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Application for Approval of a Deferral Account in connection to the Development Agreement

between FEVI and PEC Streamlined Review Process

April 23, 2013

B-9

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Agenda

• Approval Sought • Overview of Existing FEVI System • Woodfibre LNG Project • Pipeline Reinforcement Project • Development Agreement • Other Key Activities • Scope of Development Work • Treatment of Development Costs • Treatment of Commitment Fees • Deferral Account Balance • Examples of Disposition of Deferral Account Balance • AFUDC Treatment of Deferral Balance

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Approval Sought

FEVI seeks BCUC approval of: • Deferral Account to capture

• Development Costs and; • Commitment Fees

• Treatment of the Deferral Account, which is: • Consistent with regulatory practice • Consistent with previously approved treatment in FEVI

The work undertaken in the development stage of this project will answer the many questions raised about the Pipeline Reinforcement Project itself

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Overview of Existing FEVI System

FEVI Peak Day Load

Customer TJ/d MMscfd

Core 106 99

VIGJV 8-12 7-11

BC Hydro 40 - 50 37 - 47

FEW / Squamish 11 10

Total 165-179 153-167

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Woodfibre LNG Site

Proposed Site

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Woodfibre LNG Project • Pacific Energy Corporation (“PEC”) is a Canadian-incorporated company

and part of Pacific Oil & Gas Group (“PO&G”), an independent energy resource development company established in Indonesia in 2003

• PEC is in the early stages of planning, analysis and community engagement regarding a small-scale LNG processing and export facility (“Woodfibre LNG Project”)

• Site conditionally acquired by PEC; former pulp-mill near Squamish, BC

• PEC working on feasibility study for LNG Facility

• PEC’s Final Investment Decision expected Dec 2015

• Firm Contract Demand Requirements: 150 – 220 MMscfd

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FEVI 2017/2018 Design Load Duration Curve

0

50

100

150

200

250

300

350

400

4501 12 23 34 45 56 67 78 89 100

111

122

133

144

155

166

177

188

199

210

221

232

243

254

265

276

287

298

309

320

331

342

353

364

TJs

per

Day

Coldest to Warmest Day (Design Scenario)

FEVI 2017/18 Design Load Duration Curve

Core Load ICP + VIGJV Existing Capacity

Mt. Hayes LNG

Existing Pipeline and Compression

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Woodfibre Demand: 161 TJ/d (150 MMscfd)

0

50

100

150

200

250

300

350

400

4501 12 23 34 45 56 67 78 89 100

111

122

133

144

155

166

177

188

199

210

221

232

243

254

265

276

287

298

309

320

331

342

353

364

TJs

per

Day

Coldest to Warmest Day (Design Scenario)

FEVI 2017/18 Design Load Duration Curve

Core Load ICP + VIGJV Woodfibre New Capacity

Mt. Hayes LNG

Proposed Pipeline and Compression

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Pipeline Reinforcement Project

Proposed Site

Highlighted Area shows Potential System Reinforcements

FEVI Transmission System

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Development Agreement: FEVI and PEC

To commence Development Work for the Pipeline Reinforcement Project

Development Work to be completed in three Phases; Target completion Dec 2015

PEC to provide performance security on the Development costs that FEVI would incur to complete the Development Work

PEC to pay FEVI Commitment Fees of $3.24 million over the three Phases of Development Work

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Other Key Activities

• Negotiate Transportation Service Agreement between FEVI and PEC • Firm Contract Daily Demand • Toll – Consistent with BCUC ongoing ratemaking regulation • Consistent with FEVI General Terms & Conditions • Subject to BCUC approval

• Wheeling Agreement between FEVI and FEI • FEVI to extend the initial term of the Wheeling Agreement • FEVI to determine its long term capacity requirements on FEI’s CTS and to

increase the capacity, if required • Subject to BCUC approval

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FEVI Scope of Development Work

PHASE 1 ($1.2 M)

