BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT S.B.C. 1996, Chapter 473 and British Columbia Hydro and Power Authority 2004/05 and 2005/06 Revenue Requirements Application and An Application by British Columbia Transmission Corporation for Approval of an Application for Deferral Accounts
Vancouver, B.C. January 14, 2004
PRE-HEARING CONFERENCE
BEFORE: R. Hobbs, L. Boychuk, M. Birch, Chairman Commissioner Commissioner
Volume 1
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APPEARANCES
G.A. FULTON C. SANDERSON I. WEBB P. FELDBERG R.B. WALLACE W. HALIPCHUK D. NEWLANDS R.J. GATHERCOLE COMMISSION COUNSEL BRITISH COLUMBIA HYDRO AND POWER AUTHORITY BRITISH COLUMBIA TRANSMISSION CORPORATION JOINT INDUSTRIES ELECTRICAL STEERING COMMITTEE KEMESS MINE, NORTHGATE EXPLORATION ELK VALLEY COAL CORPORATION B.C. OLD AGE PENSIONERS' ORGANIZATION, COUNSEL OF SENIOR CITIZENS' ORGANIZATIONS, FEDERATED ANTI-POVERTY GROUPS OF B.C., WEST END SENIORS' NETWORK, END LEGISLATED POVERTY, TENANTS' RIGHTS ACTION COALITION SIERRA CLUB OF CANADA, B.C. CHAPTER COMMERCIAL ENERGY CONSUMERS HIMSELF HIMSELF SAVE BRITISH COLUMBIA COALITION
C. JONES C. WEAFER J. CAMPBELL A. WAIT W. TURNER
INDEX OF EXHIBITS
NO.
DESCRIPTION PAGE BCH 2004/05 AND 2005/06 REVENUE REQUIREMENT APPLICATION
PRE-FILED EXHIBITS A-1 A-2 ORDER G-84-03 DATED DECEMBER 16, 2003 ORDER E-10-03 DATED DECEMBER 24, 2003 WITH COMMISSION LETTER TO B.C. HYDRO ALSO DATED DECEMBER 24, 2003 A-3 B1-1 LETTER NO. L-1-04 DATED JANUARY 7, 2004 B.C. HYDRO REVENUE REQUIREMENTS APPLICATION 2004/05 AND 2005/06 DATED DECEMBER 15, 2003, VOLUME 1 WITH B.C. HYDRO LETTER TO THE COMMISSION ALSO DATED DECEMBER 15, 2003. B1-2 B.C. HYDRO REVENUE REQUIREMENTS APPLICATION 2004/05 AND 2005/06 DATED DECEMBER 15, 2003, VOLUME II B1-3 LETTER FROM LAWSON LUNDELL TO COMMISSION DATED OCTOBER 21, 2003 RE B.C. HYDRO APPLICATION FOR APPROVAL OF ELECTRICITY PURCHASE AGREEMENTS B2-1 BRITISH COLUMBIA TRANSMISSION CORPORATION ("BCTC") APPLICATION FOR DEFERRAL ACCOUNTS FILED DECEMBER 15, 2003
INDEX OF EXHIBITS
NO. B1-4
DESCRIPTION PAGE PRE-HEARING CONFERENCE 1 - JANUARY 14, 2004 LETTER FROM LAWSON LUNDELL TO COMMISSION DATED JANUARY 13, 2004 RE MATERIALS TO BE FILED.......... 22
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CAARS VANCOUVER, B.C. January 14, 2004 (PROCEEDINGS COMMENCED AT 9:00 A.M.) THE CHAIRPERSON: Please be seated. Good morning. My name
is Robert Hobbs and with me are Commissioner Boychuk and Commissioner Birch. This is a prehearing conference to
consider certain procedural issues arising from a revenue requirements application filed by B.C. Hydro on December the 15th, 2003. Commission counsel for this
proceeding will be Gordon Fulton. Before turning to the issues for this prehearing conference, I want to identify the staff, which includes both full-time and contract staff that I currently anticipate will be involved in the review of the application. The lead staff for the review of the application will be Barry McKinlay. The principal staff reviewing issues arising from power purchases, trade revenues, portfolio management and the IEP will be Brian Williston, Bob Rerie, Robin Siddell, and Elroy Switlishoff. The staff involved in the review of OMA and the capital program will include Neptune Smith, Brian Williston, Bob Rerie and Elroy Switlishoff. The staff involved in the review of the
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finance and accounting issues, including debt costs, return on equity, and the deferral accounts, will be Barry McKinlay, Phillip Nakoneshny, and Fong Kwok. Werner Krampl will also be involved in finance and accounting issues related to BCTC matters. The staff involved in review of costs related to the management, environmental and First Nations issues will include Brian Williston and Bob Rerie. The principal staff reviewing issues arising from the Power Smart program and DSM evaluation will be Eileen Cheng assisted by Elroy Switlishoff. Eileen
Cheng will also be reviewing the load forecast. I have identified each staff member's principal area of involvement so that you can contact staff responsible for those areas if you wish. This morning Barry McKinlay, Philip Nakoneshny, Bob Rerie, Fong Kwok are here to assist you if you wish to speak to them. The hearing officer will be Hal Bemister. Now I'll describe the record as it stands today. On December the 15th, 2003, B.C. Hydro filed a
revenue requirements application to increase its rates by 7.23 percent effective April the 1st, 2004, and by 2 percent effective April the 1st, 2005. On December the
16th, 2003, the Commission issued Order G-84-03 that called for publication of a notice and established the
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prehearing conference and tomorrow's workshop. On December the 15th, 2003, the same day as B.C. Hydro's filing, BCTC filed an application seeking approval for certain deferral accounts that are listed in their application. BCTC requested that the
application, with the exception of one of the deferral accounts, be heard at the same time as B.C. Hydro's revenue requirement application. By letter L-1-04 dated January the 7th, 2004, the Commission determined that the BCTC application for the deferral accounts to come into effect April the 1st, 2005, should be heard at the same time as B.C. Hydro's revenue requirement application. BCTC was also
requested in that letter to speak to its proposal with respect to a review of the CPCN application for the BCTC system control modernization project should BCTC decide to proceed with the project at the end of the definition phase. Yesterday B.C. Hydro also circulated a letter that identified certain filings that it expects to file during this proceeding. In a few moments I'll ask B.C.
Hydro to speak to that letter. Those are the matters of record to today. exhibit list has been prepared pursuant to the Commission's document filing protocols that were issued on December the 12th, 2003. Mr. Fulton has copies of the An
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exhibit list and the document filing protocols. B.C. Hydro is seeking an interim order with respect to its application. The Commission Panel
intends to issue an order with respect to the interim application within the next couple of weeks. B.C.
Hydro's application for an interim order is considered outside the scope of this prehearing conference. As stated in the Commission letter dated January the 7th, 2004, which is Exhibit A-3, the principal purpose of this prehearing conference is to hear submissions that may assist the Commission Panel in determining an appropriate regulatory agenda. I think there are three key elements of the regulatory agenda and I'd like to establish the agenda for the prehearing conference around those three key elements of the regulatory agenda: first, the process
steps for review of the application; second, the timetable for the process steps; third, the location for the oral phases of the proceeding. I may ask questions of the participants with respect to the first two elements of the regulatory agenda. Commissioner Boychuk and Commissioner Birch may So that the process steps
also have some questions.
have some focus without concerns about timetable, I am going to ask the participants first speak to the process steps. And for those of you who think graphically, the
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process steps that I'm referring to are the left column on the proposed schedule that B.C. Hydro put together in its cover letter that submitted the application. So as I mentioned for those of you who have just turned to the proposed schedule, the process steps were the first item on the agenda for this morning as the left-hand column. The second item on the agenda is
going to be the right-hand column, and then we are going to deal with location issues. As mentioned in our letter of January the 7th, the proposed schedule was not intended, and my reference to the proposed schedule was not intended to in any way constrain your views with respect to what the appropriate process steps should be. If you believe that a negotiated settlement process should be included as a process step, then you may choose to comment on the appropriateness of a negotiated settlement process at that time. first agenda item. So as the
If you wish to pursue a negotiated
settlement process, then I'd appreciate you identifying that when you're speaking to the process steps. If no one speaks in favour of a negotiated settlement process, then I assume that no one supports a negotiated settlement process for this matter. After
hearing from participants, I may then be able to provide some comments about the process steps that may be
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helpful with respect to the second element of the regulatory agenda, the timetable for the process steps. Regarding the third element of the regulatory agenda, the location, I have been told that Commission counsel and the hearing officer are able to make a recommendation with respect to the location. Unless
there are objections, which I will ask for later, to the location being a downtown Vancouver location, I'm going to accept their recommendation. I'll also ask at the end of the review of those three items if there are any other agenda items that anyone wishes to raise. Now before I turn to the first element of the regulatory agenda, I would like BCTC to comment on their position with respect to a review of a CPCN application for the system control modernization project, and that's assuming that BCTC decides to proceed with the project after completion of the definition phase. MR. FELDBERG: BCTC. Mr. Chairman, you asked -- the Commission asked two questions of BCTC. The first was when it Mr. Chairman, Peter Feldberg. I appear for
intended to file an application or when it saw that it would file an application for a CPCN for the system control modernization project, and secondly whether it saw it as part of this proceeding or as part of a
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separate application. Dealing with the first question, the application that was filed on December 15 laid out a number of steps that BCTC was currently undertaking with respect to the system control modernization project, and indicated in the application the first phase was a definition phase which involved a series of studies that were set to be completed in and around the end of March of this year. After the study phrase is completed, there are obviously a number of other steps that the company will need to go through in terms of defining and deciding on options, preparing an application, and bringing it to the Commission. Our best estimate of
that currently is that we anticipate doing that midyear, depending on how things go with the other phases. It's a little early at this stage to tell, but that's where we currently anticipate it falling. In terms of whether it belongs with this application or ought to be the subject of a separate application, it's our view that that should be the subject of a separate application and that it should not form part of this application. A CPCN application It
obviously has different issues associated with it.
has different tests applied to it and we don't see the evidentiary overlap that would create sufficient
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deficiencies with those project that it would make sense to -- with this hearing that it would make sense to do it within this hearing. So our position is that it
ought to be the subject of a separate proceeding. THE CHAIRPERSON: Thank you. I think your filing date
drives the answer to the second question, but I will leave the floor open for any further comments with respect to that when we speak to the process steps. thank you. MR. FELDBERG: But Mr. Chairman, if there are subsequent But
comments that I haven't addressed, I'd obviously like the opportunity to return. THE CHAIRPERSON: Of course.
I think Mr. Fulton, perhaps in a less organized fashion than he's had in the past, has developed an order for participants to speak to the agenda items. I'm going to now turn to B.C. Hydro and
BCTC to first speak to any issues that they would like to speak to with respect to process steps, and I'm assuming at least in the context of B.C. Hydro it will be around the proposed schedule. And I'd like, Mr.
Sanderson, if you will, to speak to the letter that also was filed yesterday. And then I'll hear from BCTC with respect to the process steps, and then I'll turn to Mr. Fulton to call, if that's the manner in which he wishes to
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proceed, to call for the other participants to comment on the process steps. MR. SANDERSON: Thank you, Mr. Chairman. Chris W. I
Sanderson for B.C. Hydro, and with me is Mr. Webb.
think B.C. Hydro's primary positions with respect to scheduling are laid out in Hydro's letter of December 15th, and that's the schedule which you've asked for everyone to comment on. I don't think there's any
purpose in my elaborating that, with the exception of commenting that there was deliberately no provision within it for a negotiated settlement process. not really because Hydro has any objection to participating in a negotiated settlement process should those opportunities arise. Clearly we would be prepared That's
to participate on those processes, but frankly, given the breadth of the application here and the uncertainty with respect to where the primary issues are from interested parties' perspective, it seemed premature to determine at the time this was filed that a negotiated settlement process, one, was practical in any sense, and two, to the extent it is practical, how it might be focused and therefore when it may occur. And so our position at this stage is that it's probably not desirable to hardwire a negotiated settlement process in at this stage, but nor is it desirable to preclude that option as this process
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develops.
And indeed, prehearing conference number 2
might well begin to look at the issues on a selective basis and say these ones look like they are things where there's room for negotiation and some progress can be made; other ones aren't. get precise about that. Otherwise, Mr. Chairman, I think the proposed schedule speaks for itself. In the covering letter there is some elaboration of why the schedule has some of the features that it does. The only point which I would emphasize, But again it's premature to
and I think most of the submissions on page 2 go to, is it's Hydro's strong view that the information request process is going to be a very important element as it always is, but particularly in the context of this proceeding given the long lacuna if you want, in Hydro's participation in a rate review. And so built into this
is four weeks for Hydro to respond to the Commission's first round of requests, and an almost similar period to respond to intervenor requests. And I think that that
is going to assist everyone in the process if B.C. Hydro is able to field what we anticipate will be a great number of information requests in sort of a timely and orderly way, and provide the best information it's capable of to the process in response to those questions. And that was the guiding ethic behind this
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schedule if you will. You've asked for comment with respect to Mr. Christian's letter of yesterday, and I'll say only this. I think that the three items that he mentions specifically are all really contemplated either in the cover letter of December 15th or in the application itself. The application discloses that the Integrated
Electricity Plan and an Updated Action Plan that would flow out of it are not anticipated until March 31st, and that's explained and elaborated in the application. Clearly that Integrated Electricity Plan is an important backdrop. It's not anticipated at this stage that the short-term action plan, which is what affects fiscal '05 and '06, which is the subject matter of the application, will be materially changed, but it's important to confirm that assumption. And so it would be hoped that
the IEP that's filed March 31st would be confirmatory in the short term of what's already assumed in the application, and would clearly be more elaborate in the medium and long term than what's currently described in the application, and thus give a more useful backdrop to participants during the oral phase of the hearing. if that March 31st schedule can be adhered to, it's Hydro's view that that should accommodate the May hearing.
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That also facilitates updates to forecast financial schedules. that. There's really two aspects to
One is as described more fully in the
application, the budgetary process at Hydro, which is on a fiscal year that comments April 1st each year, is not as of today complete. So that the numbers that have The
been filed are the preliminary budget numbers.
Board approves the final budget later this month, and then the final numbers are then settled and adjusted. And the hope would be that that updated financial information, to the extent there's any changes, can be identified in the next month or so. And as well, and
probably in the consolidated filing, any changes resulting from change to external economic conditions; that is, as the application makes clear, some of the numbers in here are dependent on provincial forecasts and those are consistently updated on a quarterly basis. And so B.C. Hydro's approach is to bring all of that together in an update sometime probably towards the end of February, which would then cut off the information and say: This is the information which will
form the final basis for the actual hearing itself and hopefully thereby prevent constant updating the information, which leads to confusion for everyone. And then finally, as the schedule contemplates, there will be direct testimony ultimately
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filed.
It's Hydro's view that that direct testimony,
and I guess I'm now speaking to the schedule, should be informed by the focus of intervenor questions in the IR process. And that's why the schedule proposes direct
evidence after the IR responses, or at the same time the IR responses are filed, and so that Hydro can hone in on those areas where the most interest seems to be being expressed either by Commission staff or by intervenors, and make sure that the evidence, any supplementary evidence that is required beyond the application is provided to the Commission. Finally as Mr. Christian points out, it's possible at the end, although there's no precise -- I'm sorry, there is a precise placeholder for this on May the 6th but no necessary requirement for the filing of rebuttal evidence. It's probably a good idea to
memorialize when it would occur if it is necessary, and as we've said, that's suggested to be May 6th. Mr. Chairman, I think that is probably all I would propose to say at the moment, unless there is a topic I haven't covered that you would wish me to address initially, and then I may have comments in response to some of my friends. THE CHAIRPERSON: I am going to, because I have the
opportunity, I am going to ask you a number of questions, but I'm concerned my questions may preempt or
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influence some of the comments that we will hear from intervenors later, so I will return to this after I have heard from the intervenors. preliminary questions. The application I thought indicated that the IEP was going to be filed March 2004. here the March the 31, 2004 date. I may have missed But I do have a couple
If there are
significant changes to capital programs that you don't currently anticipate or changes to resource acquisitions, or if your evidentiary update, as it relates to the budget and actuals for 2004, drive significant changes that the intervenors may prefer to ask IRs with respect to rather than waiting for the hearing, do you have any views with respect to whether that opportunity should be given to the intervenors? MR. SANDERSON: No firm views, Mr. Chairman. Clearly, if
the intervenors can make the case that there is significant enough change to affect potentially their position with respect to some of the issues in the hearing, then there should be additional IR process. I
mean the IR process, we quite accept, is a helpful thing prior to the hearing. And so that if there were
significant changes in a way that we were unable to make clear in whatever updated evidence we filed, then an additional IR process at that stage would be appropriate.
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I think it is premature to, again, hardwire that and I would resist doing it now because if it is not necessary then it's just more paper and more time. But nor would I proclude it, in my submission. I think the schedule accommodates some latitude there. If I can take you to the schedule for a
moment, you will see that BC Hydro's response to intervenor IRs first round is March 19th which is almost two months before the hearing starts. And then there is
a provision for intervenor evidence in response to that and another prehearing going on through April. It would
certainly be possible to have another round of IR process occurring then, that is to Hydro, should that approve necessary. So for instance, it would be my expectation that those issues could be grappled with on the April 7th prehearing conference number two and if there was persuasive argument made that another IR process is needed, there is a full month to do it, and that is realistic I think at that stage. The response times are
necessarily and quite achievably much shorter because the issues are narrower and more focused. And that
could be built in between April 7th and May 10th. I should also say that the May 10th date was influenced by the need to, and again the need is, I think just a -- if I could put it this way, one of
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convenience to get the oral hearing process through by June, by the end of June. That is the sort of guiding
thinking here was if at all possible the schedule should accommodate the completion of the evidentiary phase of the hearing before the summer. And frankly the May 10th
hearing date fairly generously, I hope, accomplishes that. It allows seven weeks of hearing time. And that
maybe an over-estimate of what is really needed but I guess we wanted to provide a fairly generous buffer there. But again, if the Commission determines that IRs
are a better way to manage the process than a lengthy oral phase then certainly from Hydro's perspective there would be no objection to that. THE CHAIRPERSON: Thank you. The first question that I
had as related to the record, your application assumes that there will be a filing of the disaggregated OMA cost by function mid January 2004. So right about now,
are you still on schedule to do that? MR. SANDERSON: Mr. Chairman, if your question is directed
at the breakout of OMA into its separate components beyond the level and the application, that is finalized as the budget process is finalized which is back to the Board meeting that I think is scheduled this month certainly, and I'm just -- I am looking for confirmation of the exact date, but I think it is January 30th. And
it would then be shortly after that that we would be in
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a position to confirm those numbers. reference I am missing, Mr. Chairman. THE CHAIRPERSON: MR. SANDERSON: THE CHAIRPERSON:
There maybe be a
Yeah, and I can give it to you. Thanks. It is Exhibit B1-1 which is Volume 1, tab
2, page 2-10, lines 11 to 13. MR. SANDERSON: Well, Mr. Chairman, you've I think picked I think that dates -- I am
up some slippage already.
going to have to check why that says mid-January, but my understanding is that isn't finalized until after the global budget is finalized and the final allocations are blessed at that level, which implies that mid-January was always optimistic and I frankly hadn't picked that up. But I think the realistic answer now is early
February as to distinct from mid-January. THE CHAIRPERSON: If it is early February and there is an
opportunity for IRs after that filing which is set out in your proposed schedule then it would seem that your dates for IRs can accommodate that. If is slippage
beyond the first part of February, then there isn't that opportunity and I probably won't go any further with respect to my comments until I have heard from the intervenors in this regard. MR. SANDERSON: Chairman. THE CHAIRPERSON: Okay. My second area of questions Yes, and I do take your point, Mr.
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relates to your comments with respect to the prehearing conferences as related to the negotiated settlement process, and I appreciate your comments in that regard. I will say this with respect to the second prehearing conference and probably then open the floor to intervenors, but this maybe helpful to the intervenors: My view of the prehearing conference was that, at least in part, it was going to deal with issues arising from the adequacy of information heading into the hearing. So that was going to provide an opportunity for intervenors as well as B.C. Hydro and BCTC to comment on responses to information requests if they so chose. The prehearing conference that you've set forth is earlier than might accommodate the intervenors and it is certainly too early for that opportunity to be made available to you effectively if the prehearing conference is where it is before you get responses to IRs then you're foreclosed from that opportunity. I
assume from the schedule you are proposing that in fact you did that deliberately. MR. SANDERSON: Yes, Mr. Chairman, that's so. Your first
observation that one of the agenda items for the prehearing conference number two would be to debate, if necessary, the adequacy of any responses caused the suggested date to be after the filing of B.C. Hydro's responses to everybody's first round of IRs.
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would accommodate the April 7th hearing date permitting that debate to occur if it needs to. You are right that Hydro doesn't have a similar ability to complain of the adequacies of responses from intervenors and that is really based on our experience that one, the IR process to intervenors is less fulsome perhaps than from intervenors. And
second that we will want to draw intervenors out to the extent that they are capable of being drawn out and willing to be drawn out, but in the end it is our case to prove and if intervenors don't want to be responsive then we can deal with that in argument or during the oral phase of the hearing and the need to press, from the applicant's perspective, is usually less. Now, there maybe an exception that causes me to get up and say that in a specific context I do want an answer, but I think that is much more an exception than it is the rule and I don't think it needs a special prehearing schedule now to accommodate it. THE CHAIRPERSON: Thank you. And one final comment. And
this isn't a question but one final comment for the intervenors, and I will give you an opportunity to respond if you wish. It is my view that if an
negotiated settlement process is embarked upon that it first needs to be brought to the Commission Panel before that process is begun. And I hear your comments with
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respect to leaving that opportunity open, and subject to the views of intervenors, there may very well be some merit in that. I think that will -- if that event
occurs I think that will mean that there will be another prehearing conference before any effort to achieve a negotiated settlement on any set of issues is undertaken. MR. SANDERSON: Mr. Chairman, rather than comment on that
specifically maybe I will just say that in my view the prehearing conference mechanism is a very useful one and I think all parties, and in my respectful submission I hope the Commission, you know, will consider their use wherever they appear necessary. I can't see how at
least two aren't necessary and that is why two are built in here. But if we need three or four, I think, on
specific issues, that is a useful use or a practical and beneficial use of the Commission's time frankly. THE CHAIRPERSON: Thank you, and I concur. With that then
I think it is -- this is the opportunity for BCTC to comment on process steps. MR. FELDBERG: Mr. Chairman, subject to any questions you
might have of us, we have no comments to add to those made by Mr. Sanderson on the process steps. THE CHAIRPERSON: Is it your view that -- because you now
have been enjoined, if that is the correct phrase, into this proceeding as an applicant, is it your view that
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the round of IRs that are proposed in B.C. Hydro's schedule would apply to you as well so that wherever B.C. Hydro appears we could add BCTC? MR. FELDBERG: I think that is actually the best way to do
it, Mr. Chairman, particularly for intervenors' convenience. It is hard to keep track of separate dates So I think that is
and there are enough here already. the appropriate way to proceed. THE CHAIRPERSON: Okay.
With that Mr. Fulton, I am going
to turn the floor to you to call upon participants to speak to process steps. MR. FULTON: Thank you, Mr. Chairman. I will say that I
have left at the back of the room the exhibit list to date. That list does not include the letter from B.C.
Hydro that was received by the Commission yesterday but it will take the next number in the B.C. Hydro series of numbers. And I also have left at the back of the room
the copy of the document filing protocols which indicate to people the protocols that the Commission now has in place relative to document filing. In terms of calling parties forward -THE CHAIRPERSON: MR. FULTON: Just before you do that --
Yes. -- for the purposes of the record then,
THE CHAIRPERSON:
the letter from Mr. Christian dated January 13, 2004 I think is Exhibit B1-3?
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MR. FULTON:
That would be B1-4, Mr. Chairman.
B1-3 is the
Lawson Lundell letter of October the 21st. (LETTER FROM LAWSON LUNDELL DATED JANUARY 13, 2004 RE MATERIALS TO BE FILED MARKED EXHIBIT B1-4) THE CHAIRPERSON: It is so much more fun to correct people
when they mis-identify exhibits then it is to actually offer an exhibit number myself. MR. FULTON: Thank you.
So in terms of how I call people forward this
morning, I do recognize a number of the individuals and organizations from previous hearings. I did ask before
we started this morning for people who I may not have met in the past to come forward and identify themselves and so if I don't capture everyone at the end then they should come forward quietly and I will make the microphone available to them. Having said that I would like to begin with the Joint Industrial Electrical Steering Committee, Mr. Wallace. MR. WALLACE: Thank you. R. B. Wallace appearing on behalf Mr.
of the Joint Industry Electric Steering Committee.
Chairman, with respect to the various process steps, it is a bit hard to separate them from timing but I will do that. The principal concerns would be with respect to
information that is still to come and I would suggest that in some cases there needs to be dates set with respect to that.
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The one that concerns me the most just following on from Mr. Feldberg's comment is BCTC's application for deferral accounts. I only became aware It didn't
of that application in the last few days.
obviously have the profile that the B.C. Hydro application did. It seems to me that that is a very
limited application to this point in terms of information and to head directly into information requests with it seems premature. I would assume that
BCTC is planning to provide more detail with respect to that. If it is not, of course that should be made clear
as soon as possible. With respect to financial updates and these are basically the items listed in Lawson Lundell's letter of January 13th. I believe a date should be set
for those and some indication I guess of the seriousness of those updates would also affect the scheduling. they are going to be substantial then there will definitely have to be a round of information requests after them. If it is considered to be minor clean up If
then maybe that isn't going to be much of a problem. With respect to the filing of the direct testimony of witnesses, I had been hopeful that all that was intended was that Hydro would be filing the type of information that says: So-and-so will be testifying to
these particular tabs and his background is the
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following. It appears from listening to Mr. Sanderson this morning that something much more comprehensive than that may be contemplated. And if that is the case, then
I think we have to have a round of information requests to respond to that because if it is as Mr. Sanderson described them anticipating from the information requests of the BCUC and of the intervenors what the issues may be, then I think it is fair to assume that there may be substantive new response from B.C. Hydro, and it would be appropriate to allow time for information requests, and presumably I think before the intervenor evidence, otherwise the intervenor evidence maybe have been brought forward on less than a full record or a full understanding of B.C. Hydro's positions. I think also with respect to the Integrated Electricity Plan and Updated Action Plan, I'm not quite as confident as Mr. Sanderson is that those will not raise new issues, and believe that again it will be essential to build in an information response process with respect to that, and to allow intervenor evidence at a reasonable time after the Integrated Electricity Plan. And we'll be talking scheduling in the next phase
of this, but right now I just wish to point out that if the Integrated Electricity Plan comes in on March 31st,
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intervenor evidence on April 2nd would not appear appropriate. With respect to a negotiated settlement process raised by yourself, I think if there are prospects that issues can be settled -- and I don't think it's realistic to think that the entire application could be settled although maybe we'll see as we go down the road, but if there are issues that could be settled, then I think the JISC would be supportive of a settlement process. But they are very concerned that
we've got into settlement processes in the past that actually have turned out to be a fairly expensive waste of time. So I think it is essential that there be a
general consensus that this is something worth undertaking, and that may be reviewed at a prehearing conference; it might be appropriate. The process must not be an extended process. I think everybody benefits from a focused process. Processes that we have been involved in that go over a long period of time tend to be unfocused and not to lead to resolution. And it is important that in the proposed
schedule, time be built in for a settlement process at this time. We don't want to reach a stage where people
are saying yes, it would be a good idea but there is no time. Again, we don't think it takes a long time to see
if something can be resolved and to deal with it,
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particularly if we have a strong record in advance. That completes my comments unless you have any questions. THE CHAIRPERSON: Just a comment with respect to your I'm
comments regarding the prospects of an NSP process.
thinking that if during the evidentiary discovery phase, the IR phase, that the prospects are looking reasonable and that parties identify that as such, that it would come back to the Commission before that effort was embarked upon. And I hear your comments with respect to
it being focused, and I think that would probably help it being focused. I'm thinking however that the process that we establish, if it doesn't at the outset include an NSP process step, then we wouldn't build in, as you're proposing, time for the NSP. But if it turned -- if
circumstances presented themselves in such a way that the parties wanted to pursue that, then it would come back to the Commission and we could make adjustments to accommodate that NSP process at the time. So in response, and I welcome your comments, but in response to your views with respect to building in time for that, I'm thinking no but we can accommodate it when the time arises. MR. WALLACE: I think with respect to your suggestion of
the timing that it may be appropriate prior to filing of
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intervenor evidence.
What I would suggest in that case
is building in a prehearing conference if not building in time for a settlement process, so that one -- there would be a time to come before the Panel and to explore the issue, and if necessary then the Panel would be able to act quickly to make an adjustment to the time schedule to allow it to happen and to keep the focus and pressure on the parties. THE CHAIRPERSON: Thank you. When would you propose that
that be built in as a process step? MR. WALLACE: I think there are two stages it could go. It
could either go immediately before intervenor evidence or very shortly after intervenor evidence when the issues would be clearly defined. THE CHAIRPERSON: So as it's set out now in B.C. Hydro's
proposed schedule, the second conference would accommodate what you just mentioned. MR. WALLACE: Yes. Okay. Thank you.
THE CHAIRPERSON: MR. FULTON:
Kemess Mines Limited. Mr. Commissioner, Walt Halipchuk for Kemess
MR. HALIPCHUK:
Mine, Northgate Exploration. We have no objection to the schedule as it's outlined. We do have a question concerning location, We
and you said you'll speak to that a bit later.
wondered if there would be an oral hearing in Prince
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George within the region, so. THE CHAIRPERSON: I do intend to return to that issue, so
you'll have that opportunity to speak to that. MR. HALIPCHUK: THE CHAIRPERSON: MR. FULTON: MR. NEWLANDS: Thank you. Okay, thank you.
Elk Valley Coal Corporation. Good morning, Mr. Chairman. David Newlands
on behalf of the Elk Valley Coal Corporation. The only comment I would add at this time, sir, is with negotiated settlements, that I think probably sooner rather than later there's an opportunity to invoke that process. And an example I would give,
areas that could become very technical within the application such as the structure of some of these deferred accounts, that to the extent a settlement could be reached and that could be brought forward to the Commission sooner rather than later, I think that'd be helpful to you. Apart from that, we'd support the comments of Mr. Wallace. THE CHAIRPERSON: MR. FULTON: Thank you, sir. Thank you. Mr. Duncan was
Columbia Power Corporation.
tied up in Victoria in terms of mechanical problems, so I'll call them again later, Mr. Chairman. B.C. Old Age Pensioners et al. MR. GATHERCOLE: Mr. Chairman, maybe for the benefit of the
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new commissioners I should list the client groups rather than just say BCOAP et al. THE CHAIRPERSON: MR. GATHERCOLE: Yes, please do. It includes the B.C. Old Age Pensioners
Organization, the Council of Senior Citizens Organizations, the Senior Citizens Association of British Columbia, the federated anti-poverty groups of British Columbia, lower case, End Legislated Poverty, West End Seniors Network and the Tenants' Rights Action Coalition. Maybe I can start with some comments on the negotiated settlement process. with Mr. Sanderson's comments. In general I would agree It's something I have,
and my clients have, argued for for some time that rather than be an either/or that there be some opportunity for both. However, I would suggest a This is a
counsel of caution in this particular case. major application.
It is ten years since this utility's I think it
revenue requirements have been reviewed.
should be the exception rather than the rule in this particular proceeding for the parties to go off line and then come back with something for the Commission. I
think it's really important that the Commission Panel have the real control on all the issues. So I would agree that probably we could revisit this in the second prehearing conference, but I
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would be looking at, in my view, something quite limited. I don't think there's any chance at all that
the whole matter could be negotiated, nor do I think it should. And in fact I would agree with Mr. Wallace that
sometimes when you get into the negotiated settlement process, if you're going to do it properly it can take longer than an oral hearing. And I think it -- I guess
my submission would be, if we're going to have any aspect of negotiated settlement, clearly it should be decided by the panel and it should be very focused. With respect to the rest of the proposed schedule, we're generally in agreement with it. I
particularly like the approach of having the two levels of information requests, and it's been helpful in the past where we've had the information requests put in by the Commission staff before intervenors put in their information requests. I think it will be even more
helpful both to the intervenors and to the overall process, this approach where we have the answers to the staff information requests as well, and I think that will -- I agree with Mr. Sanderson that the information request process in this proceeding is significant and I think this will be helpful. But I also believe that we
may well come up with situations where we will need a second round, in particular agreeing with Mr. Wallace with respect to depending on what the filed evidence of
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B.C. Hydro contains.
If it were the usual form that Mr.
Wallace indicated, we'd have no problem with the schedule. But I think it's something we're going to
have to revisit when we see the evidence. And I think subject to any questions you might have, Mr. Chairman, those are all my submissions. THE CHAIRPERSON: Yes, I have an announcement -- I guess we In the future there will be What we will have instead are
best should call it that. no Commission Staff IRs. Commission IRs.
The Commission Panel intends to be We
asking questions as part of the IR process as well.
do not intend to distinguish them from the staff IRs as they go in, but they will be referred to as Commission IRs. I'd like to raise with you a possibility with respect to the IRs and your comments give rise to this, comments which I had been thinking might be a possibility that would be welcomed by both the Commission and by intervenors. In the past the practice has been, as you suggested, in some circumstances that there be a round of IRS from the Commission, and then there be a round of IRs from the intervenors. It excludes the intervenors
in the first instance and excludes the Commission in the second instance, and I'm wondering if that's necessary. MR. GATHERCOLE: The second I think would be more useful
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than the first.
My concern, and I've seen this in other
processes as well, notably in the telecommunications in the past where you put in your information requests, or as they call it, interrogatories, at the same time as the CRTC does; and what you end up with is a lot of duplication and a lot of paper shuffling because you keep getting referred to other interrogatories. I think speaking purely from my clients' point of view, having the Commission's IRs and particularly the responses to it, would be very very helpful because then we can then focus on the issues of particular concern to us. I think it will also help
B.C. Hydro get a good sense of what issues various intervenors are particularly concerned about. THE CHAIRPERSON: Yes. My comment was a little cryptic.
What I am thinking, Mr. Gathercole, is that the first round of IRs will be available to everyone. The second
round of IRs will be available to everyone as well. MR. GATHERCOLE: So intervenors could either ask IRs at the
first round, or just hold off until the second round. THE CHAIRPERSON: MR. GATHERCOLE: THE CHAIRPERSON: MR. GATHERCOLE: MR. FULTON: MR. JONES: That option would be available to them. I think that would be helpful. Thank you. Thank you.
The Sierra Club. Mr. Chair, Panel members, my name is Chris
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Jones acting for the Sierra Club of Canada, B.C. Chapter. I don't want to make lengthy submissions. I
did want to echo the comments of Mr. Wallace and Mr. Gathercole with respect to the filing of the Integrated Electricity Plan on March 31st, and also their comments with respect to the filing of evidence by B.C. Hydro. If those -- especially with respect to the evidence, if that's going to be of an extensive nature then it seems like an IR process would have to be built in in that regard. Those are my comments, Mr. Chair. Thank you, Mr. Jones.
THE CHAIRPERSON: MR. FULTON: MR. WEAFER:
Commercial Energy Consumers. Good morning, Mr. Chairman and members of the Chris Weafer for the Commercial Energy Firstly with respect to the discussion
Commission. Consumers.
around BCTC this morning, neither I nor the consultants I'm working with have received BCTC's system control modernization report in that application, so we have no comment. It's news to us this morning and I have not
spent any time on it, so we would need to get up to speed and may have further comment once we've reviewed it. But we have some concerns of the integration of
that into this process where we don't really know what it contains at this point. With respect to the negotiated settlement process proposal, I am sceptical of the value of that,
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however was open to anything that will make the process more efficient and more effective. Mr. Sanderson spoke That is
of a possible seven-week hearing this morning. a lengthy process.
To add the time associated with NSP
to that may make it quite prohibitive for parties to participate from a cost-effective standpoint. This hearing is the first hearing after a significant holiday from regulation for B.C. Hydro. I
think what the Commission should be focused on is future opportunities for NSP as opposed to opportunities for an NSP in this process, and therefore the need for a thorough and effective public record through a public hearing has real value. And so while there may be a
heavy investment in this process where Hydro is coming back into the regulatory fold, the long-run value of a thorough and public process may be seen in subsequent NSPs in future years. But we are quite concerned about
layering that onto this process at this time, but always willing to review it during the proceeding in the process. With respect to information requests, we think it's fundamental at this time that this process schedule a second round of IRs. Even before Mr.
Sanderson's comments this morning about "We've still got a bit of a work in progress and some of the financial information," which is fair, it may change the
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application and we need to be at this point aware that there will be a date and a time for supplemental IRs, as opposed to having to come back and plead for that. So in terms of we can talk about the dates next time I'm at the mike, but I think there is a need for a second round of IRs as scheduled. We also agree with respect to the second prehearing conference of moving that closer to the hearing date, that we have the record, we have the second round of IRs completed, and that we really do have an opportunity to have input on the hearing process at that time closer to the date of the hearing. Those are my comments, Mr. Chairman. THE CHAIRPERSON: I wonder, Mr. Weafer, if your view with
respect to the scheduling of the prehearing conference is influenced by your view with respect to NSP. I heard
Mr. Wallace suggest that the timing of the second prehearing conference has some advantages because it may provide an opportunity for there to be a discussion with respect to respect to NSP, and if we drop that to where you're proposing that same opportunity isn't going to be available. Can you comment on the implications of
dropping that second prehearing conference until later in the process steps given Mr. Wallace's views? MR. WEAFER: By a date proposal I was going to suggest at
least a one week if not two week move-back of the
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hearing start, and so you could have the second prehearing conference and then set a very finite period of time if there are discrete issues that could be undertaken through NSP. NSP that goes longer than a
week to ten days typically goes longer than anybody wants it. So if we can move the hearing -- if there are
clear-cut issues that there is full agreement should go to NSP, that could be dealt with through a second prehearing conference by moving back the hearing date at least a week that could give us the time to deal with anything through NSP, but it's a true finite time and it really could only be for things that we know we could achieve a settlement on in a short period of time, will be my suggestion. THE CHAIRPERSON: Thank you, that's a helpful clarification Thank you.
of your views of that. MR. WEAFER: MR. FULTON: MR. CAMPBELL: Thank you.
James Campbell. Good morning, Panel. My name is James
Campbell, I live in Sydney.
I'm a residential customer
for B.C. Hydro, probably one of the few in the room, as a matter of fact. VOICE: Hey, I'm one, aren't I? Oh, are you? Okay. Dual capacity, there
MR. CAMPBELL: you go.
I would just like to comment on your document
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filing protocols.
I just received this this morning.
I
think I have -- personally I have applied to the Commission for hard copies. I don't have e-mail, and I First of all
think we've got a Catch-22 situation here. on page 1 on page 7 [sic] it says:
"All participants are required to file and circulate to all other participants an electronic copy of each exhibit." And then if we turn to page 2, item 4: "Participants are required to provide copies that are filings to other registered participants…" and it carries on. And then 5 it says:
"Participants who are unable to file electronically should continue to file in hard copy only." And then on page 3 it says: "The Commission will scan and distribute e-mail documents filed by participants who are unable to file electronically." In my situation I would prefer to have the Commission do the scanning for me. If I could just go back to the
National Energy Board hearings -THE CHAIRPERSON: Mr. Campbell, I think we before we do
that I can provide you with some comfort that we'll make it so that you don't need to take us through the NEB
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process. MR. CAMPBELL: thing. THE CHAIRPERSON: No. But you need to speak to one of the Okay. It's just that they did do the same
staff members with respect to the document filing protocols. They are designed -- perhaps the language in
the document filing protocols don't communicate this effectively, but they are designed to accommodate you and others in your circumstances. So my suggestion is They'll explain
that you take this issue to the staff.
to you how they are going to work very diligently to accommodate you, and I think you'll be satisfied. MR. CAMPBELL: Thank you. It might be -- if that's the
case then I would request that perhaps this document be indicated, so indicated, so that others may wish to participate who are presently not participating. thinking of residential customers mostly. THE CHAIRPERSON: And that was -- when the document filing I'm
protocols were drafted, that was an audience that in part they were drafted for. staff. So again, speak to the
I think you'll be satisfied with the work that
they are going to do on your behalf so that you are accommodated in our processes. MR. CAMPBELL: Thank you. Okay. I just have a couple of
comments then. THE CHAIRPERSON: With respect to the process steps?
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MR. CAMPBELL: THE CHAIRPERSON: MR. CAMPBELL:
Yes. Thank you. I, too, have not had an opportunity to
review the BCTC submissions on deferral accounts and I would like to have a look at if they are going to provide further documentation, there may be some reasons for further comment later on. The other -- as far as the schedule that's concerned that's been issued by B.C. Hydro, it certainly looks adequate. It may be optimistic to be able to
start in the early part of May, but depending on the processes we go through. The other item that I was
wondering about was the -- I'll bring that up at a later time. You wanted to talk about the oral phases later,
so thank you. THE CHAIRPERSON: later. MR. FULTON: MR. WAIT: Alan Wait. Mr. Chairman. Alan Wait, I'm a residential Yes, we will speak to the location issue
customer of Aquila and Aquila both buys power from B.C. Hydro and uses their transmission service. With respect
to the negotiated settlement, I think it's a wise idea to leave the door open to that if it would prove to be beneficial for particular items. I've got one concern with the schedule. just received the bulk of documents, I haven't even
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opened them up yet, and I see from the schedule at the -- I think it's the 23rd is the date for the first IRs. I was wondering if that could be extended or I think B.C. Hydro generally accepts them late and answers them as best they can. That's my concerns. THE CHAIRPERSON: MR. FULTON: MR. TURNER: Thank you.
Save B.C. Coalition. Chairperson, I'm Wayne Turner with the Save Being
British Columbia Coalition in Kamloops.
absolutely new to this process I can't comment much on the schedule. It seems to be relatively clear cut. Our
biggest concern will be the prohibitive costs that were referred to earlier. It's going to be difficult for us We will
to be full participants in the entire process. do our best. THE CHAIRPERSON: MR. FULTON: Thank you.
That concludes the people who I was either
aware of are here, or who identified themselves to me for this round. So at this point I will invite anyone
else who is here who wishes to address the issues that are presently before the Panel to come forward to the mike. All right. No one has indicated, Mr.
Chairman, that they wish to speak further on the items that are presently before the Panel.
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intention to move to the next issue before we take the morning break? THE CHAIRPERSON: anticipation. No, and Mr. Sanderson is rising in I indicated that I would give Mr. Some
Sanderson and BCTC an opportunity to respond now. of the comments that I made I think need to be addressed, so let's do that before the break. MR. FULTON: Thank you. Thank you, Mr. Chairman.
MR. SANDERSON:
I think I can be
quite brief, that there are really only two sort of themes that I wanted to comment -- or themes or specific points that came out of the various submissions and I want to tribute them particularly. The least significant, I think, in terms of divergence from the approach in the proposed schedule is the suggestion that we hardwire now one or both of a determination as to whether or not there needs to be a second round of IR requests and also maybe hardwire some aspect of NSP process. intervenors. I heard some ambivalence in the
It's my respectful submission that the
April 7th pre-hearing, second pre-hearing can accommodate flexibly whatever seems most appropriate when we are there and that I just reiterate my comments that why don't we just wait and see. We're not opposed to any
position anyone's taken on this really, but the optimum process is yet to be clear, and I think it makes sense
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to wait. The only comments that I heard which I think demand a direct and more forceful response actually is one of yours, Mr. Chairman, which is the notion of combining and making really a two-stage IR process generally of the notion that's in the schedule, which is BCUC first and intervenor second. deliberate. And the reason for that is that when the both the Commission and intervenors ask the initial round, there's an enormous amount of duplicative work that is then imposed on the applicant by virtue of the same question being asked in a bunch of different ways. At That is very
its most obvious, there's a need to do a whole bunch of cross-referencing which is just time consuming and adds nothing to the process. Actually more challenging to the applicant is that questions have really got to be thought about very carefully to figure out whether it is the same information that's being sought in each case or whether there's nuance differences or not, whether a party is trying to get at the same thing Commission staff might be trying to get at but a little less clearly or in a little less focused way. And what we found is that the
Commission and the Commission staff, for the big picture issues, have the skill and experience to be able to
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focus the real essential question and get that information out there and often that's exactly what a number of parties were looking for. They may not have
formed the question in their minds quite in such an articulate way, but that's really what they were after. So a lot of brush clearing is done through that additional round from the Commission. And that's why
that process, at least from Hydro's perspective, has an awful lot to recommend it. So if I can respond to your suggestion in two parts, we really are strongly in favour of limiting the first round of IRs to the Commission. If the Commission
wishes to participate in round 2, that is at the time the intervenors ask their requests, if the Commission has supplementals or a round 2, then clearly B.C. Hydro has no objection to that. that. It wasn't meant to preclude
I hadn't frankly thought of that, but if that
would accommodate the Commission to follow up its own questions with supplementals in response to what Hydro has filed, then of course Hydro takes no objection at all to that. THE CHAIRPERSON: Thank you. Before we break I'm going to
see if there are any objections to Mr. Sanderson's proposals with respect to the IRs. So just to give you
notice that I'll be asking if there will be any objections to Mr. Sanderson's proposal in that regard.
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Please proceed. MR. FELDBERG: Thank you, Mr. Chairman. There was just one
issue that I think needs to be addressed and that was the suggestion by Mr. Wallace that there be set a date for further evidence to be filed or further information to be filed on the deferral account application by BCTC. The application itself, as you are aware, Mr. Chairman, speaks to four deferral accounts which are to be heard at the same time as the B.C. Hydro application. One of them is the subject of a special direction, and the other three are, the evidence -- our intention at least was that the evidence in respect of them is largely contained, in effect entirely contained, other than in the application itself, in the B.C. Hydro application. And particularly in most cases, Chapter 6
of that application contains much of the evidence that we sought to rely on for the purpose of that application. The application was filed as it was to try to capture the efficiencies of the evidence that had already been filed in the B.C. Hydro application. So it
was not our intention that we would be filing a further set of evidence in support of that application other than what had been filed with the B.C. Hydro application. Having said all that, if the Commission is of
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the view that it would be helpful to intervenors to recast that information in a separate form, we could do that and provide it if it's thought to be too difficult for intervenors to pull out of the B.C. Hydro application. Our thought in doing it initially was that
it would be far more efficient to have simply one volume that dealt with all of that and cross-referenced to it. But we would be prepared to recast it if that was thought to be helpful to intervenors in formulating their questions. THE CHAIRPERSON: Yes, I'm going to make a couple of They are
comments here that hopefully will be helpful.
likely more definitive than -- they are likely going to sound more definitive than I intend, but I'll make them in any case for the purposes of clarity. I sympathize with your view in this regard. I think part of what I'm hearing from the intervenors and this is why I'm mentioning this so the intervenors have an opportunity to comment. In part what I'm
hearing from the intervenors is that they didn't really have an opportunity to review your application and so they don't understand what it is in your application the Commission Panel needed to deal with your application. And so the Commission Panel, I think is more familiar with your application than many of the intervenors are, and I'm expecting that when the intervenors have more of
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an opportunity to review your application they will be more sympathetic than they currently are in regard to the robustness of your application and if it's not sufficiently robust, my current thinking is that the round of IRs that we are going to have, or the rounds of IRs that we're going to have are going to be adequate without you further flushing out your application. So, as I said, I have been fairly definitive in my comments with respect to the merits of what you have just said, but I do welcome comments from the intervenors if they think that I am missing something in this regard. So thank you for your comments. MR. FELDBERG: Okay. I would like to return, Mr. Sanderson,
THE CHAIRPERSON:
to something I wanted to raise with you when you were on your feet and I missed that opportunity and it was with respect to something that you raised, and that was as related to the IP and the round of IRs with respect to the IEP. I'm not sure that I understood you correctly
or understood what you had to say in that regard, and I'm concerned that there's a bigger issue there as it relates to the IEP, and welcome your comments. Is it your view that this is, the B.C. Hydro Revenue Requirement Application, is going to be a Section 46 review of a resource plan which is the
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section that was introduced to the legislation in the spring that called for a broader review of resource plans, or is it your view that the -- and maybe there are alternative options here. Or is it your view that
the IEP is being filed in this proceeding as a contextual assistance to the participants but that there will be the equivalent of a Section 46 review at a later time with respect to the IEP? MR. SANDERSON: parts. Mr. Chairman, I may respond to that in
It's our view that there are really two separate
pieces in terms of the capital plan, even perhaps three. The first observation I need to make is there's very little in the IEP that has anything to do -- or any direct impact on the revenue requirement, very little. There is some. But the IEP is a long-range document.
The revenue requirement application is for fiscal '05 and '06, and the only revenue impact is for those things which get brought into rates in '05 and '06 and there's not much in the IEP that falls into that category. So the first observation is that in terms of the financial impact, is this going to affect the level of rate increase needed or any of those things that is an unanticipated outcome in the IEP? very likely not. The answer is
Even a significant change in the long-
run perspective that is being taken to the IEP and the long-run method of meeting Hydro's needs, isn't going to
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have an '05-'06 revenue requirement application.
The
increase that Hydro has sought here is still going to be required. And that's why we say this is -- as you put it I think very aptly -- contextual information, it's not information that's driving the need for this application. And that's why the filing date of March
31st in our respectful submission is a practical one. Now, within the IEP there will be an action plan. And the action plan is a shorter term aspect, and
that lays out with a little more detail the actual expenditures over the next four years, and in particular those that will impact -- or at least within that, those that will impact the revenue requirement application. The draft action plan is in what we filed. It's that that, if anything is going to affect the revenue requirement, will be doing it. It's that that I
speculated wouldn't significantly change in all likelihood because it's the short term and that's obviously got less variability to it than does the long term. It's also that, that in my respectful submission, is the basis for the Section 46 approval process, and I think that in the revenue requirement application there will be implicit or explicit approval of that action plan, the one that is finalized as of
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March 31st being sought at the same time that the revenue requirement decision is issued. And so that will be --
in other words, in blessing the revenue requirement there will be an acceptance, or not, of the application with respect to the short-term action plan, but very much not the long-term IEP. And the one thing that I want to be very clear about is that it is not Hydro's anticipation that the revenue requirement application become a system planning hearing, and as such involve a full and complete review of a 20-year IEP. That would obfuscate
the revenue requirement aspect of this application and make the obtainment of that schedule almost impossible if that -- well, not almost, it would make it impossible. It would turn this into a hearing that we'd
be talking about next spring as much as we would this spring, I suspect, if we tried to put them all together. So it is very much our view that the IEP is a contextual document as opposed to a document of which approval is sought in this proceeding. THE CHAIRPERSON: Except as it relates to the short-term
action plan items. MR. SANDERSON: THE CHAIRPERSON: Correct. Can you comment now on what B.C. Hydro's
views are with respect to the review of the IEP itself? MR. SANDERSON: Only to say that the Commission's IEP
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guidelines have been received.
There is intended to be
a consultation process occurring that Hydro will be submitting is compliant with that over the early part of this year, which is what then will lead to the March 31st filing. The actual approval process that will then be adopted by the Commission and how to further move that process along, no, I don't have submissions to make today and don't really have any comments on today. see that as a distinct process. THE CHAIRPERSON: I think it would be helpful when you file I
the IEP if you also propose a process for review of the IEP. MR. SANDERSON: Of course, Mr. Chairman. In other words,
March 31st when that document is finalized, then as part of that a process suggestion, of course. THE CHAIRPERSON: Thank you.
Are there any comments that anyone wishes to make that arise from the questions that I've just asked B.C. Hydro and BCTC? Very well, we'll take a -- we're
going to take a longer break than usual at this point. We will take a 25-minute break. quarter to eleven. MR. FULTON: Mr. Chairman, before you leave and the Panel We will return at
leaves, I just want to make clear to people that the purpose of the longer-term break is so that I might
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discuss with people in the last half of the break at least, location, location, location. THE CHAIRPERSON: well. MR. FULTON: Thank you. Yes, and you can describe the venue as
(PROCEEDINGS ADJOURNED AT 10:21 A.M.) (PROCEEDINGS RESUMED AT 11:45 A.M.) THE CHAIRPERSON: Please be seated. We are now going to I suspect
turn to the second item for consideration.
it's going to be a much briefer review than we had with respect to the process steps, but we'll now turn to the issue of timetable. But before doing that I want to make some comments with respect to issues that we discussed before the break that may be helpful as they relate to your comments with respect to timetable. However, I do need
to add that the Commission Panel has not completed its deliberations in this regard, so these are only intended to be provided to you to assist you with respect to consideration of the timetable, not to be definitive rulings by the Commission Panel on these issues. First with respect to the comments that were raised by NSP, I think they were helpful. We do not
anticipate at this time that the NSP step will be an explicit part of the regulatory agenda, but I do think that we need to, throughout the process, be open to
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opportunities for there to be NSP, and I think those need -- as I mentioned before the break, those need to come back to the Commission Panel prior to embarking upon that effort. I also think that the prehearing conference number 2 seems to be reasonably well positioned within the regulatory process to provide an opportunity for consideration of that at that time. With respect to the IEP, I do see it at least at this stage as being contextual information for the B.C. Hydro revenue requirement proceeding, and am of the view, as I say, at this point in time that there need not be a round of IRs with respect to the IEP. But I do
want to make it very clear now that if that is the determination of the Commission Panel, and you'll see evidence of that in the regulatory agenda, that the parties when they receive the IEP should see that the Commission Panel is going to be quite willing to accommodate any requests for IRs at that time, and I think that means a prehearing conference if you wish to have a round of IRs after you've seen the IEP, and then the Commission Panel would make a determination with respect to whether or not there should be a round of IRs in the IEP. So the thinking at this stage in time is that there will not be a round of IRs on the IEP unless
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somebody makes a motion for that and then we'll hold the prehearing conference and make a decision after the prehearing conference. With respect to the functionalization of OMA and budget updates, Mr. Sanderson, I think in a round of IRs, needs to be accommodated in the schedule. That
influences when you're going to get those filings done. I think if you're filing early February, the schedule as you've proposed will in fact accommodate that. But if
there's further slippage then I think we need to return to the issue with respect to whether or not there's going to be a round of IRs on those. With respect to direct evidence, my view of this is that if it's going to make the hearing process more efficient, then B.C. Hydro should be prepared on a reasonable efforts basis and as soon as practicable to provide responses to IRs, but we do not intend to build into the regulatory agenda an opportunity for there to be a round of IRs with respect to the direct evidence. I'm hoping that that'll accommodate people without there being the prehearing conference that I mentioned with respect to the IEP. I don't want to close that
opportunity entirely, but our current thinking is that if there is a desire for IRs with respect to the direct evidence, that B.C. Hydro providing responses on as practicable basis should be sufficient.
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With respect to BCTC and BCT's application, the application, as I mentioned before the proceeding, I believe is of a nature that a round of IRs as part of the regulatory process steps that B.C. Hydro has, in their cover letter should be satisfactory. And I think
you can reasonably anticipate that when the Commission Panel finishes its deliberations in this regard, that's how that will be accommodated. So with those comments, unless there are some questions, with those comments I think we're ready to turn to the timetable. And I don't want to preempt
anyone in this regard, but as I've already mentioned, this may not be as significant issue for anyone as the process steps themselves. I'll start with B.C. Hydro and BCTC. If they
have any comments with respect to the timetable, I'll give you that opportunity now. MR. SANDERSON: Mr. Chairman, I have nothing additional to
what I said earlier this morning. THE CHAIRPERSON: MR. FELDBERG: Thank you.
Nor do I. Thank you.
THE CHAIRPERSON: MR. FULTON: MR. WALLACE:
JIESC. Thank you. Thank you, Mr. Chairman, for They are of assistance.
those clarifications.
There are approximately four issues I'd like
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to address.
The first which is outside this process is
the interim application, and I simply wish to point out that it is very important to the JIESC to have an opportunity to address the appropriateness and the level of any interim increase. The amount sought is in excess
of what B.C. Hydro had originally allowed customers to know would become -- or had advised customers might be coming, and there are some very contentious issues, I think. Second, I'd like to turn to the proposed schedule as provided and simply, I guess, address where I see some real tight spots that would cause difficulty. The first is the gap between the BCUC IRs to B.C. Hydro and the intervenor IRs to B.C. Hydro. I would like to
associate myself, and I don't do this very often, with the remarks of Mr. Sanderson on the value of the Commission IRs. intervenors. They are very useful to us as
They save the process overall a lot of
money because you don't have six groups running out taking the first examination, you do base it, and you don't spend the time that Mr. Gathercole referred to chasing references. But for them to be of value, you have to have an opportunity to look at the responses when they come back. And between February 20th and the 24th is extremely
tight, particularly when you recognize that that is a
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Friday and a Tuesday so it's over the weekend and very hard to pull things together. I think a few more days
in there, an extra week would render the work that's been done by the Commission, the Commission staff, which have far more staff than any of the intervenors by far, much more of value, and I think tightening that up too much detracts from that value. The second tight spot is between the B.C. Hydro direct evidence and the intervenor evidence. two weeks. It's
That is quite adequate if B.C. Hydro was
simply saying who their witnesses were and that sort of thing and maybe some minor things. If it turns out to
be a significant filing, then the problem that we raised with respect to information requests also goes to timing, that there may be more time required to respond there, particularly if we are expected to go to B.C. Hydro informally and say -- with a written information request and get the response back. And again I think
adding a bit of time in there would be very useful. The final tight spot is B.C. Hydro rebuttal evidence on May 6th, oral hearing beginning on May 10th. Again that is over a weekend and it is a weekend in which the parties are pulling everything together for the commencement of the hearing. So moving a bit of
time in there to allow that, again to allow some reflection there and doing the work that is necessary
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prior to the commencement of the hearing because the rebuttal evidence will probably be addressed with the witness panels that Hydro puts up initially -- possibly later but probably with the initial panels -- and clearly preparation requires some more time than has been allowed. THE CHAIRPERSON: That's my comments. Mr. Wallace, I assume then from your
comments that there should be some adjustments from your perspective to some of the schedules to address the tight time frame for the items you've mentioned. MR. WALLACE: That's correct. Mr. Sanderson has made comment -- I'm
THE CHAIRPERSON:
looking for where we might get there and there's two opportunities, I suppose. One is we shorten B.C.
Hydro's response time from the approximate four weeks that Mr. Sanderson has requested or there's slippage into July. Can you comment on how you think the
Commission Panel should accommodate your request? MR. WALLACE: Well, I share Mr. Sanderson's desire to see
the oral proceedings complete by the end of June if possible. I think that's a good goal. I don't, I
think, share his pessimism that it'll take seven weeks of oral hearing. So there might be a week or two there, And
not much more, I agree, but maybe a week there.
yes, I would maybe shorten the time slightly on the responses to the Utilities Commission information
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requests by a few days, and that would expand us up to a week there. I think, with some fairly minor fine
tuning, and I hesitated to do it because I know there are going to be other adjustments coming after May, but with some fairly minor fine-tuning adjustments we should be able to make it and still reach that goal of completing the oral hearing by the end of June. THE CHAIRPERSON: Thank you. Before you leave, I want to I have said that the
address your first comment.
interim application is outside the scope of this prehearing conference. I'm thinking -- and I want some I'm thinking
assistance from counsel in this regard.
that the issues related to the interim order can be disaggregated in the following manner. First, there's the issue of whether or not the interim order should be addressed at this time as part of this prehearing conference. The second is
whether or not the Commission Panel should hear any comments with respect to the interim application. And I
think related to that is whether or not we have the jurisdiction to deal with the interim application without there being any proceeding whatsoever. And thirdly, there are -- and I guess it follows from the second one, there are views with respect -- that you've mentioned with respect to the merits of the interim application.
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anyone with respect to the merits of the interim application -- I do not want to hear comments with respect to the interim application on its merits until I've heard from you with respect to the first two issues. So I'd like -- I'm not sure that that works
effectively in terms of splitting this issue up, but I am looking for guidance from counsel as to how the Commission Panel should deal with this issue that Mr. Wallace has raised. And I think what we will do is
we'll proceed with comments with respect to the timetable, and then I will return to Mr. Wallace's comments with respect to the interim order as it relates to the first issues. They arise with respect to whether
or not we should hear anyone on the interim order. So with that comment, Mr. Wallace, we will return to that. MR. WALLACE: MR. FULTON: Thank you, Mr. Chairman. Kemess Mines. Mr. Commissioner, just one comment on the It's
MR. HALIPCHUK:
schedule, a comment on the schedule and the IEP.
Kemess' view that the IEP will contain information in terms of cost of new generation that would be vital to providing its submission, so we'd like to have that time with respect to reviewing the IEP to make its submission on the matter. THE CHAIRPERSON: Thank you.
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MR. HALIPCHUK:
And we recognize and appreciate your We would like to speak on
comment on the interim rates. that when appropriate. THE CHAIRPERSON: MR. FULTON: MR. NEWLANDS: Okay.
Elk Valley Coal Corporation. No comment, Mr. Chair. Thank you.
THE CHAIRPERSON: MR. FULTON:
B.C. Old Age Pensioners et al. I can be brief, Mr. Chair. I would
MR. GATHERCOLE:
associate myself with Mr. Wallace's comments with respect to the tightness of the schedule. When I looked
at it I had the same concern, and particularly with respect to the value of the first set of IR responses to the Commission. I had initially thought that Mr.
Sanderson might be optimistic in talking about seven weeks. After discussing it with Mr. Wallace and Mr.
Sanderson, I think it very much depends on what participation from intervenors with respect to how many, how many are going to participate and how many, if any, are going to call evidence. Having said that, while I think it's a laudable goal to end by the end of June, which would be a new experience for most of us who appear before this Commission, not having a hearing in July or August, I think the main concern is that the process be a good one and there be sufficient time. And from my position and
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my clients' position, if it means we have to go over into a week or two in July, so be it, so long as we -you know, this is a really important hearing, it's the first time we've had this utility come before this Commission for some ten years, and I think it's better to do it well than to do it fast. THE CHAIRPERSON: MR. FULTON: MR. JONES: Thank you, Mr. Gathercole.
The Sierra Club. I would just adopt the position taken by Mr. Thank you.
Wallace and Mr. Gathercole. THE CHAIRPERSON: MR. FULTON: MR. WEAFER: Thank you.
Commercial Energy Consumers. Mr. Chairman, I would also adopt the position
of Mr. Wallace on the three tight areas of the time schedule. The only comment I have and I'd like to push
back on the second round of IRs which appears to now not be on the table, and request that the Commission clarify for the purpose of this proceeding when it will allow supplemental IRs, because you've talked about certain areas where there may be opportunities for supplemental IRs. But just to be clear, I believe IRs shorten
hearing processes and get the record more clear in terms of getting responses, and I'm concerned by in this very significant proceeding there not be a scheduled set of supplemental information requests. So at a minimum it
would be good to know what the Panel's position is on
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when supplemental IRs will be acceptable generally speaking. THE CHAIRPERSON: Be more definitive if you will for me,
Mr. Weafer, as to what you mean by supplemental IRs. MR. WEAFER: Where the record is not complete in terms of
the response received by the applicant, or alternatively where other issues arise as a result of the preparation of the intervenors' evidence, or where matters arise through the course of the proceeding that were not anticipated when the first round of IRs was filed. There's a variety of matters which may arise in the course of this proceeding where it may be necessary for the purpose of establishing a good and thorough written record that there be supplementary questions to the applicant. And given the discussion this morning around
whether certain areas, where there may be opportunity for it, a better understanding of how broad that scope is would be helpful. THE CHAIRPERSON: With respect to your first category of
supplemental IRs, that's in part why I anticipate there will be a prehearing conference number 2. With respect to your second set of supplemental IRs, my current thinking is that Mr. Sanderson's proposal with respect to the IRs has merit – effectively two sets of IRs, the first by the Commission and the second by the Commission and
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intervenors.
Your second set of IRs seems to suggest
that after that second round of IRs there be a further opportunity for IRs. And are you suggesting that that
be accommodated in the regulatory agenda, or are your desires in that regard satisfied if the regulatory agenda is silent on that second category of supplemental IRs but as they arise you might ask them, not as part of a regulatory agenda but to meet your own objectives? MR. WEAFER: As I understand the proposal of Mr. Sanderson,
there's one round of information requests for intervenors, and that is what you're now identifying as the second round of IRs. What I was speaking to this
morning in terms of process and the regulatory agenda would be that there be a scheduled second round of information requests for intervenors and/or staff, and you spoke of the Commission this morning, that there be a second defined date that those would go in, and we have a date for response prior to the hearing commencing. And I reiterate, I think that shortens the
need for longer cross-examination because you've had a second opportunity to ask the company questions based on responses to your first set of information requests, being intervenors' first set of information requests. So I was speaking this morning of a second date and timeframe for response to information requests from intervenors. Now, I understand that's not on the
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table and I just want to be clear that that's not precluding intervenors from following up on their information requests. We won't step in until the second We may receive deficient
round of information requests. responses.
We don't wish to wait till a hearing to
waste the hearing time to get a full and complete record to those answers when the better approach is to get a written response prior to the hearing. And I just want
to be clear that that's available to us given the discussion around IRs today. THE CHAIRPERSON: And I need some assistance from you so I
understand your proposal with respect to what that supplement -- what you would like from the Commission Panel to speak to in its order with respect to the regulatory agenda as it relates to that second set of supplemental IRs that you spoke to. MR. WEAFER: And what I would propose is that the second
prehearing conference be moved back to May 6th, and that the April 8th date where B.C. Hydro is asking IRs for intervenors also be a date where it is available for intervenors or the Commission staff to have a scheduled set of second information requests to B.C. Hydro, to be responded to by both parties by April 30th. I would then propose that the hearing date be moved back one week, which would allow a period of time from the second prehearing conference to undertake any
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-- if we see opportunity for negotiated settlement process to commence and be completed with that week, and then move to the oral hearing date to start May 17th. And I think that process will assist in shortening the hearing process from seven weeks to a more reasonable timeframe. THE CHAIRPERSON: Before the break, Mr. Weafer, I heard you
speak to your revised date for the prehearing conference and the delayed date on the oral hearing. But I missed
your comments with respect to including an opportunity on the April the 8th date for there to be IRs by intervenors. Did you speak to that then or is this
something that you're raising for the first time now? MR. WEAFER: I raised that there be a second round of
information requests, and I assume by your comments you thought that that meant the intervenors' first opportunity to ask IRs, that that in your mind was the second round of information requests. What I was
referring to was the second round of information requests for intervenors based on what responses they've received to their first set. And I do, I believe that
will shorten your more expensive hearing time by causing written responses and follow-up on the written responses. That was the intent of mentioning the second
round of information requests. THE CHAIRPERSON: Okay.
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MR. WEAFER:
And those have been scheduled by the
Commission in the past in terms of there being -- where there are significant applications before the Commission. THE CHAIRPERSON: We are now returning to the issues that I'm glad you've
we were dealing with before the break.
made that clarification with respect to the April the 8th IRs, and I think at this stage nothing further needs to be said unless B.C. Hydro or BCT wish to comment on that proposal. MR. WEAFER: Thank you, Mr. Chairman. Thank you.
THE CHAIRPERSON: MR. FULTON: MR. CAMPBELL:
Mr. Campbell. I concur with Mr. Gathercole and Mr.
Wallace's submission on the timeframes near February 24th and April the 2nd. I was just wondering if there was an
opportunity to provide a prehearing conference in other areas other than Vancouver, if that has been considered by the Commission. THE CHAIRPERSON: We are going to speak to the issue of the
location of the oral phases, including the prehearing conferences in the oral phases of this proceeding. we will get to that issue. MR. CAMPBELL: MR. FULTON: MR. WAIT: Okay, thank you. Mr. Wait. I would agree with Mr. Wallace that we need a
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little bit more time between the two sets of IRs.
And
from what I understood you saying this morning, Mr. Chairman, you had envisioned the first set of IRs to be open to both the Commission and the intervenors, and Mr. Sanderson had suggested that it be open only to the Commission? THE CHAIRPERSON: That's correct, Mr. Wait, and I then
heard from Mr. Sanderson as you mentioned, and now I've heard from Mr. Weafer with respect to the IRs. And as I
mentioned, I had missed Mr. Weafer's comments with respect to the April the 8th date. I have not commented I've only
on the merits of Mr. Weafer's suggestion.
said I'm -- if he said that before the break I missed it. So you're now raising the issue of whether or not the January the 23rd IRs as set out in B.C. Hydro's proposed schedule is confined as Mr. Sanderson had suggested, or it's broader. Before the break I asked
for comments with respect to any issues that arose from the discussions that I had with BCTC and B.C. Hydro, Mr. Sanderson and Mr. Feldberg, and I was of the impression because there were no comments that that wasn't an issue for further consideration or further comment at this prehearing conference. But now you're raising the issue of whether or not the January 23rd should be more open, and I'll
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tell you now that I thought that there was considerable merit to Mr. Sanderson's views with respect to that, and I think if you're concerned about that, I'll give you an opportunity to speak to it. MR. WAIT: Yes, it does concern me because when an
intervenor is taking a certain area that they're looking at and they put in their questions, even though you are referred back to something that was answered for the Commission you at least know exactly where it is. And
when you go back to your question you can then go back to what the answer was. If you have to go studiously
through everything that the Commission asks, then you can lose it and lose track of where you are. I think
there's an advantage to having that cross-referenced in that stage. I would like to see us, the intervenors, in the first round. As far as the January 23rd is I know in
concerned, I find it very tight for myself.
previous hearings that Aquila and B.C. Hydro have both been very good to answer questions as long as they have the time to do it in four weeks. If they get in a But
little bit late, they should have time to do that.
in between the first and second set I would think at least a week would be reasonable. Because I basically
won't get them in the mail, the whole slug of them to be able to go through them, for two or three days after
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they're actually out, when the other questions again should be in. And the situation is probably even worse
for those that can't e-mail their questions down. THE CHAIRPERSON: Thank you. I do not propose, even though
I've given Mr. Weafer and Mr. Wait some latitude with it as it relates to the process steps, I do not propose to reopen the issues with respect to the process steps. Hopefully that will not raise the ire of anyone here. But I did give everyone an opportunity to comment on the exchange that Mr. Sanderson and I had with respect to the nature of that first round of IRs. So with that, I hope now to return to issues involving just to the timetable. Mr. Fulton? MR. FULTON: MR. TURNER: Save B.C. Coalition, Mr. Turner. Nothing at this time. Thank you.
THE CHAIRPERSON: MR. FULTON:
That concludes the people on my list, Mr. So
Chairman, who had spoken earlier on the first issue. unless there is someone here who did not speak on the
first issue who wishes to address the second issue, the mike will then be back to Mr. Sanderson. THE CHAIRPERSON: MR. SANDERSON: think. The first is in response, I think, to Mr.
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Wallace's suggestions wherein he identified what he saw as tight portions in the schedule. And it seems to me
that there are two ways to accommodate his concerns. One was suggested by Mr. Gathercole, I think, which is to effectively delay the hearing commencement and accept the possible but not necessary consequence that we may slip into July. I don't disagree with what Mr. I mean, I think the
Gathercole had to say about that.
end of June is a desirable objective but I don't think it's a hard deadline by any means. I do think we need to sort of keep momentum going and an end point in mind. Major hearings like
this have a way of sort of drifting off into the ether if people don't have a sense urgency associated with them. The demands on everybody are intense and so
there's always good reason to delay, but the trouble with that is you never get finished. So one or two
weeks into July is not the end of the world, but much beyond that may be. So I'd be unhappy to see a delay of
the hearing commencement much more than say a week, but that would accommodate, I think, Mr. Wallace's concerns. And if we had an extra seven days providing additional time to intervenors in the way that Mr. Wallace was implying is perfectly acceptable to Hydro. A second option, if you want to stick with May 10th, might be these minor variations.
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ask you to look at the proposed schedule, Mr. Wallace's first concern was with respect to IRs being issued to Hydro by intervenors by February 24th if the responses to the Commission weren't received till February 20th. Now,
I made the point first that really, usually in the past, I think I'm correct in saying the intervenors have only had BCUC's questions. They haven't had the responses.
So this actually is more accommodating to the intervenors' concerns than is perhaps typical. Having said that, I think that's a good idea and fair, and I accept Mr. Wallace's point that if it's going to work, then intervenors need the time to read those responses. And if that 24th became the 27th, that So they would
would give intervenors all of that week.
have got it the previous Friday; they'd have a week then to read and digest what the Commission had to say. In
essence what I would see is them having identified their own areas of concern from the reading of the application, which by this time they'll have had for in excess of two months, strike things off the list so to speak, to the extent they're covered by what the Commission -- the responses to the Commission's requests have done, and to take a week to do that and then get their refined questions out in response strikes me as quite achievable. So February 27th for that would be
perfectly reasonable from Hydro's perspective.
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Then Hydro's response, similarly three days later, March 22nd, that would have Hydro working through that weekend but it would give it the same amount of time. It would just mean that that was a weekend, which
is why -- that's why the timing wasn't suggested that way in the first place, to avoid that consequence. if that's what's needed in order to accommodate Mr. Wallace's concern, then that's certainly an option. And then that could slip intervenor evidence from April 2nd to April 6th. It's important that that But
evidence be filed before the prehearing, but if that were done by the 6th then at least Hydro has the opportunity to see what the intervenor evidence is before the prehearing the next day. So that's tight and
it's sort of fine-tuning, but if the Commission is concerned about moving this hearing start date then maybe that's a practical solution to Mr. Wallace's concern. Mr. Chairman, I think your last remark with respect to not revisiting this morning's issues, deals with certainly the response that I might have otherwise made to Mr. Wait and perhaps Mr. Weafer. I'll just say
this about Mr. Weafer's comments, is that the time to make the submissions, my position was, just to clarify, is at the April 7th prehearing. That's when we'll know
whether Mr. Weafer is right, that all these additional
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supplementary rights are required or not, and I think that's just repeating what I said this morning. That leaves me with one last point and that's the remarks of Mr. Wallace with respect to an interim. B.C. Hydro filed its appli- -THE CHAIRPERSON: MR. SANDERSON: THE CHAIRPERSON: Just before you get there -Yes. -- I want to make sure that there's a
clear distinction between discussion of the timetable and that issue. MR. SANDERSON: THE CHAIRPERSON: Yes. I'd like to hear from Mr. Feldberg first
with respect to the timetable, then we'll turn to the interim. MR. SANDERSON: schedule. THE CHAIRPERSON: MR. FELDBERG: Okay. We listened to Mr. Of course. I have nothing more then on the
This won't take long.
Wallace and we listened to Mr. Sanderson, and we agree with the solution that Mr. Sanderson is recommending with respect to the timetable. THE CHAIRPERSON: Thank you.
Before we -- I think that's the closure of the discussion with respect to the timetable. Let's
move on with respect to location first, then we'll close off the regulatory agenda. And then we will return
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cautiously to Mr. Wallace's comments with respect to the interim. I asked for comments with respect to the location in my opening statement, and I asked if -- I said that if there were any objections to the location being a downtown Vancouver location, then I'd like to hear those. I'm hoping at the break that Mr. Fulton had
an opportunity to provide you with some details with respect to the location that Mr. Fulton and Mr. Bemister are recommending, so I am not anticipating any comments as part of the record here with respect to the logistics of that venue. I would therefore only like to hear from those people who object to the oral phases of this proceeding being located in downtown Vancouver. Hearing none, with that I will be speaking to Mr. Fulton and Mr. Bemister after this proceeding, and our regulatory agenda, subject to some logistics that may be outstanding, will hopefully indicate the venue for the oral phases of the proceeding. Now let's turn to the issue of interim, and I want to enter into this discussion cautiously. As I
said, I don't want to get to the issues involving the merits of the interim until we have had a full discussion with respect to whether or not it should be part of this prehearing conference, and then whether or
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not the Commission Panel should simply make the decision without hearing from parties. And Mr. Fulton, I welcome
your comments before I hear from anyone with respect to any other recommendations that you might make as to how we should proceed. MR. FULTON: In my submission, Mr. Chairman, you ought not
to decide the interim application today as a result of what you hear today in terms of giving people -- you're presumably going to give people an opportunity to be heard at least as to what further steps the Commission must take, if any, before they make the decision on the interim order. I can point out that generally what the
Commission has done in the past, as I understand it, is relied on Section 89 of the Act to make a decision on interim relief in the context of a revenue requirement application subject to refund at the end of the hearing. And that approach makes good sense in the context of there not being the need to impose, for example, rate riders if at the end of the day the Commission agrees that the full amount of the revenue requirement should have been ordered in the first instance, there has to be some catch-up from the time of the application to the time of the hearing of the decision. So that's generally, on my understanding, what the Commission has done in the past. been submissions. There haven't
They may have been one or two
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exceptions to that, the particulars of which don't particularly come to my mind at the present time. generally the orders for interim relief have gone subject to refund at the end of the hearing. THE CHAIRPERSON: Thank you. I'd like to hear from B.C. But
Hydro and BCTC and then I'm going to give them an opportunity of reply. MR. SANDERSON: Mr. Chairman, I fully concur with Mr.
Fulton's sense of the history of interim applications before this Commission. The Act clearly contemplates,
in my respectful submission, that the Commission can order interim increases subject to refund, which is what is being sought here, without any process at all. The Act in Section 89 requires that there be a hearing except in cases of urgency. The case of
urgency made out in B.C. Hydro's letter of December 15th is that B.C. Hydro will significantly underearn its revenue requirement in fiscal '04, and while it doesn't seek any relief from that, any continuation after April 1st, '04 will yield a significant underearning in the subsequent year, '05, and that we can't get the hearing done in time and therefore interim rate relief is required. That I think I can characterize as the traditional justification for interim rate relief. really deals with the regulatory lag issue.
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our best to anticipate that.
This application was
brought together very rapidly indeed in light of the timing of the Heritage Contract determination. And so
we find ourselves in a situation where interim relief is necessary. I don't want to get in beyond that to just as a general background just describing or arguing the merits. It's just saying this is the typical situation As Mr. Fulton says,
in which interim relief is sought.
typically the Commission hasn't had process because the intervenors have the comfort if you will, that should they persuade the Commission the interim was unjustified in some way, it's subject to full refund. The flip of that of course is not true here. That is, if the application is not granted and the rates are not established at the level the Commission ultimately determines they should have been, then the ability for Hydro to recover, in future periods, rates from the past is much less clear under the Act. And so
this approach of seeking approval at the outset is in my respectful submission much to be preferred to any variant. In terms of process, Hydro's views I think in this respect were clearly articulated on December 15th. Hydro asked that the Commission -- and I'll quote here at the bottom of page 1, Hydro said:
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"Over the next few weeks, B.C. Hydro proposes that the Commission, consistent with its normal practice, conduct a summary review of the application with a view to making an interim order by the end of January 2004 and setting out a detailed timetable for the full review of the application while the rates remain interim." And in my respectful submission, all of the main intervenors -- and when I say the main intervenors, those that were on the list to which the application was immediately provided, and that list is -- I think it was attached to the letter to the Commission December 15th, included the JIESC specifically -- basically was saying that's what Hydro's seeking. And it would have been, I
think, reasonable for any party who wished to resist that and make some argument that the circumstances here are special in some way, thus requiring a process within the process to deal with the interim, to have come forward by now and said that. And the first that
certainly I think we've heard of any concerns in that respect about the interim were Mr. Wallace's comments this morning. From Hydro's perspective, this issue is one that needs to be resolved right away. I agree with Mr.
Fulton that today's prehearing isn't the place where I
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would expect that to happen.
On the other hand I would
have expected any submissions anyone had to make with respect to an interim process to have been made by now. And certainly Hydro's position is the Commission is fully within its power to make an interim order without any further process, and that's exactly what Hydro would have it do. THE CHAIRPERSON: MR. FELDBERG: Thank you. Any comments, Mr. Feldberg?
I have no comments to make. Mr. Fulton? I think we want to go
THE CHAIRPERSON:
through the schedule now or the list of comments unless we will hear from -- I mean Mr. Wallace is next but we might as well follow your schedule. MR. FULTON: Thank you. Kemess Mines. Or I'm sorry, Would you like Mr.
probably there was a crossfire here.
Wallace to be next or do you want him to address at the end then followed by Hydro again? THE CHAIRPERSON: I'll give Mr. Wallace that election. Usually the proponent If Mr. Wallace If he wants I
see what you're suggesting. follows close to last.
Fair enough.
wants to speak now he has that opportunity.
to wait until you've gone through the list, he has that opportunity too. MR. WALLACE: Mr. Chairman, I'd like to go first because I
really didn't address the motion at all other than raise the issue in my first representation.
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THE CHAIRPERSON:
Let me -- just before you proceed though,
Mr. Wallace, Mr. Sanderson hinted at the merits of the interim application because they related to the issue of urgency. I gave him that latitude but I -- except as it
might relate to the issue of urgency, I don't intend to give you the same latitude to speak to the merits. MR. WALLACE: I don't want to speak to the merits. Okay, thank you. I originally asked that simply a time be
THE CHAIRPERSON: MR. WALLACE: No.
set for addressing that issue, the issue of the interim relief and the appropriateness and the level of it. I'm quite surprised to hear Mr. Sanderson say today that, well, gee, you should have done that before now. This is the first prehearing conference we've had. We And
have had the application since December 15th through the holiday period. coming up. We knew this prehearing conference was
And in any event, the interim relief isn't
to take place until April 1st, so there is not a sense of urgency, or at least critical urgency, in dealing with interim relief. It has to be dealt with. I think it's
appropriate it be dealt with.
But there is no reason
that the Commission cannot institute a process to deal with it. I agree with Mr. Sanderson and Mr. Fulton. think what I take from it that the merits should not be addressed today. It's a complex issue and there are I
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parties who were not here today who may wish to address it, and I see no reason that it cannot be addressed by a fairly expedited written process and that should take no more than a couple of weeks and still leave plenty of time for everything to be in place for April 1st. With respect to the comments of both Mr. Sanderson and Mr. Fulton of what's typical, I would concur that in many cases the Commission has not granted -- or has not given an opportunity for input on interim applications. However, in some cases it has, and while
I again don't recall the specific circumstances, I think generally they are circumstances where you face a difficult situation and a complex application where the ramifications could be serious. And I would suggest to
you that's exactly what we have here. The relief that is being sought is 7.23 percent on an interim basis. The issues are complex,
and without going into them I would submit that some of them are novel, and I would again suggest that Commission practices where novel issues are raised, that interim relief is not necessarily granted. And I think
it, in this particular case, is appropriate for the Commission to hear from the parties with respect to those issues. Mr. Sanderson has raised the matter of urgency and interim relief being granted, where the
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final relief cannot be granted before the party wishes it to take effect. That's fine and that goes to whether
there should be an interim order granted, but it doesn't go to whether parties should be heard on interim relief. And in my submission, it simply is very important that it be heard. The total interim relief being sought by -or not interim relief, but the total relief being sought by B.C. Hydro is in the hundreds of millions of dollars. It's going to have a very strong economic impact on the province, and the customers should be able to come forward and at least speak to the appropriateness of that relief. That concludes my comments unless you have any questions. THE CHAIRPERSON: MR. FULTON: Thank you.
Kemess Mines? Mr. Commissioner, I received a letter from
MR. HALIPCHUK:
my key account manager from B.C. Hydro on December 22nd, of which I was already -- my schedule with the mine had already ended. January 4th. I actually received this letter on
The letter was dated December 22nd I could submit It goes to
concerning the interim rate increase.
that as evidence to Mr. Fulton if required.
the point of Mr. Sanderson that perhaps we should have spoken earlier on this matter. We were not aware of
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that until receipt of the document here. The operating budget and the forecast of Kemess Mines, the production forecast of Kemess Mine, was established in November and was approved by its board of directors and shareholders in the first week of December. And that forecast included the energy
component, which is a critical part in our operation. The energy component was based on conversations held with senior executive officers of B.C. Hydro and senior management of B.C. Hydro, which provided indications of what could be expected in terms of rate increases over a three-year period, which were substantially more modest than what was presented in the letter I have of December 22nd. So the level of the interim rate increases causes
some considerable difficulty in that it is not a recoverable cost and we cannot alter our forecasts that have been published to the shareholders of the company. My last point on the matter is we talk about a subject to a refund, depending on how the Commission views the evidence provided by B.C. Hydro and the validity of the rate increase. We were just wondering We're talking
if there would be interest paid on that.
of a considerable amount of money here, and Kemess or its shareholders in Northgate Exploration are not really interested in financing the activities of B.C. Hydro if not deemed valid by the Commission.
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THE CHAIRPERSON: MR. FULTON:
Thank you.
In terms of the interest issue, Mr. Chairman,
it's ordinarily at a rate of interest consistent with that of the principal bank with which the utility deals. THE CHAIRPERSON: I'm really trying to just speak to -- to
hear from the parties with respect to process at this stage, not the merits or the particulars of what the interim order would look like. comments. The letter that you spoke to, you have submitted it to the Commission? MR. HALIPCHUK: here. THE CHAIRPERSON: I'm sorry, I misunderstood. You can make No, I haven't submitted it. It's available But thank you for your
it available to Mr. Fulton for the first time this morning. MR. HALIPCHUK: THE CHAIRPERSON: Yes. Okay. And it speaks to the issue of the
interim application? MR. HALIPCHUK: THE CHAIRPERSON: Yes. Yes. Let's wait until the Commission
Panel makes a decision with respect to process before you make that available. MR. HALIPCHUK: THE CHAIRPERSON: MR. FULTON: Very good. Thank you.
Thank you.
Elk Valley Coal Corporation, Mr. Newlands.
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MR. NEWLANDS:
Elk Valley supports the position of Mr.
Wallace with regard to process, Mr. Chairman. MR. FULTON: B.C. Old Age Pensioners et al. It'll be brief, Mr. Chairman. Those of us
MR. GATHERCOLE:
who have been around for all those many years, I do recall a couple of situations where a process was established. My recollection is the intervenors were
not successful in either one. I think it's fair to say that the process that the Commission generally follows is a very supportable process. Usually what happens however is
the timing between the application and when the rates would come into effect is fairly short, so it would be very difficult to have any process. In this case there is a little more time, so I would submit that it is open to the Commission to have a limited process with respect to the interim. THE CHAIRPERSON: MR. FULTON: MR. JONES: MR. FULTON: MR. WEAFER: Chairman. MR. FULTON: MR. CAMPBELL: MR. FULTON: Thank you. James Campbell? Thank you.
The Sierra Club, Mr. Jones? No submissions. Commercial Energy Consumers, Mr. Weafer? I support the submissions of Mr. Wallace, Mr.
I support the submissions of Mr. Wallace. Alan Wait?
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MR. WAIT: MR. FULTON: MR. TURNER: MR. FULTON:
I support Mr. Wallace. Save B.C. Coalition, Mr. Turner? I support Mr. Wallace. All right, is there anyone else who I haven't
called out who has a submission they wish to make on this issue? THE CHAIRPERSON: MR. SANDERSON: There are none, Mr. Chairman. Mr. Sanderson? Mr. Chairman, with respect to process, it
is my respectful submission that Mr. Wallace and those following him in making their submissions haven't really identified anything that is distinctive about this process -- sorry, this application and a reason to depart from the Commission's normal practice of simply issuing its own order with respect to the interim. It's
hard to see what would be gained by -- in the middle of what I'm assuming is going to be an intense process anyway, spending two or three weeks in a sideshow dealing at summary level, and I'm not sure with what but at some summary level, with some overview idea as to whether or not the application is on its face sensible or not. I mean, that's all I can think you'd be dealing
with and I don't know how you'd do that without starting to get into the very issues that the IRs are supposed to get out and the whole process of getting us ready for the main hearing is designed to get at. And I think that's probably why there's -Allwest Reporting Ltd., Vancouver, B.C.
