understanding that as a matter of interpretation of 19 the Utilities Commission Act, that B.C. Hydro doesn't 20 have the legal capacity to make such provision, or 21 what do you mean? 22 MS. ZACHARIAS: A: I mean that under our current 23 understanding of the Utilities Commission Act, it is 24 neither the mandate of B.C. Hydro or the BCUC to have 25 discounted rates for low income customers. 26 MR. QUAIL: Q: I'll leave that to some fascinating Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 130 1 debate at the conclusion of the proceedings. 2 I'll now refer you to Exhibit B-3, which is 3 the first round of IR responses, BCOAPO 1.1.1. And 4 for the benefit of the Panel, if you've got the -- 5 particularly the two volumes B-3 and B-7, that is, the 6 IR responses, the main body of those, and the 7 application, you'll have most -- you have pretty well 8 everything that I'll be referring to other, than some 9 extraneous materials I'll be circulating, so -- 10 THE CHAIRPERSON: Will you be moving forward so that I 11 won't -- we won't be sort of hopping between volumes? 12 MR. QUAIL: I regret there will be a fair amount of 13 hopping between volumes. That's why I suggest if you 14 keep in particular B-3 and B-7 handy, the IR responses 15 handy, that'll at least minimize the amount of 16 twisting around and grabbing stuff. That'll cover off 17 about 90 percent of my references. 18 MR. QUAIL: Q: We're talking about 1.1.1. And the 19 first sentence says: 20 "B.C. Hydro has not addressed the issue of a 21 customer personal hardship or injury -- a 22 customer's personal hardship or injury in 23 developing its proposed RIB rate design for 24 the following reasons:…" 25 And the second bullet, 26 "Neither B.C. Hydro nor the BCUC have a Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 131 1 mandate to assist low-income British 2 Columbians and those in financial hardship 3 through rates." 4 Proceeding Time 11:10 a.m. T20 5 So that seems to summarize the point you've just made 6 now. 7 I put it to you that maintaining access to 8 essential household energy was not a rate design 9 factor that you took into account in this application. 10 MS. ZACHARIAS: A: That is correct. 11 MR. QUAIL: Q: And your focus has been on mitigation 12 strategies other than the rate design itself. 13 MS. ZACHARIAS: A: While designing the rate -- while in 14 designing the rate, the avoidance of hardship was not 15 a particular rate design criteria that we took into 16 account. As we went along looking at different rate 17 options and looking at what the bill impacts were of 18 those different rate options and how they would affect 19 different customers, we did look specifically at how 20 the rate and the one we ultimately ended up proposing 21 would impact customers on lower income. 22 When we were -- when we reached the 23 conclusion that approximately 85 percent of low-income 24 customers would be better off on the RIB rate than 25 having the flat -- having an average rate increase 26 applied on the flat rate structure, we then looked at Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 132 1 those customers that would not be better off. And 2 it's for those customers that we then looked at what 3 additional activities B.C. Hydro could put in place 4 through customer support and DSM programs in order to 5 help mitigate those bill impacts. 6 So while Mr. Quail is correct in saying 7 that our focus has been on the mitigation of bill 8 impacts through Power Smart programs, you have to 9 consider that in the larger context of how many 10 customers will be more impacted under the RIB than 11 not. 12 MR. QUAIL: Q: So your answer to my question is "Yes." 13 MS. ZACHARIAS: A: Yes, in that context. 14 MR. QUAIL: Q: I have a lot of questions for you. So, 15 anyway, just as it -- let you know that. There will 16 be -- and anticipating where we're going to go is not 17 going to shorten the process. 18 MS. ZACHARIAS: A: Right. My point was, though, that 19 you had said that that was the only mitigation thing 20 that B.C. Hydro was doing, and I just wanted to be 21 clear that the RIB structure, in the way it's 22 structured, in effect provides mitigation for low- 23 income customers. 24 MR. QUAIL: Q: No, my question -- I don't want to 25 belabour this, but you know, in terms of 26 responsiveness to the questions you're asked, my Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 133 1 question was, what I put to you was, the focus has 2 been on mitigation strategies other than the rate 3 design itself. And I think your answer to that is 4 "Yes." 5 MS. ZACHARIAS: A: What I said is, subsequent to the 6 rate design our focus has been on bill mitigation 7 strategies. 8 MR. QUAIL: Q: I put it to you that the need to 9 mitigate the impact of electricity prices on poor 10 households is not something that arises only because 11 of the RIB application. 12 MS. ZACHARIAS: A: That's correct. As I think many 13 people stated in their opening addresses, we all 14 anticipate that the cost of electricity is going to be 15 rising in the future. 16 MR. QUAIL: Q: Now refer you, skipping ahead to BCUC -- 17 I think it's ahead in the binder. It's in the same 18 book, Exhibit B-3, BCUC 1.18.3. That's 1.18.3. And 19 refer you to page 2 of 2. Do you have it there? 20 MS. ZACHARIAS: A: Yes. 21 MR. QUAIL: Q: And the second paragraph tells us about 22 the low-income advisory group. 23 "In addition, B.C. Hydro has established a 24 low-income advisory group to both provide 25 input into the further development and 26 operationalization …" Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 134 1 Maybe because it's Monday morning, that's a lot of 2 syllables for me to wrap my mouth around -- 3 "… B.C. Hydro's low-income strategy, and to 4 provide outreach and distribution channels 5 to improve low-income customer access to and 6 participation in conservation programs and 7 education. The low-income advisory group 8 includes participation from a cross-section 9 of non-profit organizations supporting 10 households of low earnings, senior citizens, 11 First Nations, multi-cultural groups, 12 renters and subsidized housing." 13 Now, I've got a collection of a few 14 additional materials that I'll be putting to you, that 15 Mr. Bemister has kindly reproduced. 16 That's C10-6, I'm advised. 17 Proceeding Time 11:15 T21 18 HEARING OFFICER: Marked C10-6. 19 (B.C. HYDRO RIB APPLICATION, "BCOAPO - ADDITIONAL 20 MATERIALS FOR CROSS-EXAMINATION", MARKED EXHIBIT C10- 21 6) 22 MR. CHRISTIAN: So just for the record, we haven't had 23 any opportunity to look at these materials prior to 24 just receiving it at this moment. 25 MR. QUAIL: A lot of them will be familiar materials. 26 MR. QUAIL: Q: And the document I'm making reference to Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 135 1 in that -- there's a series of document stapled 2 together and they are numbered sequentially, so the 3 first one, for example, starts with 1-1 and 1-2 and so 4 on, first number being the document number and second 5 being the sequential page. 6 And this is a draft terms of reference of 7 the low income advisory group, is that correct? 8 MS. ZACHARIAS: A: That's correct. 9 MR. QUAIL: Q: And this is a familiar document to you? 10 It's produced by B.C. Hydro, is it not? 11 MS. ZACHARIAS: A: Yes. 12 MR. QUAIL: Q: Okay. Now, I'd like to refer you -- I'm 13 not going to read these through, you can just look 14 through them, but with reference to heading 2, which 15 states the objectives of the group, and 3 which is the 16 mandate, I would ask you, is there any role for this 17 group with respect to the design of residential rates? 18 MS. ZACHARIAS: A: No, there is not. 19 MR. QUAIL: Q: When did this group have its first 20 meeting? Approximately is good enough. What time 21 frame are we looking at? How long has it been in 22 operation? 23 MS. ZACHARIAS: A: I believe the first meeting would 24 have been some place in February/March, and that was a 25 preliminary meeting with the representatives of the 26 organizations that we had invited to participate to Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 136 1 get together and talk about the formation of the group 2 and what the terms of reference would be, what the 3 scope would be, their level of interest in 4 participating and so forth. How we could essentially 5 structure it to be effective for them as well as for 6 B.C. Hydro. 7 And then the first official meeting of the 8 group would have been in May, and the next meeting is, 9 I believe, later this week. 10 MR. QUAIL: Q: So it's met twice and the third meeting 11 is pending, is that correct? 12 MS. ZACHARIAS: A: That's correct. 13 MR. QUAIL: Q: Now, B.C. Hydro says that it is 14 concerned about the circumstances of its low income 15 customers. You've got a group composed of 16 representatives of various segments of that, but you 17 choose not to have any discussion with them about your 18 rate structure. Can you explain why? 19 MS. ZACHARIAS: A: We have had discussions with them. 20 In the first meeting we outlined how the RIB rate was 21 structured, what the impacts were going to be on low 22 income people as far as we could determine from the 23 information that we had. But that first meeting -- so 24 the intent of working with the group is to help inform 25 us on how we can best implement the rate in order to 26 mitigate the impacts on those folks. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 137 1 MR. QUAIL: Q: Well, I asked if there was discussion; 2 what you've described is you told them. 3 MS. ZACHARIAS: A: Well, by that time the rate was 4 filed and so we were in the process of describing how 5 the rate worked, and as I said, what the impacts were, 6 and also we obviously had a conversation about some of 7 the other alternatives that we had looked at, and why 8 we ended up selecting the RIB as the one to propose. 9 MR. QUAIL: Q: And what feedback did you receive when 10 you told them? 11 MS. ZACHARIAS: A: The general feedback that we had was 12 that they wanted some time to understand what the 13 impacts were and to understand, in particular, our 14 assessment of the fact that 85 percent of low income 15 customers are better off on the RIB structure. Also 16 to understand the impacts on those customers that are 17 not, and have some time to work with us on the 18 implementation strategies that we had been discussing. 19 In particular, the distribution of the energy savings 20 kits which are the first things. One of our major 21 initiatives to help low income customers make changes 22 in their households in order to conserve electricity 23 and mitigate the impacts of the RIB rate, and rate 24 increases as general. 25 Proceeding Time 11:19 a.m. T22 26 MR. QUAIL: Q: So since you've broached the subject, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 138 1 could -- just give a very brief description of what 2 the energy savings kit is. That's a program available 3 to people under the low income to qualify for this 4 kit, is that correct? 5 MS. ZACHARIAS: A: That is correct. 6 MR. QUAIL: Q: And it consists of a number of household 7 items which can be used to help conserve energy, is 8 that -- like this is, is that correct? 9 MS. ZACHARIAS: A: That is correct. 10 MR. QUAIL: Q: And could you list what items were 11 included in the kit? 12 MS. ZACHARIAS: A: Sure. Just give me a second to -- 13 so as a general statement, what the kit includes are 14 relatively easy to install measures that will improve 15 the efficiency of the home, and they include things 16 like compact fluorescent light bulbs; faucet aerators 17 that help to conserve hot water, which is important 18 when it's electrically heated; low flow shower heads; 19 water heater pipe wraps; caulking; draft proofing; 20 window film which helps improve the efficiency of 21 single pane windows; LED night light; fridge and 22 freezer thermometers, et cetera. So if all of those 23 things are installed, there's a potential for savings 24 of approximately 700 kilowatt hours a year, and on 25 average we think customers can certainly save at least 26 300 kilowatt hours a year by installing the items in Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 139 1 those kits. 2 MR. QUAIL: Q: And I think you've told us that when you 3 describe the rate structure changes that were 4 happening, essentially the response you got is they 5 needed some time to wrap their head around it. Is 6 that a fair synopsis? 7 MS. ZACHARIAS: A: I would say that's fair. They were 8 also generally, you know, supportive of the fact that 9 we were getting together as a group and we were asking 10 for their input and, frankly, their involvement in 11 helping us to reach low income customers to both 12 education them on the impacts of the RIB, and also be 13 distribution channels for the various programs that we 14 have and are going to be developing, both the energy 15 saving kits and also education. 16 So subsequent to those meetings, we've had 17 discussions with a number of them around their ideas 18 of how we can leverage the relationships that they 19 have and the workings that they already do in various 20 sectors of the low income population, to ensure that 21 whatever programs we design will have -- we will have 22 maximized the access of low income customers. 23 MR. QUAIL: Q: I'm going to make a reference. What I'm 24 going to do is simply note it for the record and then 25 read the passage to save everybody flipping through 26 the materials. The reference is Exhibit B-3, which is Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 140 1 the first round of IR responses. BCUC IR 1.18.3 and 2 the third paragraph of page 1 reads as follows. You 3 can turn to it if you like but it's simply to frame 4 something that's following. 5 "In addition, B.C. Hydro has worked with 6 Indeco Consulting to develop a low income 7 customer strategy to help ensure that it 8 understands the needs of low income 9 customers and is providing the appropriate 10 service to this customer segment. Indeco 11 Consulting is a well-known Canadian 12 consulting firm that has expertise in low 13 income issues and has worked with public and 14 private companies and government to develop 15 strategies and programs for low income 16 people." 17 So you received two reports in total from Indico 18 Consulting, is that correct? 19 MS. ZACHARIAS: A: That is correct. 20 MR. QUAIL: Q: And this was a collaborative project 21 between Indeco and B.C. Hydro? 22 MS. ZACHARIAS: A: I wouldn't say it was collaborative. 23 I would say that we asked them for their input in 24 terms of giving us an understanding of what other 25 utilities had done with respect to their low income 26 programs and their low income outreach, and we asked Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 141 1 them to provide us with the range of options that 2 other utilities were undertaking. 3 MR. QUAIL: Q: So I had assumed that it was 4 collaborative just from the opening line of the 5 extract that I read, which says, "B.C. Hydro has 6 worked with Indeco Consulting". Is that not an 7 accurate statement, in your IR response? 8 Proceeding Time 11:24 a.m. T23 9 MS. ZACHARIAS: A: Yes. We've worked with them, and I 10 think what I've just describes indicates a definition 11 of "worked with them". We engaged them, we hired 12 them, to give us their perspectives and an overview of 13 what others had done. 14 MR. QUAIL: Q: Now, the two reports are located, and 15 I'm going to be making extensive reference to these 16 two attachments, it's Exhibit B-7, which is the second 17 round of IR responses. BCOAPO 2.25.1. And there's 18 attachment 1 and attachment 2. You might want to have 19 those handy, because I'll be referring to them to some 20 extent. 21 And these are the two reports from Indeco 22 that we just talked about, is that correct? I know 23 it's a tricky question, but perhaps, Ms. Van Ruyven, 24 you could -- these are the two reports from Indeco 25 that we just talked about, is that correct? 26 MS. ZACHARIAS: A: Yes, that's correct. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 142 1 MR. QUAIL: Q: And attachment 1 is dated February, 2 2008, while attachment 2 is dated July, 2007. Is that 3 right? 4 MS. ZACHARIAS: A: Yes, approximately. 5 MR. QUAIL: Q: It's a little confusing that they're 6 numbered in opposite from their temporal sequence. It 7 appears to me that the February, 2008 report, that's 8 attachment 1, appears to be a later version or draft 9 of the July, 2007 report. Is that correct? 10 MS. ZACHARIAS: A: Not exactly. In the first report, 11 we asked them to give us a sense of what our strategy 12 -- once again, as I said, given what others -- what 13 approach they had taken to low-income customers. What 14 the overall approach that they would recommend to B.C. 15 Hydro, and so it's the overall strategic framework, if 16 you will, where they recommended putting emphasis on 17 proactive measures, primarily aimed at education and 18 conservation and efficiency, as a more sustainable way 19 of addressing low-income customer issues and 20 relatively, if you put most of your emphasis there, 21 the need to put emphasis in a reactive way when things 22 got -- when low-income people essentially got into 23 financial hardship would be relatively less, and that 24 that would be a more sustainable approach to take. 25 With respect to the report that was the 26 date on which was written in February, they gave more Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 143 1 specific program examples of what other utilities were 2 doing in each of those five categories of education, 3 energy efficiency, customer support, assistance and 4 relief. So they were more at the -- as I said, 5 looking at a more specific program level and examples 6 of those. 7 MR. QUAIL: Q: Now, the second report, attachment 1, is 8 about double the size of the first one, and appears to 9 contain a lot of elaborations and expansions and 10 basically covered -- much of the material in the 11 earlier report is also contained in the later report. 12 Is that a correct observation? 13 MS. ZACHARIAS: A: So the overall premise that I just 14 stated, where you have the five kind of areas that you 15 focus in, if that's what you mean by saying that 16 there's that similarity, yes. 17 MR. QUAIL: Q: Okay. Now, I'd like to refer you to 18 attachment 2, which is the July, 2007 report. And one 19 of the things that the reports both strive to do is to 20 provide a profile of B.C. Hydro's low-income 21 customers. Is that right? 22 Proceeding Time 11:28 T24 23 MS. ZACHARIAS: A: Do you want to direct me to a page? 24 MR. QUAIL: Q: Just -- well, I'd say, one of the things 25 that's general. One of the -- part of the territory 26 these reports cover is describing who are your low Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 144 1 income customers. This is discussion that describes 2 them and describes different metrics, for example, of 3 poverty. 4 We'll be going into them in more detail, I 5 just say as a general -- I didn't think this was a 6 very contentious questions. The reports talk about 7 your low income customers, is that right? 8 MS. ZACHARIAS: A: So to clarify, the reports were 9 giving us, as I said, an indication of how other 10 utilities approach the issue of low income customers. 11 So in just taking a quick flip of the things around 12 background, as an example, I think you can read that 13 from the perspective of Indeco was giving their 14 perspective of how other utilities have approached 15 defining low income, what the overall electricity 16 context is and so forth. 17 As you can see you can see a comparison of 18 electricity prices in British Columbia to others that 19 shows -- you know, in Boston. 20 MR. QUAIL: Q: We'll be going through this, so you 21 don't need to -- I'll be taking you through a number 22 of areas of content. So I would discourage you from 23 providing the detailed rundown of what's in the 24 reports, because we'll actually be doing a fair amount 25 of that in the course of this dialogue, okay? 26 I refer you to page 11 of 28, as it's Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 145 1 numbered, of the July report, which is attachment 2. 2 And see the heading there, "Definitions of Low 3 Income". And the first paragraph says: 4 "Despite this strong social safety net…" 5 That's describing the wondrous social safety net in 6 British Columbia, 7 "…there are households across B.C. that are 8 considered to be low income households. 9 While there is no accepted definition of low 10 income or the poverty line in Canada, there 11 are a number of metrics that are used to 12 define a low income household. These 13 include:… 14 First bullet: 15 "pretax, post transfer low income cutoff." 16 which is LICO, low income cut off. So that's the 17 Stats Canada, metric, is it not? 18 MS. ZACHARIAS: A: That's my understanding, yes. 19 MR. QUAIL: Q: "The market based measure; the core 20 needs income threshold and the shelter cost 21 to income ratio." 22 Next paragraph: 23 "The pretax post transfer LICO is the most 24 commonly accepted measurement of poverty 25 lines in Canada." 26 So that's the advice to you from Indeco. Does B.C. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 146 1 Hydro take any exception to that information from 2 Indeco? 3 MS. ZACHARIAS: A: That it's the most commonly 4 accepted? 5 MR. QUAIL: Q: Yes. 6 MS. ZACHARIAS: A: No, that's our understanding. 7 MR. QUAIL: Q: "Virtually all of the statistics 8 used by other national measures of poverty 9 in Canada, like LICO, come from Statistic 10 Canada's annual survey of incomes. 11 Statistics Canada itself does not claim to 12 measure poverty, rather it defines a set of 13 income cut-offs below which people may be 14 said to live in straitened circumstances. 15 The difference between 'straitened 16 circumstances' and 'poverty' is mute, 17 however, and most social policy analysts, 18 politicians, and editorial writers, treat 19 the cutoffs as poverty lines." 20 Now, the LICO consists of a grid that's 21 based on three variables. One is the size of the 22 family unit, the second is the pretax family income 23 and the third is the size of the community where the 24 household resides; do you agree with that? 25 MS. ZACHARIAS: A: That's my understanding, yes. 26 MR. QUAIL: Q: I'll now refer to attachment one, that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 147 1 is the February 2008 report, page 1047. And this, to 2 me appeared an example of elaboration in the later 3 report from the first. There is the table, Table 1, 4 shows low income cut-offs as of 2006 showing that 5 familiar grid, and I would note that for Vancouver, 6 the low income -- and in cities of half a million or 7 more, cut off ranges from $21-odd thousand for a 8 single person up to 56 thousand odd for a family unit 9 of seven or more, do you see that? 10 MS. ZACHARIAS: A: Yes. 11 MR. QUAIL: Q: So that basically -- somebody who either 12 conforms with those incomes or is below it, would be 13 said to be at or below the LICO cut offs, is that 14 right? For Vancouver. 15 MS. ZACHARIAS: A: That's my understanding, yes. 16 MR. QUAIL: Q: Okay, and that is, according to the most 17 commonly used index of poverty in Canada, that group 18 would be generally described as poor. 19 MS. ZACHARIAS: A: Yes. 20 MR. QUAIL: Q: Okay, now I'd like to flip back to where 21 we were before, with attachment number 2, and the -- 22 carrying on at page 11 of 28 as it's numbered at the 23 bottom, describes the market-based measure. And maybe 24 rather than reading it, I'll give everybody an 25 opportunity to read that paragraph which just goes to 26 the beginning of the next page. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 148 1 Proceeding Time 11:33 a.m. T25 2 Somebody has a cell phone, which I'd 3 appreciate if they would turn off. 4 Have we got that? Just a couple of points. 5 So this is another metric that's sometimes used in 6 alternative to LICO, and it makes no effort to 7 distinguish on the basis of the size of the family 8 unit. Is that right? 9 MS. ZACHARIAS: A: From this description, I see no 10 information to suggest how many people there seem to 11 be in this average family, no. 12 MR. QUAIL: Q: And it says that the market basket 13 threshold in Vancouver is $27,791. You see that 14 number? 15 MS. ZACHARIAS: A: Yes. 16 MR. QUAIL: Q: That approximately squares under the 17 LICO for 2006 with a family unit of two, in the city 18 of Vancouver. Is that right? You can go back and 19 check if you want, but twenty-six thousand-odd is the 20 LICO, 27-7 is the market-based measure. Can we agree 21 on that? 22 MS. ZACHARIAS: A: I'm sure you're right. 23 MR. QUAIL: Q: Okay. If we move on to the second 24 paragraph of page 12 of 28, of attachment 2, that's 25 the July, 2007 Indeco report, in the last paragraph 26 there is a discussion of the shelter cost to income Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 149 1 ratio, or STIR, and I'll give everybody a moment to 2 look at that. It's actually in the second-last 3 paragraph of page 12 of 28. 4 And actually, I think I'm going to read a 5 bit of this into the record. So this is the one used 6 by the Canada Mortgage and Housing Corporation. About 7 halfway through it says: 8 "Housing is considered affordable if the 9 household's STIR is less than 30 percent. 10 As a result, a household is considered to be 11 a low-income household if shelter costs are 12 30 percent or more of the total household 13 income. A STIR of between 30 and 50 percent 14 indicates an affordability problem. 15 Households paying over 50 percent of their 16 income for shelter are considered to be 17 high-need, or at imminent risk of 18 homelessness." 19 Do you see that? 20 MS. ZACHARIAS: A: Yes, I see that. 21 MR. QUAIL: Q: And the final paragraph indicates that 22 the LICO identifies 17.8 percent of households in 23 British Columbia as low-income. Do you see that? 24 MS. ZACHARIAS: A: Yes. 25 MR. QUAIL: Q: While STIR, under that index, it would 26 be 22.9 percent. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 150 1 MS. ZACHARIAS: A: That's what it says. 2 MR. QUAIL: Q: Okay. Now, flip over the page and 3 you'll see table 1 of attachment 2, which again is the 4 earlier -- the July report of Indeco. And we see a 5 comparison of LICO and STIR. Do you see that? 6 MS. ZACHARIAS: A: Yes. 7 MR. QUAIL: Q: Okay. And this shows the derivation of 8 the 17.8 percent low-income households under LICO, and 9 the 22.9 for STIR. Is that correct? 10 MS. ZACHARIAS: A: That's what it shows. 