Subject: VIGP review -- VIEC/BC Hydro admits Terasen Gas pipeline
alternative is cheaper than GSX!

Date: July 15, 2003 6:16 PM

VIGP review -- VIEC/BC Hydro admits Terasen Gas pipeline alternative is
cheaper than GSX!

Re: BC Hydro & Terasen Gas (Vancouver Island) Inc Joint Submission, emailed
to intervenors Tuesday 15 July, VIEC now appears to admit that the Terasen
system expansion proposal to serve ICP (without curtailment) and VIGP would
be cheaper than using GSX to do the same.

A key document is Schedule C, wherein BC Hydro's calculations are compared
to Terasen's. Based on revised numbers (most notably BC Hydro's revided
figures for Terasen's debt rate) (Present Value figures):

BC Hydro calculates GSX would have revenue requirement:
$391 m w/o fuel costs; $442 m with fuel costs.

BC Hydro calculates TGVI expansion revenue requirement:
$257 m w/o fuel costs; $397 m with fuel costs.

TGVI calculates GSX revenue requirement:
$374 m w/o fuel costs; $419 m with fuel costs.

TGVI calculates TGVI revenue requirement:
$194 m w/o fuel costs; $303 with fuel costs.

Schedule D shows Hydro's and Terasen's calculations for ICP, VIGP & a third
CCGT, and there Hydro still maintains GSX would be cheaper, while Terasen
disputes this by a wide margin (almost $200 m).

In Schedule E BC Hydro adds the GSX sunk costs to the Terasen proposal
(presumably because these costs are already in the GSX cost figures as part
of the revenue requirement, and they would be a cost should the TGVI
proposal be adopted). Terasen does not accept this as a valid cost. The GSX
sunk costs are currently estimated at $55 m, and when added to the TGVI
proposal (ICP and VIGP only) (according to Hydro's calculations) this gives
a present value of $452 m to the TGVI expansion, merely $10 m more than GSX.

I believe this is highly significant. BC Hydro has not made any real case to
locate further CCGT's on Vancouver Island, and they have not shown that
there is a significant option value to having the ability to easily expand
the gas supply. Thus, there is no real reason to prefer GSX on the basis of
its longer-term expansion capability. By contrast the incremental
possibilities of the Terasen proposal are clearly more compatible with an
incremental resource approach, such as some of the Norske proposal plus
green plus conservation.
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