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that might be an explanation to Mr. Gathercole as to why when these processes, on the rare occasions they have occurred, haven't benefited the intervenors ultimately anyway. Because the Commission, faced with those That
things, has probably reached similar conclusions.
is, we can't make up our mind here without going to the full hearing process, so -- and we're headed there in the fullness of time. So my first point is that I don't think a case has been made as to why we should deviate from that normal practice. The second point I think as to -- and maybe the only caveat on what I've just said, was the only exceptional circumstance here is the last point Mr. Gathercole made; that is, there's a two-month gap between when the application for the interim is sought -- a ruling on it is sought, and when the interim rates could come into effect, and that isn't typical. that's so. And
I think there is a 60-day period there,
which is a little atypical. What I'd say about that is that the remarks made on behalf of Kemess Mines really make the point with respect to why it would be desirable for the Commission to make its decision now. B.C. Hydro's bill
for a number of industrial clients in particular is very significant, and that's accepted, and also from any
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residential or commercial customers it's a significant component of their monthly expenses. To give as much
notice as possible as to what they're going to face this year, whether on a final basis or not, is a useful thing. And so for the Commission to be -- well that
drove Hydro to bring its application as far forward and get it filed as soon as it could, and for the Commission to follow through and provide formal notice to parties that this is what you can expect as of April -- sure, it'll be subject to refund but nevertheless you're still going to have to budget to be able to pay it in the interim -- is a useful thing. To leave that decision
until March the 31st and then present the bill on April the 1st is much less useful. And we can do that here, in
my respectful submission, and therefore we should. THE CHAIRPERSON: MR. FELDBERG: Mr. Feldberg.
I have no comment. Thank you. The Commission Panel will
THE CHAIRPERSON:
make a decision with respect to process within a reasonable length of time, and my guess is that'll be within the next week. raising the issue. I think at this point in this prehearing conference, I would like to hear from anyone who wishes to raise issues that we have not yet spoken to. If Thank you, Mr. Wallace, for
there are any, I'm going to make a determination as to
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whether -- a ruling as to whether or not they're within the scope of the prehearing conference. But not to
intimidate anyone, if you wish to raise any issues I'd be delighted to hear from you. Hearing none, let me -- just before we close I want to make sure that I'm not missing any issues that I wanted to raise. No, I think that brings us to the
end of our agenda for the prehearing conference. Mr. Weafer. MR. WEAFER: Mr. Chairman, the Commission is presently
reviewing participant funding guidelines, and this is a very significant proceeding we're embarking on. Would
the Chair be able to comment as to whether the Panel anticipates the new guidelines applying to this proceeding in terms of a timing of implementation of the new guidelines? THE CHAIRPERSON: I can. My anticipating is that the new
guidelines will be the guidelines that will apply to this proceeding. Hearing no further issues, thank you for your attendance at the prehearing conference, and that closes this matter. Thank you.
(PROCEEDINGS ADJOURNED AT 11:50 P.M.)
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BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT S.B.C. 1996, Chapter 473
British Columbia Hydro and Power Authority 2004/05 and 2005/06 Revenue Requirements Application
and
An Application by British Columbia Transmission Corporation for Approval of am Application for Deferral Accounts
Vancouver, B.C. April 6, 2004
PRE-HEARING CONFERENCE
BEFORE: R. HOBBS L. BOYCHUK M. BIRCH Chairpman Commissioner Commissioner
VOLUME 2
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APPEARANCES
G.A. FULTON C. SANDERSON J. CHRISTIAN P. FELDBERG R.B. WALLACE MR. FITZGERALD D. NEWLANDS M. FILIPPELLI G. ISHERWOOD D. PERTTULA F. J. WEISBERG K. BOUTCHER M. CHOW C. WEAFER R.J. GATHERCOLE COMMISSION COUNSEL BRITISH COLUMBIA HYDRO AND POWER AUTHORITY BRITISH COLUMBIA TRANSMISSION CORPORATION JOINT INDUSTRIES ELECTRICAL STEERING COMMITTEE NORSKE SKOG CANADA LIMITED ELK VALLEY COAL CORPORATION ERCO WORLDWIDE, A DIVISION OF SUPERIOR PLUS AQUILA NETWORKS CANADA TERASEN GAS INC. COLUMBIA POWER CORPORATION INDEPENDENT POWER ASSOCIATION OF BRITISH COLUMBIA ZE POWER GROUP COMMERCIAL ENERGY CONSUMERS B.C. OLD AGE PENSIONERS' ORGANIZATION, COUNSEL OF SENIOR CITIZENS' ORGANIZATIONS, FEDERATED ANTI-POVERTY GROUPS OF B.C., WEST END SENIORS' NETWORK, END LEGISLATED POVERTY, TENANTS' RIGHTS ACTION COALITION SIERRA CLUB OF CANADA, B.C. CHAPTER CITY OF NEW WESTMINSTER HIMSELF MINISTERY OF ENERGY AND MINES
C. JONES P. COCHRANE A. WAIT R. MCLAUGHLIN
B.C. Hydro Revenue Requirement Hearing April 6, 2004 Volume 2
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 many.
CAARS VANCOUVER, B.C. April 5, 2004 (PROCEEDINGS RESUMED AT 9:06 A.M.) THE CHAIRPERSON: Please be seated. This is the first of Hopefully
many times we'll start a day in this room. everyone is going to find this adequate. like you're a long way from the panel.
It does feel
I do have preliminary comments, not very But for the record, Commission Order G-84-03
dated December the 16th, 2003, established the prehearing conference that was held on January the 14th, 2004, to in part consider regulatory agenda for review of the B.C. Hydro revenue requirements application and the BCTC application for certain deferral accounts. Following the first pre-hearing conference, the Commission panel issued Commission Order No. G-7-04, which has been marked as Exhibit Number A-4 dated January the 16th, 2004, that established the regulatory timetable. The filings in this proceeding have closely
followed the regulatory timetable, with the exception of amendments to the application filed on March the 29th, 2004 by B.C. Hydro, and certain revisions to the application that were filed by B.C. Hydro on April the 2nd, 2004. By letter number L-22-04 dated March the
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31st, 2004, the Commission circulated an agenda for this pre-hearing conference. agenda. First I would like B.C. Hydro's counsel to describe the revisions to the application. Mr. I will now comment on the
Sanderson, I'm hoping that your comments will be helpful with respect to whether or not there should be a third round of information requests. Then the agenda closely follows the January 16th, 2004 description of the purpose of this pre-hearing conference which has been quoted in the cover letter to the agenda. The panel has an alternative to suggest to
the third pre-hearing conference, and I will describe it when we get to that agenda item. Immediately after my
description of the alternative, we will break so that you have an opportunity to consider the alternative. As part of the seventh agenda item, I will make some comments about argument which I am hoping will be early enough for you to make whatever summer plans you're able to within the regulatory agenda. Now I will ask Mr. Fulton to call for appearances. If you would like to propose changes to
the agenda, I will ask you to speak to those when you enter your appearance. MR. FULTON: Thank you, Mr. Chairman, Commissioners.
British Columbia Hydro and Power Authority.
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MR. SANDERSON: Fulton.
Good morning, Mr. Chairman.
Thank you, Mr. With me is
Chris W. Sanderson for B.C. Hydro.
Mr. Jeff Christian. MR. FULTON: MR. FELDBERG: British Columbia Transmission Corporation. Peter Feldberg, Mr. Chairman, appearing for
British Columbia Transmission Corporation. MR. FULTON: Committee. MR. WALLACE: JIESC. MR. FULTON: Norske Skog Canada Limited. Mr. Fitzgerald is Tembec R. Brian Wallace appearing on behalf of the Joint Industries Electrical Steering
here, Mr. Chairman.
West Fraser Mills Limited.
Industries Pulp Group. MR. NEWLANDS: Mr. Chair. MR. FULTON:
Elk Valley Coal Corporation.
David Newlands on behalf of Elk Valley Coal,
Highland Valley Copper.
Kemess Mines Limited.
ERCO Worldwide. MR. FILIPPELLI: MR. FULTON: Materials. MR. ISHERWOOD: MR. FULTON: MR. PERTTULA: MR. FULTON: Mike Filippelli.
Sapphire Products, Honeywell Electronic Aquila Networks Canada. George Isherwood.
Terasen Gas Inc. David Perttula. Imperial Oil Resources. Columbia Power
Corporation. MR. WEISBERG: Fred J. Weisberg.
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MR. FULTON: Columbia. MR. BOUTCHER: MR. FULTON: MS. CHOW: MR. FULTON: MS. WEAFER: MR. FULTON:
Independent Power Association of British
Keith Boutcher. Avista Energy Marketing. ZE Power Group.
Michelle Chow. Commercial Energy Consumers. Chris Weafer, Mr. Chairman. Line Contractors Association of B.C. B.C. Old
Age Pensioners Organization et al. MR. GATHERCOLE: Good morning, Mr. Chair, Commissioners.
Richard Gathercole and with me is Patricia MacDonald for the B.C. Old Age Pensioners Organization, Council of Senior Citizens Organization, Senior Citizens Association of British Columbia, West End Seniors Network, Federated Anti-Poverty Groups, End Legislated Poverty, and Tenants' Rights Action Coalition. you. And you indicated, Mr. Chair, that if we wanted to indicate at this time, there is an item on the agenda that I would like to comment on, item number 6 when it comes up. THE CHAIRPERSON: What was requested was whether or not Thank
there were any revisions to -MR. GATHERCOLE: THE CHAIRPERSON: MR. GATHERCOLE: Oh, to the agenda? Okay. No.
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THE CHAIRPERSON: MR. FULTON:
Thank you.
Consumers Association of Canada (B.C. Branch). GSX Concerned Citizens
B.C. Citizens for Public Power. Coalition. MR. JONES: MR. FULTON: The Sierra Club.
Christopher Jones, Mr. Chairman. Energy Solutions for Vancouver Island Society. Active Voice
Save British Columbia Coalition. Coalition.
Boston Bar North Bend Environment Society. City of New Westminster.
OPEIU Local 378. MS. COCHRAN: MR. FULTON:
Penny Cochrane, Mr. Chairman. Peace River Regional District. Corporation of
the Village of Lytton. Valley. MR. WAIT: MR. FULTON: Bachman. VOICE FROM BACK OF ROOM: MR. FULTON: J.P. West.
School District Number 71, Comox Alan Wait.
James Campbell. Alan Wait. Stuart Meade.
Michael McCarthy.
Randy
(inaudible). Ministry of Energy and Mines.
MR. McLAUGHLIN: MR. FULTON:
Ross McLaughlin, Mr. Chairman.
Is there anyone here who wishes to appear
whose name I have not called out at this point? There is no one else present this morning who wishes to appear, Mr. Chairman. THE CHAIRPERSON: Thank you, Mr. Fulton. I did not hear
any suggestions with respect to the agenda, so I'm going to assume that we will follow the agenda that we have
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previously circulated. Mr. Sanderson, in your client's letter of March the 30th you suggested a procedural proposal that I didn't adopt with respect to development of the agenda. I'd like you to -- even though I chose not to adopt it, I'd like to thank you for the proposal. It is helpful
from time to time if the applicant makes procedural suggestions, and although in this particular case we didn't follow it, I appreciate that -- I appreciate the effort. MR. SANDERSON: Well, in that case, Mr. Chairman, we won't
be deterred from trying again. THE CHAIRPERSON: MR. SANDERSON: Good. Mr. Chairman, if I understand your wishes
in the agenda, and with some trepidation I'll now walk through the filings since we last met, in an effort to clarify what the status of the application is, in particular with respect to the March 29th and April the 2nd filings. THE CHAIRPERSON: MR. SANDERSON: Please. Mr. Chairman, you'll recall that at the
last pre-hearing or arising out of the last pre-hearing and as prefaced in your opening remarks today, there was a direction that -- coming out of that pre-hearing that B.C. Hydro filed an evidentiary update, and the Commission requested that that be done by February 20th.
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And the approach that B.C. Hydro took in response then was to file an update that tried to cover a number of things. The first thing was to confirm all of the numbers that had been presented in the budgets that were the basis of the December 15th application. And as you
recall at the pre-hearing I said that those numbers in the application were subject still to final approval of the board, et cetera. And so part of the February 20th
purpose was to allow those internal processes to have finally occurred. They did, and those processes
themselves yielded no change to the numbers in the application. The second thing that the February 20th update did was allow certain variables to be looked at from the prospective of February 20th as opposed to December 15th, bearing in mind that more forecast precision was possible with respect to the situation that Hydro found itself in at February 20th than had been the case on February 20th -- or sorry, on December 15th of the previous year. It was that latter update or
objective, if you want, that was primarily served by the February 20th filing, and in particular that filing attached a new Chapter 2A which revised the budgetary numbers in the original Chapter 2 to take account primarily to two changed circumstances.
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One was a change in the financial costs facing the corporation as affected by interest rates and as affected by foreign exchange, and both of those had altered what I'll call favourably in the sense that they reduced the revenue requirement, because interest rates had gone down and foreign exchange Canadian -- the value of the Canadian dollar had gone up, both of which favourably affected Hydro's revenue requirement in the sense that it kept it lower. At the same time, another factor was operating, and that was that in the December 15th application, B.C. Hydro assumed it would experience a normal water year over the winter '03-'04 and through the spring runoff of '04. By February 20th, based on
what had happened between the December 15th application and what was known on February 20th, it was clear that at the beginning of the year, that is, the water year, it was clear that wasn't going to happen. And that's an
important part of the water year, as you know, because that's when the snowpack information begins to be seen. And that information was pessimistic in the context of the revenue requirement; that is, there was going to be less water, less water means less low cost Heritage generation is possible, which means a higher cost of energy as the shortfall is made up from other sources. And that tended to push the revenue requirement up.
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The impact on the revenue requirement was obfuscated, if you will, on the February 20th filing of -- including the revised Chapter 2A, because it was thought it would be handled through deferral accounts. And that would have meant that B.C. Hydro would have gone into its test year, if you want, expecting money in the deferral accounts, which is a rather unusual situation. Normally a deferral account should expect it
to be set at nil, and it's designed to capture the difference between the forecast and the actual. As things stood on February 20th, the application didn't take that approach. The application
took the approach of actually forecasting, at that stage, a negative amount, by reason of the change in the water conditions, in the deferral account. It did that
because with the crush -- and I think that's the only word I can use -- of informational demands on Hydro; and I'm not complaining about that but it's just a fact, that the demands on Hydro have been utterly extraordinary for the last few months in terms of responding to first the Commission's first round of IRs and then the subsequent round of IRs from all parties, and one of the issues that Hydro was grappling with throughout the period was how to structure deferral accounts, in light of the Heritage Contract decision and in light of the approach it wanted to take to its
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revenue requirement on a go-forward basis.
And that
consideration wasn't complete on February 20th, and the result was that in the February 20th filing there was no change in assumption made with respect to the treatment of deferral accounts from what had been present in the original application. And that essentially was that the
Heritage costs as a bucket would be subject to the deferral arrangements, that is the Heritage deferral account, and most other things would not be. When Hydro had an opportunity to look at that more closely, it concluded that there wasn't really a lot of principled support for that approach. That is,
the need for a deferral account in Hydro's view ought to be determined by the extent to which Hydro can control the cost. What is a proper incentive mechanism that
should be in place in order to properly incent the utility on the one hand, and yet not require it to assume an inordinate level of risk with respect to things it can't control. And that issue doesn't fall
neatly into the Heritage, non-Heritage camp. So over February and early March, Hydro looked at that question in more detail and concluded that it could take a principled approach by looking at, regardless of whether it was a Heritage cost or a nonHeritage cost, looking rather at whether that was something Hydro could control or Hydro could not
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control.
And the deferral account proposal that Hydro
now brings forward and is part of this application, and is described in detail both in the application and also in the direct testimony of Ms. Grewal, identifies one an alternative principled approach to setting up those deferral accounts. The result of that is that we can now bring a forecast and application today which anticipates -- and we're bound to be wrong because the forecast is always wrong -- but it still, based on the information as it was at February 20th, anticipates that Hydro will earn precisely its revenue requirement and nothing more. To
the extent that matters outside of its control caused that not to occur, those amounts will go in a deferral account. To the extent that it doesn't occur because of
things that are within its control, that will be to the cost or benefit of its shareholder. That change in
approach affects the numbers and led to the revisions that you saw for the first time on March the 29th, and then more fully on April the 2nd. Those are the numbers
which file a revised 2A and a new Chapter 2B, which elaborate the changes that I've just described and show the overall effect. Proceeding Time 9:20 a.m. T2 Now the bottom line effect of those, to bring the revenue requirement application into conformity with
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the numbers as they were February 20th, applying the deferral accounts in the way I've described, is to change the amount of rate relief required in both, '05 and '06. The bad news is that the revenue requirement adjustment required in '05 rises from 7.23 percent to 8.9 percent. The good news is that the revenue
requirement increase for '06 drops from 2 percent to zero. The result is that B.C. Hydro now seeks an
adjustment for fiscal '05 of 8.9 percent and no adjustment for fiscal '06. It seeks to have the rates
set for those two years, but effectively at the level they'll be after the initial increase of 8.9 percent for those two years. There's one other consequence of that
change I should draw to your attention. The original application was for final rate increase of 7.23 percent and an interim rate increase of 7.23 percent. The Commission granted the 7.2 percent --
the 7.23 percent on an interim basis effective April 1st. Hydro has not sought a change to that, appreciating that all of this was coming late in the day, and the consequence of that is from April 1 until whenever the Commission renders its final decision arising out of this decision, B.C. Hydro expects to underearn its revenue requirement. B.C. Hydro is not seeking relief in respect
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to that.
It accepts that consequence and I think what
that will mean is that given the projected timeline of this hearing, and what we've asked for is an order effective 30 days after the decision to allow the billing cycle to complete, we're probably looking at a rate increase for '05, assuming the application is successful, in the middle of the fall of this year, halfway through the year in other words, which really means that the '06 increase has been moved forward six months, effectively, and reduced a little bit, and B.C. Hydro is leaving some amount on the table, being the shortfall from April 1 to whenever the Commission makes its final order. So I hope that clarifies what we're asking for and how it came to be. To find it in the What we've asked
application is still complicated.
parties to do is file Chapter 2A Revised and Chapter 2B behind Chapter 2 in their binders so that those -- if they're simply inserted as 2A Revised and 2B behind the binders, the original 2A, I believe I'm right in saying, no longer serves a purpose. So that what your binder
should have in it is Chapter 2, 2A Revised and 2B. And then the other place where, as I say this will be illuminated, is in Ms. Grewal's [phonetic] testimony, which is in the thin volume of direct evidence under the tab bearing her name.
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Finally, the application also seeks to define, for BCTC's purposes, on a go-forward basis, the transmission revenue requirement. Chapter 6. That's identified in
And so parallel updates to Chapter 6 were
provided as part of the material filed on April the 2nd. And that should similarly be inserted behind tab 6 in the application. And the logic of those changes tracks
the logic, I think, that I've just explained. Mr. Chairman, that, I think, covers the revenue requirement aspect of the March 29th and April 2nd filings. There's one other aspect covered in the cover
letter though and actually that's the April -- that's the March 31st cover letter, yet another filing last week. Last week was a busy week. On March 31st, B.C. Hydro filed with the Commission two documents as it had promised that it would. One was its integrated electricity plan, which
is filed with the Commission and as discussed at the prior pre-hearing, that's a contextual document which should assist in any of Hydro's proceedings. But what
it does in particular is provide a background and a context for something called the Resource Expenditure and Acquisition Plan or REAP, as we've come to call it, which is a document that the Commission hasn't seen before, is prepared in response to Section 45-6.1 and pursuant to those sections, Commission approval of that
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document is sought.
While in the future the procedure
for approving REAPs may be flexible and vary, B.C. Hydro's suggestion in this particular context, given where we are with this proceeding, is that Commission consideration of the REAP, if it believes it requires a public process, that public process be consolidated with the one we're in and the REAP be considered as part of the revenue requirement application to the extent the Commission believes that a public process of this nature is appropriate to consider the REAP. And so that's
covered in the March 31st cover letter. And I'm sure my friends will correct me, but I think that's all that was sort of surprising or out of what was obviously implied by the last pre-hearing order. I think that covers the main topics or at least
I hope so. THE CHAIRPERSON: I'm going to make some general comments
in a minute, but I have one comment that arises from the REAP which you referred to, at least I believe you referred to, on the January 16th pre-hearing conference as the action plan falling out of the IEP and just for clarity, does the REAP period, do the actions that fall out of the REAP document extend beyond the test period or periods? MR. SANDERSON: Yes, Mr. Chairman, they do, in small part.
It's absolutely correct to say that I did refer to the
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action plan at the last pre-hearing.
As we began to
finalize the form of the IEP, though, an incompleteness around the action plan, for the purposes of Section 456.1, became apparent. And that is the action plan in
the context of the IEP document, simply talks about what new actions should be taken over the next four years in light of the general context that the IEP has set. Section 45-6.1 is a bit more precise than that and it requires the identification of expenditures on the acquisition of energy, on PowerSmart and on capital, and that's a precise prescription in the Act which is not part of the action plan in the IEP. And so
the REAP was created to deal with that by combining the action plan, take it out of the IEP, extract that part from the IEP, and add to it the elements that were missing, that is, a precise identification of the expenditures by year. And what we've suggested is that the precise expenditures for PowerSmart and for capital, which were identified anyway in the revenue requirement be looked at on a two-year basis, but that the action plan, which covers four years, be looked at by the Commission in its entirety for those four years. So it would be asking
the Commission to consider the -- back two years of the action plan, bearing in mind that Hydro has committed to refilling the action plan every year anyway -- or I'm
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sorry, the REAP every year anyway.
And so that while
we're asking you to consider it and we're asking you to advise Hydro should any of it appear at this stage to be unacceptable for some reason, nevertheless, you'll see it again in a year and a year after that, et cetera and so in terms of the anomaly, if you want, between the second two years, years three and four, they come out of the action plan and the two year snapshot for the financial expenditures, our response is, because we're filing it on a rolling basis, that can always be trued up. It's a contextual and sort of principled look at
the four years that we're seeking only at this stage. THE CHAIRPERSON: Thank you. Do you have a copy of the
March 31st letter, which I assume is the cover letter to the IEP? MR. SANDERSON: I hope so. That's it. Okay. Yes, Mr.
Chairman, I do. THE CHAIRPERSON: I don't. That's why I'm asking. And I
may not be the only one, and it seems to me from what you've said, Mr. Sanderson, that following this prehearing conference, you're going to be looking for a decision from the panel as to whether or not the REAP will be considered in the context of this proceeding. MR. SANDERSON: THE CHAIRPERSON: issue. Yes. I didn't come prepared to deal with that But if you can make
Perhaps I ought to have.
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copies of that letter available, I think I certainly will benefit from it. MR. SANDERSON: Of course, Mr. Chairman, we'll provide for I think, and I may be corrected
that at the break.
here, but I think that the REAP was circulated to the parties of record in this proceeding, but -- I'm told that's right, so hopefully everybody here has got it, but we'll get a bunch of copies made at the break and anyone who doesn't, we can provide another copy to. THE CHAIRPERSON: Okay. I think you did, too. I just
didn't come prepared with it. I asked Mr. Sanderson to review the March the 29th filing and the April the 2nd filing so that you would have the benefit of a verbal description of what's in those materials. Hopefully you have benefited from that
at least to the extent you need to to participate in the rest of the agenda for this morning. I will entertain points of clarification if there are any arising from what Mr. Sanderson has raised, but I think it's probably best if we leave the substantive components to another day. So are there any
questions of clarification that anyone would like to ask of Mr. Sanderson? Hearing none, Mr. Weafer? MR. WEAFER: Mr. Chairman, I am mindful of if we don't
stand up and speak we may miss our opportunity later on
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and I'm assuming that we're going to be allowed to speak to these issues when you deal with the issue on the agenda around a third round of information requests; is that correct? THE CHAIRPERSON: MR. WEAFER: Yes.
Thank you. We do need to make that decision
THE CHAIRPERSON:
following this pre-hearing conference and we'll do it on the basis of what we hear this morning so, yes. MR. WALLACE: Mr. Chairman, I have just one question of My understanding is
clarification for Mr. Sanderson.
that the basis of the change from 2 percent on April 1st next year to this fall is that the increase is needed for fiscal 2005. If, in fact, this Commission were to
determine it wasn't needed for fiscal 2005, would it then slip back and take effect on April 1st, 2006 -- or 2005 for fiscal 2006? MR. SANDERSON: Thank you.
No, Mr. Chairman, it would not, that is,
B.C. Hydro accepts that it doesn't foresee a change in its revenue requirement '06 to '05 and while it believes it needs 8.9 for '05, were the Commission to determine otherwise, then B.C. Hydro accepts that the consequence of the structure of its application is a two year one and the relief sought in '06 is zero. So there would be
no change whatever the outcome of the Commission's decision is.
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Mr. Wallace's comment does remind me of one thing I've neglected to say, though, and that's this. The exception to that is a change in Terasen's ROE by Commission -- and this is a straight oversight on my part -- the one change for '06 that B.C. Hydro would anticipate is the formulistic one that might result in either direction from a change in Terasen's ROE. At the
moment, B.C. Hydro has assumed the current Terasen ROE which yields 13.91 percent on a grossed up basis for B.C. Hydro and it's used that for '05 and '06. By the
time we get to '06, we'll know what the Terasen actual allowance for '06 is and B.C. Hydro is assuming that its rate would be adjusted to reflect that, but that's all. THE CHAIRPERSON: clarification? Thank you. Are there any other points of
There is a procedural issue that arises
from your proposal with respect to the REAP and that is when we deal with item number four on the agenda, I suspect that the intervenors are going to want to know whether or not the REAP is going to form part of this proceeding. And I don't think the panel is going to be
-- the Commission panel is going to be -- will be giving you that direction before we get to that agenda item. So my suggestion is that when you speak to item number 4 in the agenda, you do it in the alternative. Proceeding Time 9:35 a.m. T3 I think I also would like to add an agenda
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item and that is to deal with the REAP and your comments with respect to whether or not the REAP should form part of this proceeding. I'm not really adequately prepared
myself in this regard, and there may be others who are not, and so the alternative to including it on the agenda to your comments from you now for the purposes of that is for us to do it in writing subsequent to this proceeding. So, and I'm quite -- even though I'm not
prepared, if you're prepared to speak to it, that can form the basis of the Commission panel's deliberations with respect to that issue. So I'd like to hear from anyone who would like to speak to this as to whether or not you would like me to now add to the agenda the issue of whether or not the REAP should form part of this proceeding, or whether you would prefer that that be dealt with in writing after the pre-hearing conference concludes. there anyone who wishes to speak to that? I think whoever speaks to it is going to win the day on this one. MR. WALLACE: With that incentive --. Mr. Chairman, I Is
think our view would be that the REAP has to be included. It effectively is the capital budget and
should be considered, and in the context of IEP going forward. Furthermore, I think we have concerns that the
Commission give its views on it as soon as possible, as
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it will undoubtedly affect the Tier 2 rate structure and the long-term acquisition cost views of the Commission, and the sooner those are known the sooner we can advance in a reasonable way. But I think the prime one is that
it effectively drives the capital budget. THE CHAIRPERSON: On the latter one, is it sufficiently
timely in your view, since you've raised the issue, is it sufficiently timely in your view for it to form part of our decision in this proceeding that relates to the revenue requirements? MR. WALLACE: I'm not sure that it will be, but at least if
that material is on the table and people are getting familiar with it, then it will assist in that process. If it is completely shelved and everybody puts it away and out of sight, then I think it's going to delay that process. THE CHAIRPERSON: Okay. Let's return to the timing then.
Is there anyone else who wishes to speak to this issue? Well, the only two that I've heard are in favour then of it forming part of this proceeding, so I'm going to assume I do not need to deal with the issue as to whether or not a further opportunity should be given for participants to comment on that issue, and the Commission panel will now, following the pre-hearing conference, based on what we have heard, make a decision as to whether or not the REAP should form part of this
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proceeding. With that, I may get an equal amount of enthusiasm on this next agenda item, but is there anyone who wishes to speak in favour of a negotiated settlement process? MR. SANDERSON: always. There is one topic which I think might usefully be at least discussed as something that could be taken off the table, and that's alluded to in my -it's a cover letter of March 29th over Mr. Stout's signature. It talks of the evidence of Mr. Robert I'm all for settlement, Mr. Chairman,
Fairhome from the Centre for Special Economics dealing with interest rate and foreign exchange rate assumptions. There was, I think it's fair to say, very
little indeed around the macroeconomic issues which obviously for a part of the application, that is the financial projection. There's really only one table in
the entire application which turns on those assumptions, but it's obviously significant; the financing costs for Hydro are significant. And as the Commission well
knows, once you embark on the debate, you can be there for a very long time. So it's something that if you can
take it off the table, you can save a lot of hearing time. B.C. Hydro prepared its numbers on the basis
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of the numbers contained in the provincial budget and provided to it by the government consistent with the way all Crowns are doing their financial planning, as is made clear in the application. And I don't know whether
or not anybody has a contrary view with respect to those numbers, and if so, whether anybody thinks that it's a profitable way to spend hearing time to debate, you know, what a reasonable projection on February the 20th for long-term this or short-term that was. I'm not sure
that it isn't a fairly barren debate usually, frankly, and it's a certainly an expensive one. So if there were a way to deal with that issue offline so to speak, that strikes me as probably a pretty efficient use of people's time. But, you know,
my friends may have different views and I'll say no more than that at this point. THE CHAIRPERSON: MR. WALLACE: Mr. Wallace.
Mr. Chairman, I'm glad Mr. Sanderson raised
that issue because we think there is a way to deal with that, and we believe that should be in a deferral account. It is a cost that is beyond Hydro's control,
it is major, and we are at a complete loss, given the principles that have been set out by Hydro, that costs within its control should be out of the deferral accounts. Costs that are not within its control should This is clearly one that
be in the deferral accounts.
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should be in the deferral account and we think takes care of that cost item, the cost of arguing about issues which are just, at best, guesses over two years in a very volatile market. We believe pretty well every
utility now has those types of costs and deferral accounts, and Hydro should also. THE CHAIRPERSON: Thank you. Is there anyone else who
wishes to comment? My suggestion to you, Mr. Sanderson, is that you treat this one as an issue that is open for challenge. You need a fair opportunity to prepare for
it if in fact it's going to form part of the proceeding. My suggestion, if this is satisfactory, is that following the pre-hearing conference, the Commission panel will establish a date upon which you are to be given notice as to whether or not this is going to be an issue that's in contention. If we do not hear from any
participants that this in fact is going to be an issue in contention, then it won't be. As for the issue that Mr. Wallace has raised, I'm hesitant to get you to comment on that issue now. It's probably unfair to you. If the approach suggested
by Mr. Wallace is unacceptable to B.C. Hydro, then I think you would also need to advise us on that same date that it was, and we would then make a decision as to whether or not this was going to be an issue for the
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hearing following that. MR. SANDERSON: Mr. Chairman, if I can just comment on one
aspect of that, I'm absolutely prepared to work with Mr. Wallace offline and give mutual notice in the way that you've implied with those remarks. The one possibility that I would leave open though, and I think it's where I'd be right now, is that the structure of B.C. Hydro's deferral accounts is very much a hearing issue. I don't have any doubt that a
number of parties will have submissions to make on many aspects of the costs which either are or are not in deferral accounts. And that's often, and I think in So I would be
this case in particular, a central issue.
a little worried about piecemeal before the hearing, deciding what is or isn't in deferral accounts. I think
that Mr. Wallace's position is one that's eminently available to him, and you know, we've heard him and got notice that that may be an approach he's going to take in the hearing. But that's probably the right place to
deal with the deferral account issue. But I can talk with Mr. Wallace offline, and in any event the mutual notice idea to firm up what I just said and also for Mr. Wallace to give notice, seems like a good one. THE CHAIRPERSON: Okay, thank you. Is there anyone else
who would like to comment on my proposal with respect to
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how we'll proceed on this issue?
Thank you.
Let's then move to the next agenda item. This is, I suspect, somewhat of a departure from BCUC practices in the past. important. It's one that I felt was
It's important because I think intervenors
need to have an opportunity to raise issues with respect to responses to information requests. If you have
concerns about specific responses, I'd like to hear those. though. I want you to be very specific in your comments I'd like you to do identify the IR that is of
concern to you and the nature of -- and comment on the response and why you believe that the response is unsatisfactory. And then the Commission panel will call
on Mr. Sanderson to comment, and then after the prehearing conference the Commission panel will give direction with respect to whether or not there needs to be a fuller response to that information request. It doesn't mean that you will be precluded later from challenging the issues raised by the information request. That of course will be open to
you, but I do want to hear if there are any concerns now. I think this provides you with an opportunity
should you elect to take it, to have the panel give direction to the applicant if in fact we think that direction should be given. Mr. Gathercole?
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MR. GATHERCOLE:
I don't have any specific challenges, and
I will explain why but I just want to put it on the record. For a number of reasons, including the fact
that our office was moving last week and other things and my availability and Ms. MacDonald's availability, we actually didn't get the information request responses until Friday afternoon, and I quite frankly have not even had a chance to look at them, but I doubt I would have -- I just wanted to put that on the record so there was no indication that -- and following up from what you just said, Mr. Chair, I would think I would, you know, prefer to deal with it during the hearing in crossexamination if there are any issues like that. THE CHAIRPERSON: MR. WALLACE: Thank you.
Mr. Chairman, like Mr. Gathercole, we have
not had time to consider them in full yet and provide it. What we would suggest is that what we require is a We received our hard copy on
mechanism going forward.
Thursday, one of our consultants has not been available to us, and there are some responses which I suspect we may wish to either follow up in information request number 3 if that's to be, or alternatively, a few limited responses which may save time in the hearing if the Commission were to rule on them early. I would hope
that there could be either a written mechanism or a day set forward that people could bring those forward before
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the Commission. THE CHAIRPERSON: MR. AUSTIN: Thank you.
Mr. Chairman, the material that B.C. Hydro
filed in response to the IPP information requests was put on the web on Monday, last Monday. of the key information was in CDs. However, a lot
We only received the
CDs on Thursday and we had to get them to our consultant, so he's only had them since Friday. So
we're in no position to follow up in terms of specific questions that weren't answered in full. Our initial
indication is that some of them were not answered in full. However, the problem that we have is we want to
be able to file our evidence, and to do that we're going to probably want to get some more answers to some of our questions and get more detail. So I just thought I'd alert you to the fact, and that really goes to item number 6, Review of Regulatory Timetable, because right now it's just not working and we need some sort of mechanism to be able to get through the information and see if we need to generate additional information requests and also respond in terms of -- or push B.C. Hydro into answering an initial set of information requests. Right now it's
not a very practical situation and it's a very -- a situation that's really a result of ten years of no information.
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MR. JONES: Club.
Mr. Chairman, Christopher Jones for the Sierra I'm in a similar position to my friends. We did
receive the responses to the second round of Sierra Club information requests late on Friday, for which my thanks to B.C. Hydro. Similarly, I have not had the There may be
opportunity to review them all in detail.
questions going forward, and I'm hoping we will have a process to deal with that. Proceeding Time 9:50 a.m. T4 MR. WEAFER: Mr. Chairman, Mr. Sanderson referred to the
crush of information requests that B.C. Hydro has responded to and B.C. Hydro has, we believe, worked diligently to be responsible in a timely matter, but we have found that the timeframe that we've had to review to look at the adequacy is short as well to properly identify specific information requests. We certainly
know that we will have some follow up on our questions and we also have the challenge with respect to preparation of evidence, which is quality evidence that responds to what is on the record including the IR responses, so we'll be dealing with timing as well in terms of filing our evidence. MR. WAIT: Allan Wait. Thank you.
I have sent in another request, my
third supplementary, regarding the costs of hydro power, breaking that out as a total cost per kilowatt hour and I'm hoping that Hydro will be able to answer that.
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have avoided it to this point, and I've asked twice. And I just can't break out exactly what their Hydro costs for -- but if it's 1994 to 2003 or 2002, just to see how pure Hydro is without all the other costs of Burrard and such things in it, as best they can. doesn't have to be perfect. THE CHAIRPERSON: particular IR? MR. WAIT: me. THE CHAIRPERSON: request -MR. WAIT: Yeah, it doesn't have your number on it but it And in your initial information Mr. Wait, can you direct me to a Is your third supplemental -It
So it would be 4.1 or 2, I don't have them with
should be 4.1. THE CHAIRPERSON: Is your subsequent information request,
is it asking for information that was not asked for in the original information request. MR. WAIT: No, it's the same information that I asked for.
They had indicated they did not really have it pulled out, separated. THE CHAIRPERSON: MR. WAIT: Okay.
I mean, I can't tell whether it's 10 cents right
or wrong, if it's ten cents off, but if it's $2.00 then it should be. exact. If that's their problem, is to getting it
If we can get it down fairly close to it and see
what the Hydro costs were each year, basic Hydro costs.
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They are going to jump with water conditions, of course, but just see how they progress. THE CHAIRPERSON: Don't leave the dais yet, Mr. Wait. Do you recall
Maybe, Mr. Sanderson, you can help me.
which application, which binder this is in? MR. FULTON: Mr. Chairman, I perhaps can help in terms of
Exhibit numbers. THE CHAIRPERSON: MR. FULTON: Yes.
There is an IR from Mr. Wait that is Exhibit
C8-4 and that's dated April 1st, 2004. MR. SANDERSON: Mr. Chairman, while everybody is searching, Mr. Wait
I wonder if there's a practical solution here.
has sent two letters which are asking for clarification, I think trying to get at similar points. We do have
somebody here today who may be able to help Mr. Wait offline in order to better understand what he wants and explain whether or not we can get it, and if we can get it, we will get it. In other words, to the extent that there's a difference between us in terms of not understanding the question, we'll work that out. So
maybe we should return to this if necessary only after the break, and at the break Mr. Dunlop and Mr. Wait can chat to see whether a practical answer rather than take up everybody's time THE CHAIRPERSON: is available. Is that
Thank you, Mr. Sanderson.
satisfactory, Mr. Wait?
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MR. WAIT:
Yes, that sounds good. Is there anyone else who wishes to speak
THE CHAIRPERSON:
to specific information requests that are of concern? Mr. Fulton? MR. FULTON: Mr. Chairman, I don't have a specific IR, I
just wanted to say that the staff, in reviewing the materials, do have some concerns in certain areas, in a general way, but it is felt that those concerns can be addressed through cross-examination at the hearing. THE CHAIRPERSON: Thank you. My desire in putting this on
the agenda was that the participants would have an opportunity in this pre-hearing conference to raise any issues that they wish to raise with the Commission panel with respect to responses that they had received to their information request. I hear support for the
mechanism, but I also hear that you have not been given adequate time to review the information requests. It's my understanding that B.C. Hydro has in fact followed the document filing protocols of the Commission. If that is true, then you may be unprepared
for the day, but I had anticipated that you would at least have had the opportunity review responses to your information requests for the purposes of this agenda item, which was flagged in our letter to you of January 16th, and I don't think in any circumstances it would take much longer than a couple of days to at least
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determine whether or not the answers were satisfactory. So I am really reluctant to accept the proposal from many of you to establish a mechanism outside of this opportunity to raise issues with respect to responses to information requests. So I am, immediately after the break this morning, going to get back to you with respect to whether or not there should be a mechanism to do that, after this pre-hearing conference. I'll discuss it with
Commissioner Boychuk and Commissioner Milbourne and we'll get back to you then. Let me move on to the 4th item on the agenda, which I think nicely follows from the discussion that we have just had, and that is whether or not there should be a third round of information requests to B.C. Hydro, and you will note both in the January 16th letter and in this item that's been identified on the agenda, that you should not assume that there will be a third round of information requests. But there may be.
And so I'd like to hear from you now as to whether or not you think there should. I'd also like to
hear your reasons why there should be, and it will, in addition be helpful if you are quite specific as to the areas in which you feel that there should be another round of information requests. If we do embark on
another round of information requests, it's I think
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going to be helpful if there are some parameters for that third round of information for us. So with that, and I think on this one, Mr. Sanderson, if this is satisfactory to you, I'll have you speak after the intervenors speak. MR. WALLACE: Mr. Chairman, I'd like to speak in support of There are two
a third round of information requests. prime reasons.
The first is to pursue matters raised in
B.C. Hydro supplementary material and evidence that has recently been filed, in particular 2A, 2B, the IEP and the REAP, as all of those documents have been recently filed and the latter two clearly affect the capital expenditures and planning of the utility and there is a requirement to be able to look at that material. I believe that also there may be a need for limited questions, and this is my second point, to follow up on inadequate or contradictory responses. spite of best efforts, B.C. Hydro sometimes simply misreads, misunderstands the question or the two parties are simply at odds, and it only becomes evident when the response comes back. I don't think there need to be a I don't expect we, at In
lot of questions in that area.
least, for one, would have very many, but I do believe that it can be useful and it reduces cross-examination time. Otherwise, these matters will be followed up on
cross and material will take time to be forthcoming and
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it's followed up and it simply doesn't help the hearing proceed in a timely way. So I would like to see a limited right to cross-examine -- not to cross-examine but to raise those questions and I would discourage the Commission from setting firm boundaries on that, but to give an indication to counsel simply that it should be limited and if Hydro feels it's excessive, have Hydro come back to you and say, "No, we don't want to answer these, these are just -- they've gone overboard." But if you leave it, I think to the discretion of counsel with some guidance that the goals should be to reduce cross-examination and expedite the hearing, I think it will be a valuable round of questions. Thank you. And just let me ask two questions of You've mentioned the IAP and REAP, my
THE CHAIRPERSON: clarification.
understanding is that the test periods, the capital expenditure issue that you raise with respect to the test periods falls entirely within REAP, we do not need to include the IEP and this proceeding. MR. WALLACE: Well, the IEP sets the context for REAP. I don't know, a 12, 14 page
REAP, itself, is what?
document that is very barren on any justification or rationale. That context comes from the IEP and I
recognize we -- you know, we are not into doing a full
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approval of the IEP but it is the contextual document and the best document we have other than from ten years ago, on where the capital costs are going to be going and how they're going to be driven in the future. clearly you need to look at that in the context of PowerSmart, the context of capital. It would be a And
travesty to rule it out of discussion in this hearing. It is a central planning contextual document going forward for the items that are going to drive the costs the most: the cost of power, the cost of cap, the
capital to be invested, and the decisions that are going to be made through the REP and through purchases, contractual purchases for energy in the future. submit it simply cannot be ignored. And again, we obviously have limits. We are I
not approving it, we're not approving a ten-year or twenty-year plan, but the context of the REAP and the proceeding are set by that document in large part. THE CHAIRPERSON: Is it consistent to have information
requests with respect to the IEP and yet leave the IEP outside of this proceeding? MR. WALLACE: Sorry? Is it consistent to give parties an
THE CHAIRPERSON:
opportunity to raise issues with respect to the IEP, ask information requests with respect to the IEP and leave the IEP outside of this proceeding?
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Proceeding Time 10:05 a.m. T5 I think you can leave approval of the IEP I
because that's 20 years outside of the proceeding.
don't think it has to be approved in this proceeding, but I think in looking at the capital and looking at the REAP, it's absolutely essential that you be able to look at the IEP and at least its short-term impacts, which should be consistent with the REAP, and its longer-term context: Is the capital we're spending consistent with
where we're going, nor is it in a completely different direction? Those types of issues have to be reviewed. Right, it's whether it's done in the
THE CHAIRPERSON:
context of this proceeding or not. MR. WALLACE: Well, and I think the capital plan has to be It has to, at We don't have
done in the context of this proceeding. least for the next two years and longer.
-- it may be that there will be another proceeding to look at have we got a smart 10 or 20 year plan, but at this point you still have to work in the context of the best information you have for what you're going to spend over the next two years, which Hydro is seeking and which must be part of a longer-term vision, and we should be able to examine that vision. examine that vision. THE CHAIRPERSON: categories. In your fourth -- I think there were four In your fourth category of information
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requests, you mention or describe them as follow-up questions to information requests that were either in the first or the second round of information requests. Do I understand you to suggest then that that effectively would provide some constraints on the nature of the information requests that were part of this third round, that in fact if B.C. Hydro thought that the information request was not closely enough linked to an existing information request, i.e. it wasn't a followup, then that would be an information request that would not need to be responded to? MR. WALLACE: on. I can understand putting that sort of limit
On the other hand, the purpose of the hearing is to
-- or the information requests is to reduce the length of the hearing and provide a better quality of information. And if a party came -- and I think that's
the type of questions there would be, but if a party, on reading somebody else's question, said, "Gee, but here's the next corollary to it and if we get this schedule it'll either solve it or show it in an easy way," I'd hate to see that stop. Because once you get into the
hearing, that type of thing simply causes delays, and of course on cross-examination if it's a valid issue, you can ask the question. Hydro, to its credit, in the responses I've reviewed has very rarely said "irrelevant" or "not going
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to answer".
It hasn't refused to answer.
It simply
sometimes it hasn't answered whether it's oversight or a misunderstanding of the question or the question wasn't put properly. So to the extent we can clarify and move
ahead with issues, I think it's important, but I wouldn't want to limit it absolutely to that, that it should be directed primarily. If Hydro thinks it's an
abuse of process, leave an opening for them to come back, by all means. THE CHAIRPERSON: I'm later going to, as I mentioned at the
beginning, later going to speak to an alternative to the pre-hearing conference, to the third pre-hearing conference. Even if Mr. Sanderson is quite willing to
entertain additional information requests, I'm concerned about providing some parameters for this review so that we move forward as efficiently and effectively as we can and providing some scope with respect to the -- if there is a third round of information requests, providing some scope to that facilitates something that I think is important, and that is to establish a record that's manageable in size. And I appreciate your comments with
respect to permitting the proceeding to proceed efficiently, because if you now ask the information request then it doesn't need to be raised in the hearing. There is a balance here that we need to
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achieve, and so even if Mr. Sanderson is quite willing to entertain a broad range of information requests, I'm going to find it helpful if there are some parameters established. MR. WALLACE: Well, my experience in British Columbia
versus Alberta, but in British Columbia, is that the information request process has not been abused and that it has been useful. As far as a manageable record, we I'm not sure. But if we
may be beyond that already.
could clarify what's there, and it's a huge amount of information, I would be -- I'd just urge you to be cautious on restrictions because I think in the end it may cost us time. THE CHAIRPERSON: MR. WALLACE: Thank you.
And I'd also like to clarify, we will not be
seeking any delay with respect to filing of our evidence with respect to any more information requests. It will
be solely to proceed more expeditiously in the record if we -- or in the hearing if we file any further requests. THE CHAIRPERSON: Wallace. MR. WALLACE: MR. FULTON: Thank you. Mr. Chairman, before the next person comes to First, just to remind the That also is helpful. Thank you, Mr.
the mike, I have two items.
Commission panel of Exhibit A-4 and the covering letter of January the 16th which accompanied the Order G-704
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which is also part of that exhibit, and on page 2, Roman numeral, or two little i's, I'm sorry, the comment appears: "The Commission panel does not except that the Section 45(6.2) Utilities Commission Act review of the resource plan expected to be filed by B.C. Hydro on or before March 31st, 2004, will be heard as part of this proceeding." So I remind the parties of that statement that is on the record at present. And then moving away from that topic, I have been approached by Mr. Hackney who is here for the GSX Concerned Citizens Coalition. He took a ferry over He's asked if it
today so wasn't here at the start.
would be possible for him to make some comments on item 3. You may either wish to hear him now on that, or
finish 4 and come back to his comments on 3 later if you decide that you wish to hear him on that matter. THE CHAIRPERSON: I'd like him to speak to B.C. Hydro at
the break, and I'll return to that item from Mr. Hackney immediately following the break if necessary. MR. FULTON: Thank you, Mr. Chairman. Mr. Chairman, I have the same sort of
MR. GATHERCOLE:
concerns that you have on both sides, but I think in principle I would support Mr. Wallace's requests for a
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third round of information requests, particularly with respect to the new material that is filed. Speaking for
myself, I would think from what I've seen of the materials, we would be unlikely to ask more than a few, if any, information requests. But I think when we have
a situation like this where, as has been pointed out, we haven't had any information for a long period of time and we now have a great deal of information, and there are of necessity some changes and amendments to it, I think in principle we should have the opportunity to follow up within that limited purpose. With respect to the IEP, and even keeping in mind what Mr. Fulton just recently quoted from, my recollection at the first pre-hearing conference, and Mr. Sanderson will correct me if I'm wrong but I think he did say that they would be filing it as a contextual background to this application. And I agree with Mr.
Wallace that the information contained in the IEP, particularly since we haven't had one for such a long period of time, you know, is relevant to this application, and certainly from that purpose. And it
would be my submission that there should be -- that it shouldn't be totally excluded. Obviously this is not
the process to discuss whether or not it should be approved, but in my submission we should have the opportunity to at least have the document there, which
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we have, so with respect to certain items or certain panels it may provide a context for the type of questions intervenors would want to ask in crossexamination. So those would be my submissions, thank you. THE CHAIRPERSON: MR. WEAFER: Thank you.
Mr. Chairman, I would adopt the submissions of
Mr. Wallace but I'd like to comment further on them. Mr. Sanderson in the first pre-hearing conference indicated a timeframe of approximately seven weeks for the hearing. In the participant funding
acknowledgements, the staff indicates a five-week hearing. I think to go from a seven-week to a five-week
hearing, it's absolutely essential that we'll be able to ask the questions that we can in advance of the hearing, and the third round of information requests will enable us to do that. From my client's perspective, we don't anticipate a lot of questions, but we do want to try and avoid having to ask things for the first time in a hearing room, and we also want to put the company on notice if other issues arise between now and the hearing date. With respect to the first round of information requests, your message was quite clear on your earlier comments. You wish we were further ahead.
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I have to say, Mr. Chairman, that the response we had for a request for interim funding has affected our ability to deal with things in a timely basis, because with respect to one of the consultants working with me, he has other commitments that he's going to get paid for currently, while in this process it may be eight months. And so there is a certain prioritization which has to occur to respond to that. We do intend to participate in the process efficiently. Indeed the participant funding guidelines
force us to do that, and we will do it in any event. So we think the third round of information requests, certainly on the two issues that are new today or have been filed since the last information requests were filed, we need to have an opportunity to ask questions on the March 29th and April 2nd letter and the REAP to the extent you rule that it's part of this proceeding, issues that are follow-ups on IRs filed, and potentially other issues that may come to light in review of the other information requests that have been filed. Thank you, Mr. Chairman. THE CHAIRPERSON: I'm struggling, Mr. Weafer, as to what When you refer to other issues,
you just told me.
you're referring to follow-up questions, and I think I understand Mr. Wallace with respect to what he means by
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follow-up questions. to other issues.
But you've expanded his list now
Can you be more definitive for me as
to what you mean by that? MR. WEAFER: We've seen in the last week the responses of
B.C. Hydro which effectively the parties were able to review by Wednesday, once they'd been able to print off what had been provided and go through, has put a lot of information on the record, not just in response to our information requests but from other parties' information requests. In terms of consultants reviewing those
responses as well, it may bring to light issues that that consultant had not raised in the first round of IRs or that party had not raised in the first round of IRs, and it may be of value to the Commission and to the process that they follow up on that information request response. That would be an issue that they didn't
necessarily deal with in their first round of IRs, but they may have a useful contribution to the process by asking a further information request and not waiting to the hearing to do that. I don't believe the context is if someone asked the first question they have ownership of the issue. I would think the process would benefit from
other intervenors following up on contributions they may make to the process. I think there's a been a statement that the
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Utilities Commission is trying to involve other stakeholders in the process. Certainly B.C. Hydro has
been quite vocal about supporting broad participation in this process, and we think for that to be legitimate it's got to be effective participation, and that does require and will be assisted by questions being asked before a hearing, in which case we do drag out the process, at high cost to all participants. And that's
why I do struggle with this resistance to utilizing a paper process in advance of a hearing to maximize efficiency and get the best record for the hearing. THE CHAIRPERSON: MR. AUSTIN: Thank you, Mr. Weafer. That was helpful.
Mr. Chairman, perhaps I didn't make myself
clear enough when I was describing some of the practical aspects of trying to sort out, at this point in time, whether there's a requirement for an additional IR process or an additional process that would allow intervenors to get B.C. Hydro to answer questions that perhaps they didn't adequately answer in first instance. Proceeding Time 10:20 a.m. T6 The reality is is the application was filed last Monday. The CDs, and perhaps the Commission should
take the time to look at how this information on the compact disks is referred to in the questions. are very concerned about the PowerSmart program. IPPs It's
very difficult to try and find out exactly what's going
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on in that area.
B.C. Hydro has said certain
information is confidential, "Sorry, you can't have that." However, on the CDs there is references to We're looking through those spreadsheets
spreadsheets.
to see if we can't find whether that information might answer the questions that we raised that we were told that, "You can't have that because that's confidential." This is not something you can do in a matter of a couple of days. Also in respect to responses from B.C. Hydro, there are multiple cross references to other intervenors and their questions, so all those have to be worked through. The whole idea behind this is to try and narrow the issues as best as possible. IPPs do not have
a phalanx of consultants to throw at this in a short period of time. They have got extremely limited
resources through an intervenor funding process and it's not entirely clear even where that's going to be funded. So I would urge the Commission to try, in terms of trying to expedite this hearing, to allow intervenors to follow up on information requests so when we get to the hearing we're not in the process of having to ask questions on cross-examination in detailed technical areas and if we get the answer to that, then we may have to adjust, amend, change evidence that IPPs, in the
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instances of IPPs, that they may have previously filed. We are relying on this process to develop our evidence. We have no choice. We cannot go out and hire
experts who don't need all this information, or who have seen this maybe multiple times before. that. We cannot do
So in terms of additional information requests, I
would support what Mr. Wallace has said in terms of the REAP and Integrated Electricity Planning Process and also in terms of the areas that we have established. certainly want to get more information on PowerSmart because as of this date it's not clear to us what the -whether we have all the information or whether we're at the point where we can actually understand it to the point of filing our evidence. It's a practical problem. We
There is a lot of information and it's a question of trying to assimilate, assemble and put some sense to this information so it can be brought forward to the Commission. In terms of additional cross-
examination in the case IPPs, it's actual evidence. Thank you. MR. JONES: Club. Mr. Chairman, Christopher Jones, for the Sierra I just want to echo the comments of my friends as
well, in particular Mr. Wallace with respect to the areas that he would consider necessary to cover. I In
would amplify his comments with respect to the IEP. my view, it's an absolutely essential contextual
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document for this proceeding in order to understand this proceeding and it is essential that we be able to ask questions about that for the reasons that my friends have already indicated, partly to reduce the length of the hearing and to have as much information in as far advance as possible. In addition, with respect to the issue of follow-up questions which to some extent, I suppose, was the previous agenda item, in my experience, and I'm sure that this would be true of B.C. Hydro, if there are follow-up questions for clarification purposes where B.C. Hydro perhaps didn't understand the question or further information would be of utility, then I can't imagine that B.C. Hydro would have a difficulty with that. If the question, in B.C. Hydro's view, is beyond
the scope of a follow-up and is into entirely new areas, then certainly it would be -- they would have the ability to challenge those questions at that time. think that the parties are simply trying to have as efficient a process as possible and have as much information in advance as possible. With respect to the IEP, I did want to just return to that briefly. On my initial review of a I
rather large document it appears that at least on the issue which is of central importance to my client, DSM, there may well be specific follow-up questions.
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does refer to the fact that some of the numbers that are used in the IEP are, in fact, different than we are seeing in the current proceeding. There may well be
questions which follow from that and there may well be simple answers, but I think it's important that there be an opportunity to ask questions about them. THE CHAIRPERSON: MR. JONES: Yes. Not that it's a term of art. You have used the word "follow-up".
THE CHAIRPERSON: MR. JONES: No.
THE CHAIRPERSON:
But in a different sense than I had heard
earlier and that is in the context of the IEP and you used the word "follow-up" in the context of the IEP as it related to numbers that might be different in the IEP than you've seen. MR. JONES: Let me just clarify it. Yes.
THE CHAIRPERSON: MR. JONES:
When I was referring to follow-up questions, I
was specifically referring to follow-up from the initial rounds of our questions. THE CHAIRPERSON: MR. JONES: Okay.
I'm sorry if I misled you in that regard. Thank you.
THE CHAIRPERSON: MR. JONES:
With respect to the IEP, the REAP, which is a
new word for me today, and with respect to the other evidence which has been filed, I wouldn't classify those
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as follow-up, but in fact new questions. THE CHAIRPERSON: MR. JONES: MR. WAIT: Okay, thank you.
Thank you. Alan Wait. I would agree that the third round Most of mine, I've
would probably be cost effective. already sent in.
However, I do have one kind of a
dilemma: I don't know really where to ask the question. I don't believe B.C. Hydro would have the answer. might. Maybe you can help me, Mr. Chairman. I am They
concerned with the manner in which the rate of return was set, which would be done with Terasen and the Commission, and the mechanics of that. The rate is 34
and a half percent, which is supposed to be an effective rate and in 1994 that rate was 16 percent. We seem to
have gone a long way and my understanding is that the effective rate for Aquila in 2004 would be about 23 percent. The effective rate should be taking into
consideration the advantages that a private corporation gets from fast capital cost allowance compared to depreciation and that doesn't seem to be in this rate. I don't know whether Hydro could answer those or if that should be something that we can go through with the Commission or just -- how do we get that onto the table? THE CHAIRPERSON: I'm going to, in a few minutes, speak to
a process for defining what's going to be within the
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scope of the hearing inquiry.
There is an issue here
with respect to whether or not it's within the scope of the proceeding. My suggestion to you is you include
that in your discussion that you're going to have with B.C. Hydro at the break, Mr. Wait, and if you would like a ruling with respect to whether or not those issues are in the context of, or are going to be within the scope of the proceeding, then raise it again after the break. MR. WAIT: Okay. Anyone else? Mr. Fulton, I did want to
THE CHAIRPERSON:
hear from you before I heard from Mr. Sanderson with respect to whether or not there should be a third round of IRs. MR. FULTON: And the position of staff, Mr. Chairman is
that staff believes that they can deal with their issues during cross-examination. THE CHAIRPERSON: MR. FULTON: Okay.
But I did want to say, as a follow-up to
Exhibit A4, that there was a reference to the transcript of the pre-hearing conference at pages 51 to 54 and unhappily, I don't have a copy here, and I understand that the Hearing officer doesn't have a copy here. I
would like to review what, Mr. Chairman, you said at those pages because the summary that has been provided to me suggests that you had indicated that the panel would hear motions with respect to the IEP.
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clear from the portion of Exhibit A-4 that I read out and I wanted to satisfy myself what the transcript said. THE CHAIRPERSON: MR. FULTON: Yes. Okay, well, that's an effort for, I So will I. Page 51 to 54?
THE CHAIRPERSON:
think, the break. MR. FULTON: Thank you. With that, Mr. Sanderson, I'd like you to
THE CHAIRPERSON:
speak to your views and your client's views with respect to a third round of IRs. MR. SANDERSON: Mr. Chairman, we have some; views, that is.
I guess what I was hoping to do was collect my thoughts and also get some instructions over the break to see whether there's any sort of specific compromises or whatever that are possible before I give vent to sort of Hydro's perspective on what the IR process has been to date and what it looks like for the next month and I will make those submissions, but I guess the so-what of them might benefit from having the break to consult. And I was wondering, frankly, whether I could ask to respond to two things at once right after the break. That would be one and then the other would be whatever suggestion that the Commission is going to make with respect to agenda item number 5, so that we've got time to consider both, because I think they're related in many ways. I mean, I'm anticipating from your remarks,
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Mr. Chairman, that your comments with respect to prehearing conference number three will talk about further process in some respect and so, if I could, I'd like to respond to both at once, that is the next IR round and the pre-hearing conference if the two might -- on the assumption the two might be related. THE CHAIRPERSON: There is that possibility but in any
case, speaking to both issues afterwards, even if they turn out not to be linked, is fine. So I will now speak to the alternative that the panel wishes to propose with respect to the prehearing conference and it follows nicely from the discussion that we've had already, although I do think it's a separate issue. As I speak to the proposal, I'm going to also deal with some details as they relate to the logistics so that a full proposal is before you. I don't want you
to interpret from the fact that I'm going to give you some detail with respect to the proposal that the panel is not open to your views as to whether or not this is satisfactory. In fact, it might very well not be
satisfactory to you and we would very much like to hear from you after the break with respect to it. So I'm
going to provide you with the substance and the logistics, but as I say, don't interpret from the fact that we've flushed it out with some logistics that we
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are wedded to it as the procedure that we are going to embark upon. The scope of this application is challenging and that's inevitable, I think, whenever we're dealing with a revenue requirement application. Many of you
have selected already certain issues that are important to you. My expectation is is that you will continue to It's also my expectation that you will be However you arrive
pursue those.
influenced by the other intervenors.
at your views with respect to what's important in this application, the panel will very much benefit from those and, in fact, for that reason, in part, we are making this alternative proposal to you. We're proposing that there be opening comments from counsel, that the opening comments provide a summary of the interests and issues of your clients in this proceeding, and I use the word "proceeding" deliberately in that regard, and that you would also, in your opening comments, indicate what issues you wish to pursue during the course of the hearing with references to the evidence that has been filed leading up to the hearing. And some observations of that evidence will I'll repeat that. We would like to
also be helpful.
hear from you with respect to the issues that you intend to pursue during the hearing with references to the evidence and some observations of that evidence that you
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have heard and that have been filed before the proceeding starts, and those observations will be helpful. Now let me be specific here. If, for
example, you're concerned about the budget for PowerSmart, if you advise us that you have some concerns with respect to the budget for PowerSmart, that's not going to be very helpful. Proceeding Time 10:35 a.m. T7 If you can then provide further clarity for us and say, "Well, we're concerned about the targets, the saving targets that have been established for PowerSmart," that's a further step of clarity that will be helpful. But if you can take it a further step yet
and say, "Well, we're concerned about the benefit/cost ratios and the tests that are being used, the TRC versus the RIM, for example, and we're concerned about how B.C. Hydro established the thresholds, and we'll be pursuing those issues during the hearing," that will be much more helpful. If you're concerned about the conservation potential review and the update, and you can identify that one of the issues you're going to be pursuing during the hearing relates to the methodology used for that, that will again be more helpful to us than for you to simply indicate that you're concerned that the budget
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for PowerSmart is inadequate. So I'd encourage you in your opening comments to provide as much clarity as you can with respect to those issues that you intend to pursue during the hearing. It's helpful from our perspective as the panel
because then we will have had an opportunity, before your cross-examination, to give some considerations to the issues that you're pursuing in the cross. Now I'm going to speak to logistics. Our
current thinking is that you would provide those opening statements on the 13th of May; that B.C. Hydro then, the following day, would provide a response to the opening comments. And I should have added, Mr. Sanderson, you
would also be given a chance on the 13th, you would speak first on the 13th. intervenors. And then the next day we would hear from you, Mr. Sanderson. What our hope is is that you would, Then we would hear from the
during the evening, be able to consolidate the issues that were raised by counsel during their opening comments, and then we would, as a panel, would work through that weekend to prepare -- and I hesitate to refer to it as a list of issues, which has been the practice in the past but we would prepare a description of the issues for the hearing based on what we had heard from counsel.
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We would issue that to you by noon on Monday, so noon on the 17th, and then we would commence the proceeding on the 18th. The description of the issues to be pursued during the hearing would provide me, as Chair, with assistance with respect to establishing the scope of the hearing inquiry. I would follow that fairly rigorously,
but willing to entertain exceptions to it, particularly with some convincing arguments as to why there should be exceptions to that. But otherwise I would intend to
follow that relatively rigorously so that we provide some parameters for this proceeding. Our thinking is that at that stage, essentially just before the hearing starts, you should be able to identify those issues that you wish to pursue during the hearing. And that does not preclude you from
an argument later addressing, and we would hope that you would, a much broader range of issues and issues that have been canvassed already in the materials filed prior to the hearing. And there's one additional logistics item, and I really hesitate to mention this one, but for completeness I will again remind yourselves, I'll remind you of my comments about not interpreting too much from the fact that we fleshed out the logistics of this. if there are going to be 14 or more submissions from
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counsel, then we will commence the proceeding in the morning of the 12th, and all intervenors will be asked within the next week to advise Mr. Fulton as to whether or not they wish to make opening comments. That's in
part so that there is an early determination of whether or not we're going to sit on the 12th. Let me ask if there are any -- before we break, let me ask if there are any points of clarification and I'll be quite happy to entertain any that you might have. MR. WEAFER: Mr. Weafer?
Sorry, is that a written filing, Mr. Chairman, Are you looking for the filing
or an oral presentation?
of a written argument or a written submission? THE CHAIRPERSON: Oral presentation. Now you may accompany
that with a written description of the issues that you wish to raise or that you wish to pursue during the hearing, and I think that would be helpful. But I had
assumed that it would be done orally, perhaps accompanied by a written description of the issues that you wish to pursue during the hearing. MR. WALLACE: Would there be any guidelines with respect to
the length of those oral presentations by the parties? THE CHAIRPERSON: Thank you. Yes, that's a good question.
What our current thinking is is 20 to 30 minutes, Mr. Wallace. But I also want to provide some flexibility
with respect to that, and I think what we will do is ask
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you to advise Mr. Fulton not within the week's time of notice with respect to whether or not you want to make opening comments, but perhaps for the sake of a day, the preceding Friday, as to how long your estimate is as to what time you will need. And the panel will then If you're looking for
consider that and allot the time.
longer than the 20 to 30 minutes, that may be available to you. MR. AUSTIN: Mr. Chairman, you made a comment about Whose evidence is it going B.C. Hydro's?
observations about evidence. to be? Other intervenors'? The record --
THE CHAIRPERSON: MR. AUSTIN:
All the evidence? All the evidence that relates to the And
THE CHAIRPERSON:
issues that you wish to pursue in your inquiry.
this is only an encouragement for you to do, to provide some foundation with respect to the issues that you wish to pursue during the hearing, and it's not an essential element of your opening comments. Any other points of clarification? I'm going
to suggest then that we take a 30-minute break unless I hear from somebody who would like longer. break until quarter after eleven. (PROCEEDINGS ADJOURNED AT 10:43 A.M.) T8 (PROCEEDINGS RESUMED AT 11:23 A.M.)
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THE CHAIRPERSON: MR. FULTON:
Please be seated.
Mr. Fulton.
Mr. Chairman, at the break I circulated the
excerpt from the transcript of the first pre-hearing conference, pages 51 to 54, and the comments relative to the IEP begin at page 52, line 9, and follow over to page 53, line 3. THE CHAIRPERSON: Thank you. Can I assume that there's
nothing more to be said with respect to that? MR. FULTON: Chairman. THE CHAIRPERSON: MR. FULTON: Okay. I have nothing more on that point, Mr.
I put that in for -- I provided that to people
for the sake of completeness of the record. THE CHAIRPERSON: Thank you.
Let me deal first with the matters, two matters with Mr. Wait. Mr. Wait, did you wish to raise
any matters or were your discussions during the break with B.C. Hydro satisfactory? MR. WAIT: We've sorted out the item with regard to the IR,
and they will try and do their best to answer that. THE CHAIRPERSON: MR. WAIT: Okay.
And with respect to the effective tax rate,
we've come to the conclusion that that really wasn't their doing, it came out of a Commission hearing with Terasen, which is what I expected. And I'm wondering if
the approach then is to go down to the Commission to see
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all the documents on that, and I can go from there. THE CHAIRPERSON: Okay, thank you.
Let's now, unless there are any other matters, let's turn to you, Mr. Sanderson, first with respect to the issue of the third round of information requests. And then I think I will have the intervenors
speak first to the panel's proposal with respect to the alternative to a third pre-hearing conference. MR. SANDERSON: that. Okay. Mr. Chairman, I'm pleased to do
I might suggest in fairness though, before I
start, that Mr. Hackney had also had a question that he provided to us at the break with respect to one of the IRs. We were unable to reach an accommodation with Mr. Hackney helpfully gave me a copy
respect to that.
of a letter to Mr. Stout which identifies the follow-up questions that the GSX Concerned Citizens would like to ask. Hydro's position is those questions are outside
the bounds of this proceeding, that they don't relate to the revenue requirement. So it's not something we can
easily accommodate him on, so I think we should let Mr. Hackney speak to his questions or however the panel wants to handle it, but it's an unresolved issue relating to a specific information request. THE CHAIRPERSON: My suggestion, Mr. Hackney, is that we
deal with that at the end of this morning's agenda, and we may very well give everyone else an opportunity to
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leave if they wish to, and then we'll review your concerns with respect to that specific IR. MR. SANDERSON: Thank you.
Then, Mr. Chairman, I will respond to the Now before I
general question of a third round of IRs.
do that, you asked whether I had additional copies of the cover letter for the REAP, which I do, and I've got 30 or so here if other parties need them, but I'll hand three up. THE CHAIRPERSON: MR. SANDERSON: Thank you. And I'll touch on the REAP probably towards But let me say first that Hydro
the end of my remarks.
has gone into this, as I think is just overwhelmingly clear from the record, with a real intent to make the process as transparent and complete as it possibly can. And I think Mr. Wallace commented that virtually all of the questions had been responded to at some level, that there were very very rare instances indeed of outright refusals to answer questions. That's not a coincidence.
It is really a testimony or testament to Hydro's commitment to try and make the process work and get all of the information out there, recognizing the absence of a vehicle for disseminating that information for some number of years. So as a preface I want to say we're
absolutely supportive of the notion of trying to make the process as full as it can be. Having said that, the thing that one has to
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keep in mind about the information request process is that as my friends have made clear, it's very simple to ask questions. Asking round after round of IRs is not a
particularly taxing process for those asking the questions. It's remarkably taxing for those who answer.
There's a difference between the rigour and the nature of the answer that must be given in an extended IR process like this and the process you have to go through. We have attempted to make some kind of estimate of the sort of person-effort that went into simply round 2 of the information requests, and our best estimate is that within Hydro internally -- this is simply its own resources -- there is something in excess of 12,500 person-hours in just responding to round 2 information requests, so that's over the last month, which is a breathtaking number when you stop and think about what that number really means. It's a very large
part of a very large organization dedicated to a single task, a task which, I may add, doesn't keep the lights on. It's a task which is very important and very
necessary, but it still has to have its limits. And there's no complaint about that, but there is a concern about extending it indefinitely, because, as I say, there is no real discipline in the asking of the questions, but there's tremendous hardship
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in the answering, or tremendous logistical demands. I contrast that with the cross-examination process. There has been sort of an implied assumption
here that it's good to get it out of the way in advance and pile up information. a hearing. bit. There is a discipline that exerts itself on questioners in a hearing. There's the glowers, frankly, And It's bad to have to ask it in
And I want to quarrel with that a little
from your seat, which help move the hearing along.
generally there is the mood of the room that requires everybody to focus on what's really important to them, and that's a good thing. And indeed in my experience,
you'll often see that vast numbers of the IRs, and indeed many of the topics covered in the IRs, are never actually dealt with in the hearing or final argument. They're brush clearing, if you want, and once the brush is cleared, when the hearing starts, people can hone in on the answers and the issues that really matter to them. And I think there is a linkage there between your
notions for this issue identification process prior to the hearing and what actually goes on in the hearing anyway. That being the case, we think the brush clearing has basically been done here. That is, cutting
down the trees literally, and knocking away the issues
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which may or not be of interest, ought to be possible from the eight volumes of detailed material which have been filed in support of this application at the moment. I think all the parties, in fact, if you listen to them, are complaining they have more than they can cope with, not less than they can cope with. In other words, while
we're asking for another round, almost every intervenor evidenced significant difficulty in dealing with what they'd already been given. And all of them came today
and said, "Well, I can't tell you exactly what I want to ask because I haven't really had time to assimilate all this information." Well, they may be having trouble assimilating it, but I can tell you that Hydro is having an awful lot of trouble keeping up with its production. And so given all of that, for the vast majority of the issues that this review faces, my belief is we're at the stage where most of the issues now best get further elaborated through the oral hearing process in cross-examination. There are a couple of exceptions to that. And so, while I think generally the record is more than sufficient on the issues raised in the original application, the material I spoke to this morning, which is new, we accept may benefit from some IRs. to be quite specific about this. And I want
Exhibits -- or not
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exhibits but Chapters 2A Revised and 2B, to the extent people have trouble understanding those numbers or want clarity around how the numbers work together or the transition from the original Chapter 2 Revised -- sorry, original Chapter 2, the original 2A and now the Revised 2A and 2B -- in other words material I explained this morning -- we accept that IRs may be useful for that purpose and have no objection to an IR process limited to that. The one other area which may be in a parallel situation is the REAP. That depends on what the panel's
ruling is with respect to the REAP, but if approval of the REAP is to be determined in this process, then a round of IRs associated with the REAP itself may well be appropriate. Having said that, most of the REAP if you
go through it, and if you look to the cover letter now I can just elaborate this a bit, the bottom of page 1, the last full paragraph there, Mr. Stout sets out that the REAP is drawn from four sources. So this is the
document about which new questions would be considered. First, it employs the two-year capital expenditures plan filed as Table 11.2 in the revenue requirements application. So in my submission there
need be no further IR process associated with that part of the REAP. It's been there since December the 15th.
Second, it incorporates the action plan that
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forms part of the 2004 Integrated Electricity Plan. That's new but it isn't totally new. That is, many of
the elements of that action plan were identified in Appendix G in the December 15th application. So while
there are some changes, and we accept a need for questions around those potentially, they're quite limited in their scope because the basic action plan had been previously identified. So I would submit that the
only area there that warrants a third round of information requests are really the sort of changes, if you will, from the original Appendix G. Third, it incorporates the energy costs associated with the energy purchase agreements discussed in Section 3, pages 4 to 9 through to 4 to 15 of Chapter 4. Well, there's nothing changed there. That's the Those
commitments that Hydro had previously made.
commitments were fully identified on December 15th. Everybody's had a full opportunity to have a go at those. Fourth, it adopts the two-year demand-side management expenditures identified in Section 1.53 of Chapter 8. Again, no change there. So although the REAP itself is a new document, the amount of new information in it is quite contained, and while we have no objection to responding to IRs that relate to that new information, they really
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should be quite limited indeed. In my submission, Mr. Chairman, those are the only areas in which it should be necessary to have another round of IRs. here till the hearing. We have a very full schedule from We've got intervenor evidence to
deal with, we've got IR processes associated with that, and we've got the full hearing preparation process. And by the way, one last comment relating to that is it's not going to benefit anybody if Hydro is fully engaged in the IR process when it ought to be getting its witnesses familiar with what's in these volumes. In other words there's large teams that go to The
putting together something as massive as this.
challenge for the witnesses is to get command of all of that material so as to be as helpful as they can to the Commission when they appear, and they need the time to be able to do that. And so one of the real things I
don't want them doing is being faced with vast new information right up until the last minute. With that in mind, I think Hydro should be given as much flexibility as it can in terms of when it fits in, getting this last round done, and I would suggest for that reason that if the IRs can be in by the end of this week, that is the follow-up IRs, Hydro should be given till almost the hearing -- I'm thinking May 10th, which is the week before -- in order to get
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responses to those questions in the narrow areas the Commission allows. Mr. Chairman, one last thing. Mr. Christian
tells me Mr. Feldberg just passed him a note which makes a point that I should have, which is that in my opening remarks this morning I paralleled the changes in Chapter 6A, which is the transmission trip revenue requirement, to the changes in 2, and BCTC and Hydro both accept that questions on 6A insofar as their material would also be acceptable as part of the IR process. THE CHAIRPERSON: Okay. I am going to now move on to the
proposal from the panel, and I'm very deliberately doing that without requesting comments from the intervenors on Mr. Sanderson's comments. We will make a decision and
get that off to you very quickly following the prehearing conference. So let's move on now to the proposal that the Commission panel has with respect to -- I've called it an alternative to the pre-hearing conference number 3, one we can label it in a number of different ways, probably all appropriate. But I'd first like to hear
from the intervenors with respect to our proposal as to how we will proceed from here as it relates to the opening comments of counsel. MR. WALLACE: for us.
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THE CHAIRPERSON: MR. GATHERCOLE:
Thank you. Mr. Chairman, I agree and I think in fact I found it that way in the I think it will help all of
it's a very positive step. Heritage Contract hearing. us focus.
The precise timing, I may have some comments on that arising out of the next item. THE CHAIRPERSON: Yes, okay. I was thinking, just before
you leave, Mr. Gathercole, I was thinking that we would deal with the logistics issues as it related to our proposal now, and then as you suggest, the next agenda item is going to provide an overview of where we are on the timetable and give anyone an opportunity to make any general comments with respect to the timetable. So my preference would be to get your comments now as it relates to our proposal. MR. GATHERCOLE: I can make it work even if you accede to
the requests that I will be making under the next item, which is a short delay in the filing of my intervenor evidence. THE CHAIRPERSON: Okay. Okay, that's fine, we'll deal with
that separately then. I will assume though that, but for that, the scheduling proposal works as well for you. MR. GATHERCOLE: It works, you know, it works for me. It
seemed to me that if the request is a given, then it may
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have some problems for others like B.C. Hydro. leave it to them. THE CHAIRPERSON: MR. GATHERCOLE: THE CHAIRPERSON: MR. AUSTIN: Okay. The schedule would work for me. Okay. Thank you.
But I'll
Mr. Chairman, I think the proposal has merit
in theory, but I have one overriding concern, and the concern is why are we assembling all the information and why are we going through this process? Proceeding Time 11:35 a.m. T9 Well, there's two parts to that. The first
part is we're trying to get the best information available so the Commission can make the best decision it possibly can. And my only concern about this
addition to the process is whether it's going to accomplish that or whether it's really designed to try and narrow the issues for the purposes of efficiency. There's a tradeoff here. There's a tradeoff
between an efficient process and a process that is fair and also provides the best information available to the Commission. And one aspect of this I feel very If something
uncomfortable with is this issues' list.
is not raised on the issues' list, it's then going to be incumbent on anybody who wants to add an issue to that list to fight it out and get it back onto the list. And I'll use the Heritage Contract as an
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example where there were things that I wouldn't have thought in my wildest imagination were to be issues, were going to be discussed or examined until we got to the hearing and some questions were ask crossexamination and the issue popped up. And a good example
of that were the contracts between B.C. Hydro and Powerex. Those turned out to be very important
documents for the purposes of that proceeding and subsequent proceedings. Was that on anybody's issues' No, it wasn't. It was on a
list in the first instance?
question that I had in relation to cross-examination. But I don't think it's incumbent upon intervenors to have to argue from a trench that, "Well, we didn't think about that one. Now that it's up there, will we please
be able to expand the issues' list so we can do that?" That's not what this hearing is supposed to be about. It's supposed to be about getting the best available information for the purposes of the best decision. So that's the only hesitancy I have in relation to this concept of the issues' list. It cannot
be exclusive and I don't think it's fair to say to intervenors that if it wasn't on the issues' list, you're going to have to now convince the Commission why it should be added to the issues' list. I have not seen a huge abuse of process by intervenors in B.C. Hydro's hearings in terms of issues.
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Everybody wants to get this hearing to its conclusion as quickly and efficiently as possible provided it is done is a fair manner and also in a manner that produces the best available information. MR. JONES: Thanks.
Mr. Chairman, I don't have any difficulty with I am
the proposal that you made before the break.
assuming, though, if as Mr. Austin was just discussing, issues do arise during the hearing, there would be an opportunity to address the panel with respect to pursuing those issues and, if need be, expanding the list of issues. that now. process. THE CHAIRPERSON: With respect to your first comments, but I don't think we have to deal with
I'm assuming there will be flexibility in the
for the nature of the flexibility, the answer is, yes, you will have an opportunity should issues arise during the hearing to raise those with the panel for determination as to whether or not they should be then included in the issues' list for the purposes of the hearing inquiry. MR. JONES: Thank you. That opportunity will be made available
THE CHAIRPERSON: to you. MR. JONES: MR. WEAFER:
Thank you.
I appreciate that.
Mr. Chairman, we are comfortable with the
proposal as well and particularly given your last
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comments. THE CHAIRPERSON: MR. WEISBERG: Thank you.
Mr. Chairman, the Columbia Power Corporation In terms
supports the proposal as you've outlined it.
of what you earlier described as the description of issues or list of issues, as other parties have called it, we would just observe that to the extent that the panel, in formulating that list, can try to recognize that given the expected duration of the hearing, it would be of great assistance to many parties, Columbia Power Corporation certainly included in that group, in whatever structure you can give to the discussion as it unfolds in cross-examination, for purposes of efficiency in attending and participating. The point there is that
there are clearly issues, I think, for each party beyond the direct focus and I think that's what you're trying to get at. And so whatever signal you can give back to
the parties in terms of how the hearing will unfold, I think would be of great utility to those parties in planning their attendance and participation. THE CHAIRPERSON: I'm glad you raised that issue. That's
an issue I see Mr. Fulton managing and doing so off the record as best he can. If it becomes necessary for the
Commission panel to deal with scheduling issues, then we will do so, but somewhat reluctantly. So I'm hoping
that the assistance that you are asking for is going to,
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in fact, be provided to you, but through Mr. Fulton. MR. WEISBERG: I think -- I agree, Mr. Chair. I think it
will be a combination of both and seeing how the description of issues is set out and then working with Mr. Fulton to address the scheduling around how the issues will come up. THE CHAIRPERSON: Right. We will provide you with a
description of issues and then Mr. Fulton will do his best to deal with the scheduling issues. MR. WEISBERG: An easy job for him, I'm sure. Right.
THE CHAIRPERSON: MR. WEISBERG:
Thank you. Thank you. Is there anyone else who
THE CHAIRPERSON:
wishes to comment on the proposal from the panel that we made just before the break, but for Mr. Sanderson? Thank you. MR. SANDERSON: Mr. Sanderson.
Mr. Chairman, you've accomplished the
virtually impossible by keeping, it sounds like, everyone happy. Hydro supports the proposal and thinks I
it will serve to expedite and focus the proceeding.
guess the only partial dissent was from Mr. Austin and, with great respect on that one, my suggestion just is that we keep a clear distinction between issues and evidence, and I don't think there's any downside to identifying the issues clearly with leave to apply as you've described. That doesn't close off the evidence
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in any way and I don't think that the Chair meant that it should. So that it's just that you got to relate the
new evidence or the new areas of evidence to the issues that have been identified and I think that's entirely appropriate. So we're fully supportive.
One thing I should say, I was remiss in not saying earlier, just because I didn't want to leave the record unclear, in terms of the notice and distribution of materials, you were quite right in suggesting that Hydro had complied with the earlier orders. Everything
did go out in the way that it was supposed to according to the orders and it was followed up with calls to most of the parties asking how they wanted to receive, hard copy, et cetera. In the case of Mr. Austin, I think all
the material was delivered to him Wednesday morning, on April 1st, and I think generally speaking everybody was followed up in a very expeditious manner early last week. So I just didn't want the record left unclear I think Hydro's report and regulatory staff
about that.
did do precisely what the Commission had in mind, I believe, from its previous order. THE CHAIRPERSON: Thank you. I think that's going to make
our decision with respect to the proposal for counsel to make opening comments very easy. I would encourage you
to do as I requested in your efforts in providing assistance to us. It will be very helpful if you are
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identifying with some level of detail, and the more, I think, the better, the nature of the issues that you wish to pursue during the inquiry. But I'm also hoping If not,
that you can frame those fairly succinctly. that's fine as well.
We are dealing with complicated
matters, but the more clarity you provide to the panel the better and I'm delighted to hear the round of support that there has been to the proposal. I think
it's going to be very helpful for the panel and so I appreciate your support for our proposal. I did call it an alternative to a third prehearing conference and I think just out of an abundance of caution I should make sure that it, in fact, can be that, an alternative to a third pre-hearing conference, that another pre-hearing conference is not necessary. Is there anyone who would like to speak to there being another pre-hearing conference? Good. Thank you.
So we will now turn to the sixth agenda item and that's the review of the regulatory timetable generally. And I guess what I will ask is if you -- if
as it is set out in G-7-04, it is of concern to any of you, and bear in mind that there are issues that have been left with the Commission panel that may call for some changes to the regulatory timetable, but for those, are there any other concerns that you may have with
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respect to the regulatory timetable that you wish to raise now? MR. WALLACE: Mr. Chairman, we expect to be able to comply
with the regulatory timetable, there's simply some additions that we think would be of use. Primary would
be identification of panels by B.C. Hydro so that we can prepare our cross-examinations and our priorities. Obviously, the hearing is going to go on for almost as long as we have between now and the hearing and knowing when panels and witnesses will come will be of assistance both in preparation and in scheduling our support services. Another thing that would be of assistance to us, and I don't know that it goes to the timetable, would be having some clarification around hearing hours and, also, you hinted at some statements with respect to argument and that would be a nice addition also. you. THE CHAIRPERSON: Let me -- because it -- this will get Thank
everyone on their feet, I'm sure, but let me get to that issue earlier than I had initially thought, Mr. Wallace. Our current thinking is that it will be written, followed by an oral phase. There are some issues with
respect to the duration of the time that's available to prepare argument from the applicant and argument from the intervenors and then the reply, and the time from
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the reply to the oral phase, and they -- in part, because that time period can be fairly lengthy, then have some implications with respect to when our decision is released. With that comment, because I think that if
what I am about to say creates any issues, Mr. Sanderson, this is probably something you're going to want to comment on. With that comment, three weeks for
argument from the applicant, three weeks for argument from the intervenors and two weeks for reply and, then, starting the second Tuesday after the filing of the reply date would be the commencement of the oral phase, would be a proposal with respect to the scheduling of argument. So three, three, two, and then the second Tuesday. Proceeding Time 11:50 a.m. T10 That is a lengthy period of time and it has the potential to take us fully through the summer. then that has implications with respect to the timeliness of our decision. I think you can add to that period two and a half months for the decision from the Commission, which takes this proceeding to a date that's very close to your November the 1st date, Mr. Sanderson. And so I am And
concerned about that, but there may not be good alternatives to that. And so I welcome comments
generally, I guess, with respect to whether or not that
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kind of timeframe is going to be a problem for anyone. And I have, as I mentioned, I've digressed from the timetable set out in June 7th/04, but perhaps it's appropriate now to hear comments with respect to the argument and timing for the argument. So Mr.
Wallace, you're going to have the first opportunity and I will make sure that everybody has an opportunity to comment on that proposal. MR. WALLACE: Okay, thank you, Mr. Chairman. I think those
timeframes for argument work and allow sufficient flexibility. While sometimes we have tighter
timeframes, this is going to be a longer than usual hearing and this argument's going to be during the summer, at which time people are not always available. So I think additional flexibility is required, and it appears to be built into this schedule. I have one clarification if I might. With
respect to oral argument, is that intended to be simply responses to questions of the panel rather than summaries of arguments by counsel? THE CHAIRPERSON: MR. WALLACE: It is.
Thank you. And that's all it will be.
THE CHAIRPERSON: MR. WALLACE:
Thank you. Yes.
THE CHAIRPERSON: MR. WALLACE:
And I'm sorry, Mr. Chairman, I know -- I
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think Mr. Sanderson was suggesting to me he hadn't heard my second item which was some clarification on hearing
hours, and again I simply leave that with you but it would be a good addition to the schedule. THE CHAIRPERSON: Yes, and I can also comment on that. I
think we will sit, at least in the commencement of the hearing, from 9:00 to 4:30 with an hour and a half break at lunch and two 15-minute breaks morning and afternoon. MR. WALLACE: Thank you, sir. And I can also add for you that the
THE CHAIRPERSON:
sitting times for the oral phase will be 8:30 to 1:00 with two 15-minute breaks. MR. WALLACE: Oh, the oral phase of argument. Thank you,
Mr. Chairman. THE CHAIRPERSON: Yes, I was quick there and I didn't make Just fleshing out the rest of the
myself very clear.
detail for you and for anybody else who missed it, our current thinking with respect to the oral phase is that we will sit 8:30 to 1:00 with two 15-minute breaks. It's one of the reasons why we're going to start on a Tuesday because we may not finish in one day. MR. GATHERCOLE: Mr. Chairman, with respect to the I would even
argument, I think that schedule is fine.
