March 31, 2006 File No.: VIA . British Columbia Utilities Commission 6th floor, 900 Howe Street Box 250 Vancouver, B.C.

Transcription

1 Fasken Martineau DuMoulin LLP * Barristers and Solicitors Patent and Trade-mark Agents Suite Georgia Street West Vancouver, British Columbia, Canada V6E 3G Telephone Facsimile March 31, 2006 File No.: C.B. Johnson, Q.C. Direct Facsimile cjohnson@van.fasken.com VIA British Columbia Utilities Commission 6th floor, 900 Howe Street Box 250 Vancouver, B.C. V6Z 2N3 Attention: Robert Pellatt Commission Secretary Dear Sirs/Mesdames: Re: Project No Terasen Gas (Whistler) Inc. and Terasen Gas (Vancouver Island) Inc. TGW 2005 Resource Plan Update, and TGW Application to convert Propane Grid to Natural Gas, and TGVI Application to construct Natural Gas Pipeline from Squamish to Whistler Enclosed is an electronic version of Submissions on behalf of Terasen Gas (Whistler) Inc. and Terasen Gas (Vancouver Island) Inc. with respect to the above applications. Yours truly, FASKEN MARTINEAU DuMOULIN LLP Original signed by C.B. Johnson C.B. Johnson, Q.C. CBJ/vde Encl DM_VAN/ / * Fasken Martineau DuMoulin LLP is a limited liability partnership under the laws of Ontario and includes law corporations. Vancouver Calgary Toronto Montréal Québec City New York London Johannesburg

2 BRITISH COLUMBIA UTILITIES COMMISSION IN THE MATTER OF the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 (the Act ) and A Submission by Terasen Gas (Whistler) Inc. for Review of its 2005 Resource Plan Update and An Application by Terasen Gas (Whistler) Inc. for a Certificate of Public Convenience and Necessity to convert its propane grid system to natural gas and approval to enter into a Natural Gas Transportation Service Agreement with Terasen Gas (Vancouver Island) Inc. and An Application by Terasen Gas (Vancouver Island) Inc. for a Certificate of Public Convenience and Necessity for a natural gas pipeline lateral from Squamish to Whistler SUBMISSIONS OF TERASEN GAS (WHISTLER) INC. AND TERASEN GAS (VANCOUVER ISLAND) INC. March 31, 2006

3 TABLE OF CONTENTS Page A. TGW RESOURCE PLAN...4 I. Introduction and Background...4 II. TGW Demand Forecast...5 III. Natural Gas Demand for NGV...9 IV. Propane Demand Scenarios...10 V. Summary of Demand...10 VI. Natural Gas and Propane Supply and Pricing...11 Transportation Supply & Logistics...11 Commodity Price Forecast...13 TGW s Natural Gas Portfolio Costs...14 VII. Financial Comparisons of Delivered Cost...15 Financial Arrangements...17 TGW Capital Contribution...17 Sensitivity Cases...18 IP Pipeline Tax Treatment...19 Competitiveness with Other Sources of Energy...20 Financial Comparison Summary...20 VIII. Other Benefits...21 B. STAKEHOLDER CONSULTATION...22 I. RMOW...23 II. Commercial Customers and Businesses...23 III. Private Citizens...24 IV. First Nations...24 V. Summary...25 C. TGW APPLICATION FOR A CPCN...25 I. Summary of the Application...25 II. Existing Propane Distribution System...26 III. Propane Options to meet Future Loads...27 IV. Capital Cost Estimates for the Whistler Natural Gas Project...28 V. TGW Rate Base Treatment...29 VI. Capital Cost Risk Sharing Mechanism...30

4 Page TABLE OF CONTENTS (continued) (page) D. TGVI APPLICATION FOR A CPCN...30 I. Intermediate Pressure Pipeline Project Description...31 II. Capital Cost Estimates...31 III. Project Schedule...33 IV. Impact on Upstream Facilities...33 E. TRANSPORTATION SERVICE AGREEMENT...34 I. Form of Agreement...34 II. TGW Contract Demand and Tolling Methodology...34 F. CAPITAL CONTRIBUTION AGREEMENT...37 G. Other...38 H. TIMING REQUIREMENTS...38 I. CONCLUSION...38

5 BRITISH COLUMBIA UTILITIES COMMISSION IN THE MATTER OF the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 (the Act ) and A Submission by Terasen Gas (Whistler) Inc. for Review of its 2005 Resource Plan Update and An Application by Terasen Gas (Whistler) Inc. for a Certificate of Public Convenience and Necessity to convert its propane grid system to natural gas and approval to enter into a Natural Gas Transportation Service Agreement with Terasen Gas (Vancouver Island) Inc. and An Application by Terasen Gas (Vancouver Island) Inc. for a Certificate of Public Convenience and Necessity for a natural gas pipeline lateral from Squamish to Whistler SUBMISSIONS OF TERASEN GAS (WHISTLER) INC. AND TERASEN GAS (VANCOUVER ISLAND) INC. 1. These submissions of Terasen Gas (Whistler) Inc. ( TGW ) and Terasen Gas (Vancouver Island) Inc. ( TGVI ) (jointly the Companies ) to the British Columbia Utilities Commission ( Commission or BCUC ) relate to the TGW Resource Plan Update filed with the Commission under cover of letter dated December 12, 2005, the Application of TGW for a Certificate of Public Convenience and Necessity ( CPCN ) to convert its propane system in the Resort Municipality of Whistler ( RMOW ) to natural gas, and the Application of TGVI for a CPCN to construct and operate an intermediate pressure pipeline (the "IP Pipeline") from