11 MR. QUAIL: Q: Okay. Now, I'm afraid we've got to go 12 back to attachment 1, which is the February, 2008 13 version, or -- perhaps stand corrected, February, 2008 14 report, to page 9 of 47. Now, here we've got familiar 15 wording. Under the heading of "Definitions of low 16 income", we went through that from the -- that, in the 17 earlier version, that of the earlier report, the July, 18 2007. And here we see some familiar wording. It even 19 starts with the same: 20 "Despite the strong social safety net, there 21 are households across B.C. that are 22 considered to be low-income households." 23 You see that. However, it changes. 24 "Therefore, the services and protections 25 offered to low-income people through various 26 provincial agencies as well as through non- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 151 1 governmental organizations should be taken 2 into consideration when implementing low- 3 income programs and when developing 4 partnerships." 5 On whose initiative did the analysis in this paragraph 6 change from the earlier version? 7 Proceeding Time 11:38 a.m. T26 8 MS. ZACHARIAS: A: I don't know. 9 MR. QUAIL: Q: And just sort of as a general 10 observation, the later report, that's attachment 1, 11 only describes the LICO, low income cut offs, as a 12 measure of poverty, is that right? That's the very 13 next part of the definitions of low income, if you 14 want to check. 15 MS. ZACHARIAS: A: That's correct. 16 MR. QUAIL: Q: It doesn't describe the STIR or the 17 market-based measure or these other metrics, is that 18 right? 19 MS. ZACHARIAS: A: That is correct. 20 MR. QUAIL: Q: And can you tell us on whose initiative 21 the discussion of indices of poverty was restricted to 22 just LICO, between the first and second version? 23 MS. ZACHARIAS: A: So the answer to that question is I 24 don't know, but I don't know if you should interpret 25 that as a restriction. As you've said, we filed both 26 of those reports. The first one was taken from the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 152 1 perspective of looking at giving us guidance on 2 everything that was -- how various utilities were 3 looking at this issue. The second report was going 4 into programs. That's not to say that they don't 5 continue to be taken together. I would say if you 6 continue to put everything from one report into the 7 next report, by the second or third report it gets to 8 be hundreds of pages long. 9 MR. QUAIL: Q: Now, just -- we're about to look at a 10 different document but I'd just like you just to sort 11 of flag in your memory, if you can, the 17.8 percent 12 low income figure for B.C. reported in the Indeco 13 report according to LICOs, because we'll be coming 14 back to that. 15 I would now refer you to Exhibit C-10. I'm 16 sorry you had to pull out another binder and we'll be 17 making some extensive reference to it. Exhibit C-10- 18 2. These documents are also at -- you'll find them 19 also in the -- no, we'd best go to that source. 20 Reference, Exhibit C-10.2, attachment 2. C10-2 is the 21 first round of information requests that were 22 submitted by -- on behalf of our clients. 23 MS. ZACHARIAS: A: Did you want us to go to a specific 24 IR? 25 MR. QUAIL: Q: I'm sorry, I'm sorry, I would -- no. 26 I'm sorry, what I wanted you to look at is attachment Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 153 1 4. That was an error in my note here. 2 THE CHAIRPERSON: And which particular article are you 3 drawing our attention -- 4 MR. QUAIL: The article -- oh no, I'm -- just a moment. 5 Yes. This is an article called "Improving Access to 6 British Columbia's Demand-Side Management Programs" 7 and it appears in a document in Exhibit C10-2 as 8 attachment 4. 9 Proceeding Time 11:42 a.m. T27 10 MR. QUAIL: Q: Okay. And this is the final version of 11 a study of Liz Kelly of Eaga Canada. Do you have that 12 before you? And you understand that -- 13 MR. CHRISTIAN: Where does the document indicate that 14 this is by Liz Kelly? We're talking about the 15 document numbered pages 1 to 12, bottom right corner. 16 Because I don't see any indication on it that it's by 17 Liz Kelly, and so I'm concerned that we're -- 18 MR. QUAIL: Okay, if my friend is not prepared to accept 19 that stipulation, we can look first at Exhibit 3. 20 MR. CHRISTIAN: Well, I wasn't arguing with the 21 stipulation. 22 MR. QUAIL: Yes. 23 MR. CHRISTIAN: I wanted to make sure I've got the right 24 document in front of me. 25 MR. QUAIL: Q: Yes. The correct document is a document 26 marked "Confidential, Improving access to British Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 154 1 Columbia's demand-side management programs." The 2 first heading is "Executive summary" and there are 12 3 pages indicated in the bottom right-hand corner. And 4 this is a study performed by Eaga Canada by Liz Kelly, 5 commissioned by the Ministry of Energy, Mines and 6 Petroleum Resources, and obtained from the Ministry 7 via a Freedom of Information process. 8 And attachment 3 is also something you 9 should have handy, which is an earlier version dated 10 March, 2007, also obtained under Freedom of 11 Information. And there's a clean copy of that that 12 doesn't have the watermarks saying "Confidential" 13 across it that we filed for convenience, which is 14 Exhibit C10-2-1. And it will be much better for 15 everybody's eyes looking at that rather than 16 attachment 3. It's a clean copy of the March, 2007 17 version. 18 And you'll see there it has at the bottom 19 "Liz Kelly, Eaga Canada, on behalf of MEMPR, March, 20 2007". 21 Now, I'm going to make reference to a 22 couple of documents, but I'll simply note them for the 23 record. I doubt that they are contentious, because 24 they've been dealt with in the process of Information 25 Requests, but one of them is an e-mail dated March 26 30th, 2007, which is referenced as Exhibit C10-2, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 155 1 attachment 2. And it indicates that Patrick Mathot, I 2 think I've pronounced it correct, M-A-T-H-O-T, was a 3 recipient of e-mail. 4 MS. ZACHARIAS: A: So, Pat Mathot has confirmed that he 5 received that e-mail. 6 MR. QUAIL: Q: Yes. And what's his position in B.C. 7 Hydro? 8 MS. ZACHARIAS: A: I don't know his official title, but 9 he is responsible for the residential PowerSmart 10 program. 11 MR. QUAIL: Q: Okay. And it's -- that e-mail has an 12 attachment which appears to be the March, 2007 of Ms. 13 Kelly's study. And I take it that that's not 14 contentious. 15 MS. ZACHARIAS: A: That's what it appears to be, yes. 16 MR. QUAIL: Q: And I won't give you the reference, but 17 in an IR, B.C. Hydro has acknowledged that it received 18 the e-mail and that the March draft of Ms. Kelly's 19 study was attached at that time. 20 MS. ZACHARIAS: A: Yes, I believe that's what we said 21 in the IR. 22 MR. QUAIL: Q: Now, you may need to determine this, but 23 anyway, the e-mail itself, that's C10-2, attachment 2, 24 indicates recipients had an opportunity to comment to 25 Andrew, who appears to be Andrew Pape-Salmon of the 26 MEMPR. Is that right? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 156 1 MS. ZACHARIAS: A: That is correct. 2 MR. QUAIL: Q: And do you know what his position is 3 with the Ministry? 4 Proceeding Time 11:46 a.m. T28 5 MS. ZACHARIAS: A: No, we don't know what his title is. 6 MR. QUAIL: Q: Do you know what he does there? 7 MS. ZACHARIAS: A: He heads up a lot of the policy 8 development for the Ministry of Energy, Mines and 9 Petroleum Resources around energy efficiency. 10 MR. QUAIL: Q: Okay. I'm going to give you another 11 reference but I don't think we need to turn to it. 12 I'll save everybody the shuffling. But for the 13 record, Exhibit B-3, BCOAPO 1.2.5, which indicates 14 that apparently B.C. Hydro did not make any comments 15 regarding the March 2007 draft, notwithstanding we 16 gave them an opportunity to do so. Is that correct? 17 MS. ZACHARIAS: A: That is correct. 18 MR. QUAIL: Q: I'll now refer you to Exhibit B-3, the 19 first round of IR responses, BCOAPO 1.2.3. No, we can 20 let that pass. 21 Instead I'll have you turn again to 22 attachment 4. That is the final undated draft of the 23 Liz Kelly report, attachment 4 to C-10.2. 24 MR. CHRISTIAN: I'd just like to have it noted for the 25 record that I don't believe that the document we're 26 now referring to -- I'm pretty sure this is the 12- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 157 1 page document at the end of the this thing -- has been 2 established as being a document by Liz Kelly. I think 3 my friend has stated it, hasn't put it as a question 4 to my witnesses, and nor is it indicated on the face 5 of the document at least that it's the same document, 6 or a document authored by Ms. Kelly. 7 THE CHAIRPERSON: It would be nice to know the document's 8 provenance, Mr. Quail. 9 MR. QUAIL: Yes. We could -- I'm thinking just of 10 efficiency of the process for something procedural 11 then. Perhaps I could have a discussion with my 12 friend. We can produce the record of the freedom of 13 information correspondence with the Ministry to 14 establish that. Perhaps if we can just sort of hold 15 that issue off and it may be that following 16 discussions with my friend, this is something that 17 will not be contentious between the parties. 18 MR. CHRISTIAN: Okay, and that suits me. The questioning 19 can go on the assumption that it is a document 20 authored by Liz Kelly, and then I'll confirm with my 21 friend later on whether we can actually admit that. 22 THE CHAIRPERSON: Thank you. 23 MR. QUAIL: It may require filing other material and it's 24 purely procedural -- 25 THE CHAIRPERSON: Just talk to Mr. Christian over lunch, 26 Mr. Quail. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 158 1 MR. QUAIL: Yes, I shall do so. 2 MR. QUAIL: Q: Okay. I'd referring you to page 1 of 12 3 and to in particular the last sentence of the first 4 paragraph: 5 "It is also recognized that uptake on DSM 6 programs by homeowners and renters with low 7 incomes is close to zero." 8 Do you see that? 9 MS. ZACHARIAS: A: Yes, I see that sentence. 10 MR. QUAIL: Q: Does B.C. Hydro take issue with that 11 characterization? 12 MS. ZACHARIAS: A: We don't have information on the 13 income levels of our customers, so we can't know 14 definitively if that statement is true or not. But 15 considering that a number of our programs that are 16 directed to the residential marketplace from the past, 17 such as the refrigerator pickup program or the CFL 18 giveaway, has not been dependent upon customers' 19 income level, we have no reason to believe that this 20 would e true. 21 MR. QUAIL: Q: You're saying you have no information 22 that contradicts it because you simply don't know what 23 the income is of participants in your programs. 24 MS. ZACHARIAS: A: That's right. We have said we don't 25 have information on income level, so we can't know 26 definitely whether or not this statement is true or Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 159 1 not. But if one of the sort of assumptions behind 2 this statement is that low income people have less 3 available income in order to make energy efficiency 4 improvements, that that is not necessarily the case, 5 because there's a number of programs that B.C. Hydro 6 has offered in the past that is not dependent upon the 7 income level that customers have or their ability to 8 invest in energy efficiency capital improvements. 9 MR. QUAIL: Q: But you have no evidence you can give us 10 about the participation rate among low income 11 customers in any of your programs, is that right? 12 Proceeding Time 11:50 T29 13 MS. ZACHARIAS: A: Yes, and we've said on the record in 14 response to an IR that we do not have income 15 information on our customers, that we can't 16 definitively link customer participation along their 17 income level. 18 MR. QUAIL: Q: I'll take you to -- let's look at the 19 second paragraph of this document. 20 "For most homeowners in British Columbia 21 energy costs typically represent 5 percent 22 of after tax income. Despite the provinces 23 relatively low energy prices, though, around 24 18 percent of homes in the province spend an 25 average of 17 percent after-tax income on 26 energy. As a result, when compared to the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 160 1 average, these homeowners have difficulty in 2 making spending decisions to take advantage 3 of DSM programs that will, in fact, reduce 4 their longer-term energy costs. This 5 discussion paper explores some of the 6 reasons for this phenomenon, and the 7 potential to enhance delivery of the 8 provinces DSM programs so as to be more 9 accessible by all British Columbia." 10 Do you take issue with anything contained in that 11 paragraph. 12 MS. ZACHARIAS: A: Well, there's a lot of statements in 13 that paragraph. Do you want me to go through them one 14 by one? 15 MR. QUAIL: Q: Perhaps if you could just identify any 16 that you have contradictory evidence that would lead 17 you to say that is incorrect. 18 MS. ZACHARIAS: A: Well, the context of this paragraph 19 seems to be talking about energy costs. So to the 20 extent that B.C. Hydro does not have information on 21 the total energy costs of its customers from the 22 perspective of what they paying for natural gas or 23 propane or oil, we have no information to really be 24 able to understand whether or not those statements are 25 true or not. 26 MR. QUAIL: Q: I just want to go back. A light just Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 161 1 went off, and I believe it was the image of a fridge 2 door opening and a light going on. Our 3 refrigerators. One of the programs that you told us 4 is accessible to low-income people is your 5 refrigerator -- you know, you take away somebody's old 6 battered refrigerator. That's obviously not available 7 to somebody who can't afford a new refrigerator, is 8 it? 9 MS. ZACHARIAS: A: It's targeted to people that have 10 two refrigerators, obviously, and by looking at 11 customers in our residential end-use study, there's 12 about 12 percent of low-income customers that do have 13 a second refrigerator. 14 MR. QUAIL: Q: Do you have any idea how many renters 15 are permitted to replace the refrigerator in a rented 16 premises? 17 MS. ZACHARIAS: A: No, I do not. 18 MR. QUAIL: Q: The whole concept of that as a 19 conservation measure is that people are encouraged to 20 replace inefficient old refrigerators with new 21 efficient refrigerators. I don't think that that's 22 rocket science. Can you agree with that? 23 MS. ZACHARIAS: A: So the intent is that often when 24 people upgrade their refrigerators they, sometimes, 25 end up with two refrigerators, and they keep the older 26 refrigerator that is relatively more inefficient Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 162 1 plugged in. They don't appreciate how much 2 electricity that it's using. So it's really targeted 3 at people who have two refrigerators, one of which is 4 not energy efficient. It's not so much targeted at 5 having people upgrade the refrigerator. There's other 6 programs that do that. 7 MR. QUAIL: Q: Okay, I don't intend to go on a long 8 exposition about refrigerators, and I'll close the 9 door on that one and the light can go out for the time 10 being. 11 Back to the paragraph we just looked at. 12 It suggests that 18 percent of households spend an 13 average of 17 percent of their after-tax income on 14 energy. We've already established that it says that. 15 Do you have any information that contradicts that 16 statement? 17 MS. ZACHARIAS: A: As I've said, because we have no 18 information on the total energy spend of our 19 customers, I can't agree or disagree with that 20 statement. 21 MR. QUAIL: Q: So assuming that the Commission is 22 curious about this question, you an tell us nothing 23 while we do have this document before us. Do you 24 agree with that? 25 MS. ZACHARIAS: A: I can't talk to the total energy 26 costs of customers. I can talk to what they spend on Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 163 1 electricity. 2 MR. QUAIL: Q: Okay, I asked you previously to sort of 3 bear in mind the 17.8 percent poverty rate in British 4 Columbia according to LICOs, and I'd like you to file 5 beside that, maybe in your mind, make a note of the 18 6 percent figure of households that spend an average of 7 17 percent of disposable income on energy. 8 Now, obviously we are looking at two 9 different concepts. One is poor households and the 10 other is energy poor households. I take you are 11 familiar with the concept of energy poverty? You're 12 familiar with that phrase? 13 MS. ZACHARIAS: A: I'm familiar with the phrase from 14 the perspective of reading these two articles. 15 Proceeding Time 11:55 a.m. T30 16 MR. QUAIL: Q: Okay. "Energy poverty" means -- meaning 17 people for whom the costs of household energy presents 18 a financial challenge, in terms of the straitened 19 circumstances of the family. Right? That's what it 20 means. 21 MS. ZACHARIAS: A: I believe that's the definition 22 that's been used in these two papers. I don't know if 23 that's a widely accepted definition or not. 24 MR. QUAIL: Q: Now, presumably these aren't identical 25 groups. There might be some poor households that 26 aren't energy-poor, and there might be some -- but I Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 164 1 guess by definition if you're energy-poor, you're 2 poor. So can we agree that this provides at least 3 some kind of an index of the size of the sub-group of 4 residential customers who may be especially vulnerable 5 to energy price increases? 6 MS. ZACHARIAS: A: So, which figure are you referring 7 to? 8 MR. QUAIL: Q: Well, I'm saying we've got 17.8 percent 9 is the -- according to LICO, is the incidence of 10 poverty -- the number of poor households in B.C. And 11 according to this information, about 18 percent, so 12 roughly the same, are energy-poor. They're poor and 13 are challenged by the cost of energy. So I'm just 14 suggesting that this might give us at least a rough 15 index of the size of the -- or the proportion of 16 residential customers or households who may be 17 especially vulnerable to increases in the cost of 18 household energy. Can we agree on that? 19 MS. ZACHARIAS: A: Yes. 20 MR. QUAIL: Q: Okay. I'd like you to pull out the 21 clean copy of the earlier Liz Kelly report, which is 22 Exhibit C10-2-1. Do you have that before you? Page 23 3, in the bottom left-hand corner. Now, if you read 24 the -- I'd like to draw your attention to the second 25 paragraph. 26 "Sections 6 and 7 of this paper briefly Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 165 1 explain "the energy burden" and the benefits 2 that energy-efficient housing can bring 3 towards the creation of affordable energy 4 for all. A baseline of scale of energy 5 poverty within B.C. is established, by 6 exploring in detail some typical indicators 7 as follows…" 8 The first bullet: 9 "Expenditure on energy - statistical 10 analysis reveals that about 270,000 homes 11 within B.C. are likely to be spending 10 12 percent or more of their family income on 13 energy. This is the level accepted in many 14 other jurisdictions as a measure of 15 unreasonable energy costs and energy 16 poverty. The installation of cost-effective 17 renewal and energy-efficient technologies 18 can reduce the energy demand and costs for a 19 home, even in a situation of rising energy 20 prices. Ensuring lower-income homes 21 minimize energy use is one path to 22 affordable energy." 23 The second bullet: 24 "Health - Within the U.K., North America and 25 Europe, there is growing recognition that 26 poor-quality inefficient housing conditions Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 166 1 can have a negative impact on people's 2 quality of life and health. One extreme 3 impact of poorly-insulated, difficult to 4 heat, inefficient homes, when combined with 5 changes in temperature, is a marked 6 fluctuation in seasonal mortality rates. 7 Excess winter mortality (EWM) rates have 8 long been studied in Canada. Cardiovascular 9 diseases, flu and pneumonia have been 10 identified as the main causes of EWM, and it 11 is recognized that this phenomenon is 12 seasonable, predictable, and therefore 13 preventable. The World Health Organization 14 recommends intervention to improve thermal 15 comfort and reduce energy consumption as a 16 means of providing affordable energy 17 necessary for families to heat their homes. 18 Approximately 10,000 winter deaths occur in 19 Canada each year; 16 percent of these are in 20 B.C." 21 Utility disconnections, the third bullet. 22 "The strong correlation between utility 23 disconnections and homelessness has been 24 proven. Disconnections have been attributed 25 as the second-biggest cause of homelessness 26 behind rent or mortgage default. During Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 167 1 2005, over 50,000 gas and electricity 2 disconnections occurred in B.C. Proactive 3 energy efficiency programs targeted homes 4 experiencing difficulties with affording the 5 costs of energy can help to avoid the need 6 for disconnections in the first place, along 7 with all the associated costs of debt and 8 debt recovery borne by the consumer and the 9 utility companies." 10 Now, looking over that, are there any facts that are 11 stated in that extract that you have information that 12 you'd like to share with us that contradicts? 13 Proceeding Time 12:00 p.m. T31 14 MS. ZACHARIAS: A: We have no information -- so, first 15 of all, both of these bullets are not footnoted. 16 There's no evidence provided to substantiate those 17 comments whatsoever. Saying that utility 18 disconnections, for instance, the strong correlation 19 between utility disconnections and homelessness has 20 been proven, I don't know what context that's given 21 in. I don't know what jurisdiction that's related to. 22 There's no information in the paper that helps us to 23 understand on what basis that point is made. 24 Similar to the excess winter mortality, to 25 be talking about energy poverty, having thermal 26 comfort in the home and so forth, and then putting in Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 168 1 the statement that 10,000 winter deaths occur in 2 Canada each year, 16 percent of these in British 3 Columbia, if the intent is to draw a linkage between 4 the two -- those two things in particular, I don't see 5 that link at all. We all know that a number of deaths 6 occur for reasons in the winter not to do with thermal 7 comfort. The fact that there is a high incidence of, 8 for instance, flus in the winter, and that contributes 9 to winter deaths, as well as other things that are 10 more predictable in the winter, can all be causes of 11 the reasons why there are more deaths in the winter. 12 So, I don't see any data here in this paper 13 specifically to help me understand whether or not this 14 is factually accurate or not. 15 MR. QUAIL: Q: First of all, you -- this is a document 16 that was produced by the Ministry, for the Ministry, 17 commissioned Ms. Kelly of Eaga Consultants to produce 18 this document to assist it in its policy development. 19 Is that correct? 20 MS. ZACHARIAS: A: I don't know under what context Liz 21 Kelly did this work for the Ministry. 22 MR. QUAIL: Q: It was circulated -- this draft was 23 provided to B.C. Hydro with an opportunity to comment. 24 We've already established that. B.C. Hydro didn't 25 make any comment refuting any of this information that 26 was being provided to the Ministry, did it? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 169 1 MS. ZACHARIAS: A: We never refuted, but that should 2 not be -- we didn't comment at all. 3 MR. QUAIL: Q: Okay. Flip ahead to page 9 -- sorry. 4 Yes. 5 THE CHAIRPERSON: Mr. Quail, I'm in your hands, but we're 6 at the lunch hour. My stomach is grumbling. So -- 7 MR. QUAIL: Yes. A convenient -- I'll be at a convenient 8 spot to adjourn quite soon. 9 THE CHAIRPERSON: Let's go there, then. 10 MR. QUAIL: Q: Okay. If you would flip ahead to page 11 9. Actually, maybe what I'll do is, I'll break off 12 here and say -- and I would like you to review this, 13 perhaps, over lunch. And then I will ask you to 14 inform us of any evidence that you have you'd like to 15 share with us that contradicts any of the information 16 in this part. Why don't we do it that way? We come 17 back with that response from you. Can I leave that 18 with you? 19 THE CHAIRPERSON: Sorry, are you asking them to read the 20 entire -- what is section 4? 21 MR. QUAIL: The section 4. That might be -- to save -- 22 THE CHAIRPERSON: It would be better if they read it than 23 you read it into the record, I guess. 24 MR. QUAIL: Much, much more useful. 25 THE CHAIRPERSON: Let them do that over lunch, and we'll 26 break till 1:30. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 170 1 (PROCEEDINGS ADJOURNED AT 12:03 P.M.) 2 (PROCEEDINGS RESUMED AT 1:03 P.M.) T32 3 THE CHAIRPERSON: Please be seated. 4 Mr. Christian, you're on your feet. 5 MR. CHRISTIAN: I am on my feet. I wanted to address the 6 issue that arose between myself and Mr. Quail this 7 morning session with respect to the attachment 4 to 8 BCOAPO IR No. 1.2.1. And what we're prepared to say 9 is that attachment 4 to that information request was 10 delivered to the BCOAPO et al in response to the 11 letter which is attachment 1 to that information 12 request. 13 THE CHAIRPERSON: Does that get you where you -- 14 MR. QUAIL: Probably. That letter is the information -- 15 I don't think anything turned on it. That's the 16 covering letter wrapping up the freedom of information 17 disclosure process. And so we have agreement that 18 this was one of the documents that was bundled. If 19 there's any question about how one might describe 20 this, it's all to be found in Exhibit 1. I'll leave 21 it for people's reading pleasure some other time. 22 THE CHAIRPERSON: Okay. Please proceed then, Mr. Quail. 