VIGP Daily Hearing Summary For July 2
DAY 12
Continuation of BC Hydro Panel No. 6:
The day commenced with the filing from BC Hydro of Schedule A to the Call
For Tenders ("CFT") document. The Schedule A was discussed by Panel No. 6.
Panel No. 6 also filed exhibit 13G which was a response by BC Hydro to
Terasen Gas (Vancouver Island) Inc.'s ("TGVI") proposal to upgrade its
transmission system as an alternative to proceeding with the GSX project. BC
Hydro put forth that there is a large difference between the costs analysis
for VIGP and TGVI's proposal. TGVI responded that it is the best party to
develop its own cost estimates and that BC Hydro is the party whose
estimates are not correct. The Commission Chair suggested that a condition
of the CPCN may be directions to BC Hydro and TGVI to enter into
negotiations on the two projects. TGVI responded that the Commission Panel
should not encourage negotiations between BC Hydro and TGVI during the CFT
process as this could disadvantage other bidders in the process. The
Commission Panel reserved further comments on the issue until the following
morning.
BCOAPA cross-examination of Panel No. 6:
The BCOAPA opened its examination with a question regarding the history of
VIGP and the extent of government direction in BC Hydro's decision making.
In particular, several letters were issued to BC Hydro from the government
and the BCOAPA put forth its assessment that these letters did not direct
that BC Hydro should continue to develop a gas fired generating facility
after the Port Alberni gas fired plant project was cancelled. The members of
Panel No.6 were unable to answer the questions from the BCOAPA and as a
result, Mr. Gary Rodford was recalled for examination on this issue in the
afternoon.
SPEC cross-examination of Panel No. 6:
SPEC had a series of questions concerning pipeline safety issues, in
particular the safety record of Williams Pipelines. SPEC also queried
whether costs of an accident on the pipeline had been factored into the
total cost of GSX/VIGP. BC Hydro responded that it will be carrying
insurance for accidents and that the costs would be borne by the insurer.
Mr. James Campbell cross-examination of Panel No. 6:
Mr. Campbell queried the new supply needed by BC Hydro in 2010 and the use
of the Down Stream Benefits. Mr. Campbell also had questions regarding
Williams' financial health. His examination completed with some questions
concerning the operations and run-times of VIGP.
Commission Counsel cross-examination of Panel No. 6:
Commission counsel opened with some questions regarding the differing
discount rates used in BC Hydro's cost of service calculations and NPV
models. There then followed an long discussion regarding the issue of a
price cap for any cost overruns on VIGP. In other words, the BCUC would
allow the recovery of costs of VIGP based upon the estimates in the
application with a collar of , say, 10 per cent. If costs were greater than
10 per cent of the estimated cost in the CPCN, BC Hydro would not be able to
recover the overage in its rates. The issue of a price cap will be addressed
in argument at the end of the hearing.
Commission counsel then moved onto the CFT document and had a series of
questions regarding its content. The CFT contemplates a CPCN decision on
September 1, 2003. BC Hydro was asked what the implications would be to a
decision rendered on November 1, 2003. BC Hydro responded that a delay of
two months would most likely move all of the other dates in the CFT along by
two months, and that this would add some cost to the project. This led to
further questions on the schedule for construction of GSX and VIGP. If BC
Hydro delayed GSX by one year due to the VIGP being delayed, there would be
a savings in that there would be no tolling costs for the year of delay, but
GSX capital costs would increase, and these increased costs would be
recovered in rates at a later date.
BCOAPA cross-examination of Mr. Gary Rodford:
After the lunch break, Mr. Gary Rodford was put back on the stand to answer
questions from the BCOAPA regarding the history of VIGP. In particular, the
direction to BC Hydro to pursue a second gas generating plant on Vancouver
Island was questioned. Mr. Rodford stated that although the letters of
direction from the government to BC Hydro do not specifically state that BC
Hydro should construct a second plant, his discussions with government left
no doubt that BC Hydro was to continue with the plans for a gas fired
generating station on Vancouver Island.
Commission Counsel resumed cross-examination of Panel No. 6:
The sunk costs of GSX and the exchange rates used in their calculation were
reviewed. There then followed a series of questions concerning BC Hydro's
liability to Williams if GSX does not proceed, even though it may have
approval to proceed from both the USA and Canadian regulatory authorities.
This issue will also be addressed in argument at the end of the hearing.
Commission Panel cross-examination of Panel No. 6:
The Commission Chair opened his examination with a question as to whether or
not BC Hydro would proceed with the CFT if an unconditional CPCN was
granted. Mr. Elton responded that he believed that BC Hydro would. He also
agreed that to the extent that the Commission Decision was silent on
parameters for the CFT, there would be some valuable input missing from the
process. The Commission Chair then proceeded to review the proposed
scenarios that he had put in front of the Panel on Day 11, and requested
their comments. BC Hydro expects that it may get six to 10 bidders in the
CFT process and that there could be challenges for some of the projects to
get approvals and still meet BC Hydro's service dates. BC Hydro believes
that a conditional CPCN with a CFT requirement would lead to the best
competitive process. Another option discussed was that of having a second
CPCN process after a successful bidder was chosen from the CFT. BC Hydro
stated that there would be value missed in not having an independent
reviewer. The regulatory risk of the 230 kV line was discussed. BC Hydro
stated that it could not be as specific with the 230 kV line as it is with
VIGP; the 230 kV line is a long-term project for which risks have not been
analysed. The Commission Chair then asked if a Commission Order on September
1, 2003, with "Reasons for Decision" to follow, would be sufficient for BC
Hydro to meet its CFT requirements. BC Hydro answered that it most likely
would.
