re: british columbia transmission corporation (“bctc ... · interconnected operations services to...

British Columbia Transmission Corporation, Suite 1100 Four Bentall Centre, 1055 Dunsmuir Street,

Vancouver, BC V7X 1V5 www.bctc.com

Cameron Lusztig Director, Regulatory Affairs Phone: 604 699-7444 Fax: 604 699-7537 E-mail: [email protected]

April 13, 2005

Mr. Robert Pellatt Commission Secretary British Columbia Utilities Commission P.O. Box 250 600 – 900 Howe Street Vancouver, BC V6Z 2N3

Dear Mr. Pellatt

Re: British Columbia Transmission Corporation (“BCTC”) Project No. 3698350 - Order No. G-81-94

Application for an Open Access Transmission Tariff and

British Columbia Hydro and Power Authority Interconnected Operations Services to British Columbia Transmission Corporation

BCTC is writing to note an erratum in its Reply Submissions filed April 12, 2005. In paragraph 50 of the Reply Submissions (in the last line on page 20), the word “lower” should be “higher.” Yours truly, Original signed by: Cameron Lusztig Director, Regulatory Affairs cc: Registered Intervenors

BRITISH COLUMBIA TRANSMISSION CORPORATION

Project No. 3698350 – Order No. G-81-04 Application for an Open Access Transmission Tariff

and

BRITISH COLUMBIA HYDRO AND POWER AUTHORITY Interconnected Operations Services to

British Columbia Transmission Corporation

REPLY SUBMISSIONS OF


April 12, 2005

TABLE OF CONTENTS 1.0 POLICY FRAMEWORK OF PROPOSED OATT ..........................................................3 2.0 NITS/PTP RATE DESIGN..............................................................................................4

2.1 General Allocation Issues ............................................................................................5 2.2 Attachment J................................................................................................................6

3.0 NETWORK CUSTOMER USE OF PTP SERVICE (THE AESO’S ISSUES).................8 3.1 Receipt and Delivery Point Flexibility (“Hubbing” and “Parking”) ............................12 3.2 Network Economy.....................................................................................................15 3.3 “Free Option” ............................................................................................................19 3.4 Intertie Limits, Holding Limits (the AESO’s “Proposed Solution”)............................21 3.5 Tariff Enforcement ....................................................................................................23

4.0 LONG-TERM POINT-TO-POINT SERVICE...............................................................25 5.0 LONG-TERM SHAPED SERVICE ..............................................................................25 6.0 SHORT-TERM RATE DESIGN ...................................................................................26 7.0 NETWORK UPGRADE POLICY.................................................................................26

7.3 “Free Riding” on Network Upgrades, “Pioneer Rights,” and “System Benefits” ........27 7.5 Letter of Credit ..........................................................................................................28

8.0 DEFERRAL CREDIT ...................................................................................................28 9.0 BC CLEAN RATE ........................................................................................................28 10.0 BUSINESS PRACTICES ..............................................................................................29 11.0 INVESTMENT POLICY, OPEN SEASON, AND INTERCONNECTIONS.................30

11.2 Generator Interconnection Service .............................................................................30 BCTC’s Role in Reviewing the CEAP Process ..................................................................30 Initiating the Process with a Queue Cluster Window..........................................................31 Integrating the Interconnection and Transmission Queues .................................................32 Getting Value from Paralyzing the Queue for 180 Days.....................................................33 Relief from OATT for 2005 CEAP....................................................................................37

12.0 ANCILLARY SERVICES AND IOS ............................................................................38

BRITISH COLUMBIA TRANSMISSION CORPORATION Project No. 3698350 – Order No. G-81-04

Application for an Open Access Transmission Tariff and

BRITISH COLUMBIA HYDRO AND POWER AUTHORITY Interconnected Operations Services to British Columbia Transmission Corporation

REPLY SUBMISSIONS OF


1. While individual Intervenors have advocated discrete changes to the proposed

OATT tariff, there appears to be agreement among all parties that, over all, the terms and

conditions of the proposed OATT, if approved by the Commission and implemented, will

enhance the non-discriminatory, open access to transmission services currently provided

through BC Hydro’s WTS Tariff. British Columbia Transmission Corporation (“BCTC” or

the “Corporation”) believes the OATT, in the terms proposed, would make significant strides

towards realizing certain important objectives identified in the Provincial Government’s

“Energy Plan”, Energy for our Future: A Plan for BC (the “Energy Plan”) in a manner

consistent with the rate-making objectives that BCTC set together with its stakeholders.

2. These reply submissions generally follow the framework of the Hearing Issues

List, Exhibit A-24, and the headings have been numbered to correspond with BCTC’s main

submissions. The prehearing written process, Intervenor opening statements, and the

establishment of the hearing issues list were helpful to BCTC in preparing its main

submissions, and enabled BCTC to anticipate a number of the arguments that were ultimately

made by Intervenors. Accordingly, many of the arguments made by Intervenors have been

addressed in BCTC’s main submissions, and BCTC has sought, in these reply submissions,

to avoid unnecessary repetition. The meaning of acronyms used in these reply submissions

remains the same as in the Application, Exhibit B1-1 (the “Application”).

3. BCTC believes it is important, at the outset, to address two related

submissions made by BC Hydro. BC Hydro states, first of all, (para. 8) that “[i]n the absence

of an opportunity to cross-examine those OATT customers and potential OATT customers

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whose views informed BCTC’s Application, their ‘implicit testimony’ ought to be given little

or no weight.” BC Hydro further states (in para. 9) that “the Commission ought to favour

BC Hydro’s position on all issues where no potential OATT customer takes a position, or

where all potential OATT customers participating in the hearing are aligned with BC Hydro.”

4. These arguments reduce to the proposition that BC Hydro’s mere attendance

at the hearing is sufficient to have its position prevail. BCTC’s proposed OATT represents a

balance achieved following extensive consultation with stakeholders, and BC Hydro’s

position trivializes the consultation process. BC Hydro can be expected to take an active role

in this proceeding because it is, to date, the dominant user of the transmissio n system.

However, neither BC Hydro’s status as the dominant user, nor its mere appearance at this

hearing provides any basis to assert that the evidence given in support of proposals made by

BCTC or by other Intervenors to improve the tariff for use by other customers or potential

customers is entitled to little weight in the event of a conflict with BC Hydro’s evidence or

interests. BC Hydro cites no authority for such a proposition, and BCTC does not expect that

it is a proposition that BC Hydro will advance in its own rate design proceedings. BCTC

submits that the Commission’s jurisdiction to consider BCTC’s proposals is not restricted in

the manner contemplated by BC Hydro; the Commission’s role is to consider all of the

evidence without regard to BC Hydro’s self-proclaimed “most favoured party” status.

1.0 POLICY FRAMEWORK OF PROPOSED OATT

5. BCTC does not propose to canvass in these reply submissions all of the policy

issues addressed in its primary submissions. The Intervenors generally endorse or implicitly

accept the policy approach taken by BCTC in developing the proposed OATT.

6. CPC states in its argument (at p. 3) that “[t]here is virtually no consideration

of economic efficiency in the LTF PTP rate” and the “Commission should instruct BCTC to

develop design elements…that will promote efficient use of the transmission system and

efficient development of power resources in British Columbia by parties other than just

BC Hydro.” BCTC does not require a direction from the Commission to consider design

elements that promote efficient pricing and use of transmission facilities. BCTC discusses the

policy drivers and its pricing objectives for the OATT at pages 16 and 17 of its Application

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and paragraphs 5-11 of its main submissions, and considers efficiency to be one of its

primary objectives. BCTC’s proposals were based on criteria that are consistent with those

mentioned by CPC.

Ex. B1-1, Application, p. 16-17

7. The AESO is essentially alone in its criticism of the policy underpinnings of

the proposed OATT. In particular, the AESO disagrees with BCTC’s assessment that it

would be inappropriate to make changes to the terms and conditions of the tariff if the

changes benefited access to 5% of the market and negatively impacted access to the

remaining 95% (see p. 5). In an ideal world, BCTC would reduce seams with Alberta as well

as with the United States, but in many cases it is simply not realistic to do so. Alberta has

chosen to embark on the development of a unique market structure and to provide

transmission services that are not comparable to the services provided in the rest of the

Western Interconnection (e.g. firm transmission rights out of Alberta cannot be reserved in

advance). Having declared itself to be the “odd man out”, the AESO cannot be heard to

complain when BCTC prefers to align its tariff structure with those who are already closely

aligned, and who provide comparable transmission service.

