August 29, Attention: Mr. Karl E. Gustafson, Q.C. Dear Sir:

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1 Scott A. Thomson VP, Finance & Regulatory Affairs and Chief Financial Officer Fraser Highway Surrey, B.C. V4N 0E8 Tel: (604) Fax: (604) Regulatory Affairs Correspondence Vancouver Island Gas Joint Venture c/o Lang Michener LLP Barristers & Solicitors West Georgia Street P.O. Box Vancouver, BC V6E 4N7 Attention: Mr. Karl E. Gustafson, Q.C. Dear Sir: Re: Terasen Gas (Vancouver Island) Inc. ( TGVI ) Application for a Certificate of Public Convenience and Necessity ("CPCN") for the Mt. Hayes LNG Storage Project and TGVI and Terasen Gas Inc. ("TGI") Approval of a Storage and Delivery Services Agreement (collectively the Project ) Project No TGVI-TGI Information Request ( IR ) No. 1 to the Vancouver Island Gas Joint Venture ( VIGJV ) In accordance with the British Columbia Utilities Commission Order No. G setting out the Regulatory Timetable for the Project, TGVI and TGI respectfully submit the attached IR No. 1 to VIGJV Evidence (Exhibit C1-5). If there are any questions regarding the attached, please contact Mr. Tom Loski, Director, Regulatory Affairs at (604) Yours very truly, TERASEN GAS (VANCOUVER ISLAND) INC. and TERASEN GAS INC. Original signed by: Tom Loski For: Scott A. Thomson cc: Commission Secretary Registered Parties ( only) Attachment

2 Page 1 1. Reference: Exhibit C1-5, Page 5, Line 23 to Page 6, Line 5: Mr. Guenther s evidence states that the dealings between TGVI and TGI are not at arms length and are not transparent. 1.1 Given that both utilities are regulated by the BCUC and the proposed Storage And Delivery Agreement is subject to BCUC approval, please explain what is not transparent? 1.2 Please explain why the Commission should be even more vigilant in its review of dealings between entities it regulates in which it has full access to information from both parties involved as compared to agreements in which in which the Commission only regulates one of the entities? 2. Reference: Exhibit C1-5, Page 7 lines 13 15: Mr. Guenther states In my experience, storage is allocated to cost of gas. This reflects the fact that gas supply savings and transportation cost is reflected to cost of gas component of the revenue requirements and rates. As stated in the Application, as an on-system resource the Mt. Hayes facility will provide both a peaking gas supply and system capacity to help TGVI to meet demands on the system during peak demand periods. The LNG Storage Facility also provides additional benefits that impact all customers including increased system capacity to meet incremental firm transportation demand, reduced commodity price volatility and increased operational flexibility with respect to balancing and operational efficiency. 2.1 Please confirm that if the LNG Storage Facility was not built TGVI would be required to expand its system through the installation of new compression and/or pipe facilities to meet its forecast of future demands on its system? Does Mr. Guenther believe that the cost of these facilities should be allocated to cost of gas? 2.2 Is Mr. Guenther aware that many other natural gas utilities have on-system peak shaving and/or storage facilities? Can Mr. Guenther comment on whether the costs of these facilities are allocated to the cost of gas? Please respond for these specific examples in the Pacific Northwest region: a) Northwest Natural s Portland and Newport LNG Peak Shaving facilities b) Northwest Natural s Mist Storage Facility c) Puget Energy s Gig Harbor satellite LNG facility d) Intermountain Gas Nampa LNG Peak Shaving Facility e) Terasen Gas Inc. s Tilbury LNG Peak Shaving Facility

3 Page Is Mr. Guenther aware that Westcoast Energy Inc. holds Aitken Creek storage capacity to provide operational flexibility and balancing resources to support its transmission service? How does Westcoast recover these costs? What would WEI s alternative to holding storage be? 2.4 Is Mr. Guenther aware that NW Pipeline retains a portion of its Jackson Prairie Storage capacity to provide balancing and operational flexibility to support its firm transmission service? How does NWP recover the costs associated with this storage capacity? What are NW Pipeline s alternatives to holding storage to support their transmission services? 3. Reference: Exhibit C1-5, Page 8, Lines 11 to 16: Mr. Guenther states in the referenced section that all the benefits to TGI of the LNG Storage facility are being allocated to the LNG Facility and the core market under what is a non-arms length agreement and TGVI/TGI Approach 1 and Approach 2. To my knowledge, this is unprecedented in relation to industry and regulatory practice. 3.1 What does Mr. Guenther mean by benefits to TGI? 3.2 Please provide references to the provisions in the proposed Storage and Delivery Services Agreement that indicated that all of the benefits to TGI are being allocated to the LNG Facility and the core market? 3.3 Please explain how the benefits to TGI are being allocated to the LNG Facility and the core market through the allocation approaches 1 and 2 that were provided as illustrative examples in the application? 3.4 Is Mr. Guenther aware that the Commission approved the LNG Storage and Delivery Storage Agreement between TGVI and TGI put in place to support the 2004 LNG Storage Facility CPCN application following a review that included submissions by intervenors? 3.5 Did that agreement include provisions on how the revenues from TGI would be allocated? 3.6 Please indicate the provisions of the proposed Storage and Delivery Services Agreement that are unprecedented? 3.7 Please confirm that the proposed Storage and Delivery Services Agreement defines the annual revenues payable by TGI to TGVI but does not define how TGVI allocates those revenues between customer classes?