6 - 2 - Squamish to Whistler to connect to the distribution system of TGW. The Applications of TGW and TGVI were filed with the Commission under cover of a letter dated December 14, The Applications before the Commission request that the Commission: (a) (b) (c) (d) (e) (f) (g) issue, pursuant to section 45 of the Act, a CPCN to TGW for conversion of its propane system to natural gas; issue, pursuant to section 45 of the Act, a CPCN to TGVI for the construction and operation of the intermediate pressure pipeline from Squamish to Whistler; grant its permission, pursuant to section 41 of the Act, for TGW to cease the operation of its propane distribution service when natural gas service commences; approve the transfer of the net book value of the propane facilities (less salvage value of the propane tanks) and net proceeds from the sale of land into a deferred charge for recovery in rates over a 20-year period (5% amortization rate) commencing in 2009; approve the recovery of pipeline study costs incurred prior to 2004 and currently recorded in a non-rate base deferral account; approve the Transportation Service Agreement between TGW and TGVI; and approve the Capital Contribution Agreement between TGW and TGVI. 3. TGW currently provides propane service via a piped distribution system to residential and commercial customers in the Whistler area. Distributed propane service in Whistler was first established in 1980 by the RMOW. The system was later purchased by a predecessor to TGW. Since that time the system has been significantly expanded to meet the growth in the resort municipality. Today the TGW system is the largest distributed propane system in Canada and one of the largest in North America. Resource Plan Update, Exhibit B1-1, page 2 4. TGVI operates an integrated natural gas transmission and distribution system that provides service to approximately 85,000 residential, commercial and industrial customers on Vancouver Island and the Sunshine Coast. TGVI also transports gas for British Columbia Hydro and Power Authority ( BC Hydro ), the Vancouver Island Gas Joint Venture ( VIGJV ) and to Terasen Gas (Squamish) Inc. ( TGS ). TGVI s transmission system commences at Coquitlam, passes through Squamish, crosses the Strait of Georgia to the Courtenay-Comox area and extends north to Campbell River and south to Victoria. TGVI began service in TGVI CPCN Application, Exhibit B2-1, page 1 5. Piped gas systems in North America normally distribute natural gas to customers, and natural gas is transported from supply areas through pipeline transmission systems. Distributed

7 - 3 - propane service is often used by utilities to serve locations that are either small or remote until such time it economically feasible to extend natural gas service to the community. This was the case when the propane system was put in service in Whistler. Today the Whistler load is much larger than that of many of the communities in which Terasen Gas Inc. ( TGI ) provides natural gas service. In addition, the completion in 1991 of the TGVI transmission system that runs through Squamish means that natural gas is in reasonable proximity to the Whistler area. 6. The RMOW and local stakeholders strongly support the extension of natural gas service to Whistler. The municipality has recently completed its Comprehensive Sustainability Plan, Whistler 2020: Moving toward a Sustainable Future, that sets out the resort community s values, priorities and strategies for achieving its long-term vision of a sustainable community. Conversion of the existing propane system to natural gas will help the municipality meet many of its sustainability objectives through the reduction of green house gas emissions and improvements in air quality. Further improvements in local and regional air quality can be realized through the implementation of natural gas vehicle ( NGV ) programs to replace diesel and gasoline fleets. In addition, the construction of a natural gas pipeline to service Whistler will eliminate the impact of rail and road transport deliveries and the need for propane offloading and storage sites currently within municipal boundaries. Resource Plan Update, Exhibit B1-1, pages 7 to There are several other events and other issues which support the feasibility and desire to extend natural gas service to Whistler at this time: The current propane system is operating at design capacity and there are very limited options for expanding the propane system to meet new loads and to continue providing reliable service; The propane supply logistics are becoming increasing complex due to the size and nature of Whistler s energy load and the transfer of rail service from BC Rail to Canadian National Railway ( CN Rail ); There is no community support for expansion of the propane system to meet future growth; Whistler will be hosting the 2010 Winter Olympics and will be depending on secure and reliable service. The Olympic Games are also expected to spur additional development and increase the occupancy rate to peak levels in the RMOW; and

8 - 4 - The Sea to Sky Highway upgrade project is currently underway and provides TGVI a unique opportunity to lower construction costs, reduce road disruptions and minimize stakeholder impacts. The Resource Plan Update confirms that the conversion of the propane system to natural gas is the most cost effective means of serving the community s energy needs. In addition, natural gas will also increase the reliability of supply, decrease rate volatility and provide significant environmental and socio-economic benefits that would not be realized with the propane system. 8. In summary, TGW proposes to convert its existing propane distribution system to natural gas and to enter into a long-term agreement with TGVI for natural gas transportation service from Huntingdon to Whistler beginning in the fourth quarter of TGVI proposes to construct, own and operate a new pipeline lateral that extends its existing transmission system from Squamish to Whistler in order to provide service to TGW. A. TGW RESOURCE PLAN I. Introduction and Background 9. In August 2004 TGW submitted its 2004 Resource Plan to the Commission. In that Plan TGW reviewed its resource options for meeting the existing and future energy requirements in Whistler under various demand scenarios and concluded that extending natural gas service to Whistler through a pipeline from Squamish was the preferred alternative. As TGW was completing its 2004 Resource Plan the RMOW was refining its community planning goals and objectives. The RMOW has completed its comprehensive sustainability plan, Whistler 2020: Moving toward a Sustainable Future. The preparation of the TGW 2005 Resource Plan Update has taken into account the community s vision of a sustainable community. 10. TGW s resource planning process, which is presented in its 2005 Resource Plan Update, has been used to assess the current and future energy requirements in Whistler and the resource options available to TGW to meet those requirements. The resource options have been measured against TGW resource planning objectives to provide a balanced assessment by examining financial impacts, security and reliability of supply, rate volatility and environmental benefits. The 2005 Resource Plan Update provides an updated evaluation of both propane and natural gas options. The conclusion of the Resource Plan Update is that the best energy resource for meeting Whistler s requirements is to extend natural gas service to the