Evidence of Mr. Mansour, Tr. 6 p. 464 ll. 6-16; p. 469 l. 24 - p. 470 l.5

8. Apart from the AESO’s disagreement with BCTC’s policy on the issue of

seam reduction addressed in the preceding paragraph, the AESO’s issues relate not to

whether the policy drivers underlying the proposed OATT are correct, but to whether

BCTC’s proposed OATT actually achieves the policy objectives BCTC set for itself together

with stakeholders. The AESO’s issues are addressed in Part 3.0 of both BCTC’s primary

submissions and these reply submissions.

2.0 NITS/PTP RATE DESIGN

9. BCTC’s main submissions anticipated most of the issues raised by Intervenors

with respect to long-term rate design (PTP and NITS) under the proposed OATT. Discrete

submissions made by Intervenors are addressed below.

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2.1 General Allocation Issues

10. The JIESC notes (at p. 2) its opposition to LTF PTP billing determinants and

the BC Clean rate, remarking that “unfortunately, tariff rate design is a zero-sum game and

any benefits provided to the LTF PTP customers and IPPs come at the expense of BC Hydro,

the Network Integrated Transmission Services customer (NITS), and is ultimately paid by all

of BC Hydro’s customers.” The JIESC’s concerns require consideration with respect to

proposals, such as those advanced by the AESO, that simply seek to reallocate costs or

capacity among customers; however, rate design is not simply a “zero-sum game”. Some

proposals can be reasonably expected to affect the demand for transmission services and

result in a positive or negative effect on other customers. For example, proposals to increase

the allocation of fixed costs to the LTF PTP class will naturally make it more difficult to sell

a service that does not have a substantial demand today, with the result that there is a larger

fixed cost to be borne by NITS customers. Other proposals, such as BCTC’s proposed BC

Clean Rate (as explained in BCUC IR 1 19.3), are designed to increase utilization and

revenue at the margin to the benefit of all customers.

Exhibit B1-4, BCUC IR 1 19.3

11. The JIESC addressed at pages 8-9 BCTC’s proposed PTP allocation

(discussed starting at para. 24 of BCTC’s main submissions). While BCTC took some

comfort from the fact that BC Hydro did not seek an increase in the PTP rate, this is not the

primary underpinning of BCTC’s argument. Rather, raising the PTP rate is unlikely to result

in any substantial increase in revenues, based on the self-evident proposition that increasing

the price of a product that is currently hard to sell does not intuitively lead to the expectation

of increased revenue.

Ex. B1-18, Rebuttal Evidence of Dr. Orans, p. 11

Evidence of Mr. Lusztig, Tr. 8 p. 875 l. 6 – p. 876 l. 10; Tr. 8 p.1043 l. 6 – p. 1045 l. 23

12. The JIESC addresses the issue of cost allocation among NITS customers, and

(at p. 10) recommends that the Commission “establish a simple monthly demand charge for

NITS service.” This suggested change to the current method of allocating among NITS

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customers is different from that advanced by Messrs. Saleba and Piliaris, was not explored

during the hearing, and was not developed through any evidence. Moreover, BCTC is not

clear as to how this approach would differ from the NITS allocation in the proposed OATT

(which is the same as the approach taken in the WTS, and based on the approach taken in the

FERC Order No. 888 Pro Forma tariff). The proposed OATT already has a monthly capacity-

based allocation mechanism (that uses the monthly load ratio shares).

13. The CPC states (at p. 5) that “BCTC has essentially acted as BC Hydro’s

agent by virtue of the fact that any revenue from Short-Term PTP capacity that BCTC sells is

allocated to BC Hydro.” The suggestion that BCTC acts as BC Hydro’s “agent” is a

specious argument that fails to consider the real issues involved in the tariff rate design. The

allocation of ST PTP revenues under the OATT reflects the rate design balance struck in

FERC Order No. 888. ST PTP revenues compensate Network Customers for providing the

financial “backstop” to the entire Transmission Revenue Requirement, as described in

paragraphs 32-34 of BCTC’s main submissions. If there were more than one Network

Customer, all the Network Customers, and not only BC Hydro, would benefit from ST

revenues. This is part of the balance of interests reflected in the proposed OATT.

14. The IPPBC complains (at para. 4) that “[t]he allocation of the transmission

assets that are primarily used to connect BC Hydro’s remote generating projects on the Peace

and Columbia Rivers to the Lower Mainland (“GRTAs”) distorts an IPPs cost of using

BCTC’s Point-to-Point service (“PTP”).” BCTC notes that the cost of the GRTAs, as

determined by the Commission in 1997, are allocated to BC Hydro generation and are not

included in the Transmission Revenue Requirement.

BC Hydro Wholesale Transmission Service Decision, April 23, 1998, p. 18

BCTC Capital Plan Application, May 2004, p. 147 (as attached to Ex. B1-6, CPP IR 2 3.3.1)

2.2 Attachment J

15. BC Hydro asserts (at para. 50) that the issues with respect to Attachment J

“need not be resolved prior to BC Hydro’s next NITS application, and BC Hydro expects that

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a resolution can be achieved between BC Hydro and BCTC by that time.” BCTC submits

that the NITS application is irrelevant to the issues with respect to Attachment J, and the

resolution of Attachment J need not be delayed. The NITS application results in the

execution of a NITS service agreement. The NITS service agreement provides for the

allocation of transmission capacity to BC Hydro in accordance with the provisions of that

service agreement, during the term of the NITS service agreement. What the NITS service

agreement does not address, however, is the reservation of transmission capacity beyond the

term of the NITS agreement, particularly reservations of capacity for resources that are not

designated as Network Resources within that term. As described at paragraphs 39-47 of

BCTC’s primary argument, the proposed OATT, like the FERC Order No. 888 Pro Forma

tariff, contemplates the reservation of transmission capacity to meet reasonable load growth

needs beyond the terms of the existing NITS service agreement through the submission of

reasonable 10-year load growth forecasts and reasonable resource plans to meet that load

growth. These forecasts will, for any NITS service contract that has less than ten years to

run, extend beyond the term of the NITS service agreement. Attachment J is designed to

accommodate these forecasts and to provide a mechanism to consider the reasonable needs of

the Network Customer (for capacity, for which it has not yet contracted) when determining

whether to restrict the rollover rights of a PTP customer in the time period contemplated by

the NITS customer’s ten-year forecast.

16. BCTC rejects BC Hydro’s view that issues surrounding Attachment J should

be resolved between BC Hydro and BCTC alone. BCTC’s submissions on Attachment J

(specifically, paras. 43-47 of the primary submissions) explain the relevance of Attachment J

to other customers, namely, that their rollover rights and access to the system may be limited.

As this issue is important for all stakeholders, it should be resolved in the present public

hearing process. BCTC submits that the parties to this proceeding have adduced the

evidence necessary for the Commission to make an informed decision.

17. The CECBC (at pp. 4-6) has sought to link Attachment J to other aspects of

the proposed OATT, namely, the billing determinants and the BC Clean rate. BCTC is

unable to understand the CECBC’s arguments in this regard, and submits that no links exist.

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The Commission can consider Attachment J independently of issues with respect to the

billing determinants and the BC Clean rate and vice versa.

3.0 NETWORK CUSTOMER USE OF PTP SERVICE (THE AESO’S ISSUES)

18. In this Part of the reply submissions, BCTC addresses the issues raised by the

Alberta Electric System Operator (“AESO”) and Trans Canada Energy (“TCE”) in respect of

the Network Customer’s use of the transmission system. BCTC does not address the

arguments raised by the JIESC (at p. 15) and CECBC (at pp. 9-10) on these issues because

BCTC is in substantial agreement with them. While BCTC shares some of the AESO’s

concern with respect to the potential for abuse of Network Economy, and for the proper

release of unused reserved firm capacity for the non-firm market, it believes that its proposals

(set out at paras. 75-82 of the main submissions) are sufficient at this point to address this

concern, and that no wholesale revision of the tariff, as proposed by the AESO, is either

warranted, or desirable.

19. The AESO’s argument starts from the premise that the principle of adverse

effect discrimination employed in the interpretation of the Canadian Charter of Rights and

Freedoms and Human Rights legislation is directly applicable to the regulatory context.

Based on this definition of “discrimination”, the AESO states that the OATT “discriminates”

against PTP customers by virtue of the Network Customer having receipt and delivery point

flexibility, access to Network Economy service, and the alleged “free option”.

20. Although the AESO appears to consider that the issues that it has raised are

analogous to discrimination based on sex or race and asks this Commission to apply

principles applicable in that context, it is more appropriate for the Commission to apply

concepts developed in the regulatory context. The purpose of human rights legislation is to

protect and advance the basic human rights of individuals in the face of conflicting

commercial and other interests; it requires the commercial interests to give way to achieve

equality of outcomes. It is unhelpful to use legal authorities such as the one cited by the

AESO in achieving a balance in the rate design context.

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21. “Discrimination” in the regulatory context means that customers within a class

are treated differently. In Chastain et al v. B.C. Hydro & Power Authority, [1973] 2 W.W.R.

