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SOULE river hydro project 2005
Markets,Tariffs &Rates Giz/o> LAWRENCE R.GREENFIELD Senior Attorney Federal Energy Regulatory Commission888FirstStreet,NE Washington,DC 20426 (202)502-6415 2f/rofomSattyC.KorRNFELD Senior Analyst Fro Foren U.S.Department of Energy Office of Oil and Natural Gas 1000 Independence Ave.,SW Washington,DC 20585 Tel:202-586-3814 Fax:202-586-6221 sally.kornfeld@hq.doe.gov Senator Lisa Murkowski Alaska Kevin SWAIN,a Kenneth M.Ende Congressional Fellow/Energy/Counsel 322 Hart Senate Building (202)224-6665 Washington,DC 20510-0203 (202)224-5301 fax ken_ende@murkowski.senate.gov Office of General Counsel 888 First St.,N.E. Washington,D.C.20426 E-mail:jennifer.hill@ferc.gov FEDERAL ENERGY REGULATORY COMMISSION Office of Energy Projects JENNIFER HILL,Ph.D. Chief,Hydro West Branch foS>;id Di vision of Environmental and Engineering Reviewaal Office:(202)502-6797 FAX:(202)219-0205 Federal Energy Regulatory Commission Office of Energy Projects J.MARK ROBINSON Director 888 First Street,N.E. Washington,DC 20426 (202)502-8700 Fax (202)219-0205 STATE OF ALASKA OFFICE OF THE GOVERNOR MICHAEL J.TUBMAN ASSOCIATE DIRECTOR ENERGY AND NATURAL RESOURCES ENVIRONMENT AND FISHERIES Hall of the States 444 North Capitol Street,N.W.(202)624-5858 Suite 336 Fax:(202)624-5857 Washington,D.C.20001 mjtubman@sso.org draft order Fey.e. Public ULhity -grrervmak enred- Aectien (241)"4 FEus fpmeccenl FERC:Offices Page 1 of 2 fe .jText Size:KaZayAy |-oe _[[Search ]Federal Energy Nel ibrarfMEAbout FERCHBContict VAMESRETEp AEARegulatoryCommission About FERC lee Si Sars 1 Offices Strategic Documents Federal Energy Regulatory CommissiondaitagdBePettieMEWSPOPE Ofice ef Administrative ; Law Judqes :Commissioner Commissioner Chairman Commissioner Commissiona OAice of Administrative |\'': q ie];'f iLitigationLeL__--__________-b ee oe ' GOfice of External AXairs |] Ofice cf the Executive : Office of Office ofo;Office of Office of ::Director Administrative the Secretary External Affairs Administratie .Law Judges Litigation|Office of Energy Projects | Ottice of the Gereral |Counsel ;; . m Office of Market ..Olice of Market Gversight Office of the Otice of the Oversight and Office of Markets,Office of and Investigations }|Executive Director General Counsel Investigations Tariffs and Rates Energy Projec Ofice cf Markets,Tariffs and Rates _A brief description of all the offices within FERC is provided below,as[ofice of the Secretary ]'well as links to more detailed information about each office.For a detailed list of contacts please visit the "Contact Us"page. Related Topics >Contact Us >Staff Phone Numbers Offices/Organizations Acronyms Descriptions Resolve contested cases as directed by the Commission effectively,efficiently and Office of Administrative A expeditiously,either through Law Judges impartial hearing and decisior through negotiated settlemen ensuring that the rights of all parties are preserved. Litigates or otherwise resolve cases set for hearing.Represi the public interest and seek t: Office of Administrative OAL litigate or settle cases in a Litigation timely,efficient and equitable manner while ensuring the outcomes are consistent with Commission policy. Responsible for all external Office of External Affairs OEA communications with the pub and media for the Commissio Provides administrative suppc http://www.ferc.gov/about/offices.asp 9/10/2005 FERC:Offices Office of the Executive Director OED Office of Energy Projects OEP Office of the General Counsel OGC Office of Market Oversight and Investigations OMOI Office of Markets,Tariffs, and Rates OMTR Office of theSecretary OSEC Updated:June 3,2005 Page 2 of 2 services to the Commission including human resources, procurement,information technology,organizational management,financial,logist and others. Foster economic and environmental benefits for th: nation through the approval z oversight of hydroelectric anc natural gas pipeline energy projects that are in the public interest. Provide legal services to the Commission.OGC represents the Commission before the courts and Congress and is responsible for the legal phas of the Commission's activities Oversees and assesses the operations of the nation's gas oil pipeline,and electricity markets. Deals with matters involving markets,tariffs and rates relating to electric,natural gz and oil pipeline facilities and services. Serves as the official focal po through which all filings are made for proceedings before Commission. Disclaimers |Privacy Policy |Ethics |Accessibility |Webmaster |FirstGov |Adobe} http://www.ferc.gov/about/offices.asp 9/10/2005 FERC:Office of Energy Projects Organization Federal Energy .Regulatory Commission Chart Greece OODN Page 1 of 1 Close Window Text Only Office of Energy Projects (OEP) Director Deputy Director Energy Infrastructure Assistant Director Policy Group Management &Operations »ie aron A ,"" "' +g:hiCertificateLsGasBranch1[-Hydro East Branch 1 Land Resources wootBranch1-Branch AtlaCertificate=r-Hydro East Branch 2 egiona Branch 2 Gas Branch 2 |___Engineering &. Jurisdiction Branch =ChicRegionap=Hydro West Branch 1 Gas Branch 3 |_-Biological p NewResourcesBranchegionz -Hydro West Branch 2 Portl.LNG Engineering Zz Regiona |San FraRegiona Text Only http://www.ferc.gov/about/offices/oep/org-oep.asp Close Window!) 9/10/2005 FERC:J.Mark Robinson,Director Page 1 of 1 Federal Energy ST ee aa craps:Regulatory Commission RPE ibrar FMEAbSit FERCMBCDntict UAMES Hema pMaT cla q rensue:OOD |_ About FERC Contact J.Mark Robinson,Director Information: J.Mark Robinson, J.Mark Robinson had served as OEP's Telephone:202-502- :Director of the Division of Environmental 8700 OficecfAdministrative |and Engineering Review since OEP was FAX:202-219-0205 |Law Judges ]created in 1999.He was Director of Otice of Administrative Licensing and Compliance in the old Office |Uitigation of Hydropower Licensing (OHL)from 1997 0 eo toy to 1999 and served as Director of theoniceofFxsernalAnasDivisionofProjectComplianceand OXice of the Executive Administration from its creation in 1988 to Director 1997.From 1983 to 1988,he was BranchOMiceofFnernyProjects|Chief of the Biological Resources Branch.He joined FERC as an aquatic biologist in 1978.Dam Safety &Inspections He played a key role in processing the rush Gas Environment &of hydropower licensing in the 1980s,aEngineeringprogramtoclusterrelatedprojectsforHydropowereasierlicensing,a penalty program,and anComplisnes&alternative licensing process that also made for faster and easier licensing of projects. He was also instrumental in speeding up the Management &Operations process for certificating natural gas Pipeline Certificates pipelines.He has a bachelor's degree and a 2 Master of Science degree from West Virginia University.He is married with three children and lives in Reston,Virginia. Hydropower Licensing Ofice of the General Counsel |Office of Market Qvery ght and investigations Office of Markets,Tariffs and Rates [otice of the Secretary ] Updated:August 4,2003 q Disclaimers |Privacy Policy |Ethics |Accessibility |Webmaster |FirstGov |Adobe'} http://www.ferc.gov/about/offices/oep/oep-robinson.asp 9/10/2005 FERC:Robert J.Cupina,Deputy Director a Federal Energy i. |Regulatory Commission CENCESEPCEeeSe te Size: Office of Administrative Law Judges Otfice cf External ASairs Office of the Executive Director Office of Frergy Projects ] Dam Safety &Inspections Gas-Environment &Engineering HydropowerAdministration & Compliance Hydropower Licensing Management &Operations Pipeline Certificates q Ofice ef the General Counsel Olice of Market Oversight and Investigations Office of Markets,Tariffs and Rates [ofice of the Secretary J About FERC Robert J.Cupina,Deputy Director Robert J.Cupina had served as Director of the Division of Tariffs and Rates-Central in the Office of Markets,Tariffs and Rates.For the ten years prior to being named to this position in early 2000,he was Deputy Director of the old Office of Pipeline Regulation (OPR).From 1977 to 1988,he was with the Division of Pipeline Certificates as a petroleum engineer,assistant to the Director,and Deputy Director.He began his federal career with the Federal Power Commission in 1973.He was assigned to the Producer Division as petroleum engineer in 1977.He played an important role in bringing competition to the natural gas industry.Mr.Cupina majored in petroleum and natural gas engineering at Pennsylvania State University and technology management at the University of Maryland. He has a bachelor's degree from Maryland and a master's degree in public administration from George Mason University.He is married with two grown children and lives in Reston,Virginia. Updated:August 5,2005 09SSENSbrarfMBabout FeRcMBrnntact VeRES REAM el Page 1 of 1 Search |i ENA Contact Information: Telephone:202-502- 8700 Disclaimers |Privacy Policy |Ethics |Accessibility |Webmaster |FirstGov |Adobe'} http://www.ferc.gov/about/offices/oep/oep-cupina.asp 9/10/2005 FERC:Hydropower Licensing Page 1 of 1 da Text Size: +< Searc Federal Energy COG [Search ] Regulatory Commission WPA ibrarPMRAbsit FEROMETontactUESAaa About FERC Contact ..Information:Hydropower Licensing Ann Miles,Division Director Telephone:202-502-Hydropower Licensing is responsible for the aa following hydro workload items:6769 F Office of Administrative o Case management and orderTawJudgespreparationforapplicationsfor: Otice of Administrative |=license litigation j =relicense |OMice of External Affairs a major amendment of license j :=»SMW exemptions Office of the Executive |w license surrender of constructed i Director projects'OMice of Ferny Projects |o Preparation of NEPA documents (EAs :a ian and EISs)Dam Safety &Inspections Gas-Environment & Engineering o PreFiling collaborative work HydropowerAdministration & Compliance Hydropower Licensing Management &Operations Pipeline Certificates Ofice of the General Counsel Oice of Market Oversight and Investigations OMice of Markets,Tails and Rates q OFice ef the Secretary J Related Topics >Hydropower Industry Updated:March 26,2004 q Disclaimers |Privacy Policy |Ethics |Accessibility {|Webmaster |FirstGov |Adobe') http://www.ferc.gov/about/offices/oep/oep-hl.asp 9/10/2005 FERC:Dam Safety and Inspections Federal Energy i.Regulatory Commission Of ice of Administrative law Judges Office of Administrative iitigation Otjice of the Executive Director [OFice of External Afairs Dam Safety &Inspections Gas-Environment & Engineering HydropowerAdministration & Compliance Hydropower Licensing Management &Operations Pipeline Certificates Office of the General Counsel Office of Market Quersigtt|and Investigations OMice of Markets Tariffs and Rates |Olfice of the Secretary J Related Topics >Hydropower-Safety & Inspections 69S.Text Size:\ About FERC Dam Safety and Inspections Dam Safety and Inspections is responsible for the following workload items: o Construction,operation, exemption,special,prelicense, and environmental and public use inspections o Engineering evaluations and studies o Independent Consultant Report reviews o Emergency Action Plan development and testing o Engineering Guidelines development o Interagency/Industry committee participation Updated:August 4,2003 =SMBs brarPRRAboit FER CRRA nti LAE RenAMEN AA x atome areceethh{otudente's.”Protectic ae 'ae Corne fa Page 1 of 1 [Eearer) Contact Information: Constantine "Gus" Tjoumas,Director Telephone:202-502-6734 Email: constantine.tjoumas@ferc.gov Disclaimers |Privacy Policy |Ethics |Accessibility |Webmaster |FirstGov |Adobe,} http://www.ferc.gov/about/offices/oep/oep-dsi.asp 9/10/2005 FERC:Hydropower Administration &Compliance Federal Energy .Regulatory Commission i af .Documentag.. OMice of Administrative F Law Judges OMice of Administrative Litigation Office of External Afairs | Office of the Executive ;Director f Ofice of Freray Projects Dam Safety &Inspections Gas-Environment & Engineering HydropowerAdministration & Compliance Hydropower Licensing Management &Operations Pipeline Certificates OHice cf the General Counsel Office of Market Oversight and investigations O*ice of Markets Tariffs and Rates [_otice of the Secretary ) Related Topics >Hydropower Industry 'Text Size:i About FERC Hydropower Administration & Compliance Hydropower Administration and Compliance is responsible for case management and Commission order preparation for the following workload items: Conduit exemptions Preliminary permits Declaratory orders All license amendments not requiring NEPA documents Jurisdictional determinations Federal lands Headwater benefits Compliance (including audits) Penalties License surrender of unconstructed projects Transfer of licenses Complaints PreFiling collaborative work,as assigned3°o0o00000000lomme)Updated:November 17,2003 063 |. GURL ibrar PRAbout FERCMEKA ate LANES tamapaticlpl EE SenaourcesBEEProtectiapLareersBFCornerdey Page 1 of 1 [Search Contact Information: Joseph D.Morgan, Division Director Telephone:202-502- 6377 Email: joseph.morgan@ferc.gov Disclaimers |Privacy Policy |Ethics |Accessibility |Webmaster |FirstGov |Adobe') http://www.ferc.gov/about/offices/oep/oep-hac.asp 9/10/2005 FERC:Office of the General Council Organization Chart Page 1 of 1 P Viensie:OOD B Federal Energy \(Ww)Regulatory Commission Close Windo Office of the General Counsel (OGC) General Counsel,Cynthia Marlette Dispute Resolution Service Deputy General Counsel,Director,Rick Miles Marsha Gransee Administration &Operations Manager,Hilary Schubert Managing Attorney 3 f,Barbara Christin Managing Attomey Cecila Desmond {|___.Managing Attomey Jack Kendall i_---Managing Attorney Shaheda Sultan Text Only q Close Window} http://www.ferc.gov/about/offices/ogce/org-ogc.asp 9/10/2005 Hydropower to BC Subject:Hydropower to BC From:Bob Grimm <bob.g@aptalaska.com> Date:Mon,10 Oct 2005 16:04:00 -0700 To:'Jim'<jim_strandberg@rca.state.ak.us> Jim: Here are copies of the two projects we have filed for located in Alaska near Hyder.These projects would feed into an existing 138KV line that is partially located in the US and supplies power to Stewart BC.If the project end up being feasible on a technical,environmental and financial basis we will be selling power into an international connection that already exists.The RCA certificate for providing power to the Alaska community of Hyder is held by Tongass Energy???They seem to be non-regulated and all power currently is sold to them by BC Hydro. Interesting stuff.lt appears that they seem to be doing well without FERC? Bob Grimm Alaska Power &Telephone Company P.O.Box 3222 193 Otto Street Port Townsend,WA 98368 Phone 800-982-0136 x 120 Fax 360-385-7538 Cell 360-301-3636 -:licati:092605_Soule_River_Prelim_App.pdf Content-Type .application/pdfContent-Enceding:base64 ete ee092605NinemilePrelimApp.pdf CO'"t Type:application/pdf' ,|Content-Encoding:base64 |i 1 of1 10/11/2005 1:52 PM ALASKA POWER &TELEPHONE COMPANY P.0.BOX 3222 193 OTTO STREET PORT TOWNSEND,WA 98368 (360)385-1733 -(B00)982-0136 FAX (360)385-5177 September 26,2005 Magalie R.Salas Office of Secretary Federal Energy Regulatory Commission 888 First Street,N.E. Washington,D.C.20426 Re:Soule River Hydroelectric Project Preliminary Permit Application Dear Ms.Salas: Enclosed is one original and eight (8)copies of the Soule River Hydroelectric Project Preliminary Permit Application.This application conforms to 18 CFR,Subchapter B, Part 4,Subpart I,Paragraph 4.81 of the Commissions Regulations. aNSteGlenD.>. Compliance Marfager Enc.(as stated) BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION APPLICATION FOR PRELIMINARY PERMIT SOULE RIVER HYDROELECTRIC PROJECT By Alaska Power &Telephone Company (This Application conforms to 18 CFR,Subchapter B,Part 4,Subpart I, Paragraph 4.81 of the Commission's Regulations) September 2005 Before the Commission: (In accordance with Paragraph 4.81) (a)(1)Alaska Power &Telephone Company is a domestic corporation organized under the laws of Alaska.It intends to obtain and will maintain any proprietary right necessary to construct,operate,or maintain this project; (2)(i)Alaska does not have counties,therefore,the project is not located within a county.Alaska is subdivided into boroughs.The proposed project is within the boundaries of the Prince of Wales-Outer Ketchikan Census Area and the Ketchikan Recording District,is not within a borough,but is within what is called an unorganized borough.The area is located within the First Judicial District of the State of Alaska,400 Willoughby,3°Floor,Juneau,Alaska 99801.The project area is within the Ketchikan Recording District,415 Main Street,Room 310, Ketchikan,Alaska 99901.The project will occupy lands owned by the United States within the Tongass National Forest. (ii)The project is within the Prince of Wales-Outer Ketchikan Census Area and Ketchikan Recording Distirct.The City of Hyder is located approximately 9 miles to the northeast of the project site.The address for this city is listed below (see B.): (A)The project will not use any Federal Facilities. (B.)Hyder Community Association (Population 97) P.O.Box 149 Hyder,AK 99923 (iii)The project is located within the Tongass National Forest,whose lands are administered by the U.S.Forest Service,Ketchikan Ranger District,3031 Tongass Ave.,Ketchikan,AK 99901. (iv)The Community of Hyder may be interested in,or affected by,the application. (v)The project is not located within land owned or administered by an Indian tribe or located on lands owned or administered by a corporation established pursuant to the Alaska Native Claims Settlement Act.However,one Indian Tribe may be interested in the project: Central Council of Tlingit and Haida 320 W.Willoughby Ave.,Suite 300 Juneau,AK 99801 (3)(B)ii)The applicant has made a good faith effort to give notification (by supplying a complete copy of the application)by certified mail of this application to: (A)Every property owner within the bounds of the Project. (B)Local,federal,state,municipal agencies and other interested parties contained on the service list attached hereto. Before the Commission: (In accordance with Part 18 CFR,Part 4,Subpart I,Paragraph 4.81 of the Commission's Regulations) 1.Alaska Power &Telephone Company (herein called the "Applicant”) applies to the Federal Energy Regulatory Commission for a preliminary permit for the proposed Soule River water power project,as described in the attached exhibits.This application is made in order that the applicant may secure and maintain priority of application for a license for the project under Part I of the Federal Power Act while obtaining the data and performing the acts required to determine the feasibility of the project and to support an application for a license. 2.The location of the proposed project is: State:State of Alaska Section of State:Within the Ketchikan Recording District County:First Judicial District (no county) Nearby town:Hyder,Alaska Stream or other body of water:Soule River 3.The exact name,business address and telephone number of the Applicant are: Alaska Power &Telephone Company 193 Otto Street P.O.Box 3222 Port Townsend,Wa.98368 (360)385-1733 The exact name and business address of each person authorized to act as agent for the applicant in this application are: Mr.Robert S.Grimm President Alaska Power &Telephone Co. P.O.Box 3222 Port Townsend,WA.98368 (360)385-1733 x120 (360)385-7538 Fax 4.The Applicant is a domestic corporation and is not claiming preference under section 7(a)of the Federal Power Act. 5.The proposed term of the requested permit is 36 months. 6.Thereis no existing dam.The creek and associated lands defined within the permit application are Federal property managed by the U.S._Forest Service. U.S.Forest Service Tongass National Forest Ketchikan Ranger District 3031 Tongass Ave. Ketchikan,AK.99901 7.The following exhibits are submitted herewith and are hereby part of this application: ExhibitContents 1 Project Description 2 Study Plan 3 Statement of Costs and Financing 4 Project Maps This application is executed in the: State of Washington County of Jefferson by:Glen D.Martin Alaska Power &Telephone Company P.O.Box 3222 Port Townsend,WA.98368 being duly sworn,deposes and says that the contents of this application are true to the best of his knowledge or belief.Theundersignedapplicanthassignedtheapplicationthis223%'day ofSeptember2005. Alaska Power &Telephone Company oy Lh >.MhGlenD.Martin,Project Manager Subscribed and sworn to before me,a Notary Public of the State of Washington this 223°"day of September 2005. Notary Public Pere.Dinesh SenXyARANE,2PedAn-4 ,*/fat ORSee(5 a 4\Oc Wwe” EXHIBIT 1 DESCRIPTION OF PROPOSED PROJECT Project Area The Project would be located on the Soule River approximately 9 miles southwest of Hyder,Alaska.The Soule River originates at the terminus of the Soule Glacier at about El 1000 and flows for about 4.5 miles before emptying into the Portland Canal.The North Fork Soule River joins the Soule River approximately 2.5 miles from the mouth at about El 400.The total drainage area at the confluence of the North Fork Soule River is approximately 77 square miles.The proposed project would develop the head between the confluence of the North Fork Soule River and tidewater.The land occupied by the Project is in the Tongass National Forest. 1)Number,physical composition,dimensions,general configuration and of any dams,spillways,penstocks,powerhouses,tailraces,or other structures,as presently envisioned. a)Dam,Intake and Spillway The topography and geology of the Soule River valley would allow development of a storage reservoir by construction of a dam just downstream of the confluence with the North Fork Soule River.The site would allow a dam with a maximum height of about 150-200 feet. It would also be possible to develop the site without a storage reservoir,in which case there would be a low concrete diversion structure,either at the aforementioned storage dam site or further downstream at about the 300 foot elevation.The lower site for the diversion would decrease the penstock length significantly while still developing most of the available head. The Applicant will conduct feasibility studies during the term of the preliminary permit to determine the most advantageous Project arrangement,including evaluation of the costs and benefits of developing a storage reservoir. b)Penstock If the storage reservoir is developed,the water would be conveyed from the dam to the powerhouse by a tunnel about 12,100 feet long.If the Project is developed as a run-of-river project,the water would be conveyed to the powerhouse by a penstock about 5,500 feet long.The tunnel or penstock diameter would be on the order of 12 feet.The most appropriate dimensions for the tunnel or penstock will be determined during the term of the preliminary permit. 2) 3) 4) c)Powerhouse The main powerhouse would be a prefabricated metal building with a reinforced concrete foundation located near tidewater.The appropriate dimensions of the powerhouse will be determined during the term of the preliminary permit.The powerhouse would contain 2 generating units and associated control equipment. If the Project is developed with a storage reservoir,a second power plant at the storage dam may be feasible,depending on the magnitude of instream flow releases. d)Tailrace An open channel tailrace would convey the powerhouse discharges to the Soule River or directly to tidewater.The appropriate dimensions of the tailrace will be determined during the term of the preliminary permit. e)Access There are no roads to or in the Project area.If developed,the Project facilities would include marine access facilities for loading and unloading personnel, equipment,and materials,and an access road from tidewater to the dam or diversion structure.The road length could be as much as 2.6 miles. Reservoir Description lf the storage reservoir is developed,the reservoir would have a normal water surface at about El 550 with a surface area of about 917 acres,a gross storage capacity of about 74,000 acre-feet,and an active storage capacity of about 60,000 acre-feet.If the Project is developed as a run-of-river project,there would be a small impoundment with negligible active storage capacity. Transmission Line and Substation A 35 kV submarine cable in the Portland Canal approximately 9.72 miles long would transmit the Project generation to an interconnection with the existing transmission system in Hyder. Project Capacity and Production If the storage reservoir is developed,the estimated installed capacity of the main power plant would be as much as 42 MW,and the average annual generation would be about 155 GWh.The maximum head would be about 525 feet and the hydraulic capacity would be about 1,200 cfs.Based on the Applicant's preliminary assessment of instream flows,the instream release power plant could have an installed capacity of about 8 MW and an annual generation of about 25 GWh. lf developed as a run-of-river project,the estimated installed capacity of the Project would be about 20 megawatts,and the average annual generation would be about 65 GWh.The maximum head would be about 275 feet and the hydraulic capacity would be about 1250 cfs. 5)Lands of the United States The total amount of Federal land enclosed within the proposed project boundary for a storage project is approximately 1112 acres.The project is unsurveyed and therefore is described by sections (based upon a 100-foot corridor from centerline of project features except for the reservoir which has a 25-foot buffer around the mean high water mark)listed below: Township Range Section Acres T70S R99E 1,2,12 275 T70S R100E 6,7 55 T69S R99E 23,24,25,26,35,36 782 The total amount of Federal land enclosed within the proposed project boundaryforarun-of-river project'is approximately 55 acres.The project is unsurveyed and therefore is described by sections (based upon a 100-foot corridor from centerline of project features,and mean high water of the diversion structure) listed below: Township Range Section Acres T70S R99E 12 30 T70S R100E il 25 6)Lands of the State of Alaska The total amount of State land enclosed within the proposed project boundary for either project configuration,i.e.storage or run-of-river project is based on a 15-foot from centerline corridor for a submarine cable and is approximately 35 acres. Tfa run-of-river project is chosen over a storage project. 