23 MR. QUAIL: I've been asked by Mr. Bemister to simply 24 flag one issue for the record. That is that the 25 bundle of documents called BCOAPO Additional Materials 26 for Cross-Examination was numbered Exhibit C10-6. In Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 171 1 terms of sequencing things, that omitted an e-mail 2 that I sent on Friday, June the 13th in response to Mr. 3 Bertch's inquiry. Initially it looked like he was 4 going to apply for leave to file something. So that 5 one was left orphaned in terms of the exhibit 6 numbering system, and so I've been asked to indicate 7 for the record that it will be -- that e-mail message, 8 for the record, is C10-7. So we've tidied that one 9 up. 10 MR. QUAIL: Q: Well now, where we left off, panel, was 11 that I had drawn your attention to the section on the 12 energy burden, heading number 4, in the exhibit, that 13 is C10-2-1, the cleaned-up version of the March 2007 14 Liz Kelly report, and asked you if you could report to 15 us any of the statements of fact contained in there 16 where B.C. Hydro has contradictory evidence that you 17 would like to share with us. 18 MS. ZACHARIAS: A: Section 4 of the document titled 19 Affordable Energy, just to be clear since there's two 20 -- 21 MR. QUAIL: Q: I thought this was clear enough. I had 22 referred you to, you can check the record, Exhibit 23 C10-2-1, page 9, heading 4, "What is the Energy 24 Burden?" and I spared everyone and the transcribers 25 stating any of the contents on the record, but since 26 we conveniently had a lunch break I left it to you to Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 172 1 review it and see if -- my question is whether you 2 have identified any statements of fact in that section 3 for which you have contradictory evidence that you 4 would like to share with us. 5 MS. ZACHARIAS: A: So first of all, upon reviewing the 6 document again, the statement around the 18 percent of 7 homes in B.C. spending an average of 17 percent of 8 after tax income -- 9 MR. QUAIL: Q: I don't think -- pardon me, that wasn't 10 my question. There'll be an opportunity in re- 11 examination if my friend wants to review any of the 12 material we've covered. This is going to take a long 13 time without rehashing I've already asked you. 14 My question is, if you could look at this 15 section on the energy burden. I apologize if you're 16 addressing something that specifically is contained in 17 that part. If you're going back to something we were 18 talking about this morning, I would have to ask you 19 not to and instead answer my question which is, with 20 respect to that portion of the document, whether B.C. 21 Hydro has any evidence that contradict any of the 22 facts stated in that section that you would like to 23 share with us. 24 MS. ZACHARIAS: A: The reason why I started there is 25 because this is about what -- the section is entitled 26 "What is the Energy Burden?" And I think earlier this Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 173 1 morning you talked about 18 percent of homes in B.C. 2 having an energy burden. So I just wanted to clarify 3 my understanding of what that information actually 4 drew from. 5 MR. QUAIL: Q: First of all, your characterization of 6 the questions I put to you, the transcript will speak 7 for itself and I don't believe that that's the way 8 that I phrased the issue. I don't want to spend all 9 the time in dialogue with you. You're here to answer 10 my questions. What we had reviewed though, for the 11 record, is the fact that the document identifies that 12 a certain proportion of British Columbia households 13 spend an average of a certain proportion of their 14 income on energy. 15 My question for you is, and perhaps -- I 16 hope I don't have to ask the Chair to direct you to 17 answer my question. You've had an hour and a half to 18 look through this section. Can you identify any 19 statements of fact in here for which you have 20 contradictory evidence that you'd like to share with 21 us? 22 MS. ZACHARIAS: A: So in the first paragraph there is a 23 statement that says, 24 "Not all Canadians may have the ability to 25 reduce household energy consumption because 26 of barriers to participation." Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 174 1 So I think B.C. Hydro recognizes, agrees that there 2 are some barriers that exist with respect to the 3 ability for low income people to take conservation 4 action, particularly those related to capital 5 investments. The statement is a little bit broad from 6 the perspective that there are other things that 7 customers can do in order to reduce the electricity 8 that does not depend upon capital investments. To the 9 extent that those exist, that they are behavioural in 10 nature, (a) they don't require capital investments, 11 and (b) they also don't require participation in 12 programs in order to achieve that. 13 The next paragraph with respect to the term 14 "affordable energy" and conversely "energy poverty", 15 we have no information. We're certainly -- in order 16 to confirm whether or not those are broadly accepted 17 statements or the definitions provided for them are 18 accepted amongst the community that would have 19 expertise in those areas. 20 With respect to the middle of that 21 paragraph, a disproportionate energy burden is 22 experienced compared to the average home and families. 23 So that statement can be true if the amount of 24 electricity that is being used by a low income home is 25 the same as a home that's being used by a person who 26 has higher income. So obviously I'm just stating the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 175 1 mathematical effect that it can be true if the 2 numerator and denominator change differently. 3 With respect to the next paragraph, the 4 three main causal factors that create an energy burden 5 on a home, once again we think that while efficiency 6 energy costs, family income, those seem relatively 7 reasonable, the ones that are missing are that 8 consumption patterns and end uses are also main 9 drivers behind electricity consumption. And certainly 10 all of the information and analysis that B.C. Hydro 11 has done over the last number of years shows that even 12 when you have homes that are relatively in the same 13 size, same number of people in the homes, even 14 allowing for similar types of heating systems and so 15 forth, there can still be a wide variation in energy 16 usage. That's one of the reasons why we believe it's 17 important to aim at behavioural changes and educate 18 people around how they're using electricity and what 19 their end uses are, the number of electronics and 20 appliances and so forth that are in the home can have 21 an impact on the amount of electricity being used. 22 Proceeding Time 1:38 p.m. T33 23 With respect to the middle part of that 24 paragraph, even small changes in any one of these 25 three factors can have a dramatic effect on a family's 26 ability to maintain the most basic standards of health Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 176 1 and comfort in the home. We haven't been able to find 2 anything in this paper that helps us to know if that 3 statement is correct or incorrect. 4 MR. QUAIL: Q: No, my question -- again, I want to be 5 clear what my question is. And it will probably make 6 a much shorter answer than perhaps the trajectory you 7 were on. Would be to identify and share with us any 8 evidence that you've got that contradicts anything in 9 that. So, you're really -- I'm not asking you to go 10 out there and catalogue every item and say you've got 11 no information, or whatever. All I'm asking you to do 12 is identify and share with us any evidence that you 13 have that contradicts any of the statements of fact in 14 this section. We could probably cut the length of 15 your answer to about a quarter if we follow that 16 route, so I'd ask you to do so. 17 MS. ZACHARIAS: A: I guess second-last statement in 18 that paragraph that says: 19 "Added to this, the living patterns and day- 20 to-day needs of vulnerable families can 21 often be very different." 22 In analysis that we've done among our low-income 23 customers, using our residential end-use data, we see 24 -- there isn't a lot of difference in the variation of 25 their use of electricity compared to other types of 26 families, and there's also variation within the low- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 177 1 income population as well. So -- 2 MR. QUAIL: Q: So you're saying that the living 3 patterns, for example, of poor people are different 4 from affluent people, or the day-to-day needs of poor 5 people are different from those of affluent people? 6 That's what the sentence says that you're purporting 7 to contradict. You didn't -- the words of the 8 sentence are not what you're responding to in your 9 answer. "Added to this, the living …" -- before 10 anybody gets to this, let me just read for the record 11 what the sentence says. 12 "Added to this, the living patterns and day- 13 to-day needs of vulnerable families can 14 often be very different." 15 So, do you have evidence that that's incorrect? 16 MR. CHRISTIAN: And I'd like to put my objection on the 17 record. The words are on the page. They mean what 18 they mean, and my friend can't require the witness to 19 accept his interpretation of them and then comment on 20 it. He asked, "What do you disagree with here?" 21 MR. QUAIL: Yeah. 22 MR. CHRISTIAN: And they're giving answers, and it's 23 improper for my friend to suggest that his 24 interpretation of these words are the only ones upon 25 which they may respond. These words are subject to 26 interpretation. My friend has a meaning that he wants Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 178 1 to ascribe to them, that's a matter for argument, not 2 for cross-examination in the way he's doing it. 3 MR. QUAIL: Q: I've read the actual text, and I ask if 4 you have any evidence that contradicts what those 5 words say. 6 MS. ZACHARIAS: A: I think our residential end-use data 7 would contradict this statement. 8 MR. QUAIL: Q: Well, we'll be looking at your end-use 9 data in due course, so I'll leave it at that. Could 10 you please identify any other evidence that you'd like 11 to share with us that contradicts any of the 12 statements of fact in the balance of this section? 13 MS. ZACHARIAS: A: So, looking at the rest of the 14 section, talks about other jurisdictions. We have no 15 information that would contradict that. 16 MR. QUAIL: Q: Okay. Okay, now with reference to one 17 of your replies this morning, when we were looking at 18 health, and I asked you questions regarding the 19 contents of the paper in the summary section at the 20 beginning, about health impacts, and you suggested -- 21 I believe your answer was to the effect that there was 22 no detail and nothing footnoted and so on. I'd just 23 like you to turn to page 19 of the same document, 24 under 6.2, and I'm just going to bring a couple of 25 sections of this to your attention and see if you have 26 any evidence you can share with us. Under 6.2, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 179 1 "Health", the second paragraph: 2 "As shown in Table 8, produced by the West 3 Midlands Public Health Observatory in the 4 UK, even relatively minor reductions of 5 indoor temperatures can cause dramatic 6 negative impacts on a person's comfort and 7 health with the most common effects being 8 strokes and heart attacks." 9 And then table 8 shows various temperatures and the 10 effect of those temperatures. And there's a footnote 11 from that, footnote 18, indicating the source of that. 12 Do you have any information that contradicts that 13 evidence? 14 Proceeding Time 1:43 p.m. T34 15 MS. ZACHARIAS: A: I don't. 16 MR. QUAIL: Q: Turning on to the next page, second full 17 paragraph: 18 "The initial review for the World …" 19 WHO, you'll agree, is World Health Organization, it's 20 noted in the paragraph above. 21 "The initial review for the WHO research …" 22 Which is footnoted there, 23 "… concluded that "without housing 24 interventions, the number of excess winter 25 deaths will increase …" 26 We're at page 21. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 180 1 "… will increase, as will the number of 2 individuals suffering adverse health effects 3 on health caused by low indoor temperatures. 4 Housing interventions are suitable means to 5 …" 6 And it has three things it's suitable for. Skipping 7 on to the second paragraph following that: 8 "The first results from the WHO research 9 state 'it is clear adequate housing 10 standards with functional ventilation and 11 heating systems, and with efficient thermal 12 insulation protecting the dwelling from both 13 cold and heat, represent one prevention 14 measure to reduce the impact of temperature 15 events on mortality.'" 16 Do you have any evidence that contradicts those 17 statements, or those sources? 18 MS. VAN RUYVEN: A: So, Mr. Quail, I think it's 19 important that I get on the record -- our hesitation 20 to answer some of these questions is, we don't -- 21 we've not read these studies. We're not experts in 22 the United Kingdom's studies on energy poverty or the 23 burden of energy. I think it's important that the 24 Commission Panel understands that this report was 25 written by a woman that was seconded for a very short 26 period of time to the Ministry of Energy, Mines and Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 181 1 Petroleum Resources. Her job and role there was to 2 develop energy-efficiency standards for the building 3 codes. She -- this was a self-directed advocacy piece 4 of work that she did that drew completely on her 5 experience in the UK. Government never at any time 6 directed B.C. Hydro to look at this and to try to make 7 apples-to-apples comparisons, and government -- this 8 is not government policy. 9 So we did not actually spend a lot of time 10 on this document, based on the conversation we had 11 with government. You can see that we did not provide 12 written comments. It was very difficult for us to 13 compare all of these things, because they are drawn -- 14 well, a hundred percent on a UK experience. So, we 15 have not spent a lot of time trying to refute what is 16 in here. We haven't read the World Health 17 Organization studies. We are going at this low-income 18 program completely from a B.C. perspective, and we 19 will learn as we go, and work with the low-income 20 groups here in British Columbia who have a different 21 set of circumstances, quite frankly, than low income 22 in the United Kingdom. 23 MR. QUAIL: Q: Just -- I note that you said you'll be 24 learning as you go. My suggestion to you, and I don't 25 mean to be unkind, is you've got a lot of learning to 26 do about low-income customers of B.C. Hydro, and Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 182 1 energy poverty in this province. 2 MS. VAN RUYVEN: A: And that's exactly why we have 3 formed an advisory committee, because you are the 4 experts on how to deal with low income, and we're 5 looking for you to use your leadership and help us to 6 see the right way to do this going forward. And we 7 will learn as we go. 8 MR. QUAIL: Q: And you developed a free kit of items 9 for low-income households to improve the energy 10 efficiency of their homes, which is just launched in 11 the last few weeks, correct? 12 MS. VAN RUYVEN: A: We wanted something out in the 13 marketplace very quickly. This is not the end of our 14 low-income program by any means, but it was something 15 that we could do very quickly that had real actions 16 that low-income customers could take that could reduce 17 their energy bill immediately. That was our first 18 step in our low-income program. 19 MR. QUAIL: Q: And it's a free kit for low-income 20 households. 21 MS. VAN RUYVEN: A: It's a free kit. 22 MR. QUAIL: Q: That's in recognition that an upfront 23 cost is a barrier to participation, isn't it? 24 MS. VAN RUYVEN: A: Upfront capital costs are barriers 25 to almost all of our customers, and in particular low- 26 income. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 183 1 MR. QUAIL: Q: Yeah. I suggest that some household 2 energy uses are essential in character. That is, 3 necessary for life, health, safety, reasonable 4 standard of comfort and participation in society. 5 Will you agree with that? 6 MS. VAN RUYVEN: A: Well, there are some people in this 7 world that live without electricity and they are still 8 able to meet their basic needs. We provide 9 electricity to our customers. How they use that 10 electricity to heat or meet basic needs is really 11 their call. We're not making a judgment on our 12 customers' basic needs. Some customers would perhaps 13 have different basic needs than others. 14 MR. QUAIL: Q: If you'll respond to my questions, this 15 is going to be way more efficient. Okay? My question 16 is just -- I thought was relatively simple concept, or 17 was something that we can all agree on, that there's 18 some household energy uses -- I'm not talking about 19 electricity, as opposed to burning wood or whatever 20 somebody might do. There's some energy uses in the 21 household that are essential. You need them to stay 22 alive and healthy to participate in society. Wouldn't 23 you agree with that? 24 MS. VAN RUYVEN: A: On an energy perspective, yes. 25 MR. QUAIL: Q: For example, enough heat to keep your 26 home and health at -- for -- enough heat to keep your Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 184 1 home at a healthy and comfortable level. 2 MS. VAN RUYVEN: A: Yes. 3 MR. QUAIL: Q: Enough energy to provide hot water for 4 cleaning. 5 MS. VAN RUYVEN: A: Yes, I would agree with that. 6 MR. QUAIL: Q: Yeah. Energy to prepare meals with. 7 MS. VAN RUYVEN: A: If it's energy, yes, I would agree 8 with that. 9 MR. QUAIL: Q: Yeah. Unless you live on nothing but 10 raw fruits and vegetables, which I understand is 11 supposed to be good for you. Energy for adequate 12 household lighting. 13 MS. VAN RUYVEN: A: Yes. 14 MR. QUAIL: Q: You can read a book when the sun is set. 15 You agree with that. I'd suggest that there are other 16 household energy uses that are more discretionary, if 17 that's -- in the sense of non-essential. They're nice 18 to have for recreational or other purposes. They 19 might add a lot of comfort and enjoyment, but they 20 could be dispensed with, without placing people in 21 jeopardy. Do you agree with that? 22 Proceeding Time 1:49 p.m. T35 23 MS. VAN RUYVEN: A: Yes, I'd agree with that. 24 MR. QUAIL: Q: Maybe at the top of the list is hot tubs 25 and outdoor patio heaters and things like that. If 26 they all disappeared from the face of the earth, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 185 1 people might enjoy their leisure time a little less, 2 but nobody would be placed in jeopardy. Would you 3 agree with that? 4 MS. VAN RUYVEN: A: If you're talking about sort of 5 life and limb, then I would have to say a hot tub is 6 probably not going to put their life in jeopardy. 7 MR. QUAIL: Q: I'm sorry -- 8 MS. VAN RUYVEN: A: Or doing without a hot tub. 9 MR. QUAIL: Q: People can manage quite well without a 10 hot tub and without a heater out on their patio, and 11 life will carry on and we wouldn't expected increased 12 admissions into emergency wards. 13 MS. VAN RUYVEN: A: I would have to agree with that. 14 But again, you know, it's not B.C. Hydro's role to 15 define basic needs or how customers use our 16 electricity at the end of the day. There may be 17 customers where a hot tub for recuperative purposes 18 might be pretty important to their quality of life. 19 MR. QUAIL: Q: Did I ask you whether B.C. Hydro should 20 be making those choices for people? 21 MS. VAN RUYVEN: A: No, but you're asking me to answer 22 questions about basic needs, and I'm saying it's a 23 difficult question to answer because you're asking me 24 to be the judge of basic needs. 25 MR. QUAIL: Q: Anyway, this will be a lot better if you 26 don't anticipate where I'm going, just answer my Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 186 1 question. 2 MR. CHRISTIAN: My friend just continuously suggests to 3 the witnesses that they're not answering his 4 questions, and at some point it becomes inappropriate 5 -- I think my friend is getting close. He may be 6 frustrated because he's not getting the answers he 7 wants, but his frustration is not an excuse to tell 8 the witnesses that they're not answering his questions 9 properly. And, you know, I think I've heard it six 10 times now -- four times anyway since the break, and 11 frankly, he doesn't get a right to the answers he 12 wants to his questions, no matter how much he 13 complains. 14 MR. QUAIL: Actually, I'm quite happy with the point B 15 we're getting to. It's going through W, X, Y, Z 16 before we get there that's the issue. But anyway I'll 17 move on. 18 MR. QUAIL: Q: And I put it to you that there was a lot 19 of discretionaries -- I've used that concept. Not 20 judgmental, but we can manage without a lot of 21 discretionary or even luxury consumption of energy in 22 British Columbia, and of electricity in particular. 23 MS. VAN RUYVEN: A: Again you're putting B.C. Hydro in 24 a difficult position to judge what is luxury 25 consumption. Consumption and end uses mean different 26 things to different customers, so it's very hard for Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 187 1 me to say that there are a lot of luxury uses. What 2 is -- is a television a luxury? I don't know. 3 MR. QUAIL: Q: I suggest to you as a reasonable general 4 proposition that in the case of poor households, 5 especially those living in energy poverty, once 6 they've met the costs of essential household needs, 7 they have little or nothing left for discretionary 8 spending on luxuries and discretionary things. Agree 9 with that as almost a definition of being poor? 10 MS. VAN RUYVEN: A: I think I could agree with that. 11 MR. QUAIL: Q: So take the situation of a poor 12 household that has barely -- is barely able to make 13 its income stretch to cover basic needs, that is, 14 rent, food, clothing, essential household energy and 15 other basics. That's what being poor means, you 16 understand that. 17 If energy prices substantially, poor 18 households will be forced to cut back either on energy 19 use or on other basic necessities, given that 20 scenario. Isn't that right? 21 MS. ZACHARIAS: A: I think as the costs of anything 22 rise, obviously that's going to put pressure on people 23 who have lower or fixed incomes. 24 MR. QUAIL: Q: Whether it's potatoes or bread or 25 electricity, rising prices are a serious problem when 26 you're living right on the edge financially because Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 188 1 you're poor. 2 MS. ZACHARIAS: A: Yes. 3 MR. QUAIL: Q: And in the case of cutting back or 4 conserving energy, I mean you've developed this kit 5 and hopefully that'll be useful to people. But in 6 case of a family living in poverty, there is probably 7 not as much fat to trim before you're cutting below 8 what the family needs to be safe and reasonably 9 comfortable. 10 MS. ZACHARIAS: A: I don't know if that's an accurate 11 statement. As I said earlier, when we've looked at 12 the residential end use survey for low income 13 customers, they have a variety of uses. They do have 14 televisions. Some of them do have hot tubs. Some of 15 them have digital cable. Some of them have second 16 fridges. So there is a range of energy usage among 17 our various customer segments, including low income 18 customers, that suggests to us that there are 19 opportunities to conserve that wouldn't necessarily 20 impact their qualify of life but would certainly help 21 them mitigate their bill impacts of any type of rate 22 increase. 23 Proceeding Time 1:53 T36 24 MR. QUAIL: Q: On the other end of the spectrum we have 25 affluent households that are able to indulge in much 26 higher levels of energy consumption and are much less Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 189 1 sensitive to changes in their Hydro bill, in terms of 2 their ability to meet their other needs. Do you agree 3 with that? 4 MS. ZACHARIAS: A: Well, I think you are equating, you 5 know, low income and low usage, and high income and 6 high usage. One of the things that we've said in our 7 application and in the answering to the IRs is even if 8 that's generally true, it's not always true. So our 9 principle is that customers that have higher usage 10 have a higher ability to respond to price signals. 11 MR. QUAIL: Q: And if you were listening to what I said 12 in the opening that, in effect, what you are just 13 talking about now, which is the exception to the 14 general -- the general rule is if you've got a lower 15 income then you use less energy, but there's 16 exceptions to that, and that that's what our concern 17 is. And so, for example, if you live in an old house 18 that has no insulation, has single glazed windows, 19 you're going to use an awful lot of energy in the 20 winter to keep it heated, whether you are rich or 21 poor. 22 MS. ZACHARIAS: A: Right. And when we've looked at low 23 income households in particular, we find that about 21 24 percent of them are on electric heat and electric 25 water, and those customers, they use on about average 26 11,000 kilowatt hours, which is below the break point. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 190 1 So while I'm sure there are some instances 2 that Mr. Quail has drawn out where there are some 3 customers in very poorly insulated homes that will be 4 using significant amounts of electricity, our data 5 suggests that there are relatively few, even for those 6 customers on electric heat and electric water. Their 7 average consumption is well beneath the break point. 8 MR. QUAIL: Q: Yes, we'll get to that. It might take 9 quite a while before we get to that. 10 Can we agree, as a general principle, as a 11 matter of policy, given the government's energy plan 12 and given concerns about the environment, that it 13 would be highly desirable to discourage gluttonous 14 waste of energy? 15 MS. VAN RUYVEN: A: Well, the government's policy 16 directive is to pursue conservation, up to 50 of our 17 incremental needs going forward. Whether that's 18 people who are fairly energy efficient today being 19 more so or people that use more than the average 20 person reducing more. It will be a combination of 21 everyone playing whatever part they can to reduce 22 consumption. 23 MR. QUAIL: Q: I put it to you that gluttony should be 24 a prime target for conservation. 25 MS. VAN RUYVEN: A: Well, again, it's difficult for 26 B.C. Hydro to define what gluttonous consumption is. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 191 1 MR. QUAIL: Q: All right. I'd like you consider two 2 possible outcomes of a rate structure. The first 3 outcome would be the following scenario. It forces 4 low income pensioners to turn their thermostats down 5 to 16 Celsius in the winter, increasing the risk of 6 respiratory illness and other sources of mortality, 7 while hot-tubbers hardly feel the pinch. That's the 8 first scenario. 9 The second scenario is an outcome that 10 buffers the pensioners from the impact of rising 11 energy bills and attaches a prices to the gluttony 12 that the hot-tubbers will notice. 