4 Page Is Mr. Guenther aware that natural gas utilities typically engage in off system sales activities that include swaps at market points in order to mitigate the costs of holding storage and transmission resources in their gas supply portfolios. Further, is Mr. Guenther aware of the gas industry concept of virtual storage where the service is provided at a market point and injections and withdrawals using the service are not necessarily matched by a physical tie to storage at another location? Does Mr. Guenther view these arrangements as unprecedented in relation to industry and regulatory practice? 4. Reference: Exhibit C1-5, Page 10, Lines 7 to 10: In the reference, Mr. Guenther states that the proposed treatment is possible only because of the past amalgamation of the companies and common ownership and management. 4.1 Is Mr. Guenther aware that TGVI and TGI are separate legal entities and are separately regulated by the BCUC? If so, please explain what is meant by past amalgamation of the companies? 5. Reference: Exhibit C1-5, Page 10, Lines 7 to 10. Mr. Guenther says that TGVI/TGI suggest the LNG facility will avoid Pipe & Compression costs. 5.1 If pipe and compression facilities were built instead of the LNG Storage facility would Mr. Guenther consider it appropriate that all the costs of those pipe and compression facilities be considered as transmission-related costs? 6. Reference Exhibit C1-5, Page 10 lines 21 25: Mr. Guenther states that To the extent that the LNG facility and related Transmission facilities costs exceed the benefits, it may reflect the fact that without TGVI s extraordinary and inappropriate allocation of revenues under the storage agreement with TGI to the LNG project only, the project is not economic. 6.1 Please provide sample calculations that illustrate Mr. Guenther s proposal of allocation of revenues under the storage agreement referred to in the section would make the LNG project uneconomic? 6.2 How would a change in allocation of costs and revenues of the LNG Storage Facility change TGVI s position that the LNG Storage Portfolio is a more cost effective solution for meeting long term demand requirements than the Pipe and Compression portfolio? 7. Reference: Exhibit C1-5, Page 11, Lines 15 to 27: Mr. Guenther indicates that given the information at this time, he is not in a position to review and critique the benefit of the avoided costs.

5 Page Please confirm that Mr Guenther is familiar with the services provided by regional gas infrastructure operators including JPS Storage, NWP transmission, and WEI transmission? 7.2 Is Mr Guenther aware that TGVI has based the value storage benefit based on the avoided costs of holding incremental JPS Storage and NWP Redelivery capacity or WEI pipeline capacity? If Mr. Guenther is not so aware, please provide his understanding of the basis used by TGVI for the value of the storage benefit. 7.3 Please confirm that potential cost of gas savings from purchasing and storing the gas during off peak times would be also be realised if TGVI/TGI were to hold third party storage resources? What incremental benefit of this summer/winter differential would be realised by the Mt. Hayes facility relative to alternate storage resources? 8. Reference: Exhibit C1-5, Page 14 lines 14 20: The reference states: TGVI, with the approval of the Commission, has taken the following approach to Transmission service and tolling: 1. third party shippers such as BC Hydro are provided with non-firm service while paying firm and premium tolls; and 2. Potential shippers (other than TGI) are tolled on the basis of value of service or cost of constructing their own pipeline systems. 8.1 What is the understanding of the VIGJV or Mr. Guenther about what it would cost to construct a pipeline system to meet the firm demand requirements of the mills that are in the VIGJV? What would the toll be based on a full fixed variable cost of service methodology? How does this compare to the current transportation tolls paid by the VIGJV? 9. Reference: Exhibit C1-5, Page 18, Line 15 to Page 19, Line 18: The reference discusses the BC Hydro s transportation service requirements for ICP. 9.1 Is Mr. Guenther aware that BC Hydro has a current firm Transportation Service Agreement with TGVI that expires in December 31, 2008? 9.2 Is Mr. Guenther aware that ICP has fuel switching capability that allows it to operate on distillate fuel?

6 Page Is Mr. Guenther aware that BC Hydro has a Peaking Agreement with TGVI that is based on the availability of ICP s fuel switching capability? 9.4 Is Mr. Guenther aware that TGVI has not had to curtail firm transportation service to ICP since the facility first come into service? 9.5 It Mr. Guenther aware that TGVI offered a long term firm service agreement to BC Hydro during the last LNG project proceeding? 9.6 Is Mr. Guenther proposing that TGVI should put in place facilities to provide ongoing capacity for BC Hydro for ICP without a firm service contract or reserve existing capacity just in case BC Hydro needs it? 10. Reference: Exhibit C1-5, Page 19 lines 4 8: Mr. Guenther states The VIGJV companies are first off under conditions that affect critical natural gas service to ICP and under conditions where the electricity supply is constrained. For these reasons, the VIGJV is concerned about the Transmission service policy for BC Hydro and ICP. Without electricity, the VIGJV companies cannot operate and do not need natural gas How does TGVI s proposal to build the Mt. Hayes facility impact the dependability of ICP? 10.2 Please identify specific instances when the VIGJV companies have been unable to operate due to an interruption at ICP? 10.3 Is Mr Guenther aware that BC Hydro, through BCTC, is proceeding with the construction of the Vancouver Island Transmission Reinforcement project in order to allow BC Hydro to meet its system requirements during an N-1 contingency event?