481 at 491 (B.C. S.C.) McIntyre J. (as he then was) held:

The obligation of a public utility or other body having a practical monopoly on the supply of a particular commodity or service of fundamental importance to the public has long been clear. It is to supply its product to all who seek it for a reasonable price and without unreasonable discrimination between those who are similarly situated or who fall into one class of consumers.

It is thus acceptable, for example, for a load serving utility to treat a class of residential

customers differently (i.e. accord different rights and charge different rates) from a class of

industrial customers. It is also acceptable to offer different services (such as NITS and PTP),

that have different attributes, and different rate obligations. The proposed OATT, if approved

and implemented, provides all transmission customers with open access to transmission

service on a fair and equitable basis. Any transmission customer can purchase NITS service

or PTP service (short-term or long-term), provided the customer is willing to pay the tariff

price for the service. The differences in the entitlements and priorities associated with NITS

and PTP service flow directly from the fact that the services and rates paid are fundamentally

different.

22. It is a question of fact whether “discrimination” (as that term is used in the

regulatory context) exists. In these proceedings, no transmission customer or potential

transmission customer, from Alberta or otherwise, provided any evidence that they have

been, or stand to be, treated any differently from other PTP customers who purchased the

same service (e.g. firm or non-firm). The AESO’s evidence simply establishes that (a) non-

firm service is interruptible, affirming that a lower value service can be “bumped” by a

higher value service, and that (b) transmission may be of greater value to some customers

than others. As noted in BCTC’s main argument at paragraphs 67 and 73 (and as noted by

FERC at the passage quoted in para. 67), the remedy to the AESO’s concern that non-firm

transactions to and from Alberta are interrupted by higher priority transactions in BC is for

those customers to purchase firm transmission capacity in BC that would not be subject to

interruption.

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23. While the AESO has couched its position in terms of the proposed OATT

producing “discriminatory” results, its ultimate objective appears to be “levelling the playing

field”, from an overall trade perspective with BC Hydro. TCE is less guarded; at p. 4, ll. 23-

27 TCE complains that the proposed OATT does not address the competitive advantage of

the Network Customer, and at p. 13 ll. 17-18 TCE refers expressly to the need for “levelling

the playing field between the Network Customer and non-Network PTP customers.” The

position of the AESO and TCE appears to be, in essence, that because BC Hydro enjoys a

number of market advantages over Alberta participants (notably, by virtue of its generation

resources and its geographic position between Alberta and the United States) that permit BC

Hydro to afford higher priority firm service, the Commission should seek to impose equality

of outcomes through amendments to the proposed OATT. But, as the AESO itself observed

(at p.6 of its submissions), it is inappropriate for the tariff to be designed with an eye to

benefiting particular transmission customers: “Mr. Mansour had it right the first time around

where he stated that principles of open and non-discriminatory transmission access require

the service provider to be indifferent to a customer’s economic self-interests, geographic

location and destination.” The Commission should be extremely wary of using a

transmission tariff to achieve equality of outcomes among customers.

Ex. B2-24, MSA Report, pp. 2 and 17-18

Evidence of Mr. Millar, Tr. 10 p. 1452, ll. 9-16

Evidence of Mr. Way, Tr. 10 p. 1466, l.3 – p. 1467 l. 25

24. Section II of the AESO’s argument deals with the “Roles and Responsibilities

of BCTC” (pp. 3-6) as an independent transmission provider. The AESO appears to suggest

(see, for example, the comments at pp. 4, 5 and 31) that the design of the proposed OATT

demonstrates a desire on the part of BCTC to favour BC Hydro over other customers by

virtue of BC Hydro’s historic position as monopoly service provider. BCTC’s efforts to

consult stakeholders and to strike an appropriate balance among the interests of all its

customers are well documented and are summarized at paragraphs 15-19 of BCTC’s primary

submissions. The provisions of the proposed OATT reflect a balance, within the policy

framework of a FERC Order No. 888 and the Energy Plan, among the interests of all of its

customers.

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25. The AESO submits (at p. 31) that BCTC's view is that “use of the

transmission system is an exclusive right of BC Hydro.” This proposition is patently absurd,

given the balanced nature of BCTC’s proposals on this Application. In support of this

contention, AESO references Mr. Mansour’s evidence that a 20% restriction would be akin

to “denying native load 20 percent of their rights.” The AESO has misrepresented

Mr. Mansour’s evidence. Mr. Mansour’s point was that if the Network Customer cannot use

20% of the capacity, then effectively 20% of their rights to use that capacity is taken away.

Mr. Mansour did not say that the Network Customer had an exclusive right to use that

capacity, and such an implication is not supported by any evidence. The AESO also refers

(at p. 27) to this portion of Mr. Mansour’s evidence to suggest that BCTC’s position with

respect to Network Economy is based on some concept of “acquired rights”. This, again,

misrepresents Mr. Mansour’s evidence and BCTC’s position. BCTC’s position is that

Network Economy is available to Network Customers because they pay for that right by

accepting the burden of system costs, not by virtue of “acquired rights”. BCTC’s view is that

the transmission system may be used by any transmission customer subject to the terms and

conditions of its OATT.

Evidence of Mr. Mansour, Tr. 6 p. 593-594

26. The AESO, after having argued (at p. 2) “The problem is that BCTC has not

properly considered the results of adopting the proposed tariff…[emphasis by the AESO]”

(and, presumably, not adopting the AESO’s proposals), immediately thereafter proceeds to

criticize BCTC for doing just that and considering the implications of the AESO’s proposals

on domestic customers. It is appropriate to consider aggregate results as among classes of

customers, as BCTC has done. It is inappropriate to structure the tariff with the objective of

“levelling the playing field” between groups of market participants with different competitive

attributes, as the AESO and TCE advocate.

27. At page 8 of its argument, the AESO questions why BCTC did not consider

that the AESO’s proposals met BCTC’s internal threshold for change, suggesting that BCTC

would only make changes where it benefited BC Hydro. There is no merit to this suggestion.

Of the examples cited by the AESO, one proposal was to price the IOS services that BCTC

receives from BC Hydro and is irrelevant to this debate. With respect to the other examples,

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BCTC proposed long-term shaped service and short-term discounting because they are

designed to increase utilization of the system and to increase revenues to the benefit of all

customers. BCTC made such proposals based on its consideration on the interests of all of

its stakeholders, and not BC Hydro’s alone. BCTC notes that some of these proposals, such

as the Shaped Service, the BC Clean Rate, and some aspects of BCTC’s proposed

discounting policy, are opposed by BC Hydro.

28. The AESO’s proposal was not accepted because it is of a different character

and nature, which is to seek a change to the tariff to allocate firm capacity to a class of

customers without allocating to those customers the financial responsibility for that capacity.

On the AESO’s evidence, those customers are unable or unwilling to pay the embedded cost

of that capacity as reflected by the firm PTP rate, and the result would be a subsidization of

those customers by the domestic customers whose transmission rights (but not cost

responsibility) had been reduced. As a general observation, the AESO’s proposal cannot be

given credence without rethinking the entire rate design and the charges payable by Network

and PTP customers respectively. The AESO’s proposal might warrant consideration if the

proposed reallocation of existing transmission capacity was founded on the premise that the

marketers whose interests the AESO advanced in these proceedings were also required to

accept the embedded cost responsibility for that capacity.

Exhibit C9-5, p. 13 (approximately 80% of the time, there is no trade potential between Alberta and Mid C at firm transmission rates)

3.1 Receipt and Delivery Point Flexibility (“Hubbing” and “Parking”)

29. BCTC’s position is that receipt and delivery point flexibility (“parking” and

“hubbing”) provided to the Network Customer does not result in, or contribute to,

discriminatory outcomes.

30. The AESO states (at p. 9) that “the need for the Network Customer to have

receipt and delivery point flexibility is not at issue. What is important is recognition of the

effect that this preference provides to the Network Customer in its ability to compete with

PTP-only customers.” The key assumption underlying this argument is that receipt and

delivery point flexibility represents an undue “preference” in favour of the Network

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Customer. BCTC’s witnesses testified that receipt and delivery point flexibility is at the very

heart of Network Service, and is a reasonable benefit given the nature of NITS service and

the fact that NITS customers “backstop” the entire Transmission Revenue Requirement.

Different services may have different attributes without being discriminatory or unduly

preferential.

Evidence of Ms. Letourneau, Tr. 6 p. 530 l. 21 - p. 531 l. 3

31. Both the AESO and TCE have sought to dismiss this rationale out of hand by

reference to the SMD NOPR. The AESO states (at p. 10): “This position is unquestionably

at odds with FERC, given FERC’s approach to give the same flexibilities to all transmission

customers under a single transmission service as a right and not a compensatory benefit.”