9 - 5 - community through the construction of a natural gas pipeline and conversion of the existing propane system. II. TGW Demand Forecast 11. In the Resource Plan, TGW has developed three scenarios in order to examine a range of annual and design day forecasts of natural gas or propane demand that takes into account economic, social and technological factors. The three scenarios were identified as: "Business As Usual", "Sustainable Technology" and "Aggressive Technology". The primary difference between each of the forecast scenarios is the level of implementation of sustainable energy technologies such as ground source heat pumps ( GSHPs ) and natural gas vehicle programs. As a baseline, in order to address the RMOW s objective to implement renewable energy systems for new neighbourhood developments, all of the demand scenarios assume there is no natural gas or propane demand associated with any greenfield development. Resource Plan Update, Exhibit B1-1, Sections 4.4 and The implementation of NGV programs in Whistler will only be realized if natural gas service is brought to the community, therefore there is no transit or vehicle load included in the propane demand forecasts associated with the demand scenarios. While propane fuelled vehicles are a reality, the application of the technology is limited, and the environmental benefits are not as significant. In any event, to the degree that propane vehicle programs can be implemented, the refuelling systems are independent and would not be part of the TGW s propane distribution system. Exhibit B1-5, response to BCUC IR 1, Q page TGW considers the Sustainable Technology outlook to be the most reflective of a scenario that balances expected customer demand growth and the Community s desire to implement renewable energy systems against economic and technical feasibility. In this scenario, in addition to the implementation of alternate energy systems for all greenfield developments, it is assumed that over time some of the existing commercial customer load leaves the system as energy systems are converted to combined gas/gshp systems. The scenario also includes the natural gas load associated with RMOW s intention to implement NGV technology for the transit and municipal vehicle fleets, and, to a small degree, load of other resort and shuttle fleet operators expected to do the same. Resource Plan Update, Exhibit B1-1, page 21

10 The Business as Usual ( BAU ) and Aggressive Technology scenarios were also developed to provide the likely outside limits of possible outcomes. The BAU scenario is primarily based on using past performance as an indicator of future demand growth. In this scenario, commercial customers are assumed to be unwilling to make the investment required to retrofit their energy systems and therefore continue to rely on propane or natural gas as their primary source of heating energy. Similarly, NGV technology is implemented to a much smaller degree than in the other scenarios. Overall the natural gas demand in the BAU scenario is much greater than in the Sustainable Technology and Aggressive Technology scenarios. Resource Plan Update, Exhibit B1-1, page In the Aggressive Technology scenario, conversions of existing heating loads to GSHP energy systems are implemented much more extensively and rapidly than in the other scenarios. TGW expects that to reach that level of alternative energy implementation, significant financial support from provincial and federal governments will be required. In addition, significant investment in alternate technologies would need to come from end users/customers. This scenario also assumes that the support for investment in alternate and cleaner technologies would also result in greater degree of NGV implementation. Overall this scenario forms the lower boundary of likely demand outcomes. Resource Plan Update, Exhibit B1-1, page TGW s assessment of the use of renewable energy systems for greenfield developments and conversions of existing propane or natural gas loads to combined GSHP/NGV was developed with input from the RMOW and energy consultants to ensure that the amount and timing of the implementation of these technologies were appropriately incorporated into the three demand outlook scenarios. The overall impact of implementing this technology in the Sustainable Technology outlook scenario is discussed in Exhibit B1-11, in the response to CEC question 4, pages 4 to 6, and is summarized in the following figure:

11 - 7 - Resource Plan Update, Exhibit B1-11, pages 5 and 18 to In the above figure, Line A represents the expected energy requirement that could be served by propane and/or natural gas systems based on the forecast of future growth of the community. TGW s natural gas demand outlook excludes any load from greenfield developments, and therefore the demand forecast is restricted by the Business as Usual scenario as illustrated by Line B. The expected annual demand for natural gas under the Sustainable Technology scenario is represented by Line C. The area between Lines C and B therefore represents the energy load that is expected to be provided through alternative energy systems in the Sustainable Technology scenario. This figure illustrates that TGW has considered the impact of Whistler s sustainable energy strategy in its forecasts, including the potential for the implementation of renewable district energy systems. The figure also illustrates that to the degree that customer retrofits from gas to the GSHP system occur at a slower pace, and/or there is some natural gas load associated with greenfield developments, there is the reasonable potential for the natural gas demand to be higher than contemplated by the Sustainable Technology scenario. Exhibit B1-11, responses to CEC IR 1, Qs. 4.3, 4.4, 4.5 and As discussed in Section 5 of the Resource Plan Update, TGW believes the Sustainable Technology demand scenario reflects a balance of expected customer growth, the RMOW s sustainability objectives and the technical and economical feasibility of converting existing