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THE CHAIRPERSON: MR. GATHERCOLE:
Please. What's happened, Mr. Chairman, is because
of both the availability of my witness and my availability over the last week to ten days, the evidence is all but prepared but we have very limited opportunity to get together, this also being the holiday weekend which a lot of people go away, in order for me to sit down with my witness and review it and make sure it's ready for filing. Accordingly, what I would
request is a -- since next week is a short week as well and since I'm, as Commissioner Boychuk knows, I'm otherwise engaged in another hearing, if we could have an adjournment till the end of next week to file the evidence, which basically I think is about three days. I don't think that will have too much of a negative impact on the applicant. THE CHAIRPERSON: Well, it means a busy weekend for the
applicant if we hold to the April 19th date for them. MR. GATHERCOLE: I suspect I'm not the only one that's
going to make a similar request. THE CHAIRPERSON: Yes, you're making the request on behalf
of your client, not a general change to a timetable. MR. GATHERCOLE: THE CHAIRPERSON: MR. GATHERCOLE: THE CHAIRPERSON: That's right. Just on your own behalf. That's right. Okay.
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MR. GATHERCOLE: MR. AUSTIN:
Thank you.
Mr. Chairman, I'd like to address the review
of the regulatory timetable first. This timetable does not work for the Independent Power Association of B.C. It's a timetable
that's predicated on an organization having a lot of resources. As I've tried to point out to the Commission
this morning, the IPP Association does not have a lot of resources. We have very limited consulting resources
and we're trying our best to try and get our evidence together as quickly as possible. We received part We
electronic version of that evidence last Monday.
received the CDs on the Thursday and then were shipped off to our consultant. As I've indicated, we are trying
to build our evidence on the basis of the responses to those information requests. information. We are going through that
Our preliminary indication or view is that
we will have to file additional IRs to try and find out, to try and obtain the information we need. is going to take probably another week. That process
But once we
have that, then we'll be able to file our evidence. That will take probably another two weeks, and that's just the practicality of the situation. I appreciate the Commission wants to get on with this hearing. on its agenda. I appreciate it's got other things
But from the perspective of Independent
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Power Association of B.C. as an intervenor, this timetable would work if we had a lot of resources, and we don't have those. We will not be able to meet the
filing deadline for our evidence because it's just simply not practical to do so. There's no point in us
filing evidence and then (a) having to subsequently amend it, or (b) later finding out information that would indicate that evidence is incorrect. get shredded in the hearing. want to find ourselves in. The other thing I would point out is B.C. Hydro's already got an interim rate increase. the financial perspective, it's not suffering. As I said earlier, it's important to have an efficient hearing, it's important to have a fair hearing, and it's also important to get the best information available so the Commission can make the best decision. The timetable simply does not work. We So from We'll just
That's not a situation we
need additional time and we need to get some indication on what's going to happen so we can make some decisions as to terms of what our participation might be. With respect to the argument phase of the hearing, this sounds reasonable and I think the timeframes should work. I'm wondering whether there's a
sort of requirement for an hour and a half lunch break. Maybe we could reduce that to an hour.
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from our offices down in this location, there's really not a lot else that can be accomplished while we're down in this area. I'd ask you to seriously consider that.
That might give us a bit more time and it might give us a bit more flexibility in terms of scheduling. It might also mean that we might be able to start 15 minutes later each day, which is important when we're trying to get answers or information from, in our case, our members who might be able to provide us with additional information. A little bit of extra time in
the morning can produce a lot of good results as far as organizations such as ourselves go. MR. JONES: Mr. Chair, Chris Jones for the Sierra Club. My
client also is in a position of having to request some additional time to put together our evidence. The
reasons for that originally started with some difficulty that I had in obtaining a consultant who could be of assistance to us. That took a considerable period of
time, and due to conflicts amongst consultants in British Columbia, required me to search the United States, which took a period of time. Those consultants
that we have obtained have tried to get up to speed as quickly as they possibly. job in that regard. However, and however presenting their evidence by the 13th would be extremely difficult if not
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impossible, and coupled with the delay in them getting on the job is all the information that we received last week, which we've discussed extensively this morning. What I was going to propose was rather than the 13th that we be given an extension of time until the 20th, ten days to produce our evidence. I'm very mindful of the logistical difficulties that B.C. Hydro faces, and Mr. Sanderson has just mentioned those to you, in terms of preparing not only for the hearing but also an information request round-up coming and dealing with intervenor evidence. However, balanced against that, I think, is the reality that it is very unlikely that our consultants would be on the stand until, I don't know, sometime late in June I would think. I would propose then that all of the dates with respect to the intervenor evidence, at least for my client, be extended the same length of time, and then your requests from B.C. Hydro, our responses thereto, rebuttal evidence be extended by the same length of time. Again I appreciate the fact that that will push
us towards and perhaps even meet the date for the commencement of the hearing. However, I think again
balanced against that is the difficulties that we have had and the information we've had to process, as Mr. Sanderson has also referred to, and also the importance
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of making sure that the evidence which is before you be as helpful as possible, as accurate as possible. And
that's the reason that we're requesting that extension of time. With respect to the argument phase, I don't have any difficulty with that. I was trying to figure
out if that means I don't get a summer vacation, but I guess that's the least concern of the panel. than that I think the proposal is just fine. I would reinforce Mr. Wallace's request to know as soon as we can what the order of the panels would be, and I say that for our client especially, because we have a fairly specific interest in the proceeding and to the extent we know when, more or less at least, that that panel or panels will be in the proceeding, would be of great assistance to us. Thank you. THE CHAIRPERSON: Do you have any questions? But other
For everyone's benefit I'll say it again.
As it relates to the scheduling of witness panels during the hearing, that's Mr. Fulton's responsibility. give you a date but you won't like it. arbitrary. MR. JONES: Okay. No, I didn't anticipate them being I think just as long as we can I'll
It'll be rather
arbitrary dates at all.
sort of make best guesses as soon as we can would be of utility, and I appreciate that I'll speak to Mr. Fulton
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in that regard. THE CHAIRPERSON:
Okay. Yes. The instructions I give Mr. Fulton
is to make sure that there is no down time and that the party who is calling a witness is at risk of not appearing if there is down time. So I make very -- give
Mr. Fulton very clear instructions and simple instructions, and he's required to meet those instructions. And if there is down time because a panel is not available during the hearing, then that panel does run the risk of not appearing. So you make your
own assessment after you hear from Mr. Fulton as to what kind of risk you run as to not having a panel available when we're ready. Proceeding Time 12:05 p.m. T11 MR. JONES: I'm sure that Mr. Fulton and I will be in Thank you.
intimate contact. THE CHAIRPERSON: MR. WEAFER:
Mr. Weafer.
Mr. Chairman, firstly, with respect to the
argument days, we're comfortable with that schedule and we'll meet that schedule. With respect to the regulatory timetable, we can meet the timeline for filing the evidence. However,
the quality of the evidence would be significantly improved by an extension of one week and it ties back to the comments early this morning around a proper review of the record to date, making sure that the evidence is
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as consistent with what the responses have been to information requests, and we would prefer to have the extra time to put a good piece of evidence before the Commission as opposed to have to supplement it in a week or ten days because we come across something that we've missed. So we believe we will benefit from that. And
the proposal would simply be to move the intervenor evidence back one week, or at least for our client group, then move the information requests back one week in fairness to B.C. Hydro. We can meet the deadline if you order it. can improve the quality of the evidence if we have the additional time. MR. CALMET: Thank you. We
I'm John Calmet from the Citizens for Public
Power and like some of the other presenters here, we also would very much appreciate being able to delay the submission of our evidence by a week. We just had a
changeover at Citizens for Public Power in terms of our executive director and also we feel a bit swamped by all the information that came back late last week and we're working our way through it. And in terms of the quality
of our presentation, I think that if we have a little bit more time, we'll be able to do a better job. we'd appreciate that. THE CHAIRPERSON: Thank you. So
Is there anyone else who wishes to speak
to the regulatory timetable other than Mr. Sanderson?
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MR. FULTON:
Mr. Chairman, if I could just add one matter It was
to the identification of the B.C. Hydro panels. very helpful during VIGP, when the panels were
identified, to have been provided with a list of those portions of the application and the IRs that that panel was responsible for. And that would be something that I
believe would be very helpful to have again in this hearing for the purposes of focusing the crossexamination. THE CHAIRPERSON: MR. SANDERSON: Thank you. Mr. Sanderson.
Mr. Chairman, with respect to the central
issue that has just been addressed, which I think is the timing for the filing of evidence, obviously Hydro does have an interest in this hearing concluding as expeditiously as possible. And contrary to an earlier
comment, while there is an interim, as I explained this morning, that interim doesn't cover what Hydro now believes is its 2005 revenue requirement. So there is a
direct financial prejudice being experienced due to delay. Having said that, the process has to take as long as it needs to take and so what we don't want to do is in any way jeopardize the commencement of the hearing. And that, I guess, is the starting premise for Having said that, and also, I
what I have to say.
guess, acknowledging that everyone has known about the
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schedule for a long time, so although the volume of material is overwhelming, people have had some number of months to get ready for the time at which they're going to have file their evidence, and they've had, incrementally, a great deal of information, especially with the BCUC information requests, number one, being a sort of an interim step that flushed out a lot of the information that was in the application. But still
having said all of that, the majority of the intervenors would seem to benefit significantly from an extra week. I think that that can be accommodated if everything slips a week. The result of that would be that B.C.
Hydro's rebuttal testimony, which currently is scheduled for the 7th of May, would not be due until the 14th and it seems to me that date can't be moved forward, that the rebuttal testimony of Hydro is going to be responsive, in part, to the IR process of intervenors. And so I
don't think there's any room to constrain that. And, indeed, because the Commission is now suggesting the 13th and 14th be the days of oral argument, or oral openings, I'm thinking that that's an awful lot to ask of Hydro in that last week and if we could make that the 17th, that is, Hydro files its rebuttal testimony on the 17th, that might accommodate everyone. And in support of that proposition, I'd just We've filed direct
say that it's pretty clear.
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testimony for 22 witnesses -- I'll come to this in a moment -- but we would expect that that's going to be in probably seven panels. panels. It will be called in seven
So, you know, we're looking at two to four
weeks for Hydro's testimony, I would have thought, depending on the nature of the cross-examination. And so if everybody were to have, by the first day of the hearing on May the 17th, or I guess now perhaps 18th, with your modified commencement procedure, if everybody had Hydro's rebuttal testimony, which kind of closed the evidentiary portion, they're not going to have to cross-examine on that portion until, I mean, either the end of Hydro's case, I suppose, or maybe even, if necessary, call in those witnesses in rebuttal at the very end of everything, which is some months away. So I think that shouldn't bother anyone. So with
that understanding, the extension of a week for intervenor evidence is not objectionable from Hydro's perspective. The second issue that was addressed was -- or that I wanted to comment on, at least, was the naming of panels. Yes, we do intend to do that and, yes, in
response to Mr. Fulton, we do intend to identify the areas of the application and IRs that each panel is responsible for. Because of the volume of material that
was filed last week, it's going to take us a week or two
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to just make sure we've properly cross-referenced to each of the panels all the IRs. I would think we can So if that takes us
commit to doing that in two weeks.
to maybe the end of the week of the 19th, I'm thinking, April 19th, that would be about the 23rd of April, which would hopefully accommodate everybody in terms of their needs. And then the last area was argument. I guess
consistent with my opening comments, we would express a preference for a slightly more condensed written argument period. 2 and -THE CHAIRPERSON: MR. SANDERSON: I'm sorry. Mr. Sanderson, can you -I think that you'd suggested 3, 3 and
I think you'd suggested a 3, 3 and 2
sequencing, three weeks for Hydro, three weeks for response, and I guess our preference would be for 2, 2 and 1. THE CHAIRPERSON: MR. SANDERSON: away. Thank you. I say that now. It seems like a long way
I'm sure I'm going to regret these remarks when
the time comes, but nevertheless my instructions are to try and get this process concluded as early as possible and to do that, I think 2, 2 and 1 is manageable. I think that was the only area that, in terms of the timetable, I needed to respond to. THE CHAIRPERSON: Thank you. I would first like to hear if
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there are any objections to Mr. Sanderson's proposal with respect to the timetable between now and the commencement of the hearing? MR. AUSTIN: I don't propose to repeat myself, but clearly
it just doesn't work in terms of the Independent Power Association of B.C. There's simply not enough time. You have to prepare
You have to prepare your evidence.
questions for cross-examination of the various panels. You have to review other people's evidence and you're going to have to review B.C. Hydro's rebuttal evidence. We have a team of approximately two people and it's just not possible to do all that. THE CHAIRPERSON: Are there any other objections to Mr.
Sanderson's proposal with respect to the timing on matters pre-hearing? Thank you. Are there any objections to Mr.
Sanderson's proposal with respect to argument? MR. WALLACE: Mr. Chairman, again, I'd just like to
reiterate, because it is happening during the summer, I don't think that the two weeks is sufficient. We simply
can't guarantee availability of experts, consultants and the time of receiving the material, et cetera, and the three weeks gives the flexibility to deal with that. And, accordingly, I really do urge you to keep that extra couple of weeks in there. If Mr. Sanderson wants
to save a week on reply, I have no problem with that.
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For that matter, if he wants to save a week on his own argument, I have no problem on that. But for the
intervenors, I just believe it is hard to bring those resources together in the middle of the summer on an undetermined schedule basis. If I could say right now
to a witness it's going to be these two weeks, it would be a lot better, but we can't. We're going to have to
deal with a flexible schedule depending when the hearing ends and, accordingly, I think it's necessary to have that extra time. THE CHAIRPERSON: Would it be satisfactory to you if it was
3, 3 and either 1 or 2, give Mr. Sanderson an opportunity to comment, if the hearing was to end at the end of June, but if it ends earlier than that, it would be 2, 2 and 1? MR. WALLACE: Well, again, it’s the uncertainty. I mean,
2, 2 -- if it ends earlier, if it ends June 15th, I'd still be the first two weeks of July. If we think it's
going to end June 1st, I may have people away while Mr. Sanderson's writing his argument and that works just fine. So it -- the uncertainty, coupled with the summer
period just means we need more flexibility. Two weeks in a hearing of this magnitude is a very short period to reply to what I expect will be a very substantial argument from Hydro. previous proceedings. You may remember
They can generate a lot of paper
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in a very short period with that legal team of theirs. And we have to respond to it. We are talking a huge This
revenue requirement, the first review in 10 years. is our opportunity to put back to you what we think
we've heard during that five or six week period, seven week period. be done well. It's extremely important to us that that I suggest it's important to you also. It can make a huge
One week there is very critical.
difference and I don't think it should be rushed in that period. We have a good timetable. Everybody is working
very hard to accommodate it. bit of flexibility.
There, we do need a little
We're not going to get a decision
out till, as you put it, probably around November 1st. Squeezing right then can cause significant damage, I think, to the presentation of intervenor cases. THE CHAIRPERSON: Thank you. Are there any other
objections other than those raised by Mr. Wallace with respect to Mr. Sanderson's proposal as it relates to argument? MR. WEAFER: I have no further objections or no additions
to Mr. Wallace except Mr. Sanderson, this morning, indicated they'd spent 12,500 hours responding to IRs. Our total budget as an intervenor, or total involvement in commitment of hours from start to conclusion of final argument, is 1,700 hours in total. do it in two weeks. They may be able to We
We're going to need three.
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don't have the manpower to respond that quickly. THE CHAIRPERSON: Is there anyone who would like to add
anything to what Mr. Wallace and Mr. Weafer have said? Thank you. I think we will -- because, you
know, often this issue waits until the commencement of the hearing and it's dealt with during the hearing, I'm concerned about what that will mean with respect to the assistance you will need as Mr. Wallace has referred to, but I'm also concerned about what that means for you in terms of planning whatever summer vacation you may be able to fit into the schedule. Proceeding Time 12:20 p.m. T12 So we will get a decision out to you following this pre-hearing conference, with our directions to you with respect to the other issues that have come up. And if we return to it during the hearing
for whatever reason, I think you will see a lot of flexibility on the part of the Commission panel with respect to this issue. But I'm thinking, given the
contrary views that are held with respect to it, we probably will wind up on a schedule that the Commission determines is appropriate following this pre-hearing conference. There are a number of issues that we have not addressed in this pre-hearing conference that are of a procedural nature, and in the past we have issued a
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procedural letter that was fairly extensive.
I think we I
will reissue that for you before the hearing starts.
think it was helpful to you on VIGP and on the Heritage Contract matter. A couple of quick comments, and there may be others and I'll welcome those. Although counsel are
going to be giving opening statements, that does not preclude witness panels from also providing opening statements. That's at your election. My suggestion to
you is that if there are comments from the witness panel, that you keep them relatively brief. And I also
like the practice of those being circulated in advance of your panel appearing. I don't think they need to be
circulated much more than a couple of days before your panel appears, but I think that's a good practice to follow. Are there any other procedural issues that would be helpful for you to have the panel or me comment on now? now. Good. Well, we will get a procedural letter None other than that one comes to my mind right
off to you as well. I think that leaves the issue involving Mr. Hackney, and I think that's the only one. Are there any I'll
other issues anyone wishes to raise at this time?
give everyone an opportunity, the panel will stay where
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we are but I'll give everyone an opportunity to leave if they wish. MR. FULTON: The hearing officer, Mr. Chairman, while some
people are packing up to leave, wanted me to advise people, and I'll put a reminder in the procedural letter as well, but that the front door opens at 7:45 in the morning. So on hearing days the front door will be open
at that time, and it's closed off at 4:30. THE CHAIRPERSON: Thank you.
Mr. Hackney, I think you can begin. MR. HACKNEY: Thank you, Mr. Chair. Tom Hackney for the The issue that I
GSX Concerned Citizens Coalition.
raised and the note that I handed to the counsel for B.C. Hydro concerned the information request that GSX Concerned Citizens Coalition filed, and we thought that the answers given were not as complete as we wanted and expected, particularly to our numbers 3.2, 3.3 and 6.2, and B.C. Hydro's numbering that they supplied adds a 1 in front of each one of those with bracketed BCH afterwards. So their numbering is 1 3.2 (BCH), 1 3.3
(BCH)and 1 6.2 (BCH). THE CHAIRPERSON: Thank you. Mr. Hackney, I would suggest
that you go through those individually and speak to why you believe that there should be a fuller answer than there is. MR. HACKNEY: Yes, thank you, sir. In number 3.2 I
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requested that B.C. Hydro provide full documentation for the process by which B.C. Hydro has arrived at its estimates for actual and potential financial liability for these greenhouse gas emissions. And the greenhouse
gas emissions referred to there are the greenhouse gas emissions from non-Heritage Contract resources for fiscal 2004, '05 and '06. And the response of B.C. Hydro was to refer me to their response to IR 1.3.1 B.C. Hydro, wherein B.C. Hydro has estimated a zero dollars liability and given what I would characterize as a very brief and sketchy reason for their estimate of the liability. And it's our position that B.C. Hydro could and should give a more detailed answer, clearly running through the line of logic that goes from the initial potential for liability; that is, greenhouse gases cause harm to the environment, B.C. Hydro generating facilities emit greenhouse gases, therefore there is a potential there for people to be harmed by those generating activities, creating a potential liability. And then there's some kind of chain of logic that flows from that to B.C. Hydro's apparent conclusion that the federal plan has -- and the way the federal plan operates has somehow or other counteracted that potential liability. I don't see the logic. I
requested a full answer to the question and I don't
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believe that it's there in the response. THE CHAIRPERSON: MR. HACKNEY: Thank you. Let's then turn to 3.3.
3.3, in this question I requested a full
documentation of the allocation of responsibility for a greenhouse gas emissions liability between B.C. Hydro and any party from whom B.C. Hydro is purchasing electricity or transportation services. In their
response in the last sentence of their response, B.C. Hydro says: To the extent that there may be any
greenhouse gas liability with the gas transportation, B.C. Hydro's liability is the same as any other user of gas transportation. responsive. And in my view, that is not totally
It is not clear what the liability is of
any other user of gas transportation, and I would like B.C. Hydro to specify that. THE CHAIRPERSON: MR. HACKNEY: And 6.2?
The number for 6.2, again the issue is the
same as for 3.2 except that this question pertains to Heritage Contract resources as opposed to non-Heritage Contract resources. And B.C. Hydro's response was to
refer me back again to their initial answer that I addressed for their answer at 3.2. is the same there. like. THE CHAIRPERSON: only three?
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So again my position
The answer is not as full as I would
Thank you, Mr. Hackney.
Are those the
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MR. HACKNEY:
Those are the three, yes. Thank you. Mr. Sanderson.
THE CHAIRPERSON: MR. SANDERSON:
Mr. Chairman, the reason that B.C. Hydro
resists any further answer is that I think the answer to 1.3.1 is really as plain as plain can be, and all it's simply saying is that under current law as B.C. Hydro understands it, it has no liability which is going to have any impact on this application in the test years. And that's the response given in 3.1. It goes on to say to reference the federal government GHG plan in an aid to -- I suppose in a perhaps unfortunate attempt to assist, in the sense that by raising that we get a bunch more questions. But all
that says is that even the federal government plan, which is the first thing which might be the first step in changing the law, isn't expected to occur in the form of regulations until 2008, i.e. well outside the fiscal years here. So the simple answer to the line of questioning is, at this time B.C. Hydro has no basis to believe it has any liability with respect to these type of emissions. And Mr. Hackney doesn't have to accept
that answer as a desirable one or as even the correct one, but that's Hydro's position and that's really all it can say about it is it knows of no law to make it liable.
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If there is a suggestion there is one that makes it liable, then I guess Mr. Hackney can either explore that or should have explored that with IRs or at the hearing in terms of questioning whether it's right to say there is none. But that's certainly Hydro's
clearly expression position and I don't think any further line of inquiry is going to bring you out any more information in that regard. With respect to Heritage, non-Heritage issue -- oh, you'll also note that in 3.1 it does speak to both Heritage and non-Heritage resources, and it's for that reason that that's answer to 6.2 as well as 3.2. And then finally on 3.3, the reference to Hydro's liability is the same as any other user of gas transportation. It simply meant, I think, in the
context of the question to say with the exception of ICP, there is no contract which provides for liability as between Hydro and the generator; that is, the contracts don't cover the issue. And with respect to
the ICP arrangement and the movement of gas, B.C. Hydro doesn't know of any contractual provision it has which makes it any different than any other carrier of gas. And if you combine that with our answer to 3.1, which so far as we know at the moment there is no liability for greenhouse gas emissions for those users, then I think it follows that the answer is pretty clear.
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saying there is none, we know of none, and again if Mr. Hackney has a different view, well then he can express that through his evidence or through his questioning. MR. HACKNEY: Thank you. Well, it sounds as if counsel for
B.C. Hydro has clarified their response to 3.3 in stating that there's no liability. THE CHAIRPERSON: Does that then, Mr. Hackney, provide the
answer that is satisfactory, as at least Mr. Sanderson has suggested, for the purposes of the IR process? Proceeding Time 12:35 p.m. T13 MR. HACKNEY: I'm satisfied with respect to number 3.3 now.
As to 3.2 and 6.2, I'm not satisfied, and I really believe that it should be incumbent on B.C. Hydro, if they're saying that there is no liability, that they should really demonstrate it thoroughly. We are looking
at a very major and significant environmental problem that is connected with the form of generation that is being used by B.C. Hydro. And liability, I would have
thought it would be obvious that liability arises from the general proposition that if you're causing harm then there's a potential for liability. And if somehow or
other B.C. Hydro thinks that legal foundation has been changed or negated, then I think it should be incumbent on them to demonstrate. Otherwise it should be assumed
that it is relevant to a possible cost in a rate review. THE CHAIRPERSON: What you're asking for, Mr. Hackney, at
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this point in time is for the panel to give direction to B.C. Hydro to provide a fuller answer to those two information requests. The broader issue that you raise
with respect to whether or not there -- and in this case I'll refine what you said, whether or not there's some cost arising from that reliability that you mention, isn't that an issue that you can pursue during the hearing? MR. HACKNEY: hearing. THE CHAIRPERSON: Okay. Well, if that's satisfactory to Yes, I believe I can pursue it during the
you, without me commenting on whether or not that's within the scope of the hearing, let's leave that issue then. If I hear you correctly that that's satisfactory, And
let's leave that issue until we get to the hearing.
then as I mentioned, without commenting on whether or not it will be within the scope of the hearing, we at least can return to that issue for that determination then. MR. HACKNEY: Actually can I qualify my earlier response?
I think it would be a lot more helpful to me in preparing evidence and argument if I did get a fuller answer. The question of, you know, me getting evidence
to trace the whole legal framework from potential liability to whether that applies in a particular -- in this particular instance, is quite an onerous task, and
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frankly I think it's B.C. Hydro's job to be fully on top of its legal obligations and they should be willing to, and open about them. THE CHAIRPERSON: They say they are, and they say there is
no liability and so they haven't included a cost in their revenue requirement for that reason. I would
encourage you in your evidence that you're going to file, if you want to establish a foundation for this, that you address the issue in your evidence. And for
the purposes of the three questions that you've raised, it's my impression that those are issues that, if you wish to, you can pursue based on your own evidence or on evidence that comes from the hearing should we go there during the course of the hearing. If you want, I will
deliberate with the panel on this, but that's my suggestion to you at this time. MR. HACKNEY: Yes, very well, thank you. Okay, is it your request that we issue a
THE CHAIRPERSON:
decision with respect to those two other IRs, or are you satisfied with what I have just said? MR. HACKNEY: I would -- I guess I'm requesting a decision. Okay. We will provide it to you. Thank
THE CHAIRPERSON: you. MR. HACKNEY:
Thank you. That concludes the pre-hearing
THE CHAIRPERSON:
conference, and with that I'll close the record for the
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purposes of the pre-hearing conference. (PROCEEDINGS ADJOURNED AT 12:38 P.M.)
Thank you.
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BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT S.B.C. 1996, Chapter 473 and British Columbia Hydro and Power Authority 2004/05 and 2005/06 Revenue Requirements Application and An Application by British Columbia Transmission Corporation for Approval of an Application for Deferral Accounts Vancouver, B.C. May13, 2004
OPENING STATEMENTS
BEFORE: R. Hobbs, L. Boychuk, M. Birch, Chairman Commissioner Commissioner
Volume 3
Allwest Reporting Ltd. 302-814 Richards St., Vancouver, B.C.
INDEX OF WITNESSES PAGE
VOLUME 3 - MAY 13, 2004
OPENING SUBMISSIONS BY MR. SANDERSON OPENING SUBMISSIONS BY MR. FELDBERG OPENING SUBMISSIONS BY MR. WEISBERG OPENING SUBMISSIONS BY MR. PERTTULA OPENING SUBMISSIONS BY MR. AUSTIN OPENING SUBMISSIONS BY MR. WALLACE OPENING SUBMISSIONS BY MR. WEAFER OPENING SUBMISSIONS BY MR. GATHERCOLE OPENING SUBMISSIONS BY MR. JONES OPENING SUBMISSIONS BY MR. WAIT OPENING SUBMISSIONS BY MR. FULTON:
201 216 224 228 233 243 275 293 309 316 318
COMMENTS ON RECOMMENDATIONS 16 AND 25 BY MR. SANDERSON BY MR. WALLACE BY MR. AUSTIN BY MR. GATHERCOLE 322 329 330 335
INDEX OF EXHIBITS
NO.
DESCRIPTION
PAGE
VOLUME 3 - MAY 13, 2004
B1-28 BC HYDRO POSITION WITH RESPECT TO ISSUES ARISING FROM INFORMATION REQUESTS AND INTERVENOR EVIDENCE........................................ 202 B2-4 OPENING STATEMENT OF MR. FELDBERG ON BEHALF OF BCTC............................................ 224 C28-3 OPENING STATEMENT OF MR. WEISBERG ON BEHALF OF COLUMBIA POWER CORPORATION...................... 228 C41-2 OPENING STATEMENT OF MR. PERTTULA ON BEHALF OF TERASEN GAS..................................... 233 C23-8 C27-8 SPEAKING NOTES OF MR. WALLACE ON BEHALF OF JIESC 273 OPENING STATEMENT BY MR. JONES FOR SIERRA CLUB OF CANADA, B.C. CHAPTER......................... 316 E-13 LETTER FROM MR. WEST............................ 318
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CAARS VANCOUVER, B.C. May 13, 2004 (PROCEEDINGS COMMENCED AT 9:04 A.M.) THE CHAIRPERSON: Please be seated. Good morning. I will
be making an opening statement on Tuesday.
However, I
would like to review the process for today and tomorrow. Today we will hear opening statements from all participants that are identified in Exhibit A-23, which circulated the order of opening statements. there was anyone else who wants to make an opening statement, then we will try to accommodate them subject to having time available today. As I mentioned at the last prehearing conference, one of the purposes of the opening statements is for participants to identify issues that they wish to pursue during the course of this hearing. I am hoping that participants will make references to the evidence relevant to the issues that they identify. The purpose of the references is to assist the panel in understanding the issues that are identified. Participants will not be restricted later to those references when addressing the issues during the course of this proceeding. Tomorrow we will hear from Mr. Sanderson, who I hope will assist the panel by endeavouring to provide
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a consolidation of the issues that have been identified today. I am not expecting Mr. Sanderson to exclude any
issues that are identified, but the applicant may be able to consolidate or link or in some other way organize the issues in such a way that may be helpful for the hearing and to the panel. The format for today and tomorrow will not provide you with an opportunity to comment on the merits of either including or excluding an issue that has been identified by another participant. The panel prefers to
reach a decision with respect to the hearing issues without that debate. However, if another participant
has identified an issue, then in your opening statement it will be helpful if you mention in your opening statement agreement with the other participant. Over the weekend, the panel will consider each of the issues identified by participants, together with the consolidation of those issues by the applicant. Then before 1 o'clock on Monday, the panel will release a document identifying the issues to be considered during the hearing. On Tuesday morning I will comment
on the hearing issues, particularly those issues that have not been included, and I also will respond to points of clarification if there are any. I am not
expecting that the panel will have many questions for you today. However, on Tuesday morning we may have
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questions that arise from your opening comments. Before we begin, are there any questions with respect to the process for today or tomorrow that you wish to raise? Thank you. I'm expecting, Mr. Sanderson, we
will sit for about an hour tomorrow, depending on how long you will be, and I'm expecting that we will sit at 1 o'clock tomorrow. But at the end of the day today,
I'll give you the election of an earlier time, as early as 9:30 if that's your preference, but we can set the time for tomorrow later today. I'll also ask that appearances be made on Tuesday morning. today. I don't think we need to do that
The order of opening statements has been We will follow those, and unless
circulated to you.
there are any other preliminary matters for this morning, we'll begin with B.C. Hydro. other preliminary matters? Thank you. Are there any
OPENING SUBMISSIONS BY MR. SANDERSON: MR. SANDERSON: Thank you, Mr. Chairman. Mr. Chairman, I
have prepared sort of an aid to the submissions I'm making now, which is by way of a summary document which I distributed this morning and maybe I can distribute to the panel as well. THE CHAIRPERSON: MR. FULTON: Thank you, Mr. Sanderson.
Mr. Chairman, if we might give that document
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the exhibit number B1-28. THE HEARING OFFICER: Marked B1-28.
(BC HYDRO POSITION WITH RESPECT TO ISSUES ARISING FROM INFORMATION REQUESTS AND INTERVENOR EVIDENCE MARKED EXHIBIT B1-28) MR. SANDERSON: Now, Mr. Chairman, this is, to me at least, I think it's a very good advance, if
a novel procedure.
I can put it that way, on the Commission's process, but I start with that by way of potential apology for not doing exactly what it is that you're anticipating. I
hope I'm doing what you're anticipating. And I hope what I'm doing will serve useful to both the Commission and the other parties. Proceeding Time 9:09 a.m. T02 But I wanted to make a couple of things clear at the outset. One: I don't consider this, and did not
prepare this to be, the opening of B.C. Hydro's case. Rather, this is speaking to your request that we focus in on what are the issues that are raised in the materials that have been filed today. And so my
exclusive focus will be on what we think can be learned from material filed, and what issues fall out of that, with some suggestions as to how, then, they might be organized. The actual way we'll lead our evidence and
that sort of aspect of the opening will be part of my opening on Tuesday.
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THE CHAIRPERSON:
My impression, Mr. Sanderson, is that you
and BCTC as the applicants are in the most awkward position with respect to how to proceed this morning, for the reasons that you mentioned. I think for all of
the other participants, they need to think of this morning as their opportunity to, if you will, introduce their case. I don't think that's true for you, or for
BCTC, and I'll give you that opportunity on Tuesday morning. In fact, one of the things that I'm hoping
that you will do with your consolidation is consolidate as the staff have around the panels. will be helpful as well. And I think that
So I wanted to give you an
opportunity to, in fact, speak this morning, but I'm also appreciative of the ambiguity that that might create for you. MR. SANDERSON: Thank you, Mr. Chairman. What we have,
then, and are prepared to do this morning, and I'll now walk through, is to try and provide some overall perspective on what seemed to be the emerging central issues. Clearly in a revenue requirement proceeding
such as this, the focus has got to be assessing the prudency of proposed expenditures in the test period. That's the touchstone, in my submission, for all of us. And that's what everything has to relate back to. The
additional issue in this hearing, because of the REAPS filing, is to focus in on a slightly longer period on
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the expenditures which are covered by that document. a specific category of expenditures, which obviously would be a central part of the revenue requirement in any event, obtains an added focus by virtue of the Section 45(6) REAPS filing.
So
The potential scope of that enquiry, because it's going into all aspects of Hydro's business, and in that business it's been a very long time since that enquiry has occurred, obviously has the potential to expand out of all ability of any of us to deal with it. And I think that's evidenced in part, at least, by the 13,000-odd pages we calculate Hydro's filed in getting ready for the hearing. Having said that, I do think
that intervenors and Commission staff to this point have demonstrated an interest in specific issues, more than others. And I think that has laid the groundwork for
allowing us to do what I think this exercise is supposed to do -- and that is, narrow us in on the issues that really matter and may affect what the Commission ultimately determines the revenue requirement ought to be for '05 and '06. In order to just, at a high level, do something more useful than say, "Well, look at the table of contents," in terms of what we think is relevant, the document that we've prepared begins with Part 1 which is trying to boil the issues raised by the myriad
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information requests down to eight principal issues. And that isn't meant to be limiting here. This is meant It's
to be helpful as opposed to limiting, in Part 1. just when we look at it -- and this doesn't have
references, these are just so many IRs that to annotate each one of the eight, I didn't think would be useful. But when we look at it, the eight things that stand out as being important to people, and in that I include the Commission staff, are the following. First, the cost during the test periods and REAPS periods of new resources. The cost of energy is
obviously made the driver of the revenue requirement and it's an awful lot of questions that focus in on that. And that extends to both IPP purchases and DSM expenditures. The second, which was raised at the last prehearing and which is also evidenced in a number of questions and also, I think, in some of the evidence, is the proposed deferral account mechanisms, what should be, and what should not be, in deferral accounts for fiscal '05 and '06. Third, what costs the rate impacts arising in the relevant periods from changes to accounting rules. And the most obvious of those is the asset retirement obligation issue. There is significant evidence filed
on that, there's a series of questions on that, and that
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clearly is going to be a significant issue for the hearing. The fourth is raised by a number of questions, and I think will be addressed in argument but I also expect by witnesses, and that is, has there been a change in the scope of the Commission's discretion to set out Hydro's rates, by virtue of any of the changes in legislation that have come in since the Energy Policy. And I don't mean by this to suggest there is,
I'm just saying, it's fairly clear to me that different parties will have submissions on that point. The fifth is the effect on Hydro's costs during the relevant periods of some of the restructuring initiatives. The three most significant clearly being
the line of business structure that Hydro's adopted, the ABS transaction, and the outsourcing that's implied with it, and the creation of BCTC. There's many, many
questions on all three of those dockets and they will clearly be an issue. Sixth, the manner in which Hydro has and will continue to respond to increasing cost pressures, overall efficiency of budgetary process and Hydro's planning processes. Seventh, is more of a tradeoff issue. There
are a number of questions getting at issues other than low cost, reliability being one, environmental
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performance, safety, First Nations relationships and low rates. I see that says "reliance", it should say How are those competing
"relationships" in item seven.
objectives to be resolved together when it comes to rate setting. And then finally, a process issue raised by a number of Commission questions and raised by the REAPS filing. How do you reconcile a revenue requirement
proceeding, the REAPS, those processes, CPN processes et cetera and what is the role of this proceeding in that. And I think that's clearly an issue. I don't, as I say, claim that every issue everyone's raised can be caught under those eight headings, but I think those are, to me, the most prominent issues that we will find ourselves debating over the next weeks. Proceeding Time 9:18 a.m. T3-4 The next part of this handout, attempts to identify in a more focused way, and I think more in keeping with the directions from Commission Counsel, specific issues we take with other people's evidence. And what this does -- and I don't think it's useful for me to walk you through it now. I think rather I'd
prefer to just tell you that we've tried to capture the essential issue that we think arises by virtue of each piece of intervenor evidence, and so we've gone through
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the evidence of Dr. Schaefer, Dr. Calvert, Mr. Craig, et cetera, and we've given you a page reference to their evidence and what we say the issue that's raised by that evidence is. And as I say, that seems to me to be a
rather parallel exercise to the one performed by Mr. Fulton. I should say that was done before we got staff's list last night. I've made no attempt at this
stage to reduce duplication, and there's lots of it because a lot of these issues I think were reflected in staff's work as well, and that's exactly what we'll do tonight. That is, with the benefit of the staff
material from last night we've started, we'll have all of the rest over the course of the day and then we'll try and boil it down to a list of issues raised in respect of each intervenor, based on what we hear from everybody. Now, the last piece of what I've handed up, Part 3 if you will, is some things that appear to be raised or might be raised which we believe are not properly part of this hearing, and I thought it was useful not to argue them but to just identify them because these are areas where we believe it wouldn't be fruitful for this hearing to conduct an inquiry. And
the first of those is debating or revisiting provincial energy policy. It's going to be our submission the
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Provincial Energy Policy is what it is, and this isn't the place to debate whether that policy was the right policy. And there's quite a few individual items that whether or
fall under that general heading, I think:
not it was a good idea to create BCTC; whether or not it was a good idea to enter into the ABS transaction; whether or not Cabinet ought to have designated the agreements in respect of both of those transactions. None of those things can be effected, in my respectful submission, by any order the Commission makes here, and therefore no purpose is served by cross-examination or argument around those issues in the context of this hearing. A second category of items which I think could drift into the inquiry if we followed some of the lines and some of the material that's been filed, is to revisit a number of issues that in my respectful submission this Commission heard fully in the Heritage Contract hearing. That lengthy inquiry dealt fully with
things like how to allocate the benefits of the Heritage Resources to B.C. Hydro's customers, how to deal with trade revenues in that respect, how to inquire into the activities and related costs associated with Powerex, what sort of characteristics the stepped rates should have. And then further on the stepped rate issue,
although it didn't resolve it, it made it clear -- the
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Heritage inquiry did and the government's response to it, that things like the terms and conditions of access would be dealt with but not in this proceeding. yet another proceeding for that. for that. There's
This isn't the place
So all of those things, in my respectful
submission, were the proper province of that hearing; they're fully dealt with. The last thing I'll include on that list, by the way, is what the special directions should look like to Hydro for rate setting purposes. That was also dealt
with by this Commission coming out of the Heritage inquiry hearing, and the government response is found is new special directions, so we now know the answer to that. There's no purpose in debating it further in this
proceeding. The third area is in a slightly different category. It's not that it's not relevant, but as a
result of the prehearing and our exchange of correspondence thereafter, the issue of B.C. Hydro's financial costs in the test year, based on interest rates et cetera and foreign exchange, is not one which intervenors and Commission staff have elected to pursue. We quite understand that there is an issue around whether those costs should be replaced in the deferral account and that clearly is the central issue. particulars of the forecast used in the Hydro
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application, in my respectful submission, are not any longer an issue. Proceeding Time 9:23 a.m. T05 The next issue is the IAP. In my respectful
submission the Commission's been clear that the IAP is not in and of itself an issue for this hearing. it's context and it's relevant evidence. Yes,
But whether or
not the portfolio of projects which are identified in the IAP are the right ones, whether they've been evaluated properly, in terms of the 20-year outlook, which of them should go first, whether or not the benefits and costs of any particular project have been properly assessed. None of those issues are properly
part of this proceeding. Similarly, and the fifth topic, is issues of rate design. B.C. Hydro has been clear throughout this
re-regulation process, if that's what I can call it, that -- and the Commission, I think, has accepted this submission, that to do it in orderly fashion, you can start with the revenue requirement and then move on to rate design. Hydro has committed itself to a rate
design application next year, and it's my respectful submission that this hearing ought not to get into issues of rate design as opposed to rate levels. And then the final thing, and I'm sure my colleague Mr. Feldberg will speak to this more fully, is
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-- this is not a BCTC hearing, this is a B.C. Hydro hearing. hearing. BCTC will have its own BCTC rate design It will have, as I understand it from the
workshops it's been putting on, a mechanism to deal with things like hunting processes and expansion plans for the transmission system, which are now BCTC matters. And as well, the BCTC -- and I use that term precisely -- revenue requirement in 2006, that is, B.C. Hydro has said with respect to the transmission system, here are the '05 costs, we're assuming the '06 costs are on the same basis, moving forward, just moving the transmission costs forward as if they were still in Hydro. recognize they won't be. We
BCTC will bring its own
application and those costs we are not, in this hearing, for '06, presuming to determine. Rather we've applied
for the BCTC transmission deferral account to deal with that. And so all of those issues, we say, are not And again, in terms of
properly part of this hearing.
what BCTC's doing, I'll allow Mr. Feldberg to elaborate. So that's, I think -- if there are any questions that the panel may have -- what I can do this morning in terms of scoping the issues. THE CHAIRPERSON: you. MR. SANDERSON: Mr. Feldberg has graciously heard my I did leave two things out. There are I think that's fine, Mr. Sanderson, thank
plaintive plea.
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two things which are process related that I meant to get to and I didn't. I think they're important.
The first is, there were a lot of IRs that were asked of Hydro in earlier rounds -- actually, there weren't very many in earlier rounds; there were very few, but there were a few -- that either prompted a reluctance in Hydro to answer, or in some cases an answer that had redactions. There have been
opportunities to pursue those things, and with the exception of the GSX Concerned Citizens' motion, prehearing, they haven't been. Our position with respect
to those is that they should not form the basis later, those same questions that weren't pursued, of demands for information on cross-examination and an endless round of undertaking, that is, we've had this process, we've identified our position with respect to specific questions, and on those specific questions, the record ought to sit where it is. Because otherwise, we just
find ourselves in an endless undertaking process later on. I appreciate that's a general comment, but I wanted
to just indicate that's going to be the position that gets more precisely articulated when we get to questions that fall within that category. Proceeding Time 9:29 a.m. T6 The second omission in what I've just said, that again comes out of process, is Hydro sent a letter
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April 23rd indicating there were certain areas where there were very few information requests and just to remind the Commission, that letter which was from myself to Mr. Pellatt, identified three principal areas, and that seemed not to be a subject of significant debate. And those were engineering services, a certain corporate function, and certain IT functions, not including CIS. Those are highly specialized areas and we would basically put people on notice at that stage that in light of the lack of clear interest in those specific things, we weren't proposing to produce a witness expert in each of those areas. And that continues to be our
proposal, so we're not coming into this -- we don't dispute the relevance of those areas, we simply don't see it as something that people have expressed a major interest in, so dedicating the specialized witness it would require didn't seem necessary. And I just didn't
want to sit down before I'd made clear that that was our intention. THE CHAIRPERSON: I think the other participants probably
Mr. Feldberg and the other participants will comment on Mr. Sanderson's process and issues. And then it's my
intention to return to those two process issues on Tuesday morning at the hearing from the participants. Part 3, Mr. Sanderson, of your submission is helpful and as I said in my opening comments this
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morning, for a variety of reasons, we are not encouraging a debate with respect to what's included or excluded from the hearing issues list that will issue on Monday. But I think Part 3 of Mr. Sanderson's
submission can be an exception to that, without us creating an unnecessary debate, given that the panel is going to review in considerable detail each of your opening statements and each of the issues that you propose to raise. But it might very well be helpful at
the level that Mr. Sanderson has just done to respond to Mr. Sanderson if you wish. So I'd ask you, if choose
to, to speak to the two process issues that Mr. Sanderson has spoken to, and Part 3 of Mr. Sanderson's submission. MR. FELDBERG: Thank you. Thank you, Mr. Chairman. I, too, have
prepared some brief notes of what it is that I'm going to say. I haven't had time yet to distribute them. I
can distribute them to the panel right now and to Mr. Fulton and distribute the balance of them when I sit down, if that's helpful to the panel. follow it quite closely. THE CHAIRPERSON: I think in fairness we need to make sure Let's take two minutes now I intend to
that everybody has a copy. and -MR. FELDBERG:
I'm perfectly happy with that. -- get those made, and the panel will
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stay where we are.
I think, Mr. Feldberg, my impression Is that correct?
is that in fact you did have copies. MR. FELDBERG: Pardon me?
THE CHAIRPERSON:
My impression is, Mr. Feldberg, that you
in fact did have copies. MR. FELDBERG: I brought 30. All right.
THE CHAIRPERSON: MR. FELDBERG:
So I'm hopeful that suffices. I think in terms of this proceeding, it's
THE CHAIRPERSON:
important that when you wish to put a document to the panel, that you make it available to everyone else in the room. We may come up with a number that is going to
work better than 30, but 30 is a reasonable guess, I would think. Is there anyone who does not have a copy?
I think there are going to be copies for you, Mr. Feldberg. It's my impression that you can proceed, Mr. Feldberg. OPENING SUBMISSIONS BY MR. FELDBERG: MR. FELDBERG: Thank you, Mr. Chairman. Mr. Chairman, the
comments I'm about to make don't follow perhaps specifically what it was that you requested of participants, in part because of the awkwardness of defining the issues before you've heard them, and secondly because of the very different role in some ways that BCTC has in this hearing. What we thought would be
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helpful was having reviewed the IRs, worked on the evidence and been to the prehearings, was to perhaps -and following up on Mr. Sanderson's last point on Part 3, was to perhaps put in one place for the panel and intervenors, with hopefully some clarity, the role of BCTC in this hearing and where this hearing fits within the regulatory processes that BCTC is about to follow, because I think that will enable the panel and participants to really assess the issue raised in the last point of Mr. Sanderson's Part 3. BCTC is performing two very distinct roles in this proceeding. applicant. The first obviously is one of an
BCTC is applying for deferral accounts that
are described in the Deferral Accounts Application which is Exhibit B2-1. And the second distinct role in this
hearing is providing evidence with respect to the transmission portion of B.C. Hydro's Revenue Requirements Application. The first role is pretty straightforward. BCTC will be filing an application later this year to establish the terms and conditions of the new open access transmission tariff. They will also be filing,
as Mr. Sanderson noted, a separate application to establish BCTC's revenue requirement and rates for fiscal 2006. And I'll go through the transition
provisions in a minute, but that's the process we see.
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The deferral accounts application decision for us will establish the necessary backdrop as we go into those next two processes. And to avoid getting into too much
detail about that application here now, I heard your offer to Mr. Sanderson to make an opening with respect to his case on Tuesday. My preference, Mr. Chairman, if it's acceptable to you, is to make a short opening prior to the evidence of Panel 6, because that will be when the evidence with the deferral accounts application is heard, and my submission would simply be that what I say about it at that time will be more timely and will be closer to the time you'll be hearing the evidence than it will be if it's made on Tuesday and the evidence is heard sometime later. THE CHAIRPERSON: That's my only observation there.
And I see considerable merit in that.
I do want to ensure that there's fairness for the intervenors here, and I've indicated that I would like them to speak to the positions and interests of their client this morning, which one might characterize as putting their case before the panel, and also to hearing issues for this morning. And what I think that means is
that when their panels are introduced, they're not going to have the same opportunity that I've extended to Mr. Sanderson and I may extend to you in a minute. But they do have the opportunity to make, through their panel, an
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opening statement.
I've indicated that I'd like those
to be filed a couple of days before their panels appear. Proceeding Time 9:38 a.m. T07 So just before I grant Mr. Feldberg's request, I would like to hear from anyone would consider it unfair for me to give that opportunity to Mr. Feldberg -- and I've already given it to Mr. Sanderson -- but give an opportunity to Mr. Feldberg on the basis that I've just mentioned, that you're going to have an opportunity through your panels to make an opening statement later as well. MR. WALLACE: Mr. Chairman, I'm not sure that I would
consider it unfair that they make an opening statement but I would like to see that opening statement made at the same time as Mr. Sanderson's, because the evidence is integrated between B.C. Hydro and BCTC. Also I
anticipate the panels may be making opening statements so they would be in the same boat as intervenors. I
think it would be helpful in going forward into the whole process if we got the two opening statements from both companies at the same time. THE CHAIRPERSON: Thank you. Any other comments?
Mr. Feldberg, it strikes me that Mr. Wallace's request is a reasonable one. I appreciate
that you wanted to link your opening comments more closely with your panel, but I think I'll grant you that
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request for Tuesday. MR. FELDBERG: Thank you, Mr. Chairman. Mr. Chairman, I was about to turn to BCTC's second role in these proceedings, because I think it does require a bit more comment. BCTC, as the panel is
aware, was created pursuant to the Provincial Energy Plan and has been operating since August 1, 2003. are, however, two distinct phases to BCTC's implementation which straddle, somewhat inconveniently for our purposes, the two test years of Mr. Sanderson's application, and create some differences between them. What I've done in the rest of the short two pages is direct the panel and participants to where in the application they may find a description of the transitional provisions that affect the two years, and the differences between them. But I'll cover them There
quickly now, but I've tried to include within the material the specific references that they may go to. During Phase 1, BCTC operates the transmission system on behalf of B.C. Hydro, pursuant to B.C. Hydro's existing WTS tariff. BCTC's costs in Phase
1 are paid to BCTC by B.C. Hydro pursuant to a fee arrangement which is described in Article 18 of the Master Agreement, and which is detailed in B.C. Hydro's Revenue Requirements Application in Table 6-26. In
Phase 1, then, all of BCTC's costs are paid by B.C.
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Hydro and are covered through B.C. Hydro's rates to its customers. Phase 2 of the implementation is anticipated to begin on April 1, 2005, which is the second test year, fiscal 2006 as Mr. Sanderson describes it. In
Phase 2, both the nature of BCTC and the components of the transmission revenue requirement will change. will have its own revenue requirement and its own distinct rates, that will be charged directly to transmission customers. B.C. Hydro's transmission BCTC
revenue requirement will in turn be divided into two components. An owner's revenue requirement component,
which is made up primarily of debt service, return on equity, depreciation, taxes or grants in lieu, effectively the ownership costs of the assets. And an
asset management maintenance revenue requirement component that will reflect the costs incurred by BCTC in managing and maintaining B.C. Hydro's transmission system. Prior to April 1, 2005, BCTC will bring an application to set its own revenue requirement for fiscal 2006, and to make any consequential amendments to the asset management maintenance component of the B.C. Hydro transmission revenue requirement for that year. The potential effects of this application are described, and can be found, in Section 10 of Chapter 6 of B.C.
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Hydro's revenue requirements application, and particularly if you look at Table 6-28 on page 683. B.C. Hydro's revenue requirements application discusses the transition in a number of places, which I've set out in the following paragraph, and won't detail orally here. Proceeding Time 9:43 a.m. T8 In recognition of the fact that the revenue requirement and tariff applications that BCTC will file later this year may have an impact on B.C. Hydro's anticipated costs in fiscal 2006, B.C. Hydro has applied for the transmission -- the BCTC transition deferral account, which Mr. Sanderson described and which I have referenced as well as in this paragraph. Returning to BCTC's role in the proceeding, then, I think it is important to articulate what the hearing is not about and what Mr. Sanderson has indicated it's not about. BCTC is not applying at this
time for its own revenue requirement for the purpose of setting its own rates in fiscal 2006. Again, its role
within the B.C. Hydro revenue requirements is, as described previously, it is governed by a fee arrangement that is set out in Article 18 of the Master Agreement and which is described in the application as I noted. BCTC will be bringing its applications later
this year.
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BCTC is also not applying for its own open access transmission tariff at this time, and that of course deals with issues such as access to a transmission system, rate design for transmissions services over the 2006 period, and planning and expansion policies as well, and it'll do that later this year. In the result, BCTC's interest in this proceeding is really threefold. It's providing
evidence, and the witnesses who will be testifying with respect to the transmission component of B.C. Hydro's revenue requirements application. It's an applicant
itself with respect to the deferral accounts application. And third, it has an interest in this
proceeding because it's filing applications later this year with respect to its own revenue requirements and rates and with respect to the terms and conditions upon which transmission service will be offered. So when BCTC's panel takes the stand, BCTC employees will be giving evidence with respect to the transmission system costs, revenues and operations that are associated with B.C. Hydro's revenue requirements application. They will also give evidence with respect
to the BCTC deferral accounts application at the same time. As a result, you're going to see, and this is a
function of the transition period, you will see B.C.
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Hydro's counsel at counsel table in recognition of the fact that the evidence of BCTC witnesses is led in support of the transmission portion of the B.C. Hydro revenue requirement for fiscal 2005. You will also see
BCTC counsel at counsel table because of the deferral accounts application, and to have to speak to issues that might arise in the proceeding that might be better addressed in the proceedings that we are planning to bring later in the year. And I don't have any other submissions with respect to the issues, Mr. Chairman, but I thought it would be helpful if we stated where we fit in this process for the panel and for the other participants. THE CHAIRPERSON: Are you intending to file rebuttal
evidence on Monday? MR. FELDBERG: Not at this time. Thank you.
THE CHAIRPERSON: MR. FULTON:
Mr. Chairman, we'll mark that as Exhibit B2-4. Marked Exhibit B2-4.
THE HEARING OFFICER:
(OPENING STATEMENT OF MR. FELDBERG ON BEHALF OF BCTC MARKED EXHIBIT B2-4) OPENING SUBMISSIONS BY MR. WEISBERG: MR. WEISBERG: the panel. Good morning, Mr. Chairman and members of Fred Weisberg for Columbia Power Our remarks will be very brief, but I will
Corporation.
hand up copies and distribute them to the parties here.
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Mr. Chairman, Columbia Power Corporation or CPC, and CBT Energy Inc., which is a subsidiary of Columbia Basin Trust or CBT, jointly owned hydroelectric facilities that are located in the Columbia and Kootenay Region. CPC is the manager for the CPC/CBT Joint The shares of both CPC and CBT are
Venture Project.
held by the provincial government, and both CPC and CBT are government corporations. I'd like to just list very briefly what the power project corporations are and the facilities related with those corporations. The CPC/CBT Joint
Venture structure includes a single corporation for each major power project, and these include the following: Arrow Lakes Power Corporation for the Arrow Lakes Generating Station that was formerly the Keenleyside Power Plant on the Columbia River, and the related Arrow Lakes to Selkirk Transmission Line; Brilliant Power Corporation for the Brilliant Dam and Power Plant on Kootenay River and the Brilliant Terminal Substation; Brilliant Expansion Power Corporation for the Brilliant Expansion Project on the Kootenay River; and finally, the Waneta Expansion Power Corporation for the Waneta Hydroelectric Expansion Project on the Pend-Oreille River. Finally, Mr. Chairman, I would like to just briefly describe the nature of CPC'S interest in this
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proceeding.
CPC has an interest in issues that affect
the operation and cost of the B.C. Hydro and B.C. Transmission Corporation systems, to the extent that they effect CPC/CBT Power Project. Proceeding Time 9:48 a.m. T09 B.C. Hydro is the Canadian entity under the Columbia River Treaty, and also the system operator for the Columbia and Kootenay hydraulic system. CPC/CBT
transmission facilities interconnect with B.C. Hydro, BC Transmission Corporation transmission system, at the Selkirk sub-station. CPC and CBT power project joint
venture corporations have a number of contractual relationships with B.C. Hydro and those include energy entitlement agreements, an inter-connection agreement, electricity purchase agreements for the sale of power from the Arrow Lakes Generating Station, and Brilliant expansion project, and agreements for the overall management of upstream storage and water releases from the Columbia and Kootenay hydraulic system, within which CPC and CBT and B.C. Hydro, B.C. Transmission Corporation facilities operate. The areas of the B.C. Hydro revenue requirements application of most direct interest to CPC include issues that arise from the following. For
witness panel 4, which will address energy supply costs, the following references, I think, will be of
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assistance.
Exhibit B1-1, Chapter 4, Section 3, which
deals with the energy purchase agreements and, in particular, the energy acquisition agreements made between 1994 and 2000, as they relate to the Arrow Lakes generating station. 1.4.4 and 1.4.8. Exhibit B1-7, which is the BCUC IR
Exhibit B1, Chapter 4, which deals
with the 2002 green power generation call, as it relates to the Brilliant expansion project. which is the CFPPIR 1.B8.0. The second witness panel of particular interest to CPC is panel 7, dealing with heritage contract and operation of heritage assets, and the specific references of most interest are Exhibit B1-1, Chapter 5, which is dealing with the heritage contract, Section 9.5, sustainability in aboriginal relations programs, water use planning as it relates to CPC/CBT joint ventures, and Columbia Region water use plans. And finally, the reference to Exhibit B1-7, which is BCUC IR 1.5.53. Mr. Chairman, CPC would like Exhibit B1-11,
to be called on for cross-examination, particularly in respect of those panels, but we do expect that our cross-examination will be quite brief. THE CHAIRPERSON: MR. FULTON: 3. THE HEARING OFFICER: C28-3. Thank you.
If that opening statement might be marked C28-
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(OPENING STATEMENT OF MR. WEISBERG ON BEHALF OF COLUMBIA POWER CORPORATION MARKED EXHIBIT C28-3) Proceeding Time 9:53 a.m. T10 OPENING SUBMISSIONS OF MR. PERTTULA: MR. PERTTULA: Terasen Gas Inc. has a number of interests
respecting B.C. Hydro and therefore has the following opening statement. Some matters of interest to Terasen
Gas will be more fully explored in future Commission proceedings for B.C. Hydro, particularly the review process for the 2004 Integrated Electricity Plan expected to commence this year, and also the rate design proceeding expected in 2005 are of particular interest. In Terasen Gas' experience, however, revenue requirement decisions may well make determinations which directly affect future rate design proceedings, or at least set the framework from which future Commission decisions will be made, and this explains in part the participation of Terasen Gas in this proceeding. Terasen Gas Inc. is a public utility regulated by the British Columbia Utilities Commission, and Terasen Gas, together with its sister company Terasen Gas Vancouver Island, serve on a combined basis over 850,000 natural gas customers throughout B.C. Terasen Gas' interests in B.C. Hydro's revenue requirements include the following: Terasen Gas is a
major provider of energy and energy transportation to
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residents and businesses in British Columbia.
Customers
of Terasen Gas are, for the most part, also B.C. Hydro customers, except in the service territories of Aquila Networks and municipal and small privately owned utilities. Terasen Gas is a major provider of gas transportation service for electricity generation to B.C. Hydro for the Burrard Thermal Generating Station, and to the Island Cogeneration Project which is an IPP provider of electricity to B.C. Hydro. Natural gas and
electricity are competitive forms of energy in various end use applications. Rates, connection policies, and
energy efficiency initiatives of both B.C. Hydro and Terasen Gas are regulated by the Commission and should work together to provide pricing loads which encourage customers to make the right energy choices. Terasen Gas
will be affected by the Commission decision arising from the current B.C. Hydro application and the resulting effects on the operations, capital projects and resource acquisition activities of B.C. Hydro. The first major area is in thermal generation, so the Burrard Generating Station and others. It's a long list of references there, primarily
Volume 1 of the application, and then a number of IR responses from B.C. Hydro IR -- or sorry, Commission IR No. 1 and IR No. 2.
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The current and future role of Burrard Thermal is of interest to Terasen Gas. Commission
findings with respect to Burrard Thermal affect Terasen Gas in the need for and timing of gas system expansions required to serve gas demand growth. Will B.C. Hydro's
short-term operating strategy and the file costs of service for Burrard Thermal be affected by this proceeding, and will the outcome of the MLA review of Burrard Thermal affected revenue requirements in this test period? Island Cogeneration Project and Vancouver Island CFT, again a number of exhibits and pieces of evidence are listed there. The gas supply and
transportation arrangements for ICP are part of B.C. Hydro's revenue requirements in this test period. And
regarding the Vancouver Island CFT, the responses to information requests indicate that the main cost of service impact is beyond the two-year test period, but the CFT process will be concluded during 2004 and commitments will be made near that time. Also the CFT
is being determined through separate commercial and Commission processes; its outcome is likely to affect Terasen Gas operations and the need for system expansion during this test period. And any determination in this
proceeding affecting ICP or the CFT is of interest to Terasen Gas.
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Proceeding Time 9:58 a.m. T11 The second major area is in PowerSmart and demand-side management and the main reference there is Volume 2 of the application, appendices I and N. Terasen Gas has an interest in the outcome in this proceeding with respect to PowerSmart and DSM initiatives and expenditures. Several of the DSM
programs identified in appendices I and N are characterized as fuel switching programs, where electricity and gas, and perhaps other fuels, are interchangeable end-use energy sources. In Terasen Gas
business environment the term "fuel switching" is most commonly used for large-volume customers that have backup fuel capabilities and use that as a basis for taking interruptible gas service. So we found the term "fuel
substitution," taken from the glossary of the Conservation Potential Review, in Appendix H of Volume 2, it refers to the same concept as "fuel switching" in the PowerSmart programs and that will be used instead. Some electricity DSM programs go beyond those with explicit fuel substitution, have ancillary effects on gas usage. And the summaries in Volume 2, Appendix N
of the PowerSmart programs with fuel substitution aspects indicate that it is more efficient to burn natural gas at the end-use appliance than B.C. Hydro generating electricity on the margin with natural gas,
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delivering that electricity to the home, and then finally using that electricity for space heating, water heating or other end uses. So determinations in this
proceeding related to PowerSmart and DSM, particularly with regard to fuel substitution, are of interest to Terasen Gas. Item 3, relating to recurring capital in the B.C. Hydro system extension test, Exhibit B17, BCUC IR No. 1, question 75.10 in the attachments, is an internal audit report on recurring capital and then Exhibit B111, Peace River Regional District IR No. 1, questions 5 and 6. The internal audit report on recurring capital indicates that accountability for the delivery of recurring capital projects has been fragmented, that the costing models are complex and non-transparent, and that documentation on some elements, such as overhead loadings used in the system extension test, was inadequate or unavailable. And then the response to Peace River Regional District IR No. 1, question 5, indicates that under the system extension test, the present value of the full future incremental cost of providing service to customers is compared with the present value of revenues from an extension in determining whether a customer contribution to the extension is required.
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So using overhead loadings as an example, are the system extension tests input factors kept up to date to ensure that the full cost of providing service is being correctly calculated, and do the forecasts of recurring capital from customer attachments and contributions in aid of construction need to be adjusted, and is the system extension test being administered in the extensions of B.C. Hydro's distribution system, in a manner consistent with B.C. Hydro tariff and connection policies. Proceeding Time 10:03 a.m. T12 It is anticipated, as I mentioned earlier, that these and other issues will be explored more fully in other proceedings, and Terasen Gas exploration of these matters that I've discussed will be limited to their relationship to the revenue requirements of B.C. Hydro. And perhaps I could just add a comment that I don't have any comments on the two process items that were raised. Also, Terasen Gas expects to have very
limited cross-examination in the hearing. MR. FULTON: If that opening statement might be marked
Exhibit C41-2. (OPENING STATEMENT OF MR. PERTTULA ON BEHALF OF TERASEN GAS MARKED EXHIBIT C41-2) OPENING SUBMISSIONS BY MR. AUSTIN:
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MR. AUSTIN:
Good morning, Mr. Chairman.
David Austin for I'm not handing
the Independent Power Products of B.C.
out any formal written opening statement, but the outline of the opening statement is I'd like to make some general remarks about this revenue requirement hearing, and through the identification of issues set out what the IPP position is or case is, and then at the end talk about process issues and commonality of issues, at least in relation to some of the people who have already made their opening remarks. With respect to this revenue requirements hearing, it's not the usual revenue requirements hearing. It's the first review in about ten years, and
there has been a dearth of basic information on which to make decisions or judgments on what issues to proceed. That's the way it is. somehow deal with it. It's not the usual revenue requirements hearing because it is part and parcel of the B.C. government's energy plan for the future, so the Energy Plan is fundamental to your decisions and your deliberations. It must be adhered to. It's not We're just going to have to
legislation, but it is policy.
It's policy that's been
implemented in part through the Heritage Contract Review. It's policy that's going to be implemented in But it's also going to be
part through other reviews.
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policy that has to be implemented in this revenue requirements hearing. And specifically and without
limiting the comments on the Energy Plan, reference has to be made to the cornerstones of the plan, two in particular: secure reliable supply, and more private sector opportunities. can ignore. It's just not something that we
I can remember on one previous occasion on
the transmission side there was government policy, but when it came time for the hearing, it wasn't adhered to and it wasn't followed. In terms of other things that make this hearing unique, there is no approved integrated electricity plan, but the Resource Expenditure and Acquisition Plan, which is founded on the Integrated Electricity Plan, is part of these proceedings, at least the initial part of it. It makes it very difficult to
try and sort out the issues, and IPPBC has done the best it can to try and distinguish between what's within the bounds of this revenue requirement hearing, and what's outside the bounds. lot of grey areas. Certainly the IPPBC fully expects and will formally ask the BCUC to hold a public hearing into the 2004 Integrated Electricity Plan. it's very awkward. Again I point out But it's not easy and there are a
Typically you go forward with what
the plan is, then you figure out what the capital
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expenditure plan is, and then you have your revenue requirements hearing. We're doing this slightly
differently and it does create a lot of difficulties. I'd now like to turn to the primary issues that the IPPBC is concerned about, and the first place to start with is the IPPBC's evidence. There's a lot of
evidence that the IPPBC has filed with respect to the PowerSmart Program. I'll make this really easy. The
IPPBC has looked at how B.C. Hydro does its financial analysis with respect to PowerSmart, and then decides whether to move forward or not. The IPPBC disagrees
with it and says the proper way to go forward is through what's commonly known as a net present value analysis. It's not that complicated once you boil it all down. Proceeding Time 10:08 a.m. T13 There's a fundamental disagreement as to what financial screen you use before you make expenditures in that particular area, and other areas that B.C. Hydro is planning to make capital expenditures in. thread. It's a common More
Go back what the Energy Plan says:
opportunities for the private sector.
Well, there's got
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related expenditures that B.C. Hydro's proposing to make. There's got to be some commonality, and it's not
just a question of, well, this particular area we do this, and this particular area we do that. has to be some commonality. Second issue is, B.C. Hydro's adherence to the Energy Plan. And in particular, security and There now
reliability and cost of B.C. electricity supply, and that would include transmission. I'd like to emphasize
that transmission, in the financial screen or analysis that takes place in that area, before capital expenditures are made, is just as important to the IPP, the IPPBC, as it is in the ResourceSmart area, and in the PowerSmart area, or in any other area, because it has an impact on independent power producers' ability to do business in this province. The next issue is the operation and role of B.C. Hydro's Burrard Thermal Plant. At least on this
particular issue, I believe there's some commonality with what Terasen has just said it was interested in. Maybe the IPPBC's interest is slightly different from Terasen, but it's the operational role of this plant over the next two years, or during the revenue requirements hearing, that is important to IPPs. The next issue is, again, relates to financial analysis, and this time it's with respect to
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Site C.
IPPBC is not looking at this as a forum for a
full investigation of Site C; however, it wants to know what financial analysis was used, or what financial screen was used, which is the common term in the private sector, before B.C. Hydro decides to spend money on this development prospect during the term of their revenue requirements hearing. Most companies just do not go out
and spend money until certain financial hurdles, internal hurdles, are met. What did B.C. Hydro use? The IPPBC has noted that there is a response to Mr. Wait, in an Information Request, and there is a figure of approximately $53 per megawatt hour. Somehow, There is a financial screen.
some way, somebody had to do some sort of financial calculation to arrive at that number. The next issue is, over the next few years, what analysis has B.C. Hydro used on the hydrology side to determine the energy output from its hydroelectric reservoirs under a variety of reservoir inflow conditions and how all this relates to security and supply of this energy. If you will notice in one
response to IPPBC Information Request, we have now found out that there's a different test, in terms of the hydrology sequence with respect to operations and longterm planning. At least, that's what we think is
evident in the evidence, and it's something we will wish
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to pursue. The next issue is the terms and conditions that B.C. Hydro has in its IPP contracts. These are the
contracts that B.C. Hydro presents to IPPs for the purposes of acquiring new supplies of electricity. They're standard form, they're published, they're out there, and the IPP wishes to pursue some of the logic and rationale in relation to the terms and conditions of the contracts. During the term, the next few years,
there is supposed to be some additional IPP calls, if you want to for lack of a better word, and part of these calls are going to be the terms and conditions of these contracts. Proceeding Time 10:13 a.m. T14 Similarly, and it's another issue, is if there are going to be calls during the term of this revenue requirement hearings, and what are going to be the -- how are these going to proceeding? Again what
sort of factors or what sort of analysis is B.C. Hydro going to use when it makes these calls? What sort of
factors and analysis is it going to be using to determine the winners and the losers? To date they've
been very onerous, complicated and expensive, and certainly the IPPBC is always looking for ways to reduce this burden. Perhaps this is a process issue, but the next
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issue is B.C. Hydro's response to the second batch of the IPPBC information requests. So maybe I'll just hold
this and comment generally on the process issues. The next issue is B.C. Hydro's executive compensation, and in particular the criteria that are used to determine performance or bonus pay. particular benchmarks used? Why are the
Perhaps there are better
things that should be used as benchmarks to determine the performance of B.C. Hydro's executives, which essentially is the performance of the company. The next issue is B.C. Hydro's hearing costs. How much money has it spent on this particular hearing? And that would include the full ambit of all these expenditures. The next issue is the disappearance of the line contractors. IPPBC members, when they develop
projects, often pay very large amounts of money in relation to interconnection costs. That interconnection
work can be done internally or can be done through the line contractors. They seem to have some issues that
were supposed to be dealt with before this Commission, but they somehow disappeared. What was done? So the real question is:
What did B.C. Hydro do, if anything, in
relation to reaching some sort of conclusion with the line contractors? The final issue is: What is happening with
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the Alcan purchase?
Enron has, in a sense, disappeared
from the scene, and it was supplying part of the energy under that particular contract. for the next two years? Those are the issues. Those are the things What's going to happen
that really frame the IPPBC's evidence, and those are the issues that the IPPBC believes are essential in relation to this particular hearing. I'd like to now move on to this question of process, and I'm paraphrasing and I stand to be corrected if I'm not paraphrasing it correctly. But as
I understood counsel for B.C. Hydro, he seemed to be saying that if an information request hadn't been answered, and it wasn't clear to me whether it was in the second round or the first round, that it wasn't open to further cross-examination or follow-up. The IPPBC strongly disagrees with that. Yes,
it may be difficult for B.C. Hydro in terms of follow-up requests for information, but as stated in the second prehearing conference, there has been a very very limited amount of time between the receipt of the B.C. Hydro information responses and the second prehearing conference. There was an awful lot of information to So the fact
get through and go through and analyze.
that the IPPBC did not stand up in the second prehearing conference and request the Commission to order B.C.
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Hydro to respond to a particular IR, should not preclude it from subsequently following up with B.C. Hydro in relation to that information request. Proceeding Time 10:18 a.m. T15 In terms of commonality, I've mentioned there's commonality at least as I understand it, with Terasen on the Burrard Thermal Plant. I believe there
is also commonality with respect to B.C. Hydro's point number one, costs during the test period, and REAP periods of new resources including IPP, power and DSM expenditures. I also believe there is commonality
between the IPPBC and Terasen in an indirect way, with respect to line extensions. What I heard from Terasen
was, the same type of thing that the IPPBC has been concerned about with respect to PowerSmart, ResourceSmart, Site C – what financial screens are used and are they consistently applied? When do you make the
decision to proceed with, in that particular instance, a line extension and when don't you? from a customer? analysis? How much is required
In other words, what's the financial
And if there's one overlying theme that the
IPPBC has in terms of its evidence, and its interests, it is this concept of financial analysis and financial screening. What do you do before you make the decisions
to spend money in the next two years? Thank you very much.
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MR. FULTON:
Mr. Chairman, Mr. Wallace has indicated to me This would
that he'll be approximately 40 minutes.
therefore, in my submission, be a good time to take the morning break. THE CHAIRPERSON: Let's take fifteen minutes.
(PROCEEDINGS ADJOURNED AT 10:20 A.M.) (PROCEEDINGS RESUMED AT 10:36 A.M.) THE CHAIRPERSON: MR. SANDERSON: Please be seated. Mr. Chairman, Mr. Wallace has kindly T16
allowed me to interrupt for a minute -- or, not interrupt, but make a comment before he starts, which is this, that when the third round of IRs were served electronically on May the 7th, some intervenors asked for hard copy and I neglected this morning to say that for all of them, the hard copies are in envelopes at the back of the room with their names on it. So if anybody
wants a hard version, and has so indicated, they should find it at the back of the room on the table there, in an envelope with their name on it. THE CHAIRPERSON: Thank you.
OPENING SUBMISSIONS BY MR. WALLACE: MR. WALLACE: Mr. Chairman, a copy of my speaking notes has There were
been circulated in the room, I believe.
about 45 copies so hopefully everybody has received a copy by now. Before I turn to my formal comments, I'd like
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to comment on the two procedural matters that Mr. Sanderson -- or three procedural matters raised. One
was the one that Mr. Austin addressed, that -- and again, I wasn't quite sure if it was as broad as Mr. Austin categorized it, but it did raise a concern I had and that was that a failure to raise the inadequacy of an Information Response should be the end of the issue. If that was what Hydro meant, and it wasn't simply limited to those that have already been discussed before you, I would take strong objection to that. Very often,
when you get back a bad response or an inadequate response, you simply say, well, another written question isn't going to solve the issue. cross. I'll follow it on
And I think that keeps the Information Request
process to a reasonable level and should be allowed as a proper and appropriate way of proceeding. The second issue he raised was the letter to Mr. Pellet, restricting, I think, the desire of Hydro to bring witnesses in what he called "dedicated specialized witnesses" on IT and engineering services. I would
probably agree that it may not be necessary; it may, depending on following the questions, to have a dedicated specialized witness, but both engineering services and information technology are important areas, there are issues around them, and somebody should be able to answer the questions at a management level.
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Proceeding Time 10:43 a.m. T17 The third area Mr. Sanderson raised was in Part 3 of his argument, some of the issues outside the scope of this hearing, and I simply respond to your invitation to comment with respect to those and I will do so only briefly. The third bullet covers the
financial cost forecast in the application, and I agree to the extent that Mr. Sanderson was saying that the costs -- the forecast is what the forecast is. But
there is an issue raised very directly in the evidence of Mr. Craig and will be raised later by me with respect to the amount of short-term versus long-term debt; and I hope that it wasn't intended to preclude that. The fourth bullet talks to the IEP as it relates to expenditure outside of the REAP, and clearly REAP is an issue. Alternatives to REAP are also
relevant though, and they may well be found in the IEP or -- and I'm not saying alternatives to REAP in total but to parts of it at least, are relevant and may be found in the IRP or in the EA -- I've lost it on this one -- the IEP. This is too early to do this. In any
event, those alternatives will be found in the IEP and they must also be considered relevant and not ruled out by some blanket ruling at the start. And again with the final bullet, BCTC rate design planning processes, expansion plans, and BCTC
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revenue requirement in 2006.
And I think Mr. Sanderson
recognized some of the problems of the crossover between having B.C. Hydro expenses, which may well relate to transmission, and BCTC's revenue requirement and the deferral accounts. And again I just urge that we not
have a restrictive ruling early in this proceeding but that we be able to review those matters as they come up and check them in context as to whether they really are appropriate or they are more appropriate for another proceeding. THE CHAIRPERSON: Mr. Wallace, I think it might be helpful
if I interrupt you before you commence, and ask Mr. Sanderson a couple of clarification questions with respect to his first process issue. And let me
characterize what your position was, Mr. Sanderson, and you can tell me if I've said it correctly. As it relates to information requests and responses that occurred prior to the second prehearing conference, is it correct on my part to think that your concern there relates to, if you will, issues that have been -- or questions that have been asked and answered? In that case, if the question has been asked and answered, if it's pursued during the course of the hearing, on the basis that it's been asked and answered, that may not be an appropriate cross-examination. Does
your concerns with respect to the information request
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that occurred pre-prehearing conference extend beyond that? MR. SANDERSON: Yes, Mr. Chairman, it does and to a limited A number of the questions that
extent, and that's this.
were responded to before the second prehearing conference were responded to either by saying it's too onerous to produce that study, that table, that documentation, that it would take too long and it's not sufficiently relevant to warrant the effort; or it's confidential and it's being produced on a redacted basis et cetera. It's those determinations that I was
suggesting ought not to be revisited in crossexamination, so that if Hydro said six weeks ago, "Look, the information, if it exists, is either not relevant, or if relevant, is too onerous to produce or not in the form you wanted," or whatever, to then go through all that again with the panels and seek undertakings by counsel saying, "Can you go away and do that in the middle of the hearing," was what I was seeking to avoid. Proceeding Time 10:48 a.m. T18 We had to draw a line, and I grant you it's often subjective, in cooperating as fully with the process as possible but still managing to get it done, how much and where would we say, "That's just too much". And we drew those lines, you know, fairly clearly and up-front, we hoped. What I was suggesting was a debate
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about the appropriateness of where we drew it, in areas where no one took dispute at the pre-hearing, wouldn't be useful and nor would it be useful to have witnesses in Hydro, in the middle of a hearing, going away and having a whole team somewhere else trying to keep up with the undertakings, as people tried to follow up and now say, "Well, you didn't answer at that time, now I want you to answer it." If it's within the knowledge of the witnesses, that's a different matter. But if it's
something that requires them to go away and do studies, or exhaustive document searches, or whatever, it was that that I was trying to preclude. THE CHAIRPERSON: for you. Thank you. I did have another question
With respect to the Information Requests that
were filed following the second pre-hearing conference, that you indicated were outside of the scope of the parameters of those Information Requests, as set out in the Commission's letter following the pre-hearing conference -- and I think Mr. Austin spoke to this issue as well -- what is your position with respect to the opportunity for intervenors to raise concerns about whether or not your response, i.e., for those questions that you determined were outside the scope of the parameters that we established for that third round of IRs -- what's your position with respect to whether or
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not those can be challenged? MR. SANDERSON: category. I accept they are in a somewhat different They were -- the whole process was an
exceptional one; that is, it was adding on, if you want, to the previous round and it was done pursuant to precise terms relating to information requests process that the Commission laid down. So our objections on May
the 7th turned on whether or not it was within or outside the order that the Commission had made. Had the
Commission not allowed any third round at all, people still could have asked some of those questions in cross. I accept that. I mean, some of those questions were --
not all, but some of them were questions that would have been perfectly legitimate as cross-examination, given the first two rounds. And I don't have any objection to They were as
those being asked of the panels in cross.
legitimate for that purpose now as they were originally. What we were objecting to on May 7th was the IR process has to stop someplace, the Commission had said where it stops, this question goes beyond that place. And that's all I make of the May 7th objections. Thank you.
THE CHAIRPERSON: MR. WALLACE:
And, Mr. Chairman, just to conclude my
remarks then with respect to process, I would really urge you not to make a blanket ruling on those matters because it has been, I think, long-standing practice by
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most of us to look at the responses and say, "Is it better to go to the Board now? question in cross-examination?" Is it better to ask the If it comes to
confidentiality, the question may be, "Well, can we put it another way and get that information out?" and to say, "No, you can't follow it up now," would be wrong. And similarly with the request that said -- a non-response that said, "It's too much work," you may want to go back to that question and say, "Can we do it another way?" and get something that is more functional. And a blanket ruling could be very detrimental and could, in the future, I think, lead to more extensive IRs and more fighting during the IR process than we traditionally have had. Thank you.
I'd like to turn, then, to my opening comments. I should start out by indicating because this
is the first hearing for many people, that the Joint Industry Electricity Steering Committee, or JIESC as we refer to it, is an informal association of B.C. Hydro's largest customers. I believe they purchase
approximately 70 percent of the electricity sold subject to Rate Schedule 1821, the large industrial class. The JIESC appreciates the opportunity to make an opening statement at this time and actually, Mr. Chairman, if I could just ask if the reporters would include my headings in the transcript, that may be
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useful for reading it later but I don't intend to repeat them all as I go along. Proceeding Time 10:53 a.m. T19 OPENING COMMENTS
1.1 Opening Statements We hope that in making an opening statement we'll assist the Commission in understanding our perspective, the issues we have identified, and lead to less guessing about where cross-examination might be going than otherwise would be the case. We also wish to
emphasize, however, that while we have attempted to be as specific as possible in identifying issues in this opening statement, and references, we are still in an early stage in this proceeding and we anticipate that as we proceed, some of the issues that we have identified will be resolved, and other new issues, well within the context of B.C. Hydro's revenue requirement, will arise. We urge the Commission to use the opening statements as a tool to increase understanding, but not as a way of limiting exploration of clearly relevant matters before you. And I took some comfort this morning from your
opening comments that that's the Commission's intent. 1.2 General Remarks Before proceeding to deal with specific issues in depth, I'd like to make a few comments about the approach I'm going to take this morning.
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will be directing my remarks to the nature of this proceeding and what we see as the roles and obligations of the applicant, the intervenors, and the Commission. We believe this is important because this is the first revenue requirements hearing for B.C. Hydro in ten years, and it is a hearing that will set a base revenue requirement that will be built upon in the years to come. Second, I will review in general terms the requested increase and how it is being presented by B.C. Hydro to the public and, I would suggest, to the intervenors and the Commission. I'm hopeful that in
doing this I can establish a more complete perspective for this review, and counter the thoroughly simplistic approach I suggest is being advocated by B.C. Hydro. Third, I will review in detail a number of the specific issues that we intend to proceed during the course of this hearing. These are matters that vary in
size, but taken cumulatively lead one to the conclusion that there does not have to be a rate increase at this time and in fact there could be a rollback of B.C. Hydro's rates. Finally I will wrap up with a few general comments. NATURE OF THE HEARING AND ROLE OF PARTIES Turning then to the nature of the hearing and
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the role of the parties.
Most of us in this room are
very familiar with revenue requirements for utilities. However, I suggest, I think as Mr. Austin did, what we face in this application is quite rare if not unique. B.C. Hydro, British Columbia's largest utility, is coming before you with its first application in ten years. For all practical purposes, it might as well be The passage of
B.C. Hydro's first application ever.
time is significant and has, together with the extensive corporate restructuring within B.C. Hydro, rendered historic regulatory approvals and historic spending patterns of limited value. To a large extent the usual
benchmarks used by this Commission and by other commissions will have to be replaced with common sense and good judgment. Preparing for this hearing has undoubtedly been difficult for the application, which must demonstrate it needs the increased revenues. B.C. Hydro
has clearly worked hard in attempting to respond to the questions posed by the various parties and the Commission. Alice Ferreira and her staff have done an
excellent job of getting the material out in both hard copy and electronic form to us. However, without
historic benchmarks, much of the information -- all 13,000 pages of it if that's what it is -- provided is difficult to assess. This has put the intervenors in a
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difficult position trying to analyze the case, and more importantly, we believe it has put the Commission in the most difficult position of all. The reason I suggest that the Commission is in the most difficult position is because the Commission is the body that has the statutory mandate to determine rates that are just and reasonable and in accordance with special directions from government. The Commission
is not in the fairly simple position of a judge in a court case, whose sole role is to determine a dispute between two parties who bring their case before them. The Commission has, I suggest to you, a special statutory mandate. While the Commission obtains input
in making its decision through the hearing process from the applicant, from the intervenors, and from its own staff, in the end the Commission has the sole responsibility in deciding what is just and reasonable. No one else has the staff or the mandate to do that. Proceeding Time 10:58 a.m. T20 I'd like to turn, then, to the need for an increase. THE NEED FOR AN INCREASE – AN OVERVIEW B.C. Hydro's application, and indeed numerous advertisements, has pitched the need for this increase as virtually self-evident. fairly simply one. B.C. Hydro's story is a
There have been no increases in ten
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years.
The rates have not kept pace with inflation. And
Real rates, in fact, have reduced by 14 percent. the rates are among the lowest in Canada and, in particular, for industrials.
For someone inclined to the path of least resistance, such an argument might seem to be persuasive. However, in our submission, you must look
deeper and you must look at the side of the story of the last ten years that B.C. Hydro has not emphasized. The requested increases before you total 8.9 percent, and amount to some $229 million in fiscal 2005 and $251 million in fiscal 2006. These increases will impose a
significant strain on British Columbia's recovering economy and will set a new base level for electricity rates that will significantly cut into one of the few competitive advantages business and industry in British Columbia have. In its application, and particularly the advertisements, B.C. Hydro has played down, in some cases ignored, the fact that without the increased rates during the last ten years, B.C. Hydro has benefited enormously from increased revenues and reduced interest costs. In the last ten years, B.C. Hydro's annual
interest costs have reduced by approximately $222 million as a result of refinancing very expensive longterm debt incurred in the 1980s at a much lower rate.
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In addition, annual domestic sales by B.C. Hydro have increased from $2.1 billion in 1994 to $2.5 billion for fiscal 2005, or $372 million dollars. And B.C. Hydro
has also received the benefits of very substantial export revenue. B.C. Hydro has tried to support the need for rate increases by talking about the need to catch up on maintenance, and the need for new facilities to handle new loads. This complaint is not new to those of us who In the
have been involved in prior rate hearings.
Commission's April 1, 1993 Decision on B.C. Hydro's 1993 Revenue Requirements Application, the Commission states that: "B.C. Hydro has testified that after a period of severe restraint of the 1980s its management became increasingly aware of the maintenance-related problems developing on the system and several major initiatives were started." In the course of that proceeding, and the subsequent 1994 hearing, the Commission took a good look at B.C. Hydro's budgeting and planning process, and made a number of recommendations and orders which have served B.C. Hydro and its customers well. One recommendation
the Commission made in the 1993 hearing, which unfortunately has not been taken up, was:
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"The Commission expects that, for future rate applications, B.C. Hydro will clearly identify the separation between the cost of increased ongoing maintenance activities and one-time increases which eventually will be terminated. B.C. Hydro will be required to justify in detail both types of increases." We suggest to you that, when you review the costs set out in the application, it will be clear that the amounts B.C. Hydro is requesting are well beyond reasonable catch-up, and that the major new facilities that will be required for generation and transmission for growing loads are not included in any way, but are yet to come. We must be careful that we do not set a
base level for rates now which, when augmented with the cost of the anticipated new generation and transmission facilities, will cause serious damage to the provincial economy. An overview of a few general cost drivers in the application shows large, and in our submission, in many cases alarming increases and expenditures by B.C. Hydro. For example, when one looks to change to from
2003, the last year for which final figures are available, to forecast fiscal 2006, one finds: Total capital spending is up from $737 million to $1,005 million, an increase of $268 million or 36 percent.
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Historic annual expenditures have been in the range of $400 to $500 million. So we're starting up at a high
level, and we're increasing very rapidly. In considering this amount, you must also remember that the full impact of the extra spending will not be felt for years. Today's expenditures are
capitalized and, accordingly, only a small percentage makes its way into rates immediately. However, over
time, on-going capital expenditures at this rate, together with the associated financing and equity costs, will cumulatively make very substantial impacts on customer rates. It should also be remember in examining these levels of expenditures that they do not include the Vancouver island Gas Generation Project or a substitute under the CFT and do not include the major transmission expenditures which we have been warned will be coming in the reasonably near future. Another point: The creation of the B.C.