TCE similarly states (at p. 3, ll. 22-25) that “The effects of Parking and Hubbing, which are

permitted under the FERC 888 Tariff, have been recognized as a potential problem by both

the FERC and by BCTC, however to date there have been no proposals of mitigation

measures put forward by either the FERC or BCTC.” The SMD NOPR was, as the name

suggests, a Notice of Proposed Rulemaking that has never been taken to Final Rule form by

FERC.

32. Ms. Letourneau testified that, as PTP transmission is primarily bought for

inter-control area transactions in the British Columbia context, “the issues that FERC raised

[in the SMD NOPR] are probably not particularly significant.” The distinction drawn by

Ms. Letourneau between inter-control area transactions and intra-control area transactions is

important.

• Intra-control area: Within the control area, a NITS customer can modify energy flows from any designated resources to any designated loads without changing transmission reservations (because NITS provides service from multiple points of receipt (POR) to multiple points of delivery (POD)). Conversely, if a PTP customer’s energy transactions no longer matched the POR and POD of its reserved capacity it would be faced with redirecting its firm service to a new POR and POD or be unable to complete the transaction. This difference arises where, if, and when PTP energy transactions compete with NITS energy transactions within the province.

• Inter-control area: Between control areas, both NITS and PTP service require a transmission reservation that limits flow between one POR and one POD. Energy on either a NITS or PTP inter-control area transmission reservation would be treated and

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handled identically with the same degree of POR/POD flexibility. In other words, either would face the need to redirect the reservation to new POR/POD, if the energy transactions changed. In fact, use of NITS, due to the OATT section 30.7 requirement, would face an added limitation or obstacle.

The basis for the conclusion in the SMD NOPR that there are “…inherent differences in

flexibility between the two types of tariff services, including the one described above

[POR/POD flexibility and parking and hubbing], are resulting in undue preferences …” was

that a customer using NITS could specify its loads as a single delivery point, or as multiple

delivery points and then alter this specification when and if it find a buyer, whereas a PTP

customers must specify a buyer before making reservations. However, in BC, and generally

in the industry, this latter condition is not a requirement. While there is certainly a risk in

doing so, PTP customers can reserve transmission capacity in advance of finding or

finalizing energy trades. The point is that it isn’t the differences in the terms of the services

or POR/POD flexibility in and of itself that creates differences in the ability to park or hub.

It is having the ability to manage generating resources and load within the control area that

provides this improved ability to park and hub. Without the latter, the former is of little

value.

Evidence of Ms. Letourneau, Tr. 6 p. 531 ll. 12 - p. 536 l. 26; p. 542 l. 10 - p. 545 l. 3

FERC Docket No. RM01-12-000 - Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market – Appendix C: Examples of Flaws in the Current Regulatory Environment; Lack of Common Set of Rules Governing Transmission, Section 2 – Receipt and Delivery Point Flexibility.

33. Ms. Letourneau also gave evidence that the problems complained of by the

AESO (and now the TCE, at p. 4 of its submissions) are a reliability-based energy issue

driven by NERC and WECC standards and are not caused by receipt and delivery point

flexibility. Hubbing and parking can occur in any control area regardless of the terms of the

transmission tariff. TCE itself notes (at p. 5 ll. 16-17), hubbing and parking “is not unique to

B.C.” This point is addressed in greater detail at paragraph 62 of BCTC’s primary

submissions.

- 15 -

Evidence of Ms. Letourneau, Tr. 6 p. 531 l. 19 - p. 533 l. 4; p. 534 ll. 3-5; Tr. 6 p. 542 l. 10 - p. 545 l. 3; p. 554 l. 10 - p. 555 l. 6

Evidence of Mr. Mansour, Tr. 6 p. 557 l. 18 - p. 558 l. 23

Ex. B1-1, Application, Appendix A, Section 30.7

34. FERC has never reduced the flexibility of network service, and the SMD

NOPR only proposed to make that flexibility available to all. The AESO has not sought

tariff amendments to provide receipt and delivery point flexibility to all customers, and the

solution that it has advanced bears little or no relationship to the problem that it identifies.

35. At p. 13, of its argument, the AESO states: “BCTC contends that Network

Customers are subjected to more constraints than point-to-point customers when transacting

on the interties due to their requirement to demonstrate that they have a contract before

obtaining service. BCTC’s interpretation of their tariff in this instance is quest ionable.

Section 30.7 limits the use of Network Service; it does not limit the use of point-to-point

service.” [Emphasis added.] BCTC clarifies that the term “Network Customers” was used by

BCTC, at pages 23-24 of its main submissions, as shorthand for a customer using Network

Service. The point made was that Network Service is subject to the constraints outlined.

Ms. Letourneau’s evidence cited in support of that argument refers to Network Service, not

to the Network Customer.

Evidence of Ms. Letourneau, Tr. 6 p. 554 l. 10 - p. 555 l. 20

36. The AESO concludes (at p. 14) by stating, “The AESO instead urges the

Commission to weigh the presences of Receipt and Delivery Point Flexibility and its undue

preference as a factor requiring counter-balancing in the overall mitigation of discrimination

and undue preferences found in the tariff.” There is no “undue preference” and no mitigation

is required. A customer that takes a particular services gets the attributes of the service, for

which it has paid.

3.2 Network Economy

37. BCTC’s position remains that Network Economy is an important attribute of

Network Service under the FERC Order No. 888 Pro Forma tariff that promotes efficient use

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of a large number of integrated resources. In FERC Order No. 888, FERC provided

flexibility to both Network and PTP customers. Network customers were entitled to arrange

for economy purchases from non-designated resources. PTP customers were entitled to

schedule on a non-firm basis from secondary receipt and to secondary delivery points.

38. The AESO (at p. 21) quotes Mr. Way in support of its position that Network

Economy was set up for “some small municipal network customers that really didn’t have

big trading operations, and really needed some way to shore up their supplies when they ran

into some difficulties”, and Network Economy is was not intended to assist a large customer

like BC Hydro. Mr. Way, with respect, was in no way qualified to say why FERC

established Network Economy service; the FERC decisions speak for themselves, and they

do not support Mr. Way’s analysis. FERC has placed no limits on the size of an entity that

can take any service under its pro form tariff, including Network Service, which FERC

required public utilities to offer. Making Network Service available to all entities, in addition

to transmission providers themselves, was required to avoid discrimination. Network Service

was based on the way in which transmission owners, which were usually large vertically-

integrated utilities, used the system in order to optimize their resources to meet their

customers needs. FERC contemplated that transmission providers and other large load

serving entities would take Network Service because that service is ideally suited for large

load serving entities.

Promoting Wholesale Competition, FERC Order No. 888, 75 FERC ¶ 61,080 at 152-161(1996) (Final Rule)

39. Apart from Mr. Way’s speculation on the origins of Network Economy, the

crux of the AESO’s argument on why Network Economy should be discontinued is (at

p. 26): “Since the issuance of the SMD NOPR, the FERC has consistently stated that the 888

tariff design results in undue discrimination, meaning that the rights afforded under this tariff

design have been recognized to be imbalanced and misaligned.” No authority is cited for that

bald statement.

40. The AESO has substantially overstated the implications and effect of the

SMD NOPR. The SMD NOPR did not conclude that Network Economy was discriminatory.

- 17 -

Nor was the SMD NOPR ultimately endorsed by FERC in a final rule. If what the AESO

says was true – i.e. that FERC had held at any time that the Order No. 888 Pro Forma tariff

was “discriminatory” or “imbalanced and misaligned” - the effect would be to make the

tariffs of many transmission providers in the United States illegal. Since the SMD NOPR

was released, FERC has approved amendments to Order No. 888 Pro Forma-style tariffs that

provided for Network Economy service. The regulatory reality is that no tariff in North

America has been rejected for the reason that it includes provisions that permit the use of

Network Service for the purpose of network economy transactions. BCTC notes that open

access transmission tariffs based on the FERC Order No.888 Pro Forma tariff have also been

approved for use by regulators in several Canadian provinces, including Saskatchewan,

Quebec, New Brunswick, and Manitoba.

Exhibit B1-1, Appendix E, “BCTC Tariff Design Background Document”, p. 6

See, for example: Sierra Pacific Power Company, 108 FERC ¶ 61,005 (2004) (Order Conditionally Accepting Tariff Revisions); and

Midwest Independent Transmission System Operator, Inc, 103 FERC ¶ 61,212 (2003) (Order Conditionally Accepting Compliance Filing and Ordering Further Compliance Filing)

41. The AESO (at p.1) refers to the evidence with respect to BC Hydro’s use of

Network Economy service and suggests that “Without modifications to the Application, there

is nothing on the face of the record that suggests unjust discrimination and undue preferences

will cease.” BCTC’s witnesses cautioned against concluding on the basis of usage statistics

that Network Economy has been abused. BCTC has proposed enforcement measures (see

para. 75-82 of BCTC’s primary submissions) that, properly implemented by the Commission,

would permit proper evaluation of the concerns raised. BCTC has suggested that its

proposed reporting regime should be re-evaluated after a reasonable period of time, and

modified if the parties identify persistent and troubling use of Section 28.4 of the OATT by a

Network Customer.