12 - 8 - propane or natural gas loads to renewable energy systems. In establishing the reasonableness of the associated design day and annual demand forecast associated with residential customers for this scenario, TGW reviewed a number of factors including customer additions, use per customer trends, occupancy rates in Whistler, potential conservation measures and the RMOW s bed cap development limit. Resource Plan Update, Exhibit B1-1, page 24 and 34 Exhibit B1-4, response to BCUC IR1, Qs. 9.1, 9.2, 9.3.1, 9.4, and 9.6 Workshop Presentation, Exhibit B1-7, Slides 91, 93 and TGW has taken into account recent trends in use per customer in preparing its forecasts of energy demand. The biggest segment of demand is associated with the large commercial customers (LGS-3), which represent the large resort hotels. In the last few years the annual use rate for these customers has been influenced by low resort accommodation occupancy rates and end-use conservation measures. TGW has incorporated these downward trends in its forecast of energy demand, however based on information provided by the RMOW and other stakeholders; occupancy rates are expected to improve. For example, as a winter resort destination, occupancy rates in recent years have been significantly impacted by poor snow conditions, a weakened US dollar, added hotel room capacity and the effects of 9/11. The RMOW s objective is to increase occupancy rates by promoting Whistler as a year-round destination resort and controlling the rate of new developments through implementation of its bed cap. The addition of new more affordable employee housing in Whistler will also put upward pressure on use per customer as many employees currently commute from neighbouring communities. While TGW has accepted the current bed cap limit for its demand forecast, any future changes to the bed cap development limit, will result in higher than forecasted customer additions and therefore greater annual demand than is reflected in the forecast scenarios. Exhibit B1-11, responses to CEC IR1, Qs. 4.1, 5.1, 12 Resource Plan Update, Exhibit B1-1, page 24 Workshop Presentation, Exhibit B1-7, Slides 96 and 97 Exhibit B1-4, responses to BCUC IR1, Qs , 9.4 and Occupancy rates are expected to reach their highest, during the 2010 Olympics. Although TGW is not planning its facilities strictly to meet the requirements of this short term event, increases in the occupancy rates will further increase the system peak during this time period beyond the current reliable capacity of the existing propane system. This would be true even if no further customers were added to the Whistler propane system between now and the commencement of the Olympic Games. In order to ensure the safe and reliable provision of

13 - 9 - energy to support the Olympic Games, temporary facilities or other measures will be required if natural gas service is not available. These alternative supply measures will add cost and complexity in terms of supply logistics and security. By contrast, the IP Pipeline will provide adequate capacity to safely and efficiently meet the community s peak day requirements during and after the Olympic Games. Resource Plan Update, Exhibit B1-1, pages 25 and 77 Exhibit B1-15, responses to BCUC IR 2, Qs. 64.6, 65.1 and TGW s demand forecasts do not include specific energy loads associated with the 2010 facilities, which could be served with natural gas if it is available. While still in the planning phase, it is expected that natural gas will be required at the new Athlete Village to provide fuel for cooking, fireplaces and back-up for the renewable energy system. The consideration of increased energy load due to short term high occupancy rates or other loads associated with such a major event highlights the limitations and lack of resilience of the propane system and the importance of the window of opportunity currently available to TGW and TGVI to implement the natural gas resource alternative to serve Whistler. Resource Plan Update, Exhibit B1-1, pages 25 and 77 Exhibit B1-15, responses to BCUC IR 2, Qs. 64.6, 65.1 and 65.4 III. Natural Gas Demand for NGV 22. The future NGV load included in the demand forecasts is an important element of the RMOW s sustainable energy strategy. The load identified in the demand forecast for NGV fleets is based on existing and planned energy loads that are currently supplied by other energy types, generally gasoline and diesel. Converting these loads to natural gas provides significant air quality and GHG reduction benefits that are fundamental in moving Whistler toward its sustainability goals. In the Sustainable Technology scenario, TGW has only included natural gas load from vehicles in these fleets for which the technology to switch from conventional fuels to natural gas is currently available. With the development of new technologies and applications, the NGV demand could be higher than reflected in this scenario. Resource Plan Update, Exhibit B1-1, Section 4.6.2, pages 25 to 29 Exhibit B1-4, responses to BCUC IR1, Qs. 13.1, , and 50.4 Exhibit B1-4, responses to BCUC IR1, Qs. 28.2, Attachments 28.2A and 28.2B 23. The RMOW Council passed resolutions in support of pursuing a natural gas for vehicles strategy that included the conversion of municipal vehicles and working in partnership with the transit and waste haulers to implement NGV. Given the RMOW s strong commitment to an

14 NGV strategy, TGW believes that the NGV demand represents a reasonable expectation of future demand under the Sustainable Technology scenario from this customer segment. IV. Propane Demand Scenarios 24. The demand forecast scenarios were developed for both natural gas and propane. The current propane system is operating at design capacity and there are very limited options for expanding the propane system to meet new loads while continuing to provide reliable service. In addition, there is no community or municipal support for continued operation or expansion of the propane system. Therefore, TGW has not considered a high demand or Business As Usual propane scenario. In the Sustainability Technology Scenario, two demand scenarios for propane were developed. The No Expansion scenario assumes that customer load additions are limited to that which can be met with the existing system, while the Expansion scenario assumes that new loads can be accommodated through the construction of a third storage site and associated facilities. TGW does not consider expansion of the propane system a viable option, therefore the Expansion scenario is provided for comparison purposes only. Resource Plan Update, Exhibit B1-1, page 23, Table 4-1 Exhibit B1-4, response to BCUC IR 1, Q. 2.1, page 2 V. Summary of Demand 25. TGW has worked very closely with the RMOW to find an economic and technically feasible energy solution that meets its community energy planning needs for reliable energy supply and sustainability. Each of TGW s forecast scenarios assumes varying degrees of implementation of renewable forms of energy, based on specific measures to incorporate alternative energy systems through a combination of government funding and customer investment. The BAU scenario, which results in the highest demand of the three scenarios, is based on implementing alternative energies on new greenfield developments only, as these are the most easily implemented and are more economically feasible than retrofitting existing buildings. TGW believes that the Sustainable Technology scenario reasonably represents the economic and technically feasible level at which this renewable energy systems can be implemented in both greenfield and existing development sites where there is support from the end use consumer to move toward alternate energy systems. To the degree that consumers choose not to invest in alternative energy technology and instead remain on conventional gas technology, TGW expects that actual demand will move higher than the Sustainable Technology level toward the BAU scenario. Similarly, to the degree that greenfield sites utilize natural gas as a supplemental energy (for back-up load, fireplaces and/or cooking), TGW also expects