1) EXHIBIT 2 STUDY PLAN General a)Previous Studies The Soule River site was the subject of a preliminary permit issued on October 30,1923 (expired December 30,1925).It was also the subject of a (19267)license application,which was rejected by the Federal Power Commission without prejudice due to lack of detail.The applicant is not aware of any other studies having been conducted on this site. b)Study Plan Additional studies will be carried out during the term of the preliminary permit to determine the technical,environmental,economic,and financial feasibility of the project include the following: 1.Site Reconnaissance --The Applicant will visit the site to determine the local setting and evaluate physical constraints that are not apparent from the current map-based assessments. Power Market Investigations --The Applicant will determine the most favorable market(s)for the power and their associated costs and sales rates,including factors associated with the necessary involvement of Canadian utilities. Hydrologic Investigations --The Soule River reported was gaged for at least a few month in the 1920s,although the Applicant has not been able to obtain the data.There are stream gage records for the Davis River (about 5 miles south of the Soule River)and the Salmon River (about 20 miles to the north of the Soule River),each with over 10 years of record.The Applicant will correlate the Soule, Davis,and Salmon River gage data with that from other nearby gages to develop a long term simulated flow record.The Applicant believes the existing gage records provide an adequate basis for assessing the Project's feasibility. Topographic Mapping--If the site reconnaissance and preliminary evaluations indicate a_sufficient potential for feasibility,the Applicant will have detailed topographic mapping prepared to assist in more detailed studies. Geotechnical Investigations --If the site reconnaissance and preliminary evaluations indicate a sufficient potential for feasibility, the Applicant will have a geologist review the site and provide 2) c) recommendations regarding the project arrangement and the need for additional geotechnical work,if any. .Power Studies --The Applicant will numerically model the operation of various configurations of the proposed Project and determine the corresponding capacity and energy output. .Optimization of Project Features --The Applicant will evaluate various configurations of the Project features to determine the most feasible.The optimization studies will include estimation of various quantities and costs. .Environmental Studies --The full scope of the environmental studies to be conducted for the Project will be determined in the license scooping process conducted early in the term of the preliminary permit.Studies may be related to water use and quality; fish,wildlife,and botanical resources;cultural resources;socio- economic impacts;geological and soil resources;recreational resources;aesthetic resources;and land use. New Roads No new roads or trails will be required to perform the studies outlined above. Work Plan For New Dam Construction The Project may involve construction of a storage dam or a small diversion structure.At this time it is not clear if detailed geotechnical investigations will be required that would involve water or land disturbing activity.The Applicant will assess the need for any such studies during the first year of the term of the preliminary permit.If warranted,such studies will be conducted during the second or third year of the preliminary permit term after obtaining a Special-Use Permit from the U.S.Forest Service.At this time no major field studies are scheduled or contemplated that would significantly disturb lands or waters in the vicinity of the project. 1) 2) 3) EXHIBIT 3 COSTS AND FINANCING Estimated Costs The estimated costs of carrying out or preparing the studies identified in Exhibit 2 are in the range of $75,000 -$250,000. Source and Extent of Financing The studies identified in Exhibit 2 are expected to be financed entirely from the revenues of Alaska Power &Telephone Company. Proposed Market The capacity and energy generated by the Project will be sold to another electric utility,either BC Hydro (which provides electric service to Hyder, Alaska and nearby Stewart,B.C.)or an electric utility in the United States after wheeling over the BC Hydro transmission system.The most advantageous power marketing arrangement will be determined during the term of the preliminary permit. EXHIBIT 4 PROJECT MAPS 1)The location of the Project if developed with a storage reservoir,as a whole, with reference to the affected stream,nearby towns and roads is shown on Figure 1.The location of the Project if developed as a run-of-river project is shown on Figure 2. 2)The relative locations and physical inter-relationships of the principle project features identified under Exhibit 1 are shown on Figures 1 and 2 for storage and run-of-river developments,respectively. 3)The proposed project boundary is identified on Figures 1 and 2 for storage and run-of-river developments,respectively. 4)To the Applicants knowledge,the Project site or vicinity has not been either found eligible for inclusion or included in the National Wild and Scenic Rivers System. 5)To the Applicants knowledge,there are no areas within the project boundary that,under the provisions of the Wilderness Act,have been: (i)Designated as wilderness area; *(ii)Recommended for designation as wilderness area; (iii)Designated as wilderness study area. yPermmit.owg,Storage,Uy!Zo.209UTS5:19HM,TdawtyLoupe:anerse |oeraw LOCATION MAP THE PRELIMINARY PROJECT BOUNDARY SHOWN ON THIS DRAWINGS (S BASED ON THE FOLLOWING OFFSETS: RESERVOIR -25 FEET FROM EL 550 CONTOUR TUNNEL -100 FEET FROM CENTERLINE ACCESS ROAD -100 FEET FROM CENTERLINE SUBMARINE CABLE -15 FEET FROM CENTERLINE This drawing is part ofthe application forpreliminarypermitmadebytheundersigned this 23rd day of September,2005. LE pe[What Robert S.Grin? Presntent 2000 9 2000 4000 FEET SOULE RIVER HYDROELECTRIC PROJECT Z }ith,on?4 i a t jbPpFNs4Molt1S,ra : ;i wT Yo FIGURE 1 "ke 2)STORAGE DEVELOPMENT "y GENERAL PLAN API ALASKA POWER & TELEPHONE COMPANY PreuumanaryPermit.awg,tunofRiver,Uue2o/2UUSUTTSZ0UPM.idLarryLoupe!anerse)|octaw LOCATION MAP THE PRELIMINARY PROJECT BOUNDARY SHOWN ON THIS ORAWINGS 1§BASED ON THE FOLLOWING OFFSETS: IMPOUNDMENT -£25 FEET FROM EL 300 CONTOUR PENSTOCK AND ACCESS ROAD -100 FEET FROM CENTERLINE SUBMARINE CABLE -15 FEET FROM CENTERLINE This drawing is part of the application for preliminary permit made by the undersigned this 23rd day of September,2005. Gi[thfanRoberSGrinF Pressdcnt 2000 9 2000 4000 FEET 1°=2000" SOULE RIVER HYDROELECTRIC PROJECT FIGURE 2 RUN-OF-RIVER DEVELOPMENT GENERAL PLAN aa ia o a 'de an APT ALASKA POWER_& TELEPHONE COMPANY ALASKA POWER &TELEPHONE COMPANY P.O.BOX 3222 -193 OTTO STREET PORT TOWNSEND,WA 98368 (360)385-1733 -(200)982-0136 FAX (360)385-5177 September 26,2005 Magalie R.Salas Office of Secretary Federal Energy Regulatory Commission 888 First Street,N.E. Washington,D.C.20426 Re:Ninemile Hydroelectric Project Preliminary Permit Application Dear Ms.Salas: Enclosed is one original and eight (8)copies of the Ninemile Hydroelectric Project Preliminary Permit Application.This application conforms to 18 CFR,Subchapter B, Part 4,Subpart I,Paragraph 4.81 of the Commissions Regulations. Respectfully Submitted, Glen D.Martin Compliance Manager Enc.(as stated) BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION APPLICATION FOR PRELIMINARY PERMIT NINEMILE HYDROELECTRIC PROJECT By Alaska Power &Telephone Company (This Application conforms to 18 CFR,Subchapter B,Part 4,Subpart I, Paragraph 4.81 of the Commission's Regulations) September 2005 Before the Commission: (In accordance with Paragraph 4.81) (a)(1)Alaska Power &Telephone Company is a domestic corporation organized under the laws of Alaska.It intends to obtain and will maintain any proprietary right necessary to construct,operate,or maintain this project; (2)(i)Alaska does not have counties,therefore,the project is not located within a county.Alaska is subdivided into boroughs.The proposed project is within the boundaries of the Prince of Wales-Outer Ketchikan Census Area and the Ketchikan Recording District,is not within a borough,but is within what is called an unorganized borough.The area is located within the First Judicial District of the State of Alaska,400 Willoughby,3°Floor,Juneau,Alaska 99801.The project area is within the Ketchikan Recording District,415 Main Street,Room 310, Ketchikan,Alaska 99901.The project will occupy lands owned by the United States within the Tongass National Forest. (ii)The project is within the Prince of Wales-Outer Ketchikan Census Area and Ketchikan Recording Distirct.The City of Hyder is located approximately 9 miles to the north of the project site.The address for this city is listed below (see B.): (A)The project will not use any Federal Facilities. (B.)Hyder Community Association (Population 97) P.O.Box 149 Hyder,AK 99923 (iii)The project is located within the Tongass National Forest,whose lands are administered by the U.S.Forest Service,Ketchikan Ranger District,3031 Tongass Ave.,Ketchikan,AK 99901. (iv)The Community of Hyder may be interested in,or affected by,the application. (v)The project is not located within land owned or administered by an Indian tribe or located on lands owned or administered by a corporation established pursuant to the Alaska Native Claims Settlement Act.However,one Indian Tribe may be interested in the project: Central Council of Tlingit and Haida 320 W.Willoughby Ave.,Suite 300 Juneau,AK 99801 (3)(B)(ii)The applicant has made a good faith effort to give notification (by supplying a complete copy of the application)by certified mail of this application to: (A)Every property owner within the bounds of the Project. (B)Local,federal,state,municipal agencies and other interested parties contained on the service list attached hereto. Before the Commission: (In accordance with Part 18 CFR,Part 4,Subpart I,Paragraph 4.81 of the Commission's Regulations) 1.Alaska Power &Telephone Company (herein called the "Applicant”) applies to the Federal Energy Regulatory Commission for a preliminary permit for the proposed Ninemile water power project,as described in the attached exhibits.This application is made in order that the applicant may secure and maintain priority of application for a license for the project under Part I of the Federal Power Act while obtaining the data and performing the acts required to determine the feasibility of the project and to support an application for a license. 2.The location of the proposed project is: State:State of Alaska Section of State:Within the Borough of Juneau (S.E.Alaska) County:First Judicial District (no county)&Borough of Juneau Nearby town:Hyder,Alaska Stream or other body of water:Salmon River 3.The exact name,business address and telephone number of the Applicant are: 5. 6. Alaska Power &Telephone Company 193 Otto Street P.O.Box 3222 Port Townsend,Wa.98368 (360)385-1733 The exact name and business address of each person authorized to act as agent for the applicant in this application are: Mr.Robert S.Grimm President Alaska Power &Telephone Co. P.O.Box 3222 Port Townsend,WA.98368 (360)385-1733 x120 (360)385-7538 Fax The Applicant is a domestic corporation and is not claiming preference under section 7(a)of the Federal Power Act. The proposed term of the requested permit is 36 months. Thereis no existing dam.The creek and associated lands defined within the permit application are Federal property managed by the U.S.__Forest Service. U.S.Forest Service Tongass National Forest Ketchikan Ranger District 3031 Tongass Ave. Ketchikan,AK.99901 The following exhibits are submitted herewith and are hereby part of this application: ExhibitContents 1 Project Description 2 Study Plan 3 Statement of Costs and Financing 4 Project Maps This application is executed in the: State of Washington County of Jefferson by:Glen D.Martin Alaska Power &Telephone Company P.O,Box 3222 Port Townsend,WA.98368 being duly sworn,deposes and says that the contents of this application are true to the best of his knowledge or belief.Theundersignedapplicanthassignedtheapplicationthis23%'day ofSeptember2005. Alaska Power &Telephone CompanyMh>LeyGlenD.Martin,Py Subscribed and sworn to before me,a Notary Public of the State of Washington this .J3°¢day of September 2005. Notary Public -ce Lu et EXHIBIT 1 DESCRIPTION OF PROPOSED PROJECT Project Area The Project would be located on the Salmon River approximately 9 miles north of Hyder,Alaska.The drainage area is approximately 65 square miles,nearly all of which is in Canada.The Salmon River and its major tributary,Cascade Creek,originate in glaciers and icefields and flow in a southerly direction until their confluence just across the border in Alaska at about the 400 foot elevation.At that point the stream flows through a narrow canyon for about 1 mile before entering a broad floodplain and a confluence with Texas Creek.The proposed project would develop the head in the narrow canyon reach of the Salmon River,between the confluences with Cascade Creek and Texas Creek.A portion of the land occupied by the Project is in the Tongass National Forest. 1)Number,physical composition,dimensions,general configuration and of any dams,spillways,penstocks,powerhouses,tailraces,or other structures,as presently envisioned. a)Diversion,Intake and Spillway As presently envisioned,there would be a concrete diversion and intake structure located below the confluence of the Salmon River and Cascade Creek.The appropriate dimension for the diversion structure will be determined during the term of the preliminary permit.The diversion structure would include a spillway sized for an appropriate design flood. b)Penstock Water would be conveyed from the diversion structure to the powerhouse by a tunnel.The appropriate dimensions for the tunnel will be determined during the term of the preliminary permit. c)Powerhouse The powerhouse would be a reinforced concrete structure.The appropriate dimensions of the powerhouse will be determined during the term of the preliminary permit.The powerhouse would contain 2 generating units and associated control equipment. d)Tailrace 2) 3) 4) 5) An open channel tailrace would convey the powerhouse discharges to the Salmon River.The appropriate dimensions of the tailrace will be determined during the term of the preliminary permit. e)Access Existing roads provide good access to the project area.Only short spur roads may be necessary for construction and operation of the project. Reservoir Description As presently envisioned,the Project would have a single impoundment with negligible active storage capacity,and operation would be strictly run-of-river. The gross storage capacity and surface area of the impoundment will be determined during the term of the preliminary permit.The normal water surface would be at about El 400. Transmission Line and Substation A short 35 kV line would intertie with an existing transmission line along the existing road system. Project Capacity and Production The estimated installed capacity of the Project would be about 10 MW,and the average annual generation would be about 40 GWh,based upon an estimated gross head of 100 feet and a hydraulic capacity of 1500 cfs. Lands of the United States The total amount of Federal land enclosed within the proposed project boundary is approximately 29 acres.The project is unsurveyed and therefore is described by sections and subsections (based upon a 100-foot corridor from centerline of project features,and mean high water of the diversion structure)listed below: Township Range Section Acres T67S R9QE 24,25 29 1) EXHIBIT 2 STUDY PLAN General a)Previous Studies This project site was one of the energy sites surveyed by the Federal Power Commission and the U.S.Forest Service in the 1940's.A description of this site is in the "Water Powers Southeast Alaska -1947” report.An application for license for the site was submitted to the Federal Power Commission in January,1926 and rejected by the Commission in October,1926 due to lack of a need for the power.The applicant is not aware of any other studies having been conducted. b)Study Plan Additional studies will be carried out during the term of the preliminary permit to determine the technical,environmental,economic,and financial feasibility of the project include the following: 1.Site Reconnaissance --The Applicant will visit the site to determine the local setting and evaluate physical constraints that are not apparent from the current map-based assessments. 2.Power Market Investigations --The Applicant will determine the most favorable market(s)for the power and their associated costs and sales rates,including factors associated with the necessary involvement of Canadian utilities. 3.Hydrologic Investigations --The Salmon River was gaged from 8/1/1963 to 9/30/1973 at a site just downstream from the proposed Project site.The Applicant will correlate the Salmon River gage data with that from other nearby gages to develop a long-term simulated flow record.The Applicant believes the existing gage records provide an adequate basis for assessing the Project's feasibility. 4.Topographic Mapping--If the site reconnaissance and preliminaryevaluationsindicatea_sufficient potential for feasibility,the Applicant will have detailed topographic mapping prepared to assist in more detailed studies. 5.Geotechnical Investigations --If the site reconnaissance and preliminary evaluations indicate a sufficient potential for feasibility, the Applicant will have a geologist review the site and provide recommendations regarding the project arrangement and the need for additional geotechnical work,if any. 6.Power Studies --The Applicant will numerically model the operation of various configurations of the proposed Project and determine the corresponding capacity and energy output. 7.Optimization of Project Features --The Applicant will evaluate various configurations of the Project features to determine the most feasible.The optimization studies will include estimation of various quantities and costs. 8.Environmental Studies --The full scope of the environmental studies to be conducted for the Project will be determined in the license scooping process conducted early in the term of the preliminary permit.Studies may be related to water use and quality;fish,wildlife,and botanical resources;cultural resources; socio-economic impacts;geological and soil resources;recreational resources;aesthetic resources;and land use. c)New Roads No new roads or trails will be required to perform the studies outlined above. 2)Work Plan For New Dam Construction The Project will involve construction of a low diversion structure.At this time it is not clear if detailed geotechnical investigations will be required that would involve water or land disturbing activity.The Applicant will assess the need for any such studies during the first year of the term of the preliminary permit.If warranted, such studies will be conducted during the second or third year of the preliminary permit term after obtaining a Special Use Permit from the U.S.Forest Service.At this time no major field studies are scheduled or contemplated that would significantly disturb lands or waters in the vicinity of the project. 1) 2) 3) EXHIBIT 3 COSTS AND FINANCING Estimated Costs The estimated costs of carrying out or preparing the studies identified in Exhibit 2 are in the range of $75,000 -$250,000. Source and Extent of Financing The studies identified in Exhibit 2 are expected to be financed entirely from the revenues of Alaska Power &Telephone Company. Proposed Market The capacity and energy generated by the Project will be sold to another electric utility,either BC Hydro (which provides electric service to Hyder, Alaska and nearby Stewart,B.C.)or an electric utility in the United States after wheeling over the BC Hydro transmission system.The most advantageous power marketing arrangement will be determined during the term of the preliminary permit. EXHIBIT 4 PROJECT MAPS 1)The location of the project,as a whole,with reference to the affected stream,nearby towns and roads is shown on Figure 1. 2)The relative locations and physical inter-relationships of the principle project features identified under Exhibit 1 are shown on Figure 1. 3)The proposed project boundary is identified on Figure 1. 4)To the Applicants knowledge,the Project site or vicinity has not been either found eligible for inclusion or included in the National Wild and Scenic Rivers System. 5)To the Applicants knowledge,there are no areas within the project boundary that,under the provisions of the Wilderness Act,have been: (i)Designated as wilderness area; (ii)Recommended for designation as wilderness area; (iii)Designated as wilderness study area. 1:26:40EM,eewg.Layout,airyLoupe'EXISTING ROAD AND”TRANSMISSION UNE X\ VICINITY MAP SCALE 1"=1 MILE PROJECT PLANSCALEi=400 FEET 400 °400 800 FEET T ©400 4 ALASKA POWER & TELEPHONE COMPANY anerig e¢taw LOCATION MAP NO SCALE THE PRELIMINARY PROJECT BOUNDARY SHOWN ON THIS DRAWINGS IS BASED ON THE FOLLOWING OFFSETS: IMPOUNDMENT --+25 FEET FROM EL 400 CONTOUR TUNNEL -100 FEET FROM CENTERLINE ACCESS ROAD SO FEET FROM CENTERLINE This drawing is part of the application for preliminary permit made by the undersigned thas 23rd day of September,2005. Robert S$.Grinun Presnignt FIGURE 1 GENERAL ARRANGMENT NINEMILE HYDROELECTRIC PROJECT RE:FW:FW:[Fwd:PNWER Regional Economic Leadership Foru... 1 of4 Subject:RE:FW:FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.16-19)] From:Thom Fischer <thom@tollhouseenergy.com> Date:Tue,15 Nov 2005 10:48:10 -0800 To:Jim <jim_strandberg@rca.state.ak.us> The first phase of our export project would include three storage projects in Thomas Bay near Petersburg.They are Cascade Creek,Scenery Creek,and Delta Creek.Each project includes an existing lake at the intake.We would also include excess energy from the Tyee hydro project.Total combined capacity is 100 MW,and total energy is 450 GWh.This defines the mass or size of what we are proposing. Later on,we can start developing more projects,and conceivably export another 100 MW to 200 MW of hydropower energy.That would be 10+years later. Attached is an Overview of what we are proposing.Also attached is a description of the Cascade Creek project as given to PG&E in San Francisco. Also attached is a letter from PG&E saying that we are on their shortlist for renewable energy. SE Alaska is a stranded investment,and has no way to export its energy other than through BC.BC on the other hand has full access to the American market.You can see where this could go. Thom -----Original Message----- From:Jim [mailto:jim strandberg@rca.state.ak.us] Sent:Tuesday,November 15,2005 9:30 AM To:Thom A.Fischer Subject:Re:FW:FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.16-19)] Thom,I cannot make it in early enough to meet with you on Wednesday.I get in at 11 pm or so.Friday morning will have to do.In the meantime i have some material that Bob Grimm gave me "Interconnecting SE Intertie with North American Grid,9/28/05.I am understanding the basic initiative which you outline in the paper.Can you provide more via email?R.Jim Thom A.Fischer wrote: Jim,It might be best to meet with you before your meetings in Canada. That way I can bring you up to speed as to what I know,and what we are proposing.I could meet with you on Wednesday.Otherwise I could meet with you Friday. Thom oo---Original Message----- From:Jim [mailto:jim strandberg@rca.state.ak.us] Sent:Monday,November 14,2005 5:35 PM To:Thom Fischer Subject:Re:FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov. 16-19)] Thanks Thom.I have set up meetings on Thursday with Shelly (hopefully) and Rohan.So PNWER is probably out.Can you meet with me on Friday?R.Jim Thom Fischer wrote: Jim attached is the information on PNWER.Seattle to Bellingham is 100 miles,or about 1.5 hours.Bellingham to Vancouver is only about 50 miles,but I would figure 1.5 hours due to the border and Vancouver traffic.Vancouver to Whistler is 1.5 hours,and I would figure 2 hours due to construction work on the highway (getting ready for the 2010 Olympics).I plan on leaving Bellingham sometime on Wednesday to go to Canada &Whistler.Thursday I will be at the PNWER conference at Whistler.Other than that,I have no other firm plans. Looking forward to seeing you. 11/15/2005 11:20 AM RE:FW:FW:[Fwd:PNWER Regional Economic Leadership Foru... s > Thom Thom A.Fischer,P.E. work 360-738-9999 ext.111 cell 360-739-9777 fax 360-733-3056 thom@tollhouseenergy.com <mailto:thom@tollhouseenergy.com> -ocen Original Message------ *From:*Linda Hay [mailto:linda hay@gov.state.ak.us] *Sent:*Tuesday,October 25,2005 9:27 AM *To:*Thom A.Fischer *Subject:*[Fwd:PNWER Regional Economic Leadership Forum (Nov.16-19)] I am not sure that you are on their email list -will let you know if someone from the governor's office will be attending. Linda Hay Subject: PNWER Regional Economic Leadership Forum (Nov.16-19) "Matt Morrison"<mattmorrison@pnwer.org> Mon,24 Oct 2005 16:51:21 -0800 "Matt Morrison"<mattmorrison@pnwer.org> To: "Matt Morrison"<mattmorrison@pnwer.org> Join State and Provincial Legislators and Business Leaders from the Pacific NorthWest states of Alaska,Washington,Idaho,Oregon,and the Canadian provinces of British Columbia,Alberta,and the Yukon for an Economic Leadership Forum November 17 &18 in Whistler,BC The two day symposium will be a chance to network with key policymakers,and will address the challenges of China 's energy demand on North American energy prices,and how that demand is impacting US Canada relations.The second day of the meeting will address the 2010 Olympics and opportunities for regional branding. For the conference rates at the Chateau Whistler of $129 CDN,make your reservations now at http://www.fairmont.com/whistler/use the online code:GRPNW1 For additional information consult our website at www.pnwer.org <http://www.pnwer.org> Matt Morrison,Executive Director *PNWER Regional Economic Leadership Forum * *Fairmont**Chateau Whistler,BC * *Nov.16-19,2005* *Thursday,November 17 -**Energy Policy Forum * Day one will feature key thinkers,policymakers and industry leaders addressing the pivotal role the region plays in the global marketplace and the implication of China 's energy needs on US-Canada relations. *How will China ''s demand for fossil fuels effect energy prices and supply in the Pacific Northwest ? *What is our strategy over the next decade as China responds to a massive energy crisis? *How do we ensure access to the low-cost energy necessary to fuel the region's future economic growth? *Friday,November 18 -**Regional Branding at the 2010 Winter Games* As 2010 rapidly approaches,we have a once in a lifetime opportunity to market our region during the Winter Games.Up to 4 billion viewers >from around the world will tune in to hear our story.We must begin to form a marketing and branding strategy to engage the world and attract visitors to our region. *How can we work together to market the region to the rest of the world? *Is the region prepared to take advantage of the many economic opportunities before,during and after the games? *What is our strategy for regional branding to help enhance tourism? 2 of4 11/15/2005 11:20 AM RE:FW:FW:[Fwd:PNWER Regional Economic Leadership Foru... 3 of4 .2 Registration Details For Registration &Agenda Go To: http://www.pnwer.org <http://www.pnwer.org/> Location:Whistler,BC Fairmont Chateau Whistler 4599 Chateau Blvd. Whistler,BC VON 1B4 Hotel Reservations -1-800-257-7544 or online at http://www.fairmont.com/whistler/ To receive the conference rate of $129 Canadian please ask for the PNWER meeting rate,or use the online promotional code GRPNW1 *AGENDA * xk ok *Wednesday,**November 16,2005 *** 7:00 pm PNWER Executive Committee Dinner 9:00 pm -11:00pm Hospitality Suite -Fairmont Chateau Whistler ** *Thursday,**November 17,2005 *** *Energy Policy Forum * 8:00 am Breakfast 8:30 am "The Chinese View of the World Post-Unocal” Speaker:Professor Wenran Jiang (University of Alberta) How will China's fossil-fuel demand over the next 10-20 years affect the global market,and the Pacific NW? 9:15am Session #1:China's Energy Needs:What does it mean for the US, Canada,US/Canadian Relations,and Regional Economic Growth? (/Facilitated Roundtable Discussion/) Moderator:Rep.Jeff Morris (WA) Invited Participants Include:Professor Wenran Jiang,Russell Mark and representatives from Exxon Mobil,Duke Energy,Encana,Enbridge, TransCanada 10:45am Break 11:00am Session #2:How do we ensure access to the low-cost energy necessary to fuel the region's future economic growth?