Transmission Corporation has added $18 million annually to the cost of service. This expenditure is simply a
matter of restructuring; the extra cost of doing the same functions in a new way. Proceeding Time 11:03 a.m. T21 PowerSmart annual expenditures alone have increased from 45 million to 94 million dollars per
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year, a $49 million increase or 108 percent.
Again,
these amounts are capitalized and the real impact of these expenditures will not be felt for some time, probably about the same time that the customers start to pay for the necessary transmissions additions mentioned previously. While harder to track due to reorganization during this time, OM&A generally went from 506 million to 577 million, an increase of $71 million or 14 percent. This increase is not justified by either
inflation or growth. Finally, the equity return is up from $352 million to $435 million or $83 million, almost 24 percent. And when you look at that increase, you should
also remember that it is a utility that well into the 1980s had virtually no equity and managed to function without being impaired. To summarize the overview, it's our submission that in examining B.C. Hydro's application you will find few signs of cost restraint. When you
examine the details of this application, we believe you will see a clear pattern in decisions by B.C. Hydro, that demonstrate when B.C. Hydro makes choices it regularly chooses the road that leads to higher rates. B.C. Hydro's ratepayers deserve better. REQUIRED ADJUSTMENTS
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4.1
General Comments I'd like then to turn and look at some of the required adjustments and go into them in a little more detail. First though, one general comment. The total
increase B.C. Hydro is seeking is estimated to be 229 million for 2005, 251 million for fiscal 2006. In our
submission these increases are not required and can be avoided by a variety of growth -- I'm sorry, of expenditure reductions, accounting changes, and other measures. The JIESC members do not make these They rely on that power being They want a strong reliable
submissions lightly.
there from B.C. Hydro.
electrical system but they also want B.C. Hydro operated efficiently and effectively with a demonstrate commitment to improving productivity. 4.2 Accounting Changes Looking at accounting changes, we urge you to maintain the reserves for future removal and site restoration for the benefit of customers. B.C. Hydro
has proposed to transfer $233 million in reserves accumulated for the purpose of future removal and site restoration to retained earnings. Furthermore, B.C.
Hydro has indicated that when the costs of future site restoration do occur for assets for which there were amounts previously provided for in the FRSR account, it will seek to recover these costs from customers.
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impact of confiscating these customer funds to the benefit of the shareholder is an immediate increase in the required return on equity of $32 million per year and the long-term double recovery of reserves in the amount of $233 million. This is blatantly wrong and unfair. These
are funds that were recovered in utility rates of the customers for a specific purpose. Furthermore, the fact
that Hydro is trying to confiscate these funds, where the equities of the situation are so clear, really leads one to question everything they are doing in this application. And I think it's a prime example of the
types of choices that I mentioned previously. If the original purpose no longer requires these funds to be held, then they should be returned to the customers through a credit to the rates, not given to shareholders. Crediting customer rates over a two-
year period would reduce rates by $116 million per year, roughly one-half of B.C. Hydro's requested increase. Returning them over five years would still have a substantial beneficial impact on the rate increases being sought. Constraining Expenditures With respect to constraining expenditures, the JIESC is of the view that B.C. Hydro must control the level of its expenditures better.
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some ways it can do so.
We expect there are others that
will be identified during the course of this proceeding. First: 4.3.1 Eliminate the Cost of 200 Vacancies B.C. Hydro has historically experienced staff vacancies of approximately 200 people. This application
assumes there will not be any staff vacancies in 2005 or 2006. This is unrealistic. A proper accounting would
reduce B.C. Hydro's revenue requirement by approximately $15 million per year. Proceeding Time 11:08 a.m. T22 4.3.2 Reduce Domestic Cost of Energy In 2005, B.C. Hydro will be spending $648 million, which does not include the $258 million to water rentals, for non-Heritage domestic energy supply. Reducing this cost by as little as 2 percent to 3 percent could save $10 to $20 million per year. OM&A Across the Board Reduction Operating Maintenance and Administration should be subject to an across-the-board reduction. In
its 1994 B.C. Hydro Decision at page 18, the Commission stated that it was "not satisfied that B.C. Hydro had demonstrated that OMA expenditures are constrained to a level which will ensure the most efficient operations and lowest cost OMA costs to customers, consistent with the existing high level of reliability."
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be said today. B.C. Hydro has increased its operating, maintenance and administrative costs from $506 million in 2003 to $577 million in 2005, an increase of 14 percent with little change in the nature of the business. The JIESC, based
on its own experience, believes that significant cost savings are possible. concern include: BCTC is adding costs of $18 million per year without any indication of benefits to B.C. Hydro customers, and no offsetting reduction in B.C. Hydro costs. B.C. Hydro does not appear to be achieving the economic advantages possible from outsourcing. While the line contractors association has withdrawn from the hearing, it is the JIESC's view that the issue remains important. B.C. Hydro employee post-retirement benefit programs represent almost 10 percent of operating costs. The Examples of costs giving rise to
total employee benefit costs and trends have not been clearly disclosed by B.C. Hydro. Expenses for initiatives such as research & development, advertising and promotion, public relations, sustainability, water use planning and aboriginal relations are high, and increasing rapidly. No allowance has been made for productivity
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improvements normally expected from a monopoly utility the size of B.C. Hydro. While the lack of detailed information -it's not a lack of information, but I guess useable information -- makes it difficult to zero in on line items, for the reasons raised earlier, it is clear from the trends that further cost control is necessary. The
formation of BCTC itself raises new concerns about cost control and the ability to monitor costs now and over the next two years, due to the division between Hydro and BCTC. In 1994, this Commission was concerned about and reduced the OM&A costs of B.C. Hydro at the same time rolling back the entire interim increase. In spite
of that action by the Commission, in the face of contrary evidence by Hydro, B.C. Hydro was able to carry on without an increase for ten years. A 4 percent decrease in OM&A would reduce the rate increase by $23 million. Future productivity gains of 2 percent
to 3 percent should be obtainable over the period of this application. 4.5 Corporate Sustainability and Strategic Research B.C. Hydro expenditures on research have increased from $1.2 million in 2004 to $8.6 million in 2005, with a budget of up to $10 million. The JIESC
does not believe B.C. Hydro should be in the business of
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funding research that does not directly bear on operating and maintenance, and I think, should promise relatively early payback. 4.6 Accenture Credits and Streamlined Contract Administration B.C. Hydro is spending $2.3 million annually to administer the Accenture contract. This amount seems
excessive, and B.C. Hydro has also not included any amounts with respect to the benefits to be received under the Founding Partner Benefits provisions of the Accenture contract. 4.7 Burrard Thermal Depreciation B.C. Hydro has accelerated the depreciation of some B.C. Hydro assets. Of particular concern is the
decision to depreciate Burrard Thermal assets more quickly, increasing depreciation costs by $7 million per year. The JIESC anticipates that Burrard will continue
to be used for emergency supply and transmission support, and its value should be continued to be recovered over a longer period of time. Proceeding Time 11:13 a.m. T23 Salaries, Pension and Other Benefits B.C. Hydro's total compensation levels appear high and must be justified by more than comparison to other utilities. They should be based on a comparison
to wages and benefits paid for similar work in the
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economy generally. B.C. Hydro has included $50 million for future benefit costs in its revenue requirement. This,
as was indicated earlier, amounts to almost 10 percent of all OM&A charges and must be brought under control. Current benefit costs have not been clearly disclosed by B.C. Hydro but a current benefit cost of 24 percent is referred to in some documents. It appears that
excessively generous benefits may have been granted at a time when they did not affect the income statement, and we are only now finding out the true impact of B.C. Hydro's compensation arrangements. These contracts and
benefit programs must be reviewed for reasonableness and these costs reduced. PowerSmart Expenditures B.C. Hydro plans to spend approximately $100 million a year on PowerSmart. Up to 20 percent of these
costs are in the nature of what might be called overheads. While the JIESC strongly supports cost effective PowerSmart, may programs are not cost effective and should be terminated. A $25 million
reduction in DSM costs would reduce the rate increase by $4 million in fiscal 2005 and $8 million in fiscal 2006. The JIESC also expects that, given the difficulties B.C. Hydro's experience in administering some programs, there
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will be a lag in spending leading to further possible reductions. It would appear that what is effective PowerSmart will be strongly debated in this proceeding. The JIESC will be supporting the industrial PowerSmart programs, which provide 60 percent of the PowerSmart benefits and at a cost of only 40 percent of the PowerSmart budget and will be arguing that the general overhead portion of the PowerSmart budget must be reduced or allocated more completely to program costs. PowerSmart programs must be evaluated individually. The poor programs should not erode the Generally speaking,
value achieved with the good ones.
those projects, when properly costed with administrative and overhead costs, have a rate impact or RIM ratio of less than one, should be closely scrutinized and possibly terminated if there are no compelling economic, technical and environmental reasons to continue them. Programs with a Total Resource Cost or TRC of one or less should be terminated without further consideration. We have identified a number of PowerSmart programs with a Total Resource Cost of one, or less than one, which programs have direct costs of $55 million in the test period, and we'll be following those in crossexamination. In addition B.C. Hydro plans to spending $18
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million each year on "Awareness, Information and Education" and "Indirect and Other Enabling
Initiatives" without any demonstrated benefits. The JIESC will be cross-examining the applicant and some intervenor witnesses and arguing in favour of the industrial PowerSmart programs. The JIESC
believes that the evidence clearly shows they are the most cost effective programs. The JIESC, unlike some
intervenors, is quite content to see the RIM and TRC tests applied to the industrial programs as part of the overall program evaluation. 4.10 Reduce Capital Spending The JIESC is extremely concerned by the level of capital expenditures, both sustaining and growth that are contained in the application. B.C. Hydro has not
prioritized projects or even shown which are catch-up programs and which are normal programs. The result is
that on the record, as it stands at this point, it is impossible to judge which projects are required or even what a reasonable level of ongoing capital expenditures might be. General capital spending by B.C. Hydro has increased from $652 million 2004 to $716 million in 2005 and with a further expenditure of another 178 million to 894 million in 2006. This is a very, obviously, rapid
increase and a very high level.
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In addition to generation, transmission and distribution, money appears to be spent at a high rate on new vehicles, computers, information systems and office facilities. Information Technology expenditures
were a major concern to the Commission in 1994 and they remain a concern to the JIESC today. While it appears
BCTC will be applying for a CPCN for the control centres and related equipment, this application must be brought forward before large amounts are spent. We simply don't
want to get into the position that we found ourselves in with respect to the VIGP expenditures that this Commission examined last summer. Proceeding Time 11:18 a.m. T24 Soft costs, such as aboriginal relations, sustainability, PowerSmart administration, public relations and water use planning, are significant and because to a large part they are being capitalized, will increase rates in the future. The one bit of good news I think we have is that past experience suggests that spending could be below the forecast by as much as 10 percent. Each $50 million
reduction in capital expenditures would lead to cost reductions of approximately $5 million per year on an ongoing basis. 4.11 Financial Matters -- Creating a More Efficient Capital Structure
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One of the major cost drivers in the current application is B.C. Hydro's cost of capital, principally for equity, and to a lesser degree, interest on debt. 4.11.1 More Short-term Debt It is the view of the JIESC that B.C. Hydro could, by increasing the portion of the short-term debt in the capital structure, reduce total interest costs by approximately $20 million per year. 4.11.2 Reduce Amount of Equity Equity Ratio The JIESC recognizes that the cost of equity is determined by Special Direction and is outside the jurisdiction of the Commission. However, to a large This Commission
extent, the quantity of equity is not.
can and should take steps to ensure that an efficient capital structure is maintained. The Special Directions If equity
require a minimum debt/equity ratio of 80/20.
continues to grow, as B.C. Hydro anticipates in its application, B.C. Hydro's debt equity ratio will soon be approaching 70/30. There is no evidence to support the
need for such a debt equity ratio, and a look back in history shows that B.C. Hydro functioned perfectly well with far greater debt to equity ratios in the past. If B.C. Hydro's equity level were reduced to the 20 percent minimum equity required under the Special Directions, approximately $900 million of equity could be replaced
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with debt at a cost of 5 percent to 6 percent.
This
would be a savings of approximately $90 million per year. The increases in the equity ratio have been principally driven by two factors: the growth in customers'
contributions in aid of construction, and the growth in retained earnings due to the fact that the dividend to the province is defined as 85 percent of net income under the Special Directions. Unless something is done,
customer contributions will cause equity to grow by $51 million in fiscal 2005 and $54 million in fiscal 2006, and this will only increase as IPPs start to pay for system connections and upgrades. B.C. Hydro's 85
percent of income payout ratio will cause equity to grow by $75 million this year. This retained earnings
escalation will lead to an inevitable and significant growth in revenue requirements of more than $10 million a year. There are ways to curb the growth in equity. Contribution in Aid of Construction (CIAC) were made by customers theoretically to ensure that other customers are protected from the costs and risks associated with the addition of a particular customer and related facilities. Unfortunately, it has not worked out that
way in practice, and due to the Special Directions turning what is normally zero cost capital into equity,
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all customers are exposed to increased costs in excess of those that would have been visited upon them if the contribution had not been made all. increased costs by $90 million. This alone has
CICA contributions will
add another $15 million a year to costs during fiscal 2005 and fiscal 2006. The Commission should amortize existing contributions at a pace that would protect customers from this problem and should follow the practice followed in many other jurisdictions, and order that future payments for facilities by customers be deducted from the cost of the facilities rather than booked as a contribution in aid of construction. 4.12 Recognizing Recovery of Bad Debt or Disputed Revenue B.C. Hydro has outstanding California accounts and other large receivables estimated at $386 million. It appears reasonable to assume that $200
million of this amount will be recovered over the twoyear test period utilized in this case. B.C. Hydro has To the
not provided for any recovery of these amounts.
extent that there is some risk that these accounts might not be collected, that risk could be covered by a deferral account for later disposition. 4.13 Deferral Accounts Transmission Related Deferral Accounts The JIESC is concerned that the BCTC/Hydro
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proposal contained in Exhibit B2-1 does not leave responsibility for controllable items with respect to transmission with either BCTC or B.C. Hydro for fiscal 2005 or '6. This must be corrected. Proceeding Time 11:23 a.m. T25 4.13.2 Interest and Foreign Exchange Deferral Accounts The JIESC is concerned by the uncertainty and volatility of exchange rates and interest rates and feels that a deferral account for these items should be considered, as to a large degree they are beyond the control of B.C. Hydro. CONCLUDING COMMENTS In summary, the JIESC members are of the view that a combination of appropriate cost restraint, accounting, and other measures can and should eliminate the need for B.C. Hydro's proposed increase. The B.C.
economy is recovering but it is recovering slower than most had anticipated or would hope. Taking $480 million
out of the productive economy over the next two years and giving it to B.C. Hydro will not assist that recovery. Thank you. MR. FULTON: If the speaking notes, Mr. Chairman, might be
marked Exhibit C23-8. THE HEARING OFFICER: Marked Exhibit C23-8.
(SPEAKING NOTES OF MR. WALLACE ON BEHALF OF JIESC MARKED
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EXHIBIT C23-8) THE CHAIRPERSON: Mr. Wallace, I have one clarification
question for you and it deals with the equity ratio issue. You have stated that the Commission should take
steps to ensure that an efficient capital structure is maintained, and in the same section of your submission you raise the issue of CIAC. MR. WALLACE: That's correct. I assume that you're doing that because
THE CHAIRPERSON:
you see some linkage between the two, and I'd like you to speak to that linkage if you will, particularly in the context of what evidence you expect the Commission will have with respect to what an efficient capital structure might be. MR. WALLACE: Mr. Chairman, I guess first the linkage
between customer contributions in aid of construction and their treatment and equity is that under the special directions, customer contributions in aid of construction are equity, unlike the situation for most utilities where they are not. So an increase in
contributions in aid of construction leads directly to an increase in equity. With respect to evidence on what an efficient capital structure is, I concede that -- I mean financially it's a matter of leverage, I guess. If you
can replace 13.9 percent equity with 6 to 7 percent
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debt, cost-wise that you are going to be better off. think that just follows mathematically. With respect to what is an adequate equity ratio, I suggest you have the evidence of the special direction which mandates a minimum of 80/20, and you also will have and we have given a reference, B.C.
I
Hydro's financial review, and I hope evidence from the witnesses, that B.C. Hydro, in prior periods, has done quite well with -- or has not experienced difficulty with equity ratios well below the 20 percent. I think
in the early years it was regulated, we were probably closer to 10 percent. THE CHAIRPERSON: It is your view then that one of the
issues for this proceeding is what an efficient capital structure is for B.C. Hydro? MR. WALLACE: I think it is something the Commission should
look at, yes. THE CHAIRPERSON: Okay, thank you.
OPENING SUBMISSIONS BY MR. WEAFER: MR. WEAFER: panel. Good morning, Mr. Chairman and members of he My name is Chris Weafer appearing for the
Commercial Energy Consumers of British Columbia. Firstly dealing with the three process questions which you've asked us to speak to: On item 1
in terms of the follow-up information requests, we're satisfied in that I believe Mr. Sanderson has said that
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the unanswered information requests from round 2 of intervenors' requests are open for cross-examination, that they didn't respond to the IRs but that they're still -- the panels will speak to them. With respect to the second process question, the absence of witnesses on certain topics, such as information technology issues and others which the CEC did ask Information Requests on, as I understand it, we can file written requests on those issues at some time during the course of the proceeding and B.C. Hydro will provide answers to those requests. And we're satisfied
with that, if I'm understanding that process proposal. Proceeding Time 11:28 a.m. T26 With respect to the third process question, which was Mr. Sanderson's description of issues outside the scope of this hearing discussed this morning, I concur with the submissions of Mr. Wallace on bullet point 3. It's a rather broad exclusion, the financial As I understand Mr.
cost forecast in this application.
Sanderson, he's giving out a very limited definition and that issues with regard to financial costs and rates are obviously important issues in this proceeding, including interest rate costs and we do intend to pursue those issues in cross-examination. Turning to my submissions of this morning, and your request for an opening statement -Allwest Reporting Ltd., Vancouver, B.C.
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THE CHAIRPERSON:
Before you do that, I want to confirm
what you've just told me, that with respect to certain topics, there are outstanding Information Requests from the client? MR. WEAFER: In terms of the second round of Information
Requests which were subsequent to the second preliminary hearing, I believe there are more outstanding than answered. They did not answer many of our Information
Requests at all, some of which were simply repeats of the first round of Information Requests, in terms that they hadn't understood the question and we attempted to get an answer through a second information request. And
the answer wasn't "We're not answering for relevance," or "We're not answering for importance," it was, "We don't have the time; we're preparing for the oral hearing." And we took that answer to mean, we can
pursue those issues in the oral hearing. THE CHAIRPERSON: I thought I heard you suggest that you
had an accommodation with B.C. Hydro in that regard. But it sounds now like it's the result of a conclusion that you've drawn from the fact that they've answered those questions the way they have. MR. WEAFER: No, it's a conclusion that I've drawn from Mr.
Sanderson saying, the last time he spoke to this issue, that he understood that those issues that had not been responded to, may be pursued through cross-examination
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but they had not answered them in writing through the Information Request proposal. If I'm misunderstanding
his comment, I'm sure he'll correct me -- but my understanding is, those Information Requests are relevant to issues, primarily in the PowerSmart area, and we will be pursuing them and following up through the cross-examination process. THE CHAIRPERSON: Our difficulty is we're endeavouring to
establish some scope without being specific to individual information requests and at some stage we may need that clarity. statement. MR. WEAFER: Thank you, Mr. Chairman. And I will certainly But please proceed with your opening
ensure that, in pursuing those cross-examination questions, that they are relevant and pertinent to the scope of the proceeding, and I'm sure you will tell me if you think otherwise. THE CHAIRPERSON: Or Mr. Sanderson will.
I am going to speak to the process issues
on Tuesday morning, I really was just looking for some clarification at this stage with respect to the conclusions that you've drawn from the Information Requests that you've filed and the responses to those, or lack thereof. I think that's adequate for now, Mr.
Weafer, thank you. MR. WEAFER: Thank you, Mr. Chairman. Mr. Chairman, the Commercial Energy Consumers
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represents a diverse group of private- and public-sector entities which fall under the commercial class customer group of B.C. Hydro. It is a significant group in size
and a significant group in terms of the operations of B.C. Hydro, in that it represents approximately a third of the customer class, a third of the load of B.C. Hydro. It is an important group in the B.C. economy and
it is a group which is significantly affected by this rate increase application. There are essentially two categories of customers within the group: public, taxpayer-funded
entities such as hospitals, school districts, municipalities and private-sector entities. With
respect to the taxpayer-funded entities such as hospitals and educational institutions, those entities are under significant cost pressure in the B.C. environment, and any rate increase in relation to energy will have a significant impact on their operations as they are not seeing increased budgets from government. And therefore, this application has significant relevance to them. With respect to private-sector entities, such as the agricultural sector, which is represented by the CEC, that is a growing and important sector in British Columbia creating new jobs and new opportunities. Any
significant increase to their energy costs affects their
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competitive position and therefore that sector and other private-sector entities represented by the CEC has a significant interest in ensuring that B.C. Hydro's rates are fair, just and reasonable, that the entity is operating and spending money in a prudent manner, and that its accounting practices and other decisions with respect to establishing a revenue requirement application are made in a manner which is consistent with the cornerstone principle of the Energy Policy, which is that energy costs in British Columbia should remain low and competitive. And those are the
fundamental which see us here today representing the CEC. Proceeding Time 11:33 a.m. T27 The CEC is still a relatively new entity. The commercial sector customers have not been active in the past before the B.C. Utilities Commission. We
believe, and the group believes, it's important that they be here and that the Commission under those interests, and to that end we will put a panel forward in this proceeding and we have also retained expert consultant in David Craig, whose evidence is before you. The CEC wishes to be clear that they are not adversarial in position with B.C. Hydro. We respect the
effort that B.C. Hydro has made to put together their application and the response to the voluminous
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information requests that they've received.
We have a
high level of respect for the employees and management of B.C. Hydro participating in this proceeding, and we look forward to a smooth and cooperative process and an efficient process over the next few weeks. That said, this application and this proceeding is about choice. It's about the choices B.C.
Hydro has made in filing their application and in setting the revenue requirement. It's about choices
that intervenors have put forward to the Commission in terms of alternative approaches that revenue requirement should be established. But most importantly and
fundamentally, it's about a choice for the B.C. Utilities Commission with respect to how they handle this application and the choices that we make. And in
argument and through their proceeding, our message to you will be to urge you to make a choice which maintains a zero increase for B.C. Hydro and maintains low cost energy resources for our client group. Turning specifically to the specific issues that are before the Commission and the CEC intends to focus their attention to in this proceeding. As I
indicated, we have filed the evidence of Mr. David Craig, who Mr. Wallace has referred to and I think in his opening statement has relied fairly heavily on some of the submissions of Mr. Craig, and we appreciate that.
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We will characterize our primary areas as six firstly, capital structure issues being equity-
related matters primarily; depreciation issues; cost of energy issues; financing charge issues; operation maintenance administration efficiency issues; and finally, PowerSmart. Now, some of the topics I will Mr.
cover as I go through will be familiar to you.
Wallace has covered some of the primary areas, and I will try to be efficient in terms of going through my opening comments to not be too repetitive, but inevitably we will cross on the major topics. In terms of dealing with equity issues, the first and most significant issue which has been identified by I think all intervenors concerned with the prudency issue and the appropriate choices for maintaining low rates, is the future removal and site restoration issue. The balances of $240 million for
FRSR and 64 million for anticipated recovery are significant balances. The customer position, the CEC
position, will be that the $240 million should be transferred into a deferral account to reduce the increase in revenue requirements in fiscal year 2005 and 2006. We have pursued this issue through our
information requests, which is Exhibit 35-2, in 1.71 through 7.44. We've been pursuing it through the
proceeding and we will continue to pursue it in the
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hearing. With respect to the capital structure issue and the debt to equity ratio, we also support the position put forward by Mr. Wallace that it is appropriate that that matter be considered in this proceeding, and that it is appropriate that a 75 to 25 percent debt to equity ratio is a matter which the Commission can make a choice to implement, and that will have a material impact in reducing the revenue requirement of B.C. Hydro and be in the customer's interest, with no material detriment to B.C. Hydro. You asked Mr. Wallace if there was evidence on the record with regard to that. Mr. Craig has
testified to that point, or his evidence speaks to it. In response to information request, he's also filed material in relation to Manitoba Electric Utility, and there is material on the record that I'm sure parties will find value in considering, including the Commission. Proceeding Time 11:38 a.m. T28 We have also pursued through our Information Requests the Contributions in Aid of Construction issue with regard to its impact on equity. We believe there's
a choice for the Commission that can be made which would save customers approximately $7 million per year in revenue requirements, for fiscal year 2005, and $14
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million for fiscal year 2006.
And that's addressed in
Mr. Craig's evidence and again, we pursued that through our Information Requests. Moving to the area of depreciation there are a number of areas where we will be pursuing crossexamination on depreciation issues, including dismantling and site removal, the Burrard Generating Station acceleration of depreciation. In our view, B.C.
Hydro has not provided definitive information with regard to the useful life of the Burrard plant but has instead reflected a list of concerns. We do not believe
the evidence on the record justifies the accelerated depreciation that they are pursuing. And we've pursued
that topic through our Information Requests, again, Exhibit 35-2, Questions 7.1 to 7.44 and the matter is also addressed in Mr. Craig's evidence. We will be pursuing depreciation issues in regard to water use plans and the cost of depreciation of those plans, and again, while not a significant financial matter, the cumulative effect of these issues that we're reviewing will have in our view a significant impact in reducing the B.C. Hydro revenue requirement. We'll be pursuing the depreciation issue with regard to the cost of First Nations negotiations. Those
questions, again, were dealt with in our Information Requests, and we've followed up in cross-examination and
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our questions 38.1 and 38.2 in Exhibit 35-2. We'll be pursuing the depreciation issue with respect to distribution system assets. It would appear
that B.C. Hydro has been both arbitrary and selective with regard to amending depreciation rates and we'll be pursuing that topic through the appropriate panel. That
topic was pursued in our Information Requests as well, in around questions 8.11, 14.4 and 34 and 35, and again you will also see that matter dealt with in Mr. Craig's evidence. The next primary issue topic, cost of energy, we'll be cross-examining with regard to the start-up of normal water flow estimates of B.C. Hydro, the resultant impact of those estimates. We believe there's an
opportunity to impact approximately 1 percent of the revenue requirement of B.C. Hydro by adjustments to the start-up water levels. We will be pursuing the issue of cost of energy in relation to market purchases for domestic supply. The point we'll be pursuing is that an
alternative approach, which would see a greater portion of the portfolio planned with purchases, be adopted by order of the BCUC, and we believe that could save approximately 0.2 percent of the B.C. Hydro proposed rate increase. That was addressed in CEC Information
Requests 10.1 and 10.2 and Exhibit 35.2, and again,
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you'll find that referred to in Mr. Craig's evidence. Moving to the topic of finance, with respect to revolving borrowings, B.C. Hydro has a limit on revolving borrowings of approximately $1.4 billion dollars. They expect to do refinancing of $600 million We believe that
in 2005, and $700 million in 2006.
amendments to that borrowing approach which would see a greater portion of the debt portfolio planned with short-term debt, to be adopted by order of the BCUC, and it could save customers approximately 0.4 percent of the B.C. Hydro proposed rate increase. Proceeding Time 11:43 a.m. T29 Moving to the topic of efficiency, with respect to budgets for capital and operating expenditures, the historical plans for capital and for operating show that they have under-spent as compared to forecast, approximately minus 4 percent for capital, minus 3 percent for operating. We have not received a
10-year actual-versus-planned expenditures for the last ten years, so we have some difficulty assessing the consistency of that under or overforecast. The fact
appears that there may be an opportunity with respect to tightening that differential to reduce the revenue requirement of B.C. Hydro by approximately .6 percent. The next topic with respect to efficiency deals with the incentive bonus payments for meeting
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goals for B.C. Hydro staff and management.
CEC will
pursue the implementation of some form of productivity measurement to be achieved by B.C. Hydro such that there are evidenced and actual savings achieved for customers by their investment in those incentive plans. We
believe that alternative approach or that alternative choice by the BCUC, consistent with what it has done with other utilities in terms of performance-based initiatives, could see customers save approximately .6 percent of the B.C. Hydro proposed rate increase. Moving on in the issues of efficiency to the BCTC structural costs, I confess to be somewhat unclear with regard to the proper handling of the forecast BCTC implementation and costs, and it's something we are going to have to sort out. The fact of the matter is
significant costs are being created in BCTC for its establishment and for its implementation, and we understand the statutory requirement for it to be created. What we would expect to see in return for that
is some significant reduction on the cost side of B.C. Hydro, and we're not seeing that in the evidence, and it's a matter that we will pursue through the proceeding, recognizing that BCTC's costs are not in issue in this proceeding. Nonetheless, the magnitude of
those costs will be -- and we'll certainly test those as being excessive, but for the purpose of this proceeding
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we'd like to see some -- we will be pursuing some evidence of reduction in B.C. Hydro costs as a result of that carving off of BCTC. The next area of efficiency, and just speaking generally, Mr. Wallace spoke to this issue as well with respect to expansion of activities in areas of research and development, the investment in HydroGen, investments in sustainability. We will be challenging
those issues through cross-examination with respect to the appropriateness of those expenditures and their consistency with the core values and objectives of B.C. Hydro as a basic electric utility operating in the province. Again those were issues pursued in our
information requests and will continue on through crossexamination. The last general area of interest to the CEC, and the issue is twofold, one is -- I'm turning to PowerSmart, Mr. Chairman, with respect to the effectiveness and efficiency of PowerSmart and the expenditures of PowerSmart, prudency of those expenditures, and alternative approaches to assessing what are appropriate expenditures for PowerSmart. And
on the other side of that, to the extent it is relevant to this proceeding, the utilization of PowerSmart for the purpose of customers within the Commercial Energy Consumers Group.
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Proceeding Time 11:48 a.m. T30 So we will look at the cost side but we will also, while recognizing this is not a rate design hearing, we're not looking to implement a new tariff for PowerSmart, we will take advantage of the opportunity to pursue what initiatives are in place for commercial energy customers with a view to assisting them in reducing their energy consumption costs within the parameters of this revenue requirement hearing. But we
will be alive to the fact that this is not simply a hearing about PowerSmart. In fact, as a general comment, Mr. Chairman, it's -- to see the amount of evidence that has come into this proceeding in relation to PowerSmart, it's been given a very high profile and there may be a value in assessing whether issues in relation to PowerSmart should be carved off into a separate proceeding, because I think there is a risk of a good deal of hearing time being spent on PowerSmart, not necessarily relevant to what this hearing is about, which is a revenue requirement proceeding for B.C. Hydro, but that's something for assessment as the process unfolds. Mr. Chairman, those are a summary of the issues that we intend to pursue. Within the parameters
of those issues, there will be other matters that arise. In conclusion, we recognize your desire to
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run an efficient proceeding and to limit the scope of the proceeding to what is pertinent to the revenue requirement proceeding, but I have to act on Mr. Wallace's comment that there will be issues that arise, there will be matters that come to attention through the course of the proceeding that will be relevant to this revenue requirement proceeding, and I would hope that you will grant some leeway to counsel to deal with those matters effectively and efficiently but nonetheless to allow them that leeway. In conclusion, Mr. Chairman and members of the Panel, it is going to be the position of the CEC that there is no requirement for a revenue requirement increase for B.C. Hydro during the proposed test years and we look forward to sharing that view again in final argument. Thank you, Mr. Chairman. Your comment, Mr. Weafer, with respect to
THE CHAIRPERSON:
carving out PowerSmart, raises an issue that at some stage the panel is going to need to deal with. I did
say at the outset that I was going to endeavour to avoid a debate with respect to issues that should be included and those that should be excluded. But it strikes me
that your comment calls for some further input from a variety of parties as it relates to that issue, and one that I think the Panel is going to need to deal with as we get to the hearing issues list, and it's also one
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that I think we will benefit from if we hear from others speaking to the same issue. And I think the -- my
concern is this, and I'll speak to what you suggested in your comments, probably in a little bit more detail than you did. When I look at recommendation number 16, and recommendation number 25, of the recommendations to the government of October 17, 2003, which were accepted by the government, it spoke to the issue of when PowerSmart customer base generation should be addressed, and I'm concerned from that those recommendations are not -- I'm thinking that those recommendations add some support to your suggestion that PowerSmart be carved out, or portions of it be carved out of this proceeding. Proceeding Time 11:53 a.m. T31 And so I'd like, with that introduction to the topic, I'd like to hear at the end of the day from participants on this issue, and I'll simply give notice now. I think we're going to have time to do that. If
that creates some -- if that proposal of mine creates some issues in terms of our process, I'll be happy to deal with that at 1:30 if there's some suggestion at the end of this proceeding dealing with that and getting input on that issue. If the parties would prefer not to
deal with that at the end of the day today, that's fine. But in any case let me give notice to everyone that that
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is an issue that struck me prior to your comments, and then your comments add some weight to those concerns. So let's return to this issue at 1:30. I'll
ask for comments from anyone if there's any objection to me in fact raising that as an issue for input at the end of the day today. That was a long rambling comment but hopefully that's helpful. To put it succinctly, at the
end of the day I'd like to deal with recommendation numbers 16 and 25 from the recommendations from the Commission to the government, and the implications of those recommendations for this proceeding. MR. WEAFER: Thank you. Mr. Gathercole, I note the time. Let's Thank you.
THE CHAIRPERSON:
break now, return at 20 minutes after 1. MR. GATHERCOLE: Chairman. THE CHAIRPERSON: Thank you. T32 That's fine with me. Thank you, Mr.
(PROCEEDINGS ADJOURNED AT 11:55 A.M.) (PROCEEDINGS RESUMED AT 1:23 P.M.) THE CHAIRPERSON: Please be seated.
Before the lunch break
I raised an issue involving Recommendation 16 and Recommendation 25 of the recommendations pursuant to the Heritage inquiry, and suggested that we hear from participants in the process at the end of the day today. The panel would like to hear from you.
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objections to us returning to that issue at the end of the day? Good. That doesn't preclude anyone who is
going to be providing opening statements this afternoon from in fact addressing that issue if they choose to. will, just for the record, indicate that the issue was raised in an information request from IPPBC in Exhibit B1-11, Information Request No. 1.33.1. Mr. Gathercole. OPENING SUBMISSIONS BY MR. GATHERCOLE: MR. GATHERCOLE: Thank you, Mr. Chairman. Good afternoon, I
Mr. Chairman, Commissioners. I do not believe that it's necessary for me to go into any detail with respect to who my clients are, other than to note that they represent the interests primarily of B.C. Hydro's low income residential customers. And I was reminded when Mr.
Wallace had indicated early in his submissions that for all practical purposes, this could just as well be B.C. Hydro's first application. And looking around the room,
I realize that Mr. Wallace and I are the only counsel who were counsels in that proceeding that are counsel in this proceeding, and there is a certain amount of déjà
vu in the sense that I remember the first time I felt
somewhat overwhelmed being new to the area, and also with the amount of materials. Now that I've been at it
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for a long period of time, I still feel sometimes a little overwhelmed when I look at all the materials we have before us. When the government brought B.C. Hydro back under regulation by the Commission after a 10-year hiatus, BCOAPO et al, I believe like some other parties, initially saw this as a potential opportunity to review what B.C. Hydro had been doing since its last appearance before the BCUC. of this hearing. But obviously that's not the purpose What happened over the past ten years
can to some extent inform the present and the future of the utility, perhaps an example being the responses to BCUC IR 1.21.1, which is Exhibit B1-7, and BCOAPO IR 1.7A which is in Exhibit B1-11. I won't keep giving the exhibit numbers, Mr. Chair, other than if it's the first time I refer to it, if that's okay with the Commission. THE CHAIRPERSON: MR. GATHERCOLE: Fine. And what these responses to these IRs
addressed was the estimate revenue requirement increases from fiscal 1994 to fiscal 2005, due to each of the principal drivers of the increased revenue requirement set out in the application which is Exhibit B1-1, page 15. In other words it does give us some idea of how we
might have gone from 1994 to today with respect to had there been some review by the Commission.
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my submission the emphasis has to be on where we go from here. Proceeding Time 1:28 p.m. T33 And the evidence filed and the Information Request responses, as I say, are overwhelming, particularly given the B.C. Hydro organizational changes over the past few years, which makes it somewhat difficult to compare where they were with where they are now. But others have made reference to that. BCOAPO et al. see this process as not only setting specific rates for B.C. Hydro for the next two fiscal years, but also establishing the initial framework for the ongoing regulation of B.C. Hydro and BCTC. However, because of the extensive changes that
have taken place in the last few years, including the creation of BCTC, the Heritage Assets, the direction by government to B.C. Hydro to contract out both additional power resources and other services it requires, in my submission, it could take a couple of years to fully understand all the implications of these changes and to establish the appropriate regulatory framework. Accordingly in our submission, this proceeding is an important first step in establishing that framework, but is not likely the last one. The specific issues of concern to BCOAPO et
al. in this proceeding fall within the ambit of its
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general concerns with respect to B.C. Hydro.
These are
the provision of secure and reliable sources of electricity, safe and reliable delivery of those resources, and in both cases the lowest rates possible, and certainly rates that are just, reasonable and nondiscriminatory. We recognize that many of the specific
issues of interest to BCOAPO will also be issues of interest to other parties in this proceeding; indeed, this has become obvious as I've listened to the initial opening statements. Accordingly, our focus on any
particular issue will depend in part on the extent to which these other parties are in a position to address, or have addressed these issues, more extensively in filed evidence, or will address them in crossexamination prior to BCOAPO et al.'s cross-examination of B.C. Hydro and BCTC's witness panels. In preparing the opening statement, I was conscious of the guidelines the Commission, through the Chair, set for opening statements. As the Chair stated
on page 145 of Volume 2 of the transcript, "We are proposing that there be opening comments from counsel, that opening comments provide a summary of the interests and issues of your clients in this proceeding, and I use the word 'proceeding' deliberately in that regard, and you would also in your opening
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comments indicate what issues you wish to pursue during the course of the hearing with references to the evidence that has been filed leading up to the hearing and some observations of that evidence will also be helpful." As I reviewed that, it seemed to me that that could be interpreted as a request for parties to present in their opening statements what in essence would be an outline of their final arguments. With respect, I do not
believe it is possible for many of the parties to meet this request, given the extensive filed evidence, including the overwhelming number of Information Requests, and the evidence that will be elicited during this proceeding. I believe Mr. Wallace came close to
doing that, and I commend him for it, but certainly BCOAPO et al. was simply not in a position to provide that level of detail in the opening statement. As the Commission will appreciate, our resources are limited and in recent weeks have been dedicated, at least in part, to other proceedings before this Commission, including the Pacific Northern Gas and Insurance Corporation of British Columbia matters. So what we have focused on, in preparing for this, is we've concentrated on responses to our Information Requests and those of the Commission, and to
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a more limited extent responses to Information Requests of other intervenors which appear at first glance to be relevant to the issues of interest to BCOAPO et al. Having said this, Mr. Chairman, I am encouraged by your response to a question from Mr. Austin on page 150 of Volume 2 of the transcript, in which you indicated you're only encouraging observations about evidence and you did not consider it essential to the opening statements. Accordingly, in addressing the individual issues of interest to BCOAPO et al., I will attempt to be as complete as I can with respect to the guidelines requested by the Commission. I will not be able, in
each of these issues, to specify in detail all of the relevant Information Request responses other than our own and some of the Commission's, I may address in the course of cross-examination, but as I understood you to say in your opening statement this morning, Mr. Chairman, parties would not be limited to Information Requests that they mention in their opening statement. Now, turning to the individual issues, the first specific issue of concern as indicated by the fact that BCOAPO et al. has filed evidence on it, is PowerSmart, and that's Exhibit C10-3. I want to
underline that BCOAPO et al. is a strong supporter in principle of demand-side management and of PowerSmart.
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It is something we have supported over the years. However, it is our position that PowerSmart, like any other operation of the utility, needs to be operated in an effective and efficient manner that does not place undue demands on B.C. Hydro's ratepayers or any specific class of ratepayers. In particular, BCOAPO et al. is
concerned about subsidies between rate classes. Proceeding Time 1:33 p.m. T34 As indicated in Shaffer's evidence filed on behalf of BCOAPO et al., our main concern is with PowerSmart's activities in the industrial sector and in particular its provision of subsidies to encourage industry to develop the DSM savings that could and should be obtained by other mechanisms, notably the proposed two-tier industrial rate which was included in the Energy Policy. As stated in the executive summary to Dr. Shaffer's evidence, what is required at this time is a rejection of the industrial PowerSmart expenditures in B.C. Hydro's revenue requirements application, and direction to B.C. Hydro to develop rate proposals and complementary strategies, facility energy advisory services and conservation financing that will achieve the industrial sector potential in an efficient and equitable manner. And I will come back to this, Mr.
Chairman, at the end of the day when we talk about what
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should be done with PowerSmart.
But despite the fact
that B.C. Hydro has filed a great deal of evidence with respect to its PowerSmart program in both volumes of its application as well as in responses to a number of information requests, including numbers 1.89 to 1.91 of BCOAPO et al., at IR No. 1, I do not propose to explore in detail B.C. Hydro's evidence with respect to Power Smart, other than how it impacts on the specific concerns of BCOAPO et al. in this proceeding. There are issues that impact on the revenue requirement for the years 2005-2006. There is also the
concern that was expressed by Mr. Weafer and raised by yourself, Mr. Chairman, about the timing of various things in accordance with the recommendations that were made to government and the response of government to those recommendations. And as I say, I'll come back to
that later, but I want to make it clear that our focus is on PowerSmart matters that impact on the review requirements in the two years under consideration. Now, other parties including the Independent Power Products; the Sierra Club of Canada, B.C. Branch; the Concerned Citizens for Public Power; and the Commercial Energy Consumers of British Columbia, have also filed evidence with respect to PowerSmart. Some of
this evidence is compatible with what we have filed. Some of it is not, notably the evidence of the Sierra
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Club of Canada, British Columbia Branch, and to a lesser extent the Independent Power Producers. I intend to
explore those differences with these parties' experts at the appropriate time. A second issue of interest to BCOAPO et al. is the operation of deferral accounts. There are four
specific deferral accounts, the first being the Heritage Deferral Account. BCOAPO et al. wishes to explore with
B.C. Hydro the specific operation of this deferral account, particularly given the potential impacts on the Heritage resources of the low reservoir in-flows which have led to B.C. Hydro's amendment to its requested revenue requirement as outlined in sections 2A and 2B of its application. We also have concern about different figures provided by B.C. Hydro with respect to the level of the Heritage Assets. You know, there seem to be different
figures in responses to a number of the Commission information requests, our information requests, and information requests from Mr. Wait. BCOAPO IR 1.23.0B is also -- which sets out the operation of the account with respect -- and was followed up with a number of IRs from Commission staff with respect to how the account would operate, I believe in the most recent round of information requests. that's an area that we wish to explore.
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Proceeding Time 1:38 p.m. T35 Other issues involving the Heritage Deferral Account include the tracking and recording of increases and depreciation and finance expenses due to unplanned capital expenses, unplanned major maintenance expenses, and the amortization of unplanned deferred capital costs. And the reference there is to BCUC IR 2.122, the
Application Part 2B, BC IR 1.4.6, that's IR No. 1, and BCOAPO et al. IR 1.22.0C. With respect to the Non-Heritage Deferral Account, the concern we have is determining precisely what the Non-Heritage Deferral Account is meant to track, particularly given the description provided in BCUC 1.22 and the example provided in the IPPABC IR response 1.8.1. We have similar issues with respect to the BCTC Deferral Account in determining precisely what the account is meant to track, and our starting point for these discussions will be Table 6A-10 and 6A-11, and forecasted WTS rate revenues as set out in Table 6A-2, and that's Exhibit B1-13. Finally the Trade Income Deferral Account. This account was discussed extensively during the Heritage Contract proceedings. However, there are still
some points of clarification required on how it will work. Specific areas of interest are how outstanding
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revenues from past trading activities as described in the response to BCUC Information Request 1.23.13 will be treated, and how energy purchased by B.C. Hydro and then resold to Powerex will be valued. And the related
evidence there is responses to BCUC Information Request 2.114.4, 2.114.5, and IR 1.2.7. The next item is with respect to asset retirement obligations. I believe this is an issue of
concern to all ratepayers given the amount involved and its impact on revenue requirement. However, as noted in
Mr. Wallace's opening remarks, the JIESC and I believe also the Commercial Energy Consumers of British Columbia filed evidence on this specific issue, so we propose to rely on them to develop this issue at the proceeding and we'll be supporting their position and cross-examining only where it's necessary to clarify issues. The next issue is customer service. We wish
to explore the relationship between B.C. Hydro and Accenture with respect to the contract which is referenced in BCUC Information Request 1.93.0. The
concern is specifically with respect to the guidelines B.C. Hydro has established for service terminations, service reconnections, security deposits, and similar issues which particularly impact on B.C. Hydro's low income customers. And it ties in with what to us
appears to have been a change in how things are done
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since ABS took over, and we wish to explore with the appropriate panel or panels to what extent this is driven by B.C. Hydro and to what extent, if any, it's driven by ABS. With respect to the relationship between B.C. Hydro and B.C. Transmission Corporation, that's an issue of concern although I anticipate this will be dealt more fully by other intervenors than by ourselves. But the
issue is really how the relationship between the two utilities will actually work, and what impact it will have on the ratepayers. And one of the issues that has
been raised by other parties earlier is that the transfer of staff from B.C. Hydro to BCTC does not appear to have reduced B.C. Hydro's costs associated with a number of activities, including corporate activities, while at the same time BCTC has had to develop its own corporate functions. There are a number
of information requests which address this issue, including BCOAPO et al 1.32.0B, BCUC 1.6.14, and BCUC 1.70.4. Another issue that ties in with some of the issues that others have indicated is the OM&A cost increases from fiscal 2003 to fiscal 2004. It was a
fairly significant increase in OM&A costs from 2003 to 2004, the reasons for which are outlined in response to BCOAPO et al 1.16A. We are interested in exploring some
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of these cost increases to better understand whether they are ongoing requirements or one-time costs, and if the latter, to determine how and where the appropriate reductions were made in the OM&A cost forecasts for subsequent years. Proceeding Time 1:43 p.m. T36 The next issue is relationship between B.C. Hydro and Powerex. While this is an issue of interest
to BCOAPO et al., particularly with respect to its impacts on B.C. Hydro ratepayers, we are not in a position to explore this in detail and anticipate that other intervenors or Commission staff are likely to explore this issue more fully. We may wish to follow up
on this issue, particularly with respect to past trading activities and the references there are BCUC IR 1.23.13 and JIESC IR 1.4.0A. Transmission and distribution maintenance. We recognize that to ensure safe and reliable service, B.C. Hydro and BCTC need to maintain their transmission and distribution systems. One issue is, if and why
maintenance and capital expenditures have been deferred in the past. As indicated by Mr. Wallace in his opening
statement, there appears to be a very significant increase at this stage of the game. And given the
situation that the utility was in with respect to its revenues during the period it was not under regulation,
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we wish to explore whether any maintenance that should have been done at that time has been postponed until now. Again with respect to the transmission system, we
are concerned about the relationship between the expenditures in 2004 and the proposed increases in 2005 and 2006, particularly since it appears that some of the 2004 expenditures were one-time expenditures, not ongoing expenditures. And the reference there is to
Chapter 6 of the application, page 20, and BCOAPO et al. IR 1.49.0A. New generation of power purchases. There is
substantial evidence, both in the application and the responses to Information Requests, with respect to B.C. Hydro's contracts with independent power producers to meet future loads. However, as outlined in tab 2A,
revised to the application, low reservoir levels will require B.C. Hydro to purchase more market power. This
relationship, and the relationship with PowerSmart as a source of supply, will be explored with B.C. Hydro. These are the issues that BCOAPO et al. has identified as specific interest to it. However, like
other parties, we anticipate that other issues may arise during cross-examination by other intervenors which may be of particular interest to BCOAPO et al., and we would like to, as the other parties, have the opportunity of exploring them further if we believe it's appropriate.
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For example, BCOAPO et al. has reviewed the evidence filed by the Commercial Energy Consumers of British Columbia. Obviously, the issues that are raised by Mr.
Craig's evidence will be explored, I would expect, in some detail by Mr. Weafer in his cross-examination of the B.C. Hydro panels and we are supportive of most of them, and will address them in a manner that's appropriate. That concludes my submissions with respect to the issues we have identified. Turning to the process issues, I think Mr. Sanderson clarified, for my purpose, his comments with respect to on which Information Requests crossexamination was appropriate and which were not. For
example, we decided not to file additional Information Requests on the second round for intervenors, the third round overall, because in respect to the responses we had, I felt it was probably better and more likely to get the information and the evidence, to do it through cross-examination rather than through additional Information Requests. And I concur with Mr. Wallace
with respect to his comments on -- there is a balance, and in my experience, if you get into too many rounds of Information Requests, it's not as useful at getting out the evidence as having the Information Requests on the first round, maybe the second round, and then following
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up on cross-examination. Proceeding Time 1:48 p.m. T37 With respect to the April 23rd letter, I have no problem with that. I have reviewed the information
requests that we filed that are stated in the letter, and I don't anticipate that we would have any questions on those. And I note that in the letter Mr. Sanderson
had indicated that if questions were raised that could not be answered by people who were on the panel, B.C. Hydro would provide a written response, which is acceptable. With respect to Part 3 of Mr. Sanderson's comments this morning, I think it is fair to identify up front issues that generally would not appear to be part of this proceeding, but I would strongly concur with Mr. Wallace that we not do this up front and say -- because other than that we will end up having, I think, a number of arguments during the course of the evidence saying: Well, does this really fall within this exception or not? And I don't think the exceptions are as clearly
defined as we would like, so I would see them as pretty strong guidelines, but I think if the issue arises during the course of the hearing, I would agree with Mr. Wallace that that's when it should be dealt with. With respect to issues of other parties, I think we've seen a significant amount of overlap and
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agreement.
I think, you know, certainly when I was
going through it I had some sense of which issues other parties were likely to raise, and so rather than repeat them I focused on others of specific concern. I have
not heard any issue raised which I would think would not be within the scope of this hearing. So those are my submissions, Mr. Chairman, thank you. OPENING SUBMISSIONS BY MR. JONES: MR. JONES: Mr. Chair, members of the panel, Chris Jones I do have a
for the Sierra Club of Canada, B.C. Branch.
written opening statement which I will hand up and distribute. Just a comment at the outset, Mr. Chair. Mr.
Weafer of course began the process of us examining the proper context under which we'll be considering PowerSmart, and I'm happy to address that. I thought I
best to do that at the end of my opening statement.
should say that I wasn't able to obtain instructions in that regard over the lunch break, but I am happy to address it as best I can. As others have certainly said in their opening statements, this is a very significant proceeding. It's the first revenue requirements
application brought by B.C. Hydro for many many years. It represents therefore for all intervenors, my client
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included, the opportunity to evaluate B.C. Hydro's operations and its programs. In this context the Sierra
Club is acutely interested in ensuring that the benefits of demand-side management programs, both existing and potential, are fully considered in this proceeding. Although the Sierra Club has limited resources, it will do its best to ensure that issues related to the benefits of DSM programs are fully considered in order to provide a solid foundation for the Commission to render its important decision. Therefore the focus of the Sierra Club's interest in this proceeding and the issues it will pursue therein are, first, those DSM programs for which B.C. Hydro has sought recovery pursuant to its revenue requirements request, and second, the potential for cost-effective expansion of those programs. The Sierra
Club will therefore focus on the cost-effectiveness of PowerSmart programs. The evidence adduced by the Sierra
Club in this proceeding concludes that B.C. Hydro's PowerSmart programs are generally very cost-effective pursuant to the utility cost and total resource cost tests. And I will make reference to a couple of pieces of the evidence, Mr. Chair. They have, I think, I will
been referred to already several times today.
just refer to B.C. Hydro's Conservation Potential
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Review, which is found at the application Volume 2, Appendix H, and its 10-year plan, which is in Volume 2, Appendix I. Again, my references to evidence are not
meant to be exhaustive as other parties have mentioned. Proceeding Time 1:53 p.m. T38 In addition, the Sierra Club intends to address the amount of achievable, cost-effective energy efficiency savings that are not being pursued as part of the PowerSmart program. Evidence to be considered in
this regard includes the conservation potential review, which demonstrates in the Sierra Club's submission that there exists significant cost-effective energy efficiency savings which are not captured by B.C. Hydro's ten-year plan. The Sierra Club also intends to
focus on the issue of whether the analysis in B.C. Hydro's ten-year plan captures the full benefits of energy efficiency programs, including avoided costs. These include the extent to which the ten-year plan considers generator capacity savings from energy efficiency programs, avoided transmission and distribution costs resulting from efficiency savings, and the benefits resulting from the sale of generation freed up by efficiency savings. And again, I'm referring to the Sierra Club evidence, the evidence of Tim Woolf at pages 15 to 17. In addition, in this context, the Sierra Club
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intends to seek clarification respecting the discount rate which has been applied by B.C. Hydro to the PowerSmart ten-year plan. Another issue that the Sierra Club will pursue through this proceeding is the extent to which increased investment in PowerSmart programs could have an impact on rates. The evidence of the Sierra Club in
this proceeding is that the PowerSmart programs will not likely have a significant impact on rates. And again,
I'm referring to the evidence of the Sierra Club, Mr. Tim Woolf and also BCUC IR 2.144.1. Further, the Sierra Club intends in this proceeding to recommend to the Commission an expansion of B.C. Hydro's energy efficiency programs to include, amongst other things, a program targeted specifically at low-income residential customers, and increases to the budgets in activities of the residential new construction program, and the commercial new construction program. Further, following questions posed to the Sierra Club by the Utilities Commission staff, and recognizing the nature of this proceeding, Sierra Club is prepared to address the issue of the appropriate test for the evaluation of DSM programs. The Sierra Club also has an interest in certain issues which have been identified by staff.
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will include in those, although not necessarily restricted to items 1.4 and 1.5, which deal with the manner in which the resource expenditure and acquisition plan and the integrated electricity plan will be considered through this proceeding. I understand that
my friend Mr. Fulton will have some comments on that shortly. Again, as noted at the outset, this is a significant and I think we would all agree highly complex matter. As such, and as addressed by my
friends, there may well be issues which arise during the course of the hearing which we would like to pursue, and we will reserve the right to do so. With respect to process, I think I now understand from my friend Mr. Sanderson and from comments made by the other counsel for the other intervenors that, with respect to questions following on from Information Requests, that obviously with respect to Information Requests for which there have been responses, and require clarification, this is an appropriate route for cross-examination. With respect to commonality of issues, I think we've all seen this morning and certainly through the volume of evidence that has been produced to date, a definite interest in the PowerSmart programs. I'm not
sure whether or not the position of the Sierra Club
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finds favour with any of the other intervenors, but so far that does not seem to be the case today. I did want to address, and I think probably the appropriate time that I do so, at least, at this juncture, the question raised by yourself, Mr. Chair, just before the break. Again, I do not have
instructions on this and I think it's not a simple question, necessarily. I will say, however, that the
Sierra Club, and certainly myself, have tried very consciously to restrict our evidence in this proceeding and the issues that we would like to address, to focus them on the revenue requirements proceeding, which covers revenue requirements over the next two years. That being said, and subject to instructions that I would obtain, I would think my client would be interested in a broader review of PowerSmart issues which would enable issues which might be outside the scope of this proceeding to be addressed. Exactly what
form that process would take -- and I know Mr. Weafer raised the issue and I'm sure in his mind he wasn't sure exactly what form that procedure would take, although we may hear from him a little bit later on. Suffice it to
say at this point I'm intrigued by that possibility and would be happy to bring that to my client. Proceeding Time 1:58 p.m. T39 A couple of issues do arise in my mind about
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that, the nature of that kind of process.
What are we
talking about exactly in terms of bringing the consideration of PowerSmart programs outside of this proceeding, number one. Number two, following that
procedure, whatever it may be, how would that be integrated -- no pun intended -- with respect to this proceeding? Number three, I suppose of significant
interest to my client, is how they would be able to participate in that procedure. different things there. Unfortunately at this point I know, Mr. Chair, that you did make specific reference to two of the recommendations flowing out of the previous proceeding, recommendations 16 and 25. Those are -So there are a few
unfortunately, as you will be aware, I wasn't counsel in that proceeding, and the recommendations are not ones that I'm entirely familiar with. I understand though
that they are related to the issue of stepped rates and the bringing forward of that form of rate. At this
point I don't have any position with respect to a process for evaluation of PowerSmart offline, this process, to coin a phrase, but would be certainly interested in what other parties would have to say about that and what the Commission might be proposing. Subject to any questions, those are my opening comments.
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THE CHAIRPERSON: MR. JONES: MR. FULTON: C27-8.
Thank you.
Thank you. If we could mark the opening statement Exhibit
THE HEARING OFFICER:
MARKED EXHIBIT C27-8.
(OPENING STATEMENT BY MR. JONES FOR SIERRA CLUB OF CANADA, B.C. CHAPTER, MARKED EXHIBIT C27-8) OPENING SUBMISSIONS BY MR. WAIT: MR. WAIT: Alan Wait, private intervenor, a residential
customer actually of the Aquila system, but Aquila buys both power and wheeling services from B.C. Hydro so we are affected as well by their rates. I intend to examine all aspects of the financial statements, revenue, capital costs, sources of capital, rate base, operational costs, and return on equity. Further particularly I would like to examine
the process of discounting future revenues and costs, and the comparisons with the IPP proposals and B.C. Hydro's own construction. Also I'm concerned with the
deferral accounts, if there's anything left for me by the time I get to ask questions on that, and also on the -- I forgot what it is -- the account that we're going to phase out and B.C. Hydro wishes to take all the money on. I got that pretty good, eh? Also concerned with the formation of BCTC. This may not be entirely the place to do it but I think
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we will lay some questions in regards to the budget of BCTC and all its interconnections with B.C. Hydro and how it's interwoven so that they may have some ideas of things to do when it comes to BCTC's turn. I will have some questions on the Aberfeldy rebuild proposal, a little bit of concern with the figures I got in my last question, wondering if they are actually correct. And I also expect I'll have a few
questions on DSM and human resources. Regarding the three issues for comment that you asked for, I think Mr. Wallace covered my position fairly well on those. Proceeding Time 2:03 p.m. T40 THE CHAIRPERSON: MR. FULTON: today. Mr. Fulton.
Mr. Chairman, I canvassed the room earlier I only had one other individual who had
indicated that they wished to make an opening statement, Mr. West. He came on later, he had left a voice-mail
message at the Commission, but there was no means to contact him, so I'd like to ask on the record if Mr. West is here this afternoon. There is no response to that request, Mr. Chairman. What I can say, however, is that yesterday
the Commission received a letter of comment from Mr. West so it may perhaps be that he has changed his view in terms of how he's going to approach matters.
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letter has been marked Exhibit E-13. (LETTER FROM MR. WEST MARKED EXHIBIT E-13) MR. FULTON: Now, you did at the outset as well today, Mr.
Chairman, indicate that if someone else wished to make an opening statement, and there was time to do that, that they would be afforded that opportunity. So before
I say the little I have to say, I think perhaps it would be appropriate now to canvass the room to see if there is anyone else who wishes to make an opening statement. THE CHAIRPERSON: Thank you. Is there anyone else who
wishes to make an opening statement? You may proceed, Mr. Fulton. OPENING SUBMISSIONS BY MR. FULTON: MR. FULTON: Thank you, Mr. Chairman. Mr. Chairman, staff
would not ordinarily and does not intend today to make an opening statement. What staff did, though, was
circulate yesterday a document which has been marked exhibit A-25, the staff issues list. We sent that
issues list out blind, in the sense that we understood that there would be a number of individuals who would be canvassing the same issues today, and that is in fact what has happened. The form of the list that we followed was we attempted to address the various issues that staff had with the applications on a panel-by-panel basis. And as
I indicated in my covering letter, there were several
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instances where it wasn't abundantly clear which panel should be asked the question, so we indicated that it would be one or the other of two panels. And certainly
it was helpful to staff to have Mr. Sanderson identify the various areas of responsibility of the seven B.C. Hydro panels. There was one item that made it to the list that, late in the day yesterday, we decided was not an appropriate issue for the hearing, and that is item 1.5, relating to the Integrated Electricity Plan. Mr. Jones
wasn't aware of our position when he prepared his opening statement, I did advise him of it earlier today and I have also advised Mr. Sanderson of that fact. And like the others, and in keeping with the example issue that we sent out at the end of April, the references that we have provided in the staff issues list are not to be considered all-inclusive references, but simply illustrative. Proceeding Time 2:08 p.m. T41 If I could then turn to the procedural issues, the second issue, certainly staff has no difficulty with what Hydro has proposed, and I don't need to say anything further on that issue. Relative to the issue of questioning of panels on information requests previously made, what I would like to do, Mr. Chairman -- and this procedural
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issue appears to have evolved in a favourable way from what I've taken the comments of those who have preceded me to have made -- but I did wish to refer everyone to page 116 of the transcript, and it was when you, Mr. Chair, were addressing the issue of specific concerns about information requests, I believe that was item 3 on the prehearing conference matter, and what you had said was at line 18 through 25. "It doesn't mean that you will be precluded later from challenging the issues raised by the information request. That of course will
be open to you, but I do want to hear if there are any concerns now. I think this provides
you with an opportunity, should you elect to take it, to have the panel give direction to the applicant if in fact we think that direction should be given." And Mr. Gathercole, as he had indicated, reserved his position on those questions, and I on behalf of staff did similarly at page 122 of the transcript, lines 5 to 9, where I said: "Mr. Chairman, I don't have a specific IR. just wanted to say that the staff, in reviewing the materials, do have some concerns in certain areas in a general way, but it is felt that those concerns can be addressed
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through cross-examination at the hearing." So those are the comments that I wish to make on the procedural matters, Mr. Chairman. THE CHAIRPERSON: Thank you. Thank you.
Mr. Fulton, is it reasonable
for me to assume those issues that have been identified in Mr. Sanderson's submission in Part 3, do not preclude any of the issues that have been raised by Commission staff? And that may be an issue you want to return to
after the break, but I would like to hear from you before we adjourn today. MR. FULTON: Yes, I would like to return to that issue
after the break, Mr. Chairman, thank you. THE CHAIRPERSON: Thank you.
I take it, Mr. Jones, that you have no further comment with respect to Mr. Fulton's comments with respect to item number 1.5 on the Commission Staff List of Issues? MR. JONES: No, I don't think so at this stage. I did call
Mr. Fulton to discuss those points with him, and the only reason that I put that in my opening statement was it still wasn't entirely clear in my mind how the Integrated Electricity Plan would be dealt with in this proceeding as a result of that identification of -- as a result of the staff having identified the issue in that manner. I fully understand, Mr. Chair, that the
Integrated Electricity Plan may well be the subject of a
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separate proceeding.
It is, as Mr. Sanderson I believe
submitted earlier today, important context and is evidence in this proceeding. comments other than those. THE CHAIRPERSON: MR. JONES: Okay. But I have no further
Thank you. Proceeding Time 2:13 p.m. T42
THE CHAIRPERSON:
Thank you.
I would like to now turn, given that we do have, I think, time before we need to take a break, I would like to return to the issue that I raised just before the break and I think, Mr. Sanderson, you should have the first opportunity to speak to this. And I
would like you, if you are in a position to do so, in your response, to indicate what your client's intent is, at least its current intent, with respect to the step rate proceeding and the review that's proposed in the recommendations of the PowerSmart and customer-base generation projects in the context of the step rate proceeding. MR. SANDERSON: Mr. Chairman, let me make a couple of
preliminary remarks and then it may or may not be sensible for me to get into substance first, because I'm not sure I totally understand the issue. I took Commission recommendations 16 and 25 and the favourable response to them from government both
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to reflect the notion and the recognition that all we have right now is high-level principle, insofar as the two-tier rate proposal goes, that we need to drill down deeper and that there will be a process for that. And
that the Commission expects Hydro to file some form of application that elaborates exactly what the tier-two rate will look like. And that the relationship between
the PowerSmart programs, the customer-base generation programs, and that new form of rate for industrial customers, would be explored in that proceeding. In this proceeding, the implication I've taken from that was we would limit ourselves to the effect on the revenue requirement of the programs as they are, and as they will be affected by step rates at the high level, which is identified in one of the IRs. That question was asked in an IR; there is one which has been alluded to by one of my friends, which lays out how Hydro analyzes, at this stage, the impact of the fact that stepped rates are coming on PowerSmart savings. And it necessarily caveats itself by saying, "this is at the high conceptual level," because that's as far as we've got with the design. And I understand your
recommendations, the panel's recommendations too, have meant that's fine for now, but there needs to be a process later on, and Hydro accepts that. If your question is, exactly, when is that
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proposed to be made, I'd need to get instructions. not sure that we're crystal clear on that.
I'm
Although
there is the instruction that it be 30 days, as I recall, after the BCTC decision is reached. And so I
guess, going back to that, it really flows out of that. And if your question is, what's it going to say, that I can say I don't know and wouldn't know over quite a long break, I'm afraid, because that's obviously still in development. THE CHAIRPERSON: Yes, Mr. Sanderson, you have answered my The recommendations
question, and my concern was this.
that are referred to call for a review of the PowerSmart and customer-base generation projects, or programs. it calls for that in the context of the step rate application, and as you say, the step rate application is presumably under development by your client and I'm not anticipating that you could add any further comments with respect to that at this point. We'll wait for its And
receipt before we see what's being proposed by your client. But it does at the very least, those regulations at the very least contemplate a review of PowerSmart and customer base generation projects once the stepped rates have been established. And that
implementation date, if you will, is the beginning of the second year of the test period of your current
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application.
It strikes me that that may have
implications with respect to the revenue requirements that you're seeking approval for in this application. Proceeding Time 2:18 p.m. T43 And that if, as a result of the review of the PowerSmart programs in the context of the stepped rate application, changes are made to the PowerSmart program effective with the effective date of the stepped rates, that that may have implications for the second year of the test period. And if that's true, then what
implications does that have on your application today? If you can tell me that there are going to be -- actually I probably should stop there because I'm not expecting you to provide your client's position with respect to what will be filed when that application is made, but at least are you -- am I correct, in your view am I correct in thinking that for the '06 fiscal year, there may be implications for the revenue requirements that fall out of a review of the PowerSmart and customer based generation projects that's anticipated to be part of the stepped rate review proceeding? MR. SANDERSON: Mr. Chairman, I was just seeking
confirmation of this but let me give you my understanding, and if over the break I'm wrong I'll tell you after the break. BCUC IR 1.55.1, the question is asked:
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impact will the stepped rate program have on PowerSmart costs? That is, will the fact of the stepped rate in
fiscal '06 affect the incentive program, and if so, how and why? And the answer basically says this can only be
analyzed at a high level now because we don't have the details, but at that high level here's what we've built in for fiscal '06 by way of savings to reflect the fact that we've assumed stepped rates will be in effect in fiscal '06. So I think that's precisely the question that you're now asking, and I'm not going to paraphrase here but I think the answer as much as we can give now, because it is speculative until the program is determined, is there, and I think the implication is -and that's enough to allow us to estimate the revenue requirement for '06. That is, you don't need precision,
you need a general understanding of the direction of the new rate structure, which we have from your recommendations to government and the government's response; and you need to know generally what the price levels are anticipated to be, and we have evidence on that. With that information it's possible to give a
high level estimate of the cost impact and build that into our '06 rate request, and we've done that. And so I guess where that leaves me is not understanding really why we would need any further
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process in this hearing with respect to PowerSmart itself. Rather I think we have enough that we need for
the revenue requirement, and we know we've got a separate proceeding to look at the precise design of the stepped rate itself and how that's going to work with PowerSmart programs in the specific application to industrials. So I think we have, in my submission, the
two pieces already contemplated that we need, and don't need another process that I can see. I'm not
understanding the need for another process. THE CHAIRPERSON: Yes, fair enough. But I think what
follows from what you've just said, Mr. Sanderson, is that there is going to be approval of -- you're seeking approval for an amount for PowerSmart for '06 that will be the subject, maybe not leading to changes, but will be the subject of a review associated with stepped rates. So the '06 revenue requirement for PowerSmart is
to be reviewed in this proceeding, but is it not also going to be reviewed in the proceeding that establishes stepped rates? MR. SANDERSON: Again I would have thought that the stepped
rate proceeding will analyze the form of the stepped rate, and perhaps if necessary, any adjustment that needs to be made to CBG and PowerSmart programs to reflect what the Commission believes to be appropriate in light of those new rates. And I don't want to be
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taken to have thought through carefully sort of where the Commission's jurisdiction in that respect stops and starts, but as a generalization those issues will be on the table to be looked at, and the parties will have to address you in terms of where your powers lie, to influence what programs. Proceeding Time 2:23 p.m. T44 At the end of that, that process will determine whether or not the assumptions that have been made in this application for fiscal '06 turn out to have been right, but what the answer says is, we're confident enough that we understand the general parameters -- it's not as if we're going into this cold without knowing what the issues are today, because we've already had a hearing around this. We're confident enough that we
know generally what the parameters are that we can now with some confidence estimate what we think the '06 revenue requirement will be. And it may be that we
can't -- you know, there'll be nuances around the design of the rate that change, but we don't think that's going to have a profound effect on the '06 revenue requirements, so we're here today saying we can establish the rate level for '06 based on what we now know. THE CHAIRPERSON: Fair enough. And then if we get to the
stepped rate proceeding and we're reviewing PowerSmart
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in the context of the stepped rates that are being proposed, in that there's a risk that that might result in a change to the '06 revenue requirement, but it's a manageable risk and given the assumptions that are made in the evidence that's filed, that in fact the stepped rates, at least in the initial years, are not going to have significant implications with respect to the programs, that it's reasonable for us to proceed today reviewing the revenue requirement from PowerSmart for '06, even though you're contemplating review of the PowerSmart program and the context of stepped rates, that may have implications for '06 as well. MR. SANDERSON: THE CHAIRPERSON: Yes. Okay. Thank you.
Are there comments from anyone else? MR. WALLACE: Mr. Chairman, I think I basically agree with
Mr. Sanderson; that may not happen too many times in the next few weeks, but I do today. Just a couple of points I'd like to pursue. First is, the timing of stepped rates is not at all clear. We've had various discussions, it looks like it
could happen probably in the latter half of next year right up to the start of 2006, which would be very near the end of the revenue requirement that we're examining. So it's not clear that there will be a significant impact.
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I think also, and I've already addressed it, but there are very major expenditures already, I've spoken about $18 million a year, with respect to items that are overheads and have nothing to do with stepped rates. And also, with respect to program expenditures,
which we would argue are unwarranted, and have nothing to do with stepped rates. So we would hate to see
PowerSmart deferred because of stepped rates which may have no impact during the period and feel there are better adjustments that could be used, deferral accounts or whatever, if there's under -- over-recovery at that time. THE CHAIRPERSON: MR. AUSTIN: Thank you.
Mr. Chairman, I just wanted to try and get a
few remarks on the record, and in a sense clarify this issue for my own mind. Mr. Weafer proposed, in a sense,
splitting off the PowerSmart program for -- I guess a potentially different hearing, a different process, or whatever. Certainly the IPPBC is opposed to that. The PowerSmart program is an interesting issue, it's an important issue, but it's not an overwhelming issue. Proceeding Time 2:28 p.m. T45 A lot of the evidence on the record today has been generated by the IPPBC, and as I pointed out in the second prehearing conference, the IPPBC was using the IR
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process to, in a sense, reconstruct how B.C. Hydro goes about its financial evaluation for the purposes of the PowerSmart program. It didn't have the financial
resources to engage a very expensive expert who could probably do this in a different way, so it went through the IR process. So on the record there's a lot of What the IPPBC has done
information about PowerSmart.
is taken that, reconstructed what B.C. Hydro does, and then has provided its own evidence about what it thinks should be done. As I said earlier this morning, it's So despite the fact there's a The
not all that complicated.
lot of evidence, it shouldn't overwhelm anybody.
IPPBC is not intending to go through each and every IR that it's asked as a follow-up. As a matter of fact, it
will probably have extremely limited cross-examination in terms of its IRs on the PowerSmart side of things. The review of the PowerSmart program is not going to be any more complicated or less complicated than any other issue that is before the Commission that I've heard this morning. I was somewhat taken aback by
the discussions with respect to B.C. Hydro's debt to equity ratio. Probably it is a good issue for some of
the people in this room and by all means they should think about it. But in terms of complexity, the 80/20
debt to equity ratio discussion would dwarf anything with respect to the PowerSmart program, especially how
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the IPPBC has framed it in relation to what's the financial analysis. Say for example on the 80/20 debt to equity ratio, somebody is going to have to go back and look at B.C. Hydro prospectuses from the 1980s to see if they've made any representations to potential bondholders about what the debt to equity ratio was going to be. Someone
is going to have to go back to the Province of British Columbia and ask them, "Have you made any representations to the rating agencies with respect to B.C. Hydro's debt to equity ratio?" The point I'm
making is that could just as easily be split off as a separate process as the PowerSmart program. When I look
at the 80/20 question, very little work has been done on it so far. So in a sense, because a lot of work has
been done on the PowerSmart program, people are saying, "Gee, potentially that one should be split off because it's an overwhelming issue." That's not the case. The
amount of work that's been done to date does not determine the complexity of the issue and whether it should be split off. The other thing is there's a practical side of this. If it's going to be split off, where do we go What process is going to be followed? When will it finish? When
from here?
will it start?
What about all the
time and effort that's been expended to date by the
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IPPBC and others with respect to the PowerSmart issue, and this effort was expended in good faith. No one at
the prehearing conferences objected to PowerSmart being raised as an issue. So the IPPBC has pursued it to that
extent and pursued it to a large extent, but it's not an overwhelming extent. It's not an overwhelming issue.
It's financial analysis. With respect to the BCUC recommendations, there's recommendation number 16, and I'm a little bit puzzled in my own mind -- I'm puzzled in my own mind with respect to what recommendation 16 is all about. As
I read it, it would appear to have said to B.C. Hydro, "In terms of your PowerSmart expenditures, slow down, folks, because we've got a Tier 2 rate increase, a Tier 2 rate design discussion coming up." Now that's my
interpretation of it and that's essentially what the IPPBC has got in its evidence, which is pending the outcome of the Tier 2 rate design, or pending discussions on Tier 2 rate design, then PowerSmart ought not to be continuing as is. And that's what I would
read into recommendation number 16. With respect to number 25, I believe I'm in agreement with Mr. Wallace and Mr. Sanderson in the sense that, yes, there are going to be further discussions and hearings in process with respect to the PowerSmart program, but -- and this is the IPPBC
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speaking -- the discussions that we want to have in this hearing are really in relation to the revenue requirement hearing and a narrow financial aspect. They
are not in relation to the entire PowerSmart program. The IPPBC is not saying you should be pursuing this PowerSmart objective, that PowerSmart objective. Its
efforts have been very concentrated in the financial area. Proceeding Time 2:33 p.m. T46 So I would, for the purposes of the IPPBC, I would like to make it perfectly clear that it strongly objects to having the PowerSmart program analyzed through some sort of different process that it knows nothing about, doesn't know when it's going to start, doesn't know when it's going to finish, while in the meantime, B.C. Hydro could carry on as is through the PowerSmart programs and we could have a whole number of customer-based generation programs that at the end of the day don't make any financial sense. That is what I
read into recommendation 16 which is, "Slow it down, there's some things coming up, that stepped rates are coming up, so there's got to be some sort of restraint or restriction on what PowerSmart programs should or shouldn't be going ahead." Thank you. THE CHAIRPERSON: Anyone else who wishes to speak to this
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issue? MR. GATHERCOLE: I would agree with the way Mr. Sanderson
has explained it in terms of where we are with respect to the stepped rates. In fact, before we filed the
evidence we filed on PowerSmart, we thought long and hard as to whether it was appropriate to file it in this proceeding or to wait, conscious of the fact that there was going to be a review. We decided because there are
implications for the revenue requirements in 2005/2006 in what we're proposing, that this was the appropriate proceeding. However, I agree with Mr. Austin, that we're certainly not looking for the type of review of all the PowerSmart programs and the goals and objectives, and are they appropriate, and all that sort of thing, because I don't think that's appropriate for this hearing and it could take up a great deal of time. And
I think it is possible, as Mr. Wallace had indicated, besides the stepped rate issues, there are other issues with respect to PowerSmart expenditures that have implications for the revenue requirement and need to be addressed in this proceeding. But I think we can do it
in an appropriate way, as I said earlier, focusing on the implications for the revenue requirement in 2005/2006. What we assumed was what Mr. Sanderson was
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saying, that we knew stepped rates were coming, we knew the general parameters of it, but for the purpose of the evidence that we put forward, it wasn't necessary to have the details of the final stepped rates, because the principles and the potential impact on 2005/2006 can and should, in our submission, be addressed in this proceeding. Thank you. THE CHAIRPERSON: Thank you.
I don't see anyone else that wishes to speak to this. MR. FULTON: Mr. Fulton, did you -Yes, I just wanted to say, Mr. Chairman, that
staff agrees with the position that Mr. Sanderson has taken in this matter. THE CHAIRPERSON: Okay. Thank you. I left one issue with
you, Mr. Fulton, and I think that can wait until tomorrow. That takes me to you, Mr. Sanderson, when
would you like to start tomorrow? MR. SANDERSON: If we could just have an indulgence of an I
hour or so, something like 10:30 would be just fine.
wouldn't expect to be more than an hour, indeed I would expect to be considerably less than that. So 10:30
would allow us to comfortably finish before lunch. THE CHAIRPERSON: Okay, then we're adjourned until 10:30 Thank you.
tomorrow morning.
(PROCEEDINGS ADJOURNED AT 2:37 P.M.)
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (PROCEEDINGS RESUMED AT 10:42 A.M.) THE CHAIRPERSON:
CAARS VANCOUVER, B.C. May 14, 2004
Please be seated.
Good morning.
Mr.
Fulton, would you like to respond to my request to the staff, maybe before Mr. Sanderson speaks? MR. FULTON: Yes, thank you, Mr. Chairman. There were only two items on the part 3 of Exhibit B1-28 that I wish to address. has a couple of additional items. The second item
The first is the
fourth bullet, the IEP as it relates to expenditure outside of the REAP. And this, for us, was more a Mr. Sanderson spoke to that
matter of clarification.
item at page 211 of the transcript and if the position being adopted is that we will still be able to compare what's in the REAP to other alternatives, then we're fine with that. If we're not going to be able to make
the comparison to those other alternatives, we take the position that we ought to be able to do that. And the
example that I would put forward is the example relating to the IPP contracts provided for in the REAP. The IEP
refers to the long-term price of electricity as part -in part 5, and staff would like to be able to test the proposals that are made in the REAP relative to the IPP contracts in light of the long-term market price of
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electricity that is in the IEP. from a comparative standpoint.
So that's the example It's not to drill down
into the IEP, it's to make that comparison from a contextual standpoint. The last area relates to item 6 in part 3. Certainly staff agrees that some of those matters should be outside the scope of the hearing -- the rate design of BCTC, for example. The planning process as an
expansion plan could also be outside the scope of the hearing unless, in our submission, they relate to the test period 2005/2006. So planning and expansion plans
that impact on that period, we say should be an issue in the hearing; those that are for a longer period should not. Insofar as the BCTC revenue requirement in 2006 is concerned, there are certain costs that will affect the B.C. Hydro revenue requirement. B.C. Hydro
has asked for a deferral account, but it's going to be up to the Commission to determine whether or not that deferral account is approved. So, from the position of
staff, staff wants to test that area as well, and that area again is one more of clarification. We don't
intend to obviously go far into that area, but we want to be able to have the ability to test to see what impacts there may be on B.C. Hydro if the deferral account is not approved by the Commission.
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So those are the items from the staff perspective, Mr. Chair. THE CHAIRPERSON: Are there any specific IRs in Exhibit A-
25 that you're able to identify now that might be relevant to your three comments about part 3 of B.C. Hydro's submission? MR. FULTON: I don't have any that I'm able to identify
immediately, Mr. Chair. THE CHAIRPERSON: Okay. Thank you for your comments.
Mr. Sanderson, I'm going to give you a chance to respond to Mr. Fulton, if you wish. MR. SANDERSON: Mr. Chairman, I don't think that I need to
make a special point of responding to what Mr. Fulton had to say. I think maybe the simplest thing is to
explain what we've done and then, in the course of walking you through that, make comment on the specific issues make comment on the specific issues Mr. Fulton raises in the course of that. Is that --
Proceeding Time 10:47 a.m. T02 THE CHAIRPERSON: MR. SANDERSON: Yes, that's fine. Okay. And in that respect I've circulated
B.C. Hydro's proposal regarding a Consolidated Issues List to everybody but the panel, so I'll circulate that to you now. COMMISSIONER BOYCHUK: COMMISSIONER BIRCH: We have it. We have it.
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MR. SANDERSON: THE CHAIRPERSON: MR. SANDERSON:
I'm ahead of myself apparently. We do have a copy. Let me then explain what this document
does, and let me first give primary credit to the form of the document to Commission staff; that is, what we did was take the Commission staff's document and edit to it. And so as I walk you through this, the edits you're
going to see and the deletions and the additions are deletions and additions from the Commission staff letter from the day before yesterday. And what we've tried to We haven't tried in
do is capture everybody's issues. Part A to be selective.
We've tried to group and we've
tried to use the structure of the staff letter, because we thought it was useful to not just capture the issues but also capture where they're going to be dealt with so people aren't surprised that a panel that's already gone was the one that we had thought would deal with their particular issue. So we tried to really update the
panel responsibility chart at the same time that we've done the issue list, and the staff structure facilitated that. So if you look to the first page as a simple for instance, the first bullet and sub-bullet is straight out of the staff letter. There's no crossing
out, there's no bold, so that means that's the way the staff list appeared.
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The second issue has deleted some matters and added some references. Now, the reason for the
deletions is not because we're not acknowledging the appropriateness of that part of the issue, but rather we're respectfully suggesting that our witnesses are going to be better able to deal with that in Panel 2. So where it says in bold at end, "Moved in part to Panel 2," the deleted portions above have been moved to Panel 2. And then we've also listed in bold, other
intervenors who raised these issues and who we think these words capture their issues. One other thing I should just mention in passing that we've done is you'll see we've removed the references. Everybody had different references and it
would have made this document overwhelming to try and capture every cross-reference to the evidence, so we haven't tried to do that. But I think that flows from
our earlier basically assignment of responsibility, at least for the Hydro evidence, to the different panels. So you've got on a separate sheet submitted by us some time ago, which IRs are the responsibility of which panel. And so that combined with this should give you a
pretty clear roadmap to where we anticipate virtually everything is going to be dealt with. THE CHAIRPERSON: I think that works fine. We will
continue to benefit from the references that you
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provided yesterday.
One of the purposes of those
references was to assist the panel in understanding the issue or issues that you identified. And so I think,
Mr. Sanderson, what you've done works well, and I did want to add that we will continue to benefit from the references that were given yesterday. MR. SANDERSON: Thank you.
Sure, sure, and they'll still be true to
this document with the sole exception of the things that we've suggested at least move to a different panel. Proceeding Time 10:52 a.m. T03 So simply following through that logic then, you'll see that on the 1.1 deferral accounts, we've suggested that the line-by-line appropriateness of certain items for deferral, and the mechanics, be moved to Panel 1. And one witness in particular, on Panel 1,
will be ready to deal with all of those mechanics and the line-by-line decision making that went into the deferral account proposals. The broad philosophical
issue of what is the deferral account for, and what policy should apply generally, we would anticipate the policy panel will be prepared to deal with. The next issue probably of note -- you'll notice there's no 1.5 and that's because of the one issue that was dropped. 1.6, capital structure for
Panel 1 and/or Panel 1, and the equity component, that whole question, insofar as at least as we accept its
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relevance, we think should be dealt with in Panel 2. Panel 2 is the finance panel and that's where everything about the mechanics of calculating the cost of capital and the mechanics of the debt, and all of that, we hope will be dealt with. And I'll come back at the end of my
remarks to a more specific comment about the debt/equity ratio issue when I get to the end. There are some new issues that Panel 1 will be responsible for that were identified by various parties yesterday. We've tried to capture those fairly.
IPPBC raised the relevance of the Energy Plan to the proceeding and I think perhaps them, and certainly Terasen, raised the MLA review with respect to the Burrard Generating Station. Various parties raised
issues around the incremental costs arising from the creation of BCTC and in part, at least, to the extent there's policy issues there, that's Panel 1. As also is
the overall relationship between the two organizations. And then finally we've seen both here, and probably in the press and elsewhere, suggestions that there should be sort of gross cuts to OMA levels or expenditures, and again that broad policy issue that that raises would be appropriately addressed to the first panel. If we then move to Panel 2, on page three, we'll just see that the flip of what we've seen in Panel 1; that is, we'll see the detail moved into Panel 2 and
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the policy anticipated in Panel 1.
The policies and
approvals for upgrades and the disposition of Burrard, little bit of policy there, but there's also specific panels dealing with two aspects of Burrard. And maybe
this is a useful place to make the distinction. Burrard, in terms of its operating in the short term, is a generation issue; how to run the Heritage assets. And that will be dealt with by the I appreciate
generation panel, which is Panel 7.
there's a longer-run issue associated with Burrard that's been raised and that is, where does it fit in to the cost of energy in the long term plan for Hydro and the REAP; and that is a Panel 4 issue. So I appreciate
that may be a tricky distinction to make, I would encourage people with long-term planning issues around Panel 4 to address -- sorry, around Burrard to address it to Panel 4. If it raises an operating issue, then
they'll get deferred to Panel 7, but I guess I would encourage people to, if in doubt, raise it with Panel 4, and it can be re-allocated after that. The next significant addition, I guess, on finance is the equity component effective income tax rate for a tax return on equity. That was an issue that
wasn't quite as fully expressed in the staff list, but was by a number of parties, and so we've tried to capture that. Again, to some extent, that was, by
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staff, raised with Panel 1, and we think it probably fits better with Panel 2. Generally accepted accounting principles, there are some specific issues there raised. And I
guess I just want to stress here that there's a pretty obvious distinction, I think, between the "How do you treat the costs?" and "How do you justify the costs?". Proceeding Time 10:57 a.m. T4 Panel 2 will be how you treat them; that is, do you depreciate them, do you create deferral accounts, those kinds of questions. What is the GAAP treatment?
But we don't want to burden Panel 2 with "Why are the costs what they are?" There is a panel lying behind
every cost item, which will come later, and that will be the appropriate place to address those sorts of questions. THE CHAIRPERSON: Mr. Sanderson, since we're on the topic
of depreciation rates, let me make this observation and it may not be correct. My impression is is that
although throughout the evidence there are comments made with respect to depreciation rate changes, they're not succinctly found in any one place in the materials that have been filed to date. MR. SANDERSON: As in a comprehensive depreciation study
that discusses the topic fully and specifically, you mean?
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THE CHAIRPERSON:
No, simply a schedule that shows all of
the depreciation rate changes that you're seeking approval for in this application. I'll leave that with
you, and on Tuesday morning if you can identify for me where that is in the evidence, that will be helpful. If
it isn't yet in the evidence, if you could file that for me, that would be helpful, and it's really just a list of the depreciation rate changes that you are proposing in this application. MR. SANDERSON: Yes, of course, Mr. Chair, we'll do that.
You're anticipating that I can't do that right now but I will happily do it Tuesday morning. THE CHAIRPERSON: MR. SANDERSON: Okay. And then the balance of page 4 I guess just All of the add-
lists some additional issues in bold. ons are in bold.