15 actual demand to rise above that reflected in the Sustainable Technology level. In order to reach the Aggressive Technology scenario demand level, significant levels of government funding will be required to reduce the high cost and other implementation barriers for retrofitting existing buildings for alternative energy technologies. In recognition of these factors, TGW submits that the natural gas demand represented by the Sustainable Technology scenario is reasonable and should be accepted by the Commission. VI. Natural Gas and Propane Supply and Pricing 26. The propane distribution system in Whistler has grown far beyond original expectations and is beyond the size and scale of other similar propane distribution systems in British Columbia as indicated in Exhibit B1-1 table 1-1 page 3. As the largest piped propane system in Canada, transportation and storage requirements in Whistler are unique and greater than any other such systems. In effectively managing deliveries to Whistler, TGW is required to procure and deliver energy in the most cost effective, reliable and efficient manner possible. With its added scale and supply logistics complexity, this is becoming increasingly more difficult to achieve with the propane system. Transportation Supply & Logistics 27. A natural gas pipeline to Whistler is inherently a more secure and simplified means for the delivery of energy to the community than rail or truck movements of propane. Natural gas pipeline networks provide an automated and continuous flow of energy from source to end-use customer. As an underground utility, pipelines are generally only vulnerable to extreme acts of humans or nature. In comparison, a propane system is more complicated as a batched delivery system which requires a significant number of interactions and transactions up to and including the offloading process in Whistler. The involvement of multiple human interactions raises the potential for negative events, causing delays in transit and resulting in the potential for supply shortfalls or higher costs to maintain reliability. Workshop Presentation, Exhibit B1-7, Slides 72 to 74 Exhibit B1-15, responses to BCUC IR2, Qs and 67.9, page 31 Exhibit B1-15, response to BCUC IR2, Q. 84.1, page As a batched delivery system, the provision of reliable propane supply becomes increasingly difficult to manage as a community grows. With the limited propane storage in Whistler and changes to rail operating practices following the acquisition of BC Rail services by CN Rail, there is little flexibility in the event of a rail disruption, resulting in reduced security of

16 supply. An example of a significant development impacting supply reliability is that CN Rail cannot store loaded tank cars in Squamish. Historically, TGW had an agreement with BC Rail whereby the rail company stored propane tank cars at its Squamish siding which could be shuttled to Whistler on short notice and help maintain supply reliability during peak periods. This service is no longer available. Resource Plan Update, Exhibit B1-1, page 10, Section 3.1 Exhibit D-4, Letter from MP Energy, paragraph 4 Exhibit D-3, Letter from CN Rail, paragraphs 2 and The possibility of increasing propane railcar storage at or near Whistler was examined but determined to be impractical. The expansion of the Mons facility to hold additional railcars, in addition to public and municipal opposition, would create significant safety issues if an attempt were made to use the railway tank cars to create secondary storage. Further, propane railway tank cars are designed for transportation, not storage. Railcar staging at alternative locations was evaluated in Whistler Propane Offloading Feasibility Study prepared by Fransen Engineering (Appendix 56.1b, Exhibit B1-4), however no suitable alternatives were identified. Resource Plan Update, Exhibit B1-1, page 38 Exhibit B1-4, response to BCUC IR1, Q. 56.1, page 115 Exhibit D-3; Letter from CN Rail, paragraph To manage the CN Rail reliability problems and the reduced operational flexibility resulting from the elimination of staging at the Squamish rail yard, TGW in consultation with MP Energy increased the number of truck deliveries to the Nester s Plant through the 2005/2006 winter. MP Energy advised that the commitment to a set volume for truck supply would help secure the availability of trucking and supply capacity in the Vancouver area. Currently there are no propane production facilities in the Vancouver area, so propane has to be either brought in by truck or railway tank car and terminalled, or trucked up from the Puget Sound refineries. Carriers do not have trucks available on standby as they seek to maximize profits by keeping their equipment and drivers working at all times. A minimum commitment to the carrier is required if there is to be service. In MP Energy s opinion, it is paramount to have this commitment in order to preserve the delivery flexibility to service a grid system of Whistler s magnitude. Exhibit D-4, Letter from MP Energy, paragraph The addition of incremental trucks to TGW s transportation portfolio increases the blended transportation charge by 3.2% and also increases the truck traffic on the Sea to Sky

