Some notes from Day 1 & 2 of the BCUC review of VIGP.

Coast Bastion Hotel, Nanaimo

On the first day of the hearing, there was considerable discussion about BC Hydro going to the market with a request for tenders (RFT) for firm energy proposals as alternatives to GSX/VIGP. Norske, for example, would submit their proposal under such a procurement process. Hydro's thinking is that neither the Norske nor the Terasen offerings are specific enough either in technical or financial terms, for Hydro to have confidence that putting VIGP/GSX aside would be prudent.

Hydro's thinking is going further with this. They are envisioning that the BCUC may grant them a CPCN that requires them to undertake such a procurement process. And they are saying, they want that CPCN so they have a fallback, and may proceed with VIGP/GSX, should the RFT process fail to elicit a satisfactory alternative.

Hydro has two particular deadlines in mind. The first is January 2004, which is the latest date, they aver, by which they can place an order for a turbine for VIGP (remember that at the end of April they paid GE a penalty of some $35 million or more, when they cancelled the original turbine order that had been placed in November 2000), and be assured that they can have VIGP ready to go, hooked up to GSX, and tested, by the critical deadline of 2007. The second date that concerns Hydro is March 15, 2004. If by that date, the permitting outcomes from the NEB and BCUC are not known, apparently the deal with Williams terminates, and Hydro may be on the hook to compensate Williams for all their costs (plus penalties, presumably) incurred to date.

So, on day 2 (Tuesday), in answer to questions from the BCUC, Bob Elton of BC Hydro said that he had been thinking about these matters, and, well, here are his own words from the transcript: (Day 2, page 256)

We can’t not start such a [request for tenders or RFT] call and then in October have a decision that says there must be a call and then complete a call by January. That couldn’t happen. And I think there’s two issues to think about. One is the process has to be fair and has to be one that people believe in, otherwise they won’t bid, and in addition, the result may not be fair. And second, that has to be quick enough that it can meet everybody’s needs.

So I think that -- I haven’t checked our timetable in detail. I think we would have to make a decision within the next two weeks as to whether or not we should go ahead with the call, and just make some assumptions about what the Commission’s decision might be.

From my point of view it’s a risk issue. In other words, I can imagine, without predicting what the decision might be, that there is a high likelihood that we’ll be required to make such a call, therefore we certainly need to start planning one and we need to decide within the next week or so whether or not we should initiate one.

This is discussed in more detail by Mary Hemmingsen, from Panel 2, beginning on page 330.

Are these the hasty makings of an exit strategy for VIGP & GSX?

But what's central to this whole matter, and what is unlikely to get examined in much detail by Terasen, Norske, JIESC, Elk Valley Coal Corp, etc., is the whole question of whether we need all this power at all on Vancouver Island, and how much power we actually do need, and by when.

BC Hydro has branished their "lights will go out" threat since they went public with GSX in 2000. Originally that was going to happen in 2004, and it has moved away year by year, and is now pegged in 2007, when they derate to zero (note, not retire or decommission) the HVDC system. Hydro's also points at their load forecasts which show steady growth from the present, year after year.

The fact of the matter is, however, that load has remained effectively level in the previous decade - all the way back to 1992. It fluctuates from year to year, but the trend is level. Population, industry, and employment growth prospects on the island in the next decade are, as well, gloomy. There is no sound basis to predict anything other than the gentlest of growth forecasts, certainly not the 30 to 40 MW per year peak capacity growth that Hydro comes up with.

The GSX Concerned Citizens have challenged Hydro's supply, load, and forecasts. We commissioned a study, which we used as evidence in the GSX hearing, and will use more extensively in the BCUC proceeding. It is by Steve Miller & Associates. You can obtain it at http://www.sqwalk.com/VISupplyDemand.pdf. The conclusions from that study are that supply has been understated, load overstated in the forecasts. I can send you a copy, and put you in touch with Miller if you wish.

We have challenged Hydro's marketing and PR vice-president, Shawn Thomas, with respect to these matters. At the end of 2001, he left BC Hydro. We have challenged their senior planning engineer, Kelly Lail, and he is no longer with BC Hydro. Recently, Hydro's forecasting authority, Henry Mak, was suddenly disappeared from BC Hydro.

Interesting that these three people - Thomas, Lail, Mak - who have played such a pivotal role in the evolution of GSX/VIGP, are gone. A quick scan of the expert witnesses that Hydro is putting forward now to defend these projects have a surprisingly short life either in Hydro, or in their present jobs. 2 years, 1 year, a few months in some cases, a few days in others. Henry Mak's replacement as Manager for Load Forecasting is Dennis Nelson. He's in an acting capacity, and has been doing the job since June 8.