Evidence of Mr. Lusztig, Tr. 8 p. 1072 l. 13 – p. 1073 l. 9

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42. The essence of TCE’s complaint with respect to Network Economy is

similarly that (at p. 7 ll. 3, 18) Network Economy is capable of “abuse” or “improper use” by

“bump[ing]” customers on the BC-Alberta intertie, and (at p. 8 l. 6) that to have any certainty

with respect to transmission, a customer must contract for firm service. Monitoring and

enforcement can address abuse, and it is unnecessary to eliminate the priority given to

Network Economy over non-firm transactions. The priority of Network Economy was

carefully considered by FERC in Order No. 888 and Order No. 888-A and represents an

important element of the balance contained in the tariff. FERC’s logic supporting the

availability of Network Economy service and its priority over non-firm service remains

compelling:

[N]etwork economy purchases should have a reservation priority over non-firm point-point customers and secondary point to point uses of the transmission system. Network transmission customers are obliged to pay all of the costs of the transmission system without regard to the resources from which energy is scheduled. Therefore, it is appropriate that the transmission associated with a network customer’s economy purchases (i.e. transmission that is used to substitute one resource for another on an as-available basis) enjoys a higher priority than non-firm point-to-point service.

Promoting Wholesale Competition, FERC Order No. 888, 75 FERC ¶ 61,080 at 332 (1996) (Final Rule)

43. TCE concedes at p. 4, ll. 27-28, that “The non-firm PTP customer can of

course avoid some of this risk by committing to firm PTP transmission service”, but neither

TCE nor the AESO suggest that Alberta participants should have to purchase firm service in

BC for the simple reason that it is more expensive, and there remains a risk that the

Opportunity Service available on the Alberta side of the intertie will be interrupted. Firm

service is more expensive than non-firm service, precisely because the former has greater

reliability than the latter; it has nothing to do with discrimination or unequal access.

44. BCTC’s opposition to the AESO’s position is emphatically not, as the AESO

suggests, a mere “euphemism for the view that existing discrimination is acceptable and that

short term trade with Alberta and Mid Columbia is the exclusive domain of BC Hydro.”

Rather, BCTC’s position is that there is no discrimination. Non-firm service is cheaper

because it is interruptible. If Alberta participants want the benefits of firm service, they

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should have to pay for it and make a fair contribution to system costs. The passages from

FERC Order No. 888 quoted and cited by BCTC (above, and at paras. 66-67 of BCTC’s

primary submission) demonstrate the importance of Network Economy service and the

principle that a customer should pay more for a higher value service.

45. There is a degree of irony in the statement made by TCE (at p. 8) that it is not

a solution to suggest that Alberta customers contract for firm PTP service because “Each of

these services has distinct characteristics and fulfil different roles in the marketplace.

Although non-firm service has lower priority than firm service, this should not mean that

transactions cannot be booked using a non-firm tariff.” The same could be said for Network

Economy. It is an important attribute of Network Service, with distinct characteristics, and

fulfils a different role in the marketplace. Although Network Economy has higher priority

than non-firm service, this should not mean that transactions cannot be booked using

Network Economy. The answer to potential abuse lies in reporting and enforcement, not

eliminating an attribute of transmission service that is integral to the use of the system by

Network Customers.

3.3 “Free Option”

46. BCTC’s position remains that the Network Customer does not enjoy a “free

option” with respect to PTP service, as there are opportunity costs incurred by the Network

Customer if it prevents trade by a PTP customer. Unlike the “free option” espoused by the

AESO, the effect of failing to use transmission service that is reserved for its use, is that the

Network Customer pays for the embedded costs associated with that transmission.

47. There is no “free option” as described by the AESO. To illustrate this point,

consider the following cases:

• One network customer who is also the only PTP customer. As the network customer pays for the entire Transmission Revenue Requirement, it should be able to use the grid without restriction. There is nothing free here, since the network customer pays for the entire bill.

• One network customer who is one of the many PTP customers. Two possibilities arise:

- 20 -

• The network customer's PTP reservation displaces another PTP customer's reservation. The network customer's transmission bill goes up due to the lost revenue. Hence, there is no free option here.

• The network customer's PTP reservation does not displace another PTP customer's reservation. As the other PTP customer's reservation is unaffected, the line in question must have more than enough capacity to meet all reservations. Now the question is whether the network customer has a free option. The answer is "no" because the network customer pays for the uncongested line via its load-ratio share revenue obligation; and this line should not be freely available to and used by PTP customers who wish to use it on an as needed basis.

48. The AESO asserts (at p. 15) “BC Hydro and BCTC have confirmed the option

to acquire point-to-point service by the Network Customer results in no net cost to the

Network Customer. The evidence on the record is very clear: the “Free Option” is free

[emphasis added by the AESO].” In fact, the evidence of Messrs. Lusztig and Mansour, as

well as Mr. MacDougall, was that there is an opportunity cost associated with a Network

Customer’s purchase of PTP service. The AESO itself recognizes that the “option” is not

free when it portrays (at p.16) the Network Customer’s choice between “(a) the benefit of

having the point-to-point capacity; or (b) the benefit of having a third party contribution to

NITS.” The fact that choosing (a) requires a foregoing of the benefit in (b) demonstrates the

real economic cost to the Network Customer of over-consuming PTP service. TCE appears

to concede at p. 9 l. 10 that the so-called “free option” is not actually free because the

Network Customer incurs an opportunity cost in terms of foregone PTP revenue.

Evidence of Mr. Lusztig, Tr. 6 p. 511 l. 10 – p. 515 l. 21

49. BCTC notes that the suggestion made by the AESO in the second last

sentence of the second paragraph on p. 16, to the effect that BC Hydro controls market prices

in US and Alberta markets is unsupported by any evidence in this proceeding.

50. The AESO also argues that the “free option” must exist because, on its

analysis, BC Hydro pays more for transmission than other customers do. This is not

surprising, given the location of BC Hydro’s resources and the nature of those resources. It

would be quite surprising if the average price paid by the owner of a predominantly

hydroelectric system was not lower than that paid by more distant thermal generators, based

- 21 -

on operating cost differences alone. Indeed, this point was conceded by the AESO’s witness.

The evidence is not sufficient, in the AESO’s analysis or otherwise, to establish that BC

Hydro paid more for transmission than the underlying transactions would justify. Neither the

AESO, nor BCTC have any basis upon which to determine that question, despite the

willingness of AESO witnesses to speculate in this regard. The AESO did not pose the

question to BC Hydro.

Evidence of Mr. Millar, Tr. 10, p. 1452, ll. 9-16

Evidence of Mr. Way, Tr. 10, p. 1464, l.13 – p. 1467 l. 25

3.4 Intertie Limits, Holding Limits (the AESO’s “Proposed Solution”)

51. The AESO overstates the problem that it seeks to address, and proposes a

solution that is both inefficient and unfair. Receipt and delivery point flexibility, access to

network resources, and the flexibility to supplement network resources with economy energy

purchases to keep the costs of load service low, are integral attributes of a service that is

provided to load serving entities that need to serve multiple loads from multiple resources.

None of these attributes constitutes discrimination vis a vis the parties that the AESO

represents or an undue preference. As previously indicated, NITS is different from PTP

service, and these attributes flow from the fact that Network Customers assume a greater risk

than PTP customers by virtue of backstopping the Transmission Revenue Requirement.

52. The AESO’s proposed capacity restrictions are inefficient because they will

result in the completion of lower margin transactions at the expense of potentially higher

value transactions.

53. The AESO’s proposed capacity restrictions are not only inefficient, they are

also unfair. The embedded cost associated with the transmission set aside on the intertie will

be borne by the customers who pay BC Hydro’s retail rates. BC Hydro customers (such as

those represented in these proceedings by the BCOAPO et al and other retail customers) will

pay most of the cost of the transmission that is used by the Alberta marketers, and will pay

for all of the transmission that is left unused by those marketers when trading conditions are

not favourable to them.