(/Facilitated Roundtable Discussion/) Invited Participants Include:Representatives of Puget Sound Energy, Northern Lights,Seabreeze,BC Hydr o Public Sector:Sen.Fred Dyson (AK),Minister Greg Melchin (AB) (/invited/),Minister Richard Neufeld (BC)(/invited/),Rep.George Eskridge (ID),Sen.Glenn Roush (MT),Rep.Alan Olson (MT),Rep.Jeff Morris (WA) 12:30pm Lunch (Keynote Speaker TBA) 2:00pm Afternoon Policy Tours,Activities Bi-National Regional Energy Planning:Developing a Roadmap for the Future 7:00 pm Evening Reception at the Fairmont Chateau Whistler xk * 11/15/2005 11:20 AM RE:FW:FW:[Fwd:PNWER Regional Economic Leadership Foru... .> *Friday **November 18,2005 *** *Regional Branding at the 2010 Winter Games * 8:00 am Breakfast, 2010 Winter Olympic Update Vancouver Organizing Committee -Status of planning for the 2010 Olympics 9:15 am Tourism BC -What is BC's branding strategy, Mary Mahon Jones -Council of Tourism Association of British Columbia CEO Brian Krieger -Director,2010 Commerce Centre -Procurement and access to opportunities 10:00 am Break 10:15 am Roundtable Discussion on Regional Branding:/How do we take full advantage of being in the world's media spotlight?/ Moderated by Alaska State Representative Lesil McGuire &Carl Wilgus, Idaho Tourism Director 11:15 pm 2010 Olympic Coordination Strategy Session,Panel of State & Provincial Tourism Directors Regional Training Venue Directory Promoting region wide media tours Discussion on making a regional proposal to Congress Regional strategy to address the *Western Hemisphere Travel Initiative (Passport requirement) 12:15 pm Working Lunch -Facilitated Discussion +Strategy for Turin,Italy 2006 Winter Olympics Timeline and next steps 2:00 pm Tour of the Olympic venues in Whistler 7:00 pm Evening Reception at the Fairmont Chateau Whistler *Saturday **November 19,2005 *** 9:00 am -12:00 pm Breakfast &PNWER Board Meeting (All Participants Invited) Content-Type: Content-Encoding:base64InterconnectionofSEAlaskawiththeNWU.doc application/msword |Content-Type:application/msword|project description.doc .|Content-Encoding:base64 |PG&E letter cascade creek .pdf Content-Type:.application/pdf||Content-Encoding:base64 4o0f4 11/15/2005 11:20 AM rch Pacific Gas and |Electric Company GES -Power Contracts 245 Market Street Son Francisco,CA 94105-1702 Maiing AddressNovember3,2005 Maa tose NIZEPacificGasendElectric CompanyP.O.Bex 770000 San Francises,CA 84177-0001 Mr.Steven C.Marmon Cascade Creek Hydroelectric Company,LLC 3633 Alderwood Ave. Bellingham,WA 98225 Dear Mr.Marmon, We are pleased to inform you that your Cascade Creek Hydroelectric Project Offer has been shortlisted in PG&E's Renewables Portfolio Standard Solicitation. We ask that you,pursuant to Section V.5 of the RPS Solicitation Protocol,execute the form of Confidentiality Agreement attached to the RPS Solicitation Protocol Agreement (Attachment A)and return such Confidentiality Agreement within three (3)business days to the PG&E contact listed in Section VILA of the Protocol. In accordance with Section IV.C of the RPS Solicitation Protocol,this notification triggers the five (5)business day window to submit a deposit of cash or letter of credit in the amount of $3/kw of contract capacity.Failure to submit this deposit within the five-day deadline will result in your Offer being rejected and removed from the shortlist. Please notify Jack Foley of PG&E's Credit Department via email at JRFC @pge.com or call (415)973-0004 prior to submitting your bid deposit to obtain detail of delivery instructions,and routing and account number requirements. Once we receive your bid deposit,we will be contacting you to schedule an initial meeting to begin the negotiation process. Thank you for all your hard work putting your Offer together,and we look forward to working with you.If you have any questions,you may contact Charles Post, Administrator of the solicitation,at 415-973-9286 or CHP8 @pge.com. Sincerely, Frank Nk Frank De Rosa Director Interconnection of Southeast Alaska with the North American Grid Overview According to the Department of Energy,approximately 44,428 average MW of developable hydroelectric potential exists in the State of Alaska.To date,only 171 average MW of hydroelectric energy has been developed.A large part of this hydroelectric potential exists in Southeast Alaska,a mountainous area of about 400 miles x 120 miles.Southeast Alaska experiences rainfalls of 50 to over 200 inches per year. The mountains and rainfall make Southeast Alaska unmatched in the U.S.for new hydroelectric power development. With only 75,000 residents in Southeast Alaska,there isn't a market for bulk energy sales.To utilize this tremendous hydropower potential,Southeast Alaska will need to connect to the NW power grid through British Columbia Transmission Corporation "BCTC”,a Crown Corporation,formerly part of BC Hydro.The connection would be made from the Tyee Hydroelectric project south of Wrangell and extend 30 miles up the Bradfield Canal to a location where the Craig River crosses the Canadian border. There are significant conditions that affect the export of power from SE Alaska: 1)Southeast Alaska Intertie.Congress has authorized the expenditure of $384,000,000 toward the construction of an electrical Intertie for Southeast Alaska communities. However,many of the communities are small,and cannot afford to maintain a large Intertie system.Wheeling revenues from large hydropower projects would be the engine to maintain the Southeast Alaska Intertie. 2)Canadian Entitlement.The Columbia River Treaty of 1961 provided for the construction of three large storage projects in Canada.The treaty required the return of half the increased energy production from the downstream dams located in the U.S.(as a consequence of the release from these storage projects).The U.S.based Columbia Storage Power Exchange "CSPE”purchased this return "entitlement”for a period of 30 years.Beginning in 1998 the entitlement purchase started to expire. The entitlement purchase fully expired in 2003.Bonneville Power Administration "BPA”is now required to return 500 aMW and 1000 MW capacity to BC Hydro over its Northern Intertie.This load,coupled with increased energy demands in the Pacific northwest,leaves BPA short on energy.BPA has notified all the energy co- ops east of the Rocky Mountains that as of 2007,they must find other sources of energy.In addition,nine of the aluminum smelters in the northwest have been shut down due to lack of affordable energy.The remaining two smelters are operating on reduced outputs. 3)Forest Kerr hydropower project.Coast Mountain Hydro is planning on constructing the Forest Kerr project on the Iskut River in Canada.Forest Kerr will extend the transmission line from the project site to Meziadin Junction if BC Hydro does not construct the line first.The Forest Kerr project is located about 20 miles from the Craig River crossing where interconnection to Southeast Alaska would occur. 4)New Mining in BC.Nova Gold and BC Minerals are both planning new mining activities in the northern coastal region of British Columbia just north of Forest Kerr, and will require substantial power flow from interior BC to the North Coast.BC Hydro currently imports 13%of its energy annually. 5)BCTC Line Reliability.BCTC has three 500 kV transmission lines running from the lower mainland (Vancouver area)to Prince George area (location near their large dams).There is only one 500 kV line from Prince George to the west coast near Prince Rupert.Should this line fail,then the north coast will have a lack of generation to sustain itself.The Southeast Alaska connection both reinforces BCTC's North Coast system,and an alternate feed for North Coast loads. 6)Rising Cost of Energy.The cost of energy is rising.As dual energy cars become more popular,the demand for clean electrical energy will further increase. 7)Renewable Energy.Energy that is environmentally friendly is in demand to displace gas fired combustion turbines and coal. Approximately 200 MW of Southeast Alaska hydropower can be delivered via the Craig River transmission crossing to serve BC Hydro or the new mining loads. Alternatively,the same 200 MW could be exchanged for a portion of the Canadian Entitlement.BPA is interested in delivering part of the 500 aMW of Canadian Entitlement from Southeast Alaska,freeing up energy in the pacific northwest.The exchanged portion (in Washington/Oregon)can be transmitted relatively short distances to Washington/Oregon/California utilities. By cooperation,there are several benefits and natural incentives to the various entities: a.The Southeast Alaska economy is weak and is in need of both jobs and long term revenue sources. b.Southeast Alaska would have the justification for the construction,and the revenue to maintain a large Intertie grid.The Intertie will provide reliable energy to the communities in Southeast Alaska. c.Northern BC is also in need of jobs and revenue. d.Strengthening the BCTC transmission grid by adding generation to the extreme northwest corner of the grid. e.Increasing demand in the western U.S.has exceeded the supply of available Columbia River energy.This plan will give either BPA or other northwest energy companies 200 MW of additional energy,as if the hydropower resources were constructed in the Pacific northwest. f.Western U.S.utilities are increasingly in need of renewable and environmentally friendly energy.This plan provides that. The first proposed project is a storage project,60 MW installed capacity,1,500'head, near Petersburg,AK.There is an additional 40 MW installed capacity in the same vicinity,some of which is already constructed.There is approximately another 50 MW that could be developed with the completion of the Swan-Tyee transmission line. Refer any questions or comments to: Thom A.Fischer,PE.thom@whitewatereng.com Dick Rosenberg,P.-E.drosenberg@whitewatereng.com Whitewater Engineering Corporation (360)738-9999 Information from BC Hydro and IPPBC In the just-completedfiscal year,BC Hydro had to import 13.5 per cent of the power it needs to supply B.C.customers.That's up from 10 per cent in the prior year.Put another way,now one in eight B.C.homes runs on imported electricity. Friday July 8,2005 BC Hydro issued a call for at least 1,800 gigawatts of new generation to be in production within five years.That would supply about 180,000 homes,and marks the first time since 1995 that the Crown Corporation has undertaken a large-scale,broad-based request for tenders.In the past five years,domestic electricity consumption increased by more than 3,000 GWh,or enough to supply 300,000 homes. U.S.Renewable Portfolio Standards WI:2.2%MN:Xcel 1125MWby2016 by 2011 ME:20%by 2e00'7 equal MT:15%heise load growth by 2015 ¥2005-2012MA:49 New by 2009 RI:16%by 2009 CT:10%by 2010TAiNJ:6.5.%by 2008 NV:15 = 105 M PA:18%b 2020by2013TL:}8%MD:7%by 2008CO:10% by 2015 by 201 DC:1190 by 2022 CA:20%'by 201 NM:168%) AZ:1.194 by 2011 by 202 TX:10,000 MW by 2025 rey95) HI:20%by 2020 21 states have set standards specifying certain amounts of electricity from renewable sources. RPS require %of capacity or generation to come from renewable sources by a certain date. Benefits include job creation,energy security and cleaner air. Example:Texas avoids 3.3Mtons CO2 annually w/2000 MW new renewable generation by 2009. California is expected to move the deadline from 2017 to 2010,with a penalty of $50.00/MWh for not meeting the deadline. FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.I... t 1 Subject:FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.16-19)] From:Thom Fischer <thom@tollhouseenergy.com> Date:Mon,14 Nov 2005 16:58:28 -0800 To:Jim Strandberg <jim_strandberg@rca.state.ak.us> Jim attached is the information on PNWER.Seattle to Bellingham is 100 miles,or about 1.5 hours.Bellingham to Vancouver is only about 50 miles,but |would figure 1.5 hours due to the border and Vancouver traffic.Vancouver to Whistler is 1.5 hours,and | would figure 2 hours due to construction work on the highway (getting ready for the 2010 Olympics).|plan on leaving BellinghamsometimeonWednesdaytogotoCanada&Whistler.Thursday |will be at the PNWER conference at Whistler.Other than that,| have no other firm plans. Looking forward to seeing you. Thom Thom A.Fischer,P.E. work 360-738-9999 ext.111 cell 360-739-9777 fax 360-733-3056 thom @tollhouseenergy.com -----Original Message----- From:Linda Hay [mailto:linda_hay@gov.state.ak.us]} Sent:Tuesday,October 25,2005 9:27 AM To:Thom A.Fischer Subject:[Fwd:PNWER Regional Economic Leadership Forum (Nov.16-19)] I am not sure that you are on their email list -will let you know if someone from the governor's office will be attending. Linda Hay Subject:PNWER Regional Economic Leadership Forum (Nov.16-19) From:"Matt Morrison”<mattmorrison@pnwer.org> Date:Mon,24 Oct 2005 16:51:21 -0800 To:"Matt Morrison"<mattmorrison@pnwer.org> Join State and Provincial Legislators and Business Leaders from the Pacific NorthWest states of Alaska, Washington,Idaho,Oregon,and the Canadian provinces of British Columbia,Alberta,and the Yukon for an Economic Leadership Forum November 17 &18 in Whistler,BC The two day symposium will be a chance to network with key policymakers,and will address the challenges of China's energy demand on North American energy prices,and how that demand is impacting US Canada relations.The second day of the meeting will address the 2010 Olympics and opportunities for regional branding. For the conference rates at the Chateau Whistler of $129 CDN,make your reservations now at htto:/Awww.fairmont.com/whistler/use the online code:GRPNW1 For additional information consult our website at www.pnwer.org Matt Morrison,Executive Director PNWER Regional Economic Leadership Forum Fairmont Chateau Whistler,BC Nov.16-19,2005 Thursday,November 17 -Energy Policy Forum 1 of4 11/14/2005 5:16 PM FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.1... Day one will feature key thinkers,policymakers and industry leaders addressing the pivotal role the region plays in the global marketplace and the implication of China's energy needs on US-Canada relations. e How will China's demand for fossil fuels effect energy prices and supply in the Pacific Northwest? e What is our strategy over the next decade as China responds to a massive energy crisis? e How do we ensure access to the low-cost energy necessary to fuel the region's future economic growth? Friday,November 18 -Regional Branding at the 2010 Winter GamesAs2010rapidlyapproaches,we have a once in a lifetime opportunity to market our region during the Winter Games.Up to 4 billionviewersfromaroundtheworldwilltuneintohearourstory.We must begin to form a marketing and branding strategy to engage the world and attract visitors to our region. e How can we work together to market the region to the rest of the world? e Is the region prepared to take advantage of the many economic opportunities before,during and after the games? e What is our strategy for regional branding to help enhance tourism? Registration Details For Registration &Agenda Go To: http://www.pnwer.org Location:Whistler,BC Fairmont Chateau Whistler 4599 Chateau Blvd. Whistler,BC VON 1B4 Hotel Reservations -1-800-257-7544 or online at http://www.fairmont.com/whistler/ To receive the conference rate of $129 Canadian please ask for the PNWER meeting rate,or use the online promotional code GRPNW1 AGENDA Wednesday,November 16,2005 7:00 pm PNWER Executive Committee Dinner 9:00 pm -11:00pm Hospitality Suite -Fairmont Chateau Whistler Thursday,November 17,2005 Energy Policy Forum 8:00 am Breakfast 8:30 am "The Chinese View of the World Post-Unocal” Speaker:Professor Wenran Jiang (University of Alberta) How will China's fossil-fuel demand over the next 10-20 years affect the global market,and the Pacific NW? 9:15am Session #1:China's Energy Needs:What does it mean for the US,Canada,US/Canadian Relations, and Regional Economic Growth?(Facilitated Roundtable Discussion) Moderator:Rep.Jeff Morris (WA) Invited Participants Include:Professor Wenran Jiang,Russell Mark and representatives from Exxon Mobil,Duke Energy,Encana,Enbridge,TransCanada 10:45am Break 2 of 4 11/14/2005 5:16 PM FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.1... 41:00am Session #2:How do we ensure access to the low-cost energy necessary to fuel the region's future economic growth?(Facilitated Roundtable Discussion) Invited Participants Include:Representatives of Puget Sound Energy,Northern Lights,Seabreeze, BC Hydro Public Sector:Sen.Fred Dyson (AK),Minister Greg Melchin (AB)(invited),Minister Richard Neufeld (BC)(invited),Rep.George Eskridge (ID),Sen.Glenn Roush (MT),Rep.Alan Olson (MT),Rep. Jeff Morris (WA) 12:30pm Lunch (Keynote Speaker TBA) 2:00pm Afternoon Policy Tours,Activities Bi-National Regional Energy Planning:Developing a Roadmap for the Future 7:00 pm Evening Reception at the Fairmont Chateau Whistler Friday November 18,2005 'Regional Branding at the 2010 Winter Games 8:00 am Breakfast, 2010 Winter Olympic Update Vancouver Organizing Committee -Status of planning for the 2010 Olympics 9:15 am Tourism BC -What is BC's branding strategy, Mary Mahon Jones -Council of Tourism Association of British Columbia CEO Brian Krieger -Director,2010 Commerce Centre -Procurement and access to opportunities 10:00 am Break 10:15 am Roundtable Discussion on Regional Branding:How do we take full advantage of being in the world's media spotlight? Moderated by Alaska State Representative Lesil McGuire &Carl Wilgus,Idaho Tourism Director 11:15 pm 2010 Olympic Coordination Strategy Session,Panel of State &Provincial Tourism DirectorsRegionalTrainingVenueDirectoryPromotingregionwidemediatours Discussion on making a regional proposal to Congress Regional strategy to address the Western Hemisphere Travel Initiative (Passport requirement) 12:15 pm Working Lunch -Facilitated DiscussionStrategyforTurin,Italy 2006 Winter Olympics Timeline and next steps 2:00 pm Tour of the Olympic venues in Whistler 7:00 pm Evening Reception at the Fairmont Chateau Whistler Saturday November 19,2005 9:00 am -12:00 pm Breakfast &PNWER Board Meeting (All Participants Invited) Linda Hay <linda_hay@gov.state.ak.us> Special Assistant DEC /DOTPF/Forestry Governor's Office 3 of4 11/14/2005 5:16 PM FW:[Fwd:PNWER Regional Economic Leadership Forum (Nov.1... -Type:rfc822_lPNWER Regional Economic Leadership Forum (Nov.16-19).eml Content-Type .message/0822|Content-Encoding:7bit |Content-Type:application/pdf .Regional Economic Leadership Forum10-24-05.pdf .Content-Encoding:base64 4 of4 11/14/2005 5:16 PM Southeast Alaska Transportation Plan:an approved component of the Alaska Statewide Transportation Plan,August 14,2004 Map 22 :Mid-Region Access Corridors \ . q yeanof .aamminsYo Petersburg 4 Legend Transnectation Feature Type Essential Corridor ====Potential Ferry Route ws a Existing Ferry Route Existing Road wes @ Potential Tunnel wees Potential New Road omenes Potential Road Reconstruction Sa Canadian Transp CorridorR >---.Electrical intertie Road (Canada) Boundary Feature Type National Boundary T_*"Lup i Boundary fl LUD Il Areas "1 widemess Boundary Wikdemess &Monument Areas J [=Parrng| PETROLEUM NEWS ©WEEK OF NOVEMBER 13,2005 @ GWORTH AMERICA Task force says long-term contracts best Financing needed for new natural gas infrastructure,such as an Alaska gas pipeline,hurt by emphasis on short-term contracts ty KRBTEN NEISOK FeoclzumNewsEditore-Chief task force report from the National Associaion of Regulaory Utility gas delivery infrastructure to meet growing demand,and sad "long-term contacting may be requisite for achieving this objec- tive.” Task force co-chairs are Commissioner sonably priced natral gas” The task force found that the movernert toward shorter-term contracts is the resultof both market-driven and regulatory factors. Officials from the organizations will be term contracts.Cormmenters a the work- shop said states "should evaluate longterm contracts from a multi-year perspective and avad second guessing utilities becausecontractscouldlaterbedeemedunattractive during a limited lifetime.” The task force said comments identi fied"Yegulatory baries at the state level a amajorreasonforwhygasutilitieshavebeen reluctamt to sign long-term contacts for delivery services,”and recommended Strategies such as pre-approval oflongtemm Commissionersandthe InterstateOi! =Donad Mason of the Public Utilities asking state regulators and the FederalandGasCompactCommissionsaysCommissionofOhioandJohnNorman,Energy Regulaory Commission to look ashortertermgaspurclandwchainnanoftheAlaskaOiland=regulatory practices that may need to be transportation contracts may =Gas Conservation Commisson changed to encourage longer-term gasjeopardizefinancingofcapacity=and femer vice-chairman of delivery services.expansion needed to meet a 5 JoGcc¢.The task force took comments at a growing U.S.demand for natural Normansadina statement 'Washington,D.C.,workshop on Aug.igBsthatoverthepast25yearsfed-and also ted written\ Congress has approved a fed-ezal lom guaranter for a natural |7gaSpipelinefomAlaska's NorthSlopebutthetaskforcesaidsup-JOHH RORMAWportingnewinfrastructureproj- ects such as the Alaska gas pipeline to eral and state initiatives have created increased competition in the U.S.natural gas industry, accompanied by "a movernert toward shorterterm commer- cial for gas p mt andexpandtheU.S.gas pipeline network ismarti"bo mnodente the levd,as well 2thevolatilityoffigurenaturalgasprices.”The task force said industry observersbelievetheUnitedStatesmustexpandits Fae"PI RCTICES transp services.Such heavy reliance on short-term trmsactions may jeopardize the ability of gas-delivery sponsors to finance expanded capacity sufficient to meet the country's growing demand for rea- Inforrnation came fom industry groups,gassuppliers,pipelines orretail gas utilities; two state regulators also subemitied written comments. The task force saidin a report released inOctoberthatthosecommentingatthework- shop acknowledged "that long-term con- tracts may be neededto finance new capitalprojects”and said state regulators should change their practices,which now discouw- age gas utilities from entering into long- os SR SeaMoving:Let Ade ate Now you can ship your freightto America's largest state by North America's largest railroad and the world's largest railcar barge. CN 'AguaTrai Toll Free:(800)999-0541 Phone:(907)279-3131 _ Fax:(907)272-3963 3015 Madison Way Anchorage,AK 99508-4416 RailCars to'?tetmeggertey,eo eySaar . mee be "hayo'Alaska Since:1962:eeing Re ve Mam EAnp, tracts and the application of a portfolio approach,with utilities contracting for some long -ierm gas. Regulatery barriers Ore barrier to long-term contracts addressed in the writtm comments is that state regulators do not have clear policies toward long-term contracts,the task force sad Regulates aso "inappropriately” exploit 2020 hindsight "in prudencereviewstodisallowcostsforunanticipated everts,”leave utilities exposed to stranded costs from long-term contracts when cus- tomers switch to marketers,place undue emphasis on shortterm transactions and alight "the benefits of risk management resulting from hedging and portfolio diver- Sification.” The task force said most of those com- menting believe "regulators should encour- age long-term contracts when new gas- delivery infrastructure investments ae war- ranted.” The predominance of short-term con- tracts for gas suppliers and gas delivery over the past 20 years has "iraposed addi- tional risk on gas-delivery operaors by increasing the uncertainty of their future revenue stream,”the task force said Recent studies have shown that delays in gas infra-structure deve opment "can have a chillingeffectonfisheenaturalgasmarketcondi- tions,”the report said,attributing such delays to the absence oflong-tam commit-ments by gas utilities. Portfolio approach One solution to the need for long-term commitments "wouldbe for gas utilitiestoapply2portfolioapproachtogasprocure- mert and transportation acquisition,”the report said."..Within the confines ofaportfolioapproach,a pradert long-term strategy may encompass long-tem con- tracts for pipeline and storage services.” The task force said it conduded "that long-term contacting may be a prudent way to develop a appropriate balance between cost,risk and reliability,”with the optimal mix oflong-term contracting with- in a portfolio varying by utility,with long- term contracting attractive "when pipeline ity b so icted in a regionthatautilitymustprudentlyguaranteeade- quate fisure capacity by making a long- term commitment to new capacity.” The task force is recommending that state regulars take a more active role in encouraging long-term contracting and "should minimize secand guessing and tak- ing a short-term perspective when evalua- ing long-term contracts.”The task force urged recognition of "the urgent need for additional gas-delivery infrastructure to moderatethelevel,as well a the volatility,of future natural gas prices,”and said stateregulatorsshouldlookat"long-term con- acting as an appropriate mechanisrn to manage long-term price and volume risk sez TASK FORCE page AD PETROLEUM NEWS ©WEEK OF NOVEMBER 13,2005 @ CanRaDA Billions bet on sands CNQ,EnCana unveil sweeping oil sands schemes, each aiming for 500,000 bpd By GARY PARK ProviewNew's Conadian Contributing Writer mada Nauwa Resouces and EnCana have smotheredany thoughtsthattheAlbertaailsandsmightsat ruming out of stearn by unveiling twoofthemostambitiousprograms.CNQ (as Canadian Natural is known because ofits stock symbol)is shooting for 497,000 barrels per day by 2015,with no declines for the following 30 to 40 yearsCombinedwiththeCalgary-based indepen-dent's C$10.8 billion Horizon project,which is now under con- struction,the date of new undertakings would bring the com-pany's total commit- mext to the ail sandstoanestimatedC$30 billion to C$35 bil- lion.That's mare than EnCana CEO Gwyn Morgan America's largest gas producerandits pacesettey in uncorrvention-al plays,weighedinNov.7 withthetigindependert'sownhigh-flying goals. ChiefOpezating Officer Randy Eresrman (who succeeds Gwyn Morganaschief exec-utive officeronJan 1)said ExCanaispro-jecting 500,000 bpdby 2015,300,000 bpdmorethanitscartieroutlook,and is expect-ing to spend C$12.5 billion on initial andsustainingcapitaloverthe25-30 year Hife oftheprojectsasittapsintoestimatedrecover-able oi]in place of 52 tilion to 10.5 billionbarrels. newly identified Barealis project CNO accelerating Horizon Affirning its confidence in the ail sands, €NQ is accelerating construction of Horizon's initial phase,moving C$400 mil-hion from its 2007 capital budget to 2006, targeting 110,000 bpd in 2008. From there,company Chairman Allan Makin said phases two and three will be coxnbined to push output to 232,000 bpdby2011,a year catia than oniginally plazedNowtwomorephasesareintheworks,although they have yet to get final rat fica-tion by the boardof directors.But Mackinsaidthe goal is to add a fir-ther 265,000 bpd,giving Horizon total syn-thetic crude production of 497,000 bpd by 2015 at acost ofa least C$12.3 billion.Also being scoped are plans to: *Build a C$6 billion upgrader at Primrose near Cold Lake in northeastern Alberta to tum bitumen into synthetic crude,startingat 125,000bpdin2012 and growingoverthenextthreeyearsto175,000 bpdChiefOperatingOfficerSteveLautsaidanupgradeisthe"next logical step”inCNQ's oil sands portfolio,allowing it to capture C$9.50 per barrel and achieveapro-ductioncostofC$27 per barrel at the plant gae. *Add another 240,000 bpd to the 120,000 bpd project now under develop-mentatPrimrose.CNQisinthe preliminarystagesofanothereightthermalprojectsof30,000 bpd each by 2018-2020 a a cost ofC$A8 billion. Unlike the open-pit mining of bitumen at Horizon,Prirwoseis an in-situ project thatpumpssteamtomeltdeepbiturnendeposits,forcingthemtothesurface.