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Fasken Martineau DuMoulin LLP * www.fasken.comBarristers and Solicitors Patent and Trade-mark Agents
Suite 2100 1075 Georgia Street West Vancouver, British Columbia, Canada V6E 3G2
604 631 3131 Telephone 604 631 3232 Facsimile
DM_VAN/259183-00005/6485959.1
* Fasken Martineau DuMoulin LLP is a limited liability partnership under the laws of Ontario and includes law corporations.
Vancouver Calgary Toronto Montréal Québec City New York London Johannesburg
C.B. Johnson, Q.C. Direct 604 631 3130
Facsimile 604 632 3130 [email protected]
March 31, 2006 File No.: 259183.00005
VIA EMAIL British Columbia Utilities Commission 6th floor, 900 Howe Street Box 250 Vancouver, B.C. V6Z 2N3
Attention: Robert Pellatt Commission Secretary
Dear Sirs/Mesdames:
Re: Project No. 3698407 Terasen Gas (Whistler) Inc. and Terasen Gas (Vancouver Island) Inc. TGW – 2005 Resource Plan Update, and TGW – Application to convert Propane Grid to Natural Gas, and TGVI – Application to construct Natural Gas Pipeline from Squamish to Whistler
Enclosed is an electronic version of Submissions on behalf of Terasen Gas (Whistler) Inc. and Terasen Gas (Vancouver Island) Inc. with respect to the above applications.
Yours truly,
FASKEN MARTINEAU DuMOULIN LLP Original signed by C.B. Johnson C.B. Johnson, Q.C.
CBJ/vde Encl
DM_VAN/259183-00005/6486979.1
BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF the Utilities Commission Act,
R.S.B.C. 1996, Chapter 473 (the “Act”)
and
A Submission by Terasen Gas (Whistler) Inc.
for Review of its 2005 Resource Plan Update
and
An Application by Terasen Gas (Whistler) Inc. for a Certificate of Public Convenience and Necessity to convert its propane grid system
to natural gas and approval to enter into a Natural Gas Transportation Service Agreement with Terasen Gas (Vancouver Island) Inc.
and
An Application by Terasen Gas (Vancouver Island) Inc. for a Certificate of Public Convenience and Necessity
for a natural gas pipeline lateral from Squamish to Whistler
SUBMISSIONS OF TERASEN GAS (WHISTLER) INC. AND
TERASEN GAS (VANCOUVER ISLAND) INC.
March 31, 2006
TABLE OF CONTENTS
Page
A. TGW RESOURCE PLAN .....................................................................................4
I. Introduction and Background....................................................................4 II. TGW Demand Forecast............................................................................5 III. Natural Gas Demand for NGV ..................................................................9 IV. Propane Demand Scenarios...................................................................10 V. Summary of Demand..............................................................................10 VI. Natural Gas and Propane Supply and Pricing ........................................11
Transportation Supply & Logistics ..........................................................11 Commodity Price Forecast .....................................................................13 TGW’s Natural Gas Portfolio Costs ........................................................14
VII. Financial Comparisons of Delivered Cost...............................................15 Financial Arrangements..........................................................................17 TGW Capital Contribution.......................................................................17 Sensitivity Cases ....................................................................................18 IP Pipeline Tax Treatment ......................................................................19 Competitiveness with Other Sources of Energy .....................................20 Financial Comparison Summary.............................................................20
VIII. Other Benefits.........................................................................................21 B. STAKEHOLDER CONSULTATION....................................................................22
I. RMOW ....................................................................................................23 II. Commercial Customers and Businesses................................................23 III. Private Citizens.......................................................................................24 IV. First Nations............................................................................................24 V. Summary ................................................................................................25
C. TGW APPLICATION FOR A CPCN ...................................................................25 I. Summary of the Application....................................................................25 II. Existing Propane Distribution System.....................................................26 III. Propane Options to meet Future Loads..................................................27 IV. Capital Cost Estimates for the Whistler Natural Gas Project ..................28 V. TGW Rate Base Treatment ....................................................................29 VI. Capital Cost Risk Sharing Mechanism ...................................................30
TABLE OF CONTENTS (continued)
Page (page)
D. TGVI APPLICATION FOR A CPCN ...................................................................30 I. Intermediate Pressure Pipeline Project Description ...............................31 II. Capital Cost Estimates ...........................................................................31 III. Project Schedule.....................................................................................33 IV. Impact on Upstream Facilities ................................................................33
E. TRANSPORTATION SERVICE AGREEMENT..................................................34 I. Form of Agreement.................................................................................34 II. TGW Contract Demand and Tolling Methodology ..................................34
F. CAPITAL CONTRIBUTION AGREEMENT ........................................................37 G. Other...................................................................................................................38 H. TIMING REQUIREMENTS .................................................................................38 I. CONCLUSION....................................................................................................38
DM_VAN/259183-00005/6486979.1
BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF the Utilities Commission Act,
R.S.B.C. 1996, Chapter 473 (the “Act”)
and
A Submission by Terasen Gas (Whistler) Inc.