13 Can we agree that scenario two is a more 14 desirable outcome than scenario one? 15 MS. ZACHARIAS: A: No, we can't agree with that. 16 MR. QUAIL: Q: Okay. Can we also agree that -- I won't 17 say "also". Can we agree -- I didn't think that 18 would be that hard. Can we agree that it will be a 19 good idea to price the living daylights out of 20 gluttonous waste of energy, however we might define 21 that? Would you agree or disagree with that as a 22 proposition? 23 MS. ZACHARIAS: A: I think we would agree that we would 24 like to send a price signal for people that consume 25 more and not have it based on us having to judge what 26 is gluttonous or not. I can see that would be just Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 192 1 fraught with complexities that I can't even imagine, 2 the electric utility in British Columbia having the 3 ultimate definition of what is gluttonous consumption 4 and what isn't. 5 MR. QUAIL: Q: I'm thinking of the house with the 300 6 amp service and electrically heated hot tub and the 7 electric swimming pool and the 2,000 electronic 8 gadgets that are always on standby, and maybe outdoor 9 heaters and enough light to light a movie set. You 10 know, there actually are people who live that way. 11 Don't you agree with me that that kind of consumption 12 of energy should be priced at a very high rate? 13 MS. ZACHARIAS: A: Well, on our RIB application that's 14 exactly how it is set up. People who use more 15 electricity and the scenario that you just painted, 16 I'm fairly sure that scenario would be over the 17 tipping point, and they would certainly be seeing step 18 2 most, if not all of the time, so they would actually 19 be paying more for their consumption overall. 20 MR. QUAIL: Q: How about a third step, aimed at that 21 level of consumption, that's priced way beyond its 22 marginal cost? Maybe rent. Do you have any opinion 23 on that? 24 Proceeding Time 1:59 p.m. T37 25 MR. ORANS: A: B.C. Hydro has looked at, you know, 26 adding a third step to the options it's analyzed here. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 193 1 It's looked at seasonal variations. It's looked at a 2 whole range of thresholds also for the Step 1, and the 3 biggest problem that I saw with implementing a third 4 step was in fiscal year '09 and '10, the rate 5 difference between the rate for Step 1 and Step 2 is 6 very narrow. I mean, we're sitting here kind of 7 transitioning to a higher Step 2 rate of -- we're 8 starting out at 6.15 and going to 6.8. So if you try 9 to implement the third step, it's got to fit in 10 between them. So you really end up with too -- it 11 looks like too complex a rate for at least '09 and 12 '10. We looked at it, looking at perhaps maybe a 13 transition, if you need it. 14 So B.C. Hydro, for example, we're three 15 years down the road now, and we're facing substantial 16 increases in its RRA. Maybe a third step works to 17 mitigate billing impacts. Maybe it sends the right 18 signal, et cetera. So that is certainly an additional 19 step that you could add onto the two-step rate. 20 MR. QUAIL: Q: Yeah. Leaping way ahead in terms of 21 where we're going to be going, but in fact if you were 22 designing a three-step rate, surely Step 1 would be 23 lower than a Step 2 rate. You'd recalibrate the whole 24 works to make rational space for the third step, 25 wouldn't you? 26 MR. ORANS: A: Well, you could. But then again, you've Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 194 1 decreased the opportunity for other low-use customers. 2 Granted, there will be low-income customers in that 3 category as well, to take advantage of conservation 4 options. 5 Back to your kind of gluttony question. So 6 I have two cases that I have worked on in the last two 7 years, implementing RIB rates in other jurisdictions. 8 One is in -- for the big island in Hawaii, and the 9 rates are -- as you know, their average rate is in 10 excess of 20 cents a kilowatt hour. So the problem 11 they were having is just as you say, they've got huge 12 homes. If you fly into Hawaii, it's Lear jets all the 13 way through there. So they've got these huge homes, 14 and then they also have low-income folks there too, 15 who live on the island. And we were -- and the 16 utility's facing huge cost increases for renewables, 17 and the price of fuel, et cetera. And so, they 18 implemented in that case a third tier rate. But they 19 had enough room in the rate increase to have the 20 third-tier rate substantially higher. 21 One person who came to our workshop was 22 Michael Dell. Michael Dell had a 50,000 square-foot 23 house. He said he needed to air-condition the house 24 all the time, and wasn't going to respond to the 25 third-tier rate. So in that kind of case, the utility 26 didn't care, Michael Dell didn't care, and the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 195 1 Commission didn't care. 2 MR. QUAIL: Q: Yeah. 3 MR. ORANS: A: I have another case in Wyoming. And 4 Wyoming is -- if you could characterize states as red 5 states or blue states, it doesn't have a lot of 6 conservation. But -- 7 THE CHAIRPERSON: Sorry, it doesn't have what? I didn't 8 -- 9 MR. ORANS: A: It doesn't -- they're not implementing a 10 lot of conservation. They have rates with 11 traditionally declining block rate structures. It's 12 kind of interesting. We did a survey several years 13 back on blue states or Democratic states, and 14 Republican and red states. And if you look, there's a 15 high correlation between the jurisdictions that are 16 spending substantial amounts in conservation and 17 inclining block rate structures. Those who aren't 18 spending a lot in conversation have low incremental 19 costs of new supply, tend to have either have flat 20 rates or declining block rate structure. 21 So this case, the case in Wyoming, another 22 very famous person, Dick Cheney, has a house in 23 Wyoming, and he has two driveways that are 24 electrically heated. So, although he didn't like the 25 proposed inclining block structure, he could see that 26 it was fair in that case. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 196 1 We were looking at a two-step inclining 2 block structure, not a three-step there. 3 Maybe rent. Do you have any opinion on that? 4 Proceeding Time 2:03 p.m. T38 5 Okay. I'll now refer you to Exhibit B-3, 6 BCUC IR 1.18.3. So the question asking is: 7 "The [Rates Working Group] feedback to B.C. 8 Hydro rate design issues included an item on 9 the need of B.C. Hydro to be sensitive to 10 low-income customers. Please comment how 11 this RIB application has taken the RWG 12 feedback into consideration. If it is not, 13 please explain why not." 14 So the second paragraph begins with the 15 sentence: 16 "B.C. Hydro is sensitive to the needs and 17 often complex issues of low income 18 customers." 19 It says below, there's some bullets, the lead-up line 20 to that says: 21 "At this time, B.C. Hydro believes the 22 strategy ought to be comprehensive and 23 include the following 24 • customer education regarding energy usage 25 and conservation; 26 • conservation programs for low income Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 197 1 customers; 2 • enhanced customer services support for 3 low income customers; 4 • arrears management; and 5 • emergency relief." 6 Do you see that? It's got a disconnect policy. 7 MS. ZACHARIAS: A: That's right. 8 MR. QUAIL: Q: While we're at it, can you explain what 9 disconnect policy changes you have in mind in order to 10 bring about this comprehensive strategy? 11 MS. ZACHARIAS: A: We don't have our plan finalized on 12 what the changes to our disconnect policy would be. 13 We're in the stages of taking a look at our policy, 14 also talking to other utilities across Canada to get a 15 sense of what their policies are, and also consulting 16 with the low income advisory group as to -- for them 17 to give us feedback in terms of how they feel the 18 disconnection policy is working with respect to the 19 constituents that they know about or the groups that 20 they work with. 21 So we're at the stages of still kind of 22 doing a little bit of analysis before determining what 23 a change to our policy will make. 24 MR. QUAIL: Q: Okay. You'll want to keep that IR in 25 front of you just for a moment, and turn to -- if you 26 turn to attachment 2, that is the initial, the July Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 198 1 Indeco report, BCOAPO IR 2.25.1, attachment 2 at page 2 15. Okay. So about halfway down the page it says: 3 "Low income programs, policies and services 4 in place at B.C. Hydro and other 5 jurisdictions to be categorized into five 6 broad types. These are education, energy 7 efficiency, customer support, bill 8 assistance, and emergency relief." 9 Now, just comparing this list of documents 10 -- this list of bullets, rather,- between the IR 11 response describing what B.C. Hydro believes the 12 strategy ought to be and what the Indeco report 13 recommends, focusing particularly on bill assistance, 14 it appears that the only sub-type, I guess, of bill 15 assistance that found its way into 1.18.3 is arrears 16 management. 17 MS. ZACHARIAS: A: That's right. 18 MR. QUAIL: Q: And I suppose this disconnect policy 19 could conceivably be considered a bill assistance 20 issue, may or may not be. 21 MS. ZACHARIAS: A: Could be under emergency relief as 22 well. I believe the bullets that we put in are 1.18.3 23 matches the first Indeco report. 24 MR. QUAIL: Q: Okay. Well, the first Indeco report is 25 the one we're looking at. It's attachment 2. That's 26 the first report. Attachment 1 is -- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 199 1 MS. ZACHARIAS: A: Yes, I see what you mean. 2 MR. QUAIL: Q: -- is the later report. 3 MS. ZACHARIAS: A: Okay. 4 MR. QUAIL: Q: Are you considering any bill assistance 5 initiatives that go beyond arrears management and 6 disconnection policy? 7 MS. ZACHARIAS: A: At this time we don't have a 8 definitive position on that. 9 MR. QUAIL: Q: Now let's turn to -- I note, just note 10 that one of the bullets there in your IR response is 11 conservation programs for low income customers. If we 12 could turn now to attachment 1, that's the later 13 Indeco report, the February 2008 report, and refer you 14 to .1.1 Program Principles, right at the beginning of 15 the document. That is page 6 of 47. 16 Proceeding Time 2:09 p.m. T39 17 And I'd like you just to review these. I 18 won't read them into the record. 19 Okay, and these are principles 20 specifically, as it says, for low-income groups. 21 Directing your attention to bullet 3: 22 "B.C. Hydro programs are generally designed 23 to be available to all customers. Low- 24 income programs recognize the specific needs 25 of this group of customers." 26 And I put it to you that one of those needs is the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 200 1 hurdle of up-front cost or participant cost. I think 2 we've sort of gone over that, but I just want to be 3 clear that that is one of the specific needs that the 4 Indeco report says needs to be recognized. 5 MS. ZACHARIAS: A: Yes, I think you could interpret 6 that, that for those conservation actions that require 7 capital, that that would be a barrier. 8 MR. QUAIL: Q: Yes. Now I'll direct you to Exhibit 9 C10-2, attachment 4, which is the later version of the 10 reports -- again, there's Providence we discussed 11 earlier, originating from Ms. Kelly. Page two, 12 paragraph two. It says: 13 "Utility DSM program expenditures are 14 typically passed on to consumers through 15 rate increases. For customers who are able 16 to take part in programs, this additional 17 cost can be more than offset by the benefits 18 that improved energy efficiency can bring." 19 Sorry, you're still looking for that. 20 THE CHAIRPERSON: What page are you on, Mr. Quail? 21 MR. QUAIL: I'm sorry, I'm way ahead of things. It's 22 page 2 of 12. 23 THE CHAIRPERSON: Yes. 24 MR. QUAIL: It's numbered -- of the attachment 4 of the 25 document entitled "Improving access to British 26 Columbia's demand-side management programs". Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 201 1 THE CHAIRPERSON: And you're at what paragraph? 2 MR. QUAIL: I'm at page 2 of 2. There's the heading 1, 3 "Background". 4 THE CHAIRPERSON: Right. 5 MR. QUAIL: Q: It's got a table 1 on it, and it's the 6 paragraph directly below that. 7 "Utility DSM program expenditures are 8 typically passed on to consumers through 9 rate increases. For customers who are able 10 to take part in programs, this additional 11 cost can be more than offset by the benefits 12 that improved energy efficiency can bring." 13 I assume that that's not a contentious general 14 statement. And in fact we have the rate impact test 15 is -- 16 MS. ZACHARIAS: A: Right. 17 MR. QUAIL: Q: -- one of the tools that's used for 18 evaluating DSM. Do you agree with that, Ms. 19 Zacharias? 20 MS. ZACHARIAS: A: Right. 21 MR. QUAIL: Q: "However, for other customers, 22 participation in energy efficiency upgrades 23 is beyond their means, because the up-front 24 capital required to invest is not 25 available." 26 And you'd agree that there's programs that are not Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 202 1 available to low-income people who have no extra money 2 once they've met their basic necessities. I take it 3 that's not a contentious general statement. 4 MS. ZACHARIAS: A: Sure, for -- as I said, for those 5 that require capital investments. 6 MR. QUAIL: Q: Yes. 7 "Consequently, some of the historical 8 opposition to DSM programs has come from 9 advocacy groups representing the interests 10 of low-income earners, arguing that this 11 group is effectively excluded from 12 participation due to affordability issues if 13 they contribute to funding the programs." 14 So also you'd -- I assume you'd also agree with that 15 general statement. 16 MS. ZACHARIAS: A: I don't know if there's been 17 opposition to PowerSmart programs in the past from 18 low-income advisory groups within this province. I 19 guess the other -- well, this paragraph is true in 20 talking about the specific benefits. I mean, the 21 overall benefit of DSM, of course, is that to the 22 extent that it provides a lower-cost option to meet 23 our resource requirements going forward as a province, 24 it will mean smaller rate increases over the 25 foreseeable future. So, to the extent that that 26 benefits everybody, including low-income customers, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 203 1 DSM in general also benefits low-income customers. 2 Proceeding Time 2:14 p.m. T40 3 MR. QUAIL: Q: But to the extent that there can be -- 4 and again, this is analyzed in terms of the rate 5 impact as to DSM. Everybody contributes to the rates 6 to the cost of programs. To the extent that there are 7 financial barriers to poorer customers participating, 8 in effect they are cross-subsidizing more affluent 9 customers who are able to participate to that extent. 10 MS. ZACHARIAS: A: If all of those things are true, 11 theoretically it's possible. But as I said earlier, 12 one of the two large programs that B.C. Hydro has done 13 for residential customers over the last five years has 14 been the refrigerator pick-up program and CFL program, 15 which has benefited, which doesn't depend on capital, 16 and you know, possibly has benefited low income 17 customers directly. 18 MR. QUAIL: Q: I'm not going to go back to 19 refrigerators. 20 Now, one of the concerns that's raised in 21 much of the discussion about DSM initiatives is the 22 problem so called "free ridership". That is, if you 23 offer something at a discount, and the customer would 24 have bought it anyway or done it anyway, they are 25 getting the advantage of the discount but you actually 26 haven't achieved any incremental savings through Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 204 1 energy conservation. Is that not a bad synopsis of 2 the notion of free ridership? 3 MR. TIEDEMANN: A: I think it's perhaps just a little 4 bit simplistic. The notion of free rider, indeed 5 refers to an agent who would have undertaken to 6 install the technology in the absence of an incentive. 7 So when we evaluate PowerSmart programs we undertake 8 research to understand the nature and size of those 9 free riders. But it is certainly not the case that 10 everyone is a free rider as implied by the question. 11 MR. QUAIL: Q: No, I don't think that's what the 12 question implied. The concept of free ridership is 13 you are paying for something that would have happened 14 spontaneously and so you are not actually achieving 15 incremental conservation through your -- 16 MR. TIEDEMANN: A: So the notion of free rider is that 17 someone is receiving an incentive to undertake 18 something that they would have otherwise done. 19 MR. QUAIL: Q: Yes. Now, if you place that concept in 20 the context of a poor household that is struggling to 21 meet all of its basic requirements out of its monthly 22 pension cheque or welfare benefits or low wage or 23 whatever the source of income might be, doesn't have 24 anything left once its paid for all those necessities, 25 I'd suggest to you that no issue of free ridership can 26 apply because by definition these are people who had Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 205 1 no means to make investments absent the incentive or 2 the discount. Would you agree with that? 3 MR. TIEDEMANN: A: We don't actually have comprehensive 4 information on the extent to which low income 5 customers perhaps -- defined in terms of the low 6 income cut off participate in our program, so I'm not 7 sure. 8 MR. QUAIL: Q: Suppose you had a program where B.C. 9 Hydro was going to come and retrofit somebody's house 10 for them. If you do that for somebody who is 11 affluent, somebody who has got a house that is, you 12 know, leaking a lot of heat and so on, there's a real 13 risk that you're dealing with a free rider and you've 14 sunk a whole lot of money to fix up a house that 15 somebody had the means to do on their own and might 16 have done anyway. Would you agree with that? 17 MR. TIEDEMANN: A: No. The fact that they've had an 18 energy -- high energy consuming house that's 19 apparently leaky and they haven't undertaken 20 investments which would be cost effective, suggest 21 that there's some kind of barrier to undertaking those 22 investments and they could be multiple in nature. 23 They could be a lack of understanding of the nature of 24 the alternatives open to them. It could be that they 25 don't fully understand the nature of new technologies 26 and need additional information. It could be that by Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 206 1 having participated in a -- or participating in a B.C. 2 Hydro program but getting a signal that we support the 3 quality of the work that will be done. So there could 4 be a number of barriers, a number of reasons they 5 don't undertake cost-effective investments. 6 MR. QUAIL: Q: Okay, but what I want to focus more on 7 is the poor household, which actually is much more 8 likely to live in an old house with no insulation and 9 single glazed windows and very energy inefficient and 10 struggling just to meet basic necessities. If B.C. 11 Hydro say, were to have a program where it would come 12 in and retrofit the house at B.C. Hydro's ratepayers' 13 expense, there's no issue there of free ridership 14 potentially undermining the benefit of that program, 15 is there? 16 MR. TIEDEMANN: A: I would expect the free ridership 17 rate to be relatively low. 18 MR. QUAIL: Q: Yes. So what I'm suggesting is in 19 general, because of this phenomenon, there is a very 20 significant bang for the buck where you are targetting 21 programs, energy efficiency programs at poor 22 households who have no means of undertaking those 23 measures otherwise. 24 MR. ORANS: A: I think that that's a big leap. 25 MR. QUAIL: Q: Okay. 26 MR. ORANS: A: I think you got Mr. Tiedemann all the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 207 1 way to the point where he said that all other things 2 being equal it might be the case that free ridership 3 was less on low usage customers than high usage 4 customers, given that high usage customers have a 5 higher ability to respond anyway. 6 MR. QUAIL: Q: It was high income we're talking about. 7 MR. ORANS: A: Okay, high use; high income. But 8 that's not to say -- that doesn't necessarily imply 9 that programs targetted to low income customers are 10 more cost effective, all other things being equal, 11 than programs targetted to high income customers. 12 MR. QUAIL: Q: They had to be good programs, properly 13 designed and targetted and so on. 14 MR. ORANS: A: Yes. 15 Proceeding Time 2:14 p.m. T41 16 MR. QUAIL: Q: I'll now refer you to Exhibit B-7, 17 BCOAPO 2.25, attachment 1, which is the February 2008 18 Indeco report. Page 13 of 47. Heading 2.3 "B.C. 19 Hydro Programs": 20 "Some of the components of the low income 21 program that others offer and will be 22 discussed in what follows already exist at 23 B.C. Hydro in one form or another, 24 including:…" 25 And the first bullet is "monthly equal billing 26 program". Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 208 1 Now, the concept of equal billing is to 2 smooth out seasonal fluctuations in customers' hydro 3 bills, is that correct? 4 MS. ZACHARIAS: A: That's true. 5 MR. QUAIL: Q: And I suggest that it's a very useful 6 tool in the hands of low income customers. Other 7 people might use it, but talk about low income 8 customers. It's a very useful tool to help them keep 9 up with the utility bills, isn't that correct? 10 MS. ZACHARIAS: A: Yes. 11 MR. QUAIL: Q: So take the circumstances again of 12 seniors living on a modest fixed monthly pension 13 income. So their financial challenge is to make the 14 pension stretch each month to cover all their 15 household and other expenses. Fluctuating expenses 16 can present a very serious problem in that context, 17 isn't that right? 18 MS. ZACHARIAS: A: I could see how that would be true. 19 MR. QUAIL: Q: A sudden emergency cost can create a 20 financial crisis for a household like that, is that 21 correct? 22 MS. ZACHARIAS: A: Possible. 23 MR. QUAIL: Q: So if you consider a retired couple 24 living in an old house in Revelstoke, and I'm just 25 going to give names to them. I'm going to call them 26 Walter and Elsie, okay? We're talking about poor old Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 209 1 Walter and Elsie. We're really worried about Walter 2 and Elsie and that's the main reason we're here.\ 3 Anyway, they live in a house that dates 4 from the 1930s. It's poorly insulated, electrically 5 heated, and they live in the Revelstoke area and their 6 only source of income is government pensions and 7 Walter has a Canada Pension and small private pension. 8 That is the Old Age Pension, he has a small CPP and a 9 little private pension. And the government pensions 10 increase periodically to stay up with inflation, 11 right? But let's just say Walter's pension, his 12 private sector pension from his old job is fixed and 13 deteriorates every year with the cost of living. The 14 pension -- the total income in the household is the 15 same in January as it is in July, isn't that right, 16 under that scenario? 17 MS. ZACHARIAS: A: Under that scenario. 18 MR. QUAIL: Q: But their electricity consumption is 19 going to be much higher in January than July even 20 under the current flat rate, is that right? 21 MS. ZACHARIAS: A: If they're on electric heat. 22 MR. QUAIL: Q: Yeah, that's what I said, yeah. 23 MS. ZACHARIAS: A: Yes. 24 MR. QUAIL: Q: This old leaky house that's got maybe 25 cardboard stuffed between the walls to try to insulate 26 it. There's actually places that in the province. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 210 1 They have the ability to even out their hydro bills 2 using equal billing, so they have enough left over for 3 food throughout the year. That's why they use it, 4 isn't it? 5 MS. ZACHARIAS: A: I don't know why customers use equal 6 billing, but -- so, as you said earlier, the purpose 7 is to even out the payments of electricity throughout 8 the year. 9 MR. QUAIL: Q: I'm telling you that's what poor old 10 Walter and Elsie do. 11 Under the RIB as it's proposed, they are 12 likely to face substantial exposure to Step 2 in the 13 winter heating season, given that scenario. Wouldn't 14 you agree? 15 MS. ZACHARIAS: A: Maybe you could help us determine 16 that by telling us what their usage is. 17 MR. QUAIL: Q: I'm not even going to try the arithmetic 18 on that. The scenario though is, you've agreed that 19 there is a sub-group of the low income households who 20 are going to have significant exposure to Step 2, 21 would see a net increase because of the RIB. I don't 22 think that's contentious. You've said that in your 23 evidence, correct? 24 MS. ZACHARIAS: A: No, what we've said is that over 85 25 percent of customers are going to be paying less on 26 the RIB rate than they are on the flat rate. And Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 211 1 frankly, up to about 96 percent of customers, low 2 income customers, their usage is under 19 - 20,000 3 kilowatt hours a year, where the net bill impacts from 4 the RIB will be between 40 and 80 dollars a year more. 5 And if they save 1,000 kilowatt hours, which we think 6 is possible, they have the ability to mitigate that 7 bill impact. So to say that there's a substantial 8 number of low income customers that are going to be 9 hit, in your words, is not -- we don't think is 10 actually accurate. 11 MR. QUAIL: Q: But 80 bucks is a lot of money to Walter 12 and Elsie. 13 MS. ZACHARIAS: A: As I said, $80 -- I'm not suggesting 14 that $80 wouldn't be a lot of money. What I'm 15 suggesting is that in order to mitigate their bill, 16 they would have to save about 1,000 kilowatt hours, 17 which would be about five percent of their usage. And 18 if that home is as leaky and inefficient as you 19 suggested, there's opportunities for them to do so. 20 MR. QUAIL: Q: Would you agree with me that the 21 continuation of the equal billing plan is a very 22 important tool to those two seniors to be able to 23 continue to cover the costs of staying alive 24 throughout the seasonal fluctuations in their energy 25 costs? 26 Proceeding Time 2:25 p.m. T42 Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 212 1 MS. ZACHARIAS: A: We can see equal payment being very 2 helpful for those customers that require that, yes. 3 MR. QUAIL: Q: Okay. And equal billing helps to 4 prevent delinquent accounts and disconnections, 5 doesn't it? 6 MS. ZACHARIAS: A: Yes, it helps people make their 7 payments. 