*Construct a C$1.4 billion gas ficationfacilitytoapplynewtechnologyandgener-ate synthetic gas,lowering reliance on cost- ly nara gS 28 a heat source for oll sandsandprocessing.CNQ bopes toMeargantoldwninvestfstha the oil sands straiegy,in haness with the bring the first of three phases on line in 2013 and eliminate the need for 200 millian cubicexistinggasplays,reink EnCana's view that onshore North America's conventional opportrities are tred,small,difficult to find and costly to develop. E was emphatic tha multip! alternatives will make the oil sandsa"verysignificantpartofourfuturegrowth,”whichistargetedat15-20 percent growth in all andnaturalgasliquidsoutputby2009. EnCene epen te partners But,unlike its gas sector,EnCanais opentotakingonpartnersafterreceivingseveral unsolicited inquiries fromm other unidentified"major multinationals,inte grated producersandnationalalcompanies”eager to entertheailsands,the company sadItisweighingthepossibility of equityinvestments,fam-ins,asset swaps,long- tern bitumen supply agreemets and thejonofupand4asselsopeningthewayto"low-cost maketdevelopmentsolutions”to make it morethanapurebitumenproducer.Those prospects could explainaflurry ofmumorsinOctoberthatRoyalDutchShellwaspreparingatakeoverbidforEnCana,forcing EnCana to issue a denial that it wasinanytakeoverdiscussions.EnCana's heavy oil sands concentrationisinthein-situ developmentweas of north-rastern Alberta,where steam is injected to melt deep biturnen deposits,allowing them to flow to the surface.Its grand plan is to achieve productionof250,000 bpd at Christina Lake (currently 7,000 bpd},150,000 bpd at Foster Creek(currently 30,000 bpd)and 100,000bpdata feet per day of natural gas a Horizon. Investors impressed Investors were impressed,sending CNQsharesscaringby10percertonthedayof the announcement,while many analysts dug see SILLIOHS page AlO ANCHORAGE Griffin named acting deputy commissioner Alaska Natural Resources Cornmissioner Michael Menge has named Ken Griffin acting deputy commissioner responsible for managing issues rdated to the State's oil and gas resources,effective Nov.3.Griffin,an Alaskalicensed petroleuen engineer,has nearly 25 years'experi- ence in oil and gas exploration,developing,operations and pipelining across the state,the department said Nov.4.Griffin has been a petroleum reservoir engineer with the Alaska Division of Oil and Gas since March 2004. "Ken Griffin's impressive record as a long-time mgineer with experience across all aspects of Alaska's oil and gas industry makes him a valuable addition to my resource management team,”Menge said "I am pleased he will also con- tinue his active role as a member of the state team negotiating with North Slope ail producers on a natural gas pipeline.” Gniffin worked for Forest Oil CapfFarcenergy as a planning manager and reservair engineer,for Alyeska Pipeline Service Co.as a quality advisory and quality assurance emgineer and for ARCO Alaska Inc and ARCO Oil and Gas Co.in reservoir gineering,production engineering,and facility engineering. -PETROLEUM NEWS contemed from page 48 TASK FORCE within the con fines of a gas utility's portfo-lio strategy.” The Alaska natural gas pipeline project is specifically mentioned,with state regula.tors urgedto "recognize the special featuresofcertaninfrastructareprojects,ppecifical- ly the Alaskan gas pipeline and muttiple LNG projects,that will require substantial Tevenug guarantees.” The task force also recornmended that State regulators requnre utilities to develop long-term strategies for pipeline capacity and said "FERC should revist its policies for pricing different pipeline services,in additon to its other practices that may be stilling financing of,and contracting for,long-texm gas-delivery services.”@ The reports policy recowonendations are available on the NationalAssocation of Regulatory Utility Commissioners Web page at: wow naruc.org/associations/1773Files!NARUCIOGCC-REPORTpg Fran nuts and bects to generators 1nd heavy machinen,we more the parts and supplies that keep your Ine ustey mevig.Aad with nearly 40 seats af vaperionce,we do il oettes Nan auyone in Alaska. Foarneork tat Dehieers. 800-727-2141 ©907-243-3341 COU GC Gero weaoaLAA CN,SoereaserstilciertilastheBoldorerydag,prefertanata whe have bett carenve ba Alan's leit, epdurstand the specalennstrccioncheleagesbere,whether the project requires buliding an Arce Ico read,surveylog for oll |liz,Sere =Santen togereten une!oket gar caerr7ret¥ks Pape eae aide Se o ee A pn ahaaBryreaoptrh INTHEV BUILD:ALASKA,ILD THE> PETROLEUM NEWS ©WEEKOF NOVEMBER 13,2005 ®ANCHORAGE Menge says gas pipeline deal complex New commissioner of Department of Natural Resources urges Alaskans to evaluate gas contract carefully when it becomes public By KRISTEN NELSON Petolewa News Editor-in Chacf ike Menge took over as comunis- sioner of the Alaska Department of Natural Resources Oct.27,replac- ing Tom Irwin who had been dis- missed by Gov.Frank Murkowski earlier that day.Menge's first job was to replace the six departrnent officials who resigned in protest over Irwin's dismissal.(See storyintheOct.30 issue of Petroleum News. Menge told Petroleum News Nov.4 that the department's employees kept things rumning smoothly over the transi- tion,and sad the cornmissioner's office was in business Oct.31.Menge filled posi- tions le vacant by the resignations with promotions,most announced Nov.1;the acting deputy commissioner responsible for oi]and gas was named Nov.4."My goal here is to get pastthe disrup-tions ...as quickly as possible.”To do that, he brought "people up fron the ranks, known commodities,well respected and trusted by both their peers”and industry. The gas pipeline negotiations remain the department's No.1 pricrity,Menge said. 'Other major projectsinchideoi]and gas lease sales,new mines umder construction or in planning,the municipal land mititle- ment program,evaluations of last season's fire program and planeing for next year and cornpletingamajorrewriteofthestate's coastal zone consistency policy. Nothing sew for oil and gas Menge said he didn't see the need forchangesinthewaythedepartmentrunsoi]and gas:"I think we have a good solidpolicybase,”with "goals that ae impor- tanttothe state and for the industryand we're going to pursue therm with a high degree of enthusiasn and intensity.” The Alaska Peninsula is a area offocusforailandgasdevelopment,he said,as is Cook Inlet State Geologist Bob Swenson has background in Cook Inkt, Menge said,and "he believes,at I do,tha there's a lot of untapped potential thereandsowe're going to put ina lot of ¢ffort”in that basinThereis cortirmuing activity on theNarthSlope,and Menge said the state has"a lotof responsibilitytonew both independents and "that little mom and pop operation,Shell O21.” The gas line is the biggest project on Reservations 07,6.600 The daaite and cubslenee af «camfartatle ety -anticmated and wiraded to Ac they dauld be the state's agenda,he said The trans-é Alaska oil pipelineisninninghalffullor less,partly because it |takes such a large discovery "to cover the cost of the infia- Structure andgetittomarket”With a ga5 Mike Menge, pipeline,"a lot of Department ofprospectsthatwouldNaturalResources not otherwise be developed will be...”Th addition to the known North Slope gas resource,"I think all of us believeparticularlyallofusgeologistsbelievethere's still a remendous arnount ofgas up there.” NPR-A end ANWR Menge is not new to Alaska He has worked the North Slope fiom the federal Side,both the National Petralann Reserve- Alaska and the Arctic National Wildifz Refuge. He moved back to the state in August 2003 when be joined the Murkowski administration as the governor's seior advisor on energy,mining and the evi- ronment,buthe first came to Alaska withtheBureauofLandManagementin1980,and through 1991 warked for BLM,the Minerals Management Service and the US.Geological Survey in Anchorage, before joining the Alaska Departmert of Environmental Conservation in the second Hickel administration. Mengestarted his career as a coal geal- ogist with USGS and his first work in Alaska "was on the North Slope coals,the Deadfall Syncline,in the area that (Arctic Slope Regional Corp.)is now ...trying to commercialize.” When coal activity declined,"I simply recreated myself as an oil and gas geolo- gist for BLM,”Menge said.He led the 1980's effort in NPR-Ato do the first threeleasesalesthere,and the moved toANWR"and my team did a couple ofthe resource assessments for the 1002 area” Menge said that was when be got hisfirstexposuretoWashington,D.C.,testify- ing om the 1002 area before Congress. "They wanted to put a field geologist face on the resource evaluation so they hauled me out of the field and put a tie on me andasportscoatandIsatbeforeCongresstes-tifying.” d 124-hows sn-emain dining werve'e,Full asters club seith pool.Nighly eerndaun servise.6 wouren |Three wotaneanes ancl4 effec burr,Aska unty eweinber of Refevreed Hoseb ard Resorts Wis.kduude.| | { | | || 9 hil(aystain (Gok ANCHOUAGE.ALASKA 18€0.$43.1950 weucaptainceck.com Al ska Sipbnin Uikare Parner Taps and Tags and DEC Menge has also been involved with pipelines im Alaska:he was the federal officer in charge of the trans-Alaska ail pipeline at the time of the Exxon Valdez cil spill,and co-founder with Jerry Brossia(thenonthe state side)of the Jaint Pipeline Office.Menge led the federal permitting and right-of-way effort for the trans- Alaska gas system.The JPO permitting effort,he said,"worked like a charm,”but unfortunately that gas pipeline project «=apipelinetoValdezforgasliquefactionand shipment to the Fa East =fell through. "So I'm highly motivated to get this gas line through,”Menge said "We're gaingtogetthisonetomarket.”Menge was directa:of the Division of Environmenta Quality in the AlaskaDepartmentofEnvironmental Conservation in the early '90s,and then moved to New Mexico with BLM,where he was associate district manager. He went to Washington,D-C.,in the mid-'90s and was on the professional majority staff of the Senate Energy and Natural Resources Cornmittee.Menge, who retiredin2002,was appointedasamemberontheBoardofEarthSciencesandResourceswithintheNational Acad of Sci He returned to work in 2003 a Gov.Murkowski's senior advisor. Bringing everyone along Menge said he learned a lot working at DEC."There was such an integral corsvec- tion between resource development and environmental permitting I came to a pro- found appreciation for how the two work togetherandsince then I've been able tounderstandthefactthatnobodyinAlaska..works in a vacuum ...As you executeyourduties,you have to understand and incorporate the needs of all of the other pemmitting agencies ...you can't operate ina vacuum. "I knowat times people get a little frus- trated,but the ability to bring everymme along af the same time is crucial to suc-ceeding,”Menge said. He said his time working at the Smate "taught me ...the benefit of building coalitions.You can do nothing in the Senate without bringing everyone along.” Even if you don't agree with them,"you can't just ignore them:their needs and influence have to be factored into what you do as well. "The arogance I might have ever hadasayouthhasbeensandedawaylongagointheharshwindsofreality,”he said. Pipeline ne gotiotions Menge said he was hicky Ken Griffin agreed to serve as his deputy Griffin was named acting deputy commissione for al amd gas Oct4 =because "he'sbeeninthegaslinenegotiationswithmesincedayone.” Those negotiations still take all of Griffin's time,"and my spare time,” Menge said,but "we're through all the see MENGE page B¢ Be a Leader.Midnight Sun is my company. We sliive to Le a Luckiay industry leader.” Rather than hoping the {errorists dont attack, we're 'raining our drivers 10 drotect themseives,our . Highway Watch'olfers many free training options so the choice to enroll was easy for us to nzke. I's Our company.it's Our country.We're committed to keeping them both safe and secure.(--Jein us.Sign up foi Highwwey Welch'loday. company,and our country. 4 Midnight Sunporary:TAASFCRTE 4 SE3,:025 NC.;auinsths aXUSD0T309261 HIG PETROLEUM NEWS ©WEEKOFNOVEMBER 13 2005 Extreme Gear for Extreme Contlitions. rescue personnel,hunters,mushers and snowmobilers in Alasky's extreme Arciic wintar,Now the some patunied tachnologytatprotectsthemis available to oll and gas field workers, Wiggy's Lamilite*-ineuletadArcticooris proven fo keep you comfortable in severe po©qub-zero lemperatures.Our 0]ar mares voi"is alo available with eid *NOMEX®,a superior fire-resistont k.3 materiel that con moke the difference belwoen|ninor burns ord life threctoning injuries chaingQflashfiresandelectricaresituations,And countssancurhard4cepack-boot,also insulaed with .Lomnilily®,to keep your fest warm a in lemperakuresdownbo40"F. 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Visit as in Anchorage,or see the entire Wiggy's catalog on Ene. {/ 8225 Old Seword Highwoy,Suite A,Anchoroge,AK 99518,907-336-1330 1-800-748-1827 +www.wiggys.com -eete eS Earnings from Top 30 North American E&P Capex SpendersEarntogsthirdqyuerter2005*Change from third querter 2006Liquidsproductionthirdquarter2005«Change from third quarter 2004 tfatural gas production third querter 2005 «Change from thrd quarter 2004 »ap a0 +16 2,@2000 2-Tea 5 RDVShell RSA $9032 +8 207,000 4 6.551 5 EnCana KA $56 38 719,00 -%3.222 + Esowaltobil 10M $920 a5 2,447,000 a Wie 3 Ga.Bewrd CWQIO gist Ls)33470 +B 1423 +2 CanacoPhiips COP $000 489 100300"45,3108¢2 Pass ep $12 6 22980 +3 616 7 ese On $3508 +2 166,00 -1 ere +B dmadae AK $38 +6 162,000 3 1,382 Deren own vee +”2M :.']ae 7 Dennen D $5 6 AMO 3 wo 1Z furingee R ve +90 13,100 +5 188 1 Ocdém tal ony te +190 06,000 1 645 +15 Mushy HSE.10.$556 +87 190,000 3 679 3 Me veield EX oO _-am +520 6 PevoCanada KZ som +38 285,100 2 921 5 Kers-ficGes KM $a +0755 161,00 3 991 6 £06 [3c]$308 +100 4000 Bal a +16 Geren yD bupesial rt)4682 +00 290,000 3 9 a Taiwan TM <$@0 4252 72.86 +Lar +3 Fone rAD $e +53 BR 4 oa 2 apace,APA $696 +60 26,021 4 Ls +3 Masathen wa 7 +e 157,000 a a 5 Seece AD $301 +1 18,200 B®Pi]a 'Wiltams wes BT)%oar 418 Chesapeake CHK 7 $82 ass +5 183 8 Pege aad soe "Gg 2.831 1]az 13 x10 xO $313 2 51,733 +9 Loe +28 Forest BI $3 "0 au 7 xe 18 *Does not include shave of L ukod production=inckides two man ths of Unocal productionwerdtionsoscubtfeetequiantLiquidsproductioninbarrelsperday.Naturaigas production in millionsofcubic feet par dayNOTE:Top 30 &basedonPetaleun News remarch contouedfrompage B3 MENGE major issues that have to be resol ved”and while the remaining issues are important, "we're done all of that real heavy lifting” When a contact is made public,evalu-ate it and draw your own conclusions,he said. He urged people not to "buy into simple explanations.”The deal is complex,he said:"you can't stick this thing on a bumper sticker.” Menge compared the contract to "a 2s EMPLOYMENT. tightly woven tapestry:every thread intherehasaconnectiontoeverythread..”He said the adrninistration expects to betested"on each and every issue and we'rePreparedtomeetthattest.But I would alsoSuggestthatyoudothesamethingwithallthevariousideasthatweoutthereamd don't accept amy map or one-line Tesponse.” The revenues involved are hundreds of billionsofdollarsto the oil companiesandthestate,he said,"and it's far too impor- tant to us to simply come up with a map decision:Look at the whole thing anddrawyourconclusions.”@ LISTING S38; FAIRBANKS ALASKA AREA PLUMBERS AND PIPEFITTERS JOINT APPRENTICESHIP HOURS:8 AM TO 12 PM,1 PM TO 5 Pid,MON-FRL TELEPHONE (07)458-5008. REQUIREMENTSUPONMAIONGAPPLICATION: A YEARSOFAQE:A MINIMUMOF18 2.HIGH SCHOOL DIFLOMA &TRANSCRIPT OR GE.D.CERTIFICATEANDREPORTOFTESTRESULTS.3.MILITARY TRANSFER OR DISCHARGE FORM DD-214,IF APPLICABLE.<.DRUG FREE WITHOUT REGARD TO RACE,CREED,QOLOR,SEX,OR NATIONAL ORIGIN, Page 1 of 1 xbc Quadrangle,Alaska LD.4 7BRADEFIEKXINTERIOR ¥SEE3aeRn%acePy -_EREgee-3 =>=a a "8 a-ALvot ad ee . veOti yrras . y ' Vom Le "4' rosa pon ; uf = woe % -* ty ; : . 5 be , ta 4.2 i . . , " se Pe: eed ar ole : ,og Meng, rr re " g27 wt 4 .." . ; aan a Pobiry ait . - . a « > Naty we .) iswty _-? -.23. ney : aa . ' bd # » cd so ¥ z &: cs mam woe Tc - enw ate " i . . f yee * oe % vo. wel 2 eT RL Be. 0, 4 £ s + "os > Sg 2 gehoy ' ' 3aewsn ef &% . wr**Rebertsan -* -<and aasTan™.« a, j2: acetN Bete pee ; : Lo . 7 Age me eA u , 7 fo, : ones hee a! ert ere i t #8 " . . Noe fa eeaaLo _-ae aaa nes 11/14/2005p.htmlimaps_detail/xbe_imaf/www.dar.state.ak.us/Iris/gis/qmi/qhttp :Legend re me :.--Stream Classt Roads Inventoried Roadless Area oeSL aN 206 Stream Class2_--Existing Roads 6 Unroaded Area 1,000 to 5,000 acres mR fo tee -BN :Stream Class3 -Roads Under Contract @&@ Unroaded Area <1,000 acres .co ey oh aan 6%Lakes -NEPA-Approved Roads,Developed Area :: ;%;'f Cabin Harvest @4&Non-National Forest System Land ae os .06 Wildemessvay506ExistingHarvestUnits:'[]2003 Roadiess Area Harvest Units 6 National Monument Wilderness112002RoadlessArea0%Under contract Non-Wiklemess National Monument :NEPA-Approved "Greta 2,'T"E 1996 Roadless Area ©jievect vite RN)Lup tt Area oye "we xx Potential Power Transmission Corridors (TUC)[59 POG ole soe ===Proposed State Road Corridor (TUC)ry Mapped Suitable Timberay&+4 ==Other Potential TUC State Road Corridors (Misty Fiords National.Monument Wildernes Restructuring Today 1-800-486-8201 &Thursday Ocotober 6 2005.3 Merging TIG,Grid West heats up NW stakeholders Stakeholders really clashed yesterday at what could be the birth of a Pacific Northwest grid organization. They were arguing over possible convergence of Grid West and the Transmission Improvements Group (TIG). BPA circulated its draft of a merger timeline Friday (RT,10/4). Two draft alternatives -not endorsed by anybody -were circulated too,in preparation for yesterday's showing of emotion. Option A,a strawman run up the flagpole,would start with BPA's plan (RT, 9/27)and removes the charter board's power to develop and negotiate grid agreements,tariffs,rates and markets. It would include more stakeholders on the governing board and allow for a delay in Grid West's timeline. Option B,another strawman,would modify TIG's governance proposal and expand its functions. Option B would add two at-large members to TIG's executive committee -for a total of four -and all four would have to be nominated from the non-utilityclass.The move is designed to ease concems about the executive committee's impact on non-market participants. Option B includes sunshine powersfortheexecutivecommitteetoforcethe implementation committee to explain whyit's undertaking -or delaying -certainactions. But the point of Wednesday's meetingwastostartwithBPA's convergence planandworkforwardwithitasafoundation, wrote Allen Burns,BPA's executive vice president for industry restructuring,in an email to stakeholders. He worried the two alternatives strayed too far from BPA's plan and were better suited for discussion at a separatemeeting. But Steve Johnson,executive director of the Washington Public Utility DistrictsAssn,accused BPA's draft of being a finalpositionandnotastrawproposal. Only selected stakeholders were invited to work on BPA's merger plan, Johnson noted,and ideas on improving the plan aren't out of order. What topics will be OK to offer,he asked? What's the point of the meeting,Johnson wondered,if he can't talk about how BPA's plan addresses (or doesn't)hisconcernsonlossofregionalcontrolto FERC and governance not responsive totheregion's customers? BPA's convergence proposal has beencharacterizedbyclosedmeetingsandselectedinvitees,added MarilynShowalter,Public Power Council executive director. BPA hasn't explained its limits inrefusingtohearalternativesuggestions,Showalter wrote. TIG,Grid West or a merger of thetwoisimportanttoeveryoneinthe Northwest,she added. BPA can't expect to push through aproposalwithoutthoroughpubliccomment,she said. New ideas are exactly what areneeded,Showalter added,with the regionatanimpasseonwhatroutetotake. Efforts to relieve grid congestion need to be done in a "systematic and coordinated way,”New York PSC Chairman William Flynn told a Northeast Power Coordinating Council meeting last week. Congestion,he said,"has the ability to move around the grid.” The Central East interface in New York was congested only 4%of the time back in 1992,he explained,but jumped to 70%by 1996 "due largelytochangesinpurchasingpatterns.” It dropped to 40%in 2000 eventhoughnothingwasdonetoreinforce the system. "Solutions for a 70%congestion problem could be quite different from a solution for a 40%congestion problem,”Flynn noted."A lot of transmission investment could have potentially been thrown at Why New York went from 4%congested to 70%? this congestion problem in 1996,but byallowingthemarkettoaddressthe congestion issue first,we can make a more responsible analysis of the need for an upgrade.” The PSC worked with the New York ISO to develop its reliability planningprocess,Flynn said,that gives market participants the opportunity to "step inwithsolutions,shifting the risk for these types of investments from the ratepayer tothemarket.” If that doesn't happened,he noted,theaffectedutilityputsoutanRFPopentoall solutions -grid,generation or demand side management. Congestion,he reminded,isn't asmuchareliabilityproblemasitisaneconomicproblemsinceitblocksthe use of the cheapest power resources. It isn't true,he said,that "deregulationleftutilitiesandmarketparticipantswith no incentives to invest in new transmission facilities,”thus causingthegreatblackoutof2003. New York is investing less,but that's because generation is being builtclosertocustomers. "Carefully sited generationfacilitiesorinvestmentsindemand reduction can offset the need for transmission investments,”Flynnnoted,citing the state's interest in investing in energy efficiency,DG and .demand reduction. Congestion,he added,"serves to send pricing signals to developers andmarketparticipantswhorespondtothosesignalswithinvestmentsinnew generation,new transmission or demand reductions.” New projects in New York state,he affirmed,"have effectivelyrespondedtothosepricingsignals.” BC Hydro Service Plan 2005/06 to 2007/08 Service Plan Update September 2005 LeoReliablepower| for generations BGhydro & Table of Contents Letter from the Chair to the Minister 3 Message from the President and Chief Executive Officer 4 Executive Summary Section 1.Introduction 9 Section 2.Organizational Overview 10 Section 3.Purpose &Long Term Goals 16 Section 4.Risks 20 Section 5.Organizational Structure 23 Section 6.Business Environment 26 Section 7.BC Hydro's Strategies,Performance Measures and Targets 30 Section 8.Financial Outlook Summary 38 Section 9.Alignment with the Government's Strategic Plan 46 Conclusions 47 "All significant assumptions,policy decisions and identified risks as of August 2005 have been considered in preparing the plan.1 am accountable for ensuring BC Hydro achieves its specific goals and objectives identified in the Service Plan.” L.I.(Larry)Bell Chair "At BC Hydro,we believe a sustainable approach that is based on environmental,social and economic factors will leave a positive legacy for future generations.The Service Plan that follows lays the foundation for our short and long term strategies.Our performance will be measured against the achievement of our goals.” Bob Elton President and Chief Executive Officer BC Hydro Service Plan COOSP2PHCE to ZERFI ZEB e 2 ee ee ee ee ee ee 2 Letter from the Chair to the Minister The Honourable Richard Neufeld Minister of Energy,Mines and Petroleum Resources Dear Minister: On behalf of the Board of Directors and employees of BC Hydro,|am pleased to submit BC Hydro's updated Service Plan for fiscal years 2005/06 to 2007/08.The plan was prepared under my direction in accordance with the Budget Transparency and Accountability Act.1 am accountable for the con- tents of the plan,including the selection of performance measures and targets.The plan is consis- tent with the government's strategic priorities and overall Strategic Plan.All significant assump- tions,policy decisions and identified risks as of August 2005 have been considered in preparing the plan.|am accountable for ensuring BC Hydro achieves its specific goals and objectives identified in the Service Plan. In the past year,BC Hydro continued to implement the portions of the provincial Energy Plan that pertain to us.The Energy Plan preserves public ownership of BC Hydro and ensures rates are kept low for customers.It also sets out the policies to encourage more private sector involvement,relia- bility of supply,and environmental responsibility.In addition,the plan created an independent BC Transmission Corporation (BCTC)to manage,operate and plan the transmission system.|am pleased to report that we have made great progress on these action items. The province's electricity sector now includes a number of private sector power producers,who currently provide approximately 15%of the annual electricity requirements of the province.There are also further contracts for Independent Power Producers to supply the BC Hydro system in the future,a large portion of which are for green energy.BCTC is now a fully established and opera- tionally separate Crown corporation. Last year the BC Utilities Commission approved our first rate increase in more than a decade. Effective April 1,2004,our rates increased by 4.85 per cent.Even with this increase,our rates are still the third lowest in North America.This increase will help to preserve the benefits of our aging heritage hydroelectric system.With customer demand growing,we need to replace and upgrade assets,and bring on new supply to meet growing demand.BC Hydro will continue to diligently manage costs and eliminate waste to maintain low rates for our customers. As reflected in this Service Plan,BC Hydro is taking a bold,new,long-term approach to business. We have redefined our purpose and created 15 long-term goals.Our approach is about sustain- ability over the long term and our focus is on the environmental,social and financial bottom lines. We will also work with every British Columbian -First Nations,stakeholders,customers,the share- holder and regulator.We have the opportunity to give British Columbians a greater role in deci- sions about BC Hydro's future.We look forward to this opportunity. in the time since the original publication of this Service Plan in February 2005,there have been a number of significant activities at BC Hydro.Among them was our announcement on June 17, 2005 that we were abandoning the Duke Point Power Project because the risks were too great that it would not be ready in time.This followed a decision the previous week by the B.C.Court of Appeal in favour of an appeal proceeding on that project. BC Hydro Service Plan 2005/2906 te 2807S 2008+6 ee ees Cc} BC Hydro has also announced a revision to its upcoming open call for power.The Call scheduled for the fall of 2005 has been revised so that the likely outcome is a minimum of 1800 gigawatt- hours per year (GWh/yr)of new supply.BC Hydro has also allowed for the option of accepting even more energy -where it is economic to do so -to help address implications of the loss of asso- ciated energy from the Duke Point project. Finally,on the labour front,BC Hydro was able to negotiate one-year extensions of its collective agreements with both the International Brotherhood of Electrical Workers (IBEW)Local 258 and the Canadian Office and Professional Employees (COPE)Local 378.Both contract extensions are within the current public sector guidelines. Yours truly, L.I.