17 highway. While truck deliveries are used to temper rail disruptions, they do not provide supply reliability that is equivalent to the inherent reliability of a natural gas pipeline. Exhibit B1-15, TGW response to BCUC IR 2, Q Commodity Price Forecast 32. Propane prices generally trade at a premium to natural gas, and therefore extension of natural gas service to Whistler will provide TGW s customers with reduced commodity costs. Although propane is produced from both crude oil refining and natural gas processing, propane primarily competes with oil based fuels, and therefore historically follows oil commodity prices. If natural gas prices spike during short periods of high volatility, propane will follow since natural gas processors have the option of leaving propane in the natural gas stream and selling it for the price of natural gas. Resource Plan Update, Exhibit B1-1, Section 3.3, page 13 to14 Exhibit B1-7, Slices 81 to In order to compare the propane and natural gas options and to determine relative customer rate impacts, TGW has used the January 1, 2006 commodity price forecast provided by GLJ Petroleum Consultants Ltd. ( GLJ ). GLJ is a private energy industry consultant that provides natural gas and oil products price forecasts on a quarterly basis. The GLJ forecasts are based on tracking trends in oil and gas industries and the cost of competing fuels. TGW is confident in the reasonableness of the GLJ forecast by comparing it to other industry information that is generally available. As discussed in the response to BCUC IR 1, question 21.5 (Exhibit B1-4, page 43-44), GLJ's natural gas price forecast falls within the range of EIA price forecasts and is slightly, but not unreasonably, lower than the NYMEX forward curve. Exhibit B1-4, Attachment 22.2 GLJ January 2006 Quarterly Report Resource Plan Update, Exhibit B1-1, page 15, section The GLJ forecast shows that propane prices are forecast to move in direct relationship with oil prices. In order to test the reasonableness of the GLJ forecast of the relationship between propane and natural gas, TGW compared the GLJ relationship between oil and natural gas with the NYMEX forward curve differentials based on the January 3, 2006 price strip (Exhibit B1-15, responses to questions 87.1 and 87.2). As shown in the data reproduced below, GLJ is forecasting that crude oil and natural gas relationship will narrow to a 6:1 relationship in the near term and gradually widen to a 7:1 relationship in over the longer term. In contrast, the NYMEX forward curve showed a 6:1 relationship widening to a 9.1 relationship. In other words, since propane prices will follow oil prices, the GLJ analysis forecast of differential between

18 natural gas and propane is narrower, and therefore more conservative, than the relationship forecast using the NYMEX data. In addition, the GLJ forecast relationship is narrower than has been seen on average through the last decade. TGW submits that, on a relative basis, the propane and natural gas price forecasts used in the evaluation of the proposal to extend natural gas service to Whistler are reasonable. Constant 2006$ Year WTI Crude Henry Hub Oil Natural Gas Ratio $/bbl $/mmbtu Est Actual Forecast TGW s Natural Gas Portfolio Costs 35. In order to provide an estimate of the average cost of a natural gas portfolio for TGW s distribution customers, a midstream charge was applied against the GLJ commodity price forecasts. For long-term forecasts, TGI currently estimates that under normal weather conditions a midstream rate of $0.85/GJ applied against the AECO price forecast is a reasonable approximation. Similarly, TGVI uses an estimated midstream charge of approximately $0.51/GJ applied against the Sumas commodity price forecast. As would be expected, these two approaches result in very similar forecast of the cost of gas delivered at Sumas for TGW. When these midstream charges are applied to the AECO and Sumas GLJ

19 forecasts, the difference is determined to be approximately Cdn$0.06 per GJ on a levelized basis over 15 years (less than 1%). TGW therefore considers that the use of a midstream charge of $0.85/GJ applied to the AECO price forecast is a reasonable approach to use to forecast the average unit cost of natural gas for TGW. Exhibit B1-4, TGW response to BCUC IR1, Q Exhibit B1-4, TGW response to BCUC IR1, Q. 22.6, page 51 VII. Financial Comparisons of Delivered Cost 36. TGW discussed the financial impacts of converting its distribution system from propane to natural gas service in Section 7 of the TGW 2005 Resource Plan Update (Exhibit B1-1). Page 60 of Exhibit B1-1 presented TGW s conclusion: The natural gas pipeline scenario provides a lower delivered cost of energy across a range of demand and capital cost sensitivities than the existing propane system does. As such a natural gas solution would enable TGW to improve its competitive position against other energy sources going forward and maintain the viability of the utility and its ability to meet Whistler s energy needs in a costeffective and reliable manner. In the regulatory process between the filing of the Applications and these submissions a number of changes and updates have been made to the financial analyses, but the conclusion that natural gas represents the preferred resource option to serve Whistler remains unchanged. 37. The final updates to the financial analyses incorporate the effects of the March 2, 2006 BCUC Decision on return on equity and capital structure for TGVI. The latest changes were filed in the evidentiary update dated March 17, 2006 (Exhibit B1-28) with additional supporting information filed on March 24, 2006 (Exhibit B1-31). The following charts from pages 7 and 10 of Exhibit B1-28 depict the comparison of the natural gas and propane scenarios, as updated.

20 Chart from Attachment 1, Page 7 of Exhibit B1-28 Natural Gas Capital Cost Scenarios vs. Propane Base Case $25 Sensitivity to Capital Cost 15-yr Levelized Average Unit Costs ($/GJ) 5.76% Discount Rate $20 $15 $10 $5 $15.92 $8.26 $2.73 $16.65 $8.26 $2.73 $17.42 $17.52 $8.26 $12.88 $2.73 $4.94 $5.67 $6.44 $4.64 $- Pipeline - Low Capital Cost Pipeline - Base Case Pipeline - High Capital Cost Propane: Base Case - No Expansion TGW Delivery Margin TGVI Transport Cost of Gas Chart from Attachment 1, Page 10 of Exhibit B1-28 Demand Scenarios - Natural Gas vs. Propane $25 Sensitivity to Demand Forecast 15-yr Levelized Average Unit Costs ($/GJ) 5.76% Discount Rate $20 $19.61 $15.41 $15 $10 $5 $17.84 $12.88 $17.52 $12.88 $19.78 $17.38 $12.88 $8.25 $2.74 Long Run Marginal Electricity (2% escalation) $16.65 $8.26 $2.73 Weighted BCH Tariff (1% escalation) $16.24 $8.27 $2.74 $4.96 $4.64 $6.90 $6.39 $5.67 $5.24 $- Propane: Low Case - No Expansion Propane: Base Case - No Expansion Propane: Base Case - Expansion Pipeline - Low Demand Pipeline - Base Case Pipeline - High Demand TGW Delivery Margin TGVI Transport Cost of Gas