8 MR. QUAIL: Q: Yeah. And that in turn helps to avoid 9 at least some potential instances of homelessness, 10 doesn't it? 11 MS. ZACHARIAS: A: I don't know. 12 MR. QUAIL: Q: Okay. Now, B.C. Hydro has filed a 13 revenue requirements application before the Commission 14 for the current fiscal year, 2009, and also next year, 15 2010. Is that right? 16 MS. ZACHARIAS: A: That's correct. 17 MR. QUAIL: Q: Seeking general rate increases across 18 the board for this year and next. 19 MS. ZACHARIAS: A: Yes. 20 MR. QUAIL: Q: For the current year, 6.56 percent. Is 21 that right? 22 MS. ZACHARIAS: A: That's correct. 23 MR. QUAIL: Q: And for next year, 8.21 percent. 24 MS. ZACHARIAS: A: That's correct. 25 MR. QUAIL: Q: And this compounds, according to my 26 arithmetic, which is always a hazardous thing, to 15.3 Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 213 1 percent as of April 1st, 2009, compared to March 31st, 2 2008. 3 MS. ZACHARIAS: A: That is correct. 4 MR. QUAIL: Q: Okay. And the 6.56 percent increase 5 sought for fiscal '09 was approved by the Commission 6 on an interim basis effective April 1st, 2008. 7 MS. ZACHARIAS: A: Yes. 8 MR. QUAIL: Q: And the Commission Order in question is 9 G-40-08. Is that correct? 10 MS. ZACHARIAS: A: I'll take your word for it. 11 MR. QUAIL: Q: And we'll be going after that hammer and 12 tongs in an NSP, and we'll see what's left of it. But 13 anyway, that's what's there on an interim basis. 14 Now, I attended a workshop that was hosted, 15 I believe in this space, by B.C. Hydro not that many 16 weeks ago. But prior to the application being filed, 17 the revenue requirement. Where the utility indicated 18 it was contemplating, at that time, a three-year test 19 period instead of the two-year period that was applied 20 for in the revenue requirement. Do you recall that? 21 MS. ZACHARIAS: A: I wasn't at that forum. 22 MR. QUAIL: Q: Was anybody here at that? 23 MS. VAN RUYVEN: A: No. 24 MR. QUAIL: Q: Perhaps, then, you could confirm with 25 your peers that there was a discussion to that effect 26 at that time. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 214 1 MR. CHRISTIAN: If I can get some particulars, I don't 2 recall the workshop myself, but if I have a date, then 3 I can probably make some progress in that regard. 4 MR. QUAIL: I'll give you that. It's okay. I don't 5 think a great deal turns on it, so -- you know, in 6 terms of that particular bit of where we're going. 7 Q: Now, I don't know if it could be said there's a 8 street in the world of energy regulation, but just 9 speaking sort of metaphorically, I'd like to tell you 10 what the word is on the street, so that you can 11 comment about year three. That is, fiscal 2011. 12 Word on the street is that B.C. Hydro only 13 applied for two years for now because the projections 14 for fiscal 2011 are looking very ugly in terms of rate 15 impact. Do you have any comment on that? 16 MS. VAN RUYVEN: A: I'm not the executive responsible 17 for the RRA, and I'm -- no other panel member, 18 including myself, I think, is able to answer that 19 question. I just don't know the answer to that. 20 MR. QUAIL: Q: I'm going to have a series of questions 21 about prospects for B.C. Hydro's rates over the coming 22 period, beyond the two-year period of revenue 23 requirement, so I hope that there's someone here who 24 is able to answer those questions. 25 I'd like to look at some of the general 26 factors driving B.C. Hydro's rates, to get a sense of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 215 1 what overall prospects might be. And I'm not going to 2 be delving into trying to determine what rates are 3 going to be in any particular future year. This is 4 much more a matter of sort of magnitude and direction 5 that I'm going to be discussing. And what I'd like 6 you to turn to is the second document in Exhibit C10- 7 6, the BCOAPO additional materials for cross- 8 examination. This is another document that will be 9 very familiar to you. This is a small extract from a 10 very large document, the F'09-F'10 revenue 11 requirements, filed February, 2008. 12 And what we've provided, starting at page 13 2-2, is the table of contents. And I'm just going to 14 be using that as a list of revenue cost drivers. 15 Okay? And we're not -- the determination of the 16 revenue requirement is for another process altogether. 17 We're not -- that's not where I'm going. Okay? 18 Proceeding Time 2:30 p.m. T43 19 But just what are some of the things that 20 are going on here. So if you look at 2.2 under -- 21 there's one on -- item number 1.2.2 Outlook for 2009- 22 2010. First one, 184.108.40.206 is Aging Assets. So is 23 aging assets a factor to drive rates up, down or 24 sideways? 25 MS. VAN RUYVEN: A: Aging assets is really about 26 reinvesting in our Heritage Assets in a very large Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 216 1 capital campaign that we're undertaking to ensure that 2 those Heritage Assets continue to deliver reliable 3 electricity to our customers. So it's making it go 4 up. 5 MR. QUAIL: Q: Yes. Will this issue be totally 6 resolved by the end of fiscal 2010, or will it 7 continue as a source of rate pressure? 8 MS. VAN RUYVEN: A: We anticipate that our capital 9 reinvestment is at least a ten-year program. 10 MR. QUAIL: Q: Yes. And to the extent that you have 11 assets that have passed their best-before date, in 12 fact, one would imagine that they'll be even more out 13 of date in 2011 and updating will be all the more 14 urgent. 15 MS. VAN RUYVEN: A: We've pretty much identified those 16 assets over the next ten years that need minor to 17 major upgrading. Some of our assets are upwards above 18 90 years old at this point in time. 19 MR. QUAIL: Q: 220.127.116.11 in the table of contents, 20 Capacity Constraints. This is another factor pushing 21 rates upward, isn't the direction? 22 MS. VAN RUYVEN: A: That's correct. 23 MR. QUAIL: Q: Will this factor be resolved by March 24 31st, 2010, or will it be a continuing source of rate 25 pressure? 26 MS. VAN RUYVEN: A: It's really driven by the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 217 1 additional capacity additions at Mica and Revelstoke, 2 which will really happen in the next years, not within 3 two. 4 MR. QUAIL: Q: Yes. So this is an ongoing story. It 5 doesn't end with this, the current revenue requirement 6 application, is that right? 7 MS. VAN RUYVEN: A: No, I think it's fair to say, and 8 you'll see some of this in the LTAP, that we have some 9 cost pressures that are not just two-year cost 10 pressures. They go beyond a two-year period. 11 MR. QUAIL: Q: Yes. The next heading in the table of 12 contents is Labour Market Pressures. And I gather 13 that about 30 percent of your entire workforce will 14 retire over the next five years? That's drawn from 15 your revenue requirement? 16 MS. VAN RUYVEN: A: That sounds about correct. 17 MR. QUAIL: Q: So that's by about 2013. 18 MS. VAN RUYVEN: A: They could retire by then. 19 MR. QUAIL: Q: And presumably there would be more 20 retirements on an ongoing basis, 2014 and beyond. 21 MS. VAN RUYVEN: A: Yes, we are seeing the same 22 demographics of any other large organization in 23 British Columbia. 24 MR. QUAIL: Q: And this is pushing rates up, this 25 phenomenon, labour market pressures. 26 MS. VAN RUYVEN: A: Well, not having the RRA in front Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 218 1 of me and not having read that particular section, I 2 can't say for sure if it's pushing it up or not. 3 MR. QUAIL: Q: I suggest that demographic and economic 4 factors are contributing to labour market pressures. 5 MS. VAN RUYVEN: A: I think it would be fair to say 6 that that's a distinct possibility. 7 MR. QUAIL: Q: And that isn't confined to your own 8 issues of retaining and replacing your workforce and 9 so on, but also contractor costs. It's one of the 10 things that's making it much more expensive to do just 11 about anything. 12 MS. VAN RUYVEN: A: Well, there's an economic boom in 13 British Columbia and it's first of all hard to find 14 resources. And secondly, when you do, we are seeing 15 cost pressures both from the resources we're bringing 16 on permanently at Hydro, plus our whole contracting 17 pressures. 18 MR. QUAIL: Q: Yes, and that's one of the issues 19 addressed in the next heading in the table of 20 contents, High and Escalating Construction Costs, that 21 there are labour market pressures and also cost of 22 materials, commodities, everything is going up, right? 23 MS. VAN RUYVEN: A: That's correct. 24 MR. QUAIL: Q: And so there's been a number of 25 projects, like the Aberfeldie project, for example, 26 where the cost of completing the work is evidently Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 219 1 going to be substantially more than what was projected 2 because of this upward pressure on the price of having 3 work done, is that right? 4 MS. VAN RUYVEN: A: I'm not sure of the specifics of 5 the Aberfeldie project. I'm not sure where those 6 costs will finally come in. 7 MR. QUAIL: Q: Sure. But as a general phenomenon it's 8 getting more and more expensive to do just about 9 anything in this province. 10 MS. VAN RUYVEN: A: Yes, it is. 11 MR. QUAIL: Q: And are you able to assure us that this 12 will all be resolved by April 1st, 2010? 13 MS. VAN RUYVEN: A: Well, I believe I said this is 14 probably at least a ten-year reinvestment. 15 MR. QUAIL: Q: Yes. 16 MS. VAN RUYVEN: A: And I can't say where escalating 17 costs are going to go over the ten years, but we 18 continue to see them escalating, I believe, beyond a 19 two-year period. 20 MR. QUAIL: Q: Yes. Next we have 18.104.22.168 in the table 21 of contents, B.C. Government Policy. Is there any 22 indication that the provincial government will abandon 23 its Energy Plan at the end of fiscal year 2010? 24 Proceeding Time 2:35 p.m. T44 25 MS. VAN RUYVEN: A: I think you'd have to ask the B.C. 26 government that question. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 220 1 MR. QUAIL: Q: So in other words, you don't have -- or 2 if you do, you aren't allowed to tell us, is that what 3 you're saying. 4 MS. VAN RUYVEN: A: I don't know the answer to that. 5 MR. QUAIL: Q: Yes. No, I didn't imagine that you did. 6 MS. VAN RUYVEN: A: I don't know even know who the 7 government will be in 2010, so it's very hard for me 8 to answer. 9 MR. QUAIL: Q: That's a very good answer. 10 But the current government's policy sets 11 targets way beyond 2010. 12 MS. VAN RUYVEN: A: That's correct. 13 MR. QUAIL: Q: Way beyond the two-year test period in 14 this revenue application. 15 MS. VAN RUYVEN: A: Yes. 16 MR. QUAIL: Q: And in fact, the initial target date for 17 self-sufficiency is well beyond the range of the 18 revenue requirement. 19 MS. VAN RUYVEN: A: It's 2016. 20 MR. QUAIL: Q: Yes. And then there's a date for 21 insurance, so called, on top of that. What's the 22 target date for that? 23 MS. VAN RUYVEN: A: I believe it's 3,000 gigawatt hours 24 by 2020. 25 MR. QUAIL: Q: Yes. And self-sufficiency is going to 26 -- achieving that is going to have rate implications, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 221 1 isn't it? 2 MS. VAN RUYVEN: A: Yes, it will. 3 MR. QUAIL: Q: I'd like to look at some other elements 4 of the B.C. governments policy and the likely 5 directional impact on your rates after the two-year 6 envelope covered by your revenue requirement. 7 Greenhouse gas policy. Burning coal and dumping the 8 smoke in the atmosphere is a relatively cheap way of 9 making electricity, isn't it? 10 MS. VAN RUYVEN: A: But prohibited by the 2007 energy 11 plan. 12 MR. QUAIL: Q: Precisely. It's a relatively cheap 13 source of both energy and capacity. 14 MS. VAN RUYVEN: A: In relation to -- you'd have to 15 compare it in relation to other resources. It 16 traditionally has factored into jurisdiction supply 17 stack, because it has been reasonably inexpensive from 18 a fuel cost perspective. I would think going into a 19 greenhouse gas constrained world that might not be the 20 case going forward. 21 MR. QUAIL: Q: Sequestering the carbon dioxide 22 emissions from coal generation on a commercially 23 viable level is technically difficult, if not 24 impossible, at this point, isn't that right? 25 MS. VAN RUYVEN: A: We are not aware of any 26 jurisdiction that has successfully built a coal-fired Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 222 1 plant and fully sequestered the CO2. 2 MR. QUAIL: Q: And it's looking like a pretty expensive 3 technology if it can be achieved, am I right? 4 MS. VAN RUYVEN: A: Perhaps today. It could change in 5 ten years. 6 MR. QUAIL: Q: Let's hope so. Buying offsets for 7 emissions from natural gas fired thermal generators 8 will add to cost, won't it? 9 MS. VAN RUYVEN: A: Yes, it will. 10 MR. QUAIL: Q: Requiring B.C. Hydro to rely on clean 11 and renewable resources -- I'm not suggesting these 12 are bad policies, just looking at the rate 13 implications. Requiring B.C. Hydro to rely on clean 14 and renewable resources for 90 percent of its 15 incremental supply tends to eliminate many low cost 16 options and adds to rate pressure, isn't that right? 17 MS. VAN RUYVEN: A: No, I don't agree with that. 18 MR. QUAIL: Q: Okay. The imposition of a carbon tax 19 will add to the cost of provincially sourced thermal 20 electricity, is that right? 21 MS. VAN RUYVEN: A: Yes, the carbon tax will add costs. 22 MR. QUAIL: Q: Implementing a cap and trade regime will 23 add to the cost of electricity? 24 MS. VAN RUYVEN: A: I think if it depends if you think 25 you have something to trade that has value and we 26 potentially may be a net beneficiary of a cap and Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 223 1 trade system in the western grid. Knowing we have a 2 lot of clean renewable resources, it may be a benefit 3 to British Columbia, but until we know the rules and 4 how that marketplace is going to work, I don't think 5 we can definitively answer that question. 6 MR. QUAIL: Q: In general, avoiding or mitigating a 7 global climate crises will involve higher energy 8 prices, won't it? 9 MS. VAN RUYVEN: A: No, I don't agree with that. I 10 think if we are incredibly successful doing demand- 11 side management, using rate structures in particular, 12 which are very cost effective, that's a very low cost 13 way and I don't believe that clean renewable resources 14 going into the future are going to be more expensive, 15 necessarily than non-clean or thermal generation. 16 Proceeding Time 2:38 p.m. T45 17 MR. QUAIL: Q: Well, let's hope you are right about 18 that. 19 Now, self-sufficiency means that B.C. Hydro 20 would either prefer B.C.-based generation resources, 21 even if imported energy is available at a cheaper 22 market price. Isn't that so? 23 MS. VAN RUYVEN: A: Self-sufficiency means we are 24 required to have based-in-B.C. resources to meet our 25 domestic needs in a critical water sequence. 26 MR. QUAIL: Q: Can you tell me what the approximate Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 224 1 current spot price for electricity is at mid-C, 2 roughly? Can anybody tell me that? 3 MS. VAN RUYVEN: A: Last time I looked, it was quite 4 high, like in the $80 or $90 range, but it may have 5 come down now with the freshet season. 6 MR. QUAIL: Q: Right, okay. And what was the average 7 adjusted price for B.C.-generated electricity from the 8 2006 open Call after line losses? 9 MS. VAN RUYVEN: A: The reference price, the average 10 adjusted to the Lower Mainland, was 8.8 cents. 11 MR. QUAIL: Q: And do you expect the average price for 12 energy available under the pending clean Call to be 13 lower than that from the 2006 Call? 14 MS. VAN RUYVEN: A: I'm going to say "lower" in case 15 there's any IPPs in the audience. 16 MR. QUAIL: Q: Well, the IPP's costs are rising too, 17 aren't they? 18 MS. VAN RUYVEN: A: Yes. But you've got to remember, 19 this clean Call is a Call that we're anticipating a 20 great deal of competition and some larger projects 21 that we hope have economies of scale. So I'm not 22 going to pre-suppose the outcome. We certainly hope 23 that the IPPs are going to be as competitive as 24 possible, and we'll be carefully watching those 25 prices. 26 MR. QUAIL: Q: Well, let's talk about it a bit. Do you Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 225 1 recall our discussion during the last LTAP hearing 2 about the phenomenon of low-hanging fruit? That 3 phrase was raised by one of the Commissioners, and I 4 proceeded further in cross-examination. Were any of 5 you -- any of you recall that? The transcript -- 6 MS. VAN RUYVEN: A: I don't recall that. 7 MR. QUAIL: Q: And I -- I'm not going to bother 8 producing the transcript, I'll content myself with 9 summarizing it, and my friend can take issue if he 10 thinks it's not a fair summary. Which was the effect 11 that, assuming an efficient market, the most cost- 12 effective sources of IPP power will tend to be 13 developed first, and that this creates a general trend 14 toward higher costs over time as the low-hanging fruit 15 gets culled. That was the essence of the discussion. 16 MR. CHRISTIAN: Since my friend invited me to comment, 17 I'm going to rise. I'm going to only say that I can't 18 address the -- whether the accurate -- the 19 characterization is accurate or not. The witnesses 20 may or not be able to. 21 THE CHAIRPERSON: One of the Panel can, actually. I mean 22 me. 23 MR. CHRISTIAN: Oh, one of the panel. Maybe the question 24 should -- 25 MR. QUAIL: Yes. And no doubt, Mr. Chairman, you'll 26 recall that discussion. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 226 1 Q: And I put it to you that, following the outcome 2 of the 2006 Call in practice -- I mean, you said you 3 don't want any IPPs to hear this, but I don't think it 4 was a big secret. They have an effective price floor 5 to bid from, don't they? They know that B.C. Hydro's 6 willing to pay at least the average F06 call price. 7 Sort of elementary. 8 MS. VAN RUYVEN: A: It's possible. But they also know 9 that there could be upwards of 200 projects bid into 10 this Call, and potentially we might award two or three 11 contracts. So despite the fact they assume that B.C. 12 Hydro's going to at least take 8.8-cent energy, that 13 would be a very risky assumption to make, if I knew I 14 was going into a competitive process. 15 MR. QUAIL: Q: That's why we're going to be seeking a 16 strict limit on the proportion of bids that can be 17 accepted by B.C. Hydro, so there's some real 18 competition. But aside from achieving something like 19 that, you understand that under Bill 15 this 20 Commission has no oversight over the contract prices 21 of agreements with IPPs that have been reached 22 pursuant to an approved Call? 23 MS. VAN RUYVEN: A: I'm sorry, could you repeat that? 24 MR. QUAIL: Q: Oh, yeah. It's a long sentence to 25 repeat. Because of Bill 15, this Commission has no 26 oversight over the contract price of any contracts, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 227 1 the bid price of any contract you enter into with an 2 IPP that is entered into pursuant to an approved Call? 3 MR. CHRISTIAN: I think I just need to rise, because I 4 think the question very clearly asks for an 5 interpretation of a statute, and the witnesses aren't 6 here to give their legal opinions or evidence with 7 respect to the statute, particularly provisions that, 8 I think, clearly have no bearing on -- certainly no 9 direct bearing on the application before the 10 Commission. 11 THE CHAIRPERSON: Well, let's face it, particularly, Mr. 12 Quail, as you're asking the witness to speculate on 13 the Commission's powers rather than B.C. Hydro's. 14 MR. QUAIL: Well, okay. 15 Q: Back on Tuesday, November 27th, 2007, B.C. 16 Hydro sponsored an information session on the clean 17 Call at the Renaissance Hotel in Vancouver. Was any 18 of you there? 19 MS. VAN RUYVEN: A: I was there for the first ten 20 minutes. 21 MR. QUAIL: Q: Okay, so you won't have witnessed what I 22 was going to suggest to you. There was an IPP 23 representative who spoke about the prospects for bid 24 prices in the pending clean Call, and I don't know if 25 you were there or not when a prominent IPP 26 representative rose to predict bids in the range of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 228 1 $110 a megawatt hour. Were you present when that was 2 -- 3 MS. VAN RUYVEN: A: I was not there. 4 Proceeding Time 2:44 p.m. T46 5 MR. QUAIL: Q: Back to the '06 call. Those projects 6 come on steam by fiscal year 2011, is that right? 7 MS. VAN RUYVEN: A: That's what we're hoping. 8 MR. QUAIL: Q: In the proceedings to approve the 9 contract signed pursuant to the '06 call, the 10 projected rate impact of those contracts was estimated 11 at 8 percent from the then current B.C. Hydro revenue 12 requirement, is that right? 13 MS. VAN RUYVEN: A: That's correct. 14 MR. QUAIL: Q: So over and above business as usual, 8 15 percent, coming on stream 2011, right? 16 MS. VAN RUYVEN: A: That's correct. 17 MR. QUAIL: Q: That's year three of your revenue 18 requirement by the way, isn't it? 19 Another gift of Bill 15 that we've talked 20 about already is smart meters throughout the 21 residential customer base by 2012 unless the Minister 22 orders otherwise. I think that's straightforward 23 enough, I'm not asking for a -- I'll just sort of 24 state that as a premise. 25 And there's a current pilot study underway, 26 is that right? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 229 1 MS. ZACHARIAS: A: That's correct. 2 MR. QUAIL: Q: And there's a working group overseeing 3 the pilot. 4 MS. ZACHARIAS: A: If you are referring to the CRI 5 advisory group, that's a group of stakeholders. I 6 don't know if I'd say that they are overseeing it, or 7 are you talking about the project team within B.C. 8 Hydro. 9 MR. QUAIL: Q: No, I'm talking about the advisory 10 group. And what is the current cost estimate for 11 installing smart meters throughout the residential 12 customer base and the associated systems and so on, as 13 revealed to that advisory committee. 14 MR. CHRISTIAN: And I object on the grounds of relevance. 15 I don't understand how the answer to that question 16 advances any issues in this proceeding. 17 MR. QUAIL: The relevance is that it's $900 million and 18 this is going to be driving rates up starting in 2012 19 and we have an affordability crises that's ready to 20 hit people on the head in this province, and we're 21 looking for remedies. So that's my response to my 22 friend's objection. 23 MR. CHRISTIAN: If this is all on the theme of the cost 24 pressures and the general kind of caveat my friend 25 introduced this line of questioning within, I think 26 that's okay, to the extent that the witness can answer Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 230 1 it. 2 MR. QUAIL: Q: Okay. 3 MS. VAN RUYVEN: A: Well, I can answer what we've put 4 publicly in our service plan. We've not landed on the 5 exact cost of smart metering because we haven't picked 6 a vendor and we haven't selected our technology, but 7 the range is 730 to 930 million dollars for the smart 8 metering initiative. 9 MR. QUAIL: Q: And I assume the impact of that will 10 start being felt on rates once they are all in in 11 2012. Is that when you'd expect to start recovering 12 the investment on smart meters? 13 MS. VAN RUYVEN: A: Well, we'll be putting forward a 14 business case in smart metering before this Commission 15 to show them that our business case has a very healthy 16 net positive benefit for all British Columbia. 17 MR. QUAIL: Q: I'm sure. For example, it will reduce 18 your meter reading. 19 MS. VAN RUYVEN: A: That's a big part of it, yes. 20 MR. QUAIL: Q: How much do you spend a year on meter 21 reading? 22 MS. VAN RUYVEN: A: I don't have those numbers off the 23 top of my head. 24 MR. QUAIL: Q: I take you can read an awful lot of 25 meter for 900 million bucks. Anyway, we'll save all 26 the debate about that for -- I don't know if there Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 231 1 will be a hearing on that one or not. I don't know 2 whether -- again, that's another issue that's 3 jurisdictional in character. 4 Back to the table of contents, 22.214.171.124 is 5 First Nations, and here the discussion in the 6 application is the cost of consultation and 7 accommodation, is that right? 8 MS. VAN RUYVEN: A: That's correct. So with any large 9 capital program and reinvesting in facilities and the 10 capacity additions at Mica and Revelstoke, and also 11 the transmission capital plan, because we do the 12 accommodation and consultation for First Nations on 13 behalf of BCTC, that is driving up costs. 14 MR. QUAIL: Q: Yes. And the cost of future 15 accommodation is by definition totally unknown at this 16 point, right? 17 MS. VAN RUYVEN: A: That's correct. 18 MR. QUAIL: Q: And most First Nations territorial and 19 resource claims in British Columbia remain unresolved, 20 plugged up in the system, isn't that right? 21 MS. VAN RUYVEN: A: I'm not an expert on First Nations 22 but I would say that's a fair representation. 23 MR. QUAIL: Q: And some of those eventual resolutions 24 may involved cost to B.C. Hydro and its ratepayers, 25 isn't that right? 26 MS. VAN RUYVEN: A: That's right. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 232 1 MR. QUAIL: Q: And that's another factor that's likely 2 to continue for some time putting pressure on B.C. 3 Hydro's rates. 4 MS. VAN RUYVEN: A: I believe that's true. 5 Proceeding Time 2:48 p.m. T47 6 MR. QUAIL: Q: And we can only guess what scale that's 7 going to be. 126.96.36.199 is economic and population 8 growth. Population growth tends to dilute the per- 9 customer benefit of the Heritage assets, doesn't it? 10 MS. VAN RUYVEN: A: Yes, all new customers, by virtue 11 of taking some of our tariff, are taking some of that 12 Heritage contract as well, so the existing customers 13 end up getting less of it as we add new customers. 14 MR. QUAIL: Q: And that inexorably pushes rates up. 15 MS. VAN RUYVEN: A: That is another cost pressure. You 16 have to find new supply or ways to meet that growing 17 demand. 18 MR. QUAIL: Q: Okay. And this will also provide 19 ongoing pressure to meet peak demand, assuming -- 20 aside from, you know, taking into account 21 conservations pressures, but the countervailing 22 pressure is the economic and population growth which 23 is always putting upward pressure on peak demand, 24 isn't that right? 25 MS. VAN RUYVEN: A: Yes, and that was kind of covered 26 in the capacity constraints section. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 233 1 MR. QUAIL: Q: This also tends to make self-sufficiency 2 a moving target, doesn't it? 3 MS. VAN RUYVEN: A: Well, we do load forecast 4 projections. We know what our load is going to be in 5 2016. We do the load forecast every year, so -- 6 MR. QUAIL: Q: Yes. 7 MS. VAN RUYVEN: A: We'll have a pretty good idea if 8 we're successful in 2016. 9 MR. QUAIL: Q: Yes. But it isn't over in 2016. Self- 10 sufficiency is a continuing process, and in fact 11 there's this insurance policy that gets added over the 12 next four years after that, and it's -- at least 13 according to the policy of the existing government, is 14 a permanent program, is it not? 15 MS. VAN RUYVEN: A: Yes, and -- I mean, self- 16 sufficiency in and of itself isn't going to drive 17 rates up significantly more than they would have 18 otherwise been driven up by whatever choice you make 19 to serve increasing load. Load increases and 20 utilities have to spend money to find new resources. 21 Whether that's importing at $90 a kilowatt hour -- or 22 at 9 cents a kilowatt hour or whether it's building 23 new supply additions. 24 MR. QUAIL: Q: When will the VITR come on stream? 25 MS. VAN RUYVEN: A: VITR is due to be in service in 26 October of '08. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 234 1 MR. QUAIL: Q: And when will B.C. Hydro's ratepayers 2 have to start paying the capital cost of that? 3 MS. VAN RUYVEN: A: I'm not exactly sure how that flows 4 from BCTC's capital plan into our revenue 5 requirements. 6 MR. QUAIL: Q: Yes. 7 MS. VAN RUYVEN: A: I'm assuming it is in our RRA. 8 MR. QUAIL: Q: Transmission projects, and there's a 9 number of them in the stack, there's a central 10 Vancouver Island reinforcement, which is just the 11 hearing just underway now. These all add pressure to 12 B.C. Hydro's future revenue requirements as well, 13 don't they? 14 MS. VAN RUYVEN: A: That's correct. 15 MR. QUAIL: Q: If Site C is built, about what time 16 frame would you guess it would be coming into 17 operation? I recognize it's a very hypothetical 18 question. 19 MS. VAN RUYVEN: A: I won't guess any time frame for 20 Site C. 21 MR. QUAIL: Q: Site C, if it happens, is going to cost 22 a lot of money, isn't it? 23 MS. VAN RUYVEN: A: Again, it's relative to, what other 24 the choices you have? Site C has very high up-front 25 capital costs, but it's an asset that lasts many, many 26 years. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 235 1 MR. QUAIL: Q: Yeah. 2 MS. VAN RUYVEN: A: That's really why we're enjoying 3 low-cost Heritage power, because of those large 4 facilities that we built many, many years ago. 5 MR. QUAIL: Q: And the costs will be met by ratepayers. 6 Correct? 7 MS. VAN RUYVEN: A: Yes. That would be the appropriate 8 thing to do. 9 MR. QUAIL: Q: Meanwhile, the cost of doing just about 10 everything tends to rise over time, and the historical 11 upward trend in B.C. Hydro's cost of operations and 12 projects can be expected to continue, on top of all of 13 these particular categories. 14 MS. VAN RUYVEN: A: With the pressures we're facing, 15 and the list that you've taken me through here today, 16 yes, that is the case. 17 MR. QUAIL: Q: I put it to you, the days of cheap 18 electricity in B.C. are coming to an end, if they 19 haven't already. 20 MS. VAN RUYVEN: A: No, I would disagree with that. 21 MR. QUAIL: Q: Okay. 22 MS. VAN RUYVEN: A: Every other utility world-wide is 23 facing these exact same cost pressures. We have been 24 a low-cost jurisdiction. You can see that in some of 25 our evidence filed. Our customers pay 6.56 cents a 26 kilowatt hour in the residential sector. That's Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 236 1 amongst the lowest rates in the world. And as our 2 rates go up, everyone else's rates are going to go up 3 at the same pace and the same velocity as we're facing 4 in the next ten years. 5 MR. QUAIL: Q: So you're telling me that cheap 6 electricity is coming to an end everywhere. 7 MS. VAN RUYVEN: A: That's correct. 8 MR. QUAIL: Q: Okay. And would you agree with me that, 9 as a result of this prospect, that a very serious 10 problem is looming for customers who rely on B.C. 11 Hydro for essential household energy who have lower 12 fixed incomes? 13 Proceeding Time 2:53 p.m. T48 14 MS. VAN RUYVEN: A: Well, I believe the cost of 15 everything is rising. You could see that, whether 16 it's car insurance that they pay, the food that they 17 have to buy, house insurance, rental. So it's all 18 relative to everything else they're having to pay, and 19 I do believe it will put pressure in this cost 20 escalating marketplace we are in, to low income 21 customers. 22 MR. QUAIL: Q: If a household's consumption stays on 23 Step 1 under your proposal, it would not see any real 24 increase in unit price of electricity, right? 25 MS. ZACHARIAS: A: That is correct. 26 MR. QUAIL: Q: I'd now like to direct you to Exhibit B- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 237 1 7. 2 I don't know if this is an appropriate time 3 to take the mid-afternoon break and carry on. 4 THE CHAIRPERSON: If you'd like, right, we will for -- 5 MR. QUAIL: Yeah, I'm sort of getting into another 6 subject matter. 7 THE CHAIRPERSON: We'll break for 15 minutes. 8 (PROCEEDINGS ADJOURNED AT 2:54 P.M.) 9 (PROCEEDINGS RESUMED AT 3:10 P.M.) T49 10 THE CHAIRPERSON: Please be seated. 11 Mr. Quail, before we begin, Mr. Fulton 12 rightly points out that we should set some hours for 13 tomorrow, as we didn't start till 9:30 this morning, 14 which was entirely my fault. Unless I hear any 15 strenuous objection from anyone, I propose we start at 16 8:30 tomorrow morning. Is that all right with 17 everyone? So be it. 18 Please proceed, Mr. Quail. 19 MR. QUAIL: Q: Now, panel, we're going to move on to 20 some discussion of differential impacts of the RIB, 21 and I'd draw your attention to Exhibit B-7 which is 22 the second round of IR responses, response to BCUC 23 2.67.1. That's 2.67.1 and it's attachment 1 to that. 24 So 2.67.1, attachment 1. 25 Okay, and if you can turn to Table 5 which 26 is on -- it's numbered at the bottom, page 5 of 6 of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 238 1 that attachment. Now, looking at that table, would 2 you agree with me that natural gas heated homes get 3 the largest decrease under RIB, and electric heated 4 homes get the largest increase according to that 5 chart? 6 MS. ZACHARIAS: A: It shows that electricity is 2.1 7 percent and natural gas is negative 3.9. 8 MR. QUAIL: Q: Yes. And in the electric heat series, 9 if you look at the slice from December 2009 to January 10 2010, projects a 6.8 percent higher rate than would 11 obtain under the flat rate. Is that correct? 12 MS. ZACHARIAS: A: For those months, that is correct. 13 MR. QUAIL: Q: Okay. Now I'd refer you in the same 14 exhibit, that's B-7, Terasen 1.2.3. You have another 15 table there. 16 MS. ZACHARIAS: A: Is that another IR? 17 MR. QUAIL: Q: That's Terasen 1. -- I'm sorry, that 18 must be in B-2. That was 1.2.3. My note has B-7 but 19 -- yes, I'm sorry, it's in B-3. Sorry to have led you 20 astray there. Terasen 1.2.3. 21 MS. ZACHARIAS: A: Yes, I see it. 22 MR. QUAIL: Q: Okay, how much of the load in kilowatt 23 hours, percentage of total annual load for these 24 typical dwellings and heating type have been priced at 25 Tier 2 rate and there's the table. Now, looking at 26 the table, just a few general observations, I'd like Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 239 1 you to agree that I've got this right. 2 By housing type, single family dwelling is 3 most affected, followed by mobile homes, ignoring 4 seasonal dwellings. 5 MS. ZACHARIAS: A: So those percentages are based upon 6 the percent of load in each of those steps, using as 7 the denominator the average for each of those dwelling 8 types. 9 MR. QUAIL: Q: Yes, so the proportion of the load that 10 will be billed on Tier 2. 11 MS. ZACHARIAS: A: That's true. However, what I'm 12 pointing out is the number of kilowatt hours that 13 would be billed at Step 2 for mobile homes. It's not 14 necessarily comparable to the amount of -- the percent 15 of load in Step 2, if you compare it to a single 16 family dwelling, for instance. So the percentages are 17 not -- are one thing, but you also have -- in terms of 18 understanding what the impact is, you have to look at 19 the absolute number of kilowatt hours that would be 20 billed in Step 2 versus Step 1. 21 Proceeding Time 3:15 p.m. T50 22 As just a general statement, obviously you 23 can look at particularly the electric heat issue from 24 a lot of different ways, and as you'll also notice on 25 that chart, there's a number of apartments, town 26 homes, et cetera, that also use electric heat for Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 240 1 heating. And if you look at our customers overall, 2 you find out that for customers that have electric 3 heat and electric water, so the ones that are most 4 electricity-intensive, approximately 54 percent of 5 them are actually under the cut point of 14,500, and 6 about 45 percent are over that cut point. 7 MR. QUAIL: Q: According to the chart for a single- 8 family dwelling with electric heat, 55 percent of the 9 load would be billed on Tier 2. That's what the chart 10 says. Isn't that right? 11 MS. ZACHARIAS: A: That's true. 12 MR. QUAIL: Q: And single-family dwelling without 13 electric heat would be only 34 percent of the load 14 billed to Tier 2. 15 MS. ZACHARIAS: A: That's what that chart says. 16 MR. QUAIL: Q: Mobile home with electric heat, which is 17 a very small minority of mobile homes, I understand, 18 and which this indicates as well, is 45 percent of the 19 load billed at Tier 2? 20 MS. ZACHARIAS: A: That's what that chart says. 21 MR. QUAIL: Q: Yeah. And mobile homes without electric 22 heat, 30 percent billed at Tier 2. 23 MS. ZACHARIAS: A: That's true. 24 MR. QUAIL: Q: Mobile home's sort of a tin can out in a 25 field somewhere, with heat going -- 26 MS. ZACHARIAS: A: I disagree with that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 241 1 characterization. 2 MR. QUAIL: Q: Okay. That's very unfair. I withdraw 3 it. 4 Electrically heated apartment shows 19 5 percent, and a non-electric one, 9 percent. Is that 6 correct? 7 MS. ZACHARIAS: A: That's what the chart shows. 8 MR. QUAIL: Q: Okay. Now, dwelling age. This is found 9 in BCUC -- this will be in B-7, BCUC 2.75.1. 10 MS. ZACHARIAS: A: Did you say BCUC 2.75.1? 11 MR. QUAIL: Q: 2.75.1. Now, I believe this -- there's 12 Exhibit 2.3, and that's space heating and cooling 13 loads for existing residential units by dwelling type, 14 F2006. I gather this is from the conservation 15 potential review? 16 MS. ZACHARIAS: A: Yes, that's a page from the 17 conservation potential review. There was a sub- 18 report, I guess, around fuel switching, and I believe 19 this page is from that. 20 MR. QUAIL: Q: Okay. And it includes estimates that 21 show that while pre-1976 electric heated homes use 22 slightly more than post-1976 homes, in terms of the 23 construction dates for space heating, the difference 24 isn't that great. Is that correct? 25 MS. ZACHARIAS: A: So you're looking at the first two 26 lines? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 242 1 MR. QUAIL: Q: That's right. You've got the pre- and 2 post- -- yeah. 3 MS. ZACHARIAS: A: 13,105 compared to 12,391? 4 MR. QUAIL: Q: Yes. 5 MS. ZACHARIAS: A: So, those are the numbers on those 6 lines. 7 MR. QUAIL: Q: Yes. And have you got any analysis of 8 really old housing stock? Like, you want to go back 9 -- you only -- your dividing line is 1976. Do you 10 have any analysis of much older housing stock in the 11 province? 12 MS. ZACHARIAS: A: Just -- if you could just give me a 13 second. 14 MR. QUAIL: Q: I'd be happy to take an undertaking on 15 that. 16 MR. CHRISTIAN: I'm not sure what the question is, 17 actually, if I can hear it again. 18 MR. QUAIL: That is, if they could identify, or if they 19 can produce any analysis of the same information but 20 in relation to substantially older housing stock. I'm 21 just wondering what evidence you might have available 22 on space heating and cooling loads for old housing. 23 MR. CHRISTIAN: So, before we agree to do an undertaking 24 or not -- 25 MR. QUAIL: See what's available. 26 MR. CHRISTIAN: -- I'll see what I have. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 243 1 MR. QUAIL: Yeah. 2 MS. ZACHARIAS: A: I'm just going to check to see, in 3 our REAA survey, what the kind of oldest category of 4 home we ask people for. Okay. 5 MR. QUAIL: Q: I'm happy to leave that with you. 6 Information Request 7 MR. QUAIL: Q: Would you agree that a lot will depend 8 on the energy efficiency of the individual home, as 9 well as what kind of applications there are in it? 10 MS. ZACHARIAS: A: Yes, I think we've said that the 11 drivers of energy consumption are a combination of how 12 the dwelling is constructed, if you will, the end uses 13 within that dwelling, and how people use them. 14 Proceeding Time 3:20 p.m. T51 15 MR. QUAIL: Q: And modern building codes require 16 insulation standards, which really old houses are not 17 subject to unless they're retrofitted, is that right? 18 MR. TIEDEMANN: A: That's correct. 19 MR. QUAIL: Q: Similar story goes as far as the energy 20 efficiency of windows, that modern housing stock has 21 much more energy efficient windows that really old 22 houses don't have unless they've been retrofitted. 23 MR. TIEDEMANN: A: Different types of windows obviously 24 have different insulation properties. So that if one 25 has a vinyl window, double window or triple window, 26 it's thermally broken, maybe filled with argon gas, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 244 1 it's going to be more efficient than one of the older 2 aluminum slider type windows. 3 MR. QUAIL: Q: And an old wood frame house with little 4 or no insulation and single glazed windows is going to 5 leak heat into the atmosphere like a sieve. Is that a 6 fair observation? 7 MR. TIEDEMANN: A: There are a wide range of factors 8 that go into the energy consumption of a dwelling for 9 electric and space heating. So that the location of 10 the dwelling in terms of heating degree days and so 11 forth would be a critical factor too. 12 MR. QUAIL: Q: Retrofitting an old house in terms of 13 its insulation and windows for energy efficiency is 14 very -- a relatively expensive undertaking for a 15 homeowner to undertake, isn't that right? 16 MR. TIEDEMANN: A: Again it depends upon the context. 17 For example, if you have a dwelling where there's very 18 little attic insulation but it's easy to add it, it 19 can have a big effect on the energy use in that 20 dwelling. 21 MR. QUAIL: Q: On age of appliances, would you agree 22 with me the trend is towards more higher energy 23 efficiency of modern household appliances compared to 24 older ones? 25 MR. TIEDEMANN: A: It depends upon the appliance. 26 Certainly refrigerators have, other things equal being Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 245 1 go -- have gotten more efficient over time, but with a 2 proliferation of other features such as, you know, 3 icemakers and cold water through the door features, 4 it's difficult to generalize. 5 MR. QUAIL: Q: A computer is a lot more energy 6 efficient now than it was in 1956 though, isn't it? 7 MR. TIEDEMANN: A: I believe that's correct. 8 MR. QUAIL: Q: Just flipping back to our 2.67.1, that 9 is Exhibit B-7, 2.67.1, Table 1. Do you agree with me 10 that one conclusion that can be drawn from this is 11 that the -- let people get it. The adverse rate 12 impact of moving from a flat rate to RIB tends to 13 increase with household income, and that moving to RIB 14 tends -- I think you've already said this, to be of 15 net benefit to low income households. This is 16 illustrated as a generalization in this table, isn't 17 that correct? 18 MS. ZACHARIAS: A: That's correct. 19 MR. QUAIL: Q: Just in terms of identifying some of the 20 reasons why this might be the case, might one be the 21 lower income customers are more likely to live in 22 apartments, secondary suites and so on, rather than in 23 detached single family dwellings? Is that one of the 24 reasons? 25 MS. ZACHARIAS: A: According to our information about 26 -- it's about equal. About 40 percent of low income Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 246 1 customers live in single detached or duplexes, and 40 2 percent live in apartments or condos. 3 MR. QUAIL: Q: How does that compare with affluent 4 customers? What I'm saying, in terms of the relative 5 -- difference in the relative impact on low income 6 consumers and identifying some of the reasons for 7 that, would one of them be that low income households 8 are more likely to be renters and more likely to be in 9 apartments or in secondary basement suites? 10 MS. ZACHARIAS: A: Well, I don't know if that statement 11 in general is true, particularly as the housing stock 12 in British Columbia changes simply because of density 13 and higher costs in housing, period. You know, 14 there's people -- or wouldn't be classified as low 15 income according to LICO standards, that are living in 16 condos and townhomes and so forth. So I don't know if 17 you can make that statement generally. 18 In terms of home ownership, while overall 19 about 57 percent of low income customers own their 20 home, when you look at those customers that are using 21 more electricity over the 14,500, we find about 78 22 percent of those low income customers actually own 23 their home. 24 MR. QUAIL: Q: Okay. Can you identify the reason why 25 low income customers tend to be, in general, are net 26 beneficiaries of the proposed RIB structure? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 247 1 Proceeding Time 3:24 p.m. T52 2 MS. ZACHARIAS: A: Because of the -- in general, their 3 average electricity consumption is lower than the 4 overall average. So we estimate that their energy 5 consumption is approximately 8200, 8300 kilowatt hours 6 a year. 7 MR. QUAIL: Q: Might that be partly because they have 8 fewer appliances, less electronic equipment, and so 9 on? 10 MS. ZACHARIAS: A: I can't find the comparison between 11 percentage of appliance and electronic saturation of 12 low-income customers compared to the average. What we 13 do notice is that when we look at low-income customers 14 that are using less, compared to low-income customers 15 that are using more, those low-income customers that 16 are using more also do have higher incidences of those 17 appliances and electronic equipment that you were 18 referring to. 19 MR. QUAIL: Q: Bet they have teenage kids, too. I just 20 -- I would just wager that. I'd now bring your 21 attention to Exhibit B–7, BCOAPO 2.19.2. And table 2, 22 which is on page 2 of that response. That's 2.19.2, 23 table 2. And this provides the average annual 24 consumption profile of low-income customers in fiscal 25 2007. 26 MS. ZACHARIAS: A: Yes. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 248 1 MR. QUAIL: Q: This indicates that 16,000 out of a 2 quarter of a million low-income accounts will see some 3 increase under the RIB, is that right? 4 MS. ZACHARIAS: A: 16,000 customers -- 5 MR. QUAIL: Q: I'm sorry. 36,000 customers out of 6 250,000. 7 MS. ZACHARIAS: A: So I expect that you're counting the 8 number of customers between -- over 14,500. 9 MR. QUAIL: Q: That's correct. 10 MS. ZACHARIAS: A: Counting all that up, that's 11 236,000. 12 MR. QUAIL: Q: You add it all up. Yeah, roughly. 13 MS. ZACHARIAS: A: Yes. 14 MR. QUAIL: Q: Okay. And that's about 14.4 percent. 15 MS. ZACHARIAS: A: 14.4 percent of low-income customers 16 overall? Yes. 17 MR. QUAIL: Q: Okay. Now, I see this 75,000 to 84,000, 18 999, 257 accounts. What is that? 19 MS. ZACHARIAS: A: So, in our REAA study, which we -- 20 just to give you some background on the REAA study, 21 and Mr. Tiedemann can answer any more detailed 22 questions, if you'd like. We send out an end-use 23 survey to approximately 4,000 and change customers, 24 and it's a quite -- because there's so many customers 25 that we survey, it's quite representative overall of 26 our customer market, we believe. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 249 1 So, the number that's under the un-weighted 2 base size is the number of customers that responded to 3 that survey in that category. So you can see that we 4 had one customer that meets the LICO definition that's 5 in the category of using 75,000 to 85,000 kilowatt 6 hours per year. So, if you project that out to the 7 customer base, based upon 255,000 low-income 8 customers, that would suggest that 0.1 percent of our 9 low-income customer base could be in that range, which 10 would then mean that that's 257 people. Now, that 11 projection is based upon that one person. 12 MR. QUAIL: Q: It's actually one person who has got an 13 astonishing amount of consumption. I wonder if they 14 have undeclared income from some illicit commerce 15 going on in that household? But I -- we have no way 16 of knowing. 17 MS. ZACHARIAS: A: I don't know, but we did look at 18 that particular survey, and they are using wood for 19 heating, so it's not the electric heat. 20 MR. QUAIL: Q: Okay. Something else is going on there. 21 Okay. And of course, even the ones who are a bit 22 better off under the RIB will see rate increases, even 23 in the first year of the program, because of the 24 impact of the revenue requirement. 25 MS. ZACHARIAS: A: Yes. Under the RIB rate, no 26 customer will see their actual bill decrease over what Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 250 1 it was the previous year. 2 MR. QUAIL: Q: In fact, B.C. Hydro is treating as sort 3 of a matter of principle that nobody should get a net 4 break in their electricity cost, even in the first 5 year. It's actually only the first partial -- it's 6 the first heating season. Is that right? 7 MS. ZACHARIAS: A: We believe that it's important to 8 keep the cost of electricity stable for Step 1. That 9 would be a "Yes". 10 MR. QUAIL: Q: That's a funny "Yes" in response to my 11 question, but I'll -- I won't pursue it. 12 MS. ZACHARIAS: A: Well, you asked me, I think, if Step 13 1 was decreasing the cost and -- so the cost of 14 electricity in Step 1 -- 15 MR. QUAIL: Q: Yes, okay. 16 MS. ZACHARIAS: A: -- after the RIB is implemented -- 17 MR. QUAIL: Q: Yes, in the first -- 18 MS. ZACHARIAS: A: -- will not be lower than the 6.15 19 it was when we put the application in. 20 MR. QUAIL: Q: Okay. And the general picture is that 21 many customers receive a relatively small benefit in 22 terms of the bill impact under the RIB, and a smaller 23 number see a large -- a relatively larger increase. 24 Is that right? 25 Proceeding Time 3:30 p.m. T53 26 MS. ZACHARIAS: A: I'm sorry, could you repeat the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 251 1 question? 2 MR. QUAIL: Q: I don't think I'll bother. I'll save 3 that for argument from the table. 4 MS. ZACHARIAS: A: Well, from -- 5 MR. QUAIL: Q: No, it's okay. It's just information 6 drawn from the table. 7 If we look at regional differentials, I'd 8 refer you to Exhibit 7, BCUC 2.67.1, attachment 1, 9 Table 2, and that's on page 2 of 6. So in terms of 10 regions of the identified clusters there, only 11 Vancouver Island will on average receive larger bills 12 under RIB as a result of the implementation of the RIB 13 rate, is that right? 14 MS. ZACHARIAS: A: Yes. In aggregate for all of the 15 various reasons that I'm sure we'll spend the next 16 four days talking about, Vancouver Island overall is 17 2.3 percent higher. 18 MR. QUAIL: Q: Well, primary reason or one of the 19 primary reason I put to you is the prevalence of 20 electric heat on Vancouver Island, isn't that right? 21 MS. ZACHARIAS: A: That's one of the reasons, but when 22 we've done additional analysis on that, there's 23 suggested there's a couple of additional ones, which 24 is that while more people on Vancouver Island do have 25 electric heat, there's also a large prevalence of 26 large homes that have electric heat on the Island. So Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 252 1 it's not just the fact that it's electric. It's the 2 fact that it's electric heat in larger homes. 3 MR. QUAIL: Q: And natural gas was a relatively late 4 entrant into Vancouver, and the economics of 5 retrofitting an electrically heat home to use natural 6 gas, very difficult, isn't that right? 7 MS. ZACHARIAS: A: I don't have specific information on 8 that but I would expect that retrofitting a heating 9 system is costly. 10 MR. QUAIL: Q: And the Lower Mainland gets the largest 11 general benefit from the RIB, is that right? 12 MS. ZACHARIAS: A: Yes, and once again that's a 13 function of basically demographics in the sense of the 14 housing stock in the Lower Mainland, because of the 15 density here, there's more condos, more townhomes et 16 cetera. 17 MR. QUAIL: Q: Refer you now to Exhibit B-7, BCOAPO 18 2.10, and the response there confirms that -- the 19 reference is to a BCUC, a couple of BCUC IRs, and the 20 response confirmed that the studies cited in response 21 to BCUC IR 1.28.1 were the only published studies of 22 price response that are relied on for establishing a 23 plausible but conservative estimate of the 24 conservation induced by the RIB. So I'd like to take 25 a look at those four studies which you say are the 26 only ones that were looked at. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 253 1 So first of all Exhibit B-3, BCUC 1.28.01, 2 attachment 1. Do you have it there? This is the RAND 3 study, is that right? 4 MR. ORANS: A: Yes, it is. 5 MR. QUAIL: Q: And it was published in 2005, is that 6 correct? 7 MR. ORANS: A: Yes, I believe that's correct. 8 MR. QUAIL: Q: And it draws on data from 1977 to 2004. 9 MR. ORANS: A: Yes, a long-time series of data. 10 MR. QUAIL: Q: Yeah. And the main purpose of it is to 11 look at differences in elasticity by region, is that 12 correct? 13 MR. ORANS: A: That's one purpose. It's also to assist 14 people in forecasting sales by region, yes. 15 MR. QUAIL: Q: Okay. 16 17 Proceeding Time 3:34 p.m. T54 18 MR. QUAIL: Q: But it uses average electricity prices. 19 Is that correct? 20 MR. ORANS: A: It uses historical total cost of 21 electricity in each region by year. 22 MR. QUAIL: Q: Okay. And the time period 1977 to 2004 23 was a period when electricity rates were generally 24 declining in real terms. Isn't that correct? 