Re: April 16, Mr. Christopher P. Weafer. Dear Mr. Weafer:

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1 Diane Roy Director, Regulatory Affairs - Gas FortisBC Energy Inc. B- 0 Fraser Highway Surrey, B.C. VN 0E Tel: (0) - Cell: (0) 0-0 Fax: (0) -0 diane.roy@fortisbc.com Regulatory Affairs Correspondence gas.regulatory.affairs@fortisbc.com Commercial Energy Consumers Association of British Columbia c/o Owen Bird Law Corporation P.O. Box 0 Three Bentall Centre 00 Burrard Street Vancouver, B.C. VX J Attention: Mr. Christopher P. Weafer Dear Mr. Weafer: Re: FortisBC Energy (Vancouver Island) Inc. ( FEVI or the Company ) Application for Approval of a Deferral Account in Connection with a Development Agreement between FEVI and Pacific Energy Corporation ( PEC ) (the Application ) Response to the Commercial Energy Consumers Association of British Columbia ( CEC ) On March, 0, FEVI filed the Application as referenced above. In accordance with the British Columbia Utilities Commission Order No. G-- setting out the Regulatory Timetable for the review of the Application, FEVI respectfully submits the attached response to CEC IR No.. If there are any questions regarding the attached, please contact the undersigned. Yours very truly, FORTISBC ENERGY (VANCOUVER ISLAND) INC. Original signed: Diane Roy Attachment cc ( only): Commission Secretary Registered Parties

2 Page.0 Exhibit B, Page, Introduction 0. Please provide details as to the capacity of the system currently servicing FEVI, the capacity used by FEVI and the forecast for the future 0 years. FEVI forecast Peak Demand for the next 0 years is shown in the graph below. This represents system demand and current capacity, assuming the ICP and JV continue to require service throughout the period, but excluding PEC s requested demand. FEVI forecast Peak Demand and design day system capacity graph

3 Page 0 The net pipeline/compression capacity alone is approximately TJ/d, net of fuel, sufficient to meet FEVI peak demands for the core market, Squamish and Whistler, Vancouver Island Joint Venture and Island Cogeneration Plant with fuel-switching. Mt. Hayes LNG sendout provides an additional TJ/d of system capacity to meet FEVI peaking requirements. The pipeline system and Mt Hayes LNG sendout together can meet all the FEVI peak demand including Island Cogeneration Plant (ICP) without fuel-switching in the short term, and can meet core market demand with ICP fuel-switching in the long term. The following load duration curves demonstrate how much of the FEVI pipeline/compression capacity and Mt. Hayes LNG sendout are required to meet FEVI demand in 0/ and 0/, respectively, where Mt. Hayes LNG is expected to augment FEVI pipeline/compression capacity only during the coldest days of the year. FEVI 0/ Design Load Duration Curve

4 Page FEVI 0/ Design Load Duration Curve 0. Please provide the potential upgrades to capacity, which could be implemented in order to provide service to PEC. Based on preliminary capacity assessments, the potential upgrades to the FEVI system to meet PEC s transportation service requirements to the Woodfibre site are expected to include all or some combination of the following: 0 Compression additions at the existing V Compressor Station at Eagle Mountain Pipeline looping for certain segments between the V Compressor Station and the Woodfibre site A new compression station located between VI Compressor Station and the Woodfibre site.. Please provide generic potential scenarios for a size of facility, between 0 MMscfd and 0 MMscfd, Firm Contract Daily Demand for PEC and the

5 Page matching potential upgrade requirements that may be required to provide the service. (select any increments as necessary to match potential upgrade requirements) 0 System reinforcement upgrades are designed using the expected ultimate long-range demand to determine pipeline sizes and compression locations, ensuring the system reinforcement project is scalable and avoids future stranded assets. Hence, the PEC FCDD 0 MMscfd case may require all the system reinforcements as discussed in the response to CEC IR.. above; the requirements for the 0 MMscfd case may be reduced by either less compression, shorter lengths of pipeline loop, or a combination of both. This will be further assessed to take into consideration constructional and operational factors, as part of the development activities Please provide an approximate quantitative relationship between additional Firm Contract Daily Demand and reduced cost for FEVI current customers showing how they will achieve financial benefits from the additional PEC Firm Contract Daily Demand on the system and please explain how this might vary with different size and upgrade scenarios. At this point in time, FEVI has only done a high level preliminary assessment (refer to the response to BCUC IR..) that shows the approximate relationship between the additional Firm Contract Daily Demand and the potential to reduce the unit cost of transportation on FEVI s system. The financial benefits to FEVI s existing customers through lower rates is supported by the differential between the unit incremental cost to serve WoodFibre LNG project and the current unit cost to provide firm transportation service on the FEVI system. FEVI will be working, over the course of Development Phase, on its fully allocated cost of service allocation model that will include PEC as one of the transportation service customers on the FEVI system to determine the expected transportation service toll for PEC and the financial benefits the Woodfibre LNG project would provide through reduction in rates to FEVI s existing customers.