21 The charts demonstrate that for TGW customers in Whistler the natural gas scenarios are better than the propane scenarios under most demand cases and capital cost cases, and no worse than comparable under all scenarios. Financial Arrangements 38. In the proposed financial arrangements associated with natural gas service to Whistler, TGVI will construct and own the IP Pipeline and the final pipeline capital costs will be added to the rate base of TGVI. A capital contribution will be made by TGW to TGVI which will be credited in TGVI s rate base against the gross IP Pipeline capital addition. TGVI CPCN Application, Exhibit B2-1, page TGW will become a transportation service customer on the TGVI transmission system and pay tolls based on its allocated share of the TGVI transmission cost of service. The allocation to TGW will be based on a forecast made annually of the TGW peak day requirements using established and approved transmission cost allocation principles for core market loads on the TGVI system (Exhibit B1-24, page 3). The costs allocated to TGW will be based on the full fixed variable methodology currently approved for TGVI by the Commission s June 5, 2003 Rate Design Decision, or such other tolling methodologies as may be approved in future by the Commission. Exhibit B1-24, response to BC Hydro IR2, Q 1.0 (b) Exhibit B1-13, response to BC Hydro IR1, Q 2.0 (a) and (c) 40. The costs allocated to TGW annually will be converted to a Unit Toll by dividing the total allocated cost by the forecast TGW annual throughput (Exhibit B1-2, Appendix 2, page 5). The Unit Toll approach is fair and reasonable since it places a similar revenue recovery obligation on TGW as is required of other core market customers on the TGVI system. Exhibit B1-13, response to BC Hydro IR No.1, Q. 2d, page 3 TGW Capital Contribution 41. The TGVI rate base addition and the TGW capital contribution amounts were determined on the basis of having the forecast annual revenues paid by TGW to TGVI equal the net incremental cost of service of the IP Pipeline on a present value basis over a 15-year period ( inclusive). These calculations make use of the Sustainable Technology demand scenario and base capital costs. Based on these assumptions it is proposed that the TGVI net rate base addition will be limited to $21.6 million. Under the base capital cost scenario the capital contribution paid by TGW to TGVI at the time natural gas service is put in place would be

22 $15.5 million. Under these assumptions, as illustrated in Exhibit B1-28, Attachment 1, page 24, TGVI customers will realize a financial benefit of $0.5 million arising from the expected TGW toll revenue exceeding the net cost of service for the IP Pipeline over the longer term. Additional benefits to TGVI customers will occur if the IP Pipeline qualifies for 8% CCA tax treatment as discussed below. Evidentiary Update, Exhibit B1-28, page It is proposed that TGW bear the risk of variations in the capital costs from the base cost scenario. The TGW capital contribution will therefore be the actual pipeline capital costs less $21.6 million (Exhibit B1-28, page 2). If the actual pipeline capital cost exceeds the base capital cost of $37.1 million (Exhibit B1-28, Attachment 1, Page 23) the capital contribution will be greater than $15.5 million and conversely, if the actual capital cost is less than the base capital cost, the capital contribution will lower than $15.5 million. The limitation on the TGVI rate base addition to $21.6 million provides an important element of risk mitigation to TGVI s existing customers associated with adding TGW as a customer on the TGVI system. Sensitivity Cases 43. The first chart in paragraph 37 above displays the effect of the base, high and low capital cost scenarios on the delivered cost of energy in Whistler. Under the low and base capital cost scenarios, the forecast delivered cost of energy is lower for natural gas than for the "No Expansion" propane scenario. Under the high capital cost scenario, the delivered cost of energy for natural gas is similar to that in the "No Expansion" propane scenario. Since the TGVI rate base addition will be limited to $21.6 million, TGVI customers are sheltered from the effects of capital cost variations. 44. The second chart in paragraph 37 above displays the effect of demand forecast variations on the delivered cost of energy in Whistler. The natural gas scenarios are better than the corresponding propane scenarios on this comparison. 45. An additional demand forecast variation that was reviewed in response to Commission information requests (Exhibit A-3, Question 11, Exhibit A-7, Question 46 and Exhibit A-21) was to conduct the financial analyses excluding NGV load. An analysis of the base case demand - base capital cost scenario adjusted to exclude the NGV load indicated the levelized delivered cost for natural gas was comparable to the "No Expansion" propane scenario (compare Exhibit B1-31, Attachment 2, Table 1, Lines 4 and 7). Note that in the "No Expansion" propane