- 22 -

54. Although the AESO states (at p. 34) “BCTC has also incorrectly characterized

the proposed restriction as providing a “Free Option” for customers on a particular path to

use at non-firm rates”, this is precisely the manner in which it was described by Mr Way. The

option is “free” because the Alberta marketers would pay nothing for the option to reserve

transmission (if they do not use it, BC Hydro’s domestic customers pay the cost). It is

reasonable to assume that it will be sold at non-firm rates, because the AESO has taken great

pain to explain that firm rates are too expensive for Alberta market participants, and that

trade opportunities at those rates exist in a limited number of hours. A network customer

receives rights to reserve and use the transmission network by “backstopping” the

Transmission Revenue Requirement. Setting aside 50% of the intertie for use by PTP

customers is the same as restricting the network customers to 50% of the intertie capacity,

but requiring them to pay for the whole cost. Implementing the AESO’s proposed change

without requiring PTP customers to have a similar “backstop” payment obligation will cause

a significant shift in transmission rights and cost responsibility among transmission users.

Evidence of Mr. Way, Tr. 10, p. 1500 l. 12 - p. 1502 l. 7

55. The AESO (at p. 37) cites the decision of the National Energy Board ("NEB")

in Interprovincial Pipeline Inc. (December 1997), OH-2-97 ("IPL"), in support of its

proposal to eliminate Network Economy and restrict BC Hydro's intertie capacity holdings.

Contrary to the AESO's claims, the situation in IPL is not at all like the situation that is

present in this Application. In IPL, various refiners had contracted for 100% of the Line 9

capacity. The consequence of this was that other shippers had no access to the system and

the NEB decided that IPL must grant access to those shippers to fulfill its common carrier

obligations. In the present situation, BC Hydro's use of the system does not limit the ability

of others to access the system. Others are free to purchase various transmission services,

including ST firm and non-firm, LTF PTP and NITS, and are free to require BCTC to build

to provide any necessary firm capacity required. The fact that non-firm service may be

bumped by higher priority services under the existing tariff and the proposed OATT is not

analogous to the situation in IPL, where shippers had no ability to gain access to Line 9. The

issue for the AESO is not access, but price.

- 23 -

56. The fundamental basis for the AESO’s concern appears to be that non-firm

transactions to and from Alberta are interrupted by higher priority firm PTP and Network

Economy transactions in BC. The remedy to both concerns, as stated previously, is for those

customers to purchase firm transmission capacity in BC that would not be subject to

interruption, and for increased review of network economy transactions to ensure that the

service is used for its intended purpose. The AESO’s sole justification for Alberta marketers

not buying firm service appears to be that it is too expensive, especially considering the

limited number of hours that trade opportunities exist between Alberta and Mid C, and that

the risk of interruption of Opportunity Service on the Alberta side of the intertie remains.

This is not a question of open access; access to transmission service is always available for

those who are willing to pay. The prospect that, for Alberta market participants, the cost of

firm transmission is prohibitive when compared to their margins from trade and risk of

interruption in Alberta is a function of their trade economics, rather than a function of

BCTC's tariff.

Exhibit C9-5, Table 1

3.5 Tariff Enforcement

57. There are currently adequate mechanisms to have tariff-related concerns heard

and addressed; however, as noted in BCTC’s main submissions, enforcement of customer

behaviour could be improved by ongoing reporting to the Commission by BCTC and BC

Hydro. The Commission is the appropriate body to ensure that tariff provisions are suitable

for their purpose and are correctly applied and enforced.

58. TCE states (at p. 12 ll. 26-28) that change to the proposed tariff, rather than

enforcement measures, are necessary because “BCTC has demonstrated that they have been

unable to control [abuses]. In fact, BCTC claims to have been unaware that such bad

behaviour was occurring.” The first problem with this argument is that it presumes that

abuses have in fact occurred. While BCTC has expressed concerns about the inconsistencies

between its interpretation of the tariff, and the transaction record of the Network Customer,

the question of whether tariff violations have occurred was not resolved in this proceeding.

- 24 -

59. The suggestion that BCTC has been somehow derelict in performing its

enforcement responsibilities (see, for instance, TCE’s argument at p. 13 ll. 5-9) is factually

wrong. BCTC has responded to every complaint lodged about the practices of the Network

Customer on the Alberta/BC path. In every case prior to this proceeding, the investigation

revealed the Network Customer had acted appropriately. In order to improve tariff

enforcement, BCTC is proposing the enhanced reporting obligations for both BCTC and the

Network Customer as set out in paragraphs 78-82 of BCTC’s primary submissions.

60. The AESO states (at p. 6) that the existence of the 1999 Network Economy

Alberta Export Rule (“NEAER”) was “late breaking news”, “mysteriously” withheld by

BCTC in these proceedings. The existence of the NEAER is hardly a secret; it has always

appeared on BCTC’s website (and previously on BC Hydro’s website), and is accessible to

all customers. Mr. Mansour testified that the NEAER had been explained at the Alberta

consultations:

MR. NETTLETON: All right. Why did you not take that opportunity [rebuttal evidence] to explain your position with respect to the elimination of network economy?

MR. MANSOUR: Well, I have taken just about every opportunity to explain the issue of network economy, including the consultation sessions we held in Calgary for the benefit of the Alberta participants. They raised the issue, we explained it to them several times, including the consultations associated with this proceeding – with these proceedings. We explained why it has to be maintained as a benefit for network customers, we explained why that these are the rights of native load that we cannot deny, and then FERC did not suggest that either. And what I said is, our role is to make sure that it is used appropriately, and I explained to the participants in Alberta what we have in place to make sure that that is the case. [Emphasis added.]

The NEAER is an interpretation of sections 28.4 and 28.6 of the tariff. Those sections of the

tariff established the restrictions on Network Economy use. BCTC intends to review the

NEAER as part of the process described at paragraph 78 of its main submissions.

Evidence of Mr. Mansour, Tr. 6 p. 560 ll. 6-23

61. The AESO states (at p. 7), with respect to the NEAER, that “Even BCTC’s

own interpretation of the compliance within the 1999 Restriction has changed since the

- 25 -

Commission requested weekly reporting.” BCTC has not changed its interpretation of

compliance; rather, the original analysis performed by BCTC staff did not properly reflect

that interpretation. In correcting the analysis, the results of the assessment of frequency and

magnitude of non-compliance were considerably higher.

62. The AESO states (pp. 7, 29) that ex post facto enforcement is inadequate and

that no solution other than removal of Network Economy is possible. BCTC submits that it

is simply untenable to suggest the removal of a fundamental element of Network Service

based on the potential for abuse. To use an analogy, one does not stop speeding by

eliminating driving; the answer is to increase enforcement efforts to catch those individuals

who break the rules.

4.0 LONG-TERM POINT-TO-POINT SERVICE

63. BCTC’s position on the issues identified in item 4.0 on the Hearing Issues List

(Exhibit A-24) are addressed elsewhere in BCTC’s main submissions and reply submissions.

5.0 LONG-TERM SHAPED SERVICE

64. The issues raised by Intervenors in respect of the proposed Shaped Service

have largely been addressed at paragraphs 89-96 of BCTC’s main submissions. In this Part

of the reply submissions, BCTC addresses discrete points raised in the submissions of BC

Hydro and CBTE.

65. BC Hydro argues (at para. 24) that approval of Shaped Service will increase

the risk of over-committing the system because the load shape may be different than forecast.

BCTC explained at paragraph 91 of its main submissions that the process for calculating

ATC is inherently conservative, and its staff has considerable expertise. BCTC also

referenced, at paragraph 91, Mr. Garnett’s evidence that BCTC would not release capacity

for Shaped Service based on a discrete forecast peak, but rather on an assessment that the

peak will fall within a range of months where it has occurred in the past. The evidence is that

there is minimal risk of BC Hydro’s load shape changing. Appendix A.3 of BCTC’s Loss

Calculation report, attached to Cloudworks IR 3.2.0, shows that BC Hydro’s load shape has

not changed in the past several years, nor is it forecast to do so. Given both the small size of

- 26 -

the IPP market in British Columbia and the gradual changes in system load shape over time,

the risk of “over-committing” the system in this regard is more hypothetical than real.

Ex. B1-11, Cloudworks IR 3.2.0

Evidence of Mr. Garnett, Tr. 8 p. 893 l. 12-p. 894 l.16

66. BCTC explained at paragraphs 95 and 96 of its main submission why

customer- directed Shaped Service is only viable if there is a mechanism in place to prevent

transmission capacity from being “cherry picked”, leaving behind unsold capacity with very

little value. The CBTE has advanced (at pp. 7-12) an alternative proposal for customer

shaped service, and asserts that “its proposal is sufficiently certain to be implemented at this

time.” BCTC still believes that the CBTE’s proposal contains insufficient information to be

capable of implementation. In particular, uncertainties remain with respect to (1) pricing, (2)

planning, (3) rollover rights, and (4) cost allocation. BCTC’s views with respect to the

certainty required to implement the CBTE’s proposal are informed by the complexity of

taking its own Shaped Service proposal from the conceptual to the implementation phase.