25 MR. ORANS: A: No. That's not correct. In fact, the 26 history of electric utility rate–making -- the 1970s Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 254 1 and early 1980s was the only period that I can 2 remember where there was substantial amount of 3 inflation in both fuel costs, financing costs, and 4 environmental concern, which drove up the costs of 5 energy. That period was very much like the period 6 we're facing now. The 1970s period, I would agree 7 with you that the latter -- the middle part of the 8 1980s and the 1990s were as you say, relatively flat. 9 MR. QUAIL: Q: Okay. But it did also capture a period 10 of inflation, it's a given -- 11 MR. ORANS: A: Yeah. The beginning part of that period 12 had substantial amounts of inflation in it. 13 MR. QUAIL: Q: Refer you to page xii, Roman numeral 12, 14 which is the final page of this summary of attachment 15 1, the Rand study. And reading the first two 16 paragraphs: 17 "We also found that the relationship between 18 demand and price is small. That is, demand 19 is relatively inelastic to price. We also 20 found that in the past 20 years, the 21 relationship has not changed significantly. 22 Analyses performed in the 1980s showed 23 approximately the same results. These 24 findings might imply that there are few 25 options available to the consumer in 26 response to changes in the price of energy, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 255 1 and that the price does not respond much to 2 changes in demand. On the other hand, 3 because prices were declining in real terms 4 over most of the period we studied, the 5 inelasticity of demand may be more of an 6 artifact of the lack of price increases. 7 However, we now may well be witnessing some 8 changes in this area. The past few years 9 have seen some increases in energy prices, 10 with some states facing increasing 11 electricity prices and all states facing 12 increasing natural gas prices. While it is 13 difficult statistically to uncover specific 14 changes and trends, there are signs that 15 demand growth is slowed possibly due to a 16 combination of increasing or flat prices and 17 the economic slow-down of the past few 18 years. Although we cannot say specifically 19 that the relationship between price and 20 demand might shift in an increasing price 21 environment, more analysis of recent trends 22 may be warranted." 23 I see that you're familiar with that passage. 24 MR. ORANS: A: Yes. 25 MR. QUAIL: Q: At a regional level, short-run 26 elasticities cluster around minus 0.2. Is that right? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 256 1 MR. ORANS: A: Yes, overall. 2 MR. QUAIL: Q: Yes. State-level elasticity varies from 3 minus 1 to plus .6, is that right? 4 MR. ORANS: A: Yes. They had a substantial amount of 5 variation by region. 6 MR. QUAIL: Q: Elasticity, the estimate for Washington 7 State is minus .076, with a standard error of .061, 8 according to table D-10 on page 92, is that correct? 9 MR. ORANS: A: Yes, that's correct. 10 MR. QUAIL: Q: I'm glad you agreed with all of that, 11 and I didn't have to sort of do any further figuring 12 out. 13 If I can refer you to Exhibit B-3, BCUC 14 Exhibit 1.28.01, attachment 2, that is the next of the 15 four studies. It's entitled "Residential demand for 16 electricity under inverted block rates, evidence from 17 the controlled experiment." And this was from 1994, 18 is that correct? 19 Proceeding Time 3:38 p.m. T55 20 MR. ORANS: A: I'm looking for the date. Yes, October 21 1994, that's correct. 22 MR. QUAIL: Q: And the information is drawn from the 23 State of Wisconsin, is that correct? 24 MR. ORANS: A: Yes, the data was from Wisconsin. 25 MR. QUAIL: Q: It included 350 households over a three- 26 year period in the early 1990s in the study, is that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 257 1 right? 2 MR. ORANS: A: Yes, I believe that's correct. 3 MR. QUAIL: Q: And the purpose was to investigate 4 methodological problems in estimating the demand 5 response under inclining block rates and to see if 6 there is empirical support for lifeline rates, that is 7 demand response is a function of rate design and 8 income level. 9 I hope that question makes sense. 10 MR. ORANS: A: That was a long sentence with a lot in 11 it. 12 MR. QUAIL: Q: Yes. 13 MR. ORANS: A: I mean, the technical part of it was to 14 estimate price elasticity within an inclining block 15 rate structure. 16 MR. QUAIL: Q: Okay. The rate designs and number of 17 customers in each rate in the control group were set 18 out in table 1 at page 423. Is that right? 19 MR. ORANS: A: Yes, that's correct. 20 MR. QUAIL: Q: Okay, and the elasticity is set out at 21 table 5 and 6 on page 425 and 426. Just flip ahead a 22 couple of pages. 23 MR. ORANS: A: Yes, with a summary of the same table on 24 page 427. 25 MR. QUAIL: Q: The summer elasticity in table 5 is very 26 small, is it not? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 258 1 MR. ORANS: A: Yes, it is. 2 MR. QUAIL: Q: Okay. The winter elasticity table is 3 most negative for rate 150 which is a rate with a very 4 small Tier 1 consumption, a rate boundary of 250 5 kilowatt hours a month, and the least difference 6 between Tier 1 and Tier 2 prices. Is that right? 7 MR. ORANS: A: Yes. Compared to the other options. 8 However, this difference is more than two to one, so 9 it is larger than the difference we have here. 10 MR. QUAIL: Q: Yes. But this would seem to suggest, 11 would it not, that the B.C. Hydro design that leads to 12 the greater differences -- a design that produces 13 greater difference between Tier 1 and Tier 2 prices 14 could dampen the demand response in the longer term. 15 MR. ORANS: A: I'm not following the logic here. 16 MR. QUAIL: Q: It suggests that if you increase the 17 difference between the two tiers, that you could be 18 dampening the demand response. 19 MR. ORANS: A: No. I mean, you're going to get more 20 demand response when you increase the difference. You 21 might not get proportionally the same amount. 22 MR. QUAIL: Q: Now, B.C. Hydro -- I'll give you a 23 reference here, is Exhibit B-3, BCOAPO 1.17.1. 24 MR. ORANS: A: Yes. 25 MR. QUAIL: Q: And refer you to the first paragraph. 26 The response says: Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 259 1 "In addition to Rice and White, household 2 elasticity demand revisited review of 3 economic studies 2005, 853 to 888 referenced 4 in the response to our IR 1.14.2, the price 5 elasticity estimates supported in table 1 6 below support the assertion that higher 7 usage customers with major electric end uses 8 tend to be more price responsive than lower 9 usage customers without such end uses." 10 So Hydro is suggesting that this study indicates that 11 large users are more responsive than small users. Am 12 I interpreting that correctly? 13 Proceeding Time 3:42 p.m. T56 14 MR. ORANS: A: No, I think actually if I remember 15 correctly, the study you're referring to, the Rice and 16 White study? 17 MR. QUAIL: Q: Yes. 18 MR. ORANS: A: The Rice and White study actually was 19 very -- they noted that they were surprised that 20 actually they didn't find that result in there. So 21 they noted that was inconsistent with the literature 22 review, and that in their analysis they didn't find 23 that consistent relationship. And so in, I believe, 24 the body of this response is the other following 25 studies from the same source show that larger 26 customers with electric space heating and electric Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 260 1 water heating tend to have larger price response in 2 this and more reaction to rates than smaller users, 3 all other things being equal. However, there's a 4 significant amount of variation from region to region 5 and study to study. 6 MR. QUAIL: Q: Now moving to attachment 3, the third of 7 the elasticity studies, that's Exhibit B-3, BCUC 8 1.28.01, attachment 3, has a very catchy title, "A 9 Framework for Regional Modelling and Impact Analysis, 10 an Analysis of the Demand for Electricity by Large 11 Municipalities in Ontario, Canada". If you could turn 12 to that, please. 13 MR. ORANS: A: I'm turning to it, if you can just give 14 me a second here. Okay, I'm with you. 15 MR. QUAIL: Q: Okay, and the data includes sales to 16 16 municipalities, is that right? 17 MR. ORANS: A: From my memory, yes, I believe that's 18 correct. 19 MR. QUAIL: Q: I'll refer you just to look at -- I'm 20 not going to read it into the record -- page 370, 21 heading 5, "A Model of Elasticity Demand and Energy 22 Consumption". If you could just look through -- 23 MR. ORANS: A: Yes, I see the reference to the 15 -- 24 MR. QUAIL: Q: -- the first and third paragraphs. 25 MR. ORANS: A: The 15 utilities, yes. 26 MR. QUAIL: Q: Okay, and there's no mention there of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 261 1 residential customers in the impact of the new 2 wholesale rate, is that correct? 3 MR. ORANS: A: They've got combined, mostly residential 4 but also some commercial customers on most of these. 5 MR. QUAIL: Q: Okay. And again I'm not going to read 6 this, but at page 373, the first full paragraph, 7 suggest that this indicates that some price elasticity 8 results in the order of minus .096 for short run, and 9 .151 for the long run. 10 MR. ORANS: A: Yes, I have that highlighted as well. 11 MR. QUAIL: Q: Okay. You and Mr. Fussell. I was going 12 to say great minds think alike, but I don't claim to 13 be the other great mind. It's Mr. Fussell that has 14 done this analysis for us. 15 Exhibit B-3, now attachment 4, that is BCUC 16 1.28.01, attachment 4, "Electricity Demand Estimates 17 Under Increasing Block Rates". Do you have that 18 before you? 19 MR. ORANS: A: Yes, the article by Stephen Henson. 20 MR. QUAIL: Q: And this article dates from 1984, is 21 that correct? 22 MR. ORANS: A: Yes, that's correct. 23 MR. QUAIL: Q: This is a study of different rate 24 structures drawn on data from the Bonneville Power 25 Authority, is that right? 26 MR. ORANS: A: Yes. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 262 1 MR. QUAIL: Q: The data is drawn from 1,077 households 2 in the BPA service area during 1979. 3 MR. ORANS: A: Yeah, subject to check that's 4 approximately right. 5 MR. QUAIL: Q: Page 152 shows the sample size and the 6 inclining block sample only includes 23 customers. 7 Agree with that? 8 MR. ORANS: A: Yes. 9 MR. QUAIL: Q: Results on page 153 show an elasticity 10 in the order of minus .28 for marginal price, the 11 marginal price for all rate forms. And the inclining 12 block has a large standard deviation range of plus or 13 minus .44, is that right? 14 MR. ORANS: A: Yeah, actually there's a range here, so 15 that number is correct. And then there's also a 16 smaller range using a different methodology with an 17 elasticity of minus .1136, with a standard error of 18 plus or minus .3583. 19 MR. QUAIL: Q: Thank you. 20 MR. ORANS: A: But your number is also on the other end 21 of the range. 22 Proceeding Time 3:46 p.m. T57 23 MR. QUAIL: Q: Yes, and also the article indicates that 24 none of the elasticities with respect to the rate 25 structure premium are significantly different from 26 zero. Is that right? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 263 1 MR. ORANS: A: Yeah. They had a huge variation in what 2 they found, and they had a relatively small sample, 3 yes. 4 MR. QUAIL: Q: The rate structure premium which is 5 referred to in the study as "PREM" is the difference 6 between the bill that would result if the marginal 7 price were applied to all consumption, less the actual 8 bill. Is that right? 9 MR. ORANS: A: Yes. 10 MR. QUAIL: Q: If an inclining block rate has a large 11 step between Tier 1 and Tier 2, then the PREM or 12 premium would be large, isn't that right? 13 MR. ORANS: A: Yes. 14 MR. QUAIL: Q: That's the definition? Having an 15 insignificant premium elasticity suggests to me that 16 all inclining block rate forms would perform more or 17 less equally well. Is that a correct conclusion to 18 draw? 19 MR. ORANS: A: No, I think, once again, you know -- I 20 wouldn't use these results to make that generalization 21 across all inclining block rate structures. As you 22 said, it's a small sample with a large variation in 23 it. My point of using the study is, it's a 24 jurisdiction that's a neighbouring jurisdiction. 25 MR. QUAIL: Q: Yes. 26 MR. ORANS: A: And it's a study of an inclining block Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 264 1 rate structure. So we don't have many of those. So, 2 I used this one, even though, as you point out, 3 there's a wide variation in results, because of a 4 small sample. 5 MR. QUAIL: Q: Yes. 6 MR. ORANS: A: But I wouldn't draw the conclusion that 7 the premium numbers mean any more than the actual last 8 number ranges too. There's a broad range of results. 9 MR. QUAIL: Q: But this is one of the four studies that 10 you exclusively relied on. 11 MR. ORANS: A: Yeah. I relied on it to show that 12 elasticity estimates in this range are found. This is 13 the middle -- reported middle of that range. It has a 14 broad variation as reported in other studies. But it 15 doesn't show elasticities that are substantially 16 larger than the range I used in my analysis. 17 MR. QUAIL: Q: And the conclusion of the study really 18 focuses on methodological pros and cons and ups and 19 downs and so on, is that correct? 20 MR. ORANS: A: Yes, it focuses both on results, but a 21 large part of the study also focuses on methodology. 22 MR. QUAIL: Q: Okay, now I'd like to look at the 23 expected conservation impact of the proposed RIB in 24 relation to DSM programs, and I would direct your 25 attention to the third document in Exhibit B -- where 26 were we, here? This is our collection of additional Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 265 1 documents. B3-10-6. Here it is. 2 This is an extract from the 2007 3 conservation potential review. And if you would turn 4 to page 209 in the bottom corner, which is, in the top 5 right-hand corner 3-3. With the heading "Achievable 6 energy efficiency supply curves". 7 So, this explains what is coming up in 8 terms of the next exhibit, is that correct? 9 MR. TIEDEMANN: A: That's correct. 10 MR. QUAIL: Q: Okay. So I'd like you to flip ahead, 11 then, to pages 210 and 212, which appear here as 3-4 12 and 3-6 in the exhibit. So this shows the majority of 13 the potential DSM falls below a CCE of 6 cents per 14 kilowatt hour. Is that right? 15 MR. TIEDEMANN: A: In terms of what's at the table, 16 that's correct. Perhaps I could just mention in 17 passing something I'm sure the panel is well aware of. 18 There's really three concepts at play here. There's 19 the notion of technical efficiency, which refers to 20 those technologies which, in principle, would save 21 energy compared to the competitors. There's the 22 notion of economic efficiency, which looks at life- 23 cycle costs and attempts to determine which 24 technologies make sense in terms of the underlying 25 economics. And the third concept is "achievable", 26 which takes into consideration the many barriers that Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 266 1 Ms. Zacharias has talked about in terms of actually 2 achieving energy efficiency. 3 MR. QUAIL: Q: Okay, and CCE is defined at page 5 of 4 the document, which is 3-2 in the top corner. There's 5 a glossary to the conservation potential review, and 6 I'll allow everybody -- I won't read that into the 7 record, except to the last sentence. It's: 8 "Represents the cost of conserving 1 9 kilowatt hour of electricity." 10 Proceeding Time 3:52 p.m. T58 11 MR. TIEDEMANN: A: Yes, that's correct. 12 MR. QUAIL: Q: If B.C. Hydro were to offer a 3 cent per 13 kilowatt hour incentive, the utility should be able to 14 achieve a potential shown in the lower achievable 15 summary below the 5 to 6 cent CCE through DSM 16 programs. Is that right? 17 MR. TIEDEMANN: A: That assumes that all the barriers 18 to increased energy efficiency are expeditiously dealt 19 with. 20 MR. QUAIL: Q: Okay. And the result of offering a 3 21 cent incentive to get 300 gigawatt hours of energy is 22 the revenue loss to B.C. Hydro of 6.5 cents from the 23 rate, plus three cents from the incentive, so a total 24 of 9.5 cents per kilowatt hour. Is that right? 25 MR. TIEDEMANN: A: I'm not an expert on how cost 26 calculations are made, but at the very least one would Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 267 1 have to consider the program costs too. 2 MR. QUAIL: Q: Okay. That's true. But looking just at 3 the cost of the incentive and the total avoided 4 consumption, the energy cost savings, using the DSM 5 evaluation estimate, would be somewhere around 8 6 cents. Isn't that right? 7 MR. ORENS: A: I'm not following the calculation. Can 8 you take us through that one? 9 MR. QUAIL: Q: What would the cents per hour avoided 10 cost of the DSM be? No. I should have Mr. Fussell 11 ask the question. 12 The avoided cost of the energy that is 13 conserved through the DSM. 14 MS. ZACHARIAS: A: You're asking for the avoided cost 15 of energy -- 16 MR. QUAIL: Q: Okay. Now I understand my question. So 17 we are conserving energy. What is -- the avoided cost 18 of the energy that is being conserved through DSM 19 measures is about 8 cents a kilowatt hour, is it not? 20 MS. ZACHARIAS: A: It's -- so when we value the energy 21 that avoid through DSM, we use the cost of avoided 22 energy, and we also look at the cost of avoided 23 capacity as well, to have the total benefit of the 24 DSM. So to the extent that the reference price from 25 the last call of 8.8 cents delivered to the Lower 26 Mainland, that's the base starting point, if you will, Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 268 1 of valuating the value of that avoided energy. 2 And then there's other things added on. 3 COMMISSIONER PULLMAN: Well, I'm not sure there is. Is 4 it -- I mean 8.8 percent, as Mr. Reimer testified, is 5 I think the costs stripped of all its green attributes 6 delivered firm to the Lower Mainland. 7 MS. ZACHARIAS: A: Right. I am just also referring to 8 the distribution losses within -- like as past the 9 Lower Mainland. 10 COMMISSIONER PULLMAN: Sorry, Mr. Quail. 11 MR. QUAIL: That's quite all right. Thank you. 12 MR. QUAIL: Q: The revenue requirement impact or RIM 13 impact is 1.5 cents per kilowatt hour or 4.5 million 14 for 300 gigawatt hours in savings, is that right? 15 MS. ZACHARIAS: A: I don't know. What are you 16 referring to? 17 MR. QUAIL: Q: I forget. Mr. Fussell asked this one 18 too. I'll come back to that. 19 Proceeding Time 3:56 p.m. T59 20 I put it to you there appear to be two ways 21 of achieving 300 gigawatt hours a year of savings, and 22 one would be to use the RIB to impose up to a 15 23 percent increase on some residential customers and 24 escalating from there on, and the other would be to 25 impose a 0.15 percent increase on all customers. 26 MR. ORANS: A: Mr. Quail -- Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 269 1 MR. QUAIL: Q: To pay for DSM measures. 2 MR. ORANS: A: I think if you go to your same exhibit, 3 3-5, and you look at your supply curve, that can be 4 used to shed some light on I think the same question 5 you're asking. My own point of view is that efficient 6 pricing here results in some amount of conservation. 7 Some customers will conserve more, some customers will 8 conserve less. You don't have to sort out who's a 9 gluttonous consumer and who should get a subsidy, et 10 cetera. 11 So if B.C. Hydro moves towards efficient 12 pricing, it will induce between 200 and 500 gigawatt 13 hours, is this range of estimates we've provided in 14 this proceeding. Those gigawatt hours are produced 15 from a total resource cost perspective at the bottom 16 end of this curve. They're essentially almost zero 17 cost. We're not asking to invest a bunch of money in 18 incentives or new programs especially for this rate. 19 So they are the lowest cost alternative, or lower than 20 CFLs, program T stats, standby losses, et cetera. So 21 they come in here beneath everything else. 22 Now, as you point out, from a ratepayer 23 impact measure test, there are losses here in margin. 24 So rates can go up, but that doesn't mean the 25 participants' bills are going to go down. And if the 26 programs are spread among classes and a wide variety Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 270 1 of customers, then that shouldn't be a distributional 2 issue as well. 3 MR. QUAIL: Q: Refer you to Exhibit B-3, BCSEA IR 4 1.17.1. That's BCSEA 1.17.1. And the question is: 5 "Does B.C. Hydro propose to take advantage 6 of the effects of the proposed RIB rate in 7 the optimal design of its Power Smart 8 programs? Please discuss." 9 The response is: 10 "Yes. The relationship between rates and 11 non-rate DSM programs will be assessed 12 during the 2008 LTAP proceeding." 13 And I note the characterization between rates and non- 14 rate DSM programs. This suggests that rate design has 15 an impact on the design of DSM programs, is that 16 right? 17 MS. VAN RUYVEN: A: There is a link. Using rates as a 18 tool to incent conservation will be a major part of us 19 achieving our long-term 20-year DSM plan, along with 20 codes and standards and along with programs. So those 21 are the three main pillars of the DSM plan, and that 22 will be contained, as you may have seen in our 23 recently filed LTAP, our 20-year plan is in that LTAP 24 filing. 25 Proceeding Time 3:59 p.m. T60 26 MR. QUAIL: Q: Refer you to Exhibit B-3, BCOAPO IR Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 271 1 1.9.3. So, the question is, 2 "Does B.C. Hydro agree that as a general 3 proposition, if the RIB rate encourages 4 customers to undertake more conservation 5 measures on their own, the savings to be 6 achieved through other DSM programs will be 7 less?" 8 Sorry, I'll give everyone a chance to get there. 9 The question is that if the RIB rate 10 encourages customers to undertake more conservation 11 measures on their own, the savings to be achieved 12 through other DSM programs will be less. And the 13 response to that was, 14 "No. The impact on DSM program energy 15 savings as a result of introducing the RIB 16 rate and other conservation rates may be a 17 reduction or an increase. The impact on the 18 savings achieved through non-rate DSM 19 programs would be best addressed during the 20 2008 LTAP proceeding." 21 I'd note that we have the similar -- the 22 same phrase, "non-rate DSM programs", which appears to 23 acknowledge that the RIB is a rate DSM program. Do 24 you agree? 25 MR. CHRISTIAN: Well, I think it's already been observed 26 that, on the record, that the new Energy Plan defines Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 272 1 rates in a way -- or conservation rates in a way that 2 requires them at least in the energy planning context 3 to be considered as something that is comparable to 4 non-rate DSM. It's a shorthand way of describing it. 5 MS. ZACHARIAS: A: I think to add to that, we were 6 describing rate and non-rate simply from the 7 perspective of what Ms. Van Ruyven said earlier. In 8 looking at the DSM plan, we're taking a three-step, 9 three-pillar approach, and considering that rates is 10 one of those pillars, we're just referring to it as 11 that part of the DSM plan. 12 MR. QUAIL: Q: I mean, the conceptual problem is that 13 we've sort of extracted one part of the DSM strategy, 14 which is the rate-based DSM measures, and isolated it 15 from the balance of your DSM strategy. And that's the 16 -- that's what we're trying to get at here, and in 17 terms of optimizing your overall approach towards 18 achieving conservation targets, whether in fact that 19 is the most intelligent way to plan this. 20 MR. ORANS: A: I think -- if the question goes, "How 21 can you decide how much conservation to get from the 22 RIB, or rate designs in general, when you don't have 23 the overall planning framework," I think the amount 24 you get is the efficient amount. So if you can induce 25 conservation and set prices that are lower than or 26 equal to, in some reasonable estimate of long run Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 273 1 incremental cost of supply, and customers react to it, 2 whether they increase or decrease, that's 3 fundamentally an efficient response, and I think 4 that's part of almost every jurisdiction's long-term 5 plan, is to get the rates correct first and then fill 6 in the gap with other resources after that. 7 MR. QUAIL: Q: But in terms of conservation in British 8 Columbia, we're not chasing after the most optimal or 9 efficient target. We have a stated target of 50 10 percent of all projected load growth. We have a sort 11 of a set target that we're working towards, and not 12 simply optimizing different components of strategies 13 for DSM. Don't you agree with that? 14 MS. ZACHARIAS: A: Well, our general approach here has 15 been that we've taken the approach to design the RIB 16 rate based upon the eight recognized rate-design 17 criteria, of which efficient pricing is one of them. 18 And what we've said is, we're going to design this 19 rate according to those principles, according to 20 efficient pricing principles and through doing that, 21 in the type of cost environment that we have, it gives 22 us the ability to do that and to achieve conservation. 23 So that's the approach that we've taken, which is very 24 similar to what Dr. Orans has suggested, which is that 25 our approach has been to, within those rate design 26 principles, design a rate that's going to have Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 274 1 efficient pricing and then, to the extent that that 2 gets us some way to our conservation goals, but maybe 3 not the whole amount, then the DSM programs and the 4 codes and standards come in on top of that in order to 5 achieve the overall goal. 6 MR. QUAIL: Q: But the response to the IR that I just 7 put to you has B.C. Hydro acknowledging that RIB will 8 have an impact on savings achieved through other DSM 9 strategies, but you're not sure if it's up or down. 10 MS. ZACHARIAS: A: So what that IR was referring to, 11 and there's another follow-up IR, it's BCOAPO 2.1.2, 12 that perhaps gives a little bit more detail with 13 respect to that. The answer was based upon looking at 14 program by program, depending upon the assumptions 15 around participation rates and free riders and so 16 forth, how much of the savings that result from a 17 certain initiative would be ascribed to a rate-induced 18 change versus a program-induced change would either go 19 up or go down. It doesn't talk about what the overall 20 impact would be on the DSM savings combined. 21 Proceeding Time 4:05 p.m. T61 22 MR. QUAIL: Q: But a change in rate design such as RIB 23 will have an impact on the design of other DSM 24 strategies and at least will affect the evaluation of 25 DSM programs, won't it? 26 MS. ZACHARIAS: A: Generally speaking. If the overall Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 275 1 context is what rates are in the marketplace and how 2 that helps incent people to take action or does not, 3 that is one of the environmental considerations that 4 is taken into account when demand-side management 5 programs are being designed. 