(Larry)Bell Chair BC Hydro Service Plan 2GOSPIOGCE to 200720086 ee ee tt ee es 4 Message from the President and Chief Executive Officer |am pleased to present BC Hydro's updated Service Plan for fiscal years 2005/06 to 2007/08 on behalf of the Board of Directors and employees of BC Hydro. BC Hydro is a Crown corporation with a strong legacy in British Columbia.BC Hydro touches almost every region,community and citizen.Our dams,transmission lines and operating facilities have provided a flexible,low-cost electricity system for decades.British Columbians continue to benefit from the system today. BC Hydro does not want to change that legacy.Instead,we want to manage the environmental and social footprint we leave so that this legacy continues for future generations.And from what we've learned by asking British Columbians,they also agree with a longer-term vision. From our perspective,this means changing the way we operate.We have created a new purpose - reliable power,at low cost,for generations.We believe this purpose reflects the public trust we are charged with,to ensure that the resources we inherited will be just as valuable to our children. Our intention is to connect the benefits of our heritage system today with the future.We recog- nize the importance of maintaining the high level of reliability required by our customers.We will do this by ensuring we have the resources from a longer-term planning perspective and that we are appropriately investing in our infrastructure. Fifteen long-term goals will support our new purpose.Our long-term goals encompass optimizing existing operations;adding new power supplies competitively;protecting the environment;addressing the values of our stakeholders,First Nations,communities and all British Columbians;fostering a performance-based,customer-oriented culture for our employees; and,finally,protecting the financial legacy of BC Hydro for the province. We cannot meet our purpose on our own.Every British Columbian will play a pivotal role.British Columbians are among the highest energy consumers per capita in the world.Together,we need to decide whether we will consume less or generate more energy.BC Hydro will provide the lead- ership,express opinions and state facts.And we will engage our partners -from our customers to First Nations to the regulator -so that the right energy choices for British Columbia are deter- mined by all of us.Our view is that a balance can be found that includes conservation and energy efficiency,and environmentally responsible resource acquisition choices. At BC Hydro,we believe that a sustainable approach based on environmental,social and economic factors will leave a positive legacy for future generations.The Service Plan that follows lays the foundation for our short-and long-term strategies.Our performance will be measured against the achievement of our goals. BC Hydro's vision is clear,but our path to achieve it requires choices to be made.Our goals cannot be achieved without the help of our partners.We look forward to the chance to work with you to make these choices and build a lasting legacy for the generations that follow us. rl Bob Elton President and Chief Executive Officer BC Hydro Service Plan |2885/2806 to 20075290Be ee ee te eee ee eee OG Executive Summary BC Hydro's 2005/06 -2007/08 updated Service Plan is prepared in accordance with the Budget Transparency and Accountability Act. The plan sets out BC Hydro's long-term strate- gy,specifically the next three years.It provides the targets and measures upon which the public,the shareholder,regulator and stake- holders can evaluate BC Hydro's performance. BC Hydro is the largest electric utility in B.C., serving 94 per cent of the province's popula- tion.The dams and generating facilities are part of the province's heritage,and provide the low-cost,reliable power British Columbians require today.Regulated by the B.C.Utilities Commission,BC Hydro acts within the legislative requirements of the Hydro and Power Authority Act.The province's electricity sector also includes 36 private sector power producers,who operate in the province under contract to BC Hydro and provide almost 7,000 GWh of electricity to the system annually.There are a further 23 Independent Power Producers contracted to bring on over 1800 GWh of supply in the future.Of the total 59 contracts,26 are for green energy,provid- ing over 2,700 GWh annually. The provincial Energy Plan,introduced in November 2002,provided the framework for evolution of the sector.The Energy Plan preserves public ownership of BC Hydro and ensures rates are kept low for customers.It also sets out the policies to encourage more private sector involvement,reliability of supply and environmental responsibility. In addition,it created an independent BC Transmission Corporation to manage and operate the transmission system. BC Hydro's challenge lies in preserving the benefits of the heritage hydroelectric system. The assets are aging and need to be upgraded or replaced.The customer base and demand is growing,putting new demands on BC Hydro to increase the supply of electricity.The cost of maintaining existing assets,and the costs of energy,which include the costs of new supply, make up BC Hydro's biggest costs.BC Hydro OYBC Hydro Service Plan 2OCS5)25G must work to manage costs and eliminate waste to maintain low rates for customers. To respond to this challenge,BC Hydro has redefined its purpose as "reliable power,at low cost,for generations”.The approach is about having energy available and being able to deliver it when it is needed,maintaining the legacy of our low cost operations,and sustainability over the long term focusing on the environmental,social and financial bot- tom lines.BC Hydro has created 15 long-term goals to help meet that purpose as first described in the February 2005 Service Plan. Divided into six categories -Customer, Employees,Social,Environment,Financial and Enablers -the goals are strategically aligned to the purpose and will guide business deci- sions and operations in the years to come. Over the next 20 years,BC Hydro will partner with customers to reduce energy consump- tion,build relationships of mutual respect with First Nations and stakeholders,ensure no net incremental impact on the environment, establish domestic electricity self-sufficiency, and act within public policy and the regulato- ry environment to successfully meet these goals. BC Hydro faces significant risks that are beyond its control,but that could affect the ability to achieve the short-and long-term goals of this plan.Risks fall into four cate- gories:employee and public safety,reliability, financial performance,and environmental and social performance.While risks cannot be elim- inated,BC Hydro has a specific risk manage- ment process to minimize or mitigate them. BC Hydro has also changed its internal organi- zational structure to align itself with the evolution of the electricity sector and to deliv- er on its new purpose and long-term goals. Focusing on the core values of Accountability, Integrity,Service and Teamwork,BC Hydro will manage costs and eliminate waste to ensure the company continues to operate efficiently and cost-effectively over the long term. BC Hydro is governed by a Board of Directors, which reports directly to the Minister of Energy,Mines and Petroleum Resources.Our Shareholder's Letter of Expectations describes the working relationship and is reviewed annually and updated as required.In develop- ing the long-term goals,BC Hydro has consid- ered the shareholder's needs,and these are reflected in the strategies and plans. BC Hydro has also considered the external and internal business environments,monitor- ing them to identify their potential influences and to revise strategies and plans accordingly. BC Hydro will evaluate its performance with new targets and measures.BC Hydro is in the process of developing the right indicators for each of the 15 long-term goals.This will enable BC Hydro to modify short-and long-term plans at early stages,and ensure BC Hydro is on the right track to meeting its goals. BC Hydro Service Plan 2GG5/2 666 The Service Plan ends with a high-level review of the financial outlook for BC Hydro. BC Hydro's financial outlook incorporates a 4.85-per cent rate increase,effective from April 1,2004,that was approved by the BC Utilities Commission. All British Columbians -customers,First Nations,stakeholders,the shareholder and regulator -will play a role in BC Hydro's future.Working together with these partners into the future with a commitment to envi- ronmental,social and financial!factors,we will leave a legacy of reliable power,at low cost, for generations. Built in September 1968,the WAC Bennett Dam is among the world's largest earthfill dams.Together with the 10-unit GM Shrum (GMS)Generating Station it comprises the Portage Mountain Project.A stator upgrade project,planned for completion in 2012,will reduce the number of forced outages and related financial impacts. BC Hydro's Long-Term Goals CUSTOMER ;oH aoe : 1.Reliability (Customer)a Best-in-class reliability by customer segment 2.Reliability (Supply)a.Electricity self-sufficiency (energy and capacity)in B.C.for meeting all domestic needs 3.Customer Satisfaction 8 .Jo lead other companies in offering extraordinary value and service 4,Remote Community Electrification =-To provide appropriate electric service to all remote communities on an equitable basis EMPLOYEES:a 5.Workplace . 6.Teamwork =. All-employees working collaboratively on one team to the benefit of all stakeholders : 7.Safety ==To provide the safest work environment compared with the best performers in any industry =None of our employees will experience a serious.safety injury 8.First Nations ==.Improve relationships built on mutual respect and that appropriately reflect the interests of First Nations 9.Stakeholder Engagement u ©To be the most respected company in B.C. 10.Suppliers =100%of suppliers have demonstrated values congruent with those of © BC Hydro ENVIRONMENT : .a 11.Environmental Impact =No net incremental environmental impact 12.Electricity Conservation ; . =Develop and foster a conservation culture in B.C.that leads to customers and Efficiency choosing.to make a dramatic.and permanent reduction in electricity intensity FINANCIAL ee 13.Financial Targets a =Maintain existing position of having costs among the lowest in North America =Deliver 100%forecast net income on an annual basis (after adjustments for uncontrollable factors like water volatility) ENABLERS 2 -|. 14.Western Opportunities m=To increase profits in the broader western market by leveraging our system and trading capabilities and implementing long-term investment and procurement strategies 15.Innovation and Technology mw To be an industry leader in innovation and use of new technology,directly supporting and advancing BC Hydro's long-term goals. BC Hydro Service Plan 2OCSP2OG6 te 2O07P2Z008+6 ee ee ee ee ee ee 8 1.Introduction BC Hydro's 2005/06 -2007/08 updated Service Plan sets out BC Hydro's strategy for the years to come,with specific details for the next three years.It is,in effect,BC Hydro's Strategic Business Plan. This Service Plan is consistent with the February 2005 Service Plan.It includes BC Hydro's long-term goals spanning 20 years, which provides the context for BC Hydro's plans over the next three years.While BC Hydro continues to operate by a Line of Business model,detailed reporting by each Line of Business has been removed. Instead,the Service Plan consolidates this information to avoid duplication.A new risk section has been created to allow for an expanded and thorough discussion of risks and BC Hydro's risk management strategies. The Service Plan outlines the business environ- ment in which the company operates and defines the goals it plans to achieve,the risks it faces,and the measures and targets by which to evaluate BC Hydro's performance. Specifically: =Section 2 provides the Organizational Overview that describes BC Hydro's legislative mandate,policy environment, operations and performance. ws Section 3 details the company's new pur- pose and long-term goals.Taken together, these create a new vision that connects BC Hydro's historic operations to the future. =Section 4 details the specific risks to BC Hydro's operations.These risks are assessed and risk management strategies defined. #Section 5 describes how BC Hydro aligned its organization to take advantage of the opportunities and address the challenges of its operating environment.Specific details around BC Hydro's operational business units have been merged to provide an overall business approach for BC Hydro. BC Hydro Service Plan ®Section 6 is structured to give the reader a sense of the environment in which BC Hydro operates today and expects to operate in the future.This includes the external and internal factors that BC Hydro considers in its planning. m Section 7 describes BC Hydro's short-and long-term strategies for each of the long- term goals,and provides the targets and measures on which BC Hydro will evaluate its performance. =Section 8 summarizes the financial outlook and key financial assumptions made for the 2005/06 -2007/08 Service Plan. m Finally,Section 9 shows how BC Hydro is aligned with the government's Strategic Plan. Hugh Keenleyside Dam is an earthfill and concrete structure that incorporates a navigation lock,four spillways,and eight low-level ports.A remediation project,planned for completion in 2011,will mitigate earthquake risk and protect public safety. 2.Organizational Overview Mandate BC Hydro,established under the Hydro and Power Authority Act,is a Crown corporation owned by the Province of British Columbia. BC Hydro generates or buys electricity and owns the transmission and distribution sys- tems in the province that deliver electricity to customers in B.C.and to export markets. BC Hydro is regulated by an independent body, the B.C.Utilities Commission (BCUC),which is responsible for ensuring that BC Hydro oper- ates in the best interests of its customers while providing a fair return to the shareholder,the Province of British Columbia. Energy Plan for BC BC Hydro operates within the context of pub- lic policy.In November 2002,the government released its energy policy,Energy for Our Future:A Plan for B.C.The plan has four cornerstones:low electricity rates and public ownership of BC Hydro;secure,reliable sup- ply;more private sector opportunities;and environmental responsibility and no nuclear power sources.The Energy Plan contains 14 direct policy action items for BC Hydro.Twelve have been completed,one is subject to regu- latory approva!,and work on the final one is underway.The policy action regarding new rate structures to encourage energy efficiency and allow supplier choice for large customers was the subject of a negotiated settlement in July 2005 and regulatory approval is pending. Overview of the British Columbia Electricity Sector British Columbia's electricity sector has developed around the traditional vertically integrated utility model.Approximately 90 per cent of BC Hydro's electricity produced in the province is generated at hydroelectric plants.This combination of industry structure and renewable fuel source has resulted in a reliable,low-cost and flexible electrical sys- tem.Today,that system continues to provide some of the lowest electricity rates in North America. :Table 1 |Energy Plan Objectives Pertaining to BC Hydro Policy Action tems nevedbevens Status, 1,Establish a Heritage Contract,Vo eeae2 2 Ratepayers benefit from trade (up to$200M)Voiees 3__Ensure public ownership of generation,transmission&distribution Vo 4 Implement BC Hydro outsourcing of non-core services Vo, 5 B.C.Utilities Commission regulation of BC Hydro rates VO 6 Review of VancouverIslandGenerationProject,Ve 7 Complete 2004 Integrated Electricity Plan Ve, 8 Separate distributionand generationlinesofbusiness Vo 9 New supply acquired ona least-costbasis Vo 13 Private sector for new supply&BC Hydro improves existing plants Vo 14 Choice of electricity supplier by large customers approval pending 15 Formation of B.C.Transmission Corporation Vo 20 Fifty per cent clean energy target from new energy supply vi |||.||ee 21 New rate structures to encourage energy efficiency approval pending BC Hydro Service Plan |2G05720806 ta 20 2008s ee eee ee eee 10 BC Hydro is the largest electric utility in the province,serving 94 per cent of the popula- tion.There are other smaller municipally or investor-owned utilities around the province that deliver electricity to local customers. In addition,the role of private producers in power generation is growing.Currently,36 independent power producers (IPPs)provide almost 7,000 GWh of energy to BC Hydro's system.A further 23 IPPs are contracted to bring on over 1,800 GWh of supply in the future.Of the total 59 contracts,26 are for green energy,providing over 2,700 GWh. The provincial Energy Plan provides a frame- work for the evolution of the sector.It secured public ownership of BC Hydro's core generation,distribution and transmission assets.To maintain low rates,the plan desig- nates BC Hydro's integrated dams,hydroelec- tric plants and some thermal plants as her- itage assets. The Energy Plan also introduced policies to encourage increased private sector involve- ment in developing new electricity supplies. The plan directs utilities,including BC Hydro, to acquire new resources on a least-cost basis. With a multi-goal decision making approach to ensure least-cost power over the long term, BC Hydro also includes environmental and social impact costs.BC Hydro has called and will continue to call on the private sector to build new,competitive power generation in the province.The plan also encourages BC Hydro and other electricity distributors to supply 50 per cent of all new electricity through clean resources such as wind,small! hydro and co-generation projects.This also diversifies the energy fuel sources for British Columbia.Demand-side management pro- grams,such as BC Hydro's Power Smart conser- vation and energy efficiency programs,will also play a significant role. In addition,the Energy Plan specified that an independent Crown corporation be established to manage,maintain and operate BC Hydro's transmission system.While BC Hydro continues BC Hydro Service Plan 2aOS 2806 | What is a gigawatt hour? A gigawatt hour (GWh)is a measure of energy equivalent to one million kilowatt hours (kWh). BC Hydro typically generates between 43,000 and 54,000 GWh annually.One GWh is the amount of electricity to serve 100 residential customers for one year. Integrated Energy Planning BC Hydro prepares for future domestic elec- tricity demand through long-term integrated planning and describes its plan in the 20-year Integrated Electricity Plan (IEP).The IEP is pre- pared with input from customers,communi- ties,the public and First Nations and identi- fies portfolios of options to meet future demand for electricity.These new resources are acquired through competitive processes. Acquisition and investment decisions coming out of the IEP are reviewed by the BCUC in public hearings. to own the transmission assets,the British Columbia Transmission Corporation (BCTC) ensures non-discriminatory open access to the transmission system for all electricity produc- ers,supporting the growth of private sector involvement in the electricity sector and increasing electricity trade opportunities.As with BC Hydro,BCTC is regulated by the British Columbia Utilities Commission (BCUC).With open access to the transmission system,private power producers can also sell directly into regional wholesale markets and directly to large electricity customers. Description of BC Hydro BC Hydro has been an important part of British Columbia's historical development. It is one of the largest electric utilities in Canada,and one of North America's leading providers of clean,renewable hydro power. Approximately 4,100 employees are responsi- ble for reliably generating and delivering elec- tricity,and developing products and services for more than 1.6 million customers in B.C. BC Hydro owns 31 hydroelectric facilities, which provide about 90 per cent of the total electricity BC Hydro generates each year.The majority of the hydroelectricity comes from the Peace and Columbia River systems. BC Hydro also owns three thermal power plants,and supplements domestically pro- duced electricity with market purchases. Electricity is delivered to customers through an interconnected system of over 18,000 kilo- metres of transmission lines and 55,000 kilo- metres of distribution lines.Customer service and other non-core administrative functions are delivered through contracts with Accenture Business Service for Utilities. 500kV Transmission System and Major Generating Stations Peace Canyon = G.M.Shrum |Be Burrard PManyytegen SAD bY Trarosuesert Lines Major Generating Plants {over 500 MW) Rydoeecha Steagne habe ©)820 be Substations bileeg cones tas Series Capacitor Sater Revelstoke Kootenay Canal BC Hydro Service Plan |2888/2006 colt Lees -12 BC Hydro Customer Groups &Revenues by Groupings Customers Revenues (millions) Residential 1,484,339 89%,$1016 27% Commercial & light Industrial 187,313 MW%a,$967 26% large industrial BB,"cecectucetiewes $573,16% Other en,3265 a,To ccteeeee caves.$80,2%, Miscellaneous Tee cece Meeeeens $00),2%, ElectricityTrade 208,Tececence $1020 271% Total 1,675,258 100%$3,725 100% All numbers are as of March 31,2005. Customers the next 20 years.The growth rate is less, at 1.4 per cent growth per year,when Power Smart demand-side management programs are taken into consideration. BC Hydro operations serve a diverse domestic customer base consisting of residential,com- mercial and industrial customers.About 89 per cent of customers are residential,accounting for about 27 per cent of BC Hydro's total rev-Financial Performance enues.About 11 per cent of customers are commercial or light industrial,accounting for almost 26 per cent of total revenues.Finally, large industrial customers make up less than one per cent of customers,but account for 16 per cent of total revenues. Financial performance focuses on the financial return to BC Hydro's shareholder and the elec- tricity rates paid by customers.The economic value BC Hydro generates for the province directly benefits customers and all British Columbians.Ranked third for revenue genera- tion among all corporations in the province, Demand Growth part of the value BC Hydro provides to the Demand on BC Hydro's electricity system grows province is financial.In fiscal 2005 BC Hydro each year.From March 2004 to March 2005,provided $716 million.These funds go ays BC Hydro connected about 22,000 new towards schools,hospitals and road-building ,in British Columbia.BC Hydro pays about half of this amount through water rental fees {royalties paid for the use of provincial water customers to its system.BC Hydro's latest demand forecast (March 2005)shows an increase of 1.5 per cent growth per year over Demand Growth With and Without Power Smart Without With Power Smart Power Smart * Total Sales Actuals 2004/05 Forecast 2024/25 Forecast 2024/25 Electricity Sales,51,205GWh =69,000GWh 66,600GWh Growth Rate 1.5%per year 1.4%per year *This refers to incremental Power Smart impacts beyond existing Power Smart programs. BC Hydro Service Plan POGSS2AGE te FGDTOZSCRe we eee ee 13 resources),provincial and municipal taxes and grants-in-lieu of taxes paid to municipalities. In addition,BC Hydro pays an annual dividend to the provincial government. Electricity trade is important to the province. In fiscal 2005,trade activity accounted for $1021 million of revenues,making up 27 per cent of BC Hydro's total revenues.BC Hydro is able to benefit from trade because of the flex- ibility of its large,integrated hydroelectric system.This flexibility,and the ability to store water in reservoirs,allows BC Hydro to react according to market demands.BC Hydro can buy electricity on the market when prices are lower and sell electricity when prices are higher.This enables BC Hydro to earn a profit through trade even when,as in recent years,inflows have been below average and BC Hydro has been a net electricity importer. Profit from electricity trade helps keep rates low for domestic customers. Cost Drivers , BC Hydro's most significant costs include the cost of energy and the capital investment costs of maintaining and expanding assets. The single largest cost is the cost of energy - Comparison of Average Rates Canadian Cents per Kilowatt Hour the cost of market and Independent Power Producer energy purchases,natural gas costs, water rental fees,and transmission costs -to meet customer demand.On average,the cost of energy makes up about 50 per cent of BC Hydro's overall costs.Pressure on this cost driv- er will come from new energy supply,which is more expensive than the heritage assets. BC Hydro's amortization costs and finance charges to maintain and expand assets add up to about 30 per cent of all costs.The main pressure on this cost driver are BC Hydro's aging assets.Labour costs,which are primarily included in operations,maintenance and administration expenses,make up between 15 and 20 per cent of overall costs.Gaining efficiency in operations and effectively man- aging all cost drivers continues to be a key focus for BC Hydro,and will ensure that the company remains among the lowest-cost operators in North America. Rates and Regulation BC Hydro rates are set through a cost-based framework.BC Hydro submits a revenue requirement application to the British Columbia Utilities Commission (BCUC),which provides a forecast of the revenues and 25 75 __°e M@ Residential =Commercial D Industrial iS &=s BS£&RyS&<= >&é&RYeSSscSBS 5¥RJS&i& Ss £§éLocSs& cyzy& Note:The source for all data,except for Vancouver,is "Hydro-Quebec:Comparison of Electricity Prices in Major North American Cities.”