NorskeCanada Panel:
NorkseCanada put for the a panel to provide evidence on its suite of
projects, which Norske claims is better than VIGP and is also available at a
lessor cost. In a brief opening statement, Norske stated that it does not
agree with the concept of a conditional CPCN being issued by the BCUC.
CBT Energy cross-examination of Norske Panel:
CBT's interest is in the transmission option, rather than the VIGP plant.
CBT queried Norske as to whether it would work with BC Hydro if the BCUC
chose the transmission over the VIGP. Norske answered that it would.
GSXCCC cross-examination of Norske Panel:
In answering a question from the GSXCCC, Norske stated that it did not yet
know enough about the CFT process to know if Norske would be able to meet
the criteria contained in the plan. Norske would need more specifics on the
CFT. GSXCCC then had a series of questions regarding Norske's evidence.
Questions were asked on the TMP process at Elk Falls, load shifting and
interruption times of Norske's paper machines. In responding, Norske stated
that it had not found satisfaction with BC Hydro's Power Smart programs, in
particular, it found that the incentive levels were insufficient for
Norske's interest.
BCOAPA cross-examination of Norske Panel:
BCOAPA had a question regarding BC Clean energy, as contained in the BC
Energy policy, and whether Norske's proposal would meet the BC Clean
definition. Norske did not know enough about BC Clean to answer the
question.
Mr. James Campbell cross-examination of Norske Panel:
Mr. Campbell queried whether or not the proposal would require the
installation of high voltage substations and switchboards. Norske answered
that it would.
BC Hydro cross-examination of Norske Panel:
BC Hydro questioned the completeness of Norske's information and evidence
filed in the hearing. Norske responded that more detailed engineering work
would need to be done if it was to respond to the CFT. BC Hydro queried
whether Norske's Board of Directors would approve the project based on the
information presented at the hearing. Norske responded that its Board of
Directors would not require a greater degree of cost certainty that
presented to the Commission in its evidence. BC Hydro then embarked on a
lengthy series of questions concerning the costs of financing the Norske
suite of projects, the gas supply risk to be assumed by BC Hydro in their
proposal, the current state of any agreements between Norske and TGVI
regarding the Norske suite (no discussions have yet taken place), the
engineering study timeline for the Norske proposal, and the fact that Norske
has never done a co-generation project with BC Hydro. Norske agreed that its
costs estimates could be reviewed, presumably by the Commission, if the
information was kept confidential. The distillate firing capabilities of
Norske's proposed generating facilities were queried. This led to some
questions regarding the environmental suitability of the distillate
facilities.
Commission Counsel cross-examination of Norske Panel:
The Commission counsel had several different subject areas that it covered
with its questions to the Norske panel. The terms of the CFT proposal from
BC Hydro, the portfolio methodology used by BC Hydro and its appropriateness
for Norske's proposals, and the need for a benchmark for reviewing
alternatives to VIGP were questioned. In particular, the Commission counsel
asked whether a pro-forma VIGP bid, included in the CFT in order to set the
benchmark, would be of value. Norske responded in the affirmative, but
conditioned its remarks in that it would need to see the assumptions behind
the pro-forma bid. Sunk costs were again queried, as they have been many
times in this hearing. Norske was also asked if it had developed a Levelized
Unit Energy Cost. Norske responded that it had not and that it did not
understand BC Hydro's calculation of the LUEC.
Commission Panel cross-examination of Norske Panel:
The Commission Chair questioned whether Norske believed that its project,
with a +/- of 20 per cent in its cost estimates, would be below the price of
VIGP. Norske responded that if the projects being questioned were just the
generation projects, they would be cheaper, however, if the TMP projects
were also included, the Norske proposals would be more expensive than VIGP.
Hillsborough Coal Panel:
Hillsborough Coal ("Hillsborough") is proposing to build a coal-fired
generating plant near its operating coal mine, located outside of Campbell
River.
GSXCCC cross-examination of Hillsborough Panel:
The GSXCCC questioned the GHG intensities of coal fired plants as compared
to CCGT's such as VIGP. Hillsborough agreed that the GHG intensity of coal
was greater than a CCGT.
BCOAPA cross-examination of Hillsborough Panel:
BCOAPA also asked the Hillsborough panel if it considered its project BC
Clean. Hillsborough responded that it did not.
TGVI cross-examination of Hillsborough Panel:
TGVI queried Hillsborough's experience with coal-fired plants in BC.
Hillsborough responded that it did not have any experience, but that it
would contract with Stothert engineering for them to construct the plant and
operate it for several years, and then pass it over the Hillsborough.
Hillsborough has also not applied yet for any environmental certificates and
agreed that a coal fired plant may have difficulty getting such approvals.
However, it does have all permits it requires with the exception of
construction permits and air emission permits, but that it believes that the
environmental process would take about six months (based on conversations
Hillsborough has had with the ministry).
Mr. James Campbell cross-examination of Hillsborough Panel:
Mr. Campbell queried Hillsborough's low cost of production. Hillsborough
responded that its costs are lower than other producers as it already has
proven reserves and has no development costs as the mine is already in
place.
BC Hydro cross-examination of Hillsborough Panel:
BC Hydro queried the plan by Hillsborough to leave the Comox Strathcona
Regional District and join the city of Campbell River. There were also
queries regarding the EXO process and the six month approval timeline that
Hillsborough suggested earlier. GHG emissions from Hillsborough were also
questioned, along with the heat rates of the proposal and the CBG call that
Hillsborough participated in, but was eliminated from.
Commission Counsel cross-examination of Hillsborough Panel:
Hillsborough told the Commission counsel that it does intend on
participating in the CFT. Commission counsel also had a series of questions
regarding the operating costs of the project.
There were no questions from the Commission Panel and the Hillsborough Panel
was excused and the hearing adjourned for the day.