And as well, you'll note on page 4 and
this is a general comment, there are some capitalized bolds which are our editorial comments, indicating that an aspect of the issue that's being raised is being dealt with somewhere else. And so for instance on post-
retirement benefits, Panel 2 will deal with two aspects of post-retirement benefits. One is their valuation,
that is, what is -- and in particular, what is the pension portfolio worth, and that will be dealt with through Treasury on Panel 2. Also on Panel 2, how do
you account for these post-retirement benefits properly,
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and what are the GAAP rules and changes concerning that. But the question of are the post-retirement benefits, pensions and otherwise, at the appropriate level, and what were the personnel policies that led to the level they're at, that's Panel 3, which is again the backup for the -- the why of the numbers is always a later panel. And then the next big item worth noting probably is the deferral account issue. We've moved
most of that from Panel 1 into this panel, and as I say, there'll be someone on this panel who's capable of dealing with all deferral account issues that have been raised. THE CHAIRPERSON: With the exception of those that BCT is
seeking approval for, and those would be dealt with with Panel 6. MR. SANDERSON: correction. Absolutely, yes, that's a helpful When I say deferral accounts I mean B.C.
Hydro deferral accounts, not the BCTC applied-for deferral accounts; quite right. Panel 3, I think I've already described the main issues there, but two I'll draw attention to because they were talked about at either length yesterday or it may not be obvious where they've landed. One is executive compensation policies that was raised. The overall human resources policies, including at the
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executive level, will be spoken to at Panel 3.
And also
the question of the Line Contractors Association in relationship with them, that also is a Panel 3 issue. Panel 3 will have the head of B.C. Hydro's Field Services Organization as part of that panel and so he will be the appropriate person to deal with that particular issue. Proceeding Time 11:03 a.m. T05 Moving a little quicker, Panel 4, I think the general headings were all fairly fully developed in the staff request, and the very specific additions that have occurred are again in bold as you go through page 6. don't think they bear any specialized comment. And again, you'll see on page 7, Burrard showing up again, and that's the long-term role, and it is financial analysis in the context of other projects showing up in 4.7. And this is maybe the appropriate place to deal with the first of Mr. Fulton's points this morning, and that is, whether there's an issue between us on the use of the IEP and the REAP. And I don't, listening to I think I
Mr. Fulton, think there's any issue at all.
that we entirely anticipate and expect that people will want to assess the reasonableness of the resource expenditures and acquisitions during the REAP period. And to the extent that that requires them to ask why
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some alternative course of action wasn't pursued, we accept that that, also, is a necessary part of that enquiry. All I've been at pains to point out is that
the IEP goes for a very much longer time indeed than that, and gets into analyses of specific projects, which are not part of the REAP and will have no effect on the revenue requirement or the REAP periods. And to the
extent people want to enquire into those, I will be on my feet saying that that's outside the scope of the proceeding. As I understood Mr. Fulton, there shouldn't
be any need for me to get up when he's dealing with the issues as he's characterized them. same page. THE CHAIRPERSON: Mr. Austin yesterday made a number of I think we're on the
comments with respect to financial screening of projects and the financial tests for selection of projects. you see that as an issue for this proceeding? Do
Because
of the implications it may have for those projects that are within the scope of REAP? MR. SANDERSON: by you, I do. Again, I think as very carefully expressed But it is the "because" that's key. That
is, if there's a linkage between an evaluation methodology or an approach that's been taken by Hydro, to what is actually getting spent in the relevant period, then in my submission it's relevant. But if
there isn't, and if people choose to disagree with
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Hydro's vision of the future, and its relative evaluation of projects which aren't affecting the costs as we have them in this hearing, then I'll be submitting it's not within the scope of the proceeding. THE CHAIRPERSON: MR. SANDERSON: Thank you. Panel 5 distribution I don't think raises
anything terribly significant until right near the end, the system extension test on 5.9. Now, we have there listed two issues in 5.9 which were added by Terasen and IPPBC, and we accept the relevance of the two issues that are identified at 5.9. There was, I think, to be fair, a broader issue raised with respect to the system extension test and that appears on page 15 of the list, which is an issue that we say is outside the scope of the hearing. And I
appreciate that you don't want to hear argument on these issues now and I respect that, but I thought in fairness we had to mention the issue, because parties had, but we need to make it clear that our position is that it's outside the scope, and so it appears at the first bullet under heading C. Proceeding Time 11:07 a.m. T6 And the distinction in our minds is between the application of a tariff and a rate design which is in place and existing, and whether or not the revenue requirement forecasts properly account for revenue,
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given the proper application of what's there, and an argument that what's there isn't right and that the system extension test should somehow be different than it is. And this is not the forum, in our respectful
submission, for that debate. With respect to Panel 6, transmission, I don't think that there are any significant new issues. There's a couple of bullets in bold which are probably items of detail which were added by various parties to the fairly complete staff list. I guess that is a good
point though for me to just respond to Mr. Fulton on the BCTC planning issue. end. Again I didn't hear in what Mr. Fulton said, anything which provoked me to disagree in a significant way. That is, to the extent that the estimates for I mean maybe I could do it at the
fiscal '05 and fiscal '06 assume transmission capital expenditures and the cost implications of those, clearly identification of what those expenditures are and their appropriateness is relevant to this proceeding. And I
think that's all Mr. Fulton was saying he wanted to be clear that he wished to explore, and again I think if that is the issue, he won't find objection on that from us. What we were saying in terms of what's outside scope is the long-term issues around
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transmission planning and expansion that BCTC itself will be facing and, we assume, dealing with in the various processes that it's called upon to initiate over the next few years. We didn't want this hearing to turn
into a foreshadowing of that. THE CHAIRPERSON: Your comment surprises me to this degree,
Mr. Sanderson, as it relates to '06 BCTC revenue requirements. I'll refer to them as that. Mr. Fulton,
I think, is saying is that because of the deferral account that's being proposed to capture the difference between the amount that's in the application and the amount that we might prove as a result of a BCTC revenue requirement application for that year, I think Mr. Fulton is saying because of the potential for that deferral account not being approved, that in this proceeding there should be an opportunity for an examination of those '06 BCTC costs. And I would have
thought that Mr. Feldberg may not be prepared for that. MR. SANDERSON: I would anticipate Mr. Feldberg, if that's
what Mr. Fulton meant, also would have submissions to make, and maybe that's the difference. I didn't hear
Mr. Fulton quite the same way that you're now suggesting I ought to have. The BCTC revenue requirement, that is, the cost of running BCTC, I absolutely believe is not a proper part of this proceeding, and that will be stuff
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of the application that BCTC will bring.
I had
understood Mr. Fulton to be restricting himself to the anticipated capital expenditures effectively in '05 and '06, and clearly the application has a body of expenditures which lie behind the transmission component of the total revenue requirement that's being sought. And those, I don't think we're saying are outside of scope. That is, to the extent we're saying we need
money in order to cover the carrying costs of additional investment in '06, it seems to me we've got to demonstrate that those expenditures are appropriate. And all I heard Mr. Fulton say, I thought, was that's what he wants to look at. clarify that. Proceeding Time 11:12 a.m. T07 MR. FULTON: Thank you. In terms of our position, Mr. But maybe I should ask him to
Chairman, we know that BCTC must be allowed a deferral account to cover these expenses. B.C. Hydro is
requesting the Commission to approve a deferral account, and so we need to be able to test whether or not B.C. Hydro should -- a deferral account should be allowed to B.C. Hydro to cover those costs, or whether B.C. Hydro should be absorbing those costs itself. THE CHAIRPERSON: Right. You began your comments by saying
that BCTC is required -- that we're required, pursuant to the special direction, to approve a deferral account
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for BCTC.
But I think the deferral account that we're
speaking to now is not the subject of a special direction. MR. FULTON: That's right. And in that case, I also understand from
THE CHAIRPERSON:
the evidence that the deferral account that we're speaking to now is for the full revenue requirement of BCTC for '06, so it would include OMA and capital. And
your comments earlier were in the context of testing those numbers in the application for '06 as they relate to expansion plans particularly. And if that -- if
you're looking for that opportunity, maybe that's the clarity that we need at this stage for either Mr. Sanderson or Mr. Feldberg to speak to. Am I correct, Mr. Fulton, in what your position is? MR. FULTON: Yes. Yes. Okay. We probably do need, then, both submissions For my part, the B.C.
THE CHAIRPERSON: MR. SANDERSON:
from both Mr. Feldberg and I.
Hydro/BCTC transition deferral account is designed to capture the difference between the costs that we currently forecast for fiscal '06 that arise from recovery of BCTC's revenue requirement, and the costs that will be forecastable once BCTC's revenue requirement has been determined by the Commission after
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its first revenue requirement hearing. So that when we go into '06, I expect, we will know what the allowable recovery for BCTC is. But
when I say BCTC, I mean its revenue requirement and I want to come back to that in a moment. For that
difference, that is the difference between what we think today that's going to be implicitly from our application and what it actually turns out to be, we've sought a transition deferral account. Because we think that's
entirely within the Commission's control to cause to occur, and so is something that ought to be properly deferred. But I accept Mr. Fulton's comment, and the
Chair's, that that's for argument. We're not entitled to that by virtue of any special direction, that's quite so, and we'll have to persuade you that that's a reasonable thing to do. But
the thing we're going to ask you to do is allow us to adjust the '06 rates to reflect any cost implication of your decision with respect to the appropriate rates arising from BCTC's revenue requirement. I distinguish BCTC's revenue requirement from the whole -- what is now WTS and will become OAT revenue requirements. There's a difference. BCTC's revenue
requirement is just the cost of running the new organization. There will still be B.C. Hydro's owner's And that owner's
revenue requirement underneath it.
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revenue requirement, we're forecasting for two years, and we're not seeking any deferral account in respect of. I mean, that's part of the two-year test period.
That is what we're forecasting today, we wouldn't anticipate that anything you do in the BCTC hearing would affect the B.C. Hydro's owner's revenue requirement. And we're not seeking any part of that to
be in the BCTC proceeding. And that's why I said that any financial implication of what gets invested in capital, in '05 and '06, I think is properly in this proceeding. THE CHAIRPERSON: Thank you. And just to complete that
picture, there's the three components, if you will, to the TRR and the one you haven't mentioned is the asset management fee amount. Is that intended to be part of
the B.C. Hydro/BCTC deferral account, transition deferral account? MR. SANDERSON: That's a very good question, Mr. Chair, and
on Tuesday morning, when I open our case, I hope to answer it. That is a complex question and I don't think
I'm going to try and answer it this morning, if I may. Proceeding Time 11:17 a.m. T08 THE CHAIRPERSON: MR. SANDERSON: Okay. I mean that one -- because it seems to me
that doesn't need to be answered, with great respect, in the context of the issues list at this point.
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that any costs which won't be influenced by the decision on the BCTC application, ought not to be in the deferral account, they ought to be part of the '05-'06 forecast which we're making here and the revenue requirement approved for it. It is the things which are in the BCTC
revenue requirement hearing that properly belong in the transition deferral account as we're applying for it. And you've asked a very precise question about, okay, what's in and what's out? I don't think that's an issue
list question but it is obviously an important question, and I'll be in a position to address it on Tuesday. THE CHAIRPERSON: And in part, if both of those components,
the B.C. Hydro owners' revenue requirement and the asset management fee component of the TRR, are outside if you will of the transition deferral account, then I think it may answer Mr. Fulton's concerns because I think it follows that matters related to expansion plans will be in one of those two components if in fact those two components are outside of the transition deferral account. MR. SANDERSON: THE CHAIRPERSON: For '05 and '06. For '05 and '06. And so for '05 and '06,
they are within the scope of this proceeding and I think it's answered Mr. Fulton's concerns, perhaps. MR. SANDERSON: Subject to what my friend Mr. Feldberg
might have to now say.
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MR. FELDBERG:
I think from what I heard from Mr. Sanderson
that I agree with his characterization of the issue, and I think with respect to the asset management maintenance revenue requirement that the answer is probably given better on Tuesday than it is today. With respect to your observations about the expansions of the system, Mr. Chairman, those are probably -- the answer to the asset management question probably doesn't bear on those because the expansion projects are either in the BCTC portion of the revenue requirement, or they're capital projects that BCTC is embarking on on its own behalf, or they will be in the owner's revenue requirement where they are transmission projects that BCTC plans for the hydro system. So the
answer that we're struggling over doesn't determine that issue in particular. THE CHAIRPERSON: MR. FELDBERG: In the short term.
In the short term. Thank you.
THE CHAIRPERSON: MR. FULTON:
May I just make a request relative to the
deferral accounts, and it arises out of the exchange that you had with Mr. Sanderson, Mr. Chairman, and that is that I think it would be very helpful for us all on Tuesday if it was possible, to have a summary from B.C. Hydro letting people know what's in the deferral accounts and what's outside of the deferral accounts, so
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that we have that summary all in one place. THE CHAIRPERSON: I think Mr. Sanderson has already
indicated that he's going to do that on Tuesday morning. MR. SANDERSON: Yes, although I took Mr. Fulton, or maybe I
will take him, to expand the request to deal with this issue, but also, if I heard him comprehensively in one place, deal with what's in and what's outside all the deferral accounts that are proposed. And frankly, I
think that might be a very wise thing to do. MR. FULTON: Yes, so it's a listing that is available for
us to all work from once we get into the hearing, and that would be very helpful and I'm very appreciative of Mr. Sanderson agreeing to do that. Thank you.
Proceeding Time 11:22 a.m. T09 THE CHAIRPERSON: Sanderson. I heard Mr. Fulton suggest that, Mr. Chapter 2B plus BCUC 2.122.0, and BCOAPO
1.23.0, plus the further clarifications that were solicited by the staff in the third round to provide further definition to the NHDA and the HAD; so I'm surprised to hear you suggest that on Tuesday morning you're going to provide a further documentation with respect to the HDA and the NHDA. Mr. Fulton's request
may very well be a good one and I'm only hesitating because I've studied the documentation that's been filed with respect to those matters, and to, at the beginning of the hearing. have a further evidence to say with
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respect to those, that may very well be welcome but I'm hoping that it's in a similar format to what's already been provided. MR. SANDERSON: Absolutely, Mr. Chair. The reason that I
jumped at Mr. Fulton's suggestion was, it was apparent yesterday that a number of people had perfectly genuine questions around, "Just what is it you're proposing?" And I came out of yesterday with the notion that, yes, it's all there, and I accept that this BCTC issue is probably not there, but everything else, I think, is there. I think none of it's new, it's all in the
evidence but people are having trouble getting around it, and I'm sympathetic to that, because as you just listed, it appears in a bunch of different places. So
when I heard Mr. Fulton say, I think, is "Can you put it on a page for me, so I can see what's in or what's out". And I wouldn't propose to change anything, just put it in one place where everybody can work with it. THE CHAIRPERSON: one page. Thank you. I think you can't do that on
And this is an important issue from my
perspective, because clarity with respect to how those deferral accounts work is going to be essential when the Commission is asked at the end of each of the test periods to determine whether or not the amounts you're proposing to include are the appropriate amounts. And
so I am looking for absolute clarity on these issues,
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and I think given the exchange that you've just had with Mr. Fulton, that you should in fact do what you've suggested you're going to do. I hope, though, that it
is comprehensive, and that that clarity is in fact there, so I wouldn't restrict yourself to one page. MR. SANDERSON: Mr. Chair, if that deals with the issues
raised by Mr. Fulton, particularly with respect to BCTC, then all that's left to me to do is move through Panel 7 and then explain what we've done with the intervenors' headings. Panel 7 is the Heritage contract and operation of the Heritage assets. There's not a lot
there that I think bears special comment, other than the elaboration of the issues that arise out of capitalization and depreciation of aboriginal relations and water-use planning costs would be pursued there. Again, the accounting treatment would have been pursued in Panel 2, but what are those costs, and why those costs would be Panel 7. Similarly, some of the water use planning issues raised by Columbia Power would be dealt with there. And you also see the flip side of the Burrard
Thermal issue, the short-term plans are reflected in 7.5 and the various issues that were raised with respect to how a generation project is analyzed financially, again, the facts behind that would show up on this panel.
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Proceeding Time 11:27 a.m. T10 That, then, leaves me with the Intervenors heading, and this one was the most difficult in many ways because Commission staff had identified issues, as had B.C. Hydro, with respect to the intervenors. Many
of those issues are repetitive of issues that have already been dealt with and are sort of on the issue list, and I wasn't sure whether it made a lot of sense to add them now because this is where the issue in some places got created. hybrid. The general language in normal print is that of Commission staff, and if I can characterize it generally it's pretty broad and captures the general issue that's raised in their evidence. If there is a So what you see here is a bit of a
very specific issue that we think maybe wasn't obvious or caught by there that was raised in B.C. Hydro's list, then we've added it in. If it's subsumed in the
general, then we haven't, to keep this document more manageable and non-repetitive. And so the bold are
almost all B.C. Hydro additions and they're just a small subset of what we'd put in the document that I circulated yesterday. And I'm not sure really that any
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THE CHAIRPERSON: MR. SANDERSON: THE CHAIRPERSON:
Just before you go there. Yes. For the purposes of determining what's in
scope and what's out of scope as we move through the hearing, the statement of an issue in specific terms rather than in general terms, I thought was going to be more useful. And I think what you've told me is that in
some cases, because the staff chose to state the issue in more general terms, you've made some assumptions with respect to whether or not issues you've identified in your document were subsumed in the general. And where
they were subsumed in the general, you chose not to include them. This is probably difficult for you to do, but I -- because what the panel may come up with may in fact lend itself better to the specific rather than the general, it would be useful for me if you were able to do this to provide a list of those issues -- I think it's in Part 2 of your submission -MR. SANDERSON: THE CHAIRPERSON: Yes. -- that were not included in Part B of
this document that we're speaking to now. MR. SANDERSON: Well, the version at 9 o'clock this morning
looked precisely like that, so it probably won't be too difficult to reproduce it. THE CHAIRPERSON: Okay.
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MR. SANDERSON:
We were debating what the most efficient
way to do this was, and guessed that this might serve the Commission best. But we can go back to the other So, sure,
version without much difficulty, I suspect.
we can -- in fact, I mean, for the benefit of other parties, what's missing from here is simply the items that were on the list yesterday that I haven't chosen to reproduce here. So what I can undertake to do is file
with the Commission this document again by the end of the day which simply has those reinserted to the extent of being deleted, if that helps. THE CHAIRPERSON: MR. SANDERSON: It would be helpful. Thank you.
The only issue I think left to speak about I think we've talked
is the capital structure issue.
about the rate design issue and the position we take that the appropriateness of the system extension test is not for this hearing, and the way that it calculates contributions in aid. The other issue that was addressed at some length by various parties yesterday and in an exchange with the Commission, is the efficient capital structure. And we do take the position that that's not an issue for this proceeding. As the Chair pointed out yesterday,
there is a complete paucity of evidence on that issue, and that's not by accident. That's because, at least in
B.C. Hydro's view, that's not something which this
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proceeding can usefully address. an issue.
That does appear to be
I don't know whether it gets dealt with
finally in argument, but I certainly don't want to be taken as accepting that we think that an efficient capital structure for Hydro is something that we can deal with here, because we don't. I think those are all my comments. Proceeding Time 11:32 a.m. T11 THE CHAIRPERSON: Thank you. I want to raise a procedural
issue that arises in part from your comments, Mr. Sanderson. And it follows I think in this context:
When the panel releases the hearing issues list on Monday, I'm anticipating that we will give notice to the participants that there were certain issues that we require further input on. And in fact, the debate that
we have very effectively avoided over the last couple of days. An example, I think, is the issue involving the
efficient capital structure. And my thinking about that is as follows: you've mentioned, that could be dealt with at the time of argument. But it strikes me that there are certain As
issues that will make this proceeding more efficient if there's a ruling from the panel earlier than that, because otherwise we will pursue issues during the course of the hearing that may simply be outside of the scope of the proceeding. And the risk that the panel
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runs in making that ruling early in the proceeding is that we will do it without the benefit of the evidence and argument, and so I think we would only do that very cautiously, but there may very well be a number of issues that the panel feels that for the purposes of the effectiveness of the hearing, that it's better to make the decision with respect to that earlier rather than later. those. So I'd like input from those that are here now on just this procedural point, that on Monday the panel may very well identify as part of the circulation of the hearing issues list, a list of issues that we feel we have not yet been able to reach a conclusion on, and we seek further input from the parties on, and I think those are as I say of the nature like the efficient capital structure which may in part turn on an interpretation of the Special Directions. So it's of a And the capital structure, I think, is one of
legal nature as opposed to, if you will, a factuallydriven argument. And for those, if there's a number of
them, I think it may be in the interests of the efficiency of this proceeding that we deal with those early. So I'll welcome comments now from anyone who
wishes to comment on what I've just said. MR. WAIT: Mr. Chairman, I will be having some questions
regarding the capital structure and the way it is
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calculated for Hydro, and I would like to have that in the hearing. The capital structure and the directives were set in about 1992 and locked in, and there does not seem to be very much flexibility in them, and I think it is time that, now that Hydro is coming under regulation, that they be looked at. The final judgments may not be
able to be made by this hearing, but it's something that should go into the works since it is something that the provincial government basically dictates, and somehow I think there should be a way that we can get some of our concerns put to the provincial government and possibly have some of that changed. Proceeding Time 11:37 a.m. T12 THE CHAIRPERSON: Right, and those very issues are the
issues that I contemplate that we may hear further from you on on Tuesday morning. Fulton. MR. FULTON: The only comment that I'd like to make, Mr. So thank you, Mr. Wait. Mr.
Chairman, it is a procedural comment as well, and that is that if there are a number of issues that the panel over the weekend identifies that they wish to hear further submissions on from the parties, that's going to impact on the time when the evidentiary portion of the hearing starts; and when I say that, I mean when B.C. Hydro's first panel is going to be called.
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be and I think it would be of assistance to Hydro in particular, I am sure, that if there are a number of issues that when the letter goes out a comment is also included on the fact that it's not anticipated that we will start then on the first panel until the afternoon, for example. But I leave that with you, and that would
avoid having the panel sit around all morning while legal submissions are made. THE CHAIRPERSON: Yes, I think it's reasonable to assume
that we will not begin the first panel until after the morning break. And if I need to move the morning break
a little bit earlier because we have finished earlier, then I think that's a reasonable assumption on behalf of -- for Mr. Sanderson to assume that his first panel will not be called until 10:30. MR. SANDERSON: So thank you.
Mr. Chairman, I think I'm struggling a bit
with anticipating what an efficient procedure would be. I guess I'm a little worried that if late on Monday the Commission effectively states a few legal issues, if that's the implication of the way that their list comes out and it crystallizes in your mind that there are three or four potential issues which may or may not be within the scope, and you pose those effectively as questions to be receiving submissions on, getting those submissions the next morning is probably not the best way to get as clear and coherent statements of people's
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positions as you might.
In other words, if those have
crystallized and if you think that they are sufficiently clear that the statements yesterday of various parties that, you know, these things are better debated in the context of the facts as distinct from at large, if there are some big enough issues you can get over that hurdle, then I think we all probably would be better off with a few days to actually organize ourselves around those issues. I mean there are some legal issues here which
we've anticipated and would be prepared to argue probably on very short notice. But whether those are
precisely the ones that you've formulated, I'm not going to know till Monday night, and I think everybody else is in the same boat. And so what I'm thinking is, maybe the examination of Panel 1 doesn't turn on these things directly, and maybe we could schedule a day certain, say a week Tuesday or something like that, to deal with whatever legal issues there are. THE CHAIRPERSON: Thank you. Is there anyone else who
wishes to speak to this? Good. Tuesday morning. Sanderson. We'll return to it if need be on Thank you for your suggestion, Mr.
And with that, I think we're adjourned until
9 o'clock on Tuesday morning. (PROCEEDINGS ADJOURNED AT 11:42 A.M.)
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (PROCEEDINGS RESUMED AT 9:05 A.M.) THE CHAIRPERSON: Please be seated.
VANCOUVER, B.C. May 18, 2004
Good morning.
For the benefit of those of
you who may be attending the proceeding for the first time this morning, I am Robert Hobbs, and with me are Commissioner Boychuk and Commissioner Birch. On December the 15th, 2003 B.C. Hydro filed a Revenue Requirements Application for the test period F205 and F206, and on the same date BCTC filed an application for approval of certain deferral accounts. By Order G-84-03, dated December the 16th, 2003, a pre-hearing conference was scheduled for January the 14th, 2004 and a workshop was scheduled for January the 15th, 2004. By letter L-1-04, dated January the 7th,
2004, the Commission determined that the BCTC application was to be decided at the same time as B.C. Hydro's application. By Order G-7-04 dated January the
16th, 2004, the Commission established the regulatory timetable for this proceeding. By Order G-8-04 the Commission approved B.C. Hydro's application for an interim rate increase effective April the 1st, 2004. By Letter L-13-04, dated
February the 23rd, 2004, the Commission denied an application for reconsideration and variance of the
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interim rate increase. Following a second pre-hearing conference held on April the 6th, 2004 the Commission issued a revised regulatory timetable, which is attached to Order G-42-04, dated April the 19th, 2004. On April the 27th,
2004, Mr. Fulton, who is Commission Counsel for this proceeding, issued a procedural document intended to assist participants by explaining the process. At the first pre-hearing conference on January the 14th, 2004 I identified the staff who have been participating in this proceeding. have been two changes. Since then there
Philip Nakoneshny is now the
lead staff, and Doug Chong has joined the staff. Proceeding Time 9:07 a.m. T2 I have organize my remaining comments into three sections. First, I will address the hearing
issues document which was circulated to you yesterday. Second, I will address two jurisdictional issues that may be relevant to this proceeding. Third I will
address two process matters raised by Mr. Sanderson. With respect to the hearing issues document, I first have a number of general comments. We have If
endeavoured to be specific when describing issues.
the relevance of a proposed issue was accepted, we have often included the issue as framed by parties in their opening statements. As a result, some of the issues
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overlap with others, some may be redundant, and some issues when compared to others may reflect very different perspectives on the same issue. My first comment about a specific issue relates to the process for review of the 2004 Integrated Electricity Plan. In his direct evidence, Mr. Elton
states that the IEP is wholly unsuitable for review and approval at this stage. Mr. Sanderson, at the prehearing conference at Volume 1, page 50, 111 to 16, you and I had the following exchange: “I think it would be helpful when you file the IEP, if you will also prepare a process for review of the IEP." And that was my comment. And your response was:
"Of course, Mr. Chairman, in other words, March the 31st when the document is filed, then as part of that, a process suggestion, of course." In that exchange you did not commit your client to a process review for the IEP, but it was a relevant consideration for comments made in Exhibit A-4 about the review of the IEP. At Exhibit B1-8, BCUC 2.209.1, B.C.
Hydro comments on the stakeholder engagement process for the 2004 IEP, and at Exhibit B1-11, IPBC 1.76.4, B.C. Hydro provides further comments on the project plan for
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preparation of the 2004 IEP. Several intervenors have expressed an expectation that there will be a Commission process review of the 2004 IEP, and some have suggested that this process should include the process review of the 2004 IEP. The Commission has jurisdiction pursuant to Section 45(6.2) to establish a process to review the 2004 IEP. I currently intend to make a decision
regarding whether or not to exercise that jurisdiction shortly after the evidentiary phase of this proceeding closes, and will benefit by hearing more from the applicant and the intervenors in that regard than I have to date. Proceeding Time 9:09 a.m. T03 As a result, the hearing issues include a matter that might otherwise be outside the scope of this proceeding, and that is issue 1.5. The Commission Panel's view is that only those resource issues related to F-05 and F-06 rates should be considered in this proceeding, and the hearing issues document is intended to be consistent with that view. Mr. Wallace, in your opening statement you said at Volume 3, page 264, that a productivity improvement of two to three percent should be obtainable
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during F-06 and F-05.
It is also your view that the
equity component should be an issue for this proceeding. Both issues have been included in the hearing issues list. In your opening statement at transcript Volume 3,
page 254 you also said, and I'll read it into the record, line 8 to line 18: "The Commission is not in the fairly simple position of a judge in a court case, whose sole role is to determine a dispute between two parties who bring their case before them. The Commission has, I suggest to you, a special statutory mandate. While the
Commission obtains input in making its decision through the hearing process from the applicant, from the intervenors and from its own staff, in the end the Commission has the sole responsibility in deciding what is just and reasonable. No one else has the staff or
the mandate to do that." Without commenting on the merits of your comments with respect to the Commission's mandate, I would like to say that it is my impression that the foundation for the Commission Panel's decision needs to be found in the evidence of this proceeding. If you
wish to pursue the productivity improvement issue and the equity component issue, then I encourage you to give
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some further consideration to the evidence that has been filed to date. Expert evidence is often required with respect to both issues before a reasonable foundation can be established. Sometimes Commission staff will
lead expert evidence on a matter before the Commission. Staff has not done so in this instance. There are several issues that are included in the hearing issues that we do not fully understand at this stage in the proceeding. For example, at section
3.3 we have included the issue requested by IPPBC and JIESC about choice in line construction. We are not yet
sure if that should be within the scope of this proceeding. If in fact it is a rate design issue, then
it may not be within the scope of this proceeding. Proceeding Time 9:13 a.m. T04 Another example might be issues related to CBC/CBT projects. And yet another example might be
issues related to EPAs that are not before this panel for approval in this proceeding. Then those issues may If
also be outside the scope of this proceeding.
necessary I may exclude issues included in the hearing issues list during the course of the proceeding. Also, as I have previously confirmed, if new evidence gives rise to a new issue, then the hearing issues list may be revised by including the new issue.
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Subject to those two exceptions, I do intend to use the hearing issues list to ensure that this hearing proceeds efficiently. Now let me turn to my second topic. As I
mentioned on Friday, transcript Volume 4, page 365, there are certain jurisdictional issues that I think could be dealt with as preliminary matters. First,
whether or not a determination of the equity component of the capital structure is within the jurisdiction of the Commission. Second, whether or not approval of the
Heritage deferral account, as proposed by B.C. Hydro, is within the jurisdiction of the Commission given Heritage Special Direction Number HC2. I now think it is better to leave both issues to the argument phase of this proceeding. If a motion
is made or it becomes obvious during the course of the proceeding that it will be more efficient to address those issues in advance of argument, then we may do so. Mr. Sanderson, I would like to give you early notice of the second jurisdictional issue, so I will describe it for you now. The issue was first raised in Heritage Special Direction
Exhibit B1-25, BCUC 3.220.2.
HC2 defines Heritage Payment Obligation to have the same meaning as in the Heritage Contract which forms Appendix A to the Special Direction. Section 7(a) of HC2 states
that the Commission must allow the Authority to
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establish one or more accounts to reflect and record variances between the Heritage Payment Obligation and the Authority's forecast of the Heritage Payment Obligation. The HDA proposed by B.C. Hydro does not strictly comply with the items described in Schedule A to determine the Heritage Payment Obligation. Although
the Commission may modify the definition of Heritage Payment Obligation, it may only do so in certain specific circumstances set forth in Section 8 of the Heritage Contract. been met. Those conditions may or may not have
If the conditions have not been met, then it
may follow that the Commission does not have the authority to amend the definition of Heritage Payment Obligation. Then the question is whether Section 7(a) of the Special Direction applies to the Heritage Deferral Account proposed by B.C. Hydro in its application. There is in Schedule A of Appendix A a reference to Commission orders, but one might argue that it is only relevant to post facto determinations. As I mentioned, However, if
I think that issue can wait until argument.
in fact the Commission does not have the jurisdiction to modify the definition of Heritage Payment Obligation in these circumstances, then I am concerned that the Commission may not have the jurisdiction to approve the
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HDA as applied for by B.C. Hydro. With respect to my third and final topic for my opening comments, let me turn to the two process issues raised by Mr. Sanderson at Volume 3, page 213 of the transcript. The first relates to challenges to
information request responses, where the applicant has not provided a full response or has provided a response with redactions. For those information requests
responded to prior to the second pre-hearing conference, the absence of challenges to those responses will be a relevant consideration in any ruling I need to make with respect to undertakings. Proceeding Time 9:17 a.m. T5 I note that GSSCCC did challenge two responses. That does not preclude cross-examination
arising from those responses, but it does speak to requests for undertakings that are designed to solicit the same information requested in the information request. On the second process issue raised by Mr. Sanderson at Transcript Volume 3, page 214, I accept Mr. Sanderson's proposal; that is, questions that may arise during cross-examination about engineering services, certain corporate functions, and certain IT functions, not including CIS, can be addressed by an undertaking. I will now take appearances, then new
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filings, and then any points of clarification with respect to either the hearing issues list, the process issues, or the jurisdictional issues I've identified. MR. FULTON: Thank you, Mr. Chairman. I'll now call for
the appearances. Authority. MR. SANDERSON: panel.
British Columbia Hydro and Power
Thank you, Mr. Fulton.
Good morning, With
C.W. Sanderson appearing for B.C. Hydro.
me today at counsel table is Mr. Ian Webb, and I will take this opportunity to say that over the course of the hearing, different counsel will appear at this table for Hydro as follows. Mr. Webb and I will be here for this
first today and for Panel 1 and for Panel 2 and for one subsequent panel. Mr. Christian will be here with Mr.
Webb for a number of other panels, and I will identify which those are during the course of my opening. And
for one particular panel, Mr. John Kleefeld will join me. MR. FULTON: MR. FELDBERG: British Columbia Transmission Corporation. Peter Feldberg, Mr. Chairman, and with me is
A.W. Carpenter; and as with Mr. Sanderson, throughout the hearing you will generally see one of us but usually not both. MR. FULTON: Aquila Networks Canada B.C. Limited. Terasen Gas Inc. MR. PERTTULA: David Pertulla for Terasen Inc.
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MR. FULTON: MR. WEISBERG:
Columbia Power Corporation. Fred J. Weisberg for Columbia Power
Corporation. MR. FULTON: Resources. TransCanada Energy Limited. Imperial Oil Joint
Avista Energy Canada Limited.
Industry Electricity Steering Committee. MR. WALLACE: JIESC. MR. FULTON: Mills. Norske Skog Canada Limited. Kemiss mines Limited. West Fraser R.B. Wallace appearing on behalf of the
Elk Valley Coal
Corporation. MR. NEWLANDS: Good morning, Mr. Chairman, Commissioner My name is David Newlands, Elk
Birch, Commission Boychuk.
I appear on behalf of Elk Valley Coal Corporation. Valley is the world's second largest producer of metallurgical coal for export and proudly owned by Fording Canadian Coal Income Trust and Teck Cominco Limited.
Elk Valley has five mines in the Elk Valley of
British Columbia, and if this increase is approved, Mr. Chairman and Commissioners, that will cost Elk Valley in excess of $1,300,000 a year. MR. FULTON: Erco Worldwide. Thank you very much, sir.
Sapphire Products Honeywell
Electronic Materials. British Columbia.
Independent Power Association of
Proceeding Time 9:22 a.m. T06 MR. AUSTIN: Good morning, Mr. Chairman and members of the
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Panel.
My name is David Austin and I'm appearing for
the Independent Power Association of B.C. MR. FULTON: Columbia? MR. WEAFER: Panel. MR. FULTON: Good morning, Mr. Chairman, members of the C.P. Weafer for the Commercial Energy Consumers. Peace River Regional District? I should say, Mr. Chairman, that the Peace River Regional District has advised me that they do wish to make a presentation during the course of the proceedings, and I will be in contact with them over time to arrange a date for them, once I better see how matters are evolving here. THE CHAIRPERSON: MR. FULTON: Thank you. Commercial Energy Consumers of British
OPEIU Local Number 378 and B.C. Citizens for
Public Power? Again, in the instance of B.C. Citizens for Public Power, Mr. Chairman, I received information from that organization yesterday evening that -- someone is here. MR. VEERKAMP: Here I am lurking behind you. Mark Veerkamp
for the B.C. Citizens for Public Power.
I'm also here
on behalf of Consumers Association of Canada. THE CHAIRPERSON: MR. VEERKAMP: May I have your name again, please?
It's Mark Veerkamp. Thank you.
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MR. VEERKAMP: MR. FULTON:
Thanks. B.C. Old Age Pensioners et al. Good morning, Mr. Chairman, Richard Gathercole and with me is We're
MR. GATHERCOLE: Commissioners.
Patricia MacDonald, that M-A-C capital D.
appearing on behalf of the B.C. Old Age Pensioners Organization, the Council of Senior Citizens Organizations, Senior Citizens Association of British Columbia, Westend Seniors Network, Federated AntiPoverty Groups, End Legislated Poverty and the Tenants Rights Action Coalition. And I will be doing the cross-
examination of most of the panels, but Ms. MacDonald will be crossing a couple of the panels, and so you may see both of us here at times, but only one of us at other times. MR. FULTON: Line Contractors Association of B.C.? Sierra
Club of Canada, B.C. Chapter? MR. JONES: Mr. Chairman, members of the panel, C. Jones,
appearing on behalf of the Sierra Club Canada, B.C. Chapter. MR. FULTON: Coalition? Mr. Chairman, I spoke with Mr. Hackney last week and he did not believe that the Georgia Straight Crossing Concerned Citizens Coalition would be taking an active involvement in the proceedings.
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everyone is aware of that.
That's not to say that they
might not file final argument, but during the oral phase in any event they don't intend to participate actively. Boston Bar, North Bend Enhancement Society? Energy Solutions for Vancouver Island Society? Voice Coalition? MR. CAMPBELL: Save B.C. Coalition? Active
James Campbell?
Good morning, Panel.
I'm James Campbell. Thank you very
I live in Sydney on Vancouver Island. much for your considerations. MR. FULTON: MR. WAIT: Allan Wait?
Allan Wait, and I will be having Malcolm
Metcalfe give me a hand and he may do some of the crossexamination. MR. FULTON: Joseph West? Is there any one who has intervened or indicated that they intend to participate in these proceedings whose name I have not called and who wishes to formally enter an appearance on the record? City of New Westminster? Proceeding Time 9:27 a.m. T7 MS. COCHRANE: Good morning, Mr. Chair and panel. Penny
Cochrane of Willis Energy Services appearing for the City of New Westminster. MS. CHOW: Group. Michelle Chow and Zak El-Ramly for ZE Power At this time we don't think we're going to be However, if circumstances
actively participating.
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should change, we would like that opportunity. you. MR. FULTON:
Thank
Is there anyone else who wishes to formally
record their presence here today? There being no one else, Mr. Chairman, I'd like next to turn to the issue of exhibits. THE CHAIRPERSON: MR. FULTON: Please.
And a prefiled exhibit list has been prepared. When we left off on
There are copies at the back.
Friday, I did not mark the B.C. Hydro proposal regarding the consolidated issues list, and that document has been given number B1-29. (B.C. HYDRO PROPOSAL REGARDING CONSOLIDATED ISSUES LIST MARKED EXHIBIT B1-29) MR. FULTON: Thank you. In the afternoon and in response
to your request, Mr. Chairman, B.C. Hydro filed a Proposal 2 regarding the consolidated issues list, and that was the afternoon of Friday, May 14th. document has been given document B1-30. (B.C. HYDRO'S PROPOSAL 2 REGARDING THE CONSOLIDATED ISSUES LIST MARKED EXHIBIT B1-30) MR. FULTON: evidence. Yesterday, B.C. Hydro filed their rebuttal The rebuttal evidence, including the direct That
testimony of Dana Hardy, Richard Marchant and Steve Hobson, has been given Exhibit Number B1-31. (HYDRO'S REBUTTAL EVIDENCE MARKED EXHIBIT B1-31)
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MR. FULTON:
And B.C. Hydro filed additionally the opening That And
statement of Mr. Elton, or speaking notes.
document has been given Exhibit Number B1-32.
finally yesterday, B.C. Hydro filed some supplementary evidence of Mr. Maniago, Mr. Steele, and there were also some CDs that were to be included with that evidence and that as of yesterday afternoon I had not received, but I understand that they will be available sometime today. I'm going to suggest, Mr. Chairman, that that evidence form part of Exhibit B1-9, which is the direct evidence of the British Columbia Hydro and Power Authority witnesses. Mr. Maniago already has evidence within that
exhibit in any event. The last exhibit that I have is Exhibit A-26, and that was a letter that the Commission Panel sent to the applicants and the intervenors yesterday regarding the hearing issues document together with the hearing issues document. (LETTER TO COMMISSION PANEL SENT TO APPLICANTS AND INTERVENORS MAY 17, 2004 MARKED EXHIBIT A-26) MR. FULTON: At this point, Mr. Chairman, I'm going to ask
that the exhibit list that includes all the prefiled documents to date, and those that I have most recently spoken to, form the exhibit list for this hearing to be updated as documents are filed during the course of this hearing. And the exhibit list that is at the back of
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the room, it is current as of yesterday although in the upper in the right-hand corner it says it's updated as of May 14th, 2004. 2004. THE CHAIRPERSON: MR. FULTON: Thank you. In fact, it's updated as of May 17th,
Those are the matters that I have, Mr.
Chairman, at this time. THE CHAIRPERSON: Before I ask for points of clarification,
Mr. Sanderson, are there any filings that you wish to make? MR. SANDERSON: Mr. Chairman, the only filing in addition
to my opening that I'll make this morning relates to what has now been labelled Exhibit A-26, that is, the hearing issue list. In the Commission's cover letter,
you invited B.C. Hydro to indicate if there were any specific issues which might benefit from being moved or duplicated on other panels, and we have turned our mind to that. There are a couple of minor changes that result. Proceeding Time 9:32 a.m. T08 So what we've done is prepare a revised hearings issues list that's marked with the changes, showing what got moved. What I'd hope to do this If that's
morning was take you through that.
satisfactory to the Commission, then we may want to use this list as a substitute for A-26.
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A-26 obviously would stay as it is. the only additional filing I have. THE CHAIRPERSON: Okay.
But that would be
Well, why don't you speak to that
in your opening statement. I do want to take points of clarification with respect to the hearing issues list, if there are any, the process issues that I spoke to and the jurisdictional issues that I spoke to, and we can -- if there are any points of clarification with respect to hearing issues list, then we can do it around the document that we circulated yesterday, and then we can speak to the -- I'll hear from you then during your opening statement with respect to the revisions that you've made to that, Mr. Sanderson. Mr. Jones? MR. JONES: Mr. Chair, just a point of clarification. In
your opening statement you made a reference to your desire and the panel's desire to hear further from Intervenors and B.C. Hydro with respect to the exercise of your jurisdiction to conduct a hearing with respect to the integrated electricity plan. that, am I? THE CHAIRPERSON: MR. JONES: You are. I'm correct in
Perhaps I could just ask, sir, if you had a
thought about what process that might take, whether or not it would be a submissions from the parties at the
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conclusion of the evidentiary phase or written submissions or -- if your mind is open on that point. THE CHAIRPERSON: about it. That's a good question. I have thought
I was hoping that during this proceeding I
would hear further from the Applicant with respect to process for review of the 2004 IEP. You're right, I did
not speak to an opportunity for Intervenors to comment on that. My preference, Mr. Jones, and I would welcome further input on this, would be to hear from each of the participants on that issue through their panels, or in opening comments from the panel. I don't think it needs
to be a complicated issue, but input is welcome. So that would be my preference. It keeps the
process simpler, I think, than if I seek input through submissions that follow this proceeding. I'd rather
not, at least at this stage, propose that kind of process. MR. JONES: Okay, perhaps that's something that I should
consider and perhaps get back to you on. The only reason I am at all concerned about introducing it through the panel at this point is that our panel will, of course, just be composed of our one expert at this time, Mr. Woolf. He's not, at this
point, adopting evidence which pertains to the process which should be followed with respect to the IEP.
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Perhaps we can leave that for now. In my own mind the appropriate process seemed to me to be submissions at the conclusion of the evidentiary phase, or maybe as part of argument. perhaps I could hear from others on that point. THE CHAIRPERSON: too. We do not need to do that now. I don't think And I think I would benefit from that But
it's even pressing for this week, and that would give all counsel a further opportunity to do that. we'll hear from the policy panel. This week
It is an issue that
has been raised in Mr. Elton's evidence, and I'm anticipating that we will hear further from Mr. Elton and his panel on that issue. So I don't think we need to get to it this week. If we were to set aside some time on Monday
morning to hear further from Intervenors with respect to how we should obtain that input, as I say, before I exercise the jurisdiction pursuant to that section, that would helpful. So let's return to -- some time this
week, the issue as to whether or not it's a good idea for us to set aside a half an hour on say perhaps a Monday morning, to get your views with respect to how we get that input. MR. JONES: MR. WEISBERG: Thank you, sir. Mr. Chairman, before we get back to other
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matters, to Mr. Sanderson, I would like if I could to just make an observation with regard to one of the issues. I'm looking at issue 7.5 of the hearing issues
list, and specifically the bullet point that says "Issues relating to CPC". list. Proceeding Time 9:38 a.m. T9 And the second bullet point, issues relating to CPC/CBT projects and Columbia Region, Mr. Chairman, you stated that or identified that as an issue or set of issues which perhaps would be outside of the scope of this hearing. Our observation is simply this, that in That's on page 13 of that
CPC's opening statement, we had actually framed that issue, I think, somewhat more narrowly than what is now stated in the hearing issues list. What we had intended
in terms of the scope that we contemplated was specifically water use planning as it relates to CPC/CBT Joint Ventures and the Columbia Region Water Use Plans. So if that observation helps put the issues that we contemplate addressing, or certainly are of interest to us, in a tighter scope, hopefully that will assist the Commission as we move forward. THE CHAIRPERSON: Well, when we deliberated on that point,
we still were unable to draw the connection between water use plans as it may relate to CPC/CBT, and the Revenue Requirement Application. Now, you may be able,
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during the course of this proceeding or now, draw that linkage for me, but I identified that in my opening statements because it wasn't clear to us yet what the linkage was between your concerns about water use plans and B.C. Hydro's revenue requirements. MR. WEISBERG: Point taken, Mr. Chairman, and I think it
will be our approach to let that unfold through the course of the hearing. But I just wanted to make that
observation now about our intended scope. THE CHAIRPERSON: MR. WEISBERG: Thank you.
Thank you. Are there any further points of
THE CHAIRPERSON: clarification? MR. WALLACE:
Mr. Chairman, and I may be better to leave
this till I start Panel 1, but with respect to the Policy Panel, I do have some questions that aren't strictly on the list of items simply because they seem to have policy repercussions of other panels, and if they get bounced to another panel I'm quite happy with that, but I wouldn't want to be met later by the actual panel saying, "Gee, that goes beyond my authority. should have been raised with the Policy Panel." they're very limited. THE CHAIRPERSON: This is an issue that is always It is It
I think
challenging from my perspective as Chair.
difficult, I know, from the perspective of those of you
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who are cross-examining, to ensure that the questions that you are asking are not going to be deferred to a panel that has preceded the panel that you're asking the question of. I was hoping that the detailed hearing I think it's
issues list would assist in that regard.
probably better for you, and Mr. Sanderson has suggested this although perhaps in a different context, that you ask those questions of the first panel that you think may be able to answer the question, and then pursue it later if it's deferred to a later panel. I'm trying to
avoid calling panels back in this proceeding, and so it's probably better for you to be cautious in that regard, and I do appreciate the challenges it might present to you. MR. WALLACE: Thank you, sir. I just wanted to indicate, Mr. Chairman,
MR. GATHERCOLE:
that I'm in a similar position to Mr. Wallace with respect to Panel 1, that there are some issues that I believe are policy issues but I'm also content to follow the procedure you suggested. One other minor matter. I believe you made
reference to potentially setting aside half an hour on Monday morning. THE CHAIRPERSON: Are we sitting on Monday? I'll hesitate for a moment. No, we are
not sitting on Monday morning. MR. GATHERCOLE: Thank you.
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THE CHAIRPERSON:
It would be Tuesday morning, and I would
like this week though to get -- and maybe it's through Mr. Fulton, get some input whether or not even that is an acceptable step for us, i.e. whether or not it's acceptable to give consideration to what is the process for input on the IEP during the course of this proceeding. I think that's probably the route to take,
but there may be other views and so I'm actually willing to entertain comments this week about whether or not we should do that on Tuesday morning. Any other points of clarification? MR. WAIT: Alan Wait, Mr. Chairman. In your earlier
discussion, do I get the impression that the government directive, special directives such as number 8, and are they off not to be criticized by this hearing, or are they open for discussion? Proceeding Time 9:44 a.m. T10 THE CHAIRPERSON: jurisdiction. jurisdiction. We consider matters that are within our The special directions in part define our I will only entertain issues as they
relate to our jurisdiction. MR. WAIT: Yeah. Well, I'm concerned with the just and
fairness and reasonableness of even the special directions, and particularly the way they deal with the deferred credits. THE CHAIRPERSON: There are, Mr. Wait, fine lines that I
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will need to draw through this proceeding with respect to whether or not you're speaking to issues that are outside or inside the scope of our jurisdiction. we get there I'll draw them for you. MR. WAIT: Okay. But let me make a general comment, If it's your When
THE CHAIRPERSON:
because it may be helpful to you now.
desire to raise issues with respect to the fairness of the special directions that's very likely outside of the scope of this proceeding. Unless you can draw it back
to something that's within our jurisdiction, it's not going to be a fruitful area for you to explore during this proceeding. MR. WAIT: Yeah. Well, I'm concerned with the conflict of
interest from the government being the owner of B.C. Hydro and receiving the revenues and the way these deferred credits, at least some of them are actually deferred future liabilities, are handled. I think maybe
you allowing me enough scope to get started and if I'm out of order, then you'll shut it down. THE CHAIRPERSON: Is that --?
Yes, bear in mind my general comment to
you, but yes, when you proceed with your crossexamination it may be to necessary then for me to speak to this in more detail. MR. WAIT: MR. AUSTIN: Okay. Thank you. On
Mr. Chairman, one minor procedural point.
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December the 18th, the Minister of Energy wrote to the Commission and attached the government's response to the Commission's recommendations with respect to the Heritage Contract Review, and I was just wondering whether it's necessary to enter that into evidence if it's going to be referred to or whether it's on the record. We were discussing it last week. So I don't
see any need to, but I'd like to know now, so on the break I could get copies if necessary. THE CHAIRPERSON: Our practice so far has been to enter
documents that are going to be referred to in crossexamination, even though they are part of the public domain, for the purposes of reference during the proceedings. So I think, unless Mr. Fulton sees it
differently, I think those documents, if you wish to refer to them in cross, should be filed by you at the time that you're making -- or you want to use those in your cross-examination. MR. AUSTIN: Thanks. Any further points of clarification? Mr. Sanderson, you may proceed. Before I get to
THE CHAIRPERSON:
Thank you. MR. SANDERSON:
Thank you, Mr. Chairman.
my opening there are a number of further what I'll characterize as either procedural points or commitments I've made to deal with very specific issues, and so
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rather than disrupt what I hope is the continuity of the opening, I'll deal with those first. Last week during the exchange with respect to the issues list, on Friday, I agreed to identify where in the evidence a list of the depreciation changes that are implicit or applied for in this application could be found. And I think the response, with the exception of
Burrard, is quite straightforward, I think, and that is BCUC IR Response 2.199.2 catalogs all of the changes that are contemplated. There is further information in chapter 2, at Section
elaborating some of those:
3.7.1, and in particular line 18, and as well in response to three other IRs, BCUC 1.2.2, BCUC 1.78.1 and JIESC 1.9.A. But as I said, the general description is
in the first one I mentioned. There is evidence as well relating to changes with respect to Burrard depreciation, which is sort of a separate topic, and that can be found at the same reference in the application, that is Chapter 2, Section 3.7.1, the previous two lines, lines 16 and 17, and it's further elaborated in Chapter 5, Sections 2.3, line 16 to 18 and finally in a series of IR responses, BCUC 1.5.11, BCUC 1.2.11, BCUC 2.205.1, BCOAPO 1.8 -- sorry, 1.18.A, CECBC 1.7.2.1 and 1.7.2.2, and mercifully, finally, IPPBC 1.60.1. Proceeding Time 9:50 a.m. T11
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So that's, I think, what's in the record with respect to the depreciation change issue. We similarly discussed on Friday the deferral account issue and the consolidation of those. And in
respect of the deferral account generally, I think what I'll do is deal with that in the opening. I've put
together a one-page sheet, and Mr. Chair, you presented it rather as a challenge to get it in one page and I'm happy to say we've managed to meet the challenge. And
I've attached that as a schedule to the opening and I'll walk through that when I get there in the opening. There was one sub-issue again on deferral account which took on particular prominence and which I said I'd deal with this morning as a separate topic, and I'll do that before the opening because I think it stands as a separate topic, and that is the B.C. transition deferral account. To be clear, what B.C.
Hydro seeks in the application is to have in this account any variances between Hydro's forecast of its net OATT costs, that is, O-A-T-T costs, in fiscal 2006 that are presented in this application. And the
forecast that it's possible to make of those costs, that is, the OATT costs for fiscal 2006, which result from the Commission's determination of OATT rates based on BCTC's application later this year. Now to elaborate that a little bit, what
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we're saying here is that at this stage, we, B.C. Hydro, can't determine what changes to the transmission revenue requirement are going to be ordered as a result of BCTC's Revenue Requirement Application. B.C. Hydro is
of the view that since this hearing gives ample opportunity to review the forecast of all transmissionrelated asset expenses for both fiscal 2005 and 2006, the focus of BCTC's revenue requirement, or the decision with respect to BCTC's revenue requirement proceeding, ought to be restricted to BCTC's own revenue requirement and shouldn't involve the asset management revenue requirement of Hydro. However, that obviously is outside of Hydro's control. If the Commission in its wisdom decides to
vary something other than just BCTC's revenue requirement, then we would seek to capture that variance as well in the BCTC transition deferral account. THE CHAIRPERSON: The BCTC transition deferral account is
intended to capture variances that might arise during the BCTC hearing related to the management fee component. MR. SANDERSON: Correct. That is, while B.C. Hydro doesn’t
believe that those changes should occur in the BCTC proceeding, if they do, then because they are clearly outside any control of B.C. Hydro, they ought to be recovered in the BCTC transition deferral account.
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THE CHAIRPERSON:
Does it follow that the implications of
that is that if we were to determine as following the BCTC's decision that certain costs that were applied for and that were part of the BCTC -- or pardon me, part of the asset management fee costs in this proceeding, then if we later were to include that certain of those costs should not be recoverable, then the transition deferral account will capture the difference between a Commission decision and the amounts in this application. MR. SANDERSON: THE CHAIRPERSON: MR. SANDERSON: That's correct. I think I understand, thank you. Let me do one more thing before commencing
the opening, and that is deal with the revised hearing issue list, and what I'll do is circulate now the revised list. As I say, maybe we shouldn't mark it
until you've had a chance to consider what I have to say about it, but I will circulate it to everybody here. Proceeding Time 9:55 a.m. T12 This list is prepared from the Commission list. All changes or movements are marked in bold or by
being struck out, so that you can see any changes that have been made. And I'll just walk you through each
change and explain the why and where it came from. The first change is in Section 1.7 on page 2, and this is the only place, I believe, where there's actually added words, and that was simply to ensure that
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if people have concerns arising with respect to the Energy Plan that relate to the consistency of accounting practices in the Energy Plan, how that all fits together. Whether what B.C. Hydro has proposed here is
compatible with the energy plan as a matter of policy, then that should be addressed to this first panel. This
issue is identified later on, that is the ARO and CIAC issues are identified as panel 2 issues. They remain
there, we haven't taken them away from there; we're just adding them, if you want, to panel 1 and saying if you've got a valid policy component to your question please address it to panel 1. Similarly with respect to the appropriate use of contract consulting out sourcing opportunities, there were questions raised in the issues list of various Intervenors around some aspects of out sourcing and line contractors and whatever. We're not exactly sure what
the issue underlying that is, but if it's the policy of out sourcing opportunities, and whether that's a policy that B.C. Hydro ought to pursue and to what extent that's part of its ongoing objectives, that's an appropriate general question to put to panel 1. specifics of the line contractors agreement, for instance, can be spoken to by Mr. Maniago on panel 3, but the overall policy is better here, and similarly ABS can be dealt with with a later panel in detail, but
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overall policy is here. The next change is on page 5. THE CHAIRPERSON: Mr. Sanderson, is that also true for
BCTC's activities? MR. SANDERSON: question. Perhaps, Mr. Chair. That's a broad
That is -- well, perhaps I can ask you to
elaborate just a little, in terms of what sort of activities. THE CHAIRPERSON: Well, I'd be interested to hear BCTC's Now, perhaps that's
policy with respect to this issue.
not part of this proceeding, that that might be better to wait until BCTC's proceeding but for that possibility, and I welcome your comments on that, I would like to hear what BCTC's policy is with respect to out sourcing. MR. SANDERSON: No, in my respectful submission that is not If it's an issue here at all,
a panel 1 issue here.
it's panel 6, when the BCTC witnesses will be attending, and I'll leave it to them and Mr. Feldberg to draw the line in their submission between what's in this proceeding from that perspective and what ought to be deferred to the BCTC proceeding itself. THE CHAIRPERSON: Okay, and as you probably noted, the
Panel included in -- it might take me a minute to -yes, 6.8, the same comment with respect to the transmission -- or the same issue with respect to
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transmission.
So it is there and Mr. Feldberg can deal
with that in due time. MR. SANDERSON: THE CHAIRPERSON: MR. SANDERSON: THE CHAIRPERSON: MR. SANDERSON: Yes. That'll be fine. Yes. Okay. I guess I should -- it might be useful,
actually, before I move too quickly through this to go back to 1.5 for a moment, because you did raise that in your opening comments and I don't want to totally pass that by. I appreciate that submissions with respect to the process can await a later date, but I think for the benefit of the intervenors who may wish to address that issue I should just quickly state what B.C. Hydro is seeking in this respect, in terms of what the application actually contemplates, without arguing it further. And that is, I think, readily ascertainable
from review of Mr. Stout's letter of March 31st, which no doubt has an exhibit number but I'm not sure that I know what it is. That was the letter filed which covered the
application for the REAP and describes the process that is anticipated with respect to the REAP and gave rise to the order of this Commission that the REAP be considered in this hearing. And then Mr. Elton's evidence itself,
to which you've already referred.
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The combination of those two documents was intended to convey that B.C. Hydro believes that its REAP Application satisfies its current obligations pursuant to Section 45(6) and that the Commission is in a position with that to so conclude. Proceeding Time 10:00 a.m. T13 And the appropriate filing requirements and time review periods are set out in the March 31st letter, how B.C. Hydro says 45(6.1) is being complied with and what the implicit procedures that the Commission would then be having it satisfy are. We appreciate that's a
matter for argument and we appreciate that the Commission may have different views and that we need to address that, but that is the position we're taking, and it is for that reason that we say the REAP and this process satisfies the requirements of 45(6.1) and there ought to be no further requirements imposed. And it's
that issue that we take from your comments this morning that we'll need to address more fully, obviously, in final argument. If there are facts of a planning nature and a policy nature that need evidence to explore that issue properly in the panel's view, then this panel can speak to the high level policy as it sees it of what the proper working relationship ought to be and what the practical realities of it are. The more detailed review
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of how the IEP relates to the REAP and how all of that process works together, I would anticipate at a factual level would occur in Panel 4. THE CHAIRPERSON: helpful. Let me make this comment that may be
The panel concluded that REAP should form part
of this process, and we also concluded that only those matters related to the revenue requirements during the test period should be within the scope of the hearing. So when we were deliberating with respect to the hearing issues list, we excluded, as I mentioned in my opening comments, those matters that -- and Mr. Austin raised many of them -- those matters that related to the broader range of financial screening that would occur in project selection, because we wanted to narrow the scope of this proceeding so that it wasn't that broad a review. Now, although some of that could have fallen from the REAP, because we decided to include the REAP process as part of this proceeding, if you will, that in a sense narrowed the range of issues as it related to REAP. And so we continue to be concerned with respect
to how we might best deal with the broader issues raised by Mr. Austin in his opening comments, and some by Mr. Wallace and others with respect to the capital plan in the context of this proceeding. So we have even
narrowed the range of issues that may arise from the
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REAP as well. MR. SANDERSON: Yes, Mr. Chairman, I think that's helpful
in framing the issues, and we will be prepared to address them either as a set piece, as you've contemplated is possible in the next week or so, or in final argument, whichever you ultimately determine is best. THE CHAIRPERSON: Okay. And that in part, that distinction Given the schedule for
in part will turn on the timing.
argument in this proceeding and the dates for -reasonable dates for our decision, it might be well into the fall before there is a decision that might address this issue with respect to -- if we didn't deal with it earlier, with respect to the process for the IEP. And
there may be desires amongst some of the intervenors that it be dealt with earlier than that, and I want to provide that opportunity if that view is in fact held by the intervenors. So I'm proposing a process, if you
will, that's in parallel with this process that might lead us to a decision earlier on the process review for the IEP than this proceeding would, and for that reason I'm looking for -- in part, looking for further input so that the distinction between whether or not it's part of this decision or a parallel decision I think remains open too. MR. SANDERSON: Yes, Mr. Chairman.
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With that, if I can return to the issues list, the next issue that was moved appears at page 5, and that is item 2.9, and there may simply be a terminology issue here and we may have misunderstood what the Commission's intention was. But what appears
at 2.9 was simply moved from item 6.1.4 of the BCTC -or sorry, the Panel 6 list of issues, and it was the BCTC deferral account. Really what this ought to say on That
2.9, I think, is BCTC transition deferral account. needs to be dealt with in Panel 2.
Proceeding Time 10:07 a.m. T14 THE CHAIRPERSON: on that change. MR. SANDERSON: Yes, and all I'm -- I mean, just so that Let me get back to you, Mr. Sanderson,
I'm clear, I think panel 6 is anticipated to deal with BCTCs deferral account applications, as distinct from the BCTC transition deferral account of B.C. Hydro. THE CHAIRPERSON: MR. SANDERSON: 6. THE CHAIRPERSON: Right. Yes, fair enough. I will Fair enough. And the one is panel 2 the other is panel
confirm that for you, but at least at this stage that sounds quite reasonable. MR. SANDERSON: Thank you. The next changes are two, and
they're just passing the ball from panel 4 to panel 7, and both relate really to operating issues.
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is what used to be 4.2, was the optimum resource mix for fiscal 2005 and 2006, and short-term operating decisions -- and short-term means three years and less -- are the responsibility of generation and thus have been moved to the generation panel, panel 7. And so to the extent
that we're talking about short-term optimum mix, we believe that would be more suitably dealt with by panel 7. And use of hydrology analysis and that sort of detail associated with operating the system, I think you'll get more useful testimony from the witnesses in panel 7 than panel 7 on that. And the same relates to
Burrard, responsibility for the gas transportation contracts and its day-to-day operation, also reside with generation, and that used to be item 4.6 and so we thought it more suitable to move that to panel 7. Now, we appreciate that there are what I'll call REAP issues, longer term issues about where Burrard fits in the overall resource mix of Hydro and where, for instance, purchasing from the market, in terms of the longer term picture, fits into the overall energy supply cost, and those, of course, are appropriate for panel 4. But these very specific issues as framed in 4.2 and 4.7 struck us as belonging in panel 7. THE CHAIRPERSON: MR. SANDERSON: Thank you. Sorry, that was 4.6, I guess.
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the only other changes are consequential on what I've just said. That is you'll see what was moved out of
panel 4 show up on panel 7. THE CHAIRPERSON: MR. SANDERSON: Thank you. So, Mr. Chair, maybe we should just leave
it there and give the panel an opportunity to consider those changes and what you want to make the ultimate exhibit, but that's out proposal in terms of the final version of the issue list. THE CHAIRPERSON: Yes, that sounds good. I think what we
will do is take your changes out at some early stage, perhaps immediately after the coffee break, and re-file this as the hearing issues list for this proceeding without the complication of the changes that you've captured for us noted. MR. SANDERSON: comments. Thank you. Those are my preliminary
If I may then I'll just take a moment to
describe and give an overview of B.C. Hydro's case on this application. THE CHAIRPERSON: Go ahead.
OPENING STATEMENT BY MR. SANDERSON: To help with that, I don't have written remarks, but I do have a fairly detailed outline, which I'll just walk through, and it may assist if the panel has that in front of you. This is not, Mr. Chair and Panel Members,
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what I would call a conventional opening, and the reason for that is that this has not been a conventional process to date. We have had, what to me at least, has
been an entirely novel procedure with the work last week to revise the issue list, and subject to how it appears to all us through the hearing process, I have to say it appears to be a process that has an awful lot to commend it. It seems to be working very well. It's
allowed, I think, everyone to -- it's forced everyone, - certainly it's forced counsel for Hydro to think clearly about what the issues really are a little earlier than perhaps counsel are sometimes want to do, and that's nothing but a good thing, I think, in terms of the way the process should work. The courts have worked for a long time in the last number of years to stop trial by ambush. I think I
can be fairly said that that's been a problem to some extent, not here alone, but in a lot of administrative processes, and I think what you've done with this process may go a long way to eliminate that concern. Proceeding Time 10:13 a.m. T15 That said, I think it requires this opening to be non-repetitive and to adapt to what we've already done. So I'm not going to do what I might normally do I
and try and crystallize and characterize the issues.
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don't think that's useful.
You've done that for us.
What I am going to do is summarize, I think, again, and I think this is necessary clearly because there was some ambiguity in the material as seen by the Commission that I've tried to address sort of piecemeal, but I think I want to summarize overall what is it that Hydro is asking to obtain from this proceeding, and just make it crystal clear what that is. Then I would like I want to step
to give an overview of the application.
back from the narrowing that has occurred with the issues and just ask in a bigger picture, what is this application trying to say in its 13,000-odd pages or whatever has been filed? Third, fairly briefly because again you've covered a lot of this with both your issues list and some of the previous material that's been filed, I do want to just summarize one last time the composition and focus of the panels, just sort of again big picture. And then finally there are a couple of process issues although we've probably hit some of those already this morning. Beginning, then, with the summary of what B.C. Hydro seeks, you can see that's set out at page 1 under Part 1. When the application was filed on
December 15th, B.C. Hydro saw across the board increases for all of its bundled service customers of 7.23 percent
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for fiscal 2005 -- that is, effective April 1, 2004 -and then 2 percent additional for fiscal 2006 effective April 1, 2005. And I've got all the references for what It's all in the filed
I'm about to say in here.
material and I'm not going to repeat them for the record. They're on the exhibit. On February 20th an evidentiary update was filed, and that also included a revised deferral account proposal -- or sorry, it didn't at the time, but subsequently there was a revised deferral account proposal filed on April 2nd. And the combination of
those two filings, the February 20th update and the April 2nd modification to deferral accounts, yield a revenue requirement for fiscal 2005 of 8.9 percent as opposed to the 7.23, and no further increase for fiscal 2006. The Commission has allowed by Order G-804 the interim increase of 7.23 percent on January 20th, and that went into effect on April the 1st. B.C. Hydro
accepts that notwithstanding its application, it must forego the difference between what's being granted in that interim and what it now seeks in the 8.9, until this Commission can make a final decision on this application. And so we don't seek the 8.9 percent rate
increase to come into effect until whenever your decision is issued. And as set out here, on the
assumption that wasn't till October 31st, that implies a
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$21 million reduction in the total revenue requirement that might otherwise be collected. The effect of the update and the change to the deferral account is mixed. It's true that in fiscal
2005 it does seek more in the back half of the year than the original application did. On the other hand, the
total increase being requested is less; that is, the total increase in the rates as they are today is 8.9 percent, and that full impact won't be felt until say October 1st. In the original application the full impact
was going to be the compounded sum of 7.23 and 2, so something in excess of 9 and a quarter, that would have come in fully by April 1, 2006. So it's a little bit
less a little bit sooner that Hydro now seeks. I should note that there are some potential automatic rate adjustments effective April 1st, 2005, not included in what I've said, flowing out of changes to the allowed ROE and effective income tax rate for Terasen, that is the return on equity that is determined by formula. I should also note that not all rates are going up. For 2005, B.C. Hydro has proposed a reduction The reason for that is fully described at
in WTS rates.
page 6A13 and 14 of the application, and those lower WTS rates are proposed to be in effect until BCTC's OATT takes effect likely on April 1st of next year.
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reduction was also approved in G-8-04. Proceeding Time 10:18 a.m. T16 So that's the rate relief that is being sought. It's important to note that there's no rate The proposal at this stage is
design aspect to that.
across the board treatment to rates, and it's fully anticipated there will be a rate design hearing coming, but that's not what this hearing is intended to be about. There are, as we've discussed, a number of deferral accounts that are proposed, and if you look to the very back of what I've just handed up you'll see those summarized in one page, and the four headings on that document at the back of the exhibit, or back of the opening are the Heritage deferral account, the nonHeritage deferral account, NHDA, the trade income deferral account and the BCTC transition deferral account. And if we just for a moment shift to that back page, the reference to where any of this can be found in the application is found in the first column. The first item for which a deferral account is sought is cost of energy however it affects B.C. Hydro's costs except those variances arising from changes in customer load, for which Hydro proposes to be at risk. But that
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Heritage deferral accounts having a cost of energy element in them. Similarly, the variable costs of thermal generation are captured in the HDA, because Burrard, et cetera, is a Heritage asset. The significant unplanned
major maintenance costs which are defined as costs in excess of $100 million related to a single event -sorry, $1 million, I'm sorry, related to a single event involving equipment or infrastructure failure are sought to be captured throughout the organization. So you'll
see a parallel as you go through this between the Heritage deferral and the non-Heritage deferral accounts, in terms of the types of things that are captured, and of course the evidence will elaborate. The theory there is that for many of these things it doesn't much matter where the asset falls, that is within each line of business, the question of whether it should be deferred should be determined using a consistent set of principles. Similarly with significant unplanned major capital expenditures, again greater than $1 million, found in both the deferral accounts. Unplanned deferred capital costs pursuant to BCUC Order G-53-02, are a specialized case focusing back onto that order, and they relate to costs incurred for First Nations negotiations and settlement costs and
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they're just subject to a specific order the Commission has previously made. All net revenues from surplus hydroelectricity sales, those, to the extent that they're to Hydro's account, go into the deferral account. As you'll see later -- further down, towards
the bottom -- so too do all differences between forecast and actual trade income. So, consistent with the
Heritage Contract decision, regardless of how benefits are realized, they are put in the deferral account so they can ultimately be applied to the benefit of customers. Variations in distribution emergency restoration costs are in the non-Heritage deferral account, to parallel what's been done elsewhere with the Heritage deferral account, and all founding partner benefits and CIS credits under the ABS Contract, which was an issue that I think has come up in a number of IRs, are also to ultimately be to the benefit of ratepayers because they're in the deferral account. And
so at least the determination of what to do with them is -- turns on the determination of the disposition of the deferral accounts as distinct from automatically shifting to the shareholder. And then finally, any variances between Hydro's forecast of net-out costs in fiscal 2006 in the
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application and Hydro's forecast of net-out costs in fiscal 2006 resulting from the Commission's determination of out rates after the BCTC hearing, as I explained previously this morning, we propose are deferred. That is perhaps a helpful summary that parties can have reference to in terms of trying to understand the theory of the deferral accounts, and use with witnesses. Obviously there's lots of IRs which
elaborate each individual element within them. THE CHAIRPERSON: MR. SANDERSON: That is helpful, thank you. Next, Mr. Chair, the next part of what
Hydro seeks out of this hearing has also been foreshadowed by earlier discussion this morning, and that is the REAP filing. As indicated, and Mr. Fulton
has helpfully reminded me and actually my notes now tell me, that the March 31st application was Exhibit B1-23, and in the March 31st letter the following passage appears. Proceeding Time 10:24 a.m. T17 This is at the top of page 2. describing: "Having laid out Section 45(6.1) and observed that there is not yet a Commission order on the form of times for filing the above mentioned plans or specified capital planning
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period, Hydro has prepared its REAP with a review to satisfying the requirements of Section 45(6.1)." It then explains where the REAP is drawn from, and in the top of page 2 says this: "B.C. Hydro intends to update its REAP annually. The REAP will replace B.C. Hydro's
current annual filings in connection with capital expenditures. B.C. Hydro suggests
that the appropriate time for filing all of its plans pursuant to the opening words of Section 45(6.1) is yearly. It also suggests
that the appropriate planning period for the purposes of paragraph 45(6.1) is two years for subparagraphs (a) and (c) and four years for the purposes of subparagraph (b)." (a) and (c) are capital planning and PowerSmart, that is, things that Hydro is spending dollars on within its own operation if you will. And then subparagraph (b) is
energy purchase contracts, and for those it's identified the four-year period. Just dropping down a little bit in that letter, it goes on to say that: "The REAP identifies those anticipated expenditures on capital projects, resource acquisition, and demand-side management that
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B.C. Hydro is currently capable of identifying and estimating with confidence. As such it is
the REAP that is amenable to review pursuant to Section 45(6.1)." And then I go on and I won't do it again, but it then goes into the distinction between the REAP and the IEP. So it is the REAP for those periods pursuant to that section that B.C. Hydro submits and will be asking in final argument be approved by the Commission pursuant to its authority in that section. THE CHAIRPERSON: Is the timing on approval of the REAPs
coincident with the anticipated timing on your revenue requirements adequate timing? you? MR. SANDERSON: To be candid, Mr. Chair, it is the best And you Is it early enough for
that we had believed we could hope to expect.
raised the possibility this morning of a debate that might appeal to other parties because it would yield potentially an earlier decision. And I made a mental
note to think about whether we might not be one of the parties who would also benefit from that, but it wasn't something we'd contemplated as possible at the time the REAP was filed, given everything that was on the Commission's plate as well as B.C. Hydro's. And given
the need for a 45(6.) review to be done, the most aggressive timetable that we considered feasible was
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rolling it into this proceeding, which is why the application is framed as it is. If the Commission were to determine that a more expeditious process was possible, that might well yield some significant benefits, but I think I need to take instructions on whether that's -- whether B.C. Hydro believes is a practical way to accomplish that. THE CHAIRPERSON: There are certain items in the action
plan that -- except if you will for early investigation costs and those sorts of costs, there are certain items in the action plan that do not have significant, if you will, revenue requirements attached to them. And it
occurred to me that an earlier decision with respect to certain elements of REAP may be of benefit to your client, and if so, I'd like to hear from you soon. Getting instructions in that regard would be helpful, thank you. MR. SANDERSON: I will. Mr. Chair, that, I hope, completes a description of what we're asking for. And I'm not sure I'm
we've established when you want to take breaks.
going to move now to sort of the overview of the case. I don't know whether this is -- 10:30 is when you want to take morning breaks or later. THE CHAIRPERSON: minutes.
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(PROCEEDINGS ADJOURNED AT 10:30 A.M.) (PROCEEDINGS RESUMED AT 10:47 A.M.) THE CHAIRPERSON: Please be seated.
Mr. Sanderson, I think you can proceed. MR. SANDERSON: Thank you, Mr. Chair. At the break I was just turning to a quick summary of Hydro's case, and perhaps providing a little context, and that starts at page 3 of the document I handed up. It clearly is important to note, this is Hydro's first Revenue Requirement in a very long time. It's the first hearing since 1994, and as the Commission will recall, the 1994 hearing resulted in no increase. And so the rates are in fact those rates that were established in a 1993 hearing, for fiscal '93. Since that time there have been significant increases in load, the cost of energy and operating costs, and that's resulted in an increasing gap over time between the contribution from domestic ratepayers and the overall revenue requirement. Until fiscal 2002
that shortfall was made up through trade revenues and lower finance charges. In other words, during the
period '93 through 2002, while some things were going up, another thing was going up significantly as well, and that was trade revenue, and a significant cost was going down, and that was finance charges.
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However, that happy counterbalance did not lead to realization of Hydro's revenue requirement and fiscals 2002 and 2003 without transfers from the RSA, and as the Commission will recall, the RSA was a fund built up from excess earnings, from what I'll call glory years in trade income earning through the earliest part of this decade, and that -- those additional funds were used in fiscals 2002 and 2003 to continue to keep rates at their 1993 levels. In fiscal 2004 the books have not yet finally been closed, but Hydro expects a significant shortfall for fiscal 2004 from its revenue requirement even after the transfer of the balance that's remaining in the RSA. And so the ability of past years of significant trade income to continue to fill the gap between the contribution from domestic ratepayers and the overall revenue requirement will cease as of the end of this year, and of course as of April 1st of this year the RSA itself ceased to exist. Proceeding Time 10:49 a.m. T19 The result is that with the benefit of hindsight at least, rates in fiscal 2004 were unjust and unreasonable. And indeed that was pretty clear at the
beginning of the year, but with the transition that Hydro was undergoing pursuant to the Energy Plan, in particular the development of the Heritage Contract and
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the need for the inquiry before this Commission to determine how that was all going to work, it was simply not possible to apply for a rate increase that would be effective in fiscal 2004. As well, Hydro was installing
its new CIS system and that needed to be up and functioning before the change in rates could be properly accommodated. All of that has led to the decision to
make this initial application effective fiscal 2005. The policy environment that existed over that period is also worth some comment, that period being since 1993 till the present. Increasingly over that
period, market prices for electricity became unprecedentedly volatile, and periodically, as we all know, higher than anyone could reasonably have imagined they could become a few years earlier. During that
period, there have been worldwide restructuring initiatives. The Commission is well familiar with them.
Mr. Elton in his opening statements speaks of them to some extent and explains that while many restructuring options were considered during the period in B.C., B.C. itself and B.C. Hydro bided their time, effectively, while other jurisdictions did undertake major changes and/or absorbed major shocks. So it was period of, in B.C., watching carefully what was going on in other jurisdictions, taking some tentative steps on occasion in one direction
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or another, but in the end making no fundamental change, with one really significant exception and that is the realization that trade income was a way, if properly and fully exploited, that the residents of B.C. could obtain benefits which would allow rates to stay low and much lower than they otherwise could be. Proceeding Time 10:52 a.m. T20 And so there was a concerted effort, really from the time that Powerex was created for the purpose in 1989, and through the 1990s, to both operate the B.C. Hydro system and to engage in trade activity through Powerex in a way that maximized the benefit ratepayers could realize from the operation of the system and all British Columbians could realize from the operation of the system. And so the most significant change over the '90s was the role that the additional income available from using the system in that way could contribute or could play in contributing to keeping rates in B.C. low, and B.C. Hydro aggressively, consistently, and I think the evidence will show, successfully, did extract maximum value from the system for the benefit of everyone. The situation through the '90s continued through the early part of this decade, but commencing in 2002 a provincial plan, if you want, as to what is the
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right way forward for B.C. began to develop through the various task forces that were initiated, and they culminated in the November 2002 Energy Plan, and that plan has given B.C. Hydro its road map for the future, and it's consistent with that plan and in large measure based on the concepts in that plan and the road map that it lays out, that the concepts in this application are founded. Mr. Elton's opening statement explains, and the application as whole explains, that Hydro's focus since the Energy Plan's release, and in some cases even before its release, has been on implementing the parts of the Energy Plan that it had responsibility for. And
those have been many and it's been a very intense 18 months. Major initiatives over the last two years
include completing the line of business structuring for Hydro, undertaking the very significant ABS transaction and the significant outsourcing opportunity that that involved. The major restructuring occasioned to
facilitate BCTC's incorporation and the shift of responsibilities from Hydro to BCTC, and then a number of regulatory processes, the first being VIGP and its CPCN hearing which is so integral to the supply of electricity on Vancouver Island, the establishment of the Heritage Contract and stepped rates principles last summer, and then finally the return to rate regulation
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which brings us to this hearing today. Consistent with the concept in the Energy Plan, what that has done, I think Mr. Elton will testify, is allowed the construction of the structures and institutions that will allow Hydro to continue to provide low-cost reliable power well into the future. And so it will be his evidence that explains conceptually how those pieces are seen by Hydro to fit together and provide for an ability in Hydro to deliver the promise laid out in the Energy Plan. Mr. Elton will make it clear and I think the application makes clear that the process is not yet complete; that is, the restructuring component of the process has some more elements. BCTC's full regulatory B.C.
framework and rates have yet to be determined.
Hydro, as I mentioned earlier, does have a rate design. There is a need to look at B.C. Hydro's rate design. B.C. Hydro anticipates applications in that regard for the specific stepped rate and industrial retail access issues, and then later for an overall look at its rate design. And all those are integral parts of what I'll
call the restructuring and the re-regulation of Hydro, and they're all planned to occur through the balance of this year and into next. That's the policy backdrop against which this application takes place.
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Proceeding Time 10:57 a.m. T21 The cost environment as it relates to Hydro's revenue requirements are these: As we go into this
hearing Hydro's rates remain very low and will still be low after the application is granted, should it be. current rates, as I've said, would not have been sustainable for the last few years absent the extraordinary contribution of trade revenue, and the decision really of government to allocate most of that to ratepayers through the RSA mechanism. The steps that have been contemplated in the energy plan and already taken by B.C. Hydro will assist in keeping down those rates, and in particular the ABS transaction, the focus on IPP purchases going forward, focus on PowerSmart going forward and the LLB structure, those are all initiatives which are contemplated by the energy plan which Hydro has now undertaken, the intent of which in every case is to keep costs low, and that is one of the cornerstones of the Energy Plan and the B.C. Hydro Panels and the application explain how B.C. Hydro sees its steps in respect of those initiatives delivering that gain on the promise of the Energy Plan. Notwithstanding those initiatives, and notwithstanding all of the efforts of B.C. Hydro to serve the low cost and low rate objective found in the Energy Plan, the fact remains that, and the evidence
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makes clear, that the current Hydro rates are not sustainable going forward because it's not anticipated that trade earnings will continue to make-up the shortfall in the contribution by domestic customers and it's not anticipated that interest rates will continue to decline. Indeed, as the application makes clear, Interest rates
quite the reverse in the latter case.
are not expected to decline, and so no further benefit can be obtained from that particular quarter. The result, as Hydro's application makes clear, is that the increases applied for which I've previously described are necessary to allow Hydro to continue to provide service on the basis that it has in the past and to maintain the level of programs it's undertaken in the past. And just to elaborate that a
bit, that does distinguish this application from some that come before the Commission. This is not a case
where B.C. Hydro is coming forward seeking to do something expansionary, if you will, or new. This is a
case where B.C. Hydro is saying in its application that the rates to date -- the rates that are in place now are insufficient to cover its requirements now, and that in order to maintain the service which British Columbians currently enjoy or Hydro ratepayers currently enjoy, there needs to be an adjustment to rates. In Volume 1, Chapter 1 of the application,
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which is Exhibit B1-1, the reason what I've just said is so is elaborated by reference to a series of cost drivers, and those are set out at pages 1-7 to 1-9 of the application. There are three that I would like to
just focus on for a moment. One is the cost of energy. Clearly the cost
of energy external to Hydro has been increasing significantly since the early '90s. Yes, it's come down
from where it was in 2000 and 2001, but it nevertheless remains both the current fact and the projection that market price of energy and the cost of developing new sources of energy have both increased substantially since ten years ago. Proceeding Time 11:01 a.m. T22 As well, the evidence will show that as load has grown B.C. Hydro has become more dependent on new and external sources of energy. And so that not only is
the cost of energy per unit going up, but the percentage of Hydro's total portfolio represented by that new energy is also going up, and that double leverage, if you will, on Hydro's costs is having a significant impact on the cost of energy that it faces. Related in some instances to the cost of energy but also more generally, the cost of Hydro doing business is increasing in a number of fundamental ways, and those can generally be characterized, I think, as
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increased expectations from a variety of quarters or from a variety of stakeholders. Environmental issues
and First Nations' issues are perhaps the best example; the water use planning process. A number of forces
operate so as to make the operating regime even for the traditional assets of B.C. Hydro either more expensive or make the assets less productive, and with the effect of increasing cost. aspects of this. A number of panels can speak to
Panel 7 clearly can deal with the
generation aspects, 5 with distribution, 6 with transmission, and Panel 3 can deal with the costs of servicing and providing service, field services throughout these operations. And the third thing that I'd particularly like to focus on is aging infrastructure and reliability. Both Mr. Elton and Ms. Van Ruyven will
speak to the importance of reliability from the customer perspective and otherwise. Individuals on all panels
are prepared to speak to the cost implications of not addressing -- or the costs and implications of not addressing the issue. But clearly given external events
in other jurisdictions we can appreciate how fortunate we are to have had the level of reliability that the Hydro system here has delivered, but the costs incurred in other jurisdictions when that reliability has not been present make it abundantly clear how important it
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is to maintain that ability.
And Mr. Elton on the
policy panel can give and will give their perspective on how they view the trade-off between long-term reliable service and short-term costing issues. There are a number of other drivers mentioned in the application. briefly. I'll just mention them very
Pension costs, which will be spoken to and
I'll elaborate how, but pension costs have a number of different components, and the result of that is that they will be spoken to with respect to changes in both the accounting treatment of pension costs and the question of how the pension fund has been doing by panel 2, and then benefits policies for B.C. Hydro generally, along in fact with all compensation policies will be spoken to as part of panel 3. But pension costs are
obviously a significant impact on the bottom line. The increase in demandside management expenditures is all part -- really, it's the same discussion as the cost of energy. It's just another
side of making sure that supply and demand balance, and that will be spoken to in Panel 4, along with the other elements of cost of energy. There are increases in transmission costs, and those can be spoken to through Panel 6, and in that I will in the cost of the creation of BCTC, et cetera, the cost of the ongoing operation of BCTC; all of that
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is stuff that can be fully described by the witnesses in Panel 6. And then finally, it's foreseen that finance costs, far from going down, will start to increase and Panel 2 can elaborate that. Mr. Elton in his opening statement makes clear that despite however of these cost pressures, he believes that it remains a well run organization, providing very good service at excellent -- and by excellent I believe he means low cost -- rates. That
is, as I've said earlier, even with the application before you now, B.C. Hydro will remain one of the lowest cost jurisdictions in -- or service areas in North American for electricity. That has been a consistent policy of B.C. Hydro shareholder, the provincial government. That is,
sensitivity to rates has been an important element of B.C. Hydro's mandate for a long time now, and Mr. Elton's testimony will indicate that that continues and is expected to continue into the future. Proceeding Time 11:06 a.m. T23 The work of building the institutions that will allow Hydro the luxury of focusing exclusively on cost minimization is not over. years to complete in full. It will take another two
But already the line of
business structure that's already been established is
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identifying significant opportunities for future efficiencies that will assist in keeping future rates down, and again the Policy Panel, at a high level, can speak to how they see that occurring and why they believe that model is capable of providing efficiencies, has already, and will be capable of providing more in future. Mr. Elton's testimony will also describe how he expects this process to continue as the management focus shifts increasingly from designing structures that maximize the pie, to use a phrase that became popular in the Heritage Contract proceeding, to actually doing the maximizing. And that really is the shift that I think
Mr. Elton's testimony describes or his opening statement describes, and I invite the panel to ask him to elaborate around that issue of how that timing and transition occurs. Thus it will be my submission that the evidence that's been filed shows that the requested increase is necessary to bring rates back to where domestic reality suggests they should have been, for some time perhaps, and it will also show that if the increase is granted, Hydro will be well placed to minimize rate increases in the future. And that, in my
respectful submission, is an important piece in this evidence, and that is that both the Energy Plan and, I
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will be submitting in argument, a proper weight making, ought to permit the utility to recover those funds necessary to organize itself so as to minimize rates over time. That may or may not mean minimizing rates in a particular fiscal year. You have to have regard to
the consequence of not spending money today on rates tomorrow. That's a constant balance and tradeoff that
has to occur in that connection, and the goal of B.C. Hydro certainly, and it will be my submission, the goal of the regulator, ought to be to minimize those rates when looked at over a period of time as opposed to on a very short-term snapshot. That's, given the full development of the more specific issues list, all I propose to say about what's in the evidence. I did want to cover two more
things though, one of which is the legal considerations that apply, and that is the Special Directions. And I'm
going to take you to the special directions if I can, because this is the first hearing which has been held under them. Clearly, Special Direction No. 2 is the most important for this proceeding because that's the direction that actually is to this Commission. But
before I go there, there are two elements of Heritage Special Directive No. 1, or HC-1, that are probably
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worth noting.