(April 1,2004). The rates for Vancouver have been recalculated based on the BCUC November 2004 BC Hydro Revenue Requirement Decision,which granted a 4.85% rate increase effective April 1,2004. BC Hydro Service Plan 2020S 28606 Peeeri| expenses that BC Hydro is expecting to incur| over a particular period.It also indicates the revenue BC Hydro requires to be recovered through the rates it charges domestic cus- tomers in order to pay expenses and earn an allowed return on equity.The BCUC review process includes public proceedings before the BCUC makes a final determination on the application.BC Hydro will endeavour to involve stakeholders and First Nations more in its business planning and regulatory processes to ensure the best decisions are made for all British Columbians. In December 2003,BC Hydro submitted its first revenue requirement application since 1994. After review by the BCUC,BC Hydro was granted a 4.85 per cent rate increase,effective from April 1,2004 to March 31,2006.Even with the new rate increase,BC Hydro contin- ues to offer some of the lowest electricity rates in North America. BC Hydro Service Plan Heritage Assets and Trade Revenue Drawing on existing heritage assets and the revenue generated by trade activity has helped to keep rates low for customers. Through its new purpose to provide reliable power,at low cost,for generations,BC Hydro will continue to optimize the performance of its heritage assets,competitively seek new sources of electricity from Independent Power Producers and continue with energy trading activity. The original Stave Falls powerplant,built in stages between 1910 and 1925, was replaced with a new two-unit,90 MW powerplant that officially began operation on May 5,2000.The old powerhouse is nowa Visitor Centre where the public can learn about electricity production.In May 2004, the old powerhouse was awarded the National Heritage Site Designation from Parks Canada. 3.Purpose and Long Term Goals BC Hydro represents a vital public trust for the people of British Columbia.As a result,British Columbians have a deep and strong connec- tion to BC Hydro a connection that is arguably greater than their connection to any other Crown corporation.The province's history is linked to its power developments and large,integrated,hydroelectric system, and British Columbians continue to benefit from these today.As the steward of B.C.'s heritage assets,BC Hydro must operate in a manner that preserves this heritage,builds on the province's competitive advantage and leaves a positive,publically-owned legacy for future generations. All British Columbians have a role to play in BC Hydro's future legacy.BC Hydro is more clearly defining its leadership role and how best to engage stakeholders -customers, employees,the public,First Nations,the regu- lator and shareholder.These groups together must agree on making wise energy choices today to build a clean energy future.If we choose to use energy more wisely and effi- ciently and develop the energy resources that are right today and for our future,we can leave a lasting legacy. A new purpose:to provide reliable power,at low cost,for generations,redefines BC Hydro's previous vision and mission,and enables the company to connect its past operations to the present and the future. Purpose BC Hydro has defined each element of the purpose. Reliable power,at low cost, for generations Reliability is the foundation of BC Hydro's commitment to its customers.BC Hydro will have the energy available and deliver it when it is needed.With overall system availability at 99.995 per cent for fiscal 2005,BC Hydro's aim is to continue to achieve this strong perform- ance and do better.While this will be more BC Hydro Service Plan |2805/2066 challenging in some regions,where mountain- ous terrain or weather can impact reliability, BC Hydro will target maintenance and capital spending in those regions where reliability most needs to be improved.!n addition, because of different customer needs,BC Hydro is investigating customer-driven reliability to provide more choice for customers. The reliability goal is also about making British Columbia self-sufficient in electricity to meet domestic demands.BC Hydro's goal is to decrease reliance on market purchases and its price volatility.BC Hydro will look to "made in B.C."solutions for a secure energy future. Low Cost operations are at the forefront of business success.By being fiscally prudent, investing wisely and making the right capital decisions,and always considering environmen- tal and social costs,BC Hydro will maintain a legacy of low-cost operations over the long term.Even with its first rate increase in 10 years,BC Hydro customers pay some of the lowest electricity rates in North America.B.C.'s heritage assets will be preserved and trade activity will continue,and the benefits will be directly passed on to customers and all British Columbians over the long term. Quality of service will not be sacrificed.A competitive mix of generation resources and conservation programs,as well as optimizing the value of BC Hydro's heritage assets,will ensure that BC Hydro continues to provide reliable,low-cost power.BC Hydro will deliver an energy resource portfolio that reflects the needs of its customers and ensures long-term value. For Generations confirms BC Hydro's commit- ment to sustainability in managing its busi- ness.This involves thinking for the long term in all of our decisions,balancing trade-offs along the environmental,social and financial bottom lines.It will ensure that reliable,low- cost power will be available to British Columbians today as well as in the future. Long-Term Goals Meeting our responsibilities to our customers and employees,and ensuring positive social, environmental and financial performance, as well as enabling future opportunities,are bold long-term goals.They are strategically aligned to BC Hydro's purpose to guide busi- ness decisions and operations in the years to come.Taken collectively,the 15 long-term goals will guide BC Hydro in meeting its purpose to provide reliable power,at low cost,for generations. BC Hydro will partner with customers,build relationships of mutual respect with First Nations and stakeholders,and act within public policy and the regulatory environment to successfully meet these goals. Customer The customer is of primary importance to BC Hydro.BC Hydro aims to operate and provide a service that satisfies customers,and provides remote communities with service on an equitable basis. To do this,BC Hydro will recognize and respond to customers'needs collectively as well as to those of individual customer groups.Each has different reliability needs.For example,certain industrial operations cannot tolerate power outages of any duration and may be prepared to pay a premium for higher levels of reliability. BC Hydro will give customers greater choice for supply,and target capital and maintenance investments where they are needed most. British Columbians have been well served by a large and integrated domestic electricity sys- tem.To build on this legacy of self-sufficiency, BC Hydro will continue to add domestic resources to satisfy 100 per cent of the province's power needs.Energy self-sufficiency will minimize supply price volatility and open up new economic development opportunities for B.C.'s Independent Power Producers.At the same time,in the shorter term,BC Hydro will continue to take advantage of external BC Hydro Service Plan 2805/2666 te power market volatility to make market purchases when it is more economic. Employees BC Hydro will need to align the organization strategically to deliver on its purpose over the long term.BC Hydro seeks to build both a skilled workforce that mirrors the diversity of the province and a culture that is performance based and service oriented.Ail employees will clearly understand how their work individually and as a team contributes to BC Hydro's busi- ness success. In addition,to meet its long-term goals, BC Hydro must provide a safe workplace and ensure safety for the public.This will be achieved through injury prevention and implementing the right practices and policies. Social BC Hydro will continue to be a socially respon- sible company and a leader over the next 20 years.It is very important to build strong working relationships with First Nations,based on mutual respect.BC Hydro will also listen, engage and respond to the needs of stake- holders -from employees to the provincial government,to business partners,to customers,giving the company the trust and permission to make decisions in the best interest of all British Columbians. BC Hydro will engage and partner with suppliers who take a similar triple-bottom-line approach to ensure that all aspects of BC Hydro's opera- tions create a sustainable energy future. Environment Protecting the environment today will build a positive future for tomorrow.BC Hydro will seek to better understand the environmental footprint of its operations and run the busi- ness in a way that produces no net incremen- tal environmental impacts.Where impacts are unavoidable,BC Hydro is committed to devel- oping positive projects,such as investments to improve fish stocks,to offset these impacts. BC Hydro,in partnerships with stakeholders and First Nations groups,will foster a culture of conservation and energy efficiency and will engage British Columbians in making wise energy choices.Ensuring that British Columbians use less energy will mean that fewer new resources need to be brought online and will minimize the environmental footprint. Financial BC Hydro will continue to have among the lowest electricity rates in North America.It will also continue to be an important contrib- utor to the provincial economy.This goal is challenging,considering the investments required to upgrade and replace aging infra- structure,bring on new energy supplies and proactively address external factors,such as market forces and environmental and social impacts.BC Hydro will be prudent in its plan- ning and invest wisely to ensure that it contin- ues to be a more efficient,low-cost operation over the long term. BC Hydro Service Plan 26 Enablers BC Hydro,through Powerex Corp,will act on western market opportunities to continue providing the trade revenues and profits that help to keep rates low,and allow the provin- cial government to invest in services that British Columbians rely on most. Technological innovation and research and development will help to support BC Hydro in achieving the long-term goals and improving BC Hydro's triple-bottom-line performance. These 15 long-term goals provide the picture of the low-cost,sustainable and socially responsible company BC Hydro will be in 20 years.BC Hydro will work with British Columbians to gain their support and to help meet its purpose to provide reliable power, at low cost,for generations. POOTLPOO Be ee ee ee ee BC Hydro's Long-Term Goals CATEGORY”_20-YEAR GOAL"” CUSTOMER So | 1.Reliability (Customer)u _Best-in-class reliability by customer segment 2.Reliability (Supply)a.Electricity self-sufficiency (energy and capacity)in B.C.for meeting all domestic needs 3,Customer Satisfaction #©To lead other companies in offering extraordinary value and service 4,Remote Community Electrification ="To provide appropriate electric service to all remote communities on an equitable basis eRipiovekeeie aeguert ee ee 5.Workplace . 6.Teamwork «All employees working collaboratively on one team to the benefit of all stakeholders 7.Safety = .To provide the safest work environment compared with the best performers in any industry = None of our employees will experience a serious safety injury SOCAL a.ee 8.First Nations «Improve relationships built on mutual respect and that appropriately reflect the interests of First Nations 9.Stakeholder Engagement =To be the most respected company in B.C. 10.Suppliers =100%of suppliers have demonstrated values congruent with those of BC Hydro ENVIRONMENT se nba 11.Environmental Impact =No net incremental environmental impact 12.Electricity Conservation =.Develop and foster a conservation culture in B.C.that leads to customers © and Efficiency choosing to make a dramatic and permanent reduction in electricity intensity FINANCIAL oe ce . 13.Financial Targets «Maintain existing position of having costs among the lowest in North America u Deliver 100%forecast net income on an annual basis (after adjustments for uncontrollable factors like water volatility) ENABLERS 14.Western Opportunities ==To increase profits in the broader western market by leveraging our system and trading capabilities and implementing long-term investment and procurement strategies 15.Innovation and Technology =-To be an industry leader in innovation and use of new technology,directly supporting and advancing BC Hydro's long-term goals. BC Hydro Service Plan 4,Risks BC Hydro faces risks specific to its business that could significantly impact its ability to achieve the short-and long-term goals of this Service Plan.While risks cannot be eliminated, BC Hydro's strategies aim to minimize or mitigate them. BC Hydro's Approach to Managing Risk BC Hydro has a specific risk management process that is applied to the day-to-day business activities as well as to specific projects and initiatives. m Risk identification occurs through the busi- ness planning or project review processes. BC Hydro is conducting a more formal risk assessment to help with planning and resource allocation decisions. =Risk analysis focuses on determining the likelihood and consequences,including financial and non-financial impacts,of a particular risk.BC Hydro is improving its analytical tools to enhance this capability in several critical areas,including energy cost or commodity risk for domestic supply. #BC Hydro makes decisions on an ongoing basis and on specific business cases to accept,reduce or transfer risks to another party (such as with insurance).BC Hydro seeks to understand the acceptable risk level before determining the best strategy. a Ongoing risk monitoring and reporting at the operational,executive and board levels are critical to identifying corrective actions. in April 2004 BC Hydro appointed a Chief Risk Officer to support the implementation of a risk management program in two key areas: m Manager Accountability:To ensure man- agers have the necessary capabilities,such as people,systems,processes,reports,poli- cies and procedures,to manage areas of risk for which they are accountable.In addition,we will ensure decision-making incorporates a rigorous review of risks. BC Hydro Service Plan 26605:2966 =Company-Wide Coordination:BC Hydro's Corporate Risk Management Committee was established in 1998 and continues to facilitate an integrated view of risk man- agement and ensure an adequate review of the risk impacts of decisions. BC Hydro's Board of Directors plays a key role in the risk management process.The Board is charged with understanding the risks being taken by BC Hydro and ensuring they are appropriately managed.To help support them,BC Hydro conducts a risk-based internal audit program and external reviews by indus- try experts to ensure that BC Hydro's risk capability is consistent with industry best practices. Key Risks BC Hydro Faces Risks are divided into four outcomes: employee and public safety,reliability, financial performance and environmental and social performance. Employee and Public Safety Safety risks to the public can occur due to the multiple uses of water for electricity genera- tion,recreation and waterways.Risks can also result from potential contact with transmis- sion and distribution equipment located in communities.To minimize the risk,BC Hydro relies on design,construction and operating standards and practices,consultation with other agencies and stakeholder groups,and public education. The potential impacts to BC Hydro's genera- tion facilities as a result of catastrophic weath- er events and earthquakes are managed to minimize risk to public safety.BC Hydro also prepares and keeps current comprehensive emergency response plans to limit injury and loss of life and to restore electric service. Many of BC Hydro's employees face significant risk of serious injury or death by the nature of their jobs.BC Hydro's work safety plans include injury prevention,providing a safe workplace and training,and by making all employees responsible for health and safety. Reliability The most significant risk to the reliability of BC Hydro's distribution system is equipment failure.This can be due to weather impacts, vegetation growth,wildlife,and the aging of BC Hydro's assets.BC Hydro mitigates the likelihood and consequence of such impacts through effective design,construction,opera- tions,maintenance and response.BC Hydro manages these risks by balancing customers' expectations and cost considerations. Reliability risks can result from a lack of available generation supply and associated transmission capacity to meet customer demand.BC Hydro manages these risks through !ong-term planning and by relying on a diverse supply of energy options. Financial Performance In meeting its financial performance targets, BC Hydro faces risks related to energy costs, interest and foreign exchange rates,pension and trading. Energy Cost Energy cost risk,or commodity risk as it is often referred to,is the most significant financial risk to BC Hydro.It can result from changing mar- ket prices for electricity and natural gas.It can also result when BC Hydro unexpectedly needs to purchase electricity from the markets due to increased electricity demand in B.C.or lower- BC Hydro Service Plan than-expected water levels.Over the past five years,BC Hydro has experienced below average water inflows and has relied more heavily on volatile energy trading markets.BC Hydro man- ages energy cost risk through its flexible hydro- electric system,which allows water to be stored in large reservoirs and used when it is most economic.BC Hydro also hedges the cost of imported power and natural gas. Weather forecasts suggest that changes in snow and rainfal!patterns may occur due to climate change.BC Hydro is looking at how to assess the likelihood and magnitude of this risk. Interest &Foreign Exchange Rates Changes in interest and foreign exchange rates can significantly impact BC Hydro's finance charges.BC Hydro uses several debt-management strategies to minimize the impact,including limiting the number of variable interest rates and foreign exchange currency agreements.Interest and foreign exchange rate changes can also influence the performance and cost of BC Hydro's employee benefit and pension plans. BC Hydro is also exposed to exchange rate risk through the cost of U.S.dollar electricity purchases,gains from U.S.trading activity and U.S.dollar capital equipment purchases. To minimize the impact,BC Hydro manages its net foreign exchange position within strict limits. Energy Trading BC Hydro's energy trading subsidiary (Powerex)is exposed to the risk of variable The most significant risk to the reliability of BC Hydro's distribution system is equipment failure. The company mitigates the likelihood and conse- quences of such impacts through effective design, construction,operations,maintenance and response. market prices and to the risk of counterparties who might not meet their obligations. Powerex manages these risks by operating within a conservative risk profile.This profile is defined through limits that are regularly reviewed by both the Powerex and BC Hydro Boards of Directors.This means that Powerex focuses mainly on shorter-term trading posi- tions,backs forward commitments with physical supply,and operates within conserva- tive credit limits.When Powerex does take on longer-term positions,these are closely monitored in the context of the overall ener- gy trading portfolio and the positions are covered within a short period. Powerex is exposed to the risk of litigation, such as the potential liabilities from the California power crisis.Powerex follows Standards of Conduct and the Electric Power Supply Association's Code of Ethics and Sound Trading Practices to manage risk associated with litigation. Regulatory Risk BC Hydro is permitted an opportunity to earn an allowed return on equity.Tariff rates are set for a specific year(s)based upon BC Hydro's consolidated cost and equity forecast.In gen- eral the risk (difference between forecast and actual)associated with all uncontrollable costs is covered through regulatory deferral accounts.The major cost components suscepti- ble to variation included in the regulatory deferral accounts are water inflow variation, energy price including thermal fuel costs varia- tion,unplanned capital costs on heritage resources,trade income and foreign exchange. BC Hydro's risk includes those associated with capital assets,domestic load volumes,mainte- nance costs,operations and administration costs,and interest expense. Environmental and Social Performance BC Hydro's environmental responsibility policy states that BC Hydro will meet or exceed envi- ronmental regulations defined by legislation, BC Hydro Service Plan regulation,government directives and guide- lines,as well as its commitments and agree- ments.Even if there is no environmental or social regulation,BC Hydro can face risks. These risks are managed through voluntary activities,such as the Water Use Plans. Voluntary action is done in the prudent best interests of the company,with a view to man- aging long-term risk and for cost controls. Areas where BC Hydro is exposed to the risk of non-compliance with environmental regula- tions include the release of hazardous materi- als into the environment,endangerment of wildlife and their habitats,or damage to her- itage sites where there is evidence of historic human occupation.These risks are managed through environmental management system and risk mitigation strategies. BC Hydro is also exposed to legislation regu- lating greenhouse gas (GHG)emissions pur- suant to expected federal regulation dictated by the Kyoto Protocol.BC Hydro programs such as Power Smart and Resource Smart,a focus on working with provincial partners to create a culture of conservation and a com- mitment to meet the province-wide goal of acquiring 50 per cent of new supply from clean sources will help to mitigate the risk. BC Hydro's Board and Executive Management Team have recently approved a Corporate Social Responsibility Policy.As the organiza- tion builds upon existing practices in this area, emerging risks will become evident. First Nations past grievances,land claims, service reliability and regulatory processes pose risks to BC Hydro.BC Hydro manages these risks through a comprehensive Aboriginal Relations program.The long-term goal of further building business relationships with First Nations is intended to go beyond addressing the impact of BC Hydro facilities on First Nations and reducing the associated financial,legal and operating risks,to having a more proactive,mutually beneficial approach to working together. 2ODFI2ZOGRe 6 eee ee eee ee ee.2D 5.Organizational Structure BC Hydro has organized itself internally to meet the challenges of the electricity sector. With a newly defined purpose,BC Hydro will create a performance-based,service-oriented culture and work with employees to increase accountability,diversity and responsiveness. Employees will continue to "keep the lights on”,help manage costs,eliminate waste,and enable BC Hydro to operate as an efficient, low-cost business over the long term. Core Values BC Hydro holds four core values as essential to its success:Accountability,Integrity,Service and Teamwork.The ability to model and live these four values through employees and busi- ness partners with customers and stakeholders are what will contribute to BC Hydro's success. Employee performance is measured and rewarded in accordance with these values. Accountability means that BC Hydro takes responsibility for its actions.Each employee is encouraged to take appropriate risks and seek to remedy problems and jearn from mistakes. Integrity means being fair and honest,open and straightforward.Employees will ensure their actions match their words,strive to exceed legal standards and social expecta- tions,and treat colleagues,customers and stakeholders,First Nations and government with respect. Service means seeking solutions and building relationships.BC Hydro strives to be worthy of the trust of colleagues,customers,stake- holders,First Nations and government.The company seeks to understand others,be easy to do business with for both internal and external customers,and be caring and helpful, flexible and responsive,and efficient and effective.BC Hydro is proud of what it does and what it has done. BC Hydro Service Plan Z8OSs PEGE BC Hydro employees work together and share ideas,insights and information to the benefit of all stakeholders. Teamwork means working together to achieve results.BC Hydro employees proactively share ideas,insights and information,and help when others need help.The company facili- tates both team and individual success and encourages internal co-operation and external collaboration.BC Hydro recognizes each indi- vidual's contribution. Lines of Business,Subsidiaries and Key Suppliers In April 2002,consistent with industry trends and best practices,BC Hydro decided to move to a Lines of Business structure within the company.This enabled BC Hydro to focus resources on distinct customer groups and meet their needs more effectively.It also enabled BC Hydro to focus on its operations. BC Hydro has four Lines of Business and a corporate group as well as two key suppliers. Following is a map of these groups with a breakdown of where BC Hydro's employees work. Lines of Business,Subsidiaries and Key Suppliers _BC Hydro's workforce -Number of Employees :_4,078 :os °Eeerennnenyarnareranre pearance g Pen cnr RL 7 Subsidiaries P -Key Suppliers =ee |Bake:ee 8 |eavelg fee | ¥ | 7 < Qeerene =sonunbemne éGeneration-Distribution Engineering Field Services |=.Corporate so >Powerex 2 |Powertech Labs |680 Employees 673 Employees:.591 Employees.1,585 employees.313 employees L 141 employees |.95 Employees:|: i s BE BS 2 w =Es mont B =a s ey .ad Generation manages and operates BC Hydro's Subsidiaries generation assets to optimize their value for the benefit of the company,customers and the shareholder.Generation manages the invest- ment strategies related to generation assets, Water Use Planning and First Nations relations. Powerex,the energy marketing arm of BC Hydro,buys electricity and natural gas on the market,from B.C.'s private power producers and self-generators,and sells these products and services.It is one of the largest physical traders of electricity inDistributionacquiresenergythroughdemand-;western North America.side and supply-side options,and delivers it safely and reliably to customers.Distribution manages overhead,underground and submarine distribution lines,poles and transformers. Powertech Labs Inc.is a research and engineer- ing technology company that tests,consults and researches new and innovative technolo- gy.It serves BC Hydro and the electric and natural gas industries,their