F2006 Call for Power Report

F2006 Open Call For Power

BC Hydro Report on F2006 CFT Process, 31-Aug-2006

EXECUTIVE SUMMARY

BC Hydro’s F2006 Open Call for Power (F2006 Call) was issued on December 8, 2005 and targeted to procure approximately 2,500 gigawatt hours per year (GWh/year) of firm electrical energy and associated non-firm energy form Large Projects (10 megawatt (MW) or more) plus approximately 200 GWh/year of electrical energy from Small Projects (less than 10 MW). On July 27, 2006, BC Hydro announced the results of the F2006 Call. This Report fulfils BC Hydro’s commitment to address the evaluation process for the tenders received and the outcome of the F2006 Call, including call award volumes, cost-effectiveness and rate impact.

The F2006 Call was designed and implemented to be fair, transparent and competitive with the goal of a cost-effective result. Independent Power Producers (IPPs) and other stakeholders had several opportunities to provide input on the F2006 Call design and to provide comments pertaining to the draft Call for Tenders (CFT) and Electricity Purchase Agreement (EPA) documents. The major F2006 CFT terms and conditions, and mandatory requirements, were agreed to pursuant to a Negotiated Settlement (NS) in September 2005 which was approved by the British Columbia Utilities Commission (BCUC). BC Hydro subsequently met all of the F2006 Call-related NS commitments.

Evaluation Process

On April 7, 2006 BC Hydro received 61 tenders from 37 bidders for 53 separate projects. Following the assessment review, 48 projects proceeded to the evaluation phase of the CFT. The bid prices for each tender were levelized to permit a direct comparison between projects regardless of the bid options selected by the bidder. Adjustments were then made to reflect green credits, hourly firm energy, greenhouse gas (GHG) obligations and interconnection/transmission costs in order to place all tenders on a level playing field. The resultant Adjusted Bid Prices (ABPs) were then used in the determination of optimal portfolios and the ultimate selection of projects for EPA awards. Non-price factors and the 50 per cent BC Clean Electricity target were considered during the evaluation process but did not alter the selection of cost-effective tenders.

Call Award Volumes and Prices

On July 27, 2006, BC Hydro announced the award of EPAs to 38 new IPP projects totalling 6,471 GWh/year of energy from Large Projects (including 5,725 GWh/year of firm energy) and 654 GWh/year of energy from Small Projects. The associated bid prices are as follows:

BC Hydro also awarded an EPA to Brilliant Expansion Power Corporation (BEPC), a subsidiary of Columbia Power Corporation (CPC), for the procurement of 226 GWh/year of firm energy from the Brilliant Expansion 2 Project. The ABP of this project is competitive with the prices of those Large Projects awarded EPAs in the F2006 Call.

Increased Award Volume

The target volume of 2,500 GWh/year of firm energy was based on the system supply-demand outlook in the fall of 2005. However, the F2006 Call award volume was increased to 5,725 GWh/year of firm energy for three principal reasons: (1) greater load-resource gap; (2) allowance for attrition/outages; and (3) increased technological diversity.

BC Hydro’s most recent load forecast indicates that electricity demand in F2011/12 will be approximately 3,000 GWh/year higher than the load forecast used at the time the F2006 Call was issued. Additionally, based on past IPP experience, BC Hydro believes that it is prudent to provide a 25-40 per cent allowance for project attrition and delivery outages. The increased award volume also provides BC Hydro with the opportunity to expand the technological diversity of the portfolio and thereby reduce reliance on water resources. Even with the higher award volumes, there is still a supply shortfall of 1,300 GWh in F2011 based on the mid load forecast.

Cost-Effectiveness

BC Hydro relies on having designed and run a competitive CFT process as the primary support for its position that the F2006 Call awards are cost-effective. Several market price comparisons also indicate that the awards are cost-effective.

In the U.S.Pacific Northwest (PNW), Puget Sound Energy (PSE) is in the process of conducting a Request for Proposals (RFP) which indicates that bid prices in the last two years have increased by 40-70 per cent for most resource types. The F2006 Call awards are in the same price range as the prices bid into PSE’s RFP. Aside from such acquisition processes, there is no liquidity in the long-term electricity market in the PNW and spot market prices are not good comparators to the fixed prices available through long-term EPAs. A comparison to acquisition processes in other Canadian jurisdictions indicates that the F2006 Call results are similar to recent awards in Ontario, Quebec and the Maritimes. Lastly, the levelized plant gate prices for the F2006 Call awards are within the cost range of resource options provided in the 2006 Integrated Electricity Plan (IEP), typically being at the higher end of the range.

Rate Impact

It is expected that the rate impact of the F2006 Call award volumes net of any attrition/outages would be approximately 8.1 per cent relative to BC Hydro’s F2007 revenue requirement. The full impact would not occur until F2012 and is expected to diminish over time. Given the magnitude of BC Hydro’s growing energy needs, acquiring new supply from any source (whether from IPPs or the market) would likely have a material impact on future electricity rates.

Alignment with 2002 BC Energy Plan

The F2006 Call award supports the 2002 BC Energy Plan. In particular, the awards fulfil the policy objectives of secure, reliable supply and providing more private sector opportunities. Also, the F2006 Call adheres to the environmental policy action which established a voluntary goal of acquiring 50 per cent of new supply from “BC Clean Electricity”.

BC Hydro understands that the forthcoming updated BC Energy Plan will introduce a policy for British Columbia (BC) to become electricity self-sufficient within the next decade. While the F2006 Call awards were made for unrelated reasons, both the nature of the F2006 Call (BCbased) and the volume of energy acquired are consistent with such a policy objective.