The first I alluded to a moment ago, and Previously,
that is that the RSA no longer exists.
Special Directive No. 4 to B.C. Hydro created the RSA. That is not present in HC-1. And HC-1, in subparagraph
(a) of the cover order, repeals Special Direction No. 4 and it's entirely replaced with HC-1. there is no RSA present there. And the second thing to note is that in paragraph 3, an annual payment is prescribed in compulsory terms and there is just a simple formula which requires the directors of the authority, meaning B.C. Hydro, to cause the authority to pay the government for deposit into the consolidated revenue fund an amount equal to 85 percent of the authority's distributable surplus for the previous fiscal year of the authority, or if that would result in the debt/equity ratio of the authority exceeding 80/20, the greatest amount that can be paid without causing that to occur. My point in referring to that Special Direction is simply to say that there is a mechanistic calculation which has the effect of determining what Hydro does with its earnings that operates by formula and causes cash to flow, if you will, really outside the operation of discretion. special direction. That leaves Heritage Special Direction No. 2
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It is determined by that
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to the Commission.
It bears many similarities to
Special Direction No. 8, which previously applied to the regulation of Hydro, but it does contain some new and noteworthy elements. Proceeding Time 11:12 a.m. T24 Trade income is now defined. The definition
of trade income is consistent with the Commission's recommendations arising out of the Heritage Contract hearing, and it essentially means the net income of PowerEx with a collar, if you will. That is, the collar
is framed by the range between zero and 200 million annually, and the effect of that is to protect ratepayers from being responsible for any losses of PowerEx and to leave to government any benefits received from trade income above $200 million. And as the
Commission will recall in the Heritage Contract hearing, and is true also in the evidence here, the anticipated trade income for fiscals 2005 and 2006 falls squarely within the middle of that range, and so that it's expected that trade income for the purposes of this application will mean the net income of PowerEx. The definition of equity is significant, and what's significant about the definition of equity is its not changed. At the Heritage Contract hearing there was The Commission
submissions that it ought to be changed.
noted in its recommendations to government the fact that
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a number of parties were concerned about the definition in Special Direction Number 8. The Cabinet, in its
wisdom, in re-issuing this definition, reaffirmed the definition of "equity" as it had been notwithstanding those changes. And I simply make that observation; the
legal significance of that I'll leave till argument. The next thing to note about HSD2 is that the Heritage Contract itself was attached, and legally the Commission, in our submission, is required to regulate Hydro as if that document notionally between Hydro's distribution line of business and its generation line of business were a legally binding agreement. As the Commission has noted, the Special Direction also requires the establishment of two deferral accounts. One is the Heritage deferral
account, and I've noted the Commission's questions or issues around the definition of that; and the trade income deferral account. Those are both required to be
established, but I do note that the Special Direction allows for the establishment of additional deferral accounts, and it's under those -- it's that allowance, if you will, that gives rise to the application for the BCTC transition deferral account and the non-Heritage deferral account. I think in the outline it reads
"new", but I think that should be "non", Heritage deferral account pursuant to those provisions.
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And then finally, I just wanted to note that the language of Section 4 is important, I think, and will be important in determining the ultimate outcome of this application. Paragraph 4 says that in regulating
and setting rates for the Authority, the Commission must ensure that those rates do various things, and those include providing reliable electricity service, again as Mr. Elton will testify from Hydro's perspective, but in my submission from a legal perspective there is no option. Hydro must provide reliable electricity
service, it must be provided with the opportunity to do so by having rates sufficient for that purpose. It must meet all of its debt service, tax and other financial obligations. It must comply with
government policy directives including, without limitation, government policy directives requiring the authority to construct, operate, or extend plant or system, and finally it must ensure that the rates achieve an annual rate of return on equity equal to the pre-income tax annual rate of return allowed by the Commission to the most comparable investor-owned energy utility regulated under the Utilities Commission Act, and I think it's not controversial in this proceeding that that rate is 13.91 percent, which is calculated based on the Terasen rate, at least for fiscal 2005. That does not appear to be an issue, and so again in
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argument it will be my submission that that -- the rates ultimately set must be ones the Commission is persuaded will allow that to happen. Proceeding Time 11:18 a.m. T25 There are other changes to the legal framework that govern this application. Clearly we have
talked about the recent amendments that gave rise to Section 45(6.1) and (6.2) of the Utilities Commission
Act.
Those 45(6.1) and (6.2) I've already spoken to and
are the basis for the REAP filing in this proceeding. As well, I haven't mentioned previously the amendments to Section 61(b), and that section is relevant when the Commission comes to consider B.C. Hydro's PowerSmart program and it's demand-side management expenditures. A couple of other statutory steps taken pursuant to the Energy Plan. First is the B.C. Hydro
Public Power Legacy and Heritage Contract Act, and that
confirms that Hydro's Heritage resources and its distribution and transmission assets may not be resold as long as they are useful and fit for their intended purpose. And that's relevant, I think, in considering
the range of options that might be available to Hydro. Clearly those options and any options considered by Hydro are only those which are consistent with that Act. Similarly the Transmission Corporation Act is where provision is made for the designation of BCTC's
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designated agreements.
That's the enabling legislation,
if you will, that was necessary was put into play what was ultimately done through the designated agreements with BCTC, and it's in that Act that we can find the definition, if you will, of the role the Commission plays in this proceeding in looking at those particular -- that particular arrangement, excuse me. Similarly, the amendments to the Hydro and
Power Authority Act that came into effect on March 13th
have a similar treatment of the key agreements that were undertaken with Accenture, and again those amendments lay out the role the Commission is to play in reviewing those particular transactions. And I'm not going to
make submissions about what that role is at this stage other than to say that's where guidance on that is to be found, and if the issues arise then we'll address them when they do. That lays out, I think, the primary legal -the change in the legal landscape, if you want, that I think will turn out to be important for the Commission's review here, and leaves me only needing to describe the witness panels again. I spent some time last Thursday
and Friday doing that, so I don't intend to repeat myself in that level of detail. Let me just make some
general comments though about the structure of the panels.
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THE CHAIRPERSON:
Just before you do that, Mr. Sanderson,
it was helpful for you to go through the legal considerations for this application. From time to time
during the proceeding, they're going to be relevant with respect to rulings that I may need to make with respect to what's in scope and what's out of scope. In a
document that you circulated last week, you established several principles, if you will. That's Part 3 of your
document that I don't remember the exhibit number of now, but in any case I think I do remember the part correctly. Those principles were helpful, as well as
your review of the legal considerations for this application. And my request -- having said all of that, my request is a simple one to you. During this proceeding,
if you feel that they are relevant to the crossexamination, please bring them to my attention. MR. SANDERSON: will do that. If I may then, I'll move on to Part 3 of the document I've handed up this morning and that is the issues and witness panels. There are some general Yes, Mr. Chair, I will do that. Yes, I
comments which I wanted to make about the witness panels and how we've tried to deal with or present them. Each
panel will have a chair, and our intention is that where questions don't obviously fall to a specific witness,
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the Chair will field them and should also be responsible for knowing who is best able to deal with particular questions if they're not. In other words, they'll be
sort of the traffic director, if you will, within the panel in a way that hopefully is intended to be helpful. And I'll identify the chair when I describe each panel in a moment. On Panels 3, 5, 6 and 7, there is a witness in each case whose -- not sole job but an important job is to reconcile the functional costs with the consolidated functional schedules and the business unit costs. That is, there's a challenge in looking at the
costs for Hydro in understanding what a particular function costs as opposed to what a particular line of business or business unit does. And you can present the
books if you want, or the financial affairs of Hydro, from either perspective. What we've tried to do is have a witness on each panel which will help you understand how to reconcile the numbers in respect of each, and we can appreciate that that's complex. Everyone's going to
have a different question about it, so we've tried to each of the field services and human resources in Panel 3, distribution in Panel 5, transmission in 6, and generation in 7 to have a witness of a financial nature on each of those panels to do that. Proceeding Time 11:23 a.m. T26
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I say that because we do also have a financial panel, panel 2, which is going to speak corporately and broadly about the financial items, but to the extent that people get into real detail it ends up in a later panel will still have one of the financial people around to be able to help with that. In terms of counsel, I'd mentioned at the outset that we had different arrangements for different panels. I will be here with Mr. Webb during testimony
of the policy panel, the finance panel and that's all, with Mr. Webb. I will also be here with Mr. Kleefeld I will not
for the energy supply cost panel, Panel 4. be here for the balance of the panels.
Mr. Christian
and Mr. Webb will be, however, dealing with the panels of -- the evidence of Panels 3, 5, 6 and 7. To very quickly run through who's on those panels, we'll hear later this morning, if I sit down soon, from Mr. Elton as Chair and CEO of the first panel, CEO of B.C. Hydro, on the first panel, and as you know Mr. Elton has an opening statement that he'll be making based on the material he circulated yesterday. Ms. Farrell and Ms. Van Ruyven will also be on the panel. Ms. Farrell is the Executive VP generation line
of business; Ms. Van Ruyven holds the same position with the distribution line of business. We then move on to panel 2.
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financial witnesses from a number of different areas, comprising that panel. Mr. Sherlock will chair it. He
is the controller of the distribution line of business. Mr. Morris, who has that function in the generation line of business will deal with generation issues, but he will also take responsibility for the deferral account issue that's discussed now in Ms. Grewal's testimony. In fact Mr. Morris will take over that testimony and I'll deal with that orally when he appears. And in fact
all elements of deferral accounts beyond the broad policy considerations that I suggested be addressed with Panel 1 will hopefully be dealt with by Mr. Morris. Ms. Lambert is the Treasurer of B.C. Hydro, and she will deal with all treasury issues. That
includes the weighted average cost of capital and how that's comprised of different instruments of different terms, what the decision making process is and how it's been determined what form of debt Hydro should hold. Mr. O'Riley is the Chief Risk Officer of Hydro. That will become clear again in his oral direct.
That's a fairly new position, but it leaves him generally well placed to testify with respect to risk management. As well Mr. O'Riley recently ex of PowerEx
can speak to the trade income and transfer pricing issues that arise with respect to income earned by PowerEx.
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And finally Ms. Hardy can speak to the functions, her functions as Corporate Controller, and overall responsibility for the financial schedules and numbers. The third panel I would characterize generally as the people panel; that is it's dealing with the delivery of services within the organization by people, and it has, as you'd expect, the Chief Human Resources Officer for B.C. Hydro, Ms. Webb. It has Mr.
Maniago, who will chair the panel, and Mr. Maniago is VP of Field Services, so has responsibility within Hydro for providing those services to all the lines of business. And then finally, as promised, it has Ms.
Hardy, who can explain the numbers as they relate specifically to the issues addressed in that panel. Panel 4 will deal with energy supply. It'll
be chaired by Ms. Van Ruyven, who you will have seen on the first panel, and as I alluded to earlier, within supply we include Power Smart and DSM activities. So it
will have Mr. Marchant, who is the PowerSmart programs and customer -- sorry, is in charge of PowerSmart programs, and Mr. Hobson, who provides technical expertise in association with some of those programs as well as Ms. Hemmingsen, who was responsible for the supply side power planning and portfolio management. Proceeding Time 11:29 a.m. T27
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MR. SANDERSON:
Moving on to distribution, if I can
characterize it this way, it's dealing primarily with the wires. And again, Ms. Van Ruyven as head of that Mr. Gillies will
line of business will chair the panel. accompany her.
He's responsible for the distribution Mr.
system planning and operation side of things.
Marchant will appear again, this time dealing with customer care, the other aspect of his function within Distribution. Mr. Steele, who has been added from the
evidence this morning, will deal with very specific issues which are the Northstar/CIS project and the ABS transaction insofar as it relates to information technology, that side of that transaction. Mr. Sherlock
will perform the comptroller function that I have said is on each panel, with his responsibility as the comptroller for that line of business. He also will
speak to the business aspects of the ABS transaction which Mr. Steele does not. The sixth panel, Transmission, this panel is unique in the sense that it will be comprised of the staff of BCTC as distinct from B.C. Hydro. It will be
speaking to B.C. Hydro's revenue requirement for fiscal '05 and B.C. Hydro's -- what will become B.C. Hydro's owners' revenue requirement in fiscal '06, but nevertheless it is comprised of individuals all of whom are employees now of BCTC. It'll be chaired by Ms. Jane
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Peverett.
And accompanying her on the panel will be Mr.
Mansour, with whom the Commission is well familiar, dealing with transmission system planning and operations, Mr. Gurney, who also deals with transmission system operations, and Ms. Hong, who will deal with the comptroller function that I've said is on each panel from the BCTC perspective. That panel will also cover the issues which my friend Mr. Feldberg I think will probably foreshadow in a minute, dealing with BCTC's deferral account application, and I won't say anything more about that. That mixed purpose does mean that as Mr. Feldberg advised last week, two things. Ms. Peverett will be
making an opening statement that is the opening statement for really the policy, if you want, aspects of BCTC's deferral account application, and Mr. Feldberg will join in this case Mr. Christian at counsel table from the BCTC perspective. Mr. Fulton has very helpfully caught an error on page 11 of the summary. the bottom, it says: In the very last bullet at
"Because the BCTC Panel is
appearing on its own behalf and on BCTC's behalf…" That should read "B.C. Hydro's behalf". And then the last panel that will be part of the evidence in chief, if you will, in support of Hydro's application, will be dealing with the generation
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line of business.
That will be chaired by Ms. Farrell, Mr. Spafford, with
who again you'll see on Panel 1.
whom the Commission is well familiar, will appear to speak to generation system planning and operations. Dunlop will provide further technical knowledge and expertise with respect to system operations, and Mr. Morris, who you will have seen on Panel 2, will perform the comptroller function for that panel. That, I think, describes in full the witnesses that we anticipate calling with respect to -to support the application. As Mr. Fulton indicated Mr.
this morning, there was filed rebuttal testimony of three witnesses. It is not our intention to call that Rather we'll
evidence as part of these panels.
constitute a rebuttal panel, would be our proposal, after the intervenors' evidence has been spoken to. That panel as presently constituted, or at least what we've given notice of, will comprise three people all of whom are witnesses here, and they being Ms. Hardy dealing with one financial issue, and Messrs. Marchant and Hobson dealing with issues raised in connection with PowerSmart. Proceeding Time 11:35 a.m. T28 The last, page 13 of my summary, a couple of observations. The first is, rather than have to burden
you with this with each panel, clearly the evidence
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being given is the product of a great deal of hard work by an awful lot of people. The material here is
voluminous, and one of the pieces of advice, not to wave any privilege, but one of the pieces of advice that I've given to my witnesses is, this is not a closed book exam. We're not here to test every witnesses' memory of
everything that's in those eight volumes and all the CDs that go with it. I think in recognition of that we can
expect these witnesses, and ought to understand these witnesses will work with their support teams outside of the hearing room as the hearing goes on to provide as accurate information and the best information they can as the testimony continues. And I don't want to keep
getting up and saying that at each break, but that is my intended way of dealing with it because I just don't see any other practical way to handle the material here. But I wanted to be clear about that. THE CHAIRPERSON: Just before you leave that, and I'll My
make this comment for the benefit of everyone. impression is is that without raising very many
procedural concerns, discussions between witnesses and counsel can also occur, not just with the support team. This is a different type of process than you see in the courts, and I know in the courts, or my impression is in the courts that that's not permitted. My impression in
these circumstances is that that's acceptable provided
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the counsel's not coaching a particular answer during a break on a matter that's been raised beforehand. But if
it's of the nature of support, like the support team would provide, it seems to me that that's a reasonable practice. If that raises any concerns with any of the counsel, then let me know, but otherwise I think you can broaden your reference to support team here. MR. SANDERSON: Fine, thank you, Mr. Chair. I had
considered counsel as part of that support team, so -sometimes my client may quarrel with that proposition, but nevertheless. I got to prepare this, so I could
look at it that way. THE CHAIRPERSON: MR. SANDERSON: Okay. The last thing is the opening statements.
You would have received Mr. Elton's opening statement this morning. We will endeavour to have them as early I don't want to make
as we can -- or sorry, yesterday.
any promises, especially given the fact that the estimate of timing for this particular panel is rather shorter than I'd expected. So, I'd hoped to be able to
say that we would give you more notice rather than less. If the hearing proceeds desperately quickly, that may not be what turns out to be the case. If the hearing
slows down, we will certainly get you any openings that are intended to be made as many days in advance of
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people appearing as we possible can. THE CHAIRPERSON: MR. SANDERSON: Thank you. And with that, Mr. Chair, I think that
concludes my opening remarks, and subject to your wishes I'm ready to call the first panel of witnesses. THE CHAIRPERSON: I did extend to Mr. Feldberg and
opportunity to make an opening statement. MR. SANDERSON: MR. FULTON: Yes. Yes, of course. That's my omission.
And Mr. Chairman, because I missed an
opportunity at the end of the day on Friday, I'd like to take an opportunity now to ask that the document that Mr. Sanderson has spoken to, particularly because it includes as well the summary of deferral accounts applied for, a be marked the next exhibit, and that would be Exhibit B1-33. THE HEARING OFFICER: Marked B1-33.
(OPENING OF B.C. HYDRO, MAY 18, 2004 MARKED AS EXHIBIT B1-33) THE CHAIRPERSON: Mr. Feldberg, I'm going to take this
opportunity to make a comment with respect to the hearing issues list. The hearing issues list as revised
by B.C. Hydro is acceptable to the Commission Panel, including the insertion of the word "transition" in the title to 2.9. And so I think we now have a completed
hearing issues list document. I would like to have it filed as a Commission
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exhibit, and I would like to have it filed as a Commission exhibit without the black-lining. So if that
can be done in whatever manner is most expeditious that would be welcome. Proceeding Time 11:40 a.m. T29 THE CHAIRPERSON: Mr. Feldberg.
OPENING BY MR. FELDBERG: MR. FELDBERG: Thank you, Mr. Chairman. Mr. Chairman, last Thursday I described BCTC's role in this proceeding and I won't repeat that now. The purpose of this opening is simply to provide
an overview of a BCTC deferral accounts application. BCTC is applying in this proceeding for the establishment of four deferral accounts, utilization and credit risk deferral account, an emergency maintenance expenditure deferral account, and a cost of market deferral account as well as a regulatory expenditures deferral account. As Mr. Sanderson indicated, Panel 6
will speak to this application and will provide evidence with respect to these accounts. As noted at page 2 of BCTC's application, BCTC is currently carrying approximately $20 million of equity on its balance sheet. This is a low level of
equity capitalization relative to the revenue and cost variances that BCTC foresees that it will be exposed to once its transmission tariff is in place in fiscal 2006.
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Accordingly BCTC has identified a number of areas where there is substantial forecast risk; that is, there are potential revenues or costs that are unpredictable in nature and wholly or partially beyond the control of BCTC. BCTC is applying for deferral account treatment for some of these areas now in order to inform its options with respect to its transmission tariff design and implementation, which as the Commission knows will be the subject of upcoming filings. One set of deferral accounts relates to the unpredictability of revenues, and that is the utilization and credit risk deferral account. As page 4
of the application points out, under a volume-based tariff like the current WTS tariff for point-to-point service, substantial variances can develop between actual and forecast revenues due to matters beyond the control of BCTC, such as energy prices in neighbouring markets, water conditions, and regional economic conditions. Similarly, credit failures beyond the
control of BCTC can also create significant variances between forecast and actual revenues, which BCTC may be unable to absorb under current credit risk policies. As noted in the application, this revenue shortfall deferral account is contemplated by paragraph 4.13(f) of the master agreement, and by paragraph (a) of
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Section 6 of Special Direction 9.
BCTC proposes that
this account should contain separate accounting treatment for variances attributable to utilization risk and the variances attributable to credit failures, and there's a reference there to IRCF PP1 D20; that BCTC also proposes that the accounts should be reviewed each time that BCTC applies to the Commission to set rates, and that balances negative or positive bear interest at BCTC's weighted cost of debt during the relevant period. And the reference there is BCUC 2-225. The next three deferral accounts applied for relate to costs faced by BCTC. The first of these is
the emergency maintenance expenditures deferral account and it's described at page 5 of the application. It
relates to non-capital emergency expenditures such as hard and forecast costs incurred as a result of unanticipated major equipment failures, extreme weather, wildfires or similar events. Recent experience with
unanticipated maintenance expenditures is outlined in the B.C. Hydro application at page 6-21, and a forecasted amount of $2 million is budgeted for unanticipated maintenance expenditures in the test period. The purpose of this deferral account is to
account for differences between that forecast and actual expenditures. There's also a cost of market deferral
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account which is necessary because of the volatility of cost of market expenditures, and reference may be made in this regard to the BCTC application at page 6, the B.C. Hydro application at page 6-74, and in BCOAPA IR 1-630A. Again BCTC proposes that appropriate ratemaking
treatment be considered for any accrued balances in the cost of market deferral account whenever the Commission considers BCTC's rates. The last deferral account is described as the regulatory expenditures deferral account. The purpose
of this account is to account for variances between the actual and forecast costs of the regulatory proceedings. BCTC has a number of proceedings that it faces in the relatively near term, all of which are new to it and for which there could be significant variances between forecast amounts and actuals. The purpose of this
account would be to accumulate the variances between the forecast cost of regulatory proceedings and the prudently incurred actual costs of those proceedings. Proceeding Time 11:46 a.m. T30 As I indicated, Panel 6, which is composed of BCTC employees, will be speaking to the BCTC application, will be available when called to address the questions of Intervenors, Commission staff and the panel. Mr. Chairman, there's also a couple of issues
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that I'd -- before I sit down that I'd like to deal with, that were addressed by Mr. Sanderson earlier, and some are fairly minor. With respect to -- you asked Mr.
Sanderson about BCTC policy issues, particularly those that might be relevant to upcoming to BCTC applications, and clearly I agree with Mr. Sanderson that Panel 6 is the appropriate place for those questions to be addressed. And a second observation I'd make is with respect to -- I find it hard standing here now looking ahead to draw a completely bright line with respect to where questions from intervenors or staff or from the panel may be strictly relevant to this application or may be better addressed in a future proceeding, and with respect, I think that the determination as to where that bright line is drawn is probably best addressed when the situation arises. THE CHAIRPERSON: That's what I would propose.
It is going to be a challenge, Mr. I
Feldberg, and I think your approach is the right one. will be looking for your assistance in that regard. MR. FELDBERG: I have given some significant thought to
that, Mr. Chairman, and I have found it difficult to draw a very bright line because it's -- on the one hand you appreciate the challenge when intervenors might face if there is -- it's the usual game of if we cut off questioning here now will there be the appropriate
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opportunity later, and my experience has been that it's very difficult to draw that line until you actually have the situation presented to you. The second issue that I'd just like to address briefly is the remarks my friend made with respect to the upcoming BCTC applications and the questions with respect to the asset management and maintenance revenue requirement issues for fiscal 2006. As the Commission may be aware, the master agreement, articles 4.3(b) and 4.9, make it clear that the development and defence of the portion of the transmission revenue requirement that is described as the asset management maintenance requirement is the responsibility of BCTC. I'm not in a position today,
prior to the filing of BCTC's applications to commit BCTC that no change will be applied for or made to those revenue requirements in the future. Clearly it's an issue that is a matter for BCTC, it is BCTC's responsibility and clearly also the question whether any changes are appropriate and allowed in fiscal 2006 will be in the hands of the Commission when that application is brought. I think with that, Mr. Chairman, I can sit down and Mr. Sanderson can call his first panel. THE CHAIRPERSON: Thank you.
I'm going to suggest, unless somebody else
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has something they would like to do for the next ten minutes, that we take an early lunch break and return at quarter after one. Thank you, we're adjourned until quarter after one. (PROCEEDINGS ADJOURNED AT 11:50 A.M.) (PROCEEDINGS RESUMED AT 1:19 P.M.) THE CHAIRPERSON: MR. AUSTIN: Please be seated.
Mr. Chairman, before B.C. Hydro sets up its
panel, I've had a discussion with Mr. Fulton and I'd like to enter two exhibits prior to doing the crossexamination of this panel. The first exhibit is the
Provincial Government Energy Plan, and I believe Mr. Fulton has given it exhibit number C4-6. THE HEARING OFFICER: C4-6.
(PROVINCIAL GOVERNMENT ENERGY PLAN MARKED AS EXHIBIT C46) MR. AUSTIN: And the second exhibit is the BCUC Commission
Letter dated December 19th, 2003, enclosing the government's response to the BCUC Heritage Report and Recommendations, and Mr. Fulton has given that a number of C4-7. THE HEARING OFFICER: Marked C4-7.
(BCUC LETTER DATED DECEMBER 19, 2003 ENCLOSING HERITAGE REPORT AND RECOMMENDATIONS MARKED AS EXHIBIT C4-7) MR. AUSTIN: And I believe Mr. Bemister is going to be
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handing out copies. THE CHAIRPERSON: MR. SANDERSON: ready to go? THE CHAIRPERSON: MR. SANDERSON: Yes.
Thank you.
Thank you. Mr. Chairman, if I could call -- if we're
The first panel, Mr. Elton, Ms. Farrell and
Ms. Van Ruyven to the stand please. THE CHAIRPERSON: Good afternoon. BEVERLY VAN RUYVEN, Affirmed: ROBERT GEORGE ELTON, Affirmed: DAWN LORRAINE FARRELL, Affirmed: MR. SANDERSON: Thank you, Mr. Bemister.
EXAMINATION IN CHIEF BY MR. SANDERSON: MR. SANDERSON: with you. MR. ELTON: Q: Mr. Elton, I wonder if I could start
I gather you're chairing this panel? A: Yes. Q: And I wonder if you could just state
MR. SANDERSON:
for the record your position with B.C. Hydro. MR. ELTON: A: President and Chief Executive Officer. Q: Now, I understand you filed direct
MR. SANDERSON:
testimony in this proceeding, and that can be found under the tab bearing your name in Exhibit B1-9, is that correct? MR. ELTON: A: Yes. Q: If I could ask you to take a look at
MR. SANDERSON:
that testimony, are there any changes that you believe
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are necessary to that evidence? MR. ELTON: A: No. Q: Do you adopt it as your testimony in
MR. SANDERSON:
this proceeding? MR. ELTON: A: Yes. Proceeding Time 1:21 p.m. T32 MR. SANDERSON: Q: Now, Ms. Van Ruyven, I wonder if you
similarly could advise the Commission of your position in B.C. Hydro. MS. VAN RUYVEN: distribution. MR. SANDERSON: Q: Thank you, and you similarly have A: I am the senior vice president of
filed evidence in this proceeding that can be found at the tab bearing your name in Exhibit B1-9? MS. VAN RUYVEN: MR. SANDERSON: A: Q: Yes. And are there any changes you'd care
to make to that evidence? MS. VAN RUYVEN: MR. SANDERSON: A: Q: No. Do you adopt it as your testimony in
this proceeding? MS. VAN RUYVEN: MR. SANDERSON: A: Q: I do. Ms. Farrell, perhaps you could now let
the Commission know your responsibilities with B.C. Hydro. MS. FARRELL: generation.
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I'm the executive vice president of
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MR. SANDERSON:
Q:
And you similarly have filed evidence
under your name in Exhibit B-1-9? MS. FARRELL: MR. SANDERSON: A: Q: I have. Are there any changes you'd like to
make to that evidence? MS. FARRELL: MR. SANDERSON: A: Q: No. Do you adopt it as your testimony in
this proceeding? MS. FARRELL: MR. SANDERSON: A: Q: I do. Thank you.
Mr. Elton, I understand that you have an opening statement you're prepared to make today. MR. ELTON: A: Yes, I do. And Mr. Chair, as was indicated this
MR. SANDERSON:
morning, yesterday speaking of notes of Mr. Elton were distributed both to the Commission and also to all participants. And with that, I'll ask Mr. Elton if he would give that opening statement. MR. ELTON: A: Thank you. This application is B.C. Hydro's first revenue requirement in a very long time, and we seek an 8.9 percent increase in our rates for 2005 fiscal, and no increase in fiscal 2006. We didn't make this application lightly. We're very conscious of the significance of energy costs
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for all classes of our customers, and we're determined to avoid rate increases where we can. However, we are
also conscious of the importance our customers place on receiving reliable service. We must ensure that we make
the right decisions to ensure that we can provide that service and continue to provide that service. This
application is intended to demonstrate that to maintain our ability to deliver reliable service at low cost over the long term, the customers in our service area must make a larger contribution to the cost of delivering electricity than they have in the past few years. To provide a backdrop for your consideration of the issues raised by our application, what I'd like to do first is just talk a little bit about where B.C. Hydro has come from and where it is today and where we see it going in the future. Over the past ten years, the electric industry around us has considered various radical transformations, and during that time I think it's fair to say that both the Province of British Columbia and B.C. Hydro have considered a wide spectrum of possible opportunities in future futures for this company. And
at various time various tentative steps have been taken along various paths, and if you look back at the period from 1994 to 2002, I think you'll see that B.C. Hydro, like almost every other utility in North America, has
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found that identifying a clear and consistent path was elusive. Proceeding Time 1:25 p.m. T33 One significant exception to this observation that I just made is that since PowerEx was established in 1989, B.C. Hydro and the province have pursued a strategy of maximizing the value of our hydroelectric system for the ratepayers and citizens of B.C. by aggressively pursuing trade opportunities, and this strategy has been a spectacular success, consistent success, returning hundreds of millions of dollars to the province and keeping B.C. Hydro's rates lower than they otherwise would have been. In British Columbia a new policy emerged in November of 2002 with the publication of the Energy Plan, and it provides a clear mandate for B.C. Hydro going forward, and we're well on the way to implementing it. Broadly speaking, the Energy Plan contemplates a
future in which B.C. Hydro will continue to be vertically integrated and publicly owned. However, B.C.
Hydro will no longer be the sole or even the primary party responsible for expanding generation capacity in the province. Rather, we will be the buyer of energy
and we'll look for supply from the most economic source and we'll focus on optimizing the use and developing the potential of the Heritage assets that we've already
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developed, together with Cabinet approval possible expansions of hydroelectric facilities or building new facilities on the Peace. To recognize a more limited role in the development of new generation, the Energy Plan directed various steps be taken to create a climate that would be more conducive to independent power development. First,
that the transmission system would be operated by a separate Crown entity rather than B.C. Hydro. And that
would be intended to remove any perception that independent power producers might otherwise have that unfair transmission advantages would be conferred on B.C. Hydro. And second, that we would organize
ourselves so as to permit an unbiased process to be followed when we were choosing among possible projects. The Energy Plan also contained two other significant policies which affect B.C. Hydro. First, as
well all know, the government ended the rate freeze, returning B.C. Hydro to rate regulation. And second,
the government confirmed its support for demandside management activities by revising the Utilities
Commission Act to remove any disincentives to utility
investment in that regard. Now I want to turn to where we are now. that means looking at in a little bit more detail at what has happened in the last 18 months.
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In the barely 18 months since the Energy Plan was issued, an extraordinary amount of progress has been made as a result of efforts of people within various institutions. inquiries. This Commission has conducted two major
First the review into our VIGP proposal, and
second, the Heritage Contract inquiry. The VIGP review required a major logistical effort by all of B.C. Hydro, the principal stakeholders involved in the process, many of whom are here today, and by the Commission. The outcome of that proceeding
in our view was a significant step forward in establishing a transparent fair process for evaluating future projects. The second major proceeding was the Heritage Contract inquiry, which was another undertaking contemplated in the Energy Plan and was a necessary step to provide a basis for this hearing and to establish the mechanism by which domestic customers will continue to obtain the benefit of B.C. Hydro's low cost assets. These two major regulatory proceedings occurred at the same time as BCTC was created. The
creation of BCTC is not a regulatory process, but the separation of the people and assets needed to operate the transmission system was a major internal undertaking for B.C. Hydro, and of course for BCTC, and represented a major milestone implementing the Energy Plan.
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Proceeding Time 1:29 p.m. T34 Similarly during the same period, we completed the ABS contracts and the transfer of approximately 1,600 employees contemplated by that transaction. And that was also a major corporate
undertaking, as was the creation of the line of business structure. And finally, the filing of our first full IEP in approximately ten years was a major step towards transparency and accountability in energy planning. I think that to accomplish these major objectives of the Energy Plan in a timely and effective way has only been possible through the dedicated and cooperative work by all involved, within and certainly outside B.C. Hydro, and I want to recognize that. our focus during this period, our focus on this restructuring contemplated by the Energy Plan was a very necessary part of making sure that we could all achieve the goals of the Energy Plan. We've had to bring a very And
single-minded approach to our strategic initiatives over the last 18 months, because the energy that was set for us by the Energy Plan was so ambitious. And so in terms
of the activities and focus of senior management throughout the corporation in this last 18 months, they have very much been dedicated to achieving first and foremost these milestones that I've just talked about.
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In terms of where we're going next, implementation of the Energy Plan is of course not yet complete. BCTC will be filing an OATT application this
summer and a revenue requirement application late this year. B.C. Hydro will be bringing applications for
stepped rates, industrial access, as well as a general rate design review, all of which will take us well into 2005. Going forward as a matter of principle, I believe that we at B.C. Hydro have to strike -- continue to strike the appropriate balance between the environmental, social and financial bottom lines. This
is not a question just of altruism, it's a question of good business. Meeting our responsibilities today in a
cost-effective manner within our control will produce cheaper solutions for us and for our customers than neglecting our responsibilities in the short term, only to have more expensive solutions imposed us in the long term. To strike this balance appropriately, we will customer service, reliability,
focus on four key areas:
financial performance, and people, and I'll deal with each of those now. Customer service is a measure of how our customers view the service they obtain from us. sufficiently responsive to their needs? Are we
And I believe
that this is measured by objective measures such as
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response time when outages occur, such as call centre responsiveness and related characteristics that we believe we can describe objectively. On a subjective
level, this all translates into customer satisfaction, how the customer feels they're being served, which we monitor on a systematic basis. Reliability requires access to secure dependable sources of generation and a strong transmission and distribution infrastructure to ensure that we can deliver it. We believe that we have a
highly reliable system but that we must keep a strong focus on maintaining it. For many years, for B.C.
Hydro, low-cost generation was always there when we needed it from our Heritage Assets, but now incremental needs for energy must be met by acquiring new energy at significantly higher marginal cost. This leads us to
look carefully at our portfolio of generation assets that we have access to, as well as ensuring that steps are being taken to maintain and where necessary expand our transmission and distribution infrastructure. In
particular we have to recognize that we, together with, I believe, most or almost all North American utilities, have aging infrastructure, and we have to make sure that that does not compromise our ability to meet our obligation to serve our customers. Proceeding Time 1:32 p.m. T35
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Turning to financial performance, that has two primary components. The first is low cost power for
our customers, and when I speak of low cost power I very much have in mind low cost power over time. It's false
economy to minimize rates today if the result is unsatisfactory service and high cost maintenance to restore reliability in the future. Therefore, we have
to resist pressure to provide rock bottom prices today if doing that will mean significant escalation in the future. We must also look for new power sources that will help support our environmental bottom line for the future. The second component of financial performance is the return to our shareholder. A private company I
think would normally wish to maximize its return to its shareholders at all times. situation here. We're in a different
Our shareholder has established low
rates as an objective for us, and it speaks in that regard on behalf of all British Columbians, the large majority of which are also our customers. find ourselves in a distinct position. Through Special Direction HC2, government has indicated how much it expects to receive as a return on its investment in B.C. Hydro. It has required this I And so we
Commission to set rates to allow that to happen.
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don't believe that B.C. Hydro should seek to make more from rates than is necessary to earn that return. seek higher rates than that would be to defeat the government's objective of maintaining rates that are as low as possible. The final key area that we focus on is our people. I'm very proud of our people. They've To
demonstrated technical and other skills over many years and they've served British Columbians very well. As our
work force ages, we are determined to maintain our core of superior technical skills while at the same time ensuring that we move forward in a performance base culture that recognizes our fundamental responsibility to deliver low cost, secure, reliable power. I'll close by saying that by any objective analysis I believe that B.C. Hydro today is a well run company, with costs for generation, distribution and transmission that all benchmark very well against external reference points. If I have any concern it's
in the area of reliability, where our overall reliability is in the third quartile. That may well not
be satisfactory, although forming conclusions in that respect is difficult because to do that we need to take into account the geography that B.C. faces. So I think that reliability then has to be looked at with specific reference to each line of
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business and the challenges that they face in British Columbia, and I'll talk about that with respect both to generation and to distribution. In generation, as Ms. Farrell will elaborate, we're looking at commercial performance targets to maximize the economic value of each asset. In
distribution, as Ms. Van Ruyven will elaborate, we're beginning the process of developing customer based reliability that is designed to focus our spending on those areas that provide the type of reliability that our customers need. That will be an ongoing process
that requires considerable consultation with our customers, and it's in its infancy at the moment. The restructuring that we're going through and have gone through, the initiation of things like reliability centered maintenance and customer based reliability, and indeed even the return to the regulation that brings me before this Commission today, all cost money. They're all examples of spending money
wisely in our view to make money or lower costs in the future. Short-term cost slashing is rarely the best way
to produce low, long-term rates. I believe that even where the focus is on reducing staffing levels, that natural attrition, particularly given our mature workforce, is a preferable alternative to incurring the significant costs and risks
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associated with aggressive and overly speeding downsizing. In any event, I've seen no evidence of the
need for radical downsizing on the staffing side at B.C. Hydro. I can say that we're directing our staff and our money to focus on maintenance reliability and looking for opportunities to reduce administrative costs. And as our restructuring initiatives complete, I
expect there will be further opportunities to streamline the administration of our company. This will become an
increasing priority in future years, and I believe we will speed this process along by increasingly focusing managerial incentives on cost minimization in nonmaintenance areas. Regardless, in the short-term few of the significant cost drivers effecting B.C. Hydro's revenue requirements are controllable. Depreciation and
amortization of 470 million, finance charges of 463 million, domestic cost of energy of 824 million, and even the costs of operating maintenance administration, which are 171 million for operations, 243 million for maintenance and 163 million for administration, cannot be lowered in the short-term without reliability impacts. Accordingly, I could see no basis to arbitrarily reduce our budgets for fiscal 2005 and 2006
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in the course of preparing and reviewing this application, and I can see no basis for doing so now despite the suggestions of some Intervenors. Outside of maintenance and reliability there are a few areas that necessarily will put upward pressure on costs in the future. Proceeding Time 1:37 p.m. T36 MR. ELTON: A: Maintaining relationships with a variety
of stakeholders has become ever more expensive, and accepting the responsibility for maintaining a positive relationship with First Nations and fully recognizing our responsibility to the environment by minimizing our footprint are part of our triple bottom line philosophy, and we accept those responsibilities willingly. However, this requires us and our customers to accept the costs associated with meeting those responsibilities. To the extent that technology can be applied to enhance the social and environmental components of our bottom line, we are determined to apply it, and we allocate a modest amount of our resources to development of specific solutions which may help us meet our obligations in an even more sustainable fashion. In summary, I see significant challenges looking ahead, but I also see that we have a corporation that increasingly is committed to meeting them in a
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cost-effective and efficient manner. The last two years have been challenging for everyone at B.C. Hydro, and I frankly believe, for almost all the people in the room, and I believe that we've done what's been asked of us honestly, transparently and efficiently. Now that the major
structural changes are close to complete, I am confident that we'll be able to turn our focus to streamlining the structures that we've developed, and therefore extract further efficiencies from the business organization that we put in place. That completes my opening statement. MR. SANDERSON: Thank you, Mr. Elton. Unless Mr. Elton or
anyone else in the panel has anything more to offer, this panel is ready for cross-examination. MR. FULTON: Mr. Chairman, to assist people in where they
might find themselves in the order of cross-examination, and also to assist the Commission Panel, I prepared an Order of Cross-Examination for this panel. I believe
Mr. Bemister has provided the Commission Panel now with a copy of that order. THE CHAIRPERSON: MR. FULTON: He has.
And just one item on that order is number 6,
B.C. Citizens for Public Power will not be crossexamining this panel. And having said that, Mr.
Chairman, I'll turn the mike over to Mr. Wallace who is
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the first cross-examiner. MR. WALLACE: Thank you.
CROSS-EXAMINATION BY MR. WALLACE: MR. WALLACE: Q: Panel, if any of my questions appear
more appropriately referred to a subsequent panel, please don't hesitate to do so. I have brought them
forward out of an abundance of caution in some cases and would be quite happy to defer them. MR. ELTON: MR. WALLACE: A: Thank you. Q: I'd like to start out with a comment
made by Mr. Sanderson and I think echoed by yourself, Mr. Elton, today, and if my note is correct it was to the effect that with these increases, B.C. Hydro is well placed to minimize rate increases in the future. would you agree with that statement? MR. ELTON: MR. WALLACE: A: Q: Yes. And I want to take that statement in the And
context of what the intervenors and some of your customers at least see of not as optimistic a situation, and give you a chance to explain your optimism. Your
customers look out and they see capital cost increases occurring in this application of 100 percent over where they were four years ago, they see substantial OMA costs, an increase of 14 percent over four years, they see cost of capital and equity in particular increasing substantially, and they hear warnings of new and high
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generation and transmissions costs coming down the road. And I guess there is a fear there that these new high levels that you're establishing with this rate application will lead to even higher increases in the future. My question to you is: What comfort can you
give customers that we are not in the first round of regular and substantial increases? MR. ELTON: A: Sure, let me -- I'll make some general
comments and I may also ask my colleagues to make more comments with respect to the lines of business that they're involved with. I think first of all we recognize, as you do, the risk of what you're describing, so let me take each component and talk about it. I don't think you
mentioned cost of energy, but that is certainly one where we see -- as load growth continues, we do see that we'll continue to have to add energy at a marginal cost that will be greater than our historic cost, so there's an upward cost pressure there. In terms of the cost of generation assets, I think our objective is very much that over the next say -- let's say ten years, that we will keep our Heritage costs at close to existing levels. Farrell to comment on that. In terms of the -- and I think in terms of
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the balance between maintenance and capital, I think that one of the reasons why we see ourselves increasing our maintenance costs in the budgets that we've presented for this test period, is so that we can slow down future increases in either capital or maintenance. And so again, I think both Ms. Van Ruyven and Ms. Farrell might comment on their view of long-term trends in maintenance costs. In terms of the operating and administration side, I think we recognize that we will have a responsibility going forward to produce an equation where we take the additional cost of energy, the stresses in terms of aging assets on the one hand, and on the other hand the need to find significant productivity improvements over a long period of time, and I think at the next revenue requirement hearing, which would I guess be about two years from now, we would expect to be coming forward with a proposition that shows what the long term future might look like, and our belief today is that that will not lead to significant increases in real terms. Proceeding Time 1:45 p.m. T37 MR. WALLACE: Q Okay. Now, Ms. Van Ruyven and Ms.
Farrell, I think you were offered opportunities. MS. VAN RUYVEN: A: Maybe I can start on the cost of
energy, the new supply that B.C. Hydro is bringing
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forward.
Yes, that marginal cost is more expensive than
our embedded cost of supply, but we are purchasing, for example, from independent power producers in a competitive process. So we are working very hard to
make sure we are getting the lowest cost supply going forward into the future by doing call for tenders and buying competitively from market. I can talk a little bit about our approach to maintenance. On the distribution side of the business
we are asking for a slight increase in maintenance of about -- just slightly over $7 million, and we feel if we take a proactive approach to maintenance we can often, with doing some analysis and investigation and inspection of our poles and wires, we can actually offset higher cost capital investments by extending the life of our assets by doing that. very proactive approach. So we're taking a
It's an incremental increase
to the maintenance but we feel in the long term it's the best thing to do for offsetting perhaps higher capital costs when you run an asset to failure, for example. We
think it's the prudent thing to do and then we also feel that it's going to have impacts on reliability in the long run. MS. FARRELL: A: When looking at the generation assets we
typically look at overall our Heritage Contract -- the discussions that we had at the Heritage Contract, where
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we laid out for the Commission what our projection of costs would look like over ten years, and I think in that hearing we made the case that we felt that the Heritage Contract was in the order of $25. And what
we've done for the generation group is we've set that as a target, in terms of if we can over the next ten years absorb costs that we see coming on Aboriginal issues, sustainability issues and increase maintenance, increased dam safety, if we can find a way to do that for under $25, we believe that that will really serve British Columbians. Now, how we are proposing that we do that and how the process that we've started is, in simple terms the creation of asset plans, and those asset plans are in the process of being created and finalized. Some of
them are in various stages, but the asset plans will be available for every facility and every facility will look at the costs that are associated with that facility, including dam safety upgrades, including water use changes as a result of WAPS, and including some of the ongoing capital and maintenance. And it will be up
to our plant managers in the field to find ways to, within that asset plan, keep their costs in line, and then when we add all the asset plans try to keep the overall fleet at the $25 level. We are engaging in a number of practices that
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other utilities have engaged in, including reliability to centered maintenance. But an even more important
practice that we're engaging in is what we're calling equipment health rating, where we take every major piece of equipment in our generation facilities and we give it a health rating based on a number of tests that we do and a number of pieces of criteria, and then that way we know which equipment to approach first and which equipment could -- we could push along over a longer period of time. So I guess one other comment that I would add is, we are just coming to the end of the water use planning process. We're getting clear on what the
overall costs of that program will be, and as we begin to implement that program, we're looking very carefully at what are the other environmental programs that we have implemented over the last ten years and our intention is, instead of adding one more program on top of our cost base, is to look to see where we can find efficiencies, so that as we phase in the water use plans we can phase out other environmental programs that are no longer relevant. So that package, including reliability centered maintenance, the equipment health rating, finding ways to phase in the water use plans without adding more incremental costs, having our field people
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accountable for updating annually ten-year asset plans and really figuring out how to keep their overall costs at the same level is what we're trying to do to address the issue that you raise. MR. WALLACE: Q: Okay. Mr. Elton, while that's
interesting, I guess comfort requires something more concrete. You mentioned productivity increases. Is
there anything in your analysis that demonstrates productivity increases that are going to effect bottom line rates going forward, that can really give customers some comfort and stop looking at all these high numbers and relax? Proceeding Time 1:49 p.m. T38 MR. ELTON: A: I am not sure our customers will ever
relax, Mr. Wallace, but in terms of the next two years I think we've said in our application that to the extent we believe that our productivity increases over the next two years of the test period, we believe that we've made the necessary steps to capture those, and they're reflected in our budgets. Going beyond, it's hard to say, well, here's a specific area where we could in Year 3 or Year 6 do something, because to achieve real sustainable productivity improvements in this utility, or I would think any utility, you have to actually change the way you do things. That takes longer than a few months.
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what I'm saying is that I'm afraid I'm not giving you any more than just a strong belief that what we will do in preparing and in presenting our financial plan over a long period, a strong belief that we will find, you know, going on from the next revenue requirement hearing, the productivity improvements that will see rate increases kept at a reasonable level. In other words, we believe that this particular rate increase is very much a catch-up that reflects the fact that we are not currently earning close to our required rate of return, and it does not represent a harbinger of future rate increases. MR. WALLACE: Q: Okay. Now I'm going to come back
obviously in more detail over both this crossexamination and I suspect other ones during the next few weeks. But other utilities have negotiated settlements
in which productivity increases are very much a part of their negotiation going forward, their commitment going forward to their customers. Do you believe this will
set a base that you can negotiate or put forward in a rate application those productivity increases, and what sort of range would you see them in? MR. ELTON: MR. WALLACE: MR. ELTON: A: Q: A: In a future rate application? Yes. So conceptually, yes, I believe that in
the next rate application -- well, I would say that
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between now and the next rate application, we would like to have discussions with our customers and others about what a good regime of rates -- you know, what would be the right structure of incentives and rate structures and so on going forward, and I believe that discussion will take place. And certainly we are very interested
in proposing such structures, perhaps along the lines that Mr. Wallace mentioned, or perhaps along other lines that others may suggest. In terms of what the percentages might be, I think we need to relate that to what is the extent of, if you like, natural upward cost drivers here in terms of cost of energy above the embedded -- historic embedded cost of supply in terms of the results of aging assets. to that. And I'd like to relate the productivity gains So in other words we have to say: What do we And then,
need to do to keep our rates at low levels?
what would we have to do to achieve that, and what would be the risks of achieving that in terms of reliability and service? MR. WALLACE: Q: So I can't give you a percentage. Okay, but first principle you, I think,
were saying that your next rate proposal will demonstrate productivity improvements. MR. ELTON: MR. WALLACE: A: Q: Yes. And second that concern me because I'm a
skeptic and I listen for these things, is that you said
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that that's subject of course to aging assets.
And I'm
wondering, does that mean that you do not think the aging assets will be taken care of in spite of the very large capital expenditures that are proposed in this application? MR. ELTON: A: Oh, I think that -- I mean I think assets,
I mean I think assets, somewhat like people, will still age, so we can take care of ourselves and we can go to the doctor but we're still aging, Mr. Wallace, and eventually, eventually we'll have to be replaced and so will the assets. I just realize as I'm going through
this analogy, this may not be a very helpful analogy for anybody. MR. WALLACE: Q: Actually I take that as a positive hope
at some point, but -MR. ELTON: A: Yes. So no, I think the answer is that
obviously if you look at each of these assets -- and again I think it would be useful for you to get to this more with each panel in terms of the particular assets in generation, distribution and BCTC. A general
principle though is that what I'm saying is I think there will still be upwards costs as a result of aging assets. However, I think that the actions we're taking They
will start to, if you like, arrest that decline. can't prevent but I hope will arrest it.
And I'm saying
that the productivity gains that I'm saying that we will
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promise to achieve and then achieve, will take into account the amount -- the extra costs as a result of aging. MR. WALLACE: Q: Now, I understand your point on aging
but I also thought that there was an element of catch-up in this application, that there have been deferred maintenance that had to be caught up, deferred capital expenditures that had to be caught up. And so I'm
hoping you're not saying that the catch-up element will continue on past this two years also. MR. ELTON: A: I think to give examples of that, it might
be useful for Ms. Farrell to just talk a little bit about some examples in the generation area, and perhaps see how that goes. MS. FARRELL: A: Yeah, in the generation area, just
thinking about the aging assets, our oldest plant is up at GMS. That plant is just coming around 35 years, and
at this point this is when we start to have to look at the generators pretty seriously and look at generator rewinds. Proceeding Time 1:54 p.m. T39 This year we had a situation where one of our units actually had a failure before we rewound it and we're now in a seven-month outage as a result of that, and we'd like to prevent that in the future. So we're
spending quite a bit of effort really testing the other
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units that are getting close to the end of their life. So for example, we're looking at the first four units up there, which we believe should be rewound over the next four years. As we go through the fleet, it really just goes to the construction date of when they were built. So we built GMS first, then Peace Canyon, then Mica, then Revelstoke. So as we go through the years and the
assets age, we'll catch up with GMS and then GMS will be fine and we'll move to Peace Canyon, then we'll move to Revelstoke and then we'll move to Mica -- or Mica and then Revelstoke. So we won't have all of the assets It
requiring a lot of maintenance all at the same time. phases itself in.
But there are a couple of issues that we are facing at both Peace Canyon and Mica, and they're to do with the stability of the generators in both of those plants, and for a variety of technical reasons that we'll delay until panel 7, the generators at both of those plants face a higher risk than one would normally expect and we're having to look at some early replacement of the stators there. And that's primarily
a risk issue -- risk mitigation issue more than it is an aging asset. So in our evaluation of our capital plants we not only look at the age of the assets and some of the
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equipment that's coming to the end of it's life, but we also look at the very critical parts of the equipment to see if there's any undue technical risk, so that we don't face a situation where we experience longer outages. I think also particularly as we go into the next ten years we don't have the same surpluses here in B.C. as we did in the last ten years, as we're paying much more attention to ensuring that for our big plants, that we're much more secure about the reliability of those plants and that goes to some of the reliability issues that Ms. Van Ruyven will speak about. MR. WALLACE: Q: Okay, but are there -- and I understand
some of those costs are going on, but I also understood, Mr. Elton, I think others, in reading the application, that there is a catch-up element in the application. Can you identify or will the panel be able to identify that element? MS. VAN RUYVEN: A: Well, on the distribution side
certainly panel 5 is prepared to go into detail, complete detail on both the maintenance operations and the capital plan on the distribution side. I can give
an example that's not related to aging infrastructure but that's related to growth on the distribution side, in that in the Fraser Valley we've had unprecedented growth, new growth to our system and it's now requiring
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us to build two new substations in the Fraser Valley, and those two new substations will be built over '05 and '06. And if we cast back the last 15 years we've built It's just with the unprecedented
very few substations.
housing starts and the growth that we're seeing on our system it is creating the need to bring on those substations to provide reliable service to those new customers. MR. ELTON: A: As I'm thinking about the questions and
the answers, Mr. Wallace, I think that it would be good for each panel, the three panels, generation, distribution, and I'm assuming BCTC although I can't speak for them, to address the question, because I don't think it's necessarily been addressed in detail in the application, and the question I think you're asking is, are you -- we're saying that we need this for the next two years, to what extent is there an element of catchup. In other words, to what extent it's happening after
that, and I think it would be good to give those panels the time to think about that, rather than us continue to talk about it. MR. WALLACE: Q: Thank you, that's a good resolution.
I'm quite happy with that. Mr. Elton, again Mr. Sanderson stated words to the effect that there would be significant opportunities for future efficiencies that will assist
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in keeping future rates down, and I'm wondering if you can identify those efficiencies? MR. ELTON: A: Well, I'll give you the same answer that That if we
I gave you I think to an earlier question.
knew there were those efficiencies specifically today we would already be doing something about that. I'm saying
that I believe that we're setting up the right structures to identify efficiencies, the right tensions, the right -- you know, we're collecting the right kind of benchmarking information, we'll be setting the right targets, and I'm just saying that I believe that will lead to the identification of efficiencies. MR. WALLACE: Q: So it's pretty hard to tell whether I mean,
they're significant or not at this stage then.
you're setting it up to identify them, I guess -MR. ELTON: A: Yeah, I think -- when you say it's hard
to tell whether they're significant, it's hard to tell what they are precisely. I think whenever you look at a
company you got to get a sense, if you're in a senior position in that company, of, you know, do you feel that, for example, with respect to this budget, do you feel that you're equally or likely to exceed it or go below it the next year. Because you can always look at
different areas in a budget and say, "Well we could do a bit less there." or "We could spend more there." And so what I'm saying is that I believe two
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things.
One, that in the short-term I believe that our In other words, I believe that
budget is balanced.
there are things that could go up, things that could go down, but that overall what we have here is about right. And of course, I'm saying that because it's what we put in the application, it's what we believe to be about right. Proceeding Time 2:00 p.m. T40 I am saying that in the long term, I believe that given the amount of restructuring we've just been through, given the amount of effort we've been putting on that, being very frank, that as we get through that, because I believe that the restructuring we've done has been well done, because I believe that you will then get an extraordinary amount more focus on, if you like, operational issues versus restructuring, on implementation versus setting up, I believe that will lead to opportunities. So it's more than just, I think,
a general statement that I believe we have to do that. It's a belief just based on what I've learned about the organization, a belief that those opportunities are there, and frankly, a belief in talking to the other people that are running parts of the organization that they believe the same thing. MR. WALLACE: Q: Okay. But then, just to be fair then,
as far as we can push it at this point is that there may
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be significant opportunities for future efficiencies, but they're not identified at this time. MR. ELTON: MR. WALLACE: A: Q: Correct. And they were not identified before the
restructuring was undertaken. MR. ELTON: MR. WALLACE: A: Q: Correct. Thank you.
Now I have one fairly technical question just on the base of what you're asking for, and so again if you want to pass it on. When we total up the increases
in Exhibit B1-1 -- and I'll give it specifically so that other panels have the detail if they need them. At page
1-9 we find a total of increase from the various classes for 2005 to be two hundred and -- I'd better make sure -- to be 229 million. And when we look at Exhibit B1-7,
which is BCUC IR 133.1, we find by looking at domestic revenues after a rate increase and before the rate increase, that the increase is 179 million. So there's
a difference of about $50 million there, and it may be a simple explanation that comes out later, but -MR. SANDERSON: So those references again? You went faster
than we could keep up. MR. WALLACE: MR. SANDERSON: MR. WALLACE: Yes, no. Exhibit B1-1, page 1-9.
This is the application? Yes. I'm just making sure that -- oh, I'm
sorry, B1-13 and it's the increases for all of the
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residentials, 2A, 17 through 19. MR. WALLACE: Q: So I'm sorry, I'll give that to you again.
B1-13 and it's page 2A, 17 through 19, and those pages show the increases to the various classes. MR. ELTON: MR. WALLACE: A: Q: Yes, I have that. Okay, and when we added it up for
residential, light industrial and large industrial, we came to a subtotal of 193. And then we didn't have
numbers for wholesale and other, but the total figure we got was 229. MR. SANDERSON: Yes, I think that Panel 2 would be best to
-- again this would give them time to -MR. WALLACE: They have notice. And the other reference
for Panel 2 is Exhibit B1-7, BCUC IR 1.33.1. MR. SANDERSON: MR. WALLACE: MR. WALLACE: Thank you. Thanks. Q: Okay, you've talked in our opening
statement and also in Chapter 1 of the Application, there's discussion of the principal cost drivers related to the test year requirements, and they include, as has been stated a number of times, increased cost of energy, maintenance, pension costs, finance costs, PowerSmart, BCTC, and management of environmental and First Nation related issues. With respect to finance costs, are you Because relative to
talking there the cost of equity?
1994, obviously rates have fallen dramatically.
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MR. ELTON:
A:
Yeah, the amount of debt has gone up since
then, but also the cost of equity. MR. WALLACE: Q: Okay. So, and the cost of equity has
gone up from 1994 by about $83 million? MR. ELTON: A: I mean I could look at the schedule, but
that sounds about right. MR. WALLACE: MR. ELTON: MR. WALLACE: Q: A: Q: Okay, and subject to check -Yes. -- if you find there's something wrong,
please feel free to correct the record through your counsel. MR. ELTON: MR. WALLACE: A: Q: Thank you. And you've talked about the downward
pressures from 1994, and we calculate those at $222 million, and does that again sound about right? MR. ELTON: MR. WALLACE: A: Q: Yes. Now, you didn't mention that you have
received $372 million more revenue from your customers over -- well, on an annual basis over that time, or the difference in annual income from your customers is up $372 million. MR. ELTON: MR. WALLACE: A: Q: That's right. And that's far larger than the interest
saving, in fact? MR. ELTON: MR. WALLACE: A: Q: Yes. And I'm just wondering why you didn't
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mention the customers were making that added contribution that you are looking for from them when you mentioned all these other changing factors. Proceeding Time 2:06 p.m. T41 MR. ELTON: A: Again, I'd have to look at the -- maybe I'm
have a look more closely at what we actually said. not sure that we mentioned everything on those
schedules, but I don't know why we didn't mention the customers. I think we were focusing on our costs and on
changes in our costs rather than on changes in our revenues. MR. WALLACE: I think that was the reason. Q: No, but you -- well, your counsel and I
think to a lesser degree you focused on needing more revenue from your customers and that they should make a bigger contribution, and I just wonder if there's a reason why you ignored that contribution when you discussed things that were far smaller? MR. ELTON: A: Well, I think that this is a revenue
requirement application, so I think throughout the application we've talked about what a revenue requirement is, and of course the resultant will be what the customers pay us. So the reason why we didn't talk
about what the customers have paid us is because we were talking about what our costs were. MR. WALLACE: Q: But when you talk about changes from
'94, surely you -- and you would talk about both your
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costs and your revenues, wouldn't you, on a Revenue Requirements Application? MR. ELTON: A: Well, certainly the -- I mean, in
financial terms what we're asking for, you know, reflects the increases in our costs less the increases in our revenues. In other words, it's the appropriate
number to ask for. I'm not sure I'm really understanding the question. MR. WALLACE: Q: Well, I'm prepared to leave it. I
think the question really is, why would you mention a pension cost that goes up 50 million in talking about a difference from '94 and not mention that you got a lot of extra revenues from your customers? You're mentioned
a lot of extra revenue from trade revenue, but $374 million or 372 million is more than the customers benefited from trade revenue in most years. MR. ELTON: A: Right, but I think the reason why we
mentioned the trade revenue is because in effect we deduct the trade revenue in arriving at what our revenue requirement is. MR. WALLACE: Q: Okay, we'll leave it at that, sir, and
I'll move on. Now, this increase appears to us that it's not applicable to all classes. Specifically we've
identified overhead lighting, overhead street lighting,
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private outdoor lighting, overhead street lighting and other street -- and some other street lighting, some of which are closed tariffs, as not getting an increase, and I'm wondering, is there a policy reason why certain were exempted? MR. ELTON: A: There's nobody on this panel that can
answer that question, so we'll have to -MR. WALLACE: MR. ELTON: MR. WALLACE: A: Q: Q: Okay, thank you. -- get back to you. Again, if I can give notice, I'd like
to also know if there are any other classes that are not receiving part of the increase and again I'll give notice we'd like to know what -- if the increase -- what the effect would be if the increase was applicable to all classes, what amount of revenue those classes would have to bear on a pro rata share using their 2003 or '4 actual revenues. MR. ELTON: A: Yes. We'll look at the transcript of what Mr. I think I understand his question,
MR. SANDERSON:
Wallace just says.
and we'll make sure that we've got a panel that's able to respond, but -- and if I have trouble with the question when I look at the transcript I'll come back in the morning. MR. WALLACE: I'm happy with that. I take it simply as
notice of a question that will be put to a later panel.
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It's not an undertaking of this panel. MR. WALLACE: Q: Mr. Elton, I'd now like to look at some
of the directions the British Columbia Utilities Commission made to B.C. Hydro in 1994 and ask what you have done to comply, and again you can refer it, the reason I put it to this panel is that a question of compliance may well be a policy issue. In the 1993 Revenue Requirements Decision at page 23 the Commission stated, and it was talking about backlogged maintenance, which I take as similar to catch-up: "The Commission expects that for future rate applications B.C. Hydro will clearly identify the separation between the cost of increased ongoing maintenance activities and one-time increases which will eventually be terminated. B.C. Hydro will be required to justify in detail both types of increases." And I'm asking you, I guess, just for the record, although I think it's out there now, that you have not clearly identified the separation between the cost of increased ongoing maintenance and one-time increases in this application? MR. ELTON: MR. WALLACE: A: Q: That's correct. And is there a reason you did not do
what was directed in this decision?
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MR. ELTON:
A:
I think the reason is that I think what
we've attempted to do is do our maintenance budgets as well as we could. I think I referred earlier to some of
the -- you know, the time constraints and so on that the company's been under. But I think, again, panel by
panel, when you get into the maintenance budgets of the significant lines of business I think that would be the best place to get at that issue. MR. WALLACE: Q: I understand I can pursue it, but what
I'm asking you now is why did you not comply with the Commission direction in the 1993 decision? MR. ELTON: MR. WALLACE: A: Q: And I can't give you an answer. Okay. Well, I would ask that you take
that as an undertaking. MR. ELTON: A: Yes. INFORMATION REQUEST Proceeding Time 2:10 p.m. T42 MR. WALLACE: Q: In the 1994 decision at page 31, the
decision states: "The Commission instructs B.C. Hydro to bring forward a formal policy which would annually allocate a target percentage of line and wire work on a dollar basis to both the contracting industry and to the CBU, with the balance of work being open to competitive tendering by both the CBU and the contracting industry…"
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and goes on and gives some details.
And I'm aware there
was some evidence filed yesterday with respect to this, and I quite frankly haven't considered the ramifications fully of that. But does B.C. Hydro take the position
that it has complied with this instruction? MR. ELTON: MR. WALLACE: MR. ELTON: MR. WALLACE: A: Q: A: Q: Sorry, that it has? Yes. Yes. Okay, and is that the evidence that was
filed yesterday? MR. ELTON: Panel 3. MR. WALLACE: Q: Okay, thank you. And at page 74 of the A: Yes, and Mr. Maniago will speak to that on
1994 decision, the decision states: "The Commission orders B.C. Hydro to submit a proposal for the organizational separation of non-utility businesses, generally referred to as non-regulated business, NRBs, from its core regulated utility services. The proposal At the
shall be submitted by May 30th, 1995.
same time B.C. Hydro shall develop policies covering an appropriate code of ethics, accounting procedures, and the need for protection against cross-corporation confidential information flows. In
connection, the separation of NRBs from BC Gas
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Inc. may prove a useful guide to B.C. Hydro." And I'm just wondering, has that been done? I'm
thinking of Powertech and I suppose Powerex, but probably Powertech at this stage would be the more relevant one. MR. SANDERSON: Mr. Chairman, I think it's fair to this
panel for Mr. Wallace to let them know that since that order was made, there's a significant number of other orders that this Commission has made through time. And
if Mr. Wallace wants to pursue it all the way through, that's fine, but I don't want that put to this panel without identification of the existence of that sort of continuum. MR. WALLACE: Mr. Chairman, I'm not aware of a continuum.
I thought it discontinued in the '94 decision and we've had very little since that would relate to these matters in any way. If there is something and he says, "Yes, it
has been complied with," or "It was waived," I'd be quite happy with that and I'm happy to leave it as an undertaking. MR. SANDERSON: Well, that's fine. We can allow Mr.
Wallace to continue, and I will provide a response to that undertaking. MR. WALLACE: Q: Okay, and Mr. Elton, your counsel didn't If you have
give you a chance to answer, I don't think. an answer, fine.
If you wish to take it as an
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undertaking, that's also fine. MR. ELTON: MR. WALLACE: A: Q: I'll take it as an undertaking. Thank you. INFORMATION REQUEST MR. WALLACE: Q: I'd like to turn then to deferral
accounts, and as I understand it the evidence is fairly clear that the intent of the -- if I can call it restructured deferral account proposal that has happened during the course of this proceeding, is that you will have deferral accounts for matters over which Hydro has no control on the risks, and the other matters where you do have control will be left to you, and that will be an incentive to manage those costs. MR. ELTON: A: I think it's not just controllability, I It's: Are the costs
think it's really three things. predictable? main things.
Are they controllable?
Those are the two
I think that, again, Mr. Morris on Panel 2
is going to address the issue of deferral accounts in more detail, so we'll talk here about the basic principles. MR. WALLACE: MR. ELTON: MR. WALLACE: MR. ELTON: misspoke. Q: A: Q: A: Yes, I'm happy to do that. Yeah, yeah. Okay. And with respect to the --
I'm sorry, I'm sorry, I think I just
I think I said predictable and controllable. So there was those
I think I've forgotten variability.
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three. MR. WALLACE: MR. ELTON: Q: A: Three. Yeah, and I think our view is generally
that (a) they're somewhat interlinked, and so you often find two of them existing rather than just one, and (b) that there is no magic formula that will say, you know, as to why one of them should be in a deferral account and one should not. MR. WALLACE: MR. ELTON: Q: A: Okay. There's a question of looking at the
relevant cost and looking at the interplay between those three characteristics. MR. WALLACE: Q: Okay, and the reason I picked the word
"control", by the way, was that the evidence of -- is it Ms. Grewal? MR. ELTON: MR. WALLACE: A: Q: Yes. -- Ms. Grewal was that to the effect of
B.C. Hydro has concluded the design of deferral accounts should be structured so as to pass through risks over which B.C. Hydro has no control to ratepayers, but impose risks over which B.C. Hydro does have control. But I accept your modifications -MR. ELTON: A: Yeah, frankly what happened was, as we
were going through this process and responding to IRs, we had, as you can imagine, a lot of discussions internally about what, you know, what made the most
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sense in terms of deferral accounts, and I think it modified and enriched our thinking. Proceeding Time 2:16 p.m. T43 MR. WALLACE: Q: Okay, and -Mr. Wallace, this issue does interest
THE CHAIRPERSON: me.
It would be worthwhile I think, Mr. Elton, if you
would, to take the time to look at BCUC IR 3.221.1, and you may want to consider the evidence you've given, given what's said in the IR. I think they're
consistent, but just to complete your answer I think that will help you. MR. ELTON: A: Yes, thank you. Was that 3 --?
THE CHAIRPERSON: MR. ELTON: A:
3.221.1, it's Exhibit B1-25. Yes, I have it. Yes.
THE CHAIRPERSON:
You spoke to controllability,
predictability and variability and there are other components there, and just simply give you an opportunity. MR. ELTON: A: Thank you. No, I appreciate the
opportunity to add -- thank you, that's very helpful -to add materiality and the frequency of major exceptions as being other issues that we looked at. MR. WALLACE: Q: Okay, thank you. Thank you.
And the statement is
made, by doing that, that B.C. Hydro will maintain the incentive to manage those costs it can control as effectively as possible. And I gather that incentive is
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that you won't recover the cost, at least until you go to the next rate hearing or you apply for a deferral account if it's outside the deferral accounts. MR. ELTON: A: Well, first of all, generally, I think
when we're talking about incentives, again we feel that we're in a somewhat unusual position because our shareholder when they account for our numbers they don't recognize deferral accounts. And I think the Auditor
General is increasingly putting them under pressure not to do that. So actually, our incentive, if you like, is often unaffected by what is in a deferral account. that respect we're different from other utilities. MR. WALLACE: Q: Okay. Well, then going to Ms, Grewal's In
evidence, she does say, and it's Exhibit B1-9 at line 6 and 7, she does, after having talked about control and bearing risk, she says: "In this way B.C. Hydro will maintain the incentive to manage those costs it can control as effectively as possible." So what incentive is there in the deferral or lack of deferral account structuring then to maintain costs or not maintain costs? MR. ELTON: A: Sorry, could you just give me again the
reference to her evidence? MR. WALLACE: Q: It was Exhibit B1-9.
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there's a page 3 there. but it's lines 6 and 7.
I've got an extract from it, Question 11,
"Has this consideration been completed?" MR. ELTON: A: I'm going to have -- just so that we can
talk about an example, I'm going to have Ms. Farrell talk about an example with respect to the generation business. That probably would be a -- or the Heritage
deferral account. MR. WALLACE: MR. ELTON: MS. FARRELL: A: A: Q: Okay. In terms of what the incentives are. So as Mr. Elton stated, our shareholder
has -- is both interested in receiving the return and low rates. So we have to deliver low rates overall. In terms of the deferral account, we have in particular when you look in the generation business, and I think it was talked about quite extensively in the Heritage hearing, we have the issue around water volatility and market price volatility. We were making
our purchases, and we have decisions that we can make around whether or not we should draft the reservoir more or we should purchase in the market, and of course if we draft the reservoir more today and leave ourself with less flexibility in the future, we may end up facing increasing costs in the future. And I think it was also talked about in the Heritage hearings that the volatility around our energy
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costs can be somewhere in the order of plus or minus $300 million, which is a very significant amount and would be difficult for us to predict in advance, given the weather and water. And so our proposal is that customers are unlikely to want to have those kinds of rate shocks. know in other utilities -- you know, some of the gas utilities, customers just receive whatever the gas price is from month to month and they see their bills going up and down, but we believe that amount of variability is too high for the customers. So the use of the deferral I
account is a way to smooth rates for customers over a period of time. However, in our particular circumstance our shareholder cannot recognize those deferral accounts when calculating net income. So when the shareholder
consolidates the income of B.C. Hydro into the province it has to consolidate it based on what the actual net income was. Proceeding Time 2:22 p.m. T44 So we are under pressure day in and day out to deliver on our budgets and deliver on what we've told the shareholder our budgets will be. And that is part
of the incentive that we see that in effect says that the incentive we have to deliver our budgets is somewhat separate from the ability to put money into a deferral
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account such that we can smooth rates for the customers. MR. WALLACE: Q: Okay, and I understand what you're
saying but I have a tough time reconciling that with this paragraph in question 11 which appears to say that the creation of -- putting some matters in a deferral account, some matters outside, will -- in this way B.C. Hydro will maintain the incentive to manage those costs it can control as effectively as possible. What you
seem to be saying to me is the incentive is there regardless of the deferral accounts. MS. FARRELL: A: Yes, we had those discussions, as you
can appreciate, because I think when we started on the discussion of deferral accounts in the application, we initially thought that the deferral accounts would relate only to the Heritage payment obligation, and that was coming out of the Heritage Contract. And as we
began to break down and look at the Heritage payment obligation, we realized that the Heritage payment obligation includes other things like maintenance and financing costs and that it would set up a bit of an We'd
inequity between various areas of the business.
have inconsistencies in terms of how we'd run the generation business compared to how we'd run the distribution business, for example, if maintenance costs from generation could go into a deferral account but maintenance costs from distribution could not.
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So that caused to relook at the whole issue of deferral accounts and really think about which costs should be in a deferral account for the purpose of smoothing rates. And we also had this discussion about
was it really around -- you know, we had the normal discussion that people have around deferral accounts, that if you have a deferral account it takes away from the incentive. And through those discussions we
concluded that we continue to have the incentive to control our costs because of the unique situation we are in with our shareholder. MR. WALLACE: Q: So I take it the conclusion of that is
that there is no difference between whether an item is within a deferral account or not as to incentive to control the cost, in your view. MS. FARRELL: come to. MR. WALLACE: Q: Thank you. Because of the position the Auditor A: I think that's the conclusion that we've
THE CHAIRPERSON:
General takes with respect to deferral accounts. MR. ELTON: A: Well, yes, I guess I should say because of
the position the government takes, which is certainly influenced by the position the Auditor General takes, yes. MR. WALLACE: Q: Now, it seems to me that given that you
may have different incentives there in that the
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incentive I've just heard about is bottom line for the shareholder. Whether it's in the deferral account or
otherwise, in the end the Auditor General is going to consolidate the position and that will be it. correct? MR. ELTON: MR. WALLACE: A: Q: Yes. Okay, but when you go into a revenue Is that
requirements hearing or when you're planning for the year, like any other organization when you're setting out your budget, there's always an incentive to put a little more into the budget in order to make sure that you can meet it during the year. incentive remains. And in that sense that
When people are either asking you
for money as the senior executives, or when you're asking the Commission to approve a rate, there is some incentive to be conservative, I wouldn't put it any worse than that, but be conservative in your estimates. MR. ELTON: A: Yes, I'm not sure I'd call it an I think there's a requirement for people to
incentive.
be appropriately conservative; in other words to make sure that they describe what they want to spend money on, and what they will get for that money, and what the risks are that they won't achieve what they expect to get, or that they will spend too much money. I mean
what we -- obviously I would hope like any organization, we try and budget at a 50 percent probability level, and
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I think -- I'm not sure there's an incentive for people to overbudget. MS. FARRELL: A: I'd just like to comment in terms of the
design of the deferral accounts that we've put forward, and Mr. Morris on Panel 2 will go into this in more detail. But we did look at -- particularly for
maintenance expenditures, we thought about how, particularly when you're dealing with equipment, you know, just one never knows. And we didn't want to end
up in a situation where we needed to put some sort of premium into our budgets in order to account for unexpected changes. And when we look back over our
budgets, particularly in generation, you know, we don't have nice stable maintenance budgets from year to year. We have things like sinkholes that show up, and units that blow up, and that really throw the budget off for the year. So there is sort of an ongoing amount of maintenance that we can identify, which is a little bit like when you change the oil in your car you know you have to do every six months, but you never know when the starter is going to go and typically you don't budget for that. So that's why we designed the deferral account such that we could put in our best estimate of what our budgets would be, and then if we had either a
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weather impact or a large impact based on an equipment failure that was over a million dollars, that we could come back to the deferral account and account for it there. Proceeding Time 2:27 p.m. T45 MR. WALLACE: Q: We do see to be coming full circle now,
because it seems to me you are saying that a deferral account for an item like that actually does put you in a better position and take you not at risk because even though the shareholder may not get it that year he can charge it in the rates the next year and recover that sum. MS. FARRELL: A: No, I wouldn't say we're coming full The shareholder in that
circle for the shareholder.
year would also -- would experience lower income if the starter failed, and would -- and that would happen, and so part of setting out some of our plans around making sure that we've got in place reliability centered maintenance and equipment health rating, those are all risk mitigation types of processes that allow us hopefully to identify before the starter fails that it failed. But overall the shareholder in that year would
still face that expense if it occurred. MR. WALLACE: Q: Yes, but the difference between that
expense if it can go into a deferral account is that he will experience the problem that year, but he'll start
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to recover it the next year as the deferral account comes back, whereas if it's not in a deferral account the shareholder will have to bear that risk. MS. FARRELL: A: I think the point, though, that you were
making is that would we unduly pad our budgets as a result of having deferral accounts, and the point -MR. WALLACE: Q: No, I didn't say that. I'm trying to But my
ask how they work.
I'll save that for argument.
question was, what is the impact on the shareholder and I got the impression at first that it didn't really make much difference, and I think I'd forgotten and maybe you had, of the longer run impact and clearly if you put it in a deferral account there is the -- the shareholder will get it back in the longer year and that's better than having to eat it -- or in the longer time period, and that's better than having to eat it if it wasn't in a deferral account. MS. FARRELL: A: And in discussions with our shareholder,
it's better for them not to have it be put in the deferral account in the first place because when we give them an estimate of our net income that's what they expect to get. MR. WALLACE: MS. FARRELL: Q: A: Okay, but -Although they agree that they will get
it back later, for them they would rather not have that happen in this year.
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MR. WALLACE:
Q:
And to state the obvious, getting it
back later is better than not getting it back at all. MS. FARRELL: MR. WALLACE: A: Q: That's true. Thank you. Now, Mr. Elton, you talked
about appropriate conservatism and budgeting. MR. ELTON: MR. WALLACE: A: Q: Yes. Because that's what happens, but it's
pretty hard to rout out the two to three percent or four percent conservatism in budgets, isn't it? How does the
board get at that and get it out of the budgets? MR. ELTON: A: When you say the two or three percent
conservatism -MR. WALLACE: MR. ELTON: MR. WALLACE: MR. ELTON: MR. WALLACE: A: Q: A: Q: Q: Excessive conservatism. Excessive conservatism. It's a very fine line -It is. -- surely between appropriate
conservatism, accurate budgeting and a little excessive conservatism to just protect your position in the future for unknowns, which I'm not saying is evil. it's a natural tendency. MR. ELTON: board -MR. WALLACE: at that? MR. ELTON: A: I think in two ways.
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I think
A:
Sure.
So your question was how does the
Q:
How does the executive on the board get
I think first
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you've got to look at the -- you first of all look at the overall picture of the corporation and then you look at the component parts and try and understand them both, if you like. So in terms of the overall picture, you
look at -- you look at very big lumps of costs and you recognize that they are actually quite variable and in many cases hard to predict. The cost of energy for us
is particularly hard to predict because the amount of energy we'll have to buy depends on the amount of water we get, and that's -- certainly today is completely unpredictable. In terms of other costs, like depreciation and so on, I think we can predict those fairly well because they relate, of course, to assets that we know about. Interest rates are difficult to predict and A
fairly small shift in those can make a big difference. A fair number of our costs are employee costs, and so it's a question of if we're going to have, let's say a number of 4,200 people and they're going to do a certain amount of work, you know, you can get a reasonable handle on what those costs will be. You may
have different views about what they will all do and where those costs will go. So in the end we have some
very variable things -- I should have mentioned trade income is another variable thing. And we have some
costs that are quite easy to predict -- or I'm sorry,
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costs where it's possible to predict them with a certain amount of certainty. So you look at that, and then what you do is look at each area of the business, and again you'll have the chance to talk to each of the panels about, you know, about the components for the distribution, there'll be three panels -- two or three panels on that -- two, I'm sorry, two panels on that generation panel. And where the board or the management goes with that is really by looking at again, in a normal kind of way, look at each part of the budget, test by saying, well if you didn't do that what would happen, if you didn't do that what would happen. If you've got ten projects and
you've rejected eight projects, let's look at the last three projects that you accepted and the first three that you rejected and let's see whether that makes sense. Proceeding Time 2:33 p.m. T46 So there is no magic answer to the question. It's just a question of diligently going through, asking a lot of questions, having a lot of discussions, and also learning over time which are the people in the organization that tend to always come under budget, because that is a sign that they are, let's say, very conservative; which are the people that tend to fluctuate a lot; which are the people that always go
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over budget. MR. WALLACE: Q: And doesn't that create an incentive not
to always come under budget or massive spending that we see at the federal government level at certain times of year? MR. ELTON: You'd be familiar with it, I presume. A: Would I be familiar with massive spending No, I would not.
of the federal government? MR. WALLACE: Q:
Well, no, oh no, you weren't, I'm sorry,
with the -- you weren't with the department, I'm sorry. MR. ELTON: MR. WALLACE: MR. ELTON: A: Q: A: No, I wasn't. But anyway I'll leave it. But surely --
That must have been some other witness
that you were examining. MR. WALLACE: Q: No, I mean, once you start to look at
whether they spend their budget with that sort of view for that purpose, it creates an incentive to make sure you spend your budget. MR. ELTON: A: No, I don't think so, no, because I think
-- it's not as if that's the only thing you're talking to them about. You're talking to them about what they You're talking to them about
achieved as well.
reliability or commercial availability or, you know, other customer satisfaction. And so you don't have a
discussion just about the budget, just about the financial part of the budget. You have a discussion
about what the people plan to do, what activities do
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they plan to carry out, what performance measures are there, what are the challenges, what would prevent them. During the year, people will say, "Well, I need to spend more because there was a storm," and okay, was that a storm that we could have predicted? storms? Do we always have What
Are we having more storms than normal?
happened when there was a storm? did we incur?
What kinds of costs
And then at the end of the year, again, some people will typically be -- you know, will typically be people that will always have budgeted very conservatively and therefore will end up with a bit of a saving. And the way you tend to deal with that within
the organization is to probably recognize that and say, "Well, okay, individual A over here is probably going to be a bit under. The individual here is probably going Again going back to what I said
to be a bit over."
earlier, overall do you feel that the organization overall has it about right, and that the number of pluses and the number of minuses will more or less -will more or less cancel out? pluses and minuses. Because there will be
This is a two and a half billion
dollar budget and there will be a thousand things, a hundred thousand things that will happen differently than what we've put in here. is it about right? The question is, overall
So that's the --
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MR. WALLACE:
Q:
Thank you, sir.
I'll move on.
You, in your opening statement urged the board, I think, not to make a -- or the Commission not to make an across the board reduction. And I'd like to
direct you to the decision of the BCUC in November 1994 at page 19, and I'll read the section. that you'll need it. "In reviewing all of the evidence and the testimony from the hearing, the Commission is not satisfied that B.C. Hydro has demonstrated that OMA expenditures are being constrained to a level which will ensure the most efficient operations and lowest OMA costs to customers consistent with the existing high level of reliability. The Commission is of the view I don't know
that some reduction in overall OMA expenditures is appropriate and then went ahead and made such a reduction." I suggest to you that Hydro did just fine in spite of that, that management went out and prioritized the changes itself with the detailed knowledge you just spoke of, of where the priorities are within the organization, and that that was far more appropriate and not the micromanagement that would otherwise happen if the Commission said, "Cut this, cut that." Wouldn't you
agree that's a better way of doing it than telling
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management exactly what to do and mini-manage? MR. ELTON: A: Well, of course, I wasn't saying I think
the Commission should make -- I don't think I was saying I don't think the Commission should make -- should suggest overall cuts. suggest specific cuts. Instead I think they should What I was suggesting was that
of course that there not be cuts. MR. WALLACE: MR. ELTON: Q: A: Right. So the reason why I don't think that there I
should be overall cuts to, for example, OM&A is this. think that first of all you can't look, in my view, at OM&A as one thing. They're very different things. So
maintenance first of all of, I think it's 243 million, I don't think it's appropriate to say there should be a 4 percent cut in maintenance because I think that cutting maintenance would affect reliability, not tomorrow, not necessarily, and not necessarily even in six months, but over time it would cut reliability or it would affect reliability. So unless the Commission believes that we
spend money on maintenance, either our maintenance are too good, in other words we maintain things too often, we routinely inspect things too often, those kinds of things, or that in the way we do maintenance that we spent more money than we should, then I don't think there should be blanket cuts to maintenance. I don't think there is evidence that we're
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aware of that says that the assets are so healthy that they don't need more money spending on maintenance. believe the opposite. money spending. We
We believe that they need more
And again I'd rather that was dealt
with in terms of generation, distribution and BCTC rather than here, I think. each type of asset. But for example, you could cut maintenance by saying that when there was a trouble call, that you didn't need people to get there within an hour in an urban or within two hours in a rural area. You could I think you need to look at
say it was two hours and three hours, but that would clearly cut customers' -- you know, that would clearly affect customer satisfaction and reliability. Proceeding Time 2:39 p.m. T47 In terms of operations, I think again the operation number which I think is 171 million for fiscal 2005, that contains a lot of different things. So you
know, Van Ruyven later on, Ms. Van Ruyven can talk about the customer care part of that and that panel, Panel 5 can talk about that. Ms. Farrell can talk about the Again,
generation operations on Panel 7 and so on. could you cut customer care costs? you do it?
Yes, and how would
Well, again you could do it by reducing the
number of hours of service, having, you know, people answer the phone, you know, more slowly and so on.
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The administration is 163 million, and I think that's where -- and again, you should say, well there's two areas there that are very large and specific. One is pensions and the other is insurance. You're
I think you should look at those two separately. left with about 100 million.
So I think if you were
asking yourself the question of whether you should apply those kinds of cross the board productivity gains, it would be to that kind of number, I think. But I'm not in favour of it, because again I think it's better to look at what the money was actually spent on. MR. WALLACE: MR. ELTON: MR. WALLACE: MR. ELTON: A: A: Q: Q: Okay, and I'm -I'm sorry, and the final -I accept that. I'm sorry, the last point I wanted to
make was that with respect to for example the costs that were -- that are incurred through the Accenture Contract, the ABS contract, we've already built in productivity improvements into that contract, as I think you'll be hearing more about later on. So again, and
those costs are now fixed contractually, so again I would say you'd have to take away those costs as well from any amount that you are applying an across the board percentage to. MR. WALLACE: Q: I'm not suggesting to you that it
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necessarily be arbitrary, but if the Commission reaches the position where it is not satisfied that expenses are being appropriately constrained and it decides that something should be done, wouldn't you rather it be a dollar that is cut than a project or something that is cut and left that decision of what project is cut to management to make? MR. ELTON: A: I agree with that. I think that would be
preferable, yes. MR. WALLACE: Q: Thank you. I'd like to then turn to
the deferral accounts, and one question that -- the specific ones and the Heritage payment deferral obligation first, although I think my first question came out of again a comment Mr. Sanderson made on the special directions and the requirement that the Commission insure that you earn your return, or that you are given sufficient that you should be able to earn your return. Presumably proactively they could disallow anything that appears imprudent and you would still be allowed your return, but I'm concerned about if something was put into a deferral account and spent and was later ruled imprudent, do you take the position that the BCUC could disallow an amount imprudently spent and incurred in a deferral account or not? MS. FARRELL: A: Could you just repeat the question?
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question is -- or just could I repeat it back.
The
question is, if we put let's say the cost of energy into the deferral account and then we reviewed the decision of what that amount was two years later and it was ruled imprudent -MR. WALLACE: Q: Yes, you'd made a speculative deal that
just turned out really quite a silly, imprudent thing to have done, but it was put into the deferral account, it comes up later for consideration, can it be disallowed -MS. FARRELL: A: My assumption is, subject to check, that
the deferral accounts are designed such that there's a review of what's in the deferral accounts through a review and variance process and then they are affirmed to be correct or not correct. MR. WALLACE: Q: Okay, but if that money sitting in the
deferral account and it is disallowed and your rates are set on what is prudent, so that's disallowed, it's got to come out of the rates that you got, the effect would be to reduce your return presumably below the allowed level if everything worked out the way it was suppose to, and therefore would the Commission be able to disallow the deferral account or would that become an impossibility? MR. SANDERSON: Well, I think -- I was trying to hold my
seat as long as I could, but I think we really have got
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to the point where we're arguing.