23 scenario, TGW has suspended customer additions to its systems, and the financial comparison does not include the cost for this load to be met by other resources. 46. TGW does not submit that there are no circumstances in which the delivered cost of natural gas in Whistler is higher than for propane. This could occur if there is a compounding of negative factors such as those that were updated in response to Exhibit A-21 based on assumptions initially set out in Exhibit A-3, Question 11. These assumptions included high capital costs, an alternate approach to establishing the premium for propane over natural gas based on historic pricing differentials, exclusion of the forecast NGV load and others. As discussed above TGW believes that the commodity price forecasts that it has used in the evaluation of the natural gas and propane options are consistent with current market fundamentals and industry opinion and therefore are reasonable. With respect to NGV load TGW believes its forecast of future NGV load is reasonable based on support for NGV from the RMOW and other parties in Whistler. While the information provided in Exhibit B1-31, Attachment 2, Table 2 provides information about possible outcomes with respect to natural gas and propane in Whistler, TGW submits that the likelihood of all the negative assumptions specified in Exhibit A-3, Question 11 occurring is very limited and the Commission should give little if any weight to that compounding of negative factors. TGW submits that the evidence in this proceeding fully supports the conversion of the Whistler distribution system to natural gas. IP Pipeline Tax Treatment 47. Exhibit B1-28 provides an analysis of a different tax treatment for the pipeline on the basis that it qualifies for CCA Class 49, which is a new CCA class for transmission pipelines that has an 8% CCA rate. As discussed at page 3 of Exhibit B1-28, there is a reasonable likelihood that the pipeline will qualify for Class 49 when the relevant tax legislation is passed into law. However, the Applications and financial calculations are based on a Class 1-4% CCA tax treatment of the pipeline. Exhibit B1-28 identifies a present value benefit over fifteen years of approximately $1.9 million for TGVI transmission customers, and a benefit to TGW customers in the delivered cost of natural gas of about $0.20/GJ, with 8% CCA treatment of the pipeline and the capital contribution. TGVI and TGW will seek the most favourable tax treatment possible for the pipeline and the capital contribution.

24 Competitiveness with Other Sources of Energy 48. The updates to charts and tables from Section 7 of Exhibit B1-1 filed in Exhibit B1-28 do not change the original observations in Sections and of the TGW 2005 Resource Plan Update regarding the competitiveness in Whistler of propane and natural gas with electricity and ground source heat pumps. 49. TGW will continue to be competitively challenged against electricity under either propane or natural gas scenarios. However, TGW s competitiveness relative to electricity is significantly improved with natural gas compared to propane. As indicated in Exhibit B1-28, TGW has reviewed the March 15, 2006 Application by BC Hydro to set its current rates as interim as of April 1, 2006 in anticipation of a two year revenue requirement application. The March 15 Application identifies a forecast large drop in net income for BC Hydro in its fiscal years F2007 and F2008. TGW expects that that electricity rate increases to be sought will likely be in excess of the forecast increase of 1% included in the TGW and TGVI applications. TGW has not reflected any adjustments in its competitive electricity comparisons to reflect BC Hydro rate increase beyond the assumed 1% annual escalation. Should electricity rate increases greater than 1% annually be approved in the near to medium term, the competitive position of natural gas in Whistler would improve against electricity. 50. As discussed at pages 57 to 59 of Exhibit B1-1, the competitive challenge of GSHPs to natural gas or propane lies primarily in greenfield developments. Retrofit GSHP installations are generally at a competitive disadvantage and will likely depend on availability of financial incentives to proceed. TGW s demand forecasts have considered the issues of competitiveness with other energy forms and those considerations have been appropriately accommodated in the demand scenarios. Financial Comparison Summary 51. The financial analyses based on the best and most current assumptions as provided in the evidentiary update in Exhibit B1-28 support the conclusion that natural gas is the preferred source of energy for Whistler and that the CPCN applications should be approved. TGW and TGVI submit that the capital contribution, the annual tolls to be paid by TGW to TGVI, and the other terms and conditions of service provide reasonable assurance that the existing customers of TGVI will not be negatively affected by the addition of the IP Pipeline to TGVI s rate base and cost of service. Further, there is a reasonable likelihood of net benefit accruing to TGVI s

25 customers over the longer-term), and even in the shorter term if the 8% CCA tax treatment is permitted for the IP Pipeline. Evidentiary Update, Exhibit B1-28, Attachment 1, Page 24, 25-Year PV Evidentiary Update, Exhibit B1-28, Attachment 2, Page 2, 15-Year or 25-Year PV columns VIII. Other Benefits 52. Natural gas service to consumers in Whistler will provide benefits in addition to the financial benefits discussed in the previous section. As discussed in the Resource Plan Update (pages 60 to 64), natural gas service is better in terms of meeting the resource planning objectives regarding security of supply, rate volatility and socio-economic impacts. 53. As discussed in paragraphs 27 and 28 above, compared to the existing propane system, the immediate reliability benefit is that the IP Pipeline will eliminate the complexity of the logistics involved in providing propane to a system of Whistler s magnitude. 54. Both propane and natural gas are subject to market place supply and demand fluctuations. Whistler propane customers have experienced commodity-related rate changes that are both more frequent and larger in absolute terms than those experienced by Lower Mainland natural gas customers. TGW customers will benefit from the supply diversification provided by the large TGI natural gas and mid-stream portfolio relative to the comparatively small propane portfolio. Delivery charge changes tend to be gradual in comparison to the market-based commodity portion of customer rates. Extension of natural gas service to Whistler will decrease the commodity component of customer rates, i.e. that component most subject to volatility. In summary customers in Whistler will benefit from the reduced volatility resulting from the introduction of natural gas service. Resource Plan Update, Exhibit B1-1, pages 61 and 62 Exhibit B1-4, TGW responses to BCUC IR1, Qs and The natural gas alternative compares favourably to continued use of the propane system with respect to on air quality and greenhouse gas (GHG) emission benefits. An analysis of expected energy use in 2010 under the Sustainable Technology scenario reveals an annual GHG reduction of 7,300 tonnes of CO 2 equivalents, or a 15% reduction in GHG intensity for residential, commercial and institutional end-uses, as a result of converting the propane system to natural gas. A similar analysis for NGV fleets over conventional fuel vehicles (gasoline and diesel) reveals an annual reduction of 885 tonnes of CO 2 equivalents for anticipated vehicle conversions. Contaminate emission reductions of between 20% and 95% are also observed for