6 MR. QUAIL: Q: The whole point of the RIB is to change 7 the way consumers think about electricity use, isn't 8 that right? 9 MS. ZACHARIAS: A: It's to price electricity along the 10 principle, along the basis that those customers that 11 are using more electricity will pay a higher price, 12 and that will help them to make the decision to 13 conserve. 14 MR. QUAIL: Q: Yes. So the point is to change people's 15 thinking and be more oriented towards conservation. 16 Is that the whole reason why we are doing this? It's 17 not just an elegant exercise in mathematics, it has a 18 particular function which is to change the way people 19 think about the use of electricity. 20 MS. ZACHARIAS: A: That's right. And to reinforce what 21 Dr. Orans said earlier, though, we are -- by pricing 22 the RIB using efficient pricing principles, customers 23 will be in a better position to make those efficient 24 choices and we believe that that will result in 25 conservation. 26 MR. QUAIL: Q: Yes, we're not suggesting it wouldn't Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 276 1 encourage any conservation. But if its purpose is to 2 change the way consumers think about electricity use, 3 it must have an impact on conservation program design, 4 which is supposed to encourage DSM in areas where 5 normal market forces don't. Isn't that right? 6 MS. ZACHARIAS: A: I think I already agreed with you at 7 the general level of that statement, which is that 8 changing the price will obviously change the 9 environment under which those programs are designed, 10 so there is a link there. 11 MR. QUAIL: Q: If RIB works, it will incent consumers 12 to undertake conservation on their own, won't it? 13 MS. ZACHARIAS: A: Well, partially, potentially. As 14 I've mentioned earlier there's a whole range of 15 conservation action that customers can take in order 16 to conserve including capital investments and 17 behavioural. So without a more specific definition of 18 "on their own" its difficult for me to answer that 19 question. 20 MR. QUAIL: Q: I don't think it's that difficult a 21 concept. There's a price signal that's conveyed to 22 them, and they respond to it by finding ways to reduce 23 their consumption, so they will come up with ways to 24 reduce their consumption of electricity. That's the 25 mechanism, is it not? 26 MS. ZACHARIAS: A: Right. I'm agreeing with you. I Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 277 1 think people will -- one of the reasons why we want to 2 put an efficient price signal out there is to 3 encourage customers to, exactly what you said, think 4 about how they consuming electricity and think about 5 what type of actions they could take in order to 6 conserve. 7 MR. QUAIL: Q: And the point of non-rate DSM is to 8 encourage customers to conserve in areas where rate 9 mechanisms are not effective signals. Isn't that the 10 purpose of it. Where there's obstacles -- 11 MS. ZACHARIAS: A: Where rate mechanisms are not 12 effective? 13 MR. QUAIL: Q: That is where -- to encourage customers 14 to undertake conservation measures where price signals 15 are not particularly effective. That's why you do 16 DSM. 17 MS. VAN RUYVEN: A: Well, they are linked. You need 18 DSM programs to help to educate your customers to 19 maximize your rate design. You need codes and 20 standards. You need all of that. I think it's 21 important to remind the Commission of why we are here 22 with this RIB rate filing today. It's because the 23 2007 Energy Plan said we should be using rates as a 24 conservation tool, amongst a mix of many, and the 25 Commission directed us to file an inclining block rate 26 prior to March. So that's why we're here with this Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 278 1 rate design application, and it's important to draw a 2 distinction between the rate design application and 3 what is in the LTAP. 4 The LTAP is a twenty-year strategic plan 5 that will help customers -- or intervenors and 6 customers and the Commission understand how those 7 three are linked and that really is the appropriate 8 place to be having a discussion on how DSM programs 9 are linked to rates and codes and standards, how they 10 fit altogether in that twenty-year plan. 11 Proceeding Time 4:09 p.m. T62 12 MR. QUAIL: Q: The question whether or not the RIB is 13 approved will have an impact on what you should be 14 doing in terms of non-rate DSM, isn't that right? 15 MS. VAN RUYVEN: A: No, I don't believe that's the 16 case. I think the Commission needs to put their mind 17 to whether or not this RIB application will incent 18 some conservation which will flow into helping us 19 achieve our long-term plan. 20 MR. QUAIL: Q: When will the new or refined DSM 21 programs be included in the next LTAP you rolled out 22 to customers? 23 MS. VAN RUYVEN: A: I'm sorry, could you repeat that? 24 MR. QUAIL: Q: The LTAP, one of the subject matters of 25 the LTAP is DSM initiatives. When will these -- I 26 must confess we got this on Friday and I haven't had Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 279 1 an opportunity to study it. When do you see the DSM 2 measures that are proposed as in the LTAP be rolled 3 out to customers? 4 MS. VAN RUYVEN: A: We are rolling a lot of them out 5 right now. 6 MR. QUAIL: Q: I'd like to discuss the 1600 kilowatt 7 Step 1 threshold. I put it to you that the 1600 8 kilowatt hour first tier size in the proposed RIB as 9 per billing period, was not selected because it is 10 close to average use. Is that correct? 11 MS. ZACHARIAS: A: It was not selected for that reason. 12 MR. QUAIL: Q: However, I put it to you that the 1600 13 figure does happen to approximate average customer 14 use. 15 MS. ZACHARIAS: A: It's actually a little bit below 16 average customer use. 17 MR. QUAIL: Q: And we can save going to a -- we can 18 save going to an IR reference. B.C. Hydro believes 19 the fact that it is, at least in the right 20 neighbourhood, will potentially foster customer 21 acceptance, is that right? I'll give you the 22 reference if we need it. 23 MS. ZACHARIAS: A: Yeah, I think what we -- in 24 communicating to customers about the RIB rate, the 25 fact that it's close to the average would be just one 26 of the ways that we would give them a -- explain what Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 280 1 it is and give them a point of reference for it. 2 MR. QUAIL: Q: Is this because the view would be that 3 an average customer is not going to see the Tier 2 4 rate, and if they see it their usage -- for usage less 5 than 14,450 kilowatt hours per annum, the overall bill 6 will be lower? The average customer -- 7 MS. ZACHARIAS: A: Yes. 8 MR. QUAIL: Q: -- won't see Tier 2. 9 MS. ZACHARIAS: A: No, that's not true. That -- 10 MR. QUAIL: Q: Or if they do, the overall bill would be 11 lower. That is, they would mix at Step 1 and Step 2. 12 MS. ZACHARIAS: A: So their overall bill, as I 13 mentioned earlier, nobody's overall bill will be 14 decreasing vis-à-vis what it was a year before. 15 MR. QUAIL: Q: No, that's a function of the revenue 16 requirement. I'm talking about the operation of the 17 RIB. The RIB will not produce a bill increase for the 18 average customer, will it? 19 MS. ZACHARIAS: A: For the average customer, if you 20 assume that the average customer is using 11,000 21 kilowatt hours a year, and the break point is 14,500, 22 the RIB rate on top of the RRA will not cause an 23 incremental increase. But as we've talked about 24 before in some of the IRs, customers don't necessarily 25 -- they will be looking at their one bill compared to 26 the previous year, and on that basis I made my Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 281 1 previous comment which is that no customer, even those 2 customers in Step 1, will be seeing a lower bill, 3 assuming the same amount of usage one year to the 4 next. 5 MR. QUAIL: Q: I'll give you a reference but I don't 6 think we need to go to it, but for the record, B-7, 7 BCOAPO 2.14.1 where you responded that 1600 kilowatt 8 hours is about 10 percent less than the average bi- 9 monthly consumption figure for all residential 10 customers, including those with electric heating. Do 11 you recall that information in your response? 12 MS. ZACHARIAS: A: Yes, it's about 13 percent less than 13 11,000. 14 MR. QUAIL: Q: Okay. When the reference is made to the 15 average use of 1600, that is an average for all 16 residential customers, that is, regardless of what 17 fuels they use for space or water heating, is that 18 right? 19 Proceeding Time 4:14 p.m. T63 20 MS. ZACHARIAS: A: So the 11,000 kilowatt hours, which 21 is the average, is all of our residential kilowatt 22 hours divided by the number of customers. So that 23 includes single-family dwelling, common-use customers, 24 et cetera. It's all in there. 25 MR. QUAIL: Q: Put it to you, for the actual individual 26 customer, I mean your average consumption might be an Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 282 1 interesting statistic, but it has -- it doesn't mean 2 anything, it doesn't have any relationship to their 3 own consumption and their own bill, does it? 4 MS. ZACHARIAS: A: I'm sorry, what do you mean? 5 MR. QUAIL: Q: Most people -- if you're an actual 6 consumer, I mean, what determines whether you're a 7 winner or a loser under the RIB, it's going to be a 8 question of what kind of dwelling you live in, it will 9 depend on what fuel you use for heating and for 10 heating your water, it will depend on, you know, your 11 own consumption patterns and so on. The average might 12 be an interesting statistic, but I put it to you that 13 it has very little relevancy from the perspective of 14 the actual living breathing individual customer. 15 MS. ZACHARIAS: A: So. There's many things that go 16 into determining how much a customer uses. And I also 17 said that our methodology of setting the threshold was 18 not determined by the average. So, I'm not sure how 19 to interpret your question as to whether or not that 20 has relevancy for the average -- for customers. 21 MR. QUAIL: Q: Okay, let me try and help, then. Why 22 would average use, which is calculated from the entire 23 customer class, be of any kind of convincing value to 24 demonstrate the reasonableness of the RIB and promote 25 its acceptability for customers who have space and 26 water heating using electricity, and use materially Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 283 1 more? Or conversely, for people that use natural gas 2 for space heating and use materially less? I put it 3 -- it's an interesting statistic, but it doesn't 4 actually relate to -- there's categories of winners 5 and losers that depend upon those factors. And the 6 average -- I just put it to you that the average 7 consumption is a total abstraction in relation to the 8 actual lives of your customers. 9 MR. CHRISTIAN: I think I heard about three questions in 10 that response, and I just want to make sure the 11 witnesses take the time to think about which one 12 they're going to respond to, or to make it clear which 13 one they're responding to. 14 MR. QUAIL: Q: That's a fair objection. 15 I'll leave that for argument, that's okay. 16 MS. ZACHARIAS: A: Well, Mr. Quail, if you refer to an 17 IR, BCOAPO 2.7.1, there's a listing of our customers 18 and how much consumption -- or how many customers are 19 in various consumption ranges. So, if you look at the 20 number of customers that are within a couple of 21 deviations, if you will, of that 10,000 to 11,000 22 figure, you'll see that it's not insignificant. It is 23 representative of -- and we can add this all up -- 24 but, you know, the majority of our customers, if you 25 took that 11,000 as an average, and kind of looked at 26 it, a majority of our single-family dwelling customers Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 284 1 are within that. So I don't know if I would say that 2 it's irrelevant as a way of kind of just giving people 3 a point of reference as to how much electricity the 4 average residential customer in British Columbia uses. 5 MR. QUAIL: Q: And most people use less than the 6 average consumption. 7 MS. ZACHARIAS: A: There's a number of customers that 8 use less, yes. And there is some customers that use 9 more. 10 Proceeding Time 4:18 p.m. T64 11 MR. ORANS: A: Mr. Quail, also if you go to figure 1-2 12 in our application at page 1-7, that distribution, 13 which is just a histogram of the usage, it is pretty 14 telling. If you look at it, starting at -- it shows, 15 you know, the percentage of customers in each of those 16 bands Ms. Zacharias just described, and if you look at 17 the percentages, over five percent are in the 2,000 to 18 3,000, 3,000 to 4,0000, 4,000 to 5,000. Those are 19 each 5 percent categories. All the way up until this 20 last one is 10 to 11 thousand per year. And then all 21 of a sudden the slope of this distribution starts 22 dropping off dramatically. So by the time you get up 23 to 15,000, now you are down to only three percent, and 24 then it drops off substantially after that. 25 Then you've got this wide -- and then 26 you've got this big number at the very end which is Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 285 1 the over 25,000 group. They have submitted lots of 2 information. 3 MR. QUAIL: Q: I refer you to Exhibit B-3, BCUC IR 4 1.18.2. And this morning we sort of thrashed around 5 the question of basic or essential household needs and 6 here's a question that the Commission staff put to you 7 addressing that issue: 8 "In B.C. Hydro's view, does the bi-monthly 9 step one threshold of 1,600 kilowatt hours 10 have sufficient allowance for basic needs?" 11 Do you have it there? 12 MS. ZACHARIAS: A: Yes. 13 MR. QUAIL: Q: Response: 14 "B.C. Hydro has not identified which 15 specific energy uses could be considered to 16 be basic needs. However, considering that 17 at a 9600 kilowatt hour, the annual step one 18 threshold under the proposed RIB rate is 19 close to the residential average of 11,046 20 kilowatt hours, and that customer can 21 consume up to 14,500 kilowatt hours annually 22 before they pay more under the RIB rate than 23 under the flat rate structure, B.C. Hydro 24 believes that it is reasonable to conclude 25 that most customers will be covered by the 26 RIB rate for a reasonable definition of Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 286 1 basic needs electricity." 2 Just sort of probing into that a little bit. I don't 3 want to rehash what we went over this morning, but we 4 did identify that there are applications of energy in 5 the household that are much more essential than 6 others. And I think it's well established that the 7 question one of the large factors determining who wins 8 and who loses under RIB is whether electricity is the 9 fuel one uses for heating, for example, and hot water, 10 which are two of those basic needs. 11 MS. ZACHARIAS: A: No, I think this morning actually I 12 suggested that that's not necessarily true generally. 13 MR. QUAIL: Q: That what's not true generally? 14 MS. ZACHARIAS: A: That the determination as to whether 15 or not you win or lose under the RIB is largely a 16 function of if you use electricity for heating. 17 MR. QUAIL: Q: I'm not going to thrash again through 18 the tables we went through earlier this afternoon and 19 I'll leave that for argument. 20 MS. ZACHARIAS: A: The determinant as to whether or not 21 you win or lose under the RIB is a function of how 22 much electricity you consume. 23 MR. QUAIL: Q: Yes. That's right. I found something 24 else we can agree on. 25 Section 3.2.1, and you don't need to turn 26 to it, of the application sets out the more specific Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 287 1 criteria used to guide the choice of the 1,600 2 kilowatt hour threshold, and these criteria consist of 3 basic economic criteria which are in section 3.2.2 for 4 the record, and bill impact criteria, 3.2.3. And I 5 would refer you -- this is simply a confirmation, you 6 don't need to turn to it, Exhibit B-7, BCOAPO 2.21.1. 7 It says that: 8 "A response suggests that if economically 9 efficient conservation were the sole 10 objective, then the step two rate would be 11 as high as justified by marginal cost, and 12 the step one threshold would be applicable 13 to as many kilowatt hours as possible. 14 Please confirm that both of these actions 15 would tend to increase overall revenues 16 collected and that trade-offs are also 17 required if B.C. Hydro was to recover only 18 the revenue requirement approved for the 19 class overall response confirmed." 20 Proceeding Time 4:23 p.m. T65 21 So, basically we have this trade-off. We 22 want as many customers as possible seeing the Step 2 23 rate, but if you do that, you start over collecting 24 revenue. That's the basic -- one of the basic 25 dilemmas of designing a stepped rate, isn't that 26 correct? Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 288 1 MS. ZACHARIAS: A: That's correct. 2 MR. QUAIL: Q: And I'd refer you to the application, 3 Exhibit B-1, section 3.5.2, entitled "B.C. Hydro's 4 proposed RIB rate with a 1,000 kilowatt hour Step 1 5 threshold". And I'll have you read that through, 6 rather than read it on the transcript. So that's 7 section 3.5.2 of the application. 8 Have you got that in front of you? 9 MS. ZACHARIAS: A: Yes. 10 MR. QUAIL: Q: So this discusses the alternative of 11 1,000 kilowatt hour threshold per billing period, and 12 confirms the following: 13 "1,000 kilowatt hour threshold meets the 10 14 percent bill impact criterion and does so 15 more readily than the 1600 threshold." 16 Is that correct? 17 MS. ZACHARIAS: A: I wouldn't say "more readily". The 18 threshold determines the threshold. The fact is, both 19 of them are under it. 20 MR. QUAIL: Q: Yes. The use of 1,000 kilowatt hours 21 exposes more customers to the Tier 2 rate. Is that 22 right? And you can look at table 3-4 if you need to, 23 but it seems like an obvious conclusion. 24 MS. ZACHARIAS: A: That's correct. 25 MR. QUAIL: Q: And it results in a somewhat lower Tier 26 2 rate. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 289 1 MS. ZACHARIAS: A: That is also correct. 2 MR. QUAIL: Q: And it mutes the bill impact test. That 3 is, some of the larger impacts that are disclosed in 4 your bill impact evidence. Isn't that correct? 5 MS. ZACHARIAS: A: Yes, I think I just said it met the 6 bill impact test. 7 MR. QUAIL: Q: Now, under your proposed RIB, Tier 2 8 will continue to pull farther ahead of Tier 1 as long 9 as your annual revenue increases are more than the 10 rate of inflation. Is that right? 11 MS. ZACHARIAS: A: You're asking if the differential 12 between Step 1 and Step 2 will increase? 13 MR. QUAIL: Q: Yes. 14 MS. ZACHARIAS: A: Under that scenario, yes it will. 15 MR. QUAIL: Q: Any circumstance where the revenue 16 requirement is greater than the rate of inflation. 17 MS. ZACHARIAS: A: That is correct. 18 THE CHAIRPERSON: Well, would -- you and Mr. Wallace both 19 confused me by referring to inflation. When you do 20 so, are you referring to headline or core inflation, 21 CPI -- 22 MR. QUAIL: It is inflation as used -- as the index used 23 for the purposes of establishing the rate of 24 escalation of the Tier 1 rate, which is CPI. 25 THE CHAIRPERSON: Okay. 26 MR. QUAIL: Q: Correct? Yes. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 290 1 MS. ZACHARIAS: A: Right. 2 MR. QUAIL: Q: A very interesting debate going on about 3 core inflation, and that's an important issue. 4 THE CHAIRPERSON: Oh, absolutely, yes. 5 MR. QUAIL: Q: Yes. 6 MS. ZACHARIAS: A: I think there's a -- 7 THE CHAIRPERSON: Of great interest. 8 MR. QUAIL: Yes. Yes. 9 THE CHAIRPERSON: To pensioners like me. 10 MR. QUAIL: Yes. 11 THE CHAIRPERSON: Sorry. 12 MR. QUAIL: And to some of us who, you know, may not be, 13 we hope, that long away from -- okay. 14 MS. ZACHARIAS: A: I think the other thing, though, 15 that we said in this application is that we're viewing 16 this proposal as a first step and every year, as part 17 of the process of coming back and filing with the 18 Commission what the rates would be for that year, if 19 we saw, given the various revenue requirement 20 application increases that could be evolving, if it at 21 that point in time didn't seem that this type of rate 22 structure would continue to make sense, that the bill 23 impacts would get out of -- beyond what we felt was 24 reasonable, or that any other part of the rate 25 structure didn't have that balance between all the 26 rate design criteria, that we would recommend changes. Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 291 1 So, this should very much be seen as a 2 first step, and along the road to using rates in the 3 future to encourage energy-efficient choices and 4 conservation. 5 MR. QUAIL: Q: Or it might be terminated in a few 6 months, according to your direct testimony. There's 7 Ms. Van Ruyven's testimony. She testified that, if 8 this RIB proceeds now and the Commission forms the 9 unlikely conclusion after the LTAP proceeding the 10 conservation rates are unwarranted because of GHG- 11 related issues, I want to underscore this, or because 12 they are not as economic as non-rate DSM, the RIB rate 13 could be terminated. So, sort of this flag being run 14 up the flagpole that you've designed in a, what, four 15 months between November and March, and maybe it will 16 fly, maybe we won't, maybe we'll figure it out as we 17 go. Is that a fair characterization of the game that 18 we're in? 19 MS. ZACHARIAS: A: No, I think that's a completely 20 unfair characterization, actually. 21 MR. QUAIL: Q: Okay. And the scenario, though, is that 22 unless there's some kind of radical restructuring over 23 once again before very long, Step 2 is pulling ahead 24 of Step 1 by every time that your revenue requirement 25 exceeds inflation, Step 1 sees no real increase at all 26 -- again, relative to the CPI index. The entire real Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 292 1 cost of the increases to your revenue requirement are 2 all visited in Step 2. 3 MS. ZACHARIAS: A: Yes. 4 MR. QUAIL: Q: And we see these diverging lines 5 happening very rapidly. And how long do you think 6 that can be -- that's a whole lot of questions. I 7 anticipate my friend's objection. It's late. It 8 feels like it's been a long day, Mr. Chairman. 9 MS. ZACHARIAS: A: I think -- 10 MR. QUAIL: Q: Normally I'm more succinct, and I hope 11 I'm a little more succinct than this. 12 MS. ZACHARIAS: A: I think what we've said in the 13 application, and through the various scenarios that we 14 did model, some of which included higher revenue 15 requirement application increases, that we demonstrate 16 that this rate has a very high potential of being 17 workable and effective for the next few years, and 18 that it does -- that Step 2, while it's allowed to 19 increase, as Mr. Quail has characterized, that the 20 upper bound of that increase would be no higher than 21 what we believe a ceiling of the marginal cost of 22 long-run supply would be. 23 So, from that perspective, there's a bit of 24 certainty around, from a principal perspective, at 25 least, that the rate wouldn't get higher than that 26 signal, in order to meet the requirement of the Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 293 1 efficient pricing signal. 2 MR. QUAIL: Mr. Chair, I note the hour. I also note that 3 my questions are getting more convoluted, so I propose 4 that this is a good time for me to adjourn this cross- 5 examination till tomorrow morning. 6 THE CHAIRPERSON: Thank you, Mr. Quail. 7 Mr. Christian, do you have some -- 8 MR. CHRISTIAN: I do. I have some reading material. 9 THE CHAIRPERSON: Good. 10 MR. CHRISTIAN: We may start with a little bundle that 11 was put together this morning. It's got responses to 12 Commission panel IRs 1.71 through and including 1.74. 13 In addition, because it was a bundle of a few things 14 we wanted to get filed today, it also includes revised 15 responses to BCUC staff IRs 2.78.1, 2.78.4 and 2.78.5. 16 I don't think I need to go to the BCUC's panel IRs, of 17 course, they're self-explanatory. With respect to the 18 revisions, the first one we made was to be a little 19 more precise in some numbers we'd given, and the 20 second two were modified to reflect -- or to be a 21 little more clear on what type of seasonal assumptions 22 would be made with respect to seasonal pricing options 23 we'd given in an IR response. This would be Exhibit 24 B-15. 25 THE HEARING OFFICER: Exhibit B-15. 26 (BUNDLE OF IR RESPONSES MARKED AS EXHIBIT B-15) Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 294 1 MR. CHRISTIAN: The next one I have, a response to -- 2 just one IR, even though you can see it's rather 3 thick. This would be a response to BCUC panel IR 4 1.4.1. This was a question with respect to the policy 5 basis for Hydro, or the allocation of Heritage 6 benefits, and so there's an explanation here that's 7 about two pages long, but to add the context, the 8 actual heritage report from the Commission of October 9 17th, 2003, is attached. Exhibit B-16. 10 THE HEARING OFFICER: Exhibit B-16. 11 (RESPONSE TO BCUC IR 1.4.1 WITH ATTACHED "BCUC…REPORT 12 AND RECOMMENDATIONS, OCTOBER 17, 2003", MARKED EXHIBIT 13 B-16) 14 MR. CHRISTIAN: And then lastly I've got a third little 15 packet here, which I believe will be Exhibit B-17. 16 This includes a number of other responses to 17 Commission panel IRs that we've been able to finalize 18 at this point in time. The IR responses are to 19 Commission panel IR 1.4.2, 1.4.3, 1.4.4, 1.4.5, 1.5.1, 20 1.5.2 -- in fact, I'll spare us here, I think to the 21 end of the 1.5 series, all the way to 1.5.9. And so 22 by -- that's B-17. 23 THE HEARING OFFICER: B-17. 24 (BUNDLE OF INFORMATION RESPONSES, MARKED EXHIBIT B-17) 25 MR. CHRISTIAN: And I believe that leaves only one set of 26 Information Request responses outstanding. That would Allwest Reporting Ltd., Vancouver, B.C. BC Hydro - RIB Volume 2, June 16, 2008 Page: 295 1 be the 1.8 series, and we're hopeful to be able to 2 file that in the morning. 3 THE CHAIRPERSON: Thank you very much. 4 MR. CHRISTIAN: My pleasure. 5 THE CHAIRPERSON: Any further business? No. 6 We're adjourned until 8:30 tomorrow 7 morning. 8 (PROCEEDINGS ADJOURNED AT 4:33 P.M.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Allwest Reporting Ltd., Vancouver, B.C.
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