What the Commission
can or can't do, isn't really something I think for the panel. It's more a question of legal argument that
we'll clearly have to address from the sounds of the line of this questioning at the end of the day. MR. WALLACE: accept it. If that's the Chair's ruling I'm prepared to It is, I think, fundamental to the idea of
deferral accounts, which accrue materials for later recovery and regulation and I think knowing at an early stage whether they will be able to do that or not would be useful, but I leave it to the Chair. THE CHAIRPERSON: Mr. Wallace, it's my impression that
this is a, if you will, a garden variety question in the sense that if it were not for the special direction, the answer would be readily apparent. MR. WALLACE: Yes. Proceeding Time 2:45 p.m. T48 THE CHAIRPERSON: The fact that there's a special
direction in play may change the answer to the question, and I think that effectively is your question. Does a
special direction change what normally would be the practice with respect to a determination that the amount in a deferral account was determined to be imprudent. And I'm thinking if it's fundamental to crossexamination that you're going to pursue during the course of this proceeding, that it would be helpful, Mr.
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Sanderson, if you were to answer that question.
And I'm
interested in the answer to that question as well. I don't think it's fair to put it to this panel, but I do think it's fair for Mr. Wallace to put it to the applicant and have you answer that question in the appropriate length of time it'll take you to answer the question. MR. SANDERSON: That's fine, Mr. Chair. If it would help
state Hydro's position, then I'm happy to do that, not this moment but I will do that in the morning perhaps. THE CHAIRPERSON: Mr. -MR. WALLACE: Oh, absolutely. Okay. Does the morning meet your requirements,
THE CHAIRPERSON: MR. WALLACE:
I think it's just before we get three or four
weeks into this hearing, but if it's in the next few days before we hit Panel 2, I think that would be fine. The details I'll carry on with Panel 2. THE CHAIRPERSON: It is relevant to questions you want to
put to Panel 2, is that correct? MR. WALLACE: Oh, I think it's relevant to whether a
deferral account is a good idea or not, and just understanding how they will work in the environment we're going forward. So yes, absolutely. INFORMATION REQUEST MR. WALLACE: Q: Now, the next questions I have are a
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little more detailed, and again you may wish to refer them to Panel 2, but again it's how the deferral accounts work in terms of, I think, your materiality and predictability, controllability, variability. In the Heritage payment deferral account there is the provision to capture anticipated expenditures where the exceedance is greater than a million dollars, and they are detailed in BCUC 2.122.0, and in paragraphs 3, 4 and 5. paragraph 3: "Unplanned major expenditures greater than a million dollars related to a single event, equipment or infrastructure failure or weather-related event." And just to complete the context I'll give you the other two and then come back. "Any incremental annual impact where the sum of depreciation and finance charges is greater than a million dollars caused by unplanned major capital expenditures related to a single event, equipment or infrastructure failure or weather-related events." And 5 is: "Amortization of unplanned deferred capital costs pursuant to BCUC Order G-53-02." The first one, number 3, is an unplanned
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major maintenance expenditure of one million dollars related to a single event or equipment or infrastructure failure or weather-related event, and that's a million dollars of capital, I presume, not a million dollars of revenue requirement. MR. ELTON: A: I think -- you invited me to say that we I think
might put these questions to another panel.
Panel 2, Mr. Morris is well prepared to answer all questions about -MR. WALLACE: Q: Okay. Now, my questions were
principally -- and I have two of them, and let me put them and then you can decide. They go to materiality. Because
Is one million dollars of capital material?
when you take it to revenue requirement it's probably $200,000 a year. And the other is: Why not make unanticipated
capital expenditure shortfall deferral accounts go both ways? In other words, if you fall short in your capital
expenditures, which you might do by a far greater sum, why wouldn't you look at that also? And I'm just But if
concerned those might be policy questions.
you're happy with them on Panel 2, I'm happy with them on Panel 2. MR. ELTON: MR. WALLACE: A: Q: I'm happy with them on Panel 2, yes. Okay. Thank you.
The next one is the BCTC transition deferral
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account, which is one that every time I think I understand I find out I don't, and again we can leave it to Panel 2. But I take it now that it only incorporates
changes in rates as a result of the BCUC approval of BCTC's new OATT tariff for transmission service. that correct? MR. ELTON: on, yes. MR. WALLACE: Q: Okay. Okay, and the only question I A: That's correct, but again if you -- carry Is
wanted to ask with respect to that, and again it simply gives notice if it isn't for you, is: Would that change
in the approved tariff include any changes in your own costs to BCTC? In other words, in 2006 could you send
BCTC a bigger bill, get that built into the tariff, and come back and ask for this to be changed? MR. ELTON: MR. WALLACE: A: Q: No. Thank you. Mr. Wallace, I'm going to suggest that we
THE CHAIRPERSON:
take the break now, and I'm going to use that as an opportunity to return to the question that you asked just before this last question. It's related to what I
refer to as the eligibility criteria with respect to the deferral accounts. It's the information request that
you put to the panel, 2.121.0, and Mr. Elton, you deferred those questions to another panel. Mr.
Sanderson, in preparing the hearings issues list, 1.1,
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the second bullet, it was amended by the -- I'll give you a chance to dig it out. Proceeding Time 2:50 p.m. T49 It was amended by the panel over the weekend to include at the end of the second bullet "…in policy issues arising from the proposed criteria for determining eligibility for deferral account treatment," and it was in fact Mr. Wallace's line of crossexamination that he was going to pursue that triggered the panel to include that in the hearings issues list. Now, it may be that there's this fine line to be drawn here between, if you will, the mechanics of how the deferral accounts go and the policy issues arising from the eligibility, but maybe after the break have your comments with respect to whether or not this panel is an appropriate panel to ask questions of with respect to the eligibility criteria. MR. SANDERSON: Mr. Chair, just to make sure that I have
your question properly, and we will consider it over the break, but let me just give a quick reaction as to the distinction that I saw, at least, between 1.1 for the policy panel and 2.7, which is the similar issue as defined for panel 2. If you look to 2.7 you'll see that the first item there is the appropriateness of certain items for the deferral account, and I guess the issue on 1.1 is
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the criteria for determining eligibility, and yes, it's a very indistinct line between those two I would respectfully suggest. I mean, clearly appropriateness
and criteria for eligibility are linked concepts. I think Mr. Elton in his previous answers has sort of drawn a de facto line, which is to talk generally about some of the principles and the IR response which talks about what the high level considerations are, and then suggests that when Mr. Wallace gets to why $1 million or why one way as opposed to two ways, that's getting into the appropriateness of certain items for the deferral account, and that was where I took the line between 2.7 issues and 1.1 issues to be. THE CHAIRPERSON: Fair enough, and I do think it's, if you
will, your call with respect to where that line is drawn. I didn't want to leave the record as it was with
those questions with respect to the items that Mr. Wallace has referred to being deferred to that panel number 2 unless in fact -- without this discussion with respect to the -- there may be some questions that are pursued of this panel with respect to those eligibility criteria that are not of the nature that's within the scope of 2.7 and however difficult it might be to draw that line. So I just really don't want to leave the
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impression, unless in fact that's your position, that all questions with respect to the eligibility criteria are for panel 2. MR. SANDERSON: No, I wasn't suggesting that and I'm not
discouraging the other counsel from pursuing the issue as far as this panel wants to take it, but I'm, I guess, defending Mr. Elton's right under this to push it as he has when it gets beyond the level of detail he's comfortable with. THE CHAIRPERSON: Thank you.
Let's take 15 minutes. (PROCEEDINGS ADJOURNED AT 2:49 P.M.) (PROCEEDINGS RESUMED AT 3:09 P.M.) THE CHAIRPERSON: Please be seated.
CROSS-EXAMINATION BY MR. WALLACE (Continued): MR. WALLACE: Q: Mr. Elton, I'd like to now turn to the
deferral account you don't have, that I'm wondering why you don't have, and that is an interest rate and exchange rate deferral account, given your criteria of materiality, predictability, controllability and variability. And the context I'd like to set, for
example, is we have a foreign exchange rate forecast in the application, as I understand it, of 80 cents, and we have a Canadian dollar at 72 cents today and undoubtedly we are going to have interest rates which vary from forecast, and the variations in the exchange and
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interest rates will undoubtedly exceed a million dollar threshold, positive or negative, I can't say which way, and I guess I'd like you to explain to me why we don't have a deferral account for those items at this point. MR. ELTON: A: Yes. Again, we had very, as you can
imagine, very lengthy discussions about that internally. I think at the end a couple things influenced us. I
think one is our understanding that notwithstanding this particular jurisdiction, that in general utilities like ours don't have deferral accounts for interest rates, although I'm aware that I believe Terasen does. I think second that in terms of the three things you mentioned, predictability -- or the three things I mentioned, predictability, volatility and controllability, interest rates are certainly volatile. We think they're probably more predictable than some of the other variables that we're talking about. I mean,
the kinds of things that you were talking about just before the break, those kinds of, you know, extreme maintenance events are extremely unpredictable, and as I said earlier, the weather, the water is unpredictable. So we see them as if there's a continuum, we see them as somewhat more predictable than some other things that -than the things that are in the deferral accounts we proposed. I think it is a continuum, frankly, and I
think this is where we've drawn the line.
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MR. WALLACE:
Q:
Okay.
Is there any principled reason And again I
why you didn't believe you should have? come back to materiality.
Obviously these could be way
over the million dollars that you pick for a small construction problem or maintenance. MR. ELTON: A: I think the -- when you say is there any
principal reason, I think the prin -- I think the predictability one is the most -- that's the one that I'd go to. MR. WALLACE: Q: Okay, and do you still think
predictability applies to foreign exchange rates, given what's happened to the forecast and where we are today? MR. ELTON: A: I think, as I said, I think we're on a I think that foreign exchange rates and
continuum.
interest rates are somewhat more predictable than the other things that -- than the things that we have actually asked for in the deferral accounts. MR. WALLACE: Q: Okay, and is it your understanding that
deferral accounts for short-term interest rates are rare? MR. ELTON: MR. WALLACE: A: Q: That was what I was led to believe. Okay, and does that apply to British
Columbia or across Canada or where? MR. ELTON: MR. WALLACE: A: Q: Not to British Columbia. Okay. Thank you. Now, with respect to
the BCTC deferral accounts, and I don't want to get you
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into detail on those, but there are three of them that are of interest: the utilization credit risk deferral
account, the emergency maintenance expenditure account and the cost of market deferral account, and I guess a fourth, regulatory expenditures deferral account. Now, my understanding is that the reason BCTC is suggesting these deferral accounts is principally because their rate base is too low to withstand the variations that might happen within the accounts. that consistent with yours? MR. ELTON: A: Their equity level, I think, if that's Is
what you mean by a rate base. MR. WALLACE: MR. ELTON: MR. WALLACE: that. A: Q: Q: Yes. Yes, that's my understanding. Thank you, and thank you for clarifying
And would you agree with me that the risks that
are being covered by those deferral accounts are risks that B.C. Hydro took in the past with its larger equity component? MR. ELTON: MR. WALLACE: A: Q: Yes. And so the effect is that the customer
will now be taking those risks? MR. ELTON: MR. WALLACE: A: Q: I believe that's correct, yes. And was any consideration given to
finding ways that this risk could be handled without transferring the risk to the customer?
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MR. ELTON:
A:
Well, certainly you should put that I think in the -- I'll make
question to the BCTC panel.
a general comment that in the negotiations around the formation of BCTC, which involved, of course, BCTC, B.C. Hydro and the government at different times talking, there was a lot of thought given to, you know, various aspects of risk transfer, of which this was one. MR. WALLACE: Q: Okay, but I guess my concern is, and I
will ask the BCTC panel, but this is a risk Hydro carried before BCTC -- between the two or three of you sitting in that room at the negotiations without the customers, the risk got transferred to the customers and I'm wondering, was there any consideration of a way to keep those risk with B.C. Hydro rather than transfer them to the customers? MR. ELTON: yes. Proceeding Time 3:14 p.m. T1A MR. WALLACE: Q: Okay. And were there any ways that that A: There -- that was certainly discussed,
might have been done short of what we have done here? MR. ELTON: A: I think -- this is a very large and
complex issue which I think goes beyond this particular question, so I'll talk about it for two or three minutes and risk getting into issues that might have to do with other hearings. I think that the creation of BCTC and the
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fact that it has a small equity base inevitably means that I think if you look at that today's picture, that we may not yet have it right in terms of what the right equity basis for BCTC, what the right risk is that it should take. And I think that frankly this will evolve
over the next few years. MR. WALLACE: Q: Okay. So I guess from what you're
saying to me, the principal way of keeping those risks off the customers, at least directly off the customers, would be a better equity base for BCTC. MR. ELTON: MR. WALLACE: MR. ELTON: A: Q: A: Well, that would be one approach. Okay. But of course, I mean from my point of If
view it might depend on where the equity came from.
the equity came from B.C. Hydro, then that might mean that B.C. Hydro didn't have enough equity. So, you
know, as I said, it's a very large and complicated topic that I think will be discussed at length in future proceedings. MR. WALLACE: Q: Okay, thank you. Now, were there any
other ways of keeping that risk with Hydro rather than transferring it to the customers? MR. ELTON: A: I don't remember, I don't remember with
respect to that particular issue, no. MR. WALLACE: Q: Okay, thank you. Turning to equity, it
is the most expensive form of capital in your capital
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structure? MR. ELTON: MR. WALLACE: A: Q: Yes. And it's 13.91 percent versus around 6
or 7 percent for debt? MR. ELTON: MR. WALLACE: A: Q: Yes. And in the past, and I go quite far into
the distant past, but the 1980s at least, Hydro managed to operate with a debt equity structure above 90/10, a ratio of 90 to 10 in the past? MR. ELTON: MR. WALLACE: A: Q: I believe that's true. And the special direction set a floor of
80/20 for the equity, through the provisions on dividends? MR. ELTON: A: Well, it does two things. It sets that
particular limit but it also prescribes the way in which dividends must be paid. And so in effect it
mechanistically determines what our debt equity structure will be. MR. WALLACE: Q: Over time because of the payout of 85
percent of the net income. MR. ELTON: MR. WALLACE: A: Q: Yes. And the effect of that is that equity
will consistently grow over time. MR. ELTON: MR. WALLACE: A: Q: Yes. Now, if -- and I realize it's not your
position this should be done, but if there was to be a
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decision to move toward reducing the equity component toward that 80/20 ratio, I'm wondering if there are ways that that could be done, and one is a special dividend to the province. Would that -- that's a way you might Can that be done in
do it in a normal corporate scene. this case? MR. ELTON: A:
Well, let me just think through that.
I
think in a normal corporation situation, I think there would be some determination of what the commercial equity structure should be of this company given the risk that it takes. And I don't know that it would mean We might have
that we would have less than we do today. more.
The point is -- I mean it's a fascinating
discussion that I'm personally very interested in, but it's not one that we ever have with the government. We
talk about it conceptually in a very high level, and we talked about it actually when the Energy Plan was being produced and then again with respect to the Heritage Contract determination, because there were opportunities for the government, if they chose to, to change the special direction or change this part of the special direction, and they decided not to. So there are a number of ways in which, if they wanted to, they could change our capital structure so that either (a) that it was something that was commercial and determined by the Commission, or (b) that
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it was changed to a different number or that the limits were changed, or the way in which it was determined was changed, or that we had more freedom to operate within a range. But they didn't take any of those opportunities. So I can't really speculate on how you would do it if you wanted to change it, because as far as we're concerned it isn't the way we run our company and it isn't on the table. MR. WALLACE: position. Q: No, and I understand it's not your
I'm just asking you if there are other ways
to do it and -MR. ELTON: A: And I'm saying that there are no ways -- I
believe there are no ways that are open to us today to do it, but that if the government said, "We'd like you to do it," then there are a number of ways in which we could do it. MR. WALLACE: Q: Now, customer aid, contributions in aid
of construction, increased costs to customers by approximately 52 to 53 million dollars a year? MR. ELTON: MR. WALLACE: A: Q: Yes. And generally speaking those funds are
funds that are put up by customers with a specific project to protect other customers from the increase in costs and risks of that new customer when he comes on the system. MR. ELTON: A: Yes.
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Proceeding Time 3:20 p.m. T02A And is B.C. -- putting aside the
special direction that treats those as equity in British Columbia or in the case of B.C. Hydro, is B.C. Hydro aware -- and so I'm asking you to put aside the existing contributions. They are there and they are existing.
Just looking at principle of how one treats customer contributions looking forward, are you aware of an alternative treatment of customer contributions as a reduction in the original cost of the asset by other jurisdictions or other utilities? MS. VAN RUYVEN: A: We're aware that they would put those
costs to the project. MR. WALLACE: MS. VAN RUYVEN: Q: A: Right. We're aware that it's treated
differently in other jurisdictions. MR. WALLACE: Q: Okay, and such that the asset cost on
the books of the other utility then reflects the actual asset cost to the utility? MS. VAN RUYVEN: A: Yes, we understand that that is a
methodology that is used elsewhere. MR. WALLACE: Q: And do you understand that that's the
treatment used by CCRA, that is a reduction in the CCA pool for income tax purposes? MS. VAN RUYVEN: MR. WALLACE: A: Q: No, I'm not aware of that reference. One way or the other?
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shrugging -MS. VAN RUYVEN: no. MR. WALLACE: Q: Thank you. Are you aware of anything A: No, I'm not aware of the reference,
that prevents B.C. Hydro or the Commission from adopting that treatment going forward, not changing the existing contributions but going forward with future contributions? MS. VAN RUYVEN: A: Well, I think -- my thinking on that
would be it would still fall within the special direction of the contributions in aid being accounted for in the same way that the ones today are. So I'm not
sure how that would be approached for future changes in methodology. MR. WALLACE: Q: Well, I guess what I'm suggesting to
you is that the other is a different treatment and that you don't end up with a deferred credit for customer contributions in the books, which is equity under the special direction. MS. VAN RUYVEN: A: Yes, but it seems like it's a change
in methodology today, and I think we would have to take that under consideration as to how we would take that into account to look at a change in methodology going forward. MR. WALLACE: Q: Okay, and I guess the question I'm Is
asking, and I can put it to the finance panel also:
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there anything that prevents you from taking that treatment going forward? MR. ELTON: this. A: I think -- let me just think through That
I think -- the challenge is, I think, this:
you have a special direction and you also have a particular level of equity that the government has been receiving a return on, and I've heard people say in these -- in different hearings, but with the Commission before, that they feel that this is a very artificial definition of equity and so on, and it is an artificial definition of equity that wouldn't normally apply. But I think that from the government's point of view, and they're the ones setting the rules, that have chosen to set the rules here, I think they're saying, look, this is a level of equity that we think is appropriate for these assets and this risk. We don't
want you to figure out what it should be given other methods or other jurisdictions or other utilities, we want it to be this. So I think if we were to say, well from now on we're going to treat the contributions differently, I think we'd have to go to them and say, "Okay, we now intend to…" or "We'd like to think about doing this, what do you think about that," and they'd have the option of saying, "Well we need to clarify the special direction," or "We need to say, yes, you can do that,"
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or "We need to find another solution." So I'd certainly be always prepared to discuss that with them, but I don't think it's something -- it's not something that we feel that we're free to just do. MR. WALLACE: Q: Okay, and that is because you think
it's inconsistent with the special direction or because you think it would impact the equity on the shareholder? MR. ELTON: A: I think it's inconsistent with what I
understand the import of the special direction to be, and therefore I would want to clarify that. MR. WALLACE: Q: Okay, and you also think, I take it
from what you were saying, that you do think it's inconsistent with your shareholder's desire for equity and return on equity. MR. ELTON: MR. WALLACE: A: Q: I think so. Is there anything that would prevent
B.C. Hydro and/or the Commission from increasing the amortization of the customer contributions to the extent that the customer contributions would not be a burden on other customers? Right now a customer makes a Could the amortization be
contribution, costs go up.
changed at least to the extent that customer contributions would not be a burden on others? MR. ELTON: MR. WALLACE: A: Q: I don't know. And can I leave that as a question for
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Panel 2 to consider? MR. ELTON: A: Yes, and you're giving notice to them to
think about that, yes. MR. WALLACE: MR. ELTON: MR. WALLACE: A: Q: Q: Yes, thank you. Thank you. Now, I want to ask you very briefly,
and again it's something I'm going to go into with panel 2, but it's a couple of questions about how the decision to transfer the future removal and site restoration reserves to equity was made. was approved by the board? MR. ELTON: A: In effect, yes. Proceeding Time 3:25 p.m. T3A MR. WALLACE: MR. ELTON: Q: A: I'm sorry, you say "in effect". Well, I mean that they were presented with I mean they'd been Was that a decision that
the -- no, I'd say it was, yes.
presented with financial information which included that treatment and which was discussed, yes. MR. WALLACE: Q: And was that treatment directed or
requested by the shareholder? MR. ELTON: MR. WALLACE: A: Q: Directed or requested, no. Thank you. I'd like to go -- and this
reflects a bit on what we were talking about earlier, but the capital expenditures are increasing from 412 million in 2001 to 895 million in 2006. right, we can proceed subject to check.
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MR. ELTON: MR. WALLACE: years. MR. ELTON: MR. WALLACE: plant? MR. ELTON: MR. WALLACE:
A: Q:
Yes. And that's more than doubling in five
A: Q:
Yes. And approximately 10 percent of your net
A: Q:
Yes. And does not include anything for GSX,
pipeline or major electricity transmission capacity upgrades, and doesn't take into -- well, it doesn't include any of those. MS. FARRELL: MR. WALLACE: A: Q: Could you repeat the numbers? The number I had was 412 million in 2001
to 895 million in 2006, and the reference is Exhibit B111, JIESC IR 1.11.0A. MS. FARRELL: MR. WALLACE: A: Q: So subject to check, which is -Okay. And that, as I understand it,
does not include anything for GSX, VIGP or major transmission capacity? MS. FARRELL: correct. MR. WALLACE: Q: Okay. And if that were to carry -A: Subject to check, I think that's
while that 895 million is, I guess, amortized or depreciated over a more extended period and doesn't hit rates quite as quickly, in the long term consistent expenditures in that level will have a significant
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impact on rates? MS. FARRELL: A: I think that's a question that you
should put to Panel 2 in terms of what the actual impact would be, because they'll have to consider the current rates of depreciation and how that impact -- the offset of current depreciation relative to that capital plan. MR. WALLACE: Q: Okay. Now, there was no stakeholder
involvement in that plan, that 895 million or the one for 2005? MR. ELTON: MR. WALLACE: A: Q: I'd say that's correct. Okay. BCTC is planning fairly extensive
stakeholder involvement, and I'm wondering why B.C. Hydro didn't when it really owns all the assets. MR. ELTON: A: Well, when you say it owns all the assets,
I mean first of all with respect to the transmission assets, the process is that BCTC will carry out a process that will lead to expenditures either being made or not being made, as approved by the Commission, and B.C. Hydro will then be directed to carry out the expenditures to -- to fund those expenditures so -MR. WALLACE: coming up. Q: But that's for the big new transmission
But you have 895 million, which is a very
substantial amount of money, of which there has been no consultation. I guess we'll make the simple question:
Why was there no consultation on that, or on the prior year which is also very substantial?
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MR. ELTON:
A:
I think an overall answer then is that --
I mean of course with respect to the financial implications of this expenditure, there is this hearing which will review those expenditures. With respect to
anything that was in the IEP, of course there was a consultation process with respect to that. With respect
to generation, distribution capital expenditures which are in this plan, we believe it's up to -- I mean again with respect to the generation part of it, these are Heritage Assets. We believe that it's up to us to
demonstrate that we're making prudent expenditures with respect to those assets. We're not undertaking any
major new projects that are individually large. MR. WALLACE: Q: Okay. Well, we'll leave what
individually large is, because for 895 million there have got to be some pretty substantial projects in there. One question I have with respect to that, though, of this process, looking at it this year -- and I don't have the number for it but I think it's $700 million plus. And I don't know, Ms. Farrell, do you Maybe you have the number for
have that response? fiscal 2005. MS. FARRELL: A:
For F05 coming out of the submission,
Table 11.2, the gross expenditures are 821. Proceeding Time 3:30 p.m. T04A
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MR. WALLACE:
Q:
Okay.
So for that $821 million this
Commission isn't going to put forward a decision probably some time September range. isn't when that expenditure starts. Presumably that A large part of
that must already be committed and must be underway if that's to happen, is that correct? MS. FARRELL: A: Yes, some of those expenditures would be
committed from the past and underway, other expenditures would be starting this year, and other expenditures would be small expenditures this year to get prepared for capital for next year and the year after. MR. WALLACE: Q: Well, how much of the $821 million
forecast for fiscal 2005 will be fully committed, or irrevocably committed one way or another by say September 1st? MS. FARRELL: A: I can speak for generation and then
turn it over to Ms. Van Ruyven for distribution and for the Powerex. But in terms of generation, the plan for
hydro and thermal together is -- okay, so I just want to clarify. You had asked earlier if those numbers had And so just to --
included GSX and VIGP, and they do.
so that is an issue that we'll take a look at in terms of getting the actual dollars. MR. WALLACE: Q: Okay, can you clarify whether they
include the full cost of them or simply the ongoing expenditures to keep the project alive.
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MS. FARRELL:
A:
They would include -- so that F05 costs
for thermal would include the costs that we would have anticipated this year had we been going to build those projects, which as you know, as of now we're not, we're awaiting the results of the CFT. So the numbers that
are in that 821 are about 61 million on the thermal side. So that -Q: A: Q: A: Q: A: Which presumably will not be spent -This year. -- in fiscal 2005. That's right. Okay. For generation, that would leave $109
MR. WALLACE: MS. FARRELL: MR. WALLACE: MS. FARRELL: MR. WALLACE: MS. FARRELL:
million on the hydro side, and that -- those numbers there are being committed as we speak. MR. WALLACE: Q: Okay. So by September 1st whatever this
process says, those monies are spent? MS. FARRELL: MR. WALLACE: MS. FARRELL: MR. WALLACE: A: Q: A: Q: By -Committed. That's right. Irrevocably committed. It'd just be
written off -MS. FARRELL: A: Which is the -- what happens in large
capital businesses, where people are spending in the order of 75 to 100 million dollars a year in maintaining assets, typically those asset plans have to be in place
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well in advance of where we're standing today. MR. WALLACE: Q: Yes, and that doesn't surprise me, I
was just reacting to Mr. Elton's comment this process might be a review of those costs in some way. Ms. Van Ruyven? MS. VAN RUYVEN: A: Just to talk about the distribution The growth capital is the
capital on the one side.
capital is the capital required to connected new customers, and as you can appreciate that is an ongoing capital expenditure that goes through the entire year. So yes, by September we would have been well into those expenditures based on our estimates of new connections, and same with the sustaining capital as regular sustaining capital as regular sustaining maintenance that we do. And on the substation part, which is the line above, you do see a substantial increase there, which I alluded to earlier. substations. We're building a number of new
We do consult when we do build large The Port Kells project is a very good
capital projects. example.
We did extensive consultation in the Surrey
area prior to moving forward with construction of that substation. So on some projects we do do consultation with stakeholders. MR. WALLACE: Q: So would it be fair to say by September
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1st you'd be at least 75 percent committed irrevocably with respect to the capital plan? MS. VAN RUYVEN: A: Yeah, I think that would follow a
pattern of what a normal annual capital spend would be. MR. WALLACE: go ahead. MR. ELTON: A: When you've been using the word Q: And when you consult in some -- sorry,
"consult", I wonder if you could just explain what you mean. Do you mean "consult" in the sense of for example
of their environmental impacts or impacts on people living in the neighbourhood, or do you mean "consult" as to whether it's appropriate to spend that amount of money? MR. WALLACE: Q: Well, that's exactly where I was going
to go with Ms. Van Ruyven, and I had originally intended consult as to the overall plan and where it's going, which is what I understand BCTC is going to do. understood Ms. Van Ruyven to talk about was the consulting on the impacts on the neighbourhood. MS. VAN RUYVEN: MR. WALLACE: A: Q: That's correct. Thank you. Now, in the -- when we used What I
to -- going back, and I date myself a little here, looking at previous electricity plans, I think before we had integrated electricity plans, my recollection is that projects were ranked in the plan according to urgency and I don't quite recall the system, but I think
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there was A, B and C for level of urgency, and then even a 1, 2 3 within that, so that both -- I guess the executive, the board and probably anybody else looking at the plan could understand where a particular project ranked in terms of requirements of the system, and so that I guess it could be compared between each other in making decisions. I don't see that in the information responses that are there. on such a process? Proceeding Time 3:36 p.m. T05A MR. ELTON: A: Not in the way you've described it. I Does B.C. Hydro still carry
think line of business by line of business is where that kind of process, or equivalents to that process will be carried out. So I think it will be appropriate to
discuss that with each line of business group. MR. WALLACE: Q: Well, the reason I'm asking you is
because you have to -- presumably there isn't an unlimited pot of capital. MR. ELTON: MR. WALLACE: A: Q: Correct. And you have to compare the urgency of
projects across the corporation when you come to approving the budgets, and I'm wondering how is that comparison process done if that ranking is not there? MR. ELTON: A: By discussion. I alluded to this earlier.
By discussion about, you know, what are the projects that you, if you like, have rejected, and what are the
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project that you -- you know, what were the last projects that you accepted. And then you are just
comparing those, by discussion, really. MR. WALLACE: Q: Well, is there anything that the
Commission or the intervenors can look at where people have had to make a risk assessment, an urgency assessment of their projects within the lines of business? MR. ELTON: A: I think all of the projects of significant
size have had to make assessments of risk urgency business cases; in other words to -- what we have is a process which I think you may be aware of called -- I think, EAR is the current term, expenditure authorization request, and all of those, depending on the level that they go to, are supported by business cases or justifications with varying levels of details depending on the amounts of money involved. MR. WALLACE: Q: Okay, but in the past there seemed to be
a process that had fairly objective criteria to assess risks so you could look at it and say it was an A-3 or a C-2 or something, and have some idea of what that meant. There is no attempt at such an objective standard at this time, I take it, for cross-comparisons. MR. ELTON: MR. WALLACE: A: Q: For cross-comparisons? Thank you. No, there is not.
Would such a ranking be
useful to the executive?
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MR. ELTON:
A:
I think it depends.
I think that the
situation we find ourselves in this last year in planning for this year is one where, as you alluded to earlier, there's quite a lot of catch-up to do. So the
kinds of projects that were being put forward, it wasn't -- I mean, there isn't an unlimited supply of capital but we felt that the risks in respect of them were significant enough that we should go ahead with those projects. So as a general rule, yes. MR. WALLACE: Q: Okay, thank you. Now, I'd like to turn
now to corporate sustainability, as I understand the subject, and particularly the issue you raised, I think in your opening statement, too, of rising expectations of various agencies with respect to environmental, social and aboriginal issues. And the statement is on
page 1-8 of the application Exhibit B1-1: "Over the past ten years, the number of field and office employees dealing exclusively with environmental, social, and community issues has increased to meet the rising expectations of various agencies. Thus this application
reflects a cost base that has risen considerably since 1993." And I guess I'm wondering if there hasn't been a turnaround in that in recent years with government
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initiatives to try and reduce red tape, bureaucracy and I think precisely these types of demands on corporations, not just B.C. Hydro. MR. ELTON: A: I don't think the increase has been I think the increase has been
because of red tape.
because of a need to consult more with more people over a longer period of time and to listen more carefully to what they say, and to get involved in processes that are quite lengthy and complex, and try to achieve consensus as -- consensus. The water use plan would be one example where that process for each of our major facilities involves a large number of stakeholders involved over a long period of time. No, I wouldn't describe that as red tape or bureaucratic. It's certainly different way of doing
business though. MR. WALLACE: Q: Okay, well, you have, and it may be just
the way the words are chosen here, but it does say that the expectations -- "meet the rising expectations of various agencies" and I took that to be, in most cases, government agencies or bodies or boards or --. taking a different interpretation? MR. ELTON: A: No, what I'm saying is though -- no, I I think it's that Are you
think it's a similar interpretation.
-- well, first of all, I'll answer it generally and then
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Ms. Farrell will add.
But the expectations of those
agencies are that we do the kind of consultation that we do. In other words, let's take aboriginal issues for You know, we have obligations to consult which
example.
are much more extensive than they were several years ago. So if you're dealing with a government agency and
you haven't done that consultation, then you haven't done your job. Now, are we doing that because it's a
government requirement, or are we also doing it because frankly, in the long run, it's necessary, because if we're going to deal with -- you know, if we're going to be neighbours of people, we have to have a certain level of community support whether it's First Nations people or other people. So that's a general answer. Proceeding Time 3:41 p.m. T6A MS. FARRELL: A: More specifically, we were probably
referring mostly to the DFO when we were thinking about that particular statement and writing it in the application. During the '90s we had a number of issues
with Fisheries charges, which led to a review of the operating system and some flow orders from the DFO, and as well it sort of culminated in a number of reports, and finally culminated in a NAFTA challenge that was supported by a number of environmental groups against the DFO for not enforcing their laws for B.C. Hydro. And what ended up happening was that the DFO
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in its legislation didn't have really clear guidelines in terms of really determining when we had a fish incident, so almost anything could have become a fish incident. So we found that if we worked more closely
with the DFO up front, we could begin to define some of those things. But that in itself never gave us the So
certainty that we actually were within our licences. we had been granted water licences some 50 years ago with certain flows in them, and we were never sure
whether or not we could operate within those licences. And that led to the formulation of the water use plans, which then led to extensive stakeholder review processes, which in our evidence you'll see cost us $27 million overall in terms of looking at 23 of those water use plans. We're still in the process of those water use plans, and even now we find ourselves with 18 of those water use plans at the water Controller. We are back
with the water Controller trying to figure out whether or we've accommodated the First Nations correctly in the water use planning process, even though the First Nations were at the table there, and so we expect, you know, continued effort even to get through the next phase of the process, which is having the water Controller grant us new licences based on those new water use plans.
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So over the course of ten years, we've gone through a period of great uncertainty relative to the regulatory bodies like the DFO, not really knowing the certainty we had with our licences, through long protracted stakeholder process, back to the government organizations who now again have us working with them and the First Nations to finalize what those water use plans will finally become. And then we go through the
process of turning those into licences, and I guess hopefully at the end of all of that, we'll have greater certainty and at that point we potentially will see some reduction in our need for costs in that area. MR. WALLACE: Q: Okay, and so in terms of identifying
agencies, I have the Water Controller, DFO, and First Nations, which I'll take generally effect. number of agencies -MS. FARRELL: A: Well, there would be other agencies as We can undertake to list There's a
well in the B.C. government.
them all out because there are other emerging pieces of legislation, species at risk, legislation around archaeological sites. So if you'd like a list of them
we can generally provide one. MR. WALLACE: Q: Well, I would, and I'd also like a
response on whether things are starting to get better, because my understanding was that that was something that the government was addressing and that costs should
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be going down not going up with respect to that at this time. INFORMATION REQUEST MS. FARRELL: A: And I would expect as we get through to
the end of the water use planning process which will occur over the next two years, that that's when we'll start to see some of the pressure coming off the costs, or that's what our plans are. MR. ELTON: MS. FARRELL: MR. ELTON: A: A: A: Okay.
Sorry, but that's -That's one process. Yeah, and that's not because of -- I mean
I think you're saying, is there a reduction in red tape? There quite probably is. I mean there have been a Is our particular --
number of regulations reduced.
some of our particular processes coming to, not an end but certainly a good point? tend to reduce costs. The third side of it though is, are demands from the public and from interest groups lessening in respect of their interest in our facilities? No, Yes, they are, and so that
they're not, and as populations increase we don't necessarily expect them to. So I think those factors,
some of them go in different directions. MR. WALLACE: Q: And I understand that. What I'm trying
to come to grips with is there's an indication that costs are driven by rising expectations of agencies, and
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my understanding overall of the policy environment we're in right now is that those expectations are leveling out. And I'm asking, is that your experience, that
these costs -- and I understand where the specific plans are, but these costs are generally either reaching a peak, stabilizing or heading down, and I'm asking for your experience. Proceeding Time 3:47 p.m. T07A MR. ELTON: A: Right, and I'm saying that I believe that
although they're driven by agencies, the agencies themselves are driven by real public demands. MR. WALLACE: Q: So in spite of what the government
says, we're going to continue with increased difficulty in getting through approvals? MR. ELTON: A: Well, again, I mean increased Increased
difficulties -- it's an interesting question. difficulty in getting approvals.
If for example you have facilities where there are more people living near them, does that mean that you're now getting increased difficulty in getting approvals to do something? Well yes, but not because
there's more red tape or more procedures, but because the circumstances have changed. circumstances have changed. And I think the
That in general people who
live, for example, near our facilities they expect more consultation, and I expect that they will expect more of
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that as times goes on, regardless of what any government or any B.C. Hydro does. MR. WALLACE: Q: Thank you. Speaking of water use
planning, that is I think specifically this panel's area, can you tell me -- I think you mentioned, Ms. Farrell, that you had -- or that 27 million had been spent so far for 23 plans, is that correct? MS. FARRELL: A: That is correct. That is the total
budget to finalize all the plans. MR. WALLACE: Q: Okay, and it's my understanding, and I
may be wrong on this, that at one time the province had given some sort of assurance of compensation with respect to either the costs of the plans or even cost of implementation, and I'm wondering if that is correct, and if so what the particulars are? MS. FARRELL: A: The province had at one point given --
had said that if there were costs of implementing the plans and those costs were to, you know, reduce the energy available from the water that now would be supporting fish stocks, that those would be compensated for through remissions against the water rentals. Recent discussions with the province are -- there's still an outstanding issue as to whether or not that will actually occur, and we have some water use plans where we've actually seen increases from the level that we operated at and others that we see decreases and part
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of what we're struggling with, and I can't answer it here and we probably can't even answer it by Panel 7, is there's quite a difference between the level that we historically operated at and the level that we were enabled to operate at through our licences, that we never actually operated at because if we did we would face Fishery charges. So there's a whole complicated mechanism there and there's a lot of people working on it trying to figure out just what the impact would be to the water rentals if we were to receive those remissions. But generally they did not, they did not offer us compensation for the initial part of the program, which was the 27 million to do the consultations. So that was the capital program that was
set up by B.C. Hydro. MR. WALLACE: Q: Okay, and can you provide a copy of the
letter or direction or whatever document it might have been that set out the province's position with respect to compensation for the remissions? MS. FARRELL: MR. WALLACE: MS. FARRELL: MR. SANDERSON: A: Q: A: Yes. Thank you. We have some --
We'll take that as an undertaking and see
what's available. MR. WALLACE: Thank you.
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INFORMATION REQUEST I'd like to turn to research and
development for a moment, and as I understand it research and development is up from 1.2 million in 2004 to 8.6 million and 8.7 million in fiscal 2005, fiscal 2006 respectively? MR. ELTON: MR. WALLACE: A: Q: That sounds about right, yes. Okay, and obviously this is a huge
increase from doing virtually nothing to spending almost $10 million. As a matter of fact I think there's a
reference there that if you could find good projects for $10 million you wouldn't feel that was out of line, is that correct? MR. ELTON: MR. WALLACE: A: Q: I'm sorry, a reference? I didn't --
I believe there's a reference in the
application, and I don't have it right now, but while you're planning to budget 8.6 and 8.7 million, if there were $10 million in good projects that you would not have felt that was an out of line expenditure. MR. ELTON: A: I think the reference might be to a
comment we made in the application about benchmarking ourselves against other utilities, in terms of what we spend on research and development, and I think it's in the application page 3-52. There's a chart that shows
the US dollars R & D invested per customer and shows B.C. Hydro, out of a list of 20 utilities, the 20th, in
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terms of its spending, and so our view was that clearly we're spending a lot less on other utilities, and that was the basis for the comment that was made there that you know, budgeting research and development is always difficult in any company. I mean there's no way of
quickly saying with a particular R&D project or a particular budget, what the benefits will be. I think
it is a reasonably conventional approach to say, well, in our industry what appears to be a reasonable amount. We are clearly very below even the midpoint or the other companies, and so to increase the budget to $10 million, or in this case to the amount that you've mentioned, seemed to us to be reasonable and appropriate in the circumstances. Proceeding Time 3:53 p.m. T8A MR. WALLACE: Q: Well, beyond that, doesn't there have to
be some sort of cost benefit or payback out of this research anticipated? MR. ELTON: A: I mean you're not a university. I think first of all that
No, we're not.
the research we've done in the past we feel has been reasonably successful. And I mean, I can either have
Ms. Van Ruyven and Ms. Farrell talk about some examples now, or perhaps we can do that when we get to their panels later on in terms of projects that have been done in the past and the kinds of work that they see as -- or they and their other panel members see as being
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potentially helpful in the future.
In other words, the
spending of this money would be driven by projects that make sense to the various business lines where they say, "Yeah, we could see that that kind of project might lead to benefits for our customers." MR. WALLACE: Q: But I take it that the criteria in the
past where you were spending a million dollars are different than the criteria where you're spending almost nine million dollars. MR. ELTON: A: I think the criteria should be simple.
The criteria should be that we spend the money on projects that will have value to the customers -MR. WALLACE: MR. ELTON: Q: A: Yes, but in the past --- that will improve reliability in the
majority of cases. MR. WALLACE: Q: In the past, very few projects made that Obviously a lot more projects
hurdle, at 1.2 million.
are making the hurdle at 8.7 million. MR. ELTON: A: I think that in the past, the amount of
money we've spent on this has been artificially kept down. But again, I think -- I'd certainly welcome the
subsequent panels in generation and distribution to discuss what was actually spent and what kinds of rewards we got from that money. MR. WALLACE: Q: Well, and I'd suggest to you that it may
not have been the same test that was being met in the
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past, that a project to make it in the past had to be truly exemplary. MR. ELTON: A: I think that research and development
projects, it's very hard to say what projects are really exemplary. In other words, you're going to have a
number that will be very successful and some that will be less successful. So I'm not sure that -- I don't
agree that the criteria will be different. MR. WALLACE: Q: Okay. One of the projects you have that
I gather is out there and it's out there for a while is the HydroGen and Fuel Cell Program. MR. ELTON: MR. WALLACE: A: Q: Yes. And your goal in that is to be a leader
in the B.C. HydroGen economy? MR. ELTON: MR. WALLACE: A: Q: Yes. And you intend to do that for an
expenditure in the level of approximately 1.3 million in the two years we're talking about here? MR. ELTON: A: We intend to do that by making sure that
we're informed as to what's happening in this industry, which obviously has -- well, let me back up a bit. The
hydrogen industry obviously has some great potential and I think it's fair to say that not many people know what that potential might be. Our goal is to make sure that
by spending a relatively modest amount of money, that we keep ourselves abreast of developments and that we get
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involved and take leadership positions and lever that money, because we'll be involved with other people. I tested that actually the other day by just talking to a couple of people from -- one from General Electric who is represented to me as their expert in terms of hydrogen within the GE company. And frankly, I
mean, the reason why was because like a lot of people, I hear a lot about hydrogen and I'm not quite sure what it means to our business. After about a half an hour
conversation that confirmed that they're not sure what it means to their business, but again they're investing in it fairly heavily, I said, "Well, where can I go to get really good information about hydrogen and what might happen in the electric utility business in the future?" And he said, "Well, basically British
Columbia," and gave me the names of sort of the 15 people in British Columbia that I had met, so -including our VP of sustainability. So I'm comfortable that (a) that the amount of money is relatively minor, and (b) that the work we're doing so far is indeed achieving our objective of making sure that we're well informed. will hydrogen mean to our business? MR. WALLACE: Q: Now again, what
I don't know.
Well, that's what I was going to ask
you, because surely before you undertake it, you do know what it means to your business potentially.
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MR. ELTON: do.
A:
No, I think with hydrogen I don't think we
I mean there's a lot of different possibilities for
hydrogen in terms of its future within the electricity industry, a lot of different views about which way it can go. And I think it's the kind of thing where we
should know about it, we should be informed about it, but we shouldn't be spending very large amounts of money on it until we know what it means. MR. WALLACE: Q: Okay, and you agree you're spending 1.3
million a year? MR. ELTON: A: Yes. Proceeding Time 3:58 p.m. T09A MR. WALLACE: Q: And if you look at page 3-50 of the
application, Exhibit B1, where you set out the goal of being a leader in the B.C. hydrogen economy, you then say how you're going to do that, and you're exploring the market, forming key relationships with significant players, and "learning by doing" -- I'm not sure what that is, if you know you could elaborate -- leveraging world recognized hydrogen knowledge, participating in the development of hydrogen infrastructure to encourage hydrogen and fuel cell related businesses, and contributing to significant improvements. And frankly, when I read that it sounds like you're watching the market but you're not a leader in the economy. You may be a good source of knowledge.
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Would you agree that sounds fair? MR. ELTON: A: I think if you look at the projects that
are listed down below, if you go further down that page, for example, there's fuel cell utility emergency standby generator. I think, you know, there's a number of I
things there where we are taking a leadership role. emphasize, I'm not a person that can explain to you
exactly what each of those things mean and I don't think anybody on the panel is. MR. WALLACE: MR. SANDERSON: Q: Okay. And which panel could?
Mr. Chairman, that's one of the issues
which -- or one of the areas that in the letter of -- I forget the date now, that you referenced this morning, was identified as something where we didn't have a specific witness to deal with it. We will take
questions in those areas by undertaking pursuant to your direction this morning. MR. WALLACE: Okay. I guess my question -- well, I think I can leave it for
the important question's been asked. the moment. MR. WALLACE: Thank you, sir. Q:
Looking at some of you -- a number of Again
your projects are listed in CECBC IR 1.14.3.1. that's 1.14.3.1.
They're relatively small amounts, I Simply on page 4,
guess, but I question some of them.
for example, energy efficiency evaluation methodology. You're developing a common methodology for utilities to
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use.
Is that really research and is that something that
needs to be done? MR. ELTON: A: I don't know the details of that project,
but I think if you have questions about specific projects those could be dealt with. this case, by Panel 4. For example, in
So if you had a specific
questions about specific projects and, you know, either wanted to ask them now or give them to Mr. Sanderson -MR. WALLACE: MR. ELTON: MR. WALLACE: give notice. A: Q: Q: Sure. -- we could answer them. No, that's good, and again, I'll just
The other project is enhancement of a
light switch wizard software to include classrooms and lead daylighting credits and residential fuel cell installation and demonstration. that in 2005. Why we would be doing
And micro turbine cogeneration
demonstration, which is $195,000. Sure, thank you. MR. SANDERSON: I think all of those fall within the ambit
of the April 23rd letter, but in any event we'll either respond in writing or advise might panel it should be directed to. INFORMATION REQUEST MR. WALLACE: Q: Thank you, and similarly for new
projects not currently underway, there's just three of them. Program to promote geothermal; the question would
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be:
Why isn't that left to the geothermal companies or Testing of seasonal LED lighting
done under PowerSmart.
technologies; why are you doing the testing rather than some other agency? And participation in European Union
workshops on ocean and wave energy; and why you are undertaking that at this time, given that this is an IPP area now. MR. ELTON: A: Sure. INFORMATION REQUEST MR. WALLACE: Q: I'd like to then just turn to one other
corporate function, the corporate controller audit and under finance. Why does the audit not report to the
audit committee of the board rather than to the corporate comptroller of audit? MR. ELTON: A: Or have I got it wrong?
The director of -- are you talking about
the internal audit function? MR. WALLACE: MR. ELTON: A: Q: Yes. The internal audit function reports
dually, to two people in effect; reports to the Chief Financial Officer and reports to the audit committee. MR. WALLACE: MR. ELTON: A: Q: Okay. And the Director of Internal Audit has
full access to the Audit Committee at all times, and at the regular meetings of the Audit Committee -- I'm talking about the board's Audit and Risk Management Committee, I should be more precise -- the meetings of
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the board's Audit and Risk Management Committee the internal auditor, the director of internal audit has an in camera session with the ARMC. Proceeding Time 4:03 p.m. T10A MR. WALLACE: MR. ELTON: Q: A: Okay, thank you. And so the decisions as to which audits to
do, what the focuses should be on, those decisions are all made by the Audit and Risk Management Committee and then referred to the board, and the reports of the auditors are all sent straight to the Audit and Risk Management Committee and to the board. MR. WALLACE: Q: Thank you. With respect to Burrard, I
just want to know what is the status of the MLA review on Burrard generating. MS. FARRELL: A: As of this time the MLA review has not
reached a decision and we have not received anything at B.C. Hydro. MR. WALLACE: Q: Okay, does B.C. Hydro have contingency
plans in terms of impact on rates for the test period if a decision was made by that committee that Burrard should be closed? MS. FARRELL: A: At this point Burrard could not be Burrard is relied on for
closed in the test period.
providing transmission service support to the BCTC, and the replacement for that would be a static VAR compensator. That would take three to four years to
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build in order to replace Burrard.
So in terms of -- at
this point the plans for Burrard, we feel are fairly reasonable for the test period, even if there was a decision to shut it down. MR. WALLACE: Q: Thank you. I'd like to then turn to
compensation.
I take it that B.C. Hydro endeavours to
maintain a 50th percentile target for base pay, variable pay and total cash as compared to a relevant sample of select companies and industries? MR. ELTON: MR. WALLACE: A: Q: Yes. And you go on in the response I'm
looking at -- or it's actually not in the response, I'm sorry, the text from Exhibit B1-1, page 3-29, and say: "The 50th percentile target is defined as positioning our compensation to be better than five out of ten employers in Canada, major employers being a blend of Canadian employers from the energy industry, oil and gas and companies in similar size." And I take it that includes utilities and non-utilities? MR. ELTON: MR. WALLACE: A: Q: Yes. And size being the main factor outside You do
of the industries that you've named there.
confine it to the energy industry and then companies of a certain size. MR. ELTON: A: I believe that's right, yes.
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MR. WALLACE:
Q:
Why do you look only as I see it here, And the
at total cash rather than cash plus benefits?
reason I ask is there's a perception, whether it's correct or not, that your benefits may be better than most, and I'm wondering why you don't look at both. MR. ELTON: A: I think we also review benefits and have
reviewed -- yeah, we've reviewed the total picture including benefits, and I think that on Panel 3 that Ms. Webb will be able to talk about that in more detail. MR. WALLACE: Q: Okay. There isn't a policy issue there
in any event. MR. ELTON: A: No, I think the policy question -- I think
the policy answer is that we aim to pay at the 50th percentile overall. I think that when you're dealing
with companies in the private sector, sometimes the mix of benefits is different. So for example you have
things like stock options in the private sector which you don't have here. difficult. MR. WALLACE: Q: Okay, thank you. So the comparisons can be
Now, I did take a look at one of the attachments, and isn't it unfortunate I can't give you the reference right now unless Mr. Guenther assists me momentarily. But let me put the perception I got in
reviewing the table that was attached to an information response, and that is that when you look at where you
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rank in the percentile comparisons for employees, and this would be unionized, basically at the less sophisticated level, the clerk level, you appear to be above the 50th percentile, and at the more technical and sophisticated level you appear to be a little bit below the 50th percentile. And I'm wondering if there was a
policy direction there that caused that to happen. MR. ELTON: A: I don't know whether there was a policy
direction. MR. WALLACE: Q: First if you agree, and second if
there's a -MR. SANDERSON: Yes, I'm quite comfortable with the
question asked as a general question, is there a policy that would make a distinction, I'm just a little
uncomfortable with the reference to a document that I'm not sure Mr. Wallace identified, and right at the moment I certainly don't know what it is and the panel doesn't. MR. WALLACE: Q: No, I understand, and unfortunately I
just forgot when I copied it to write the IR response. MR. SANDERSON: Well, it seems to me the policy question
can be put without reference to the document. MR. WALLACE: MR. ELTON: MR. WALLACE: MR. ELTON: MR. WALLACE: Sure. A: I'll just answer that.
I think I've got the reference after all. A: Q: I'll just answer the question, I mean -Sure.
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MR. ELTON:
A:
-- because I think what you're saying is Yes, that is I can't
something that is quite familiar to me.
the way that our remuneration tends to look.
comment on whether there was a policy decision in the past, but our pay scales should be flat. I'm doing that
-- I just realized that that won't be picked up by the court reporter. Proceeding Time 4:09 p.m. T11A Certainly that is not -- you know, that is not where we'd like to go in the future. Certainly I
see us in the future differentiating more among our workforce, both unionized and non-unionized. With
respect to the unionized portion of the workforce, of course that would be through a collective bargaining process and I can't predict what the effects of that would be. With respect to our management and
professional workforce and our executive workforce, certainly I see is differentiating more and more, and that would tend to lead to that curve changing. And
again, I think Ms. Webb will be able to talk about some of the things we're doing this year in terms of variable pay, that portion of compensation for the non-union workforce, that would tend to lead us in that direction. MR. WALLACE: Q: Thank you. Thank you. Just actually
going back, I had been talking about unions -- oh, and the response on that question, I just put the table
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forward in case you need it at some point, although I think your answer is complete without it, is Exhibit B18 BCUC IR 2.112.6, and I think it's an attachment to that. MR. ELTON: MR. WALLACE: A: Q: Thank you. In executive compensation response --
or Exhibit B1-11 CPP IR 1.I15.0 talks about executive compensation. The principles appear to be the same, and
you indicate executive base salaries are anchored in a 50th percentile market position compared to Canadian utilities, and you're not broader in the energy area there, it is to utilities, in traditional regulated market structures, and I'm wondering why you don't do a comparison with Canadian executives generally? MR. ELTON: A: That's a good question. I think that
logically what we should do, what we try to do is look at, you know, who are you competing with for those people, where are they coming from. I think in terms of
most of our executive positions typically we want people with utility experience and the people we've brought in from outside have typically been people with utility experience with one or two exceptions. So I'd say that for most of those jobs it's appropriate to compare them with utilities rather than other places. There are some roles such as general
counsel type roles or CFO type roles, where I would say
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it would make just as much sense to compare them with companies in general, although we still frankly, still look for people with utility experience. MR. WALLACE: Q: Well, isn't there a little danger that
we get into a circular situation if we have regulated utilities setting rates for executives throughout Canada, that we don't get that check on the reality of the outside market? MR. ELTON: A: I think the check on the reality of the I mean, you
outside market is always what do people do.
know, when you -- if people in utilities were getting paid much more than people outside utilities, given all of the factors, you'd expect to see many applicants for jobs from people outside utilities. Conversely, you
know, if the converse was true you'd see the opposite. So I think you've -- again, Ms. Webb can talk to you about this as well, but I think my view of it is when we're trying to hire executives does it look like the remuneration package is making sense in terms of the kinds of people that are applying or doesn't it, and are we in danger of losing people. And so -- and I think
that that applies to executives and to, you know, people in management at leadership positions and technical positions. So it's not just just a question of the surveys, it's also that you're testing the market all
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the time.
So my sense is -- you know, is remuneration Yes it is.
an issue for people we try to hire?
Therefore do we sometimes miss getting the very, very best people as we see it? Yes. we do. But are we Yes, we are.
satisfied that we get very good people? MR. WALLACE: Q:
Do you, and it may be for Ms. Webb, I
think you put it; but do you have any surveys that compare Hydro executive salaries to compensation for Canadian executives generally, and total compensation packages? MR. ELTON: A: You have to ask Ms. Webb for that, but
you've put her on notice of that. MR. WALLACE: MR. ELTON: MR. WALLACE: A: Q: Q: Thank you, and what panel is that? Three. Three, thank you. I'd like to turn to
the creation of BCTC and a bit about the relationship between B.C. Hydro and BCTC. As I understand the
application there are ongoing incremental costs arising from the creation of BCTC in the range of $18 million per year? MR. ELTON: MR. WALLACE: A: Q: Yes. And as purchaser of all of -- most all
of BCTC's services, what is B.C. Hydro doing to see that those costs are minimized? MR. ELTON: A: Well, I mean, two things. First of all,
of course, when the -- when BCTC was formed and when the
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various negotiations were going on obviously it was clear to us that BCTC would be adding people to form an establishment and we obviously looked hard at what the effect would be on our establishment and concluded that there would be extra costs and savings, that they would net out to roughly zero. So our view was and is that
the -- this $17.8 million or so of extra BCTC costs are something that we must discuss with them, and I'll discuss that in a minute, but that we couldn't find offsetting costs within B.C. Hydro. With respect to the -- sorry? Proceeding Time 4:15 p.m. T12A MR. WALLACE: Q: Can you explain why not? Sorry, I
didn't want to interrupt you, but why weren't there offsetting savings? There were obviously roles that
you're no longer performing moving out of house. MR. ELTON: A: Well, there are many roles that are no
longer performed that we moved out of house, so there were savings to the extent of -- I think it was 260-odd people that moved out of the house in that sense. MR. WALLACE: MR. ELTON: Q: A: Yes. With respect to the savings that we didn't
see, in other words where we looked at BCTC and said, well, they've added people over here, you know, basically asked ourselves the question: they reduced over there -- or over here?
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through them, you know, basically area by area and I'll do that if you like. MR. WALLACE: get -MR. ELTON: MR. WALLACE: MR. ELTON: A: Q: A: Sure, sure. -- in the end you didn't get savings. So you just go through area by area. So Q: Would you like me to do that?
Well, I'd like to know why you didn't
for example in terms of things like communications and public relations, those kinds of areas, when you visit our locations in the Kootenays or wherever, or the Peace District as I just did in the Peace District, there is somebody there from B.C. Hydro; there will soon be somebody there, I think, from BCTC. In other words BCTC So will
will have people looking at public relations. we. Are there less than -Q:
MR. WALLACE: one? MR. ELTON:
So there'd be two people where there was
A:
I don't know whether there would be two
people because I don't know what -- you'd have to ask them what their plans are in terms of community affairs, public relations type people. But the public aren't They may
going to be asking any less questions of us.
actually be asking more questions of us for the time being because they will want to understand what this new organization is, how it relates to us and so on. MR. WALLACE: Q: That's not one of the 260 people you
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transferred, is it?
I'm trying to see how this relates.
You got rid of a substantial number of people, a substantial number of functions. MR. ELTON: MR. WALLACE: have. A: Q: Yes. Surely you kept some that you'll always But what filled that void of
I understand that.
the people you got rid of and the functions you got rid of? MR. ELTON: A: Okay, let me sort of go back one level and So there was a transmission line
try and explain this.
of business which consisted of -- which is something like the generation or the distribution lines of business, and you know, when the line of business structure was formed. And again I need -- I could be
corrected on the numbers but let's say there were 260odd people in that line of business. quote me on the number. You know, don't And that
I'm just estimating.
line of business was -- I describe it as incomplete if you wanted to operate as a fully operational corporation. So for example, it had financial people to record transactions but it didn't have a chief financial officer. It had some regulatory people to deal with
regulatory issues but didn't have a chief regulatory officer. And I really that you'll be getting a lot more
explanation on this from Panel 6.
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So you move the people that were in TLOB, and the BCTC says, "Well, we are a new company and we need to add some functions that we didn't previously have, so for example we'll add somebody in communications, we'll add a chief regulatory officer, we'll add a chief legal person, CFO, CEO and so on." And again, the question of
whether they did that well is something that, you know, you'll be asking them about later. And you asked me a
question relating to that that I haven't answered yet but we'll come to later on. So then we look at what we have and we say: All right, we no longer have this transmission line of business. So what does that means in terms of
particularly the corporate functions, and then what does that mean in terms of each of the lines of business? With respect to each of the lines of business, in general I'd say that there are most costs than there were before, because you now are saying to Generation: Okay, you're now providing services to this Whereas before you were providing
new organization.
them internally, you are now providing services to an external, separately regulated body. It could take a
while to sort out how those services will work out and there'll be hearings and so on. bit more there. With respect to Distribution I'd say there's
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a bit more cost because you now have substations that Transmission is operating on behalf of Distribution where -- and I think in some cases within the substation, you know, part of it's distribution, part of it's transmission. complexity. Within Powerex I think it's fair to say that we've regarded Powerex now -- we asked Powerex over a year ago to be, you know, to focus on dealing with BCTC as distinct from transmission line of business, remembering that it is a separate, independent corporation, and perhaps focus more on minimizing Powerex's cost of B.C. transmission. Now frankly, those So in other words you have
are all effects that were intended, I think, by the Energy Plan. In other words, you create BCTC in order
to get the parts of B.C. Hydro acting towards BCTC quite properly as an independent company. Then you turn to the corporate functions, and I think what we did there was to look basically area by area, person by person, have we got a less complex world, a simpler world with fewer things to do as a result of BCTC going away? And the conclusion was in
the end, no, that in some areas we have a more complex world, the regulatory world being one of them. Is it
because of the creation of BCTC or is it because of the returning of this whole thing to regulation?
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it's probably a bit of both, but there's more complexity there. So we didn't reduce our regulatory department.
So when an individual left our organization to join BCTC in the regulatory area, we didn't say, "Well, then we can reduce our regulatory group by one." we can't do anything there." With respect to finance, people have left BCTC who are accounting for the assets, you know, in detail, but the assets are still on our balance sheet. And so from a corporate controller point of view, and the group that is there, are there still as many issues around financial statement disclosure or policies around these assets? There are probably more, actually, We said, "No,
because I think when you have a situation -- I mean, I think that the notes to the financial statement, for example, will be more complicated than they were before. There will be more disclosure. Proceeding Time 4:21 p.m. T13A When you look at human resources, again, the people that dealt with the individuals, the 255 individuals, have gone, or you know, those positions have gone. But our Chief Human Resources Officer is
responsible for policies around the human resource area, and still has the same number of policies. fewer -- the policies are similar. Are there
The fact that we
still have generation distribution, Powerex, Powertech,
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Engineering Field Services, you've reduced by one the number of units that they are thinking about, but it doesn't significantly reduce the work. And so we went through area by area, and I could go through all of the corporate areas, and as I said, concluded that on the one hand you have less transactions, but you've moved out the people that dealt with the transactions. On the other, you've got the
same amount of complexity in terms of policies, in terms of contracts. Again, the legal area, I'd say there's So overall, we concluded that there
more complexity.
would be some savings, there will be some additional costs; overall it's a wash. MR. WALLACE: Q: Okay, and just so I've got that right,
255, 260 people moved out of Hydro and in the end -into BCTC and in the end your overall costs of operating B.C. Hydro were the same. Is that correct or am I
getting something wrong there? MR. ELTON: A: Yes, of course, our overall costs, they
are not the same because the 255 people had costs and those costs we no longer have. MR. WALLACE: MR. ELTON: Q: A: Okay, those direct costs are gone. Yes, that's right, and the overhead costs
within the transmission line of business. But no, I mean, the fact is that when you create extra organizations, you don't create synergies,
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you do the opposite, you create extra costs.
Now, The
again, there are benefits that -- well, two things.
creation of BCTC is a reflection of government policy, legislation, designated agreements. It's up to us to
work together to achieve the benefits, and by us, I mean all of us, but in terms of the costs, you're right, we didn't feel that we could reduce our costs except for the removal of those direct costs as a result of the creation of BCTC. MR. WALLACE: Q: Okay. Now, for some reason with
Accenture, you felt that you could move them out to another organization and make savings. same be done with BCTC? MR. ELTON: A: With Accenture we are dealing with a Why can't the
commercial arrangement with another company where -yes, we felt a competitive process where we were able to achieve savings. With BCTC, we are not dealing with a
commercial arrangement, we are dealing with a government mandated transaction and therefore the control there is not with us, it's with the BCUC. And now, I'm answering
-- finally getting to the answer to the first part of your question -MR. WALLACE: any event. MR. ELTON: A: You know, what role can we play in trying Q: Yes, I was going to come back to it in
to ensure that the costs of BCTC are appropriately low,
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because as customers we want that; and the answer is, we will in future be intervenors when BCTC makes revenue requirement requests. MR. WALLACE: Q: And that's what we intend to do.
And can I take -- well, I'll leave that.
I'm just afraid we'll see more regulatory costs if that happens. But that will encourage you, I hope, to be an
effective intervenor. MR. ELTON: A: We certainly intend to be an effective
intervenor. MR. WALLACE: Q: Okay, and will you take intervenor costs
according to the Commission's schedule? MR. ELTON: A: That's a very complicated question that
I'm not qualified to answer. MR. WALLACE: Q: I'll save it for that proceeding. Why don't we adjourn until tomorrow
THE CHAIRPERSON:
morning on that note, Mr. Wallace. MR. WALLACE: Thank you, Mr. Chairman. Tomorrow morning at 9:00.
THE CHAIRPERSON: MR. FULTON:
Mr. Chairman, before we adjourn, we should,
for the record mark the revised hearing issues document May 18th, 2004 as document A-27. (REVISED HEARING ISSUES DOCUMENT MAY 18TH, 2004 MARKED A27) THE CHAIRPERSON: MR. SANDERSON: Thank you. Mr. Chairman, in doing that, if I could
just note, when we prepared that, there's two changes:
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the date's changed and the numbering's changed to reflect the edits. THE CHAIRPERSON: Thank you. I think we are now adjourned
until 9:00 tomorrow morning. (PROCEEDINGS ADJOURNED AT 4:26 P.M.)
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BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT S.B.C. 1996, CHAPTER 473 and British Columbia Hydro and Power Authority 2004/05 and 2005/06 Revenue Requirements Application and An Application by British Columbia Transmission Corporation for Approval of an Application for Deferral Accounts Vancouver, B.C. May 19, 2004
PROCEEDINGS AT HEARING
BEFORE: R. Hobbs, L. Boychuck, M. Birch, Chairman Commissioner Commissioner
VOLUME 6
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ERRATA
VOLUME 3, May 13 page 234 page 258 line 2 line 13 "Independent Power Products " should read "Independent Power Producers" "remember" should read "remembered"
VOLUME 5, May 18 page 380 page 380 page 401 page 466 page 479 page 480 page 564 line 26 line 26 line 3 line 21 line 20 line 2 line 2 "Pertulla" should read "Perttula" "Terasen Inc" should read "Terasen Gas Inc." "in" should be "with" "energy" should be "agenda" "WAPS" should be "WUPS" delete "to" "on" should be "than"
INDEX OF WITNESSES PAGE
VOLUME 5 - MAY 18, 2004
Opening by Mr. Sanderson Opening by Mr. Feldberg 409 452
B.C. Hydro Panel 1: Beverly Van Ruyven Robert George Elton Dawn Lorraine Farrell Examination in Chief by Mr. Sanderson Cross-Examination by Mr. Wallace 459 475
VOLUME 6 - MAY 19, 2004
B.C. Hydro Panel 1: Beverly Van Ruyven Robert George Elton Dawn Lorraine Farrell Cross-Examination by Mr. Wallace (Continued) Cross-Examination by Mr. Austin Cross-Examination by Mr. Weafer Cross-Examination by Mr. Gathercole Cross-Examination by Mr. Jones 773 Cross-Examination by Mr. Wait Cross-Examination by Mr. Fulton 778 801 591 594 671 734
INDEX OF EXHIBITS
NO.
DESCRIPTION
PAGE
VOLUME 5 - MAY 18, 2004
B1-29 B.C. HYDRO PROPOSAL REGARDING CONSOLIDATED ISSUES LIST ................................... 385 B1-30 B.C. HYDRO'S PROPOSAL 2 REGARDING THE CONSOLIDATED ISSUES LIST ...................... 385 B1-31 B1-32 A-26 HYDRO'S REBUTTAL EVIDENCE ..................... 385 HYDRO'S REBUTTAL EVIDENCE ..................... 386 LETTER TO COMMISSION PANEL SENT TO APPLICANTS AND INTERVENORS MAY 17, 2004 .................. 386 B1-33 C4-6 C4-7 OPENING OF B.C. HYDRO, MAY 18, 2004 ........... 451 PROVINCIAL GOVERNMENT ENERGY PLAN ............. 458 BCUC LETTER DATED DECEMBER 19, 2003 ENCLOSING HERITAGE REPORT AND RECOMMENDATIONS ........... 458
VOLUME 6 - MAY 19, 2004
C4-8 LETTER FROM THE MINISTER OF ENERGY SENT TO THE IPPBC WITH A COPY TO B.C. HYDRO ............... 608
INFORMATION REQUESTS
VOLUME 5 - MAY 18, 2004
For Mr. Wallace: Pages 498, 501, 525, 559, 563, 570, 571
VOLUME 6 - MAY 19, 2004
For Mr. Weafer: Page 701
B.C. Hydro Revenue Requirement Hearing May 19, 2004 Volume 6
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 THE CHAIRPERSON: (PROCEEDINGS RESUMED AT 9:00 A.M.)
CAARS VANCOUVER, B.C. May 19, 2004
BOB ELTON, Resumed: DAWN FARRELL, Resumed: BEV VAN RUYVEN, Resumed: Please be seated. I think the first
order of business is for Mr. Sanderson to respond to the question that Mr. Wallace left with you with respect to the operation of the deferral accounts in the context of the special direction. MR. SANDERSON: the evening. Yes, Mr. Chair, we did consider that over I think that the most effective way to
deal with that, if I may suggest this, is to have as the opening of Panel 2, have them walk through the operations of the deferral account and how in fact the deferral accounts will be cleared, because the issue that was raised by Mr. Wallace has to do with can the Commission do a prudency review at the time it comes to clear those deferral accounts to determine what should happen to them? And the answer will be yes, but I think
the mechanics of how that will work -- I mean, I can give an interpretive answer to the special direction, but I think it's very hard to make clear without, I think, numbers in front of you.
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And so what I've concluded was the best way to do that would be with Mr. Morris on Panel 2. We'll
circulate something in advance, but have him walk through really an oral direct with respect to that. If
Mr. Wallace has follow-up, that gives him an opportunity to do that, and if you have specific questions that need to be address, then that gives Mr. Morris an opportunity to do that too. THE CHAIRPERSON: Yes, I think that works very well and I
think you've just answered Mr. Wallace's question in large part. MR. WALLACE: that works. THE CHAIRPERSON: No, that's fine for now and we can see how It sounds like a good solution. Thank you.
CROSS-EXAMINATION BY MR. WALLACE (Continued): MR. WALLACE: Q: Panel, I'd like to start out with one
subject and I'll finish with that today also, is theft of services from B.C. Hydro. The B.C. Chamber of Com-,
or as I guess it's commonly known, grow-ops, principally. The B.C. Chamber of Commerce estimates
that the power theft in British Columbia is likely in the range of 100 to 200 million dollars annually. I'm
wondering if you have an estimate of what it might be from your own service. MS. VAN RUYVEN: A: We do have an estimate and it's -- of
course it's an estimate like everything else and it's
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significantly lower than that.
We've been working in
more of a $12 million range on electricity theft. Proceeding Time 9:03 a.m. T02 So the first time I saw the evidence that was put before me about the 100 million to 200 million it was a bit of a disconnect for me as to the estimate of how large that problem is. Now, we know that grow-ops are a problem in British Columbia, but our estimate is more in the $12 million range. MR. WALLACE: Q: Okay, and so obviously you see it as a What
much lesser problem than the Chamber of Commerce.
is B.C. Hydro doing to, I guess, one, identify the size of the problem, and two, to combat it? MS. VAN RUYVEN: A: Well, we've identified this problem
many years ago and we've been working very hard to, well to eradicate it. It sounds like it's getting bigger,
but what we do is we have meter readers that go on site, and what we're looking for is theft of electricity. Our
people are not trained to look for grow-op situations and also we don't want to put them in a situation where there's some safety issues. So if a meter reader goes in and suspects that there is electricity theft they file a report and that report is given to the local authorities, whether it's the RCMP or the police. And then the police
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follow-up on those reports, and if it's associated with a grow-op they will press charges for theft of electricity or for illegal drug use, marihuana grow-ops. And we've been working very hard with all of the local authorities for many years, and I think probably some of our work has been instrumental in pressing charges for a number of the grow-op facilities. MR. WALLACE: Q: Okay, and what do you do with respect
to recovering the losses on theft? MS. VAN RUYVEN: A: We absolutely press charges and
interestingly enough, we've been quite successful in recovering the electricity theft. Usually the grow-ops
are quite interested in paying their bill, and so we have been quite successful in recovering a lot of the theft. They don't really want to go to jail for
electricity theft, and so we've been quite successful. MR. WALLACE: Q: And about how much a year are you
recovering on theft at this time, or should I pursue that with another panel? MS. VAN RUYVEN: A: Yeah, I'm pretty sure we can answer
that on panel 5, and I'll make sure that we're prepared to answer the recoveries. MR. WALLACE: Q: Okay, thank you very much. And that
concludes my questions for this panel. THE CHAIRPERSON:
Thank you.
I'm pleased that Mr. Wallace didn't ask
you for regional breakdown of power theft.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 CROSS-EXAMINATION BY MR. AUSTIN: MR. AUSTIN: Q:
Proceeding Time 9:05 a.m. T2
Good morning, Mr. Chairman and members of Just a housekeeping
the panel and B.C. Hydro witnesses. matter to start off with first.
Mr. Elton, is it fair to say that the panel as is constituted now is not going to be answering questions about the Provincial Energy Plan and transmission? MR. ELTON: A: Is that correct? I think I answered some yesterday about
the Provincial Energy Plan and transmission, so I think it depends on the question. MR. AUSTIN: Q: Well, I'm a bit confused because I
understood yesterday that the BCTC Panel was going to be answering policy questions as they relate to the Provincial Energy Plan and not this panel. that wrong? MR. ELTON: A: I think with respect to questions around Have I got
for example the operation of the transmission system, those would be questions that the BCTC Panel would answer. But for example, there were questions put to us
yesterday, I thought, that had to do with the agreements between Hydro and BCTC, and I think that -- I believe that I answered those questions. So I think it just
depends on the nature of the question. MR. AUSTIN: Q: Well, let's try this out because I'm
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somewhat -- I don't want to miss my opportunity and I don't want to be told later on that no, I was at the wrong place and the wrong time. I'd like to refer you to Exhibit C4-6 which is the B.C. Energy Plan. MR. ELTON: MR. AUSTIN: A: Q: Yes. And I'd like to refer you to policy
action item number 15. MR. ELTON: MR. AUSTIN: A: Q: Yes. And policy action item number 15 says:
"The B.C. Transmission Corporation will improve access to the transmission system, enable IPP participation in U.S. wholesale markets." Do you see that? MR. ELTON: MR. AUSTIN: A: Q: Yes. In terms of your application, can you
show me anywhere where that particular issue is dealt with? MR. ELTON: A: I think that on that particular issue,
those questions would be best addressed to the BCTC Panel. MR. AUSTIN: Q: Are you aware of any place where it's It's a simple question. I'm just saying
referred to?
can you just answer that question?
Is there any place
in the application that you can see that that policy
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action item is referred to? MR. ELTON: A: Well, the purpose of this application is a
Revenue Requirement Application to talk about the amounts of money which we believe we have to recover from our customers, and they incorporate costs that will be incurred by BCTC. To the extent that the BCTC costs
that are incorporated into our costs involve actions to improve access to the transmission system, then that would be part of our application, and again I believe that those questions as to the extent to which those actions are included in the application are best dealt with through Panel 6. MR. AUSTIN: Q: I'd like to move on to another area, and What is
would you please listen to this very carefully.
B.C. Hydro's position on having a single RFP proposal process to acquire resources from greenfield projects developed by IPPs, and load displacement projects developed by large industrial customers? MS. VAN RUYVEN: A: Well, we've looked at that. We're
just working through the mechanics of could we make that a workable process, knowing that how we purchase from IPPs and the cycle and timing of how our customers look at self-generation, could we merge the two into a single call? It's a possibility and we're investigating that
seriously. The only issue there is that when customers
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bring on self-generation, it is completely connected to a process in their own facility, and generally it's related to making steam to help with pulp and paper manufacturing, and it may not necessarily follow the same timelines that an IPP process or a call for tender would follow. But having said that, if we can't make
the mechanics of a single call work we certainly are interested in lining those up more closely so that you can understand how the payments we made to load displacement and how we purchase from IPPs are aligned and the risk profile of that. So that there's much more
transparency, understanding about the economic benefits and the cost benefit analysis of those two processes. Proceeding Time 9:10 a.m. T04 We're also very interested in trying to put forward subscription levels, so that all parties understand the amount that we're going to buy on an annual basis, and we stick to those subscription levels and that we make it more aligned and perhaps even do two separate processes but at the same time. So there's
clear understanding of where each of those components of our balanced portfolio mix fit. So we're working hard on that and we're obviously looking at a call that will start some time in the fall, and we would like to align any more load displacement or even large industrial PowerSmart
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programs to that same IPP call and figure out how to make that work. MR. AUSTIN: Q: And how long have you been looking in
that particular initiative? MS. VAN RUYVEN: A: Well, we've had a good hard look at
it since we put the application in and started answering some of the IRs and realized that it was an issue for IPPs, and we're trying to be responsive to that. And so
we've been looking at that over the last couple of months. MR. AUSTIN: Q: Mr. Elton, is it also not true that the
Minister of Energy has asked you to do precisely that? MS. VAN RUYVEN: A: I've had several conversations with
the Minister about IPPs, because I'm generally the point of contact with the Ministry of Energy and Mines, and he's not specifically asked us to do that. MR. AUSTIN: Q: Mr. Elton, are you not in receipt of a
letter from the Minister of Energy that was sent to the IPPBC with a copy to you that says precisely that in that letter? MR. ELTON: A: Why don't you show me the letter that
I've received. Yes, the letter from Minister Neufeld at the end says: "By way of this letter I am asking Mr. Elton to comment on the possibility of using a
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single request for proposal process to acquire…" And then follows on with the rest of the question you asked. So yes, so Minister Neufeld certainly asked us to consider it, to comment on the possibility. was aware when he wrote this letter that we were considering it. In other words, what happened was we As Ms. Van Ruyven says, we've I think He
had a discussion.
discussed this several times with the Ministry.
we all understand the objective of the Energy Plan, that it's important that we do what we can to facilitate IPPs, and that's what we're doing. And so we just have one of those regular conversations, and that's all there is to it. And this
letter points out, as you'll see, it points out the government support for the type of load displacement project that we did, makes it clear that -- as I said, it's a win-win situation for everybody. MR. AUSTIN: Q: I'm certainly aware of the contents of
that letter and I'd love to cross-examine the Minister of Energy with respect to that part of it, but unfortunately I can't. With respect to the last paragraph of the letter, have you formally commented to the Minister of Energy with respect to his request in this last
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paragraph? MS. VAN RUYVEN: A: I have had a recent conversation with
the Minister and I have informed him that we are working hard to try to look at a number of possibilities. One
of the things we've got to be careful is that if we put everything into one call, my concern is that that becomes very complex. The calls already are quite So we have
lengthy, and we're trying to simplify them.
to figure out a mechanism that we can meet the objectives of being more transparent and open and allowing all parties to understand how they stack up in our whole resource stack, but try to make sure that we keep our purchasing and evaluation as simple as possible, so that these projects actually do come to fruition and we're actually able to move forward. Proceeding Time 9:15 a.m. T05 So again it's trying to reach the balance of achieving the objectives that the Minister lays out in his letter, and achieving the objectives of bringing on low cost resources in a timely and cost effective way for all parties. So we're working on that.
We don't really have another call until the fall, and we've made a commitment that we won't do any more load displacement until we're able to line those up and come up with a process that's acceptable to all parties.
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MR. AUSTIN:
Q:
And the IPPs certainly support any
initiatives to simplify calls and we'll probably be doing some cross-examination in that area on another panel. But simply put, whose got control over the
complexity or simplicity of the call process? MS. VAN RUYVEN: A: Well, that falls in the distribution So we
area as far as how we design the call processes. do have control over that.
I think we've made some
enormous progress since we did our first call in 2000, and as you know, we've done three calls for tenders since 2000 and each time I think we've taken into account the comments and feedback from the IPP community. We've tried, where possible, to make
changes, and I think if you asked IPP ABC whether or not we've made progress you would actually get a yes. We've
engaged in consultation with them, and each time we do a new call we try to incorporate, where we can, the changes that they've requested, balancing it with commercial terms, because what we're really trying to do here is bring on low cost energy driven by market and through a commercial process. So I do think we've made some progress there. I think there's lots more that we can do. I think
aligning these programs more for transparency and understanding how they all link together is absolutely the next step that we need to take, and as I've said
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before, we've made the commitment to do that going forward. MR. AUSTIN: Q: Mr. Elton, will B.C. Hydro commit to an
open, competitive level bid process with respect to all of B.C. Hydro's PowerSmart programs and IPP potential acquisitions? MS. VAN RUYVEN: A: Well, we do that today. Our
PowerSmart programs are competitive in that we have a call process that cycles through every six weeks. every six weeks our customers bid in by sector. So
We've
organized it, for example, the industrials bid in and they compete together within the industrial sector in a six-week cycle. We stack those projects up and we look
at the most cost effective and work out way through the list. We think for larger projects, and we'll have to set the minimum level and it could be, for example, half a million dollar incentive projects, need to have a separate process that is much better aligned to how we purchase from IPPs, and as I said before, we're just in the preliminary stages of figuring out how to make that work. But that's some early thinking, and that we would
probably run those more on an annual basis, because you need enough to have a competition and if you do it every six weeks you might not have even one project in that bid competition. So maybe every six months or every
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year we would do a call for those larger industrial projects, so it would be more competitive. MR. AUSTIN: Q: What about a call with respect to all
sources of potential generation and conservation, why is there any hesitancy to go head to head amongst all the projects? MS. VAN RUYVEN: A: I think really, as I said before,
it's just the complexity of how do you make that work and how do you have a successful outcome at the end of that. We need to think that through carefully so that
we don't develop such a complex process that there is no clear result at the end of it. MR. AUSTIN: Q: And so --
And that process is totally within your
control, isn't it? MS. VAN RUYVEN: A: Yes, that process is within our
control, because bringing on new supply to meet the growing demands at B.C. Hydro is our responsibility. I think another point to make is that we're looking at a balanced portfolio of resources, and we've got some demandside management, which is our PowerSmart program. We're purchasing from independent power We have some ability for some low cost
producers.
energy and capacity with our own resources with ResourceSmart. So again, it's looking at that balanced portfolio, and I think the important thing to do is to
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evaluate them and link them together to see which is the most cost effective in a whole resource stack. It's not
necessarily to have a competitive call that they all come in together, but it's more to look at the economic value and the net cost benefit across that whole resource portfolio, and that's really what an integrated electricity plan is meant to do. MR. AUSTIN: Q: Isn't that what a competitive bid
process does? MS. VAN RUYVEN: A: A competitive bid process in any one
of those resource pieces is meant to bring on the lowest cost within each of those particular resource portfolios that we look at, yes, and so we do that in PowerSmart today, we do that with independent power producers today. MR. AUSTIN: Q: But you don't go class to class. A: It's not so much class to class, it's
MS. VAN RUYVEN:
like how we bring on new resources to meet supply and how we reduce the demand at B.C. Hydro. So we have
developed competitive processes within each of those resource types. MR. AUSTIN: Q: But not within resource to resource. Proceeding Time 9:20 a.m. T6 MR. ELTON: A: I think the question you asked a couple of
minutes ago was whether a competitive process would lead to a balanced portfolio, because Ms. Van Ruyven said
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that a balanced portfolio is what we want. A competitive bidding process across class would quite likely not lead to a balanced portfolio. might lead to a series of, you know, for two or three years this was the particular thing that won everything, and then after that another was a particular thing, which I think we believe in the long run will be difficult to manage and would not lead to the right overall solution long-term for our customers. MR. AUSTIN: Q: Well, why couldn't you have a truly It
competitive process and if you want to later on, your concept of a balance portfolio, do it after the competitive bid process and prices and everything else are in? MR. ELTON: A: I'm sorry, you're saying that you would
have a competitive process and then layer on different factors to achieve different results? I think that
would be difficult for us because these bid processes obviously are subject to a lot of scrutiny, and to make them fair you have to have all the rules set up in advance. And as Ms. Van Ruyven says, the more
complicated it is the more difficult it is to do that. MR. AUSTIN: Q: Well, I'm talking about your balanced I'm not talking about layering all
portfolio approach.
sorts of other items on after the competitive bid process. I'm saying, if you're looking for a balanced
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portfolio, can't you have a competitive bid process and then make sure that your portfolio is balanced? MS. VAN RUYVEN: A: I don't see how that work. If you
had a competitive process for all sources of new resources that we bring on, the outcome is the outcome and you have no ability to go back and change that outcome to attain that balance. MR. AUSTIN: Q: Can't you pick certain items from certain
"classes" and say, "This meets our percentage requirement in this part of the balanced portfolio; this meets it on the other percentage?" MS. VAN RUYVEN: A: That's really what we're doing today.
We have set up processes and we have been very open and transparent about the amount of PowerSmart over the next ten years that we will be bringing on. We've said it's
3,600 gigawatt hours based on a conservation potential review. We've talked about what we think are viable
resource smart projects in that resource stack, about 1,100 gigawatt hours. And the rest we are purchasing
from IPPs, and honestly in the last three years we have purchased 3,100 gigawatt hours from independent power producers and signed 42 new contracts. So we are moving forward with that balanced portfolio, and I think we're doing pretty much exactly what you're suggesting that we do. MR. AUSTIN: Q: Has anybody any idea what you do
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internally in terms of making those particular evaluations and financial analysis? And we'll use the
Vancouver Island Generation Project over at Duke Point as an example. Has anybody any idea what sort of
financial analysis you used to say for example that project should go ahead? MS. VAN RUYVEN: A: Well, yes, they do because we went
through a Commission hearing, and that evaluation methodology was talked about at the hearing. filed in our application. It was
I think everyone knows the
outcome of the Vancouver Island Generation hearing is that we are now in a process to look for a lower-cost option. And all of the evaluation methodology and the
call for tender on Vancouver Island has been very public, very open, it's been scrutinized and overseen by an independent third party reviewer, and so that evaluation methodology is very public and very well known at the start of the process. MR. AUSTIN: Q: Did you not also claim confidentiality
with respect to your financial model that you used for the purposes of that project? THE CHAIRPERSON: Mr. Austin, I do not want to turn this
into an inquiry about the VIGP. MR. AUSTIN: No, certainly, but I'm just saying, the point
I'm trying to make and I think it's fair in terms of the witness is, is there's supposed to be an evaluation
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process.
I'm trying to find out how it can be I've been told that it is transparent.
transparent.
I'm just using one example as to how it's not transparent. THE CHAIRPERSON: MR. AUSTIN: Q: It's not on the hearing issues list. Moving to another area, what is B.C.
Hydro's position with respect to a full -MR. FULTON: Before we move on to this other area, I think
we should mark the letter the next exhibit, Mr. Chairman. THE CHAIRPERSON: MR. FULTON: Thank you.
And so that will be Exhibit C4-8. Marked Exhibit C4-8.