The impact of large industrial power users on the system, our system, is generally not recognized. It is news to me, for example, that 100 of BC's industrial users, use 70 percent of BC's energy. How about this: The three mills that Norske Canada has on Vancouver Island use 90 percent of the transmission capacity to the island, and about a quarter of the energy distributed on the island. The loss of one mill would free up between 100 - 200 MW.

The most recent evidence filed by BC Hydro in the BCUC proceeding shows a drastic recalculation of "adjusted peak" demand over the last ten years, reducing the previously published "peak" figures, bringing them more in line with "actuals", and more in line with the findings in the Miller evidence.

These "adjusted peak" figures are the starting point for their forecasts, and the recently adjusted, adjusted numbers, substantially weaken Hydro's argument that peak load is a challenge to meet with available supply. Thus, they have all but given up talking about any critical dates, other than 2007, when the rating of the HVDC falls to zero. Note, that's the rating of the HVDC, not it's actual capacity to carry energy, which it will continue to do.

Steve Miller's cross-examination of Hydro's Panel 2 on Tuesday addresses these questions. He begins on page 364.

The first gem he elicits, is this: Hydro's earlier peak calculations are simplistic and lead to inappropriate results. Does that mean, forecasts based on these calculations are inappropriate?

Here's Dennis Nelson:

That simplistic approach did not provide appropriate results. What we did in the last few weeks is dig into the actual process of assembling a peak forecast itself, where we get from distribution planning not just whether normalized forecasts for the next year, but you get weather normalized actuals or estimated actuals for the year you’ve just gone through. And it makes a lot more sense and a lot more transparency to the system to use that kind of data when we respond to questions like this.

in finding out what data is available to us, it became clear that at the substation level we were getting information that should have been used to answer your questions two and a half years ago. That had not become clear in the interim period, and it came clear through a rather diligent study as to what information was around and how best to portray this very complex question of weather normalization.

Steve Miller, on being told he can't take some time to consider the information that has just been released, that he has been asking for for two and a half years:

I would like to point out that what's at issue here is a number of megawatts equal to very close to the plant we're talking about, so this is not a trivial issue. This temperature adjustment is one of the most key things in our evaluation of the proponent's claim that their lights are going out or not.

MR. MILLER: Q: And I’m sure -- I’ll ask it to you, but I know your answer and I’m going to ask. The risk that you see within your company is a risk of delivery or non-delivery of your product.
MR. NELSON: A: Yes.
MR. MILLER: Q: So if the lights dim you consider that you took too much risk. On the other side is the risk that you spent too much of the public’s money to mitigate that risk and that’s where the Commission will decide.
MR. NELSON: A: That’s correct.
MR. MILLER: Q: How much should be spent. But it’s good that the Commission gets to see what part of your position is your company’s view of risk and your company’s view of actual data.
MR. NELSON: A: Yes.

How about this: Dan Potts represents the large industrial electricity users. And Hydro is pissing them off. What JIESC want is transmission enhancement, so the island can buy from the mainland generation market, and mainland generators can sell to Vancouver Island. Coal-fired power.

MR. POTTS: Q: You’re telling the Joint Industry Electricity Steering Committee that the best B.C. Hydro can do is develop new power projects using $6.00 gas?
MS. HEMMINGSEN: A: I think that’s a sensitivity that we tested. The basic case is the $3.00 U.S. value.

MR. POTTS: Q: And there are no options to do better than that?
MS. HEMMINGSEN: A: Well, I guess B.C. Hydro has a number of Resource Smart options, which might come in under that amount, but going forward the benchmark price is the market price of electricity.
MR. POTTS: Q: I think that ends my discussion. Thank you very much.

Other notes:

Snuneymuxw First Nation are not participating in this proceeding, but are monitoring.

Ministry of Energy & Mines are also not participating, but are monitoring.

Hydro's rationale for the project seems less related to forecasts, and more to the retirement of the HVDC. This could be to reduce attention on the forecasts (see story above).

Inconsistencies in the story about running VIGP as a base plant. The application says they'll run it at 90% capacity, or 90% of the time. Bev van Ruyven (I think) quibbled about 87% one year 88% another year 90% another year and so on. In cross-examination, it sounds like they might be more opportunistic, and not run it as a base plant at all.

In some ways, it's like they're going to buy a Hummer, and they say they'll drive it all the time. But then sometimes they'll drive the family car, or ride a bike or walk - whatever's cheaper.

Claiming that they'll move gas from the GSX interconnect at Shawnigan Lake to Duke Point and Elk Falls at no cost. Haven't explained that yet. Tersasen's counsel was curious about that statement, too.

With respect to selling GSX and VIGP, Elton said they would act commercially unless directed by government to act otherwise.

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