• Feasibility Study

• Environmental Assessment Pre-Application • Class 4 Cost Estimate for Pipeline Reinforcement; Indicative toll for PEC • Stakeholder and First Nations Consultation

PHASE 2 ($2.8 M)

• Front End Engineering and Design

• Environmental and Engineering Field Studies • Class 3 Cost Estimate for Pipeline Reinforcement; Indicative Toll for PEC • Stakeholder and First Nations Consultation

PHASE 3 ($1.7 M)

• Regulatory Approvals

• Submit Environmental Assessment to BCEAO/CEAA and Obtain Approvals • Submit CPCN to BCUC and Obtain Approvals • Stakeholder and First Nations Consultation

For details, please refer to Appendix B of the Application

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Treatment of Development Costs

FEVI to incur Development Costs

LNG Project proceeds

LNG Project does not proceed

PEC to reimburse FortisBC for Development Costs

incurred

Development Costs become part of Project Costs

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Commitment Fees Payment Schedule

• within 10 business days after Approval of Deferral Account Application $240

• within 10 business days after completion of Phase 1 (i.e. Dec 31, 2013) $1,500

• within 10 business days after completion of Phase 2 (i.e. Dec 31, 2014) $1,500

Commitment Fees are in $000’s

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Treatment of Commitment Fees

PEC to pay Commitment Fees to FEVI

Commitment Fees credited against PEC’s future

demand charges

LNG Project proceeds

LNG Project does not proceed

PEC elects not to proceed

FEVI fails to obtain necessary approvals

Commitment Fees credited to customers

Commitment Fees refunded to PEC

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Deferral Account Balance

(in $000’s) PHASE 1 PHASE 2 PHASE 3 Total Estimated Development Costs

$1,200 $2,800 $1,700 $5,700

Commitment Fees $(240) $(1,500) $(1,500) $(3,240) Estimated Balance before AFUDC

$960 $300 $200 $2,460

AFUDC $19 $63 $118 $199

Estimated Total Balance

$979 $1,363 $318 $2,659

Final disposition of Deferral Account under three possible scenarios • Scenario 1: Woodfibre LNG Project & Pipeline Reinforcement Project proceeds • Scenario 2: PEC Elects Not to Proceed with Woodfibre LNG Project • Scenario 3: FEVI fails to Obtain necessary approvals

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Examples of Disposition of Deferral Account Example 1: LNG Project and Pipeline Reinforcement Project Proceeds

• Estimated Deferral Account Balance - $2,659

• Estimated Development Costs of $5,700 and AFUDC $199 become part of Project Costs

• Commitment Fees of $3,240 credited to PEC’s future demand charges

• Customers Benefit – Expected reduction in the unit costs of transportation on FEVI system

All numbers are in $000’s

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Examples of Disposition of Deferral Account Example 2: PEC elects not to proceed with LNG Project at end of Phase 2

• Estimated Deferral Account Balance - $2,342

• Development Costs of $4,000 incurred by FEVI will be reimbursed by PEC

• PEC forfeits $1,740 of Commitment Fees

• Customers Benefit - $1,658 (Commitment Fees net of AFUDC amount)

All numbers are in $000’s

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Examples of Disposition of Deferral Account Example 3: FEVI fails to Obtain necessary approvals at end of Phase 3

• Estimated Deferral Account Balance - $2,659

• Estimated Development Costs of $5,700 incurred by FEVI will be reimbursed by PEC

• Commitment Fees of $3,240 refunded to PEC

• Balance amount of $199 to be recovered through Customers in future rates

All numbers are in $000’s

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AFUDC Treatment of Deferral Balance

• Distinction between feasibility and development costs only required for regular capital; both types are treated the same for large capital projects

• Consistent with past FEI/FEVI practice and accepted regulatory accounting treatment & USoA that all these costs in support of capital are treated the same

• In addition, rate base return (AFUDC) appropriate for costs incurred in support of a fixed asset (capital)

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Thank You