6 Page.0 Exhibit B, Page, Project Overview 0. Please provide the going in assumptions with respect to how the LNG compression will be powered, will it be assumed to be using natural gas driven compression or electrical power from the BC Hydro grid, in determining the amount of LNG to be exported versus the amount to be used for compression? FEVI is not privy to any information on how PEC plans to meet the power requirements for its facility. In order to determine any system expansion capacity requirements, FEVI is only concerned with the total natural gas transportation service requirements of the future facility at the Woodfibre site. 0. Please provide the going in assumption with respect to the FEVI upgrade project, when it comes to additional compression, will it be natural gas drive compression or will it be using electrical power from BC Hydro? FEVI does not have a going in assumption as to what type of energy will be used. As part of FEVI s development work, FEVI will be studying the pros and cons of natural gas drive compression versus using electrical power from BC Hydro for the additional compression. Upon completion of this work, FEVI will then be in a position to identify the optimum type of compression. The rationale for the decision will be included in the CPCN application.

7 Page.0 Exhibit B, Page, Project Overview 0. Please provide an approximation of the potential impact on the CTS Firm Contract Daily Demand and the potential benefits for FEI customers of the added throughput. If the Woodfibre project proceeds, the daily throughput on both FEVI s and FEI s systems is expected to increase by the contract demand established for the Woodfibre site. At this point in time, it is expected that the contract demand for the Woodfibre project will be between 0 and 0 MMscfd. This may require FEVI to increase the firm capacity it holds under its Wheeling Agreement with FEI by the same amount. An assessment of any impacts to FEI s future requirements on the Coastal Transmission System will be undertaken concurrently. At this time, however, it is expected that FEI customers will benefit from the additional baseload throughput on the system thereby increasing the utilisation of existing facilities. 0. Please provide information as to whether or not there would be impacts with respect to the additional volumes through the Westcoast System in terms of the T-south tolls and or the T-north tolls. Please refer to the response to BCUC IR...

8 Page.0 Exhibit B-, Page 0. Please describe to whom the conditions for approval of transportation service must be satisfactory for this provision. In this scenario, the conditions for approval of the transportation service agreement must be satisfactory to FEVI in its sole discretion. PEC may also terminate the agreement if it finds any conditions unacceptable, however in that scenario FEVI is not required to return the Commitment Fees. 0. Please explain how FEVI Development Costs could be reimbursed by PEC in this event and that there would be a remaining balance in the deferral account to be recovered from FEVI customers and please provide an approximation as to how much this might be. When termination occurs, PEC remains responsible for the Development Costs already incurred by FEVI. There is Performance Security in place for this purpose. The circumstances in which an amount might remain after repayment occurs are limited and are discussed in the responses to BCPSO IRs.. and.... Is this potential recovery from FEVI customers the only risk being undertaken at this time for the potential benefits and if not please explain other risks?

9 Page FEVI confirms that this potential recovery is the only risk being undertaken at this time, and the risk to FEVI ratepayers is very limited under this scenario. As explained in the response to CEC IR.., under this scenario, FEVI will be able to recover the Development Costs incurred from PEC and the obligation is secured. At issue is really the potential for there to be a residual balance once the Development Costs are recovered from PEC, which would only arise in limited circumstances. Please refer to the response to BCPSO IRs.. and.. for maximum anticipated recovery from existing FEVI ratepayers under this scenario Would it be fair to say that the probability of this risk being realized multiplied by its value weighted against the probability of the benefits being realized multiplied by their value would provide a reasonable expected value for approving the request for the deferral account? Yes. In fact, the latter far outweighs the former in terms of expected value. There is very little risk for FEVI s existing customers in this Agreement, and there would be substantial benefits if the project proceeds. In the other case where the project does not proceed, the Commitment Fees will also be a benefit for FEVI s existing customers.

10 Page. Please confirm that future projections of energy use over the next 0 years worldwide involve substantial increases in the use of natural gas and reductions in the use of coal, as is shown in the Exxon Mobile Outlook forecast. FEVI has not completed a survey of projections of global energy use and therefore is not in a position to confirm this statement.

11 Page 0.0 Exhibit B-, Page 0. Please confirm that the use of a deferral account to hold the development costs of a project while it is in the process of development for later disposition dependent upon approval outcomes is a usual practice for the FortisBC Utilities including FEVI. FEVI confirms that it is usual practice to have deferral account treatment for feasibility costs and development costs for large capital projects as discussed in response to BCUC IR... The later disposition of the deferral account refers to the method of disposition that is, upon approval of the project the prudently incurred costs are usually capitalized as part of the project; whereas if the project is not approved, the prudently incurred costs are usually recoverable in another manner (for example amortization of the deferral account through rates). It is not common practice, nor would it be just and reasonable in FEVI s view, for the Commission to approve the deferral account on the basis that it could later disallow even prudently incurred expenditures. As a practical matter, that type of approval would not meet the requirements of the Development Agreement (refer to BCUC IR..).