for Review of its 2005 Resource Plan Update
and
An Application by Terasen Gas (Whistler) Inc. for a Certificate of Public Convenience and Necessity to convert its propane grid system
to natural gas and approval to enter into a Natural Gas Transportation Service Agreement with Terasen Gas (Vancouver Island) Inc.
and
An Application by Terasen Gas (Vancouver Island) Inc. for a Certificate of Public Convenience and Necessity
for a natural gas pipeline lateral from Squamish to Whistler
SUBMISSIONS OF TERASEN GAS (WHISTLER) INC. AND
TERASEN GAS (VANCOUVER ISLAND) INC.
1. These submissions of Terasen Gas (Whistler) Inc. (“TGW”) and Terasen Gas
(Vancouver Island) Inc. (“TGVI”) (jointly the “Companies”) to the British Columbia Utilities
Commission (“Commission” or “BCUC”) relate to the TGW Resource Plan Update filed with the
Commission under cover of letter dated December 12, 2005, the Application of TGW for a
Certificate of Public Convenience and Necessity (“CPCN”) to convert its propane system in the
Resort Municipality of Whistler (“RMOW”) to natural gas, and the Application of TGVI for a
CPCN to construct and operate an intermediate pressure pipeline (the "IP Pipeline") from
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Squamish to Whistler to connect to the distribution system of TGW. The Applications of TGW
and TGVI were filed with the Commission under cover of a letter dated December 14, 2005.
2. The Applications before the Commission request that the Commission:
(a) issue, pursuant to section 45 of the Act, a CPCN to TGW for conversion of its propane system to natural gas;
(b) issue, pursuant to section 45 of the Act, a CPCN to TGVI for the construction and operation of the intermediate pressure pipeline from Squamish to Whistler;
(c) grant its permission, pursuant to section 41 of the Act, for TGW to cease the operation of its propane distribution service when natural gas service commences;
(d) approve the transfer of the net book value of the propane facilities (less salvage value of the propane tanks) and net proceeds from the sale of land into a deferred charge for recovery in rates over a 20-year period (5% amortization rate) commencing in 2009;
(e) approve the recovery of pipeline study costs incurred prior to 2004 and currently recorded in a non-rate base deferral account;
(f) approve the Transportation Service Agreement between TGW and TGVI; and
(g) approve the Capital Contribution Agreement between TGW and TGVI.
3. TGW currently provides propane service via a piped distribution system to residential
and commercial customers in the Whistler area. Distributed propane service in Whistler was
first established in 1980 by the RMOW. The system was later purchased by a predecessor to
TGW. Since that time the system has been significantly expanded to meet the growth in the
resort municipality. Today the TGW system is the largest distributed propane system in Canada
and one of the largest in North America.
Resource Plan Update, Exhibit B1-1, page 2
4. TGVI operates an integrated natural gas transmission and distribution system that
provides service to approximately 85,000 residential, commercial and industrial customers on
Vancouver Island and the Sunshine Coast. TGVI also transports gas for British Columbia Hydro
and Power Authority (“BC Hydro”), the Vancouver Island Gas Joint Venture (“VIGJV”) and to
Terasen Gas (Squamish) Inc. (“TGS