customers and suppliers.Powertech has world-class expertise in high-pressure hydrogen storage and fuelling. Engineering provides project management, maintenance,emergency response,design, environmental support,contracts and con- struction management services to BC Hydro, British Columbia Transmission Corporation (BCTC)and to some external clients.Field Services provides services such as emergency Key Suppliers response and restoration,and maintenance British Columbia Transmission C i services,to BC Hydro and BCTC.umpl i orporation (BCTC)is one of two key suppliers to BC Hydro. Corporate services include the office of the Established in May 2003,BCTC is a Crown cor- Chief Financial Officer (finance and regulatory poration whose mandate and functions are set functions);Corporate Groups (legal,corporate out in the Transmission Corporation Act to communications,properties and human manage,maintain and operate the transmis- resources);Organizational Development,sion system.BCTC and BC Hydro work together Stakeholder Engagement and Sustainability;through service level agreements.BCTC pro- Business Partnerships;and Risk Management.vides its own Service Plan. These groups provide services to the overall organization. BC Hydro Service Plan |2805/2866 te 2007 /2008+2 2 2 ee eee ee ee ee 24 Accenture Business Services for Utilities (ABSU),a BC company based in Vancouver,is the other key supplier.Established in April 2003 through a joint-venture partnership, ABSU provides services in customer care, human resources,building and office opera- tions,payroll and accounts payable,financial systems and purchasing.The agreement between BC Hydro and ABSU is for 10 years and is expected to save BC Hydro and its customers $250 million over the life of the agreement. Governance Our Shareholder's Letter of Expectations describes the relationship between BC Hydro and the provincial government.The govern- ment and BC Hydro review the letter annually and update it as required. BC Hydro is responsible to the Minister of Energy,Mines and Petroleum Resources through a 11-member Board of Directors.The government appoints the board to oversee business affairs,supervise management and ensure that all major issues affecting BC Hydro are addressed.The board delegates responsi- bility for the day-to-day leadership and man- agement to the Chief Executive Officer. BC Hydro's Board of Directors operates on the principle of continuous improvement and annually assesses its own practices,policies and competencies to ensure that the board as a whole continues to bring the appropriate balance of skills and experience to its policy oversight role. The Director and Employee Code of Conduct guides the conduct for BC Hydro board members,employees,suppliers,consultants and contractors and suppliers.The code is available on BC Hydro's website at www.bchydro.com. BC Hydro Service Plan 26 The Board currently has three standing committees: =Audit and Risk Management Committee: to oversee the audit process,financial reporting,internal audit and corporate control systems,pension plans and various facets of risk management. =Corporate Governance Committee:to over- see BC Hydro's corporate governance to ensure that BC Hydro's business and affairs are carried out,directed and managed to meet its goals. a Human Resources Committee:to assist the Board of Directors in fulfilling its obliga- tions on safety,senior management human resources,human resource processes,and compensation. An Executive Committee holds the full power of the Board but only meets in exceptional circumstances when a quorum of the full board is not available. The Peace RiverMWilliston Reservoir Advisory Committee,chaired by a board member and made up of local community representatives, reports to the Board of Directors.It provides advice and facilitates two-way communication between the Peace/Williston community and BC Hydro. In addition,BC Hydro's board is responsible for the performance of subsidiaries of BC Hydro,including Powerex and Powertech Labs Inc. 6.Business Environment BC Hydro's long-term planning considers both external and internal issues and trends that could affect BC Hydro's business. BC Hydro's External Context Western North American Energy Sector Developments and Opportunities Energy prices in the Western North American energy sector have become increasingly volatile over the past several years.BC Hydro's flexible hydroelectric system allows water stor- age in large reservoirs and enables the compa- ny,through its power marketing subsidiary Powerex,to minimize the negative effects and profit from this volatility. Powerex has also expanded its customer base and increased the number of the products and services it offers.The revenues and profits generated from this activity contribute to BC Hydro's total net income and help to keep electricity rates low for domestic customers. Transmission constraints between British Columbia and markets in Alberta and the western United States could impede BC Hydro's ability to grow trade opportunities.Political and regulatory collaboration between these jurisdictions will be necessary to address this potential issue. Labour Outlook British Columbia has the oldest workforce in Canada.By 2010,the number of people in the province's labour force aged 55 to 64 will be greater than those aged 15 to 24.Infra- structure projects associated with the 2010 Olympic Games will likely intensify the demand for skilled workers.At the same time,economic recovery in the United States could result in B.C.and Canada losing workers to that country. BC Hydro will be competing for trades and skilled workers in this labour market. B.C.Utilities Commission With the return to active regulation by the British Columbia Utilities Commission (BCUC), BC Hydro's business decisions will be fully scru- tinized.It is important that BC Hydro estab- BC Hydro Service Plan 296 lishes and maintains a strong relationship with the regulator,and that the shareholder and customers have a clear understanding of the costs and benefits of such regulation in the short and long term. By actively engaging stakeholders and partici- pating in public forums,BC Hydro will consider the views of all parties interested in BC Hydro's business.This will also help inform the BCUC. Technological Developments As technology advances,BC Hydro can take advantage of new resource solutions and "smart grid”technology,as well as demand- side solutions for energy efficiency,conserva- tion and optimizing the output of existing equipment.BC Hydro will balance these solu- tions with customers'values and expectations. The value of technology developments can be enhanced in combination with solutions such as rate designs and new energy efficiency building standards. Environmental Issues With the growing movement to view the earth as a global system,organizations must view their environmental impacts both in the context of their immediate business systems and the broader global system.One environ- mental impact of particular significance on both levels is greenhouse gas emissions (GHG). Globally,the Kyoto Protocol comes into effect in February 2005.While the precise method of implementation is unclear,BC Hydro believes that environmental issues and standards will continue to increase.The implications of the protocol have not been fully clarified by the federal government may include: a By as early as 2007,BC Hydro may be required to reduce emissions as well as purchase greenhouse gas credits for its thermal generating plants to comply with expected federal regulations,and m BC Hydro and B.C.independent power pro- ducers may face significant costs related to emissions and/or they may have to change their business practices to reduce emissions. -26 In other cases,BC Hydro may be rewarded for its industry-leading efforts on conservation programs,internal efficiencies,waste reduc- tion programs and clean energy acquisitions. Government Permitting BC Hydro must meet government permitting requirements to operate its facilities and build new infrastructure.Regulatory requirements are increasing,challenging BC Hydro and independent power producers to meet more stringent financial,social and environmental standards.Increasing regulatory requirements can benefit British Columbians,but they can also increase costs.BC Hydro will work with the shareholder,regulator and stakeholders to meet permitting requirements,while mini- mizing the pressure for rate increases. BC Hydro's Internal Context Physical Assets BC Hydro's assets are aging and many compo- nents of the system are likely nearing the end of their useful lives.This can lead to equip- ment failure and reduce service reliability to customers.Although the costs of maintaining assets as they age increases,the cost of replac- ing equipment is significantly higher.The chal- lenge is deciding when to continue maintain- ing assets and when to replace them. In the future BC Hydro will better align capital, operating and maintenance expenditures with customers'needs.Over the next few years,BC Hydro will substantially invest to maintain the reliability and safety of its physical assets. BC Hydro Service Plan ZAOSs/27G06 1200572906 Energy and Capacity Demand Megawatt (MW)=is one million watts;one thousand kilowatts.A unit commonly used to measure both capacity of generating stations and the rate at which energy can be delivered.One megawatt is the amount of energy required to meet the needs of 600 residential homes. Energy demand =amount of energy used over a period Capacity demand =peak usage at any given instant Demand-Supply Outlook As a public utility,BC Hydro is obligated to meet domestic customer demand.The compa- ny reviews the demand-supply outlook regu- larly to ensure that it can meet that responsi- bility.In advance of when forecast demand will exceed existing supply,BC Hydro develops plans for new electricity resources (supply and demand programs)to close the gap. As shown in the two Demand-Supply Outlook figures on the following pages,the system will reach its peak capacity by fiscal 2014 (with Power Smart).New resources are needed to meet growing energy demand at the times when customers want it.Because the planning cycle for new supply is long,BC Hydro is planning now to meet this future demand. BC Hydro not only plans for the total amount of energy customers demand throughout the year (energy demand),but also plans the amount required to meet peak demand at any given point (capacity demand).Capacity demand typi- cally occurs on the coldest days each year when electricity demand is highest.To meet these requirements,BC Hydro,working with its stake- holders,explores a variety of options,including contracts with independent power producers, large hydro (Site C)and energy conservation. OOTf2O0R--eee eee ray i | Figures 1 and 2 show BC Hydro's demand-sup- ply outlook,which compares the current fore- cast of energy and peak demand requirements to the capability of the existing sources of supply.The demand supply outlook would typically only compare existing and committed supply to the demand forecast and not consid- er planned resources.However,Figures 1 and 2 below also show the impact on the demand- supply of the programs that BC Hydro current- ly has underway. BC Hydro is planning to obtain approximately 2,000 GWh of firm energy resources (in separate calls in F2006 and F2007)to meet the energy demand requirements in the 2010-2013 timeframe. On June 17,2005,BC Hydro announced the termination of the energy purchase agree- ment with Duke Point Power Limited Partnership who had been selected to provide a new source of electricity supply on Vancouver Island from a gas-fired combined cycle plant to be located near Nanaimo.The project had been repeatedly delayed through various court appeals resulting in management's assessment that the risks around timely completion of the project were too great to ensure the reliability of future electricity supply. Financial Drivers Increasing costs due to aging infrastructure, the need for new supply and the need to manage environmental impacts create chal- lenges for BC Hydro in maintaining the low electricity cost advantage the province enjoys. How BC Hydro manages tradeoffs between these competing objectives will be important to its financial performance and its ability to make the required infrastructure investment. External long-term costs of environmental and social impacts need to be factored into deci- sion-making today to ensure the right busi- ness decisions are made for the long term. Figure 1 |System Firm Energy Demand-Supply Outlook 85,000 75,000 65,000 55,000 45,000 35,000 25,000 7 15,000 + 5000 4 QQ Heritage Energy (48,845 GWh) (TI Existing Purchase Contracts (8,311 GW h) --2004 Forecast before Power Smart wn 2004 Forecast with Power Smart GE Resource Smart (404 GWh) F 2006 and F 2007 Cails (1,800 GWh) *Burrard Thermal retirement for planning purposes BC Hydro Service Plan J 280572506 cy2:" Figure 2 |System Dependable Capacity Demand -Supply Outlook 15,000 14,000 13,000 412,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 MM "Heritage Hydroelectric (9,834 MW ) ci Existing Purchase Contracts (846 MW} F 2006 and F2007 Calls mm ==2004 Forecastbefore Power Smart with Planning Reserves 2004 Forecastwith Power Smart with Planning Reserves GE Resource Smart(90 MW ) ESSE?Heritage Thermal (956 MW ) E23 Downstream Benefits (up to 500 MW)*Burrard Thermal retirementfor planning purposes Business Structure In recent years BC Hydro has restructured itself to better serve its customers.It is impor- tant to stabilize the organizational structure to allow time for employees to clearly under- stand their accountabilities and how they individually contribute to the overall success of the company.With the creation of B.C. Transmission Corporation and the outsourcing of some administrative services to Accenture Business Services for Utilities,BC Hydro will need to continue to define its business,and customer's requirements and expectations. BC Hydro continues to work on developing strong relationships with its service providers, and enhancing and managing the appropriate service level agreements and performance metrics.In order to realize the full benefits of these agreements this needs to remain a pri- mary focus for the company. BC Hydro Service Plan 26 First Nations Court decisions (Haida,Taku 2004),the First Nations Treaty process and new legislation have important implications for BC Hydro.The First Nations Land Management Act (2002)is resulting in aboriginal people having greater control over their lands.Responsibility for the management of these lands is moving from the federal government to First Nations.The treaty process will give First Nations greater control over these lands.Finding innovative ways to resolve historic grievances and contin- uing to build mutually beneficial business rela- tionships is key for BC Hydro in the long term. FE2OOR ee ee eee ee eee ee ee DY 7.BC Hydro's Strategies,Performance Measures and Targets BC Hydro's strategy is managing the business for the long term -in environmentally and socially responsible ways and within the finan- cial goals committed to.Reliability and low rates for customers are key.The long-term goals provide further clarity on short-and long-term strategies,and specific performance measures and targets will be developed for each.BC Hydro will develop leading measures where necessary to determine if progress on the goals is on track and to identify where adjustments need to be made.All measures will be results-based where possible and will help the company,shareholder and public to more accurately evaluate performance. BC Hydro will track its performance on the 15 long-term goals in its quarterly and annual reports. With a new purpose and long-term goals, BC Hydro is re-evaluating its past performance measures and targets to ensure that these are the right indicators for each long-term goal. BC Hydro is currently developing new perform- ance measures and setting new targets that are more directly linked to the long-term goals. This will be completed by the end of fiscal 2006 BC Hydro Service Plan 2805/2866 and incorporated in BC Hydro's Fiscal 2006/2007 to Fiscal 2008/2009 service plan.The following tables include the performance measures used in the February 2004 service plan,with updated targets,which have now been mapped within our new long-term goal categories. In addition to developing new performance measures and targets by the end of fiscal 2006,BC Hydro will also: =Carry out pilot projects targeted at elimi- nating waste throughout the organization and identifying tangible savings. m Establish a baseline for BC Hydro's ecosys- tem footprint and set targets for moving towards a zero net incremental impact on the environment. =Complete the stakeholder engagement process for the Integrated Electricity Plan. «Develop a multi-goal framework to ensure that business decisions are made from a long-term,financial,environmental and social perspective. Protecting the environment today will build a positive future for tomorrow.BC Hydro will seek to better understand ,its environmental footprint and operate business in a way that produces no net incremental environmental impacts. Summary of Strategies,Performance Measures and Targets for 15 Long-Term Goals Performance Measures LONG-TERM GOALS-CUSTOMER ESTs Sun AUG AES!SEE = Reliability (Customer)-best-in-class reliability by customer segment Strategies: #Develop the capability for delivering differentiated levels of reliability so we can offer customers choices in the future. #Anticipate reliability needs for future customers and incorporate them into investment strategies. Reliability (Supply)-electricity self-sufficiency (energy and capacity)in B.C.for meeting all domestic needs Strategies: #Acquire or build economic energy and capacity projects and associated transmission that sup- port electricity self-sufficiency. =Revise long-term resource planning criteria to 100%reliance on domestic resources. Customer Satisfaction -to lead other companies in offering extraordinary value and service Strategies: =Develop an ongoing process to clearly understand what customers value,both today and in the future. m Improve aspects of service identified as primary opportunities in the Customer Plan to increase overall customer satisfaction. Remote Community Electrification -to provide appropriate electric service to all remote communities on an equitable basis Strategies: =Develop a business model for service delivery,including community consultation,to determine which communities wish to receive service,type of service,regulatory approval,rate structure, etc. m Ensure long-term funding (e.g.,Indian &Northern Affairs Canada)is identified and committed. BC Hydro Service Plan 2OOSPISGE te ZEOFI2ZOGRe wee ee ee ee ee eee BA ee pune snnwmn tater _seeetnernpentanetate rnteorgatenemancnte us LONG-TERM GOALS -CUSTOMER .Behe es eCo.rtrsSs - Performance Measure =Actual Actual 2003/04 2004/05 2005/06 2006/07 2007/08 Reliability ASAI (%)99.949 99.995 99.970 99.970 99.970 CAIDI (Hours)2.78 2.63 2.15 2.15 2.15 Target Rationale Both ASAI and CAIDI have industry benchmarks.BC Hydro participates in a Distribution benchmarking study conducted by PA Consulting.In the most recent survey,first-quartile performance for ASAI was 99.983%and above.First-quartile performance for CAIDI was 1.52 hours and below. Customer satisfaction with reliability remains high but future measures will be reviewed in the context of what our current and future customers value, Sustaining Capital Ratio (%)1.2 1.1 1-2 1-2 1-2 Target Rationale Targets are based on a literature search of best practices. Customer Satisfaction (%)88 90 84 84 84 Target Rationale Targets have been left constant to recognize that 84%is a high level of satisfaction and to reflect the challenge BC.Hydro will have in maintaining this level.The targets correspond closely to first-quartile performance in the Ipsos-Reid National Omnibus survey that BC.Hydro is using as its proxy benchmark. Reliability is defined as a combination of Average System Availability Index (ASAI)and Customer Average Interruption Duration Index (CAIDI).ASAI refers to the percentage of time power is available.CAIDI describes the average number of hours per interruption.These indices are electric utility industry standards. Sustaining Capital Ratio is defined as sustaining capital expenditures as a percentage of the replacement value of capital assets. Customer Satisfaction is a composite indicator.Thirty per cent of the measure comes from a survey using all customers as the population from which to draw a random sample.The other 70 per cent comes from transactional surveys using only customers who have had a service interaction with BC Hydro as the population from which to draw a sample.Satisfied customers are those who indicate they are either "satisfied”or "very satisfied”., BC Hydro Service Plan 200572006 to 2607/2008 -+se ee ee tee -++32 LONG-TERM GOALS -|EMPLOYEE aeECrC--T-C-C-C"'é#EEE:”C™*=zCéC®*CE«_”RS _=ee FEEWorkplace-among the Top10 Best Employers iin Canada Strategies: ®Execution of core/basic people practices,including day-to-day activities such as performance management,recognition,and employee development. a Better understand and benchmark to those attributes of a Top 10 employer,complete a gap analysis,identify BC Hydro priorities,and develop action plans. s Communicate internally and externally what we do,and celebrate and recognize success. Teamwork -all employees work collaboratively on one team to the benefit of all stakeholders Strategies: =Embed an accountability teamwork model into BC Hydro culture through a series of aligned initiatives,which define and instill teamwork behaviours into day-to-day actions. =Enhance an internal/external recruitment model to ensure hiring,retention and motivation of people aligned to our long-term goals. Safety -have the safest work environment,compared with the best performers of any industry. None of our employees will experience a serious safety injury Strategies: =Create an expectation of continuous improvement in safety performance and provide consistent application of safety principles across the organization. a Ensure that all workers have the skill and will to assess and manage the risks they face and the confidence to intervene in the unsafe acts of others. Performance Measure ..Actual Actual 2003/04 2004/05 2005/06 2006/07 2007/08 All Injury Frequency 3.0 2.5 2.3 1.9 1.5 Target Rationale All Injury Frequency has an industry benchmark.The benchmark is a composite of Canadian Electricity Association utilities organized on a regional/provincial basis.The All Injury Frequency targets consider BC Hydro's historic trend and most current performance.However,the primary strategy in the targets is to fully embed BC Hydro in the top quartile and then move systematically to "Best in Class”(to 1.5). Approved Strategic Workforce Positions Filled (number)68 71 70 69 70 Target Rationale Targets are based on modelling the current employee population by occupation to determine which ones are the most at risk for retirement attrition and co-ordinate the estimated retirements with the business plans for required future positions to determine Strategic Workforce Planning hires. BC Hydro Service Plan 2OGS?2P EGG to 2EOFP2ZBGBe 6 ee we eee ee ee ee BBD All injury Frequency is defined as the total number of employee injury incidents (Medical Aids and Disabling Injuries)occurring in the 12 months prior to the report date,relative to the number of worked hours in the same period.For this measurement,Medical Aid injuries are defined as those where a medical practitioner has rendered services beyond the level defined as "first aid”in rela- tion to the injury incident,and the employee was not absent from work beyond time lost on the day of the injury.Disabling injuries are defined as those where the employee is absent from work beyond the day of injury. Approved Strategic Workforce Positions Filled is defined as the number of positions filled under BC Hydro's Strategic Workforce Planning (SW£P)initiative.SWfP is the management process for anticipating,scoping and planning the alignment of needed critical workforce capabilities to meet BC Hydro's strategic business goals. LONG-TERM GOALS-SOCIAL ee 9 eS OC Ti es Fr re erCr-Fe SecAagFirst'Nations improve relationships built on mutual respect and that appropriately reflect the interests of First Nations Strategies: mB Resolve historic grievances. =Engage in meaningful dialogue and accommodation for new work,and address potential impacts on aboriginal rights with respect to new developments. Stakeholder Engagement -to be the most respected company in B.C. Strategies: =»Conduct specific engagement projects in a way that models BC Hydro's values (e.g.integrated electricity planning). s Embed a stakeholder engagement instinct in the culture,and ensure alignment of business processes. Suppliers -100%of suppliers have values congruent with those of BC Hydro Strategies: =Develop a policy that reflects best practices and balances costs. «Develop measures for supplier practices and consequences for non-compliance. =Ensure alignment of strategic business partners (e.g.,ABSU and BCTC). Performance measures to be developed in F2006 BC Hydro Service Plan 2HOSI20GE te ZOOFP208Be eee ee ee ee ee 34 LONG-TERM GOALS =ENVIRONMENT:DS SeEnvironmental Impact -no net incremental environmental impact Strategies: w Eliminate or minimize waste by promoting opportunities for creative re-use. =Work towards achieving zero net greenhouse gas emissions and zero net impact on local air quality from existing facilities,new resource choices,vehicle use and net imports where practi- cal,and implement mitigation,sequestration and offset strategies. #Design (or redesign)operations to have zero net land impact (e.g.,restore high-risk contaminat- ed sites)and operate within approved Water Use Plans and approved work practices for zero net aquatic impact. =Develop a multi-goal framework to guide decision-making toward reducing emissions,wastes and environmental impacts,including a focus on Integrated Electricity Plans. Electricity Conservation and Efficiency -develop and foster a conservation culture in B.C.that leads to customers choosing to make a dramatic and permanent reduction in electricity intensity Strategies: =Continue aggressive Power Smart programs. m Introduce demand-side management tools such as new rates,and implement energy efficiency education and awareness programs,codes and standards for business buildings and energy use to encourage energy conservation. Performance Measure .Actual Actual 2003/04 2004/05 2005/06 2006/07 2007/08 Environmental Regulatory Compliance (#of incidents)18 14 17 16 15 Target Rationale This measure and targets are under review.The actual for fiscal 2004 was considerably better than target (40).As a result,more.aggressive targets were set going forward. Demand-Side Management (GWh)441 521 586 615 500 Target Rationale Targets are based on the findings from the Conservation Potential Review, which concluded that significant cost-effective efficiency improvements exist in every sector in BC Hydro's service area;these potential improvements were then