6.0 SHORT-TERM RATE DESIGN

67. BCTC’s submissions in respect of short-term point-to-point service and the

discounting formula are set out in paragraphs 97-120 of BCTC’s primary submissions.

7.0 NETWORK UPGRADE POLICY

68. BCTC’s position on the issues raised by Intervenors in respect of BCTC’s

proposed investment policy for Network Upgrades that are triggered by requests for

transmission service is set out at paragraphs 121-138 of BCTC’s main submissions. Below,

BCTC addresses discrete arguments made by the CPC, IPPBC and Cloudworks. It remains

BCTC’s view that its proposed investment policy balances the need of new transmission

customers seeking access to the system against the need to minimize the risk exposure of

existing customers due to stranded assets.

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7.3 “Free Riding” on Network Upgrades, “Pioneer Rights,” and “System Benefits”

69. CPC states (at p. 10) that BCTC “incorrectly presumes that the upgrader will

always be able to use the entire credit that the upgrade provides – and that is not likely to be

the case.” BCTC believes that where the upgrade is economic, the “upgrader” will be able to

use the entire credit. BCTC argues that not all upgrades will be economic due to the

“lumpiness” of transmission upgrades, the availability of other customers to utilize excess

transmission capacity, and the intermittent nature of certain generation resources. However,

it is not a reasonable solution to require other customers to bear the cost of upgrades, for

which they have no need, and from which they derive no benefit.

70. CPC also states (at p. 10) that “BCTC ignores the role of the Commission in

reviewing the prudency of its capital plans.” BCTC recognizes that it has an obligation to

make only prudent expenditures and that the Commission will enforce that obligation.

However, CPC confuses the role of the tariff and of capital plans. The tariff provides rules

pursuant to which a customer may require BCTC to build in order to provide that customer

with service. Those rules require cost recovery rules to ensure that the customer’s request

does not impose costs on others. If the investment policy is appropriate, and the customer

makes the demand under the tariff, the decision to build is, presumably, “prudent”.

71. CPC states (at p. 10) that “BCTC incorrectly argues that BC Hydro’s

ratepayers ultimately fund Network Upgrades. The only way that BC Hydro’s ratepayers

will pay for an upgrade is through the deemed equity mechanism.” This statement

misrepresents BC Hydro’s ratemaking structure under Special Direction No. HC2. All

customers ultimately pay for Network Upgrades because the costs are rolled in to the rates

under the tariff. The rates are rolled-in, not by virtue of a deemed equity mechanism, but by

operation of the transmission credits. In this way the transmission customer is refunded the

cost of the Network Upgrade over the term of service.

72. CPC also states (at p. 11) that “[i]t is critically important for BCTC to

coordinate capacity expansions on both sides of the border in order to enable IPP

participation in US wholesale markets.” BCTC accepts the importance of this role, and notes

that it participates in regional initiatives, such as Grid West, that are contemplated to improve

- 28 -

coordination in many of the areas that CPC suggests. However, BCTC does not consider it to

be appropriate for it to act as an agent for a customer to seek transmission access on another

system. BCTC questions how it could act for customers in the fashion CPC suggests in a

non-discriminatory manner.

73. The IPPBC states (at para. 118) that “[t]he current rate of 13.5% is not

appropriate.” BCTC stated in its response to CPP IR 2 5.6.2 that the 13.5% rate forms no

part of its application.

Ex. B1-6, CPP IR 2 5.6.2

7.5 Letter of Credit

74. Intervenors have expressed a desire to have BCTC allow for the Network

Upgrade portion of the initial investment to be supported by a Letter of Credit acceptable to

BCTC, or cash. BCTC agrees that concerns raised by Intervenors with respect to the rate

impacts associated with the treatment of up-front payments by Special Direction No. HC2

can be mitigated through the use of a letter of credit to secure the cost of the upgrade.

75. Cloudworks goes on to suggest (at p.1), however, that “three years after COD,

BC Clean projects see their Network Upgrade investment paid down in full. BCTC believes

that this proposal does not sufficiently protect the interests of other customers in avoiding the

cost of stranded transmission assets.

8.0 DEFERRAL CREDIT

76. BCTC’s submissions in respect of the Deferral Credit are set out in paragraphs

139-150 of BCTC’s primary submissions.

9.0 BC CLEAN RATE

77. BCTC’s main submissions (see paras. 151-166) anticipated most of the

arguments raised by Intervenors in respect of the proposed BC Clean Rate. BCTC remains

of the view that (i) the BC Clean Rate represents an opportunity to improve the utilization of

the transmission system by removing an impediment to use by relatively small intermittent

generators; (ii) the proposed eligibility requirement should not be changed from being based

- 29 -

on nameplate capacity to being based on output; and (iii) the 50MW eligibility requirement is

not unduly discriminatory by virtue of distinguishing between small and large clean

generation resources.

78. The two-part test set out in paragraph 82 of BC Hydro’s submissions is

derived from the Commission’s Bypass Rate Guidelines. BC Hydro advocates applying that

test on a customer-by-customer basis to determine eligibility for the proposed BC Clean

Rate. As described in BCTC’s response to BCUC 1 19.3, BCTC used the principles

underlying the two-part test in defining the class to which the BC Clean rate is applicable.

Determining eligibility on a customer-by-customer basis, as contemplated by BC Hydro,

would increase the potential for discrimination.

79. CPC argues (at p. 12) that the “[a]vailability of the BC Clean Rate based on

nameplate capacity rather than size of service request or explicit consideration of impact on

the system is unduly discriminatory.” It has proposed basing eligibility on the size of service

request or explicit consideration of impact on the customer. However, if basing the BC

Clean Rate on nameplate capacity is discriminatory, basing eligibility on the size of a

particular service request or explicit consideration of impact on the system is no less

discriminatory. CPC’s true objection to the eligibility criterion does not appear to be that it is

discriminatory, but that it does not include CPC’s facilities.

10.0 BUSINESS PRACTICES

80. BCTC dealt extensively with business practices at paragraphs 167-177 of its

main submissions.

81. In paragraph 39 of its submissions, BC Hydro suggests that Ms. Letourneau’s

rebuttal evidence with respect to BCTC’s Business Practices should be given little or no

weight, because the scope of business practices may vary across transmission providers, and

the survey participants were limited to the Western Interconnection. Ms. Letourneau’s

survey evidence was comprehensive. BC Hydro provided only anecdotal evidence to the

contrary.

Ex. B1-18, Rebuttal Evidence of Ms. Letourneau

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82. BC Hydro supports its proposal for a formal business development practice

committee by asserting (at para. 40) that the stakeholders are not a group of weak parties.

While some of these transmission customers are substantial companies, their economic

involvement in the B.C. transmission system has historically been limited – certainly, much

lower than BC Hydro’s - and they have tended not to participate actively in past consultation.

This fact, together with BC Hydro’s position as expressed in paragraphs 8 and 9 of its

submissions, that if others do not show up, their interests are not worth protecting, informs

BCTC’s concerns about the prospects for developing a set of balanced business practices in a

committee environment.

Ex. B1-18, Rebuttal Evidence of Ms. Letourneau, p. 4-5

Evidence of Mr. Mansour, Tr. 5 p. 315 l. 18 - p. 316 l. 17

11.0 INVESTMENT POLICY, OPEN SEASON, AND INTERCONNECTIONS

83. There appears to be universal agreement among the Intervenors that the Open

Season is a good concept, and none has identified any insurmountable obstacles to its

effective implementation and operation. In this Part of the reply submissions, BCTC

addresses the issues raised by BC Hydro in respect of generator interconnection, specifically

Attachment XX.

11.2 Generator Interconnection Service

BCTC’s Role in Reviewing the CEAP Process

84. In Part 11 of BCTC’s primary submissions, BCTC explained that the

Interconnection process must balance the need to reasonably accommodate BC Hydro’s

Competitive Energy Acquisition Process (“CEAP”) against the need to maintain a

functioning queue and BCTC’s resource constraints. BCTC’s Modified CEAP Process

provides an integrated and comprehensive process to address BC Hydro’s CEAP objectives

in a fair and balanced manner.

85. BC Hydro, in its submissions (e.g., p. 68), continues to suggest incremental

changes to its Attachment XX proposal in an attempt to create a workable proposal. The ad

hoc “band-aid” measures are disjointed and continue to fall short of addressing all of the

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problems with Attachment XX. BCTC’s Modified CEAP Process remains superior to the

Attachment XX process, particular in respect of (i) the impacts of initiating the process with

a Queue Cluster Window, (ii) integrating the interconnection and transmission queues, and

(iii) how the 180-day period during which the queues are paralysed can best be used. Each of

these three points is addressed in more detail below.