THE HEARING OFFICER:
(LETTER FROM THE MINISTER OF ENERGY SENT TO THE IPPBC WITH A COPY TO B.C. HYDRO MARKED EXHIBIT C4-8) MR. AUSTIN: area. Q: Mr. Elton, I'd like to move on to another
What is B.C. Hydro's position with respect to a
full public hearing before the BCUC on B.C. Hydro's most recent Integrated Electricity Plan? MS. VAN RUYVEN: A: Well, I think we've made it quite
clear in the written testimony of Mr. Elton and also Mr. Sanderson's opening statement that we don't feel that the IEP is to be put forward for a hearing for Utility Commission approval. We feel that we've met Section
45(6.2), I believe, as far as filing our resource expenditure and acquisition plan, which is our four-year
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plan that shows our capital expenditures over the next two years, our DSM expenditures over the next two years, and our action items to meet new resources going forward. So that is what we have filed with the
Commission for approval with this filing. MR. AUSTIN: Q: So in other words, what you're
suggesting, and correct me if I'm wrong, that people are suppose to be aware of a 20-year plan but only be allowed to look at 2-year increments of it. Proceeding Time 9:25 a.m. T07 MS. VAN RUYVEN: A: Well, this is the first IEP that
we've done in ten years, and I see this as an evolution. So this is the first step towards getting back into a better sequence of doing integrated electricity plan. And we've committed to do one every two years, and we've committed to do proper public consultation. We had a
little bit of a tight time frame this go round in that we didn't do as much consultation as we would have liked. We basically started in the late fall and we
filed the IEP in March, and we would obviously like to do more consultation. What we have committed to, and if you look in our REAP document, the Resource Expenditure and Acquisition Plan document, you will see an action plan there that talks about ongoing consultation. So our
plans there about the next step in this evolutionary IEP
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process is in the fall, we will be out again doing consultation. We feel it's a B.C. Hydro led process
that we need to do, and we want to get feedback on the initial reaction to our first integrated electricity plan in ten years. So we're going to go out and do consultation with all of the stakeholders, the same stakeholders we went out and saw in the fall and through the early part of the winter, as well as Commission staff, and we welcome the input and the comments to our first IEP and we'll incorporate those into the next one, which will be -- you know, it's not, two years is not that far away. We need to get this process started, as well as informing us on any changes that we need to make to that REAP document when we file that on an annual basis. So we're committed to ongoing consultation to get feedback for that integrated electricity plan to make it better. MR. AUSTIN: question. Q: I'd like to go back to my original
Basically what you're asking the Commission
and people such as IPPs to do is look at your two-year capital plan but not your 20-year capital plan, is that correct? MS. VAN RUYVEN: A: The integrated electricity plan is
meant to be a document that sets a planning approach and a context, and out of that comes our action plans on a
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four-year resource expenditure and acquisition plan. That's what we're asking the Commission to approve. MR. AUSTIN: Q: In the context of this hearing you're
asking the Commission to approve the four-year capital spending plans? MS. VAN RUYVEN: A: No, in that document we have -- there One is a two-year capital plan,
are several components.
which you'll see in the Revenue Requirement filing, and it just so happens that we filed a Revenue Requirement filing at the same time we filed our Resource Expenditure and Acquisition Plan. If we're in a proper
sequence that would be an annual filing with the fouryear outlook. We have a two-year expenditure on demandside management, and we also have a four-year action plan to show you how we're going to bring on resource, new resources. Within that is also the costs that you'll
see in the next four years, predominantly from the independent power producers and the contracts we've entered into. So those costs are a four year look. So
that's what's been filed in the REAP document. MR. AUSTIN: Q: So the answer is, essentially what
happens is through this hearing process IPPs are only allowed to question two years out of your 20-year plan, is that correct? MS. VAN RUYVEN: A: Two years for capital and demandside
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management, that is correct, but that will be filed every year with the Commission. So that is an annual
filing that we will do going forward. MR. AUSTIN: Q: So how do IPPs question your 20-year
load forecast? MS. VAN RUYVEN: A: Well, we have the ability on panel 4,
we have a witness on panel 4 is prepared to answer any questions on the load forecast and we'd be prepared to take questions on the 20-year load forecast or the shorter term. So that's -- as part of that hearing we
are prepared to answer questions on load forecasting. MR. AUSTIN: Mr. Chairman, I'm going to have to take some
direction from the Commission Panel on that, because it comes as a totally surprise to me is that that is actually open for discussion. THE CHAIRPERSON: MR. SANDERSON: Mr. Sanderson? Well, Mr. Chair, I think there's a That the forecast
lamentable lack of precision in this.
is clearly an issue in any revenue requirement proceeding. The demand forecast drives the revenue
side, and clearly it's a significant part first of all of any revenue requirement proceeding, and typically for a utility such as Hydro those are long-term forecasts. So any cross-examiner has the right to look at the forecast and its methodology and how it's developing its outward look for the period of the forecast.
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forecast itself is in play. What limits, if you will, the review here is the so what of the forecast when you get outside the REAP period. Quarrels about whether or not you need to
bring a Site C or you need to bring some other major resource in 2012 or 2020 are not -- and whether or not the load forecast tells you which is the right answer, is not particularly constructive, because the IEP itself is not being reviewed here. The IEP isn't the plan. I
mean, the IEP is simply a discussion of the planning issues as distinct from "Here is what B.C. Hydro plans to do." So if where Mr. Austin ultimately wants to go over that, then we would be objecting both here and for Panel 4. But as Ms. Van Ruyven has said, we will have a
witness who is able to speak to the load forecast, and the load forecast, as a fact, covers 20 years. So in
that sense it's been in place since we filed our evidence. Proceeding Time 9:31 a.m. T8 THE CHAIRPERSON: My impression is that Mr. Sanderson wants
to pursue issues about the 20-year forecast for reasons that are outside of the scope of this proceeding. MR. SANDERSON: That was, I guess, my reference to the lack At this stage I can't
of precision related to that.
make that submission because I haven't heard questions
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that go that far yet. respect.
I share your concern in that
I'm just not -- I haven't heard the question But
that would allow me to make that objection.
certainly if that is where the line of questioning ultimately goes, then we'll object at the proper time. THE CHAIRPERSON: The impetus for this exchange was a
question that Mr. Austin asked of Ms. Van Ruyven with respect to an examination of the 20-year forecast. Van Ruyven has offered to have that done as part of Panel 4. There is some constraints, Mr. Austin, with Ms.
respect to what that examination might be, despite Ms. Van Ruyven's offer, generous offer, and I do want to hold to those matters that are required for the purposes of determining rates for the test period. So I think when we get to Panel 4, Mr. Sanderson may very well be objecting to certain questions that might not have been suggested by Ms. Van Ruyven's response, and I think those are reasonable objections at that stage. direction from me. So you were looking for some
I think Ms. Van Ruyven's response
was broader than what I'm going to permit as part of this proceeding. MR. AUSTIN: And as part of that direction, am I allowed to
look at two years' worth of capital spending that flow out of the Integrated Electricity Plan, or am I allowed to look at the resource stack in relation to, say for
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example, load forecast ten years from now? THE CHAIRPERSON: The mix for the next two years, the
portfolio for the next two years, issues with respect to that are well within the scope of this proceeding. MR. AUSTIN: Q: Ms. Van Ruyven, what happens if the
Integrated Electricity Plan is wrong, and somebody wants to say something about that publicly? MS. VAN RUYVEN: A: What can they do?
Well, first of all, I'm not so sure
that the Integrated Electricity Plan this time round can be necessarily wrong, because it's a planning approach and it didn't really prescribe a prescriptive portfolio or project that came out of it. As far as our
methodology or the analysis or the supply/demand balance, the comments that we want to hear will be through our consultation process that we've committed to start in the fall, and that'll be an opportunity for all stakeholders, including IPPs, to comment on how we've done the analysis in our planning approach, and we'll take those comments very seriously and determine how we can make improvements as we move forward into doing the next IEP. MR. AUSTIN: Q: But it would be fair to say you control Is that not correct? It is our Integrated
the use of those comments. MS. VAN RUYVEN: A:
That's correct.
Electricity Plan and that is correct. MR. AUSTIN: Q: And could you please tell me how your
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regulator is supposed to oversee the outcome of this consultation process and the results of the Integrated Electricity Plan if there's no public hearing? MS. VAN RUYVEN: A: Well, first of all, the Commission
staff was involved in the first consultation that we held, and the Commission staff will be involved in future consultation. The Commission's jurisdiction, the
ability is to approve the actions that come out of the plan, and that's really what the resource -- the REAP document is all about is to put that forward, and the Commission has the ability to approve, for example, ahead of when we do a call, as well as approving the expenditures of the purchases that we've made within that capital, demand-side management, and resource acquisition expenditure document; and that's what the REAP is meant to do. MR. AUSTIN: Q: Is the Commission staff the same as the
BCUC Commissioners? MS. VAN RUYVEN: A: Well, the staff come and hear the
consultations so they can understand that we're doing it in an open way and that they can understand how the final Integrated Electricity Plan has been developed and how we've taken those comments from other stakeholders into account. Ultimately the Commission makes the
decision, and again back to what they're deciding on is that Resource Expenditure and Acquisition Plan is what
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they're deciding on. MR. AUSTIN: Q: I'd like to move on to another area. Mr.
Elton, when are B.C. Hydro's 2004 financial statements going to be ready, audited financial statements? MR. ELTON: A: There is a board meeting on Wednesday,
next Wednesday, and if the board approves the financial statements at that time they'll be ready shortly after that, probably a couple of days, obviously subject to what happens at the board meeting. Proceeding Time 9:37 a.m. T09 MR. AUSTIN: Q: So assuming it all goes well at the
board meeting, will you commit to file those for the purposes of these proceedings? MR. ELTON: MR. AUSTIN: A: Q: Yes. And if the board meeting does not go
well, is there anything in those financial statements that's substantially different than the information you filed so far to date in these proceedings? MR. ELTON: A: I should make a general comment that I --
I mean, without pre-judging the result of the board, I believe that we're being -- when we say the board meeting does not go well, let me clarify it and say that as a result of the board discussion there could be a delay of two or three days, but I'm expecting that the financial statements will be available by the end of next week and we will file them then.
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MR. AUSTIN:
Q:
And for the purposes of B.C. Hydro's
evidence, once those financial statements are filed, is somebody going to be available from B.C. Hydro to potentially cross-examine with respect to those financials? MR. SANDERSON: Mr. Chairman, only if and to the extent
that those financial statements are specifically relevant to something that's in issue for fiscal '05 and fiscal '06. There is financial forecast information There is forecasts then
contained in the application.
for '05 and '06 fiscal which are the subject matter of the application. If the financials were to produce
something that on its face changed any of the assumptions that were built into that continuum in the application, then we'd consider producing an appropriate witness. If they don't, then we may well not. There will be the financial panel up, and the financial panel will be able to address generally questions of the financial statements in each of the relevant years in any event. THE CHAIRPERSON: Mr. Austin, does that provide the answer
that you're looking for or would you like a comment from me in this regard? MR. AUSTIN: I think it's an issue that goes to every
Intervenor in the room, so I'm just wondering whether that answer is satisfactory to them, as well as to me.
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Clearly it's -- you've got a major financial document that's about to be released and it's audited, which is different than the information in the application to date, at least in terms of 2000 -- the final year of this year, so to speak, or last year in terms of financial information. issue. So I think it is very important
So it's just not up to me to say if that's I think it's appropriate for other
acceptable to me.
people and the intervenors if they've got any comment on that. THE CHAIRPERSON: Very well. I would be interested to
hear from any one who sees Mr. Sanderson's proposal as objectionable. Having heard no one, we'll proceed as Mr. Sanderson suggested. MR. AUSTIN: Q: Mr. Elton, I'd like to refer you to the
B.C. Hydro Application, Volume 1, page 1-3. MR. ELTON: MR. AUSTIN: MR. ELTON: MR. AUSTIN: A: Q: A: Q: Did you say 103? 1-3, Volume 1, page 1-3. Thank you. And if you notice on that page there's
reference to the cornerstones in the Energy Plan. MR. ELTON: MR. AUSTIN: A: Q: Yes. And one of those cornerstones says, more
private sector opportunities in wholesale electricity supply, is that correct? Do you see that?
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MR. ELTON: MR. AUSTIN: says? MR. ELTON: MR. AUSTIN:
A: Q:
Yes. Is that actually what the Energy Plan
A: Q:
I'm just looking at the -If you turn to page 8 of the Energy Plan
there's the four cornerstones on the left-hand side. MR. ELTON: MR. AUSTIN: A: Q: Yes. Do you see anywhere the words "in
wholesale electricity supply" in the Energy Plan? MR. ELTON: MR. AUSTIN: A: Q: Not on page 8, no. Is there anywhere else in the Energy
Plan in terms of the cornerstones that says "in wholesale electricity supply"? MR. ELTON: MR. AUSTIN: MR. ELTON: A: Q: A: Just give me a moment, please. Certainly. I don't see those words immediately. I
mean, I'll certainly be happy to read it through and find out whether those words are in there, but I don't see them right now. MR. AUSTIN: Q: Would you agree, subject to check, that
if you can't find those words in the Energy Plan that those should be deleted from your application? MR. ELTON: A: Yes. I would say that -- I mean, the
purpose of writing this part in the application is to summarize, really, what the Energy Plan said and how it affects the application, and I think that obviously what
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we've tried to do is select those parts that we think relate most to B.C. Hydro. Proceeding Time 9:43 a.m. T10 So I'd say it might be appropriate to delete the words "in wholesale electricity supply", but it might be appropriate to put other words in. In other
words, that there's quite a lot in the Energy Plan about more private sector opportunities. So you're right that
the -- on page 8 it just says the one word, or the words "more private sector opportunities", but throughout the document there are many other references to the type of private sector opportunities there should be, and we haven't mentioned all of them. MR. AUSTIN: Q: But you're not suggesting for a minute
that in terms of IPP participation in the B.C. electricity market, it's restricted to wholesale electricity supplies. MR. ELTON: MR. AUSTIN: A: Q: No. Mr. Elton, as a business person would you
agree that in any business, capital equity investment dollars or whatever you want to call them are scarce? MR. ELTON: MR. AUSTIN: A: Q: Yes. Does B.C. Hydro have a financial
screening tool that it uses across all areas of its operation, whether it's distribution, ResourceSmart, construction of new facilities on the Peace and Columbia
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Rivers or whatever, that is used on a consistent basis and is consistently applied across the board in terms of all B.C. Hydro's operations? MR. ELTON: A: Could you just explain what you mean by a
financial screening tool, to make sure that I understand the question fully? MR. AUSTIN: Q: An example might be a plain vanilla net I'm just
present value analysis of costs and revenues.
looking at this at the basic financial screening level. I certainly appreciate that management has discretion to use a basic tool and then beyond that, exercise whatever judgment it wishes, subject to, in this particular instance, the wishes and desires of its regulators. Does that help you out? MR. ELTON: A: It does, thank you. So let me first of all explain where the large capital expenditures are and then gradually move towards the question. So they're really in three areas,
three main areas, and those are generation, distribution and transmission. And it's true that in distribution There's the kind of
there's two parts to that.
investments we make in buying new energy and there's the kind of investments that we make in our own distribution assets. And again remembering that there will be more
discussion in detail of these in each of the panels later on, but I understand your question to be a more
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company-wide question. MR. AUSTIN: Q: At the very top level of the company, the
question I have for you is how does management, senior management, just get that rough screening or rough analysis before it says green light, red light, amber light with respect to any particular capital equity investment dollar-related expenditure? MR. ELTON: A: Right. So with respect -- so I'm going
to explain briefly with respect to each of those main buckets what we do, before I answer the question directly, and I'm explain why I'm doing that as I'm doing that. With respect to generation assets first, remember first of all that these are Heritage Assets, so decisions about these assets cannot be made, if you like, by evaluating them simply against a bucket of other assets. In a different business, we might be able
to say for example we'd like to sell certain of our assets and invest in other assets. option here. We don't have that
Our option here is to generate a certain
amount of electricity from those Heritage Assets at a cost that makes sense. And so with the generation
assets, it's a question of the generation group producing asset plans that show why a particular investment should be made now, versus for example letting that asset run for ten more years and then
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making that investment, versus perhaps in some circumstances decommissioning that investment. We can't
sell them but we can decommission them if it makes sense to do that. And so the screens there which Ms. Farrell will explain are the usual ones where we're looking at net present values and looking at what the effect will be on the cost of those Heritage Assets over time. if she said yes today, or maybe I did, there was an objective of keeping the total cost of the Heritage Assets at the rate that they are now. generation assets. With respect to the -- excuse me. With So those are the And
respect to the transmission assets, as we've discussed, they are on our balance sheet, but as we're aware, there's a different regime now where BCTC will actually come to the table and say, "These are the investments we want to make." In that area, the one thing that we and
BCTC both agreed on during the negotiations that is important is that there would be a baseline audit conducted of the transmission assets, which is something that is, you know, that BCTC is working on implementing now. And that will have the effect of showing what are
the priorities in terms of the transmission assets, recognizing that the process is not one that's within our control, it's one that BCTC will bring to the
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Commission in terms of what their priorities with an intervenor. Proceeding Time 9:47 a.m. T11 In respect to the distribution assets, we looked at those. Again, if you look at the distribution
-- I'm talking about the distribution operating assets, which Panel 5 will be talking about. In terms of
evaluating priorities there, you can look at net present value calculations, but really that's a bit misleading. What you're really interested in there is what is the link between the money you spend on those assets, those distribution assets and the reliability and/or customer satisfaction the customers enjoy. And I was referring to that yesterday in terms of the customer base reliability program that Ms. Van Ruyven will talk about. And so I'm talking about Our plan
the future, and I'll explain why in a minute. there is that we'll look at our investments in
distribution assets and rank them essentially terms of what affect will they have on the customer, and that may mean that we'll make more investments over here, in one region, or one small area and less investments in a different place. And the reason for that somewhat lengthy answer is that the way we've structured our business, we don't think actually that a simple financial screen is
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appropriate for our business in the future.
We think it
is appropriate for us to look at those three streams and say transmission is a separate issue for specific BCUC review as I've described, but we've made progress with BCTC by making sure that the agreement required a baseline audit upfront. So what I'll say there is, we don't have that baseline audit result, or BCTC doesn't have it yet, and so there's more work to do. On the distribution side,
we believe that you can't compare $10 million on a distribution asset with $10 million on a general asset, because again, you don't know whether the distribution expenditure is appropriate until you know what the effect will be on reliability. What I'm saying is
there's another work in progress, where we are working on the customer base reliability, don't have it yet. In terms of generation again, not appropriate in our view to compare in a way that maybe 20 years ago we might have done. its merits and say, More appropriate to look at it on "This is a group of assets that we
are clearly tasked to deal with, is a very specific group of assets, " almost as if they were in a separate company, and that's why the Heritage Contract was set up. And so again, it's a question of looking at project by project within the generation line of
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business and then overall, does the effect of this year's capital program or next year's capital program or the next next year's capital program, does it lead to a good result in terms of what the ratepayer is paying through the distribution line of business for the Heritage assets. So that's our approach, which is not -- so the answer then to the question, Mr. Austin, is that we don't have one single financial screen and we don't think it's appropriate to do that given the way our business is not constructed through the regulatory structure that we now have. MR. AUSTIN: Q: Mr. Elton, the magic words you used in If you
your answer were "at a cost that makes sense".
use three financial screens, how can you compare the requirement for capital, equity, investment dollars or whatever you want to call it, across three areas if at least you don't start at a common point? MR. ELTON: A: Well, I mean you can, because I think you
-- you know, you have to look at each line of business and what it's designed to do, and as I said, the BCTC business is separate from us. Again, we still have to
-- you know, we will still be in the process, as the Commission will, as all of you will, of comparing transmission investments with generation investments, and it will be a very complex process.
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be a number of screens applied, and the decisions that the Commission will end up making, I suggest, respectfully, won't be based on one financial screen. They'll be based on several different characteristics. MR. AUSTIN: MR. ELTON: MR. AUSTIN: MR. ELTON: MR. AUSTIN: Q: A: Q: A: Q: I certainly -And I -- I'm sorry. Sorry. Sorry, go ahead. I certainly appreciate that, but isn't
it also true that a lot of what you've just told me in terms of the differences between financial screens is effectively management exercising its judgment on the basis of non-comparable financial screens? MR. ELTON: A: No, I think it's management exercising
judgment in a way that will be increasingly transparent and that will increasingly link the financial expenditures we're making to the results of those expenditures. In the case of generation line of
business, I believe that as each year goes by that the quality of capital planning and the quality of capital forecasting will continue to increase. I believe that
what we have here is good and it will continue to increase. I believe on the distribution side that the
link between spending and reliability, which will involve a lot of consultation with customers, will continue to give a better answer.
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question of just management's judgment.
It's a question
of saying we want to make sure that everybody understands what the effect is of the expenditure. So in the end, yes, we'll apply a judgment, but for example, the judgments on customer based reliability will be informed by the views of our customer. And again, Ms. Van Ruyven will be speaking But
about what from a customer point of view later on. I'm speaking now from the financial point of view. So no, I don't agree with that. MR. AUSTIN: Q: So as I understand it you have
potentially three financial screens, and if you have those then how do you compare the investment dollar requirements in those three areas to say for example acquiring new supplies of electricity from the private sector? Proceeding Time 9:53 a.m. T12 MR. ELTON: A: Well, the question of acquiring new
supplies of electricity in the private sector is I think a different one from the question of investment in the generation assets that we've been talking about. So the
kind of investments that we're making in generation assets right now are not increasing the production from those assets. What they're doing is they're making sure
that that production will continue, or that generation will continue, which is what we believe we're charged to
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do under the Heritage Contract. MR. AUSTIN: Q: If I might interrupt, Mr. Elton, in
relation to, say for example, Stave Falls which was an investment in existing generation, is it not also true that one of the reasons why that investment was made, because there was more electricity production from that facility once it was completed? MR. ELTON: A: Well, I think that in general, to the
extent that we make investments in the future that involve increasing generation, in general those would be ResourceSmart projects, and those will be again, as Ms. Van Ruyven has described, when we're talking about resource acquisition, i.e. increasing generation, whether it's increasing it from our generation facilities or buying it from somewhere else or investment in PowerSmart, I think those are the questions that you put to Ms. Van Ruyven earlier, and there'll be a lot of discussion at this hearing about those in terms of, you know, what are the screens we applied to each of those and do they make sense? So all of those, everything that's in that bucket is done through the distribution line of business, again in accordance with the Energy Plan and the Heritage Contract, or the Heritage Contract hearing that we discussed. And I believe that the screens that
we've applied, as Ms. Van Ruyven just said, will
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increasingly be designed to make sure that we have comparability when we are buying resources and/or investing in load displacement. So again, that activity, we have consistent screens and we will, as Ms. Van Ruyven said, increasingly work on making sure that they are ever more consistent and transparent. Generation, keeping the Heritage generation at its current level at the lowest cost, and deciding what capital to spend there, I believe we have that right as an activity in itself but one which will be increasingly open to these kinds of hearings to explain what we're doing and how we're doing it; and then on the wires side making sure that we're investing appropriately in distribution assets to improve reliability as seen by customers. Again I believe that
it's appropriate to look at it in that way. Now in the end, you asked a question early on, is there unlimited capital? No, there isn't. So if
for example you looked at all of that and you ended up with results that meant that you were spending capital that made rates go up in the future, that would be an unacceptable outcome. And that's why, that's why, you
know, for each of these we've said for the generation side, there's a target of keeping the Heritage costs where they are. On the distribution side it would be
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linked to the customer reliability and satisfaction, so in other words the customer will be saying, "We want less of this or more of this." And I think with respect
to the cost of energy side, there'll be intense scrutiny on the way in which we buy energy and ensuring that we have the right kind of public processes. So I think that the controls are there to make sure that in the end that we spend the money on the right things. MR. AUSTIN: Q: I'd like to move to another area. I'd
like to refer you to Exhibit C4-7, and this is the letter from the Minister of Energy to the B.C. Utilities Commission with respect to the government's response to the Heritage Contract recommendations of the BCUC. MR. ELTON: MR. AUSTIN: A: Q: What was the exhibit again? C4-7. I think there's some copies in the
back if you're having trouble finding it. MR. ELTON: MR. AUSTIN: MR. ELTON: MR. AUSTIN: A: Q: A: Q: Sorry, no, I have it now, thank you. Have you found it? I have, yes. I'd like to draw your attention to the
very back two pages of that exhibit. MR. ELTON: A: So this is the back two pages of the
government -- you're talking about pages 6 and 7? MR. AUSTIN: Q: No, I'm talking about the very back two
pages which are a letter to you from the Minister.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MR. AUSTIN: correct? MR. ELTON: MR. AUSTIN: A: MR. ELTON: A:
I don't believe he's got the right exhibit. This is a letter dated December 18th, 2003?
It's a letter dated -- we'll just check that it's the right one. Yeah, I have it. Proceeding Time 9:58 a.m. T13 Q: Now, this letter is addressed to you,
Yes. I'd like to go into the body of this
Q:
document, and there are a number of -- there's a chart and there's a number on the very left-hand side. see that number, that numbering system? number 5 of the body. MR. ELTON: A: You mean the chart that has number and Do you
It's page
then BCUC recommendation and then government response? MR. AUSTIN: MR. ELTON: MR. AUSTIN: number 16. MR. ELTON: MR. AUSTIN: A: Q: Yes, number 16, on PowerSmart and CBG. That's correct, and I'd like to read it Q: A: Q: That's correct. Yes, I have it, thank you. I'd like to draw your attention to
out for the other people in the room who don't have it. It says that: "B.C. Hydro's targeted PowerSmart and customer based generation programs should be continued at funding levels justified on the basis of
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the Tier 2 rate, and that the programs be reviewed with the changes required for retail access for large power consumers." Do you see that? MR. ELTON: MR. AUSTIN: A: Q: Yes. And over on the right-hand side in that
chart it says "accepted, no government direction". MR. ELTON: MR. AUSTIN: A: Q: Yes. And in Exhibit B1-11, which is B.C.
Hydro's responses to the IPPBC's Information Request No. 1 -- and I'll give you an opportunity to find that particular exhibit. And this is Independent Power
Producers Association of B.C. Information Request No. 1.33.2, and the information request is -- and I'll give you an opportunity to find it if you haven't done so already. MR. ELTON: MR. AUSTIN: MR. ELTON: MR. AUSTIN: A: Q: A: Q: I've got the wrong one here. That's correct. Okay, I've got 1.33. Yes, we have it. 1.33.2?
The information request is:
"Please indicate the amount of DSM program spending B.C. Hydro plans to invest in F2004, F2005 and F2006 in relation to industrial DSM programs that were evaluated using an energy cost rate that does not reflect Tier 2 pricing."
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And B.C. Hydro's response it says: "None of the program spending contained in the PowerSmart 10-year plan, Appendix 1, base case, reflects the introduction of stepped rates." And I'd like you, Mr. Elton, to tell me how that is consistent with recommendation number 16 that was accepted by the government? MS. VAN RUYVEN: A: I'll take a stab at that, in that I
think it is consistent in that first of all we haven't had the rate design hearing and the stepped rates and the design and the mechanism of how those would be applied haven't happened at this point in time. In the
application we have made an attempt to estimate the potential impact of stepped rates, but not knowing exactly what the design looks like, as well as the fact that we think most likely by the time we go through the rate design and the stepped rate is actually implemented for the two test periods, the two years in the filing, it probably doesn't have a large impact, although we have talked about it in Chapter 8 of our application, the PowerSmart chapter, and I certainly know that our witnesses are prepared to talk more about impacts going forward on stepped rates on panel 4. So that might be better left to talk sort of in general terms of what we think the impacts are.
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principle for sure going into the rate design hearing is that customers will not be allowed to double dip, so to speak, and that we will make adjustments in their customer based load to make sure that any PowerSmart programs and how the stepped rate is implemented and executed, we will not be paying twice for the same kilowatt hours. So that will be a principle going into
the rate design hearing. So whatever the design looks like, we will ensure that that does not happen going through rate design. MR. AUSTIN: Q: So in your view when the BCUC
recommendation says, should be continued at funding levels justified on the basis of the Tier 2 rate and B.C. Hydro answers, none of the program spending contained in the PowerSmart 10-year plan base case reflects the introduction of stepped rates, that's consistent? MS. VAN RUYVEN: A: Yes. We've said that for the
purposes of the filing we did not make adjustments, but we absolutely accept the government direction that we will make those adjustments when the stepped rate design is completed and it's implemented. MR. AUSTIN: before? MS. VAN RUYVEN: A: That's correct, because we've said Q: So in the meantime you just carry on as
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the principle and the mechanism for going forward to make sure that people don't get paid twice, whether it's an incentive or in the Tier 2 pricing, so that will be a principle going into rate design, that we'll ensure that we're not paying twice for the same kilowatt hour. MR. AUSTIN: Q: So there's no perspective thinking in
terms of your decision to spend money? Proceeding Time 10:06 T14 MS. VAN RUYVEN: A: No, I think I said that in the
PowerSmart chapter we have thought about the potential impact going forward. We don't think it falls within
the two test years and that's why we've not made the adjustments. We also don't know the design of the rate.
So it's very hard to think about what those adjustments might look like, not knowing the design of the rate and not knowing what the take-up rate would be on the industrial customers as well. So I think we are complying to the government direction. MR. AUSTIN: I don't think the two are inconsistent. Q: So as far as you're concerned,
recommendation number 60 just gives you a green light to spend as you would have, irrespective of the Heritage Contract Review, irrespective of the concept of stepped rates for the next two years. MS. VAN RUYVEN: A: No, I'm not saying that. I'm saying
we will make the appropriate adjustments going forward
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when the stepped rate is designed and when it is implemented and executed, and we absolutely will follow this government direction. MR. SANDERSON: Mr. Chair, I have only risen because I was
troubled by the lack of reference to the next set of questions that IPPBC asked in the IRs. I mean the
precise question as to what are you going to do in light of the stepped rate proposal was asked, and it was asked as an IR and there's a reason it was asked as an IR, I assume, and an answer given at 1.55.1 that covers a lot of ground. MR. AUSTIN: That's certainly correct, Mr. Chairman, but
the point that I'm trying to elicit from this witness is you have a government -- you have a letter from the Minister of Energy to the president of B.C. Hydro. attaches certain recommendations. the government". It
It says "accepted by
And I would like to know why B.C.
Hydro did essentially stop in its tracks as a result of this recommendation, and why it was incumbent upon the IPPBC to ask information requests and essentially force B.C. Hydro to retrospectively look at that recommendation and the impact on its ResourceSmart projects. MS. VAN RUYVEN: A: Well, we didn't stop in our tracks
because we think by the time the rate design happens and it's implemented, it could be a year and a half to
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potentially two years from now, and we don't want to miss opportunities doing PowerSmart programs to get at energy efficiency. Our program is up and running. And
we said going into the stepped rates, a design principle would be to ensure that we made the appropriate adjustments to the customer base load to take into effect any double dipping or double paying for incentives. And that will be a design principle so that
we don't go against this government direction. So I think by the very fact and nature of knowing that that's a principle we're going to have going into rate design, we have accepted the government's direction. MR. AUSTIN: Q: I'd like to move to another area. Mr.
Elton, in terms of gigawatt hours, how much electricity did B.C. Hydro import into the -- for its own domestic purposes last year, roughly? MS. VAN RUYVEN: consumption? MR. AUSTIN: Q: Roughly how much electricity did it A: How many gigawatt hours of
import for domestic purposes in fiscal 2004, in rough terms? MR. SANDERSON: This is found in Chapter 4 at page 4-27.
The table is laying all this out; it might be the quickest way to deal with it. MR. AUSTIN: Q: Perhaps if I gave you a figure subject to
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check, you might accept it. gigawatt hours? MS. VAN RUYVEN: MR. AUSTIN: Q: A:
Is it approximately 4200
That sounds about we thought it was.
And for fiscal 2005, it's my
understanding that's approximately the same figure again. MS. FARRELL: A: Subject -A: Subject to check it is.
MS. VAN RUYVEN: MR. AUSTIN: Q:
Subject to check, subject to weather
conditions -MS. VAN RUYVEN: MR. AUSTIN: correct? MS. VAN RUYVEN: MR. AUSTIN: Q: A: Right. Q: A: Yes.
-- and subject to a whole lot of things,
Okay. Mr. Sanderson, I'm concerned about that
THE CHAIRPERSON: answer. MR. SANDERSON:
Again, I think there's an easy table that I think it would be easier if Mr. It's page 4-27 of
lays all this out.
Austin referred the witnesses to it. the application, Table 4-11.
And I think all these
numbers are set out with some precision. MR. AUSTIN: Mr. Chairman, the only reason I didn't refer
to the application was I would have thought that the witnesses would have had a general idea of the amount of electricity that's being imported into this province.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MR. ELTON: A:
Proceeding Time 10:11 a.m. T15 I think we have a general idea. I think
that when we're dealing with these kinds of hearings it's better, though, to deal with the -MR. AUSTIN: MR. ELTON: Q: A: Okay, have you found the exact numbers? When there's a table in the application I We have the number on
think it's better to refer to it. the table.
The forecast was prepared after September,
though, but sure, go ahead. MR. AUSTIN: Q: So for 2004 what is it? A: Market purchases are, it says 4,930
MS. VAN RUYVEN:
gigawatt hours. MR. AUSTIN: Q: And for fiscal 2005 what's the forecast? A: 2,316.
MS. VAN RUYVEN: MR. AUSTIN: Q:
Has that forecast been amended recently? A: No, this is a forecast, I believe,
MS. VAN RUYVEN:
that was done in October. THE CHAIRPERSON: Let me be helpful, if I may. If you
turn to 2A, Schedule A-9-A, which is page 2A-20, I think you will see the most recent numbers. 2nd, 2004 update. So the April the
And I stand to be corrected, but I
think those are the most recent numbers that have been -MS. VAN RUYVEN: THE CHAIRPERSON: MR. AUSTIN: Q: A: They were new revised filing.
Right. So could you tell us what those numbers
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are, please? MS. VAN RUYVEN: 4,266. MR. AUSTIN: Q: Thank you. I'd like to draw your A: In '04, 5,001 gigawatt hours; '05,
attention to Exhibit C4-6, the Energy Plan, and I'd like to draw your attention to page 8, and I'd like to draw your attention to the table on page 8 that says "Policy actions that support low electricity rates and public ownership of B.C. Hydro". under that heading? MR. ELTON: MR. AUSTIN: A: Q: Yes. Is imports at the level that were Do you see all those items
incurred in fiscal 2004 or the concept of imports listed in that table anywhere? MR. ELTON: A: This table -- I don't believe that this
table relates to an expectation of what we'll be importing in the year 2004. I think this table is a
table that talks about policy actions that support low electricity rates and public ownership of B.C. Hydro. So I don't think there's really a connection. In terms
of the long-term future, I don't believe there's any reference to imports in the policy actions specifically. MR. AUSTIN: Q: So could you please tell me how this
level of imports and projected level of imports is consistent with the Energy Plan? MS. FARRELL: A: Mr. Austin, as part of the energy policy
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you know that we have a contract set up between generation and distribution relative to the Heritage energy, and under that contract we supply 49,000 gigawatt hours to distribution, and within that 49,000 gigawatt hours of distribution we've estimated the average kilowatt hours that will come out of the Hydro system and an average of about 2,000 gigawatt hours that will come out of Burrard. In low water years, which is what we're in right now, the maximum that can come from Burrard is around 6,000 gigawatt hours. As part of optimizing the
actual operation of the system, if we find that imports are in fact less expensive than running Burrard, we replace the gigawatt hours or the kilowatt hours out of Burrard with market purchases. So what we're seeing in these tables here today are primarily the replacement of those Burrard purchases for market purchases. And I think that is
very consistent with the overall Energy Plan. MR. AUSTIN: Q: Ms. Farrell, doesn't the contract say up
to 49,000 GWh? MS. FARRELL: MR. AUSTIN: A: Q: Yes, it does. So there's no strict requirement to
supply 49,000 GWh? MS. FARRELL: A: Well, distribution has a call on all of
the Heritage energy up to 49,000 gigawatt hours, and as
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part of supplying the 49,000 gigawatt hours we supply it out of both the thermal and the hydro resources, and as I stated, we also have a commitment to distribution to optimize the resources in the short term. So in terms
of the economic optimization for the ratepayers in the short term, it's generation's accountability to ensure that all of the purchases in the short term are optimized and as part of that, we often look at the economics between running a facility or purchasing from the market as a way to ensure that customers get the lowest cost. MR. AUSTIN: Q: Isn't it also not open to Ms. Van Ruyven
to say on behalf of distribution that in terms of imports it's not consistent with the Energy Plan in terms of reliability, security of supply? It says up to
49,000 and that Ms. Van Ruyven can go contract with the private sector if she wishes, for resources, additional resources? Proceeding Time 10:17 a.m. T16 MS. VAN RUYVEN: A: Maybe it'd be helpful to clarify our
accountabilities and our roles and responsibilities between generation's operating responsibilities and distribution's long-term energy acquisition. Distribution is responsible to bring on new supply to meet demand in the long term, and generation is responsible to operate the system in the short term, and
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that short-term window is zero to three years and it really is related to reservoir levels and optimizing our system. It's distribution's responsibility to bring on
the long-term supply beyond the three-year period. And so there are clear roles and responsibilities and accountabilities between generation and distribution. In the shorter terms, that's why you'll see those market purchases generally related to water fluctuations and how we measure the reservoir systems. In the longer term, if we had firm market purchases in our longer-term portfolio, that would be distribution's decision to make, and you'll read it in the filing, we had 25 gigawatt hours of market purchases that were part of our resource stack in the long term. We feel that those should be replaced with firm resources within British Columbia. That would be
distribution's decision to make in our long-term planning. How the system is operated in the short term
is generation's accountability and responsibility. MR. AUSTIN: Q: So we're into, I think, just up to 2004,
we're into our fourth consecutive year of importing electricity for domestic requirements. At what point in
time do you start thinking about acquiring additional resources because of your, in a sense, over-reliance on imports?
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MR. ELTON:
A:
I think that's something that we've talked
about actually publicly, that we are concerned about that. I mean the questions you've been asking are quite
appropriately about the next two years in terms of -MR. AUSTIN: MR. ELTON: Q: A: That's correct. -- over the next two years. But I think
you're raising a long-term issue and I want to discuss that as well, as well as the next two years. So for the
next two years, as I think Ms. Van Ruyven and Ms. Farrell are both saying, if we're short, we have to buy it from somewhere and we'll buy it from the market, and whether it's from B.C. or somewhere else, we'll buy it from the market. from. We don't even know where it comes We'll buy it
I mean it could come from anywhere.
at the cheapest price.
And so that's what we'll do if
we're short, and that means choosing between running Burrard or buying from the market. cheaper. For long-term planning purposes, it's a different question. I think there is a very serious We'll do whatever is
question about whether -- what is the right level of imports that we should be relying on? are the alternatives? You know, what
I think that's not necessarily
something that is relevant to this hearing because I don't think it affects what we do for fiscal 2005 and fiscal 2006. We're certainly very interested in having
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that debate.
We recognize that there is of course
several schools of thought, but you know, we certainly want to bring to the public's attention and to the stakeholder's attention the fact that we are importing, because a lot of people don't realize that we are actually, and to the fact that long-term that might not be the right thing for the province in terms of energy security, security of supply. So we want to have that debate and we'll have that through the various planning processes around the IEP that Ms. Van Ruyven referred to. But 2005 and '6 in
the test years, we believe that we're doing the right thing, which is we are relying on this supply we can rely on, and we're filling the gaps in the most effective way. And within those test period times,
2005-2006, we believe there is evidence that there will be adequate security of supply and therefore it's appropriate to rely on the market for that. MR. AUSTIN: Q: So for the purposes of your budgets for
2005-2006, you have not budgeted for more energy calls from IPPs in B.C. to fill your import gap? MS. FARRELL: A: I would just like to clarify on one I
point that Mr. Elton made and just add on to that.
think when we talk about being short in the short term, we're talking about being short of cost-effective energy. So for example, we could run Burrard, and it is
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part of the Heritage Assets, and we would not import under that situation. In that situation, however, the
ratepayers would pay more money because we would run Burrard at a potentially higher expense than if we bought from the market. So today, we are not short from an export -we are not short of energy from a security of supply perspective. What we are simply doing is optimizing the So I think we
price at which we purchase electricity.
should be clear that if we felt that we needed to supply those kilowatt hours from B.C., we could always run Burrard. MR. AUSTIN: We just choose not to do that. Q: Ms. Farrell, we'll certainly get into the
question of the operation of Burrard when you're on another panel. However, would it also be fair to say
that if you've mothballed half of Burrard and there's a six-month recall provision to get that plan up and running, it would not be physically possible, even if that plant could stand the use, of producing 6,000 GWh in any year when half of it's mothballed? MS. FARRELL: panel. A: We will talk about that on another Three of the
Burrard has not been mothballed.
units in Burrard have been put on recall, which means that they can be brought back for service within two to four months. And from a long-term planning perspective
that's enough time for us to bring those units back on,
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and in fact we do believe that if Burrard were called on for service, it would be able to do that. MR. AUSTIN: Q: So just to summarize this, Mr. Elton,
it's your view that this level of imports, which is approximately 10 percent of B.C. Hydro's domestic requirements, is consistent with the Energy Plan. Proceeding Time 10:22 a.m. T17 MR. ELTON: A: It's my view that the level of imports
that's in our -- that's reflected in the cost that we're seeking to recover for 2005-2006 is appropriate. In
other words, that it represents our estimate of the lowest cost way of supplying the energy that we expect to have to supply over the next two years. It's my view
that the question of our long term dependence on imports is one that is properly -- it isn't, I don't think, directly referred to in the Energy Plan, but I believe it's something that we need to take leadership on and make sure that there is a discussion about in the province, and may very well be consistent with the Energy Plan. MR. AUSTIN: MR. ELTON: Q: A: Mr. Elton -With respect to the question you asked a
couple of minutes ago that I don't think we answered, which is have we considered alternative supplies, the call that we're doing, that we've talked about doing later in 2004, will bring energy on by fiscal 2009.
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other words, the process of getting new projects to be built and developed just isn't -- you know, that isn't something that can help us with fiscal 2005-2006. So if we are -- if we need energy in fiscal 2005-2006, it comes from Burrard or it comes from the market. What we believe we've got here is the right
approach in terms of what is the lowest cost solution for our customers. MR. AUSTIN: Q: But Mr. Elton, would it be fair to say
that if you don't spend money trying to correct the problem now we're going to be here in 2007 and 2008 and I'm going to be asking you the same questions? MR. ELTON: A: I think that the discussion that we've
started through the IEP process, which as Ms. Van Ruyven said was unfortunately a somewhat truncated public consultation process because of the need to complete that before this proceeding that we're in now, I think that that's the beginning of the discussion. I think
it's a discussion that is not a simple one, because again, there are many different views. Our view is that we are bringing that discussion forward and will continue to bring it forward within the timetables and within the various consultative processes and hearings that are open to us. MR. AUSTIN: Q: Mr. Elton, just to close this area off
I'd like to refer you to page 18 of the Energy Plan.
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MR. ELTON: MR. AUSTIN:
A: Q:
Yes. The heading on that is "the need for
energy security", and if you go over to the right-hand column on that page it says: "Unless new domestic supplies are developed, B.C. will become more dependent on imported energy and vulnerable to price swings." And then there's a paragraph that talks about importing other types of energy resources, and then it says: "In the past two years B.C. Hydro was a net importer due to low water levels. These
imports were necessary to meet domestic electricity requirements. However, over
reliance on imports at wholesale spot market prices could expose B.C. consumers to price volatility in western power markets. The
province must develop new generation to serve rising demand or we may experience electricity shortages similar to those in other jurisdictions." Now, could you tell me how the answer that you just gave me is consistent with the Energy Plan? MR. ELTON: A: Yes. What this part of the Energy Plan
says is that -- first of all it makes a factual statement, that over the last two years we were net importer, and that, as it said, these imports were
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necessary.
As it says, over-reliance on imports at
wholesale spot market prices could expose B.C. consumers, absolutely right. imports will be a problem. So is relying on 5,000 gigawatt hours for imports, is that over-reliance? reliance? Is 10,000 overAnd I think the So over-reliance on
Is 20,000 over-reliance?
answer is, there's no immediately right or wrong answer. My sense is that the Energy Plan is not saying there must be no imports ever. What it's saying is, you need
to be very careful over the next few years, and I think it's the message not just to us, but to all of us. We
all need to be very careful over the next few years that we don't expose ourselves to too much imports. What we're saying and what we've said in public is that, you know, we're concerned about that also and that our view, my view certainly is that we should move towards less reliance on imports than we have today. Now, does that mean that we'll never rely on any imports? I don't think that's possible. I think
there'll always be markets and there'll always be the potential for filling gaps at different times with imports, and we need to make sure, by the way, that we preserve the ability to do that, to be able to import when we need to, because the systems are connected.
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So, no, I think my answer is completely Frankly, you know, I'm not disagreeing with I agree that what we have to do as
what you're saying.
a province is make sure that we have appropriate security of supply. The Energy Plan says that, we're
saying that, you're saying that, and I think the customers should be saying that too. MR. AUSTIN: MR. ELTON: Q: A: But you're not -But it needs to be a very reasoned,
careful debate, to make sure that we get the right balance between focusing on security of supply, but also focusing on some of the other tenants of the Energy Plan around keeping rates low. MR. AUSTIN: Q: But in this particular rate application,
there really isn't effectively any money to start having more energy calls to reduce reliance on imports, is there? MS. VAN RUYVEN: A: Well, there is a need in the resource We have put forward
expenditure and acquisition plan.
in that action plan the ability to do a call in late '04 going forward. Now, that energy, we don't anticipate, So what we're asking for
would come online until '09.
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approval of going forward with a call. Proceeding Time 10:29 a.m. T18 MR. AUSTIN: for? MR. VAN RUYVEN: A: The call is 400 gigawatt hours at this Q: And how much is that call projected to be
point in time and on an expected basis, when you look at our load forecast, we really aren't in a capacity or energy short-fall for quite some time beyond '09, but we feel it's prudent because of the very thing you've been talking about, from a long-term planning perspective, to start that process to be less reliant on spot market purchases, and we actually do say that in our filing in Chapter 4, page 25. It says:
"B.C. Hydro does not currently consider spot market purchases under average hydro conditions, example in net domestic supply deficit to be an appropriate long-term planning option." So we have said that. We've said it in our filing and
we're saying that from a long-term perspective, we need to really pay attention to that. How we actually operate our system on the short-term, we operate it, and yes, we do rely on imports if that is the lowest cost option to keep rates low for our customers. But on a long-term perspective, I think it actually is
we are headed down that path.
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exactly what the energy policy is foreshadowing, and you'll see that in our 4-year REAP document that we have filed. MR. AUSTIN: Q: Just to sum this up so we can have the
mid-morning break, we are importing 5,000 GWh approximately, and you've got in your budget enough for a call for 400 GWh, is that correct? MR. VAN RUYVEN: MR. AUSTIN: Q: A: That's correct.
Thank you. This is a good time to take fifteen
THE CHAIRPERSON: minutes.
(PROCEEDINGS ADJOURNED AT 10:30 A.M.) (PROCEEDINGS RESUMED AT 10:45 A.M.) THE CHAIRPERSON: Please be seated. T19
CROSS-EXAMINATION BY MR. AUSTIN (Continued): MR. AUSTIN: Q: Mr. Elton, I'd like to refer you to your Do you have a copy to
opening statement of yesterday. hand? MR. ELTON: MR. AUSTIN: A: Q:
Yes, I have a copy. On the first page, the bottom of the
page, it says: "A significant exception to this observation is that since the establishment of Powerex in 1989, B.C. Hydro and the province have pursued a strategy of maximizing the value of B.C. Hydro's hydroelectric system for ratepayers
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and citizens of B.C. by aggressively pursuing trade opportunities. The strategy has been a
spectacular success, returning hundreds of millions of dollars to the province and keeping B.C. Hydro's rates lower than they otherwise could have been." MR. ELTON: MR. AUSTIN: A: Q: Yes. How did you determine it was a
spectacular success? MR. ELTON: A: By looking in general terms at the
financial returns of that activity, and also by looking at some of the problems that trading operations had in other jurisdictions which were spectacularly less successful. MR. AUSTIN: Q: Would it be fair to say that Powerex's
spectacular success was spectacularly assisted by the fact that the United States effectively opened up its transmission system and electricity sales in its country to competition? MR. ELTON: A: I think there's a lot of reasons for
Powerex's success, but certainly, yes, the ability of Powerex to operate in different jurisdictions was important. MR. AUSTIN: Q: I'd like to put a bit of a scenario to
you, and I'd like to go through the scenario, and at the end of it you can agree or disagree with any parts of
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it.
It just is something that's very difficult to do on
cross-examination. So I'd like you to think of B.C. Hydro's hydroelectric system and in particular its storage reservoirs as a giant beer and wine fridge. MR. ELTON: A: That's a very entertaining speculation. I
will do that. Proceeding Time 10:48 a.m. T20 MR. AUSTIN: Q: In the 1980s, especially when Revelstoke
came on, that beer and wine fridge was essentially stocked exclusively with British Columbia beer and wine. We now go fast forward to where we are today, and that fridge has got a fair amount of B.C. wine and beer in it, but it also has a -- not nearly as much, but a significant amount of the shelf space is dedicated to imported beer and wine. MR. ELTON: MR. AUSTIN: A: Q: All right. Now, assuming that you got that access
to the US market, has B.C. Hydro ever considered that it would have made just as much, if not more money if that beer and wine fridge was stocked exclusively with domestic product versus the product it now has in there now? MR. ELTON: A: I can't answer that really. I mean, I I don't
wasn't -- you know, frankly I wasn't there.
have enough knowledge of precisely what happened in, for
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example, the early 1990s and what the alternatives were, and in particular, you know, how many beer manufacturers there were in the province. MR. AUSTIN: Q: Well, that fridge, I can assure you that
when the Revelstoke project came on in the mid-eighties, that B.C. Hydro beer and wine fridge was stocked, chocka-block full with B.C. Hydro and B.C. Hydro only product. MR. ELTON: A: I certainly -- I'm sorry, you'll have to I still have this vision of
repeat the question. this -MR. AUSTIN: Q:
My observation, and you can disagree
with it, was that when the Revelstoke project came on in the mid-eighties that B.C. Hydro beer and wine fridge was stocked chock-a-block full with B.C. Hydro beer and wine. MR. ELTON: A: I mean, I think that's largely true. I
mean, there was a point at which B.C. Hydro certainly was doing transactions with Alberta. So there were
Alberta beer and wine there as well, but largely true, yes. MR. AUSTIN: Q: So B.C. Hydro hasn't done an analysis to
sort out whether it could make more money running the fridge like it did in the 1980s versus the way it does now? Proceeding Time 10:51 a.m. T21
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MR. ELTON:
A:
Well, I think, I think that what we've
done over the last few years is to look at what the possibilities were, and certainly the possibility -- I mean, again we're talking about making short-term -when we're talking about stocking our, quote, beer and wine fridge, we're talking about -- you know, it might be easier to talk about it as a reservoir. I'm
struggling -- I'm sorry, I usually love analogies but I'm struggling to keep up with you there. So what we're doing is making daily, weekly, hourly decisions, seasonal decisions to store or not store in the reservoir, and using the market and whatever the market brings to us. So at the moment a
lot of it's from Alberta or it might be from the States, and if it was from B.C. we'd be certainly, you know, we'd be certainly doing that. In other words, the
trading operation doesn't really differentiate between where the electricity comes from and where it goes to. It just buys and sells at the right prices. MR. AUSTIN: MR. ELTON: Q: A: Yes. And of course -- I'm sorry, and of course
the benefit of that, you know, through the Heritage Contract submission that we made that was accepted by the Commission and then by the government, the benefit of that goes to the customers, and that's an important point for us. So that we're operating the whole system,
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the storage system for the benefit of the ratepayers. MR. AUSTIN: Q: I certainly agree with that, but would
you agree with me that you are the owner of the fridge, and people using it for trading purposes is a separate issue. MR. ELTON: A: I agree that we're the owner of the
fridge, yes. MR. AUSTIN: Q: But you haven't done that analysis in
terms of those two examples that I gave to you. MR. ELTON: A: Well, because I'm not sure I understand.
This is where we're going there from the analogy to our situation, and I'm not sure I understand where it goes. What I'm saying is that, you know, we don't care whether the beer in the fridge is from Alberta or B.C. or from the United States. We buy on the market. In fact, we
don't even know where it comes from, so it's just a can with no label on it, and I think that's appropriate. So I think a different question then is, you know, what are the -- in other words, for me to answer the question differently, there would have to be a lot of, for example, IPPs in B.C. that there aren't today, that would be more involved in trading. trade with whoever. trade with them. MR. AUSTIN: Q: Or more IPPs that you as the owner of the But we will
Whoever has available supply, we'll
fridge can contract for on a long-term basis to keep
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that shelf space filled with more B.C. product, correct? MR. ELTON: A: We see it as two separate decisions. We
think that what we should do is make the right decisions about acquiring resources, and that's the processes that Ms. Van Ruyven has talked about, acquiring those kinds of resources. In terms of our trading activity, we run it as a separate business and we think quite appropriately. It's very much -- generally speaking it's the business that's focused on the short term. So for example, a two
or three year contract for that business is a long time, and what they're doing is taking advantage of whatever is there, and I think they're two separate activities. MR. AUSTIN: Q: But what I'm suggesting is if you look at
the product and the product that might be available, that you might be able to make more money in one circumstance versus the other. And quite frankly, I
don't know the answer to that, so what I'm asking you is have you ever done an analysis? MR. ELTON: A: I think two answers to that. The first
is that whenever Powerex is pursuing opportunities, it does actually look at opportunities in B.C. as well as opportunities outside B.C. So I think that the answer
is that we are actually always interested in that. In terms of -- again, let's talk about the type of activity, and I think I understand the question.
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The type of activity we're talking about is typically we're buying light load arrows. energy. We're buying cheap
We're trying to sell at heavy load times or at So from the point of view of an
seasonal peaks.
independent power producer in B.C., which I assume is the kind of B.C. producer you're talking about, an independent power producer in B.C., they certainly couldn't live off what they could get from trading, because what they'd be selling into the market would be the cheapest energy, because that's the only time we'd want it. So they'd still need to have a long term
contract with somebody, and that could be us or it could be another utility before they could get going. I don't
think the market right now generates a lot of interest in people building for purely merchant purposes. understand the question, I think I understand the question, but I don't think that we see a circumstance where we should change the way that we do the trading business, because I think the way we do the trading business right now is to maximize revenues for the benefit of the ratepayer, and so I don't -- no, I don't see how we could do it differently. Proceeding Time 10:55 a.m. T22 MR. AUSTIN: Q: But Mr. Elton, this is a revenue One way to keep rates down is to So, I
requirements hearing.
increase your revenues, make a bigger pie, correct?
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MR. ELTON: MR. AUSTIN:
A: Q:
Yes, yes. So you have a lot of people in this room I'm asking you to -- I've
saying, get your costs down.
asked you whether you'd considered in a way, a potential way to increase your revenues. MR. ELTON: A: No, and I appreciate the question, and
what I'm saying is that we -- within the kind of parameters of the trading business that we currently have, which is mainly a short-term business, we do look at all the possible sources in the market every day, every hour, every week, and you know, I'm confident that as a result of that that we get the best results. Now, should there be a different business in B.C. Hydro that involves, you know, changing that model and looking at longer term possibilities, again what I'm saying there is we have -- you know, we've certainly thought about those kinds of possibilities, but we don't see an economic model that would increase our revenues. So I think the answer is no. MR. AUSTIN: Q: So have you ever tried to build one?
Have you spent any money on a financial model in terms of using the longer-term beer and wine supply to stock your fridge versus what you're doing short term, to see whether over the short, medium, long term whether you'd come out ahead, behind, neutral? MR. ELTON: A: I think that as time goes on we'll
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certainly do more of that thinking.
I mean, it's
certainly incumbent on us to keep thinking about what the market possibilities are around the region. Again,
though, to interpret those in the context of the Energy Plan, today we don't have that kind of planning in place. MR. AUSTIN: Q: Would you object to this panel, as part
of its hearing conclusions, asking you to perform that type of analysis? MR. ELTON: A: I don't think we'd object -- sorry. I was about to say that if at the end of this hearing the panel, this panel asked us to do analysis, I think our almost invariable answer would be to say that we'd do it. I mean, that's just a general comment, that
my counsel is probably going to be concerned about. But I think that I'm not clear enough about what that kind of analysis would look like. In other
words, I understood -- I understand generally what you're saying, but somewhere between the beer and wine fridge and the reservoir I'm not sure exactly what it is that we'd have to do, what analysis it would be, that if there was something that was, you know, that was a clear direction to do analysis, that we could look at that would see whether or not we could add value, of course we'd do that. I think frankly we should be doing that
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anyway.
There are such things.
But I'm not sure I
understand the question well enough to be able to say yes we would do that analysis. MR. AUSTIN: Q: Would you be prepared to consult with
groups such as the IPPBC to help assist in framing that analysis? MR. ELTON: That's one way of overcoming your problem. A: I mean -- so taking the question I think
away from this hearing, of course, we'd be delighted to consult with the IPPBC and discuss the kind of issues you're talking about and see whether there are ideas that could help our business, absolutely. MR. AUSTIN: Q: I'd like to carry on in one more area in
relation to this beer and wine fridge that's in a sense related to storage, but there's a bit of a road between the two that maybe that's got a pickup truck that's having a bit of problem trying to go down the road. let's just go back to the beer and wine fridge. But
Is it a
fair assessment to say right now that the only people that have access to that beer and wine fridge are B.C. Hydro, Powerex and to a lesser extent BCTC, for the purposes of balancing loads, is that correct? Proceeding Time 11:00 a.m. T23 MR. ELTON: A: Do you mean access in terms of being able
to execute storage, or do you mean enjoying the benefits? MR. AUSTIN: Q: Access to keeping their beer and wine
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cold. MR. ELTON:
Storage. A: Yeah, I mean -- so I'm afraid I'm going So in this context, yes,
take the analogy this way.
B.C. Hydro are the people that actually are the people that are serving the beer and wine, and our customers, as I explained earlier, are the people who are actually receiving the benefits of it. MR. AUSTIN: Q: Have you ever done an analysis to
consider whether, for example, if you auctioned some of that space off on a short-term basis, whether that might produce more revenue for all of B.C. Hydro's customers as opposed to B.C. Hydro and Powerex in a sense making that decision for you? MR. ELTON: A: Our view is that managing the storage We
capacity of our system is best done overall.
recognize that -- we recognize the value of that system, and that's one of the reasons why in the Heritage Contract hearing we proposed that all of the benefits of that go to the ratepayer, because we think that (a) running the system as a whole is the best way to maximize the pie, to use that -- and I realize that maximizing the pie doesn't fit very well with the beer and wine story, but that's a different issue. think that's the best way to maximize the pie. And if we were to get into a complex series of, as you say, auctioning off the storage, we believed
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and believe that by doing that we would be taking the value of the Heritage Assets and giving that value, or dealing that value off to some other group, and we don't believe that's something that we were permitted to do and we believe that's reflected in the conclusions of the government in response to the Heritage Contract recommendations. MR. AUSTIN: Q: Mr. Elton, are you telling me that if you
were able to auction it off and you were paid for this, and I'm just saying auction a small portion of it off just as a trial example, and you got the revenue from that, the revenue is not going to go to B.C. Hydro's customers? MR. ELTON: A: I'm saying that I believe that we don't
have the ability to auction off pieces of the Heritage Assets. I believe that that direction could not be It was clear on the Energy
clearer from government. Plan.
It's been made clear several times since,
whenever any discussions have taken place about any possible actions that we might take with respect to those assets, and I believe it was also clear in the Heritage Contract hearing. So I don't believe that we
have the ability to sell value that's in the Heritage Assets, and I believe that the storage capability of our reservoirs is included in that value. MR. ELTON: A: So how can you say in your opening
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statement that you've maximized the value if you've got no benchmark against which to put it? MR. ELTON: A: Well, again, let's take another analogy, a Supposing you told me
different analogy or comparison.
or somebody said to me that you might be able to get more value out of one of the Heritage Assets by selling it, so for example, by selling all of them. would be we haven't considered that. My answer
We haven't studied
that because our instructions in the Energy Plan and in the way the Heritage Contract is structured are clear that we must not do that. So we do not consider ways of
selling to third parties the benefits of the Heritage Assets. Our mandate, we believe, is to operate those
assets in the best way possible, and that benefit will go to the ratepayers. MR. AUSTIN: Q: Mr. Elton, I'm not suggesting for a
minute that you're selling or auctioning off the Heritage Assets. What I'm suggesting is that you're
auctioning off or selling the right to maximize the value of those particular assets. And could you tell me
what the difference between that is and BCTC selling space on its transmission lines to third parties? MR. ELTON: A: Well, BCTC's ability to -- again, you'll
have to ask BCTC about it's mandate, but I'll just make a general comment that the Heritage Assets are defined in a certain way and they don't include, as far as I
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know, BCTC's assets.
That's a different -- they're
covered by a different set of rules and you must ask them about that. I don't think -- I think to say that there is -- you know, on the one hand you could sell the assets or you could sell the value, the ability of the assets to create value to me, that's very much the same thing. So for example, we could lease the Heritage Assets and make large amounts of money in the short term, but that is not what we are allowed to do. We are not allowed to
sell or dispose of the value of those assets. Proceeding Time 11:05 a.m. T24 MR. AUSTIN: Q: I'd like to move to another area. Do
you think senior management compensation should be tied in part to meeting the objectives of the provincial Energy Plan? MR. ELTON: A: I think that senior management
compensation should be tied to the objectives of the company as approved by our board. In practice those
objectives are enshrined in, mainly in our Service Plan, which we publish annually, and the Service Plan is a document that we send to our shareholder, the government, and as I say, publish, and it contains a variety of objectives, including objectives which would see us comply with the Energy Plan. But I don't think that you should tie
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compensation purely to the achievement of the Energy Plan, because there are many other things that we have to do that aren't specifically referenced there. MR. AUSTIN: Q: Do you have any objection of tying it in
part to the Energy Plan? MR. ELTON: A: I have no objection -- let me just I think that compensation for senior
rephrase that.
management should be tied to the objectives in the Service Plan. I personally believe that the Service
Plan should contain a reference to the Energy Plan, as it does, and so in that respect, yes. MR. AUSTIN: you? MR. ELTON: MR. AUSTIN: A: Q: Why don't you tell me what it is? I'm just asking you if it means Q: Does the acronym LSS mean anything to
anything, in the context of B.C. Hydro senior management decision processes? MR. ELTON: MR. AUSTIN: processes. MR. ELTON: A: I don't recollect that particular A: Q: I'm sorry, in the context of what? B.C. Hydro senior management decision
acronym, but please help me. MR. AUSTIN: next area. While B.C. Hydro is waiting for the MLA committee to render its report with respect to the
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Okay, fine, then I'll just go on to the
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Burrard Thermal Plant, is B.C. Hydro spending money, or does it plan to spend money during the next two year period, which is the subject of this rate case, in regards to replacing all or any part of the energy that can be -- the electricity that can be produced by that plant? MS. FARRELL: A: Currently B.C. Hydro has reduced the
capital commitments for Burrard to very basic capital activities that need to be performed, like asbestos removal and programs like that. And we are minimizing
our expenditures overall on Burrard. MR. AUSTIN: Q: But what about respect to replacements,
rebuilding, that type of thing in the next two years, have you got anything in your budget for that purpose? MS. FARRELL: MR. AUSTIN: panel. MR. WEAFER: Commission. CROSS-EXAMINATION BY MR. WEAFER: MR. WEAFER: Q: Good morning, panel. My name is Chris Good morning, Mr. Chairman, members of the A: No. Thank you very much,
No further questions.
Weafer and I'm acting for the Commercial Energy Consumers Group, which class of customers would include the beer and wine store operators, so we're following up on Mr. Austin. In seriousness, the group is a broad sector
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of the customer class of B.C. Hydro, representing commercial operations and publicly owned operations, such as hospitals and schools, and for us it is the first time we've been involved in a B.C. Hydro Revenue Requirement proceeding, which I think is common to most people in the room, actually. So I took with interest
Mr. Sanderson's comments yesterday and your opening statement, Mr. Elton, in terms of giving us some context to this proceeding, and I'd like to open up with a few comments in regard to your opening -- or questions with regard to your opening statements. In terms of the unique position of B.C. Hydro within the province as a Crown corporation and the shareholder being the government, what do you see as B.C. Hydro's role in contributing to economic development in the province of British Columbia? Proceeding Time 11:08 a.m. T25 MR. ELTON: A: I think that in a number of ways we I think that first Supplying
contribute to economic development.
simply supplying -- I shouldn't say "simply".
reliable power in the short and long term contributes to economic development. Those jurisdictions that don't
have reliable electricity are definitely going to suffer all kinds of problems in terms of attracting investment and in terms of their operations do well. So that would
be our primary contribution to economic development.
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The second way, I believe, is that because there was a difference between the market price of electricity and the price -- the cost of -- I'm sorry, between the market price of electricity that other people might pay and the price of electricity embodied in our rates, that there is an economic advantage if you want to call it that, that all of our customers enjoy. Now again, I know there are many arguments about whether that is an appropriate way of setting rates or not, but you know, our view is that today, given the government's Energy Plan, because our rates are cost based and because they are lower than market, there is a significant benefit to the province, and that what they might mean, for example, is that customers might be here or might invest here that might otherwise be somewhere else, particularly those customers that have a large -where electricity is a large part of their costs. The third way in which we contribute to economic development is through -- because in various parts of the province, particularly, I'd say, places where you have relatively small towns, where there's a B.C. Hydro facility, of course there you have people, you know, who are in jobs, are part of the local community, who contribute to the local economy, all over the province really. And then the fourth way is of course that we
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contribute directly to the government through our return on equity and through various other payments, and that money -- to the extent that money is used by the government to foster economic development, then I would say that that's another way in which we contribute to economic development. Those would be the four main ways. MR. WEAFER: Q: And in terms of the priority of those
points, we as commercial customers would focus on number 2. And if I looked at your opening statement -- and
that in summary was low-cost rates, the competitive position of low-cost rates. As I looked at your opening
comments, you focus on a page 6 in terms of the appropriate return to the government, that the objective should be maintaining rates that are as low as possible. And as we focus on this proceeding, I just want to understand that we're on common ground with that, that absent the government's objective of determining its rate of return, and all other things being equal, achieving the lowest rates possible is the objective of this process. MR. ELTON: A: Yes. I should say that what you began by
saying then was that from the point of view of your customers, the most important thing was lowest rates, and I'd just gently suggest that I think that your customers are also interested in reliability.
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words, I think that what they expect is both, that they expect high levels of reliability at low rates. think in terms of the priorities to us, I think reliability is actually, to be honest, the number one priority because we believe that in the end, the economic value of electricity is a lot higher than its cost, and that when people go without it they realize that. So I'll make that general statement. Having made that general statement though, I agree with you that, yes, I believe your customers are very interested in low rates and we are also very interested in low rates. Now as I explained in my opening statement, low rates does not necessarily mean, in our view, the lowest rates today, because for example, we could abandon all of our maintenance programs and we would have lower rates, but sooner or later we believe we would have much higher rates. MR. WEAFER: Q: Yes, which I'll do and I'll explore the So I
details of that with other panels. MR. ELTON: MR. WEAFER: A: Q: Sure. But again focusing on the pronouncements
of the government in the Energy Plan and the general objectives of the province as the shareholder of B.C. Hydro has been to foster economic developments in the province, increase small business development in the
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province -- you'd agree with that. MR. ELTON: A: I believe that has been an objective of
the government, yes. MR. WEAFER: Q: And on the public sector side in terms of
health and education, the government has been quite disciplined in its approach to those institutions with respect to revenues available to them through taxpayer dollars, and has put a heavy onus on those organizations to manage their costs and avoid increases in operating costs, would you agree with that? Proceeding Time 11:14 a.m. T26 MR. ELTON: A: I'm not really well informed about what
the -- whether or not, for example, you're talking about health care and education, whether or not in those areas we've experienced higher costs overall than lower costs. I think actually we've experienced higher costs. In
other words, my recollection of government budgets is that for both health care and education, that those costs have gone up. So I'm not sure whether I
understood your question. MR. WEAFER: Q: You're generally aware that there have
been significant initiatives by the government to try and manage the costs of health care and education and significant pressures put on those institutions to manage their costs effectively? MR. ELTON: A: Well, again, I'm not very familiar with
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this, but I'm comfortable with the sort of level of conversation, but if I'm straying away from my expertise, which I definitely am, I apologize. My understanding in health care and education then is that the government has talked about two things, and I think it is relevant to this. It's talked about,
in terms of health care, high quality health care being available to people. It's talked about trying to reduce It's also
waiting lists and all those kinds of things.
talked to those people that are responsible for operating those systems, about the need to restrain costs. So I think it's two things. quality service, achieve lost cost. Achieve great
I think it's done
the same thing with education system. Now, I think the results in both those cases -- now I'm not going to make a statement about this particular jurisdiction, but generally I think in a lot of places, probably including B.C., we're actually experiencing higher costs of health care, and that's -you know, that's because of, as we discussed yesterday, people wear out, just like our assets do. have an aging population, our costs go up. So I think what government is saying is, we recognize that costs are going to go up and what we want you to do is restrain costs in a reasonable way, but you
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can't avoid the fundamental fact that people are aging. So think, going back to our situation, I think it's similar and I think what they're saying to us is, achieve really good service, keep your costs low, and I think what we're saying in our application is -and that's what we're trained to do, and just like the health care system deals with aging people, we're dealing with aging assets. MR. WEAFER: Q: Thank you. The energy policy states at
page 7, and you don't need to refer to it, I'll give you the quote, it won't be controversial, that low cost hydroelectricity and efficient regulation can help preserve our electricity rate advantage, and we've spoken to that a bit in terms of the competitive position of business in British Columbia. Now, with respect to the topic of efficient regulation, I'd like to turn to that, because in your cross-examination with Mr. Wallace you spoke a bit about we haven't necessarily got our efficiencies in place today, but down the road we will be pursuing PBR incentive regulation and opportunities to achieve this efficient regulatory environment. And I wanted to
address that in the context of the policy position of B.C. Hydro vis-à-vis the Utilities Commission and vis-àvis the shareholder. MR. ELTON: A: yes.
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MR. WEAFER:
Q:
B.C. Hydro, in terms of this proceeding
before the Utilities Commission, has almost treated this as if it's a standing start in the sense of there's a significant amount of new information and not a significant amount of historical information being provided to the Commission. MR. ELTON: A: Is that a fair statement?
I think what we -- yes, I think it's --
well, I'm not sure whether I'd describe it as a standing start. I'm finding a lot of analogies this morning, so
I'm trying to think about them as we're going along. Certainly we've said that we think given the ten-year gap and given a lot of the reorganizations that have been made, that it makes more sense to focus on the very recent past and the future than it does to go through the ten years in between the last rate hearing. So to that extent, I agree with you, yes. MR. WEAFER: Q: And for all of us this is a bit of a re-
education in terms of the operation of B.C. Hydro or start of an education in relation to B.C. Hydro. Is it
fair to say that we have to be careful in terms of how we deal with this proceeding, that we put in place a decision that assists us as customer, stakeholders, and the company in terms of going forward towards PBR and incentive regulation. Would that be a fair objective
for all of us to try and achieve? Proceeding Time 11:17 a.m. T27
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MR. ELTON:
A:
Let me just think about that.
I think
the primary -- obviously from my point of view the primary thing for this hearing is that we get a fair hearing on the costs that we're claiming for the next two years, and that we're able to operate the company and continue to do the things that we've said that we're doing. I said yesterday and I'll say it again today
that we do think that the next rate application should contain what we might all describe as an appropriate long-term approach to regulation of our rates, that would include incentives and so on. Now, whether or not this decision here has to be set up or is set up to achieve that I'm not sure. I
mean, I certainly would expect that this decision here might well give guidance to us as to what the Commission would expect down the road, in terms of those kinds of structures. Whether or not the actual decision as to what rate increase we get has to get involved in that part of it, I'm not sure of that. In other words, I think it's What is the
-- to me it's two separate things.
appropriate rates for the next two years, and then second, does the Commission have any advice for us as to structures or processes that we should be looking at down the road. Did I answer your question or not?
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MR. WEAFER:
Q:
Partially, and I'll carry it through.
The Energy Plan has been with us for almost two years, 18 months, and the Energy Plan spoke specifically to efficiency in regulation and PBR type objectives. what extent did B.C. Hydro turn its mind to those directions in the Energy Plan in preparing this application? MR. ELTON: A: Yes, it's funny. I mean the way you put To
that, the Energy Plan has been around for almost two years. And I'm not being flippant; to me the Energy
Plan has been around for only 18 months, and it's been a very busy 18 months, and I'm not making an excuse, just saying that what has been done by everybody in this room, including, you know -- you know, your client and other peoples' clients and of course the Commission, has been remarkable. So we have certainly -- we have turned our mind to it to this extent, that we recognize that we are where we are with this rate application, but we have not been able to give you a ten-year historical background, for example. I've mentioned a few areas where, for
example, with respect to capital I talked about the things that we are just beginning to do around distribution customer base reliability around asset plans and generation and so on. So our view is that this application is what
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we've been able to do in this time period.
We've done
many things, and I'll elaborate on them in a minute if you'd like. In terms of did we consider doing specific
-- looking, for example, for PBR mechanisms for this rate application, we considered it and thought that it would complicate the issue without necessarily adding value, because we don't think that this hearing will lead to us all being as confident of what our baseline should be long term. In other words, we think that
there's another hearing, the next one, that will deal with that. We also think, actually, that the other hearings that have yet to take place on rate structures, on stepped rates, on BCTC, will inform, actually, the way in which our revenue requirement applications and the way we run our business in the future. So I just think that this is a step in a continuum. The timing is not perfect, and the ordering
of events is not perfect, but we believe that what we're doing, you know, makes sense. MR. WEAFER: Q: Mr. Elton, the challenge we have as
customers is that it's cold comfort to know that efficiency is coming two years down the road. And so in
the context of this proceeding, we clearly will be pushing subsequent panels with respect to what the cost bases are, but do you -- you're telling the customers
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that it is essentially two years before we will see incentive mechanisms adopted by B.C. Hydro in order to achieve efficiencies and -MR. ELTON: A: Well, first of all, I don't think I'm
saying -- I'm not saying that efficiency comes two years down the road. I think that what we've done in the last
18 months is to achieve considerable efficiencies and I mean, I will elaborate on that for a few minutes, if you don't mind, because I think maybe that there's a misconception that all we've done in the last 18 months is implement the Energy Plan and that we're about to start being efficient in our business. That's not true.
So let me talk about some of the things we've done in the last 18 months that we are presenting as evidence here, I believe, that will be dealt with in more detail in other panels. Because I think what we're
saying is, we're looking -- we have to start by looking at the large picture, and that's what I'll do for a few minutes, in terms of what efficiencies have we achieved, and then the other panels can fill in the details. Proceeding Time 11:23 a.m. T28 So the first thing is around outsourcing and testing the market, because again, in the absence of the kind of details maybe that you'd all like to have, what have we done in terms of outsourcing and testing the market. We talk about the Accenture transaction as one
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transaction, but really, it's a significant outsourcing of about eight different activities including IT, customer care, human resource transactions, financial transactions, building and office services and so on, and it's one where we went out and tested the market and exposed about the equivalent of 1,600 people effectively to a market test. And that will achieve savings.
With respect to the Line Contractors Association, you'll be hearing evidence from Mr. Maniago later on -- and I'm sorry, the ABS contract you'll be hearing about on Panel 5. With respect to the Line
Contractors, Mr. Maniago will talk about that, and there the field services group is exposed to market forces, if you like, or market comparisons through what is effectively outsourcing to the line contractors. we've looked at that carefully. With respect to the way we buy energy, as Ms. Van Ruyven is explaining, or will explain further, we are buying -- you know, we are buying our energy or most of it through competitive processes from the private sector, so that's again another form of, if you like, outsourcing. In terms of large capital projects, the decision as to how much we use the private sector versus our own forces is a decision that's made actively every And
time there is a such a project between the generation
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and the engineering group. In terms of legal services, we have substantial legal costs. Every time there's a
substantial case, there's a decision as to whether it's in-house counsel or external counsel. And in addition, there are a number of areas where we looked at possible outsourcing: materials
management, fleet services, property services, where we, you know, just as we did with all those I've mentioned, we looked at business cases and said, "No, not right now. This is not the right thing to do, to outsource So I'd say that compared with any
these activities."
other utility that I'm aware of, that this organization has (a) outsourced in two years a substantially larger proportion of its activities than any other I'm aware of, and (b) that we've examined the possibility of outsourcing a greater part of our organization. So
there, we've looked for efficiencies directly through seeing what the market could provide and we've made substantial progress. We've not done that ideologically. We've
done that in order to either improve service or reduce costs. And that's what we've done. The second thing we've done to ensure that we are achieving efficiencies is benchmarking and we'll do more of that in the future, and I will say that at the
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moment we have mainly high-level benchmarking on generation, which Panel 7 will talk about, and on the wires, which Panel 5 will talk about, and I believe BCTC will also talk about on Panel 6. So there's substantial
benchmarking information that we'll look at. And then in terms of other activities, and I'll give one example, dam safety. get a handle on. Difficult thing to
Important because it's large capital The
and it's hard to resist the dam safety project.
benchmarking you do there is to make sure that there is international peer reviews of that kind of what we do, where we go around and look at other people's dams and they come and look at ours and they audit our processes. So, outsourcing, benchmarking. I've talked
about our people where first of all we say very plainly to our people, "We pay you at the 50th percentile, we expect first quartile performance, first quartile service." Not the ideal message they want to hear, but
that's the message that they get. And where, as Ms. Webb will talk about, we are making process in the area of managing for performance and making sure that our variable pay is tied to the right kind of measurements and that we -you know, that we make sure that we differentiate more among people. detail.
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I've talked at some length earlier this morning about the approach to our assets in terms of the distribution, generation and transmission assets. won't go further there. Areas where we feel that even -- you know, where we feel that even so, even despite all of the above, there still needs to be more scrutiny; DSM for example. I know there will be a lot of people asking Believe me, there won't That I
question of Panel 4 about DSM.
be any questions that we haven't asked ourselves.
area has been audited and reviewed and discussed more extensively than any other area in the corporation, because again, we want to make sure that while we believe it's a good thing, inherently we want to make sure that it makes sense that it's cost effective. Proceeding Time 11:27 a.m. T29 In terms of risk management, we strengthened our risk management process so we've just, as you've heard, hired or appointed Chris O'Reilly to be the risk manager of B.C. Hydro, and again, the work is beginning and it's in progress but what it is doing is making sure that, whereas before we perhaps used to focus more on risks around Powerex, for good reasons, we are now making sure that we have the right look at risks across the corporation; a different kind of financial screening if you like than the kind of screen that Mr. Austin was
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talking about. And then finally on the people side, what have we done there? If you look at the management team
that was in place two and a half years ago, the group that was on the Chair's Committee, I think there's one member of that team who's still in place. So what we've
done is we brought people in from outside, like Ms. Farrell and Ms. Webb and others, we promoted people like Ms. Van Ruyven and Mr. Maniago and others to that management team. It's a new team.
So the reason why I'm saying all these things is to make it clear that what we've done in the last 18 months is started to transform our company. It has not
been a question of saying, "Oh, here's an Energy Plan. Let's restructure." We are starting to transform our
company and I think we're seeing great success. So what I'm saying to you, I think, is you have all these things happening and all these things are being explained to you in detail panel by panel on this hearing. And I believe that all these things add up to
a company that, while faced with massive restructuring, has certainly focused on achieving efficiencies and on reducing costs and on making sure that we do the best thing for our customers. And what I'm saying is, in a way, you know, in a way in the end, what the Commission has got to
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decide is, you know, of course when you look at these 30 people giving evidence and you look at all the evidence, do you believe these people, do you believe that -- do you trust us to continue to do what we say we're going to do? In other words, I hear what you're saying, that
for your customers it may be cold comfort to say, "Well, trust us, we know what we're doing, we're going to keep reducing costs," I'm saying the evidence is that we've done some very strong things already. that we'll continue to do them. The evidence is
And the evidence is
that we have the ability to turn this very good company into a great company as part of a great system. So two years from now, yes, there will be hearing where there'll be a radical change in the way we're able to present information, and in the amount of benchmarking, and on the progress we've made on the customer base reliability project, and on the asset plans and so on. I'm not apologizing for what we have today because frankly, what we've put together today and the people that have put it together have done an outstanding job, and again I believe that you'll all see that in the next few days -- or I'm sorry, the next few weeks as you cross-examine them. That's my rather lengthy answer to your short question.
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MR. WEAFER:
Q:
It was lengthy and I appreciate your In summary can we take it that the
effort there.
evidence that we have and the panels' evidence that we'll cross-examine on has maximized the efficiencies that B.C. Hydro has been able to obtain for the two-year test period? MR. ELTON: MR. WEAFER: A: Q: Today, yes. And if we look at those budgets and we
find that they can be achieved for a lesser amount, or are achieved for a lesser amount, what would happen to the variances? If B.C. Hydro has approved what's filed
and can perform to a lesser amount, what would happen to the variances of those amounts? MR. ELTON: A: You mean if we were given the full
increase that we -MR. WEAFER: MR. ELTON: Q: A: Yes. -- that we asked for and that we -- and I
believe that what we would do is earn a high return. MR. WEAFER: Q: Thank you. At page 7 -- just a couple of At page 7 of
small comments on the opening comments.
your opening statements, you make a comment: "In any event, I have seen no evidence that radical downsizing on the staffing side is warranted at B.C. Hydro." Has there been any comment or suggestion that there be radical downsizing of B.C. Hydro?
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MR. ELTON:
A:
Well, I think that a couple of intervenors
have suggested that the increase that should be granted is zero, and I think that that would mean obviously a very large, very large shortfall, and I think, frankly, that would require radical downsizing. And I'm not
going to speculate on what exactly we would do, because we don't have plans to deal with that. But I think that
that's what a number of intervenors have actually suggested, yes, without suggesting it in those terms. MR. WEAFER: Q: So the definition of radical in your
mind, an 8 percent reduction in revenue requirement would be a radical downsize. MR. ELTON: A: No, because I think I said, and I think on
page 7 you have the -- so for example if somebody said, "Okay, you have to make changes," and again I don't have -- I really don't have a plan as to what we would do, but depreciation and amortization I don't think we could change that in the short term. same. Financial charges the
Domestic cost of energy, you know, there was a
helpful suggestion that we could spend less on that by some percentage, but you know, we acquire that through competitive processes so I don't see what we could do there. So I think you're dealing with operating,
maintenance and administration. With maintenance, our view is that to reduce our maintenance budgets would put at risk reliability.
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So if somebody could show us that there were ways we could do it more efficiently, of course we'd be very interested in talking about that. We'd probably, we'd
probably say, well we should do more maintenance, but I mean, that's a different kind of discussion. Proceeding Time 11:33 a.m. T30 So I think -- and then through operations, as I mentioned yesterday, cutting operations, for example, reducing service at the customer service centres, is something you could always do, but it would have an effect on, you know, customer satisfaction. So I think the number -- I think obviously where we'd go is probably -- it would be people, because that's, you know, where you have to go, and it would not have to be a very large shortfall for the downsizing to be radical. MR. WEAFER: Q: I want to go back a minute to the
opening of this line and with respect to assistance to the Commission on a go-forward basis and with respect to a proceeding here that allows us to deal with this application and also facilitates meeting the objectives of the Energy Plan under the objective of setting up efficient regulatory regimes. And we will hear from
Panel 2 in terms of the operation of deferral accounts and the mechanics of B.C. Hydro's view of how those work, and I don't want to get into that potentially
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legal question with you, but to the extent this proceeding identifies obstacles to meeting objectives of the Energy Plan, such as low cost energy to consumers, does B.C. Hydro see part of the role of this proceeding to inform the Commission and the customer groups as to what those obstacles are; and secondly, to the point they exist and they need to be addressed by Victoria, as opposed to the Utilities Commission, that we see those results flow from this proceeding? MR. ELTON: A: That's an interesting question. I think
our job is to outline the steps we've taken in implementing the Energy Plan and to say what the costs of those steps are. I don't think our job is to comment
on whether the things in the Energy Plan were appropriate, to the extent that they were clear directions. So there's clear directions in the Energy
Plan like, for example, create BCTC, where our view is that there's a cost to that and we've explained what we believe it is, there are benefits to that and we've explained that we see those as more long term in nature, but we believe that we had an instruction, a clear instruction to implement that part of the Energy Plan to the extent there's something more general in the Energy Plan, where there might be a trade-off. So for example
the Energy Plan says, encourage private sector involvement, but it also says, B.C. Hydro you can also
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look at ResourceSmart projects and PowerSmart and so on. I think our job there is to say that and to say, well here are the alternatives and these are the costs of the alternatives, and we believe that -- we believe it's our job to suggest the lowest cost solution, recognizing that, you know, there may be -- we may not be complying with all parts of the Energy Plan because some of them conflict with each other. I don't think it's our job to say this part of the Energy Plan adds costs that we don't think are justified, because I don't think that's a role that we can play or should play. So it's not something we've --
in other words, where we feel we've been clearly instructed to do something, we do not -- you know, we have not put into our application any suggestion that this was something that we shouldn't have been told to do. MR. WEAFER: Q: And more specifically then to the point
of where there may be a conflict between the shareholder interest, being the government on the face of it, in terms of its return from its investment in B.C. Hydro, and the customer interest, for example, in terms of preserving the economic -- preserving low cost power in British Columbia, to the extent we have a conflict, how do you see working with the stakeholders and the customers, your customers to resolve that conflict?
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MR. ELTON:
A:
I think there are several sorts of So there is the
conflicts that we should talk about.
basic issue that has already been brought up around the return that the shareholder should get. On that one,
our view is a special direction was prepared quite recently, that we, as we have done before, informally said here's an opportunity if you want to revisit the capital structure and the equity return and so on, and the answer came back we don't want to do that at this point, and we said, all right. So in that one, we don't think that we have much of a role to play, because we think it's a direction that's been given to the Commission and it's up to the Commission and the government to talk about that. play. We don't really think that we have a role to We will express our -- I mean, you know, it's
something that I discuss from time to time and express my sort of informal view, but we don't have a formal position. With respect to let's say -- let's say government said, "Look, we really would like you to do this, the way it works is this." Somebody in government
might suggest something that we should do, and we might say or I might say, well actually, that's not something that makes commercial sense to us. And if in the end
they wanted us to do it, they would have to write a
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letter, the Minister would have to write a letter to the Chair of the Board or to me giving us specific direction, and we'd have to then do -- our board would have to obey the specific direction, provided it was legal. I think that's a case where -- there are very few of those. There are very few directions given like
that, and I think that one of my jobs I think is to try and make sure that there are very few of those. In
other words, that we discuss things and head things off at the pass. Then I think there's a whole range of, if you like, advice where government might express general opinions about things, and we have an annual shareholder letter of expectation that we get from the Minister that sets out the government's expectations of us, and one of the things it says in there is if government is telling you to do something that you think is affecting other things, for example adding to costs, you should tell us. Proceeding Time 11:39 a.m. T31 So we would say to government: Look, you
want us to do this, it's going to cost this money some money. Either it's going to come out of the shareholder We don't
or the ratepayer, depending on what it is. think we should do that.
And I think, and our view of
that is in the end, if they ask us to do something that
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costs money that doesn't add value, we simply wouldn't do it because we've got no basis to do it, and it's up to them to say, "Well, we instruct you to do it," and when they do that they have to put it in writing. So that's kind of the way it works, and I think, like a lot of these things, I know a lot of people, various stakeholders, they talk to us about things they'd like us to do and they also talk to the government. So there's a lot of, you know, a lot of I think we would just all have to
circularity there.
keep talking to each other and being transparent, which is what we try to be and I think we are. MR. WEAFER: Q: Mr. Elton, thank you for that. I want to
ask you the specific question, and we will likely differ in terms of the interpretation of the special direction at the end of the day, but perhaps I could just ask, on the specific issue of the potential of B.C. Hydro's interpretation of the special direction that we may see an increase in the equity component of B.C. Hydro over time, and thereby resulting in an inevitable increase in rate or cost to customers, was that specific issue considered and addressed by B.C. Hydro with the shareholder? MR. ELTON: A: Yes, it was. I think I was asked
yesterday by Mr. Wallace whether we were directed, and we were not, and so I stand by that answer.
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When we became aware -- the first thing that happened was, with this, we became aware of course of the GAAP requirement, the generally accepted accounting principles requirement, and our people did some work and talked to the auditors, and you'll hear more about this on Panel 2. And they said, well, we have this GAAP
requirement that would have this effect, that it would increase our equity. And we talked about this
internally and thought, well, one thing we should do is check with Victoria (a) are they aware of this, and (b) given that they're aware of it, do they have anything to say? For example, are they inter