translated into current Power Smart programs and programs expected to come on stream.The targets include both residential and business demand-side management (DSM)and include load displacement and energy efficiency.If the targets are achieved,BC Hydro will rank in the top quartile both for energy savings as a percentage of domestic energy sales and for investment in DSM as a percentage of revenue (American Council for the Energy Efficient Economy). The targets were changed in the February 2005 Service Plan to reflect incremental rather than cumulative totals. BC Hydro Service Plan Pa onEwCyNe!can-a2O0B ee ee ee ee ee eee we BS Environmental Regulatory Compliance is defined as the number of externally reportable,prevent- able environmental incidents.After the education and awareness is complete,as well as improved relations and understanding with regulators,BC Hydro expects the numbers to start dropping. The reductions should result from continuously improving management practices. Demand-Side Management is defined as the rate at which annual gigawatt hours (GWh)are being saved as a result of economic demand-side management (conservation,energy efficiency,and load displacement). guanmtnterete z ce ROOT ceerENew.Electricityy from Cllean Energy Percentage «..ee 8 obs 2003/04 2004/05 2005/06 2006/07 2007/08 Target (10-year average)50%50%50%50%50% Actual 52%61%*/35%"* The Clean Energy Target of 50%of new supply is to be achieved over a 10-year period.The annual results will tend to fluctuate based on updates to the load forecast,and timing,volume and type of actual supply delivered. Variance Explanation *The figure 61%represents the acquired Clean Energy of 872 GWh against the planned incremen- tal load,after Power Smart,of 1,438 GWh.Since the formulation of the plan,there has been a significant increase in our demand requirements,as reflected in the load forecast in January 2005. As a result,our annual target of incremental load,after Power Smart,was revised from 1,438 GWh to 2,463 GWh. **Based on this revised incremental load,the Clean Energy acquired in 2004/2005 was only 35%. BC Hydro is on track with the planned acquisition calls in 2005 and 2006 to achieve the 50%target within the 10-year horizon. eeLoNG-TERM.GOALS --FINANCIAL -ce ::-SSSAULL ees,TT TE -2|T -----_---_CeFEE _Z=EZD Financial Targets - =Maintain existing North American competitive position of average electricity unit costs =Deliver 100%forecast net income on an annual basis (after adjustments for water volatility,etc.) Strategies: #Clearly define benchmark of our competitive position. =Develop a 20-year financial model for longer term decision making and a robust forecasting methodology. «Clearly understand regulator,stakeholder groups and shareholder expectations,and encourage a long-term view. BC Hydro Service Plan 2OOSP2 866 to 2ERFL2ORBe 6 ee ee ee ee ee ee 36 Performance Measure _-Actual Actual 2003/04 2004/05 2005/06 2006/07 2007/08 Net Income ($millions)111 402 376 352 274 Target Rationale Targets are based on key economic and business factors that are expected to have an impact on revenues and expenses. Net income,defined as total revenue less total expenses after regulatory account transfers, represents the net impact of key economic and business factors that affect BC Hydro's performance,This measure is changed from the February 2005 Service Plan,where net income before regulatory account transfers was reported,because the regulatory account transfers reflect the financial impact of the factors beyond BC Hydro's control (such as water volatility,market prices,etc.). The forecasts for Fiscal 2006/07 and Fiscal 2007/08 do not include any rate increases that might be required to allow BC Hydro to earn its allowed rate on equity.Any rate increases will be subject to a regulatory review process and require the approval of the BC Utilities Commission, PeSahai SNM: Western Opportunities -To increase profits in the broader western market by leveraging our system and trading capabilities and implementing long-term investment and procurement strategies LONG-TERM GOALS -ENABLERS Sa SEEISRAG GEE RUE Strategies: ®Through Powerex,increase trading and custom transactions within the western region through increased access to physical supply and by developing sales opportunities. =Identify additional domestic power for export such as incremental supply from independent power producers and through investment decisions. =Develop strategy for influencing transmission reinforcements within B.C.and with neighbours. Innovation and Technology -to be an industry leader.in innovation and use of new technology, directly supporting and advancing BC Hydro's long-term goals Strategies: =Participation in pilot projects,internally and externally. ®Strong relationships with innovation and technology leaders. ®Sound business practices that support innovation and new technology. a Strong employee participation,across all of BC Hydro. a Integration with learning initiatives,both internally and externally. =m Leverage Powertech. Performance measures to be developed in F2006 BC Hydro Service Plan [|2005/2066 to 2007/2008-++++eee rorots es BT 8.Financial Outlook Summary This section includes high-level financial pro- jections for BC Hydro's revenues and expenses, the key assumptions and risks considered in setting these projections and the major capital expenditures that support the long-term goals. Financial Performance and Key Assumptions BC Hydro's operations are subject to a number of risks and uncertainties that may cause actual financial results to differ materially from those contemplated in the Service Plan.These fac- tors are largely beyond BC Hydro's control. The use of deferral accounts beginning in fiscal 2005 will help in reducing this volatility between actual and plan net income for customers (see the discussion on deferral accounts below). Over the next several years,the most signifi- cant cost pressures are expected to be: «Increased cost of energy because,as the capacity of low-cost heritage assets is reached,bringing on new sources of ener- gy to meet demand growth is more costly. =Increased demand-side management pro- gram spending to increase the efficient use of electricity in order to reduce BC Hydro's exposure to new energy costs. s Increased capital expenditures to refurbish aging assets. a increased cost of managing environmental and social regulations impacts and costs, conducting negotiations and building mutually beneficial relationships with First Nations and communities. In preparing its financial projections,BC Hydro identified the key economic and business fac- tors that are expected to impact its revenues and expenses in the coming years.The key operating impacts are outlined below: BC Hydro Service Plan 2005/2806 The forecast revenues from domestic opera- tions are based on the rate increase of 4.85 per cent effective from April 1,2004 to March 31,2006.The forecasts for fiscal 2007 and fiscal 2008 do not include any further rate increases and do not include a recovery of the regulatory deferral account balances.BC Hydro expects to file its 2007/08 Revenue Requirement with the BCUC in early 2006. Domestic revenues are forecast to increase as a result of continued improvement in the economy,particularly in the Residential and Light Industrial categories.Gross mar- gins on domestic business are expected to recover from the levels experienced in fiscal 2005 as the reliance on higher-cost market purchases of electricity is sharply reduced with the forecast return to average water inflows. Maintenance expenditures will continue to put pressure on BC Hydro's costs because of the age of BC Hydro's assets and the need to maintain long-term reliability and service levels. Amortization costs increase in the forecast periods because increased capital expendi- tures are planned to ensure long-term health of BC Hydro's assets. Finance charges are expected to increase throughout the forecast period,due primarily to an increase in the outstanding debt and expected increases in short-term interest rates.Debt levels are projected to increase,in part due to the increase in capital expenditures.Canadian short-term interest rates are expected to be 2.96 per cent in fiscal 2006 and increase over the next two years to 4.63 per cent in fiscal 2008. The Canadian dollar remains over U.S.80 cents/Canadian dollar in the current fiscal 2005 and will stabilize for the future years. BC Hydro uses the assumptions provided by POOTP2ZEGReeeeeweeeeweeeeBB the Ministry of Finance on Gross Domestic Product and interest and foreign exchange rates in preparing its budgets. Deferral Accounts In its report issued on October 29,2004,the B.C.Utilities Commission (BCUC)endorsed BC Hydro's application for deferral accounts. The deferral accounts will be used to capture specific differences between forecast costs and actual costs.The intent of the deferral accounts is to smooth the overall impact on ratepayers with the positive and negative balances off setting each other. BC Hydro will be subject to periodic reporting of changes in the deferral accounts.At this time,the parameters for using any accumulat- ed balances in future rate applications are yet to be determined and approved by the BCUC. &abba+RRS aa 4 Y ataay BC Hydro Service Plan In the revenue requirements application, BC Hydro applied for the following deferral accounts: =Heritage Payment Obligation Deferral Account =Trade Income Deferral Account =Non-Heritage Deferral Account =BCTC Transition Deferral Account In November 2004 BC Hydro filed revised revenue requirements schedules to reflect the results of the BCUC decision.These schedules form the base-line forecast used to determine deferral account impacts for the fiscal 2005 and fiscal 2006 years.Deferral account trans- fers are not calculated for other years in the plan forecast,as there is no base line for purposes of calculating the relevant variances that flow into the deferral accounts. John Hart Generating Station is located on Vancouver Island and was originally constructed in 1953.Several options are being studied to address the condition and risk of the aging facility, including rehabilitation and redevelopment.Completion date is planned for 2010. Revenues and Expenses -Financial Projections BC Hydro's financial projections for revenues and expenses through fiscal 2008 were calculated based on information as at July 2005. Consolidated Statement Of Operations "Actual Actual s-s = S SséFreecastt oo(S.millions)oc 20042005.2006 2007,F 2008, Revenues Domestic Residential $960 $1,016 $1,036 $1,055 $1,074 Light industrial and commercial 912 967 994 1,003 1,010 Large industria!525 573 555 546 540 Other energy sales 89 88 89 89 92 Miscellaneous 67 60 49 48 47 2,553 2,704 2,123 2,741 2,763 Electricity trade 871 1,021 1,121 1,119 1,139 3,424 3,725 3,844 3,860 3,902 Expenses Energy costs 1,580 1,959 1,917 1,882 1,928 Operation,maintenance and administration 622 631 566 566 566 Taxes 147 143 152 155 156 Amortization 525 446 433 457 489 2,874 3,179 3,068 3,060 3,139 income Before the Following Items:550 546 776 800 763 Finance charges (452)(442)(447)(467)(507) Restructuring costs (8)---- Payment from Alcan Inc.'-137 --- income Before Regulatory Account Transfers 90 241 329 333 256 Regulatory Account Transfers Heritage Payment Obligation Deferral Account -131 10 -- Non-Heritage Deferral Account -128 44 -- Trade Income Deferral Account -(111)(46)-- BCTC Transition Deferral Account -_22 -- Regulatory provision for future removal and site restoration costs -13 17 19 18 Rate Stabilization Account 21 ---- NET INCOME $111 $402 $376 $352 $274 Qn December 23,2004,Alcan Inc.paid Powerex US$110.4 million (Cdn$137 million),the full value of the arbitration award of US$100 million plus US$10.4 million in interest,to settle obligations under a power purchase and sale agreement. BC Hydro Service Plan 2005/2066 te 2607/2008-se ee ee ee ee ee es a0 The one-time 4.85 per cent rate increase approved for April 1,2004 provides BC Hydro the opportunity to earn a net income for fiscal years 2005 and 2006 that is consistent with the allowed return on equity established by the BCUC.The other years in the forecast do not include any further rate increases that might be required to enable BC Hydro to achieve that outcome. Further analysis of cost structures and the use of the deferral account balances would be required before any conclusions could be reached in respect of future rates. Key Assumptions The following key assumptions were used in preparing BC Hydro's financial projections. "F206 =F2007.2008 Water inflows eee.95%=Average Average Average Mid-C price (SUSIMWh)S410 5590 A Average natural gas price at Sumas (USSIMMBTU)ee,6800 690,650 0. Electricity trade sales volumes (gigawatthoursy 32,614 0 34,4370 37,026 Domestic sales volume (GWh)51323 0!516920 520022 Domestic load growth(%)*OST 072%0.60% Residential customer load growth (%)*230%159%18% Light Industrial and Commercial customer load growth (%)7 208%1.25%075% Large industrial customer load growth (%)Pe,7258%70.89%TA Total integrated load (GWh)96127 0!565440 568 B.C,Real Gross Domestic Product (%))3.10%3.00%3.00% Net market purchases (excluding gas for trade)WO!La a Canadian short-term interestrates?296%379%463% Foreign exchange rate-US$per Cdn$*>0.8167 00 08321 08350 Rate Increase 0.00%0.00%0.00% 'Based on the February September 2005 water year. 2 Includes impact of Power Smart (conservation)programs. >Economic assumptions from Ministry of Finance dated July 25,2005. Due to the size,complexity and nature of BC Hydro's operations,various legal and regulatory matters are pending.It is not possible at this time to predict with any certainty the outcome of such litigation or regulatory decisions.BC Hydro's Annual and Quarterly reports describe signifi- cant legal and regulatory matters. BC Hydro Service Plan 2005/2606 f6 28072088 ee ee ee ee ee eee 41 Sensitivity Analysis The following table illustrates the impact that key factors can have on BC Hydro's earnings over the forecast period.The combined effect of these factors can affect Income before Deferral! Accounts by a significant amount as outlined below. ($millions)=i sti"<- =*é'"'; ' *=«éSG:*SC* "'C'«GIO? low,High low, Estimated Income before Regulatory Accounts Transfers =329,329,333 333,256 256, Inflows!Gas Prices'(62)234 (226)350,(224)re Weather?ee,Qo,2.2),2,2),2 eee Pension Costs?Te,To,6),10 GQ)MB. Foreign Exchange®0),5,(5),5,(6)ow,Fee Interest Rates °(10)10 (15)15 (15)15 Combined Sensitivity - Income before Regulatory Accounts Transfers -250 580 80 715 {0)650 High and low range based on being within an 80 per cent probability band.The range is smaller for F2005 as the range only reflects the uncertainty for the remainder of the year.The ranges fluctuate from year to year due to the impact inflow levels and market prices have on decisions for optimizing the system,including reservoir levels. Assumes weather will be five per cent warmer or colder than normal and fall within this range approximately 80 per cent of the time. Probable forecast assumes return on pension plan assets is seven per cent,low forecast assumes return of five per cent and high forecast assumes rate of 10 per cent.The next tri-annual actuarial valuation of the pension fund liability will be completed in the fall of 2005.impacts on changes to the actuarial valuation are not reliably estimable at this time and the range of possibilities can be large. High and low are based on being within the 80 per cent probability band (translates to +/-2 cents from expected).The impact of a change in the dollar includes the impact on Powerex net cash flows,interest payments on U.S.dollar denominated debt,U.S.dollar sinking fund income and the Commission-approved deferral and amortization method of accounting for foreign-exchange gains and losses on foreign denominated monetary items such as debt. A change of one percentage point in short-term interest rates changes finance charges by approximately $30 million.High and low are based on being within the 80 per cent probability band (translates to +/-50 basis points from expected). BC Hydro reports on actual performance in its quarterly and annual reports,and provides updated forecasts each year in its Service Plan. BC Hydro Service Plan 2OOSP20G6 ta 2007200Be ee ee ee ee ee ee ee AD Capital Expenditures Several drivers guide capital project spending at BC Hydro: «Reliability -projects that will prevent a loss of existing capability or protect existing equipment, systems and system capability. =Consent to Operate -projects that will protect BC Hydro's consent to operate today and in the long term (primarily environmental and social). =Regulatory -projects that will ensure regulatory compliance. =Risk Management -projects that will identify and manage a variety of anticipated risks as good business practice. =Cost Efficiency -projects that will reduce costs or protect existing revenues. =Employee Safety -projects that will identify and manage a variety of workplace risks/nazards to protect employees. =Supply Expansion -projects that will ensure that BC Hydro responds effectively to requirements to meet load or customer growth. In addition,BC Hydro classifies capital spending between sustaining expenditures (those required to meet the BC Hydro Goals of meeting targeted levels of customer and supply reliability)and expansion expenditures (those required to meet load growth or other profit-driven business investments}.The table below shows actual and planned capital expenditures for both the sustain- ing and expansion classifications. Type 2002/03.2003/04.2004/05 «2005/06.=2006/07 =2007/08 Sustaining($million)3673 375.0,34330,4340 49 50 Expansion ($million)374.1 261.4 268.4 394,9 535.9 491.5 Total 741.4 636.4 611.7 829.0 1,007.8 992.6 BC Hydro Service Plan DOOSTIOGE th BOOPI200Be ee ee eeee 43 Approved Projects over $50 Million BC Hydro has planned for the following proj- ects that have capital costs expected to exceed $50 million.BC Hydro has a statutory require- ment under the Budget Transparency and Accountability Act to disclose these in this Service Plan. Seven Mile Dam Safety Improvements Initiated in February 2002,this project is a Dam Safety Deficiency Investigation project that is part of the Dam Safety Program. Improvements are needed to meet current dam safety practice requirements,and miti- gate the risks to life,environmental damage and financial loss. The project will address three safety deficiencies: ®Spillway gate improvements -to allow the spillway gates to be operated with a high degree of reliability after an earthquake. s Dam upgrade work -to anchor the dam with post-tensioned anchors drilled through the concrete into the underlying bedrock. #Site systems upgrades -to improve the reliability of the power supply to the facili- ty,determine common drainage pumps, and improve communications and control systems. Scheduled completion:2005 Total cost:$64 million Mica Generator Stator Replacement The Mica Stator Replacement project is intended to reduce the risks of forced outages and particularly the risk of a long,unplanned outage due to catastrophic failure of the stator.The project includes purchasing and installing new stators for each unit over a number of years,beginning with Unit 4 in 2006. Scheduled completion:2009 Total cost:$77 million.(Note:This cost estimate has increased from the February 2005 BC Hydro Service Plan OOS OG ta|2005/2666 te Service Plan primarily due to rotor modifications necessary because of a new stator design,and due to commodity price escalation.) Peace Canyon Generator Stator Replacement and Rotor Modification Following a design and operational review of the Peace Canyon generating station,BC Hydro adopted this project which involves refurbish- ing,modifying and repairing equipment.The project protects the overall investment in the What is a Stator? A stator is the external part of a motor.It is the stationary section.This is in conrtrast to the rotor,which is the section of the motor which rotates Peace Canyon Generating Station and meets safety requirements. Scheduled completion:2009 Total cost:$64 million. Contemplated Projects over $50 Million The following projects over $50 million are being contemplated but are not yet approved. John Hart Modernization Study The John Hart generating facility is located on Vancouver Island and was originally construct- ed in 1953.In addition to key components being at end of life and in poor condition, numerous risks have been identified at the facility.These include seismic risk (powerhouse, surge tower)and fisheries risk in the event of forced outages.Several options to address the condition and risks at John Hart are being stud- ied,such as rehabilitation or redevelopment. Scheduled completion:2010 Total cost:$216 million (replacement costs of the assets) Hugh Keenleyside -Earthfill Dam Remediation The Hugh Keenleyside Earthfill Dam Remediation project is intended to mitigate earthquake risk and protect public safety. Earthquake standards have increased since construction of the dam in 1968.The project is required to mitigate the seismic risk for life safety,preserve the economic benefits of the facilities,and maintain the downstream flood control benefits. Scheduled completion:2011 Total cost:$67 million (preliminary engineering estimates) GMS Capacity Increase The stators of G.M.Shrum (GMS)generating units 1 to 4 are approximately 35 years old and are in poor or unsatisfactory condition based on BC Hydro's equipment health rating.The replacement of these units will mitigate the negative financial impact of forced outages at G.M.Shrum.In conjunction with the stator upgrades at GMS,capital has been earmarked for potential capacity increases for units at GMS to increase the capacity of the facility and for turbine upgrades for units 1 to 5. Scheduled completion:2012 Total cost:$158 million (preliminary engineering estimates) Revelstoke Unit 5 The Revelstoke Generating Station consists of four generating units with a combined capacity of 1980 MW.The plant was originally designed to be a six-unit generation station; however,two bays were left empty.By adding the fifth generating unit at Revelstoke,an additional 500 MW of capacity will be avail- able to meet winter peak demand and pro- vide additional system shaping capability year-round.Currently,$2.1 million has been approved to complete the regulatory approvals and to work with First Nations towards achieving,in principle,a benefits agreement before starting construction. BC Hydro Service Plan ZOOS 2606 ts Scheduled completion:2010 Total cost:$140 million (preliminary engineering estimates). Ruskin Dam Safety Improvements The Ruskin Dam Safety Improvements project is intended to mitigate earthquake risk and protect public safety.Earthquake standards have increased since construction of the dam in 1930.The project is required to mitigate the seismic risk for life safety and preserve the economic benefits of the asset. Scheduled completion:2009 Total cost:$70 million (preliminary engineering estimates) Ruskin Generating Station is located on the Stave River near its confluence with the Fraser River.The 105.6 megawatt powerhouse contains three generation units.A dam safety improvements project,planned for completion in 2009,will mitigate earthquake risk and protect public safety. 9.Alignment to the Government's Strategic Plan BC Hydro is aligned with government's Strategic Plan. Government Goals BC Hydro Alignment souseran eecsaaness Cee ee pee RONEN vite gall Minas ool at rs oe *To make BC the best educated,most literate jurisdiction on the continent. ¢To lead the way in North America in healthy living and physical fitness. ©To build the best system of support in Canada for persons with disabilities, special needs,children at risk and seniors. *To lead the world in sustainable envi- ronmental management,with the best air and water quality,and the best fisheries management,bar none. ©To create more jobs per capita than anywhere else in Canada. BC Hydro Service Plan Remitting $725 million in fiscal 2004 in dividends and other payments that support services such as health care and education. Contributing $1 million to charitable and community organizations in BC through Corporate and Regional Donation programs and over $600,000 through BC Hydro's employee fund,Hydrecs. Building for our future through $100,000 in scholarships for students entering post-secondary education. Developing the skills and knowledge of BC Hydro's approximately 4,100 employees and contractors,and by providing a safe,healthful,harassment- free workplace. Operating with a long-term,triple-bottom-line business approach that values social,environmental and financial factors. Investing in clean energy sources to meet growing demand. Providing low-cost,reliable electricity to maintain and enhance competitiveness of B.C.industries and businesses. Involving independent power producers in order to diversify energy supply,generate economic wealth and create jobs. ZPAGSPHGK ta PGERTI2ORRe 2 ee ee ee ee2:Uf 6G $G EEUU e€UTP Ar th 8 8 ee ree ee ee 46 Conclusions BC Hydro's new purpose clearly defines the company's long-term vision. Reliable Power, Having enough electricity when our customers need it. At Low Cost, Maintaining our competitive,low rate advantage. For Generations. Sustainability for today,tomorrow and the future. Together with 15 long-term goals and our values,the purpose will guide BC Hydro's planning and operations over the next 20 years.Centred on the customer,employees, social,environmental,financial,and enabling goals,BC Hydro will manage the balance between environmental,social and financial bottom lines. BC Hydro Service Plan ZOGS S20 06 BC Hydro has considered the business environ- ment,both internally and externally,and assessed risks to its operations in order to develop along term plan.Its short-and long-term strategies incorporate bold new approaches to business.The right perform- ance measures are being developed to ensure that BC Hydro can focus employees on the priorities,evaluate its performance,be accountable to British Columbians,and make necessary adjustments as required to meet its vision for the future. Every British Columbian -First Nations,stake- holders,customers,the shareholder and regulator -will play a role in BC Hydro's future.Working together with these partners, BC Hydro will leave a legacy for future gener- ations. This is a sustainable vision.It is a vision that is based on environmental,social and financial bottom lines.And one that will ensure reli- able power,at low cost,for generations. National Library of Canada Cataloguing in Publication Data BC Hydro. BC Hydro's service plan for fiscal years ....-2002/2003/2004/2005- Title varies:2003/2004/2005/2006-,BC Hydro service plan for fiscal years ... Running title:BC Hydro ...service plan. ISSN 1710-1956 =BC Hydro's service plan 1.BC Hydro -Periodicals.2.Electric utilities -Planning -British Columbia -Periodicals.|.Title.I!l.Title:Service plan for fiscal years ....Il.Title:BC Hydro ...service plan. HD2768.C35B74 333.793'2'060711 C2004-960012-5 BGhydro & BC HYDRO Information Services 63911 Southpoint Drive (B02),Burnaby,BC V3N 4X8 PHONE 604 528-1835 FAX 604 528-3137 www.bchydro.com