Initiating the Process with a Queue Cluster Window

86. BC Hydro argues (at para. 62) for the process to be initiated by a Queue

Cluster Window, and suggests non-CEAP bidders can participate in that Queue Cluster

Window. This is unworkable. Non-CEAP bidders in the Queue Cluster Window will have

no means of assessing which of the other projects in the Queue Cluster Window will be

proceeding until BC Hydro selects the successful CEAP portfolio. At the same time, the

interconnection and transmission costs associated with eligible CEAP portfolios may change

depending on which non-CEAP bidders in the Queue Cluster Window elect to proceed with

their projects. This creates a “chicken and egg” problem that materially undermines BC

Hydro’s ability to assess least-cost supply. When BC Hydro proceeds with selecting the

CEAP’s winning portfolio it will have to do so based on fluid interconnection costs, since

those costs may change depending on which non-CEAP projects carry forward. This same

problem will be faced by the non-CEAP bidders as their interconnection costs may change

depending on the projects in the winning CEAP portfolio. BC Hydro’s proposed Attachment

XX process fails to achieve the first and most fundamental of its own CEAP objectives –

providing BC Hydro with information to select least-cost supply.

Ex. B2-9, Direct Testimony of Mr. Reimann, pp. 5-6

Ex. B1-27, Revisions to OATT regarding CEAPs, p. 2, “Queue Position”

87. BCTC’s process avoids these complications by deeming equal queue positions

for all CEAP bidders, and only CEAP bidders. Interconnection requests from CEAP bidders

and from non-CEAP bidders can, therefore, be processed without reference to one another,

and without the inherent uncertainty that a Queue Cluster Window approach would create (as

discussed above).

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Integrating the Interconnection and Transmission Queues

88. There are two queues – one for interconnection requests and one for

transmission service requests. The length of the queues will differ from one another, and will

vary from time to time. Without a process to manage the timing of service requests, the

general queue rules will not ensure that a CEAP-related NITS service request and the

Interconnection Requests of CEAP bidders will be studied simultaneously; rather, they will

each be studied based on their respective priorities in their respective queues.

89. BCTC’s Modified CEAP Process is the only proposal that establishes a

relationship between the timing of BC Hydro’s CEAP related NITS service request and the

Interconnection Requests of CEAP bidders. This allows a match between the timing of the

interconnection studies and the timing of the transmission studies so that the results of both

will be available at the same time. If BC Hydro wants to assess both transmission costs and

interconnection costs in determining least-cost supply, it is critical that it have the study

results available at the same time. Attachment XX does not provide for this. Here, again,

BC Hydro’s proposed Attachment XX process fails to achieve the first and most fundamental

of its own CEAP objectives.

Ex. B1-27, Revisions to OATT regarding CEAPs, p. 2

90. In order to achieve simultaneous studies with Attachment XX, the general

queue rules would have to be modified so as to provide either the CEAP bidders or BC

Hydro’s NITS service request priority over other requests in the interconnections queue or

transmission queue, respectively, to ensure study work could be undertaken at the same time.

As a result, either Attachment XX fails in achieving BC Hydro’s objectives, or BC Hydro is

proposing to change the general queue rules despite their claim to the contrary. Any change

to the general queue rules that would give BC Hydro or CEAP bidders priority over other

customers is clearly unfair and contrary to the principles of open access.

BC Hydro Submissions, April 5, 2005, at para. 60

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Getting Value from Paralyzing the Queue for 180 Days

91. BCTC was encouraged when BC Hydro modified the open-ended process in

Attachment XX by capping the process timeline to the same 180 day period as initially

proposed by BCTC in its Modified CEAP Proposal. BC Hydro also appears to agree with

BCTC that study results should be available by the 120th day, and that the final 60 days of

that period should be (i) used by BC Hydro to evaluate bids, select a winning portfolio, and

execute a Service Agreement and (ii) used by the successful bidders to execute agreements

with BCTC for more detailed interconnection studies. The disagreement between BC Hydro

and BCTC is over what is to occur during the first 120 days.

Ex. B2-27, BC Hydro Undertaking

92. BC Hydro’s proposal is that BCTC should spend the first 60 days of the 180

day period undertaking an interconnection study for each bidder. These are the

interconnection studies referred to in section 3(b) of Attachment XX. These studies are to be

limited in scope to the facilities required between the interconnection customer’s project and

the Transmission System. The studies are not to include network upgrades. BC Hydro

continues to confuse the nature of these studies. BCTC has never undertaken studies of all

facilities required between the interconnection customer’s project and the Transmission

System. According to historical and existing business practices, the scope of the study is

limited to the facilities located within or adjacent to the Transmission System that are to be

owned or operated by BCTC. This generally includes a line beginning near the boundary of

the applicable substation or right-of-way, together with its interconnection to the

Transmission System, and any facilities required within the Transmission System. As noted

in paragraph 200 of BCTC’s main submissions, facilities between the generating plant and

the substation or right-of-way boundary are not studied by BCTC. It is the interconnecting

customer’s responsibility to study, design and construct those facilities.

Ex. B2-27, BC Hydro Undertaking

Evidence of Mr. Reimann, Tr. 9 p. 1314 ll. 9-18

93. The SGIP and SGIA adopt a new practice in distinguishing between network

upgrades and other facilities. That practice is based on a geographic test, so that all facilities

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within the Transmission System are effectively network upgrades. On this basis, the studies

BC Hydro is proposing that BCTC undertake for the first 60 days of the period will generally

be limited in scope to the wire between the substation or right-of-way boundary and the bus

within the substation where that wire is connected to the Transmission System. This is

obviously an extremely small part of the facilities required to interconnect a new generator to

the Transmission System, and will provide little if any valuable information to bidders since

the costs of the wire will be minimal. Moreover, it is extremely unlikely that any clustering

effects would arise, as the effects of multiple projects generally do not impact on the wire

between the substation or right-of-way boundary and the bus. Instead, they most often

appear when considering any network upgrades that would be required within the

Transmission System – facilities that BC Hydro has indicated are not to be studied as part of

the Attachment XX Interconnection Studies. The first 60 days of studies can be used more

effectively.

Ex. B1-1, Application, p. 96; Ex. B1-4, BCUC IR 1 36.3, 1 36.4; Ex. B1-6, BCUC IR 2 28.1, JIESC IR 2 25.0a

Evidence of Mr. Reimann, Tr. 9 p. 1314, ll. 15-18

94. It is at this point – after the Interconnection Studies – that BC Hydro expects

bidders to submit their CEAP bids. At this point, bidders would have absolutely no

information in respect of any network upgrades their projects would require. BC Hydro has,

in the past, adjusted bids for the cost impacts of these network upgrades. According to

Attachment XX, bidders would have no idea of what these adjustments would be at the time

they are required to submit their bids. And bidders would have no ability to reconfigure their

projects or take other measures to mitigate the impacts of those costs on the viability of their

bids. BC Hydro claims (at para. 63 of its argument) that it will make use of these studies to

evaluate bids and build portfolios. In BCTC’s submission these studies produce nothing that

is of any benefit to BC Hydro in evaluating bids or building portfolios because of the limited

nature of the studied facilities and the fact that those facilities are to be paid for by the

interconnection customer. In short, both the interconnection queue and transmission queue

has been paralysed for 60 days, and neither BC Hydro nor the bidders have much to show for

it.

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Evidence of Mr. Fussell, Tr. 9 p.1314 ll. 20-21

95. It may be possible that BC Hydro did, in fact, intend for network upgrades to

be studied as part of the Attachment XX Interconnection Studies despite Mr. Reimann’s

evidence. Based on the plain meaning of Attachment XX, and BC Hydro’s response to IR

where BC Hydro confirms that Interconnection Studies for purposes of Attachment XX are

the same Interconnection Studies contemplated by the SGIP, it is possible that the

Attachment XX Interconnection Studies are intended to consider network upgrades as is the

case with the SGIP Interconnection Studies. But this, too, has its problems. If cluster effects

are ignored in these studies the results will be inaccurate because the facilities required to

interconnect each project, including the network upgrades, would be examined ignoring the

impact on those facilities of other projects. If clustering effects are considered, the results

will also be inaccurate because at this stage in the Attachment XX process BC Hydro has not

yet identified the eligible combinations of projects that meet the CEAP requirements. As a

result, these studies will have to consider and report on the impacts of combinations of

projects that will subsequently be determined by BC Hydro to be ineligible portfolios for

purposes of the CEAP.

Evidence of Mr. Reimann, Tr. 9 p. 1314, ll. 15-18

Ex. B2-13, BCTC-BCH IR 2.10.1

96. BC Hydro appears interested in having BCTC complete these Interconnection

Studies and provide them to bidders so that bidders can self-assess their projects. Bidders

with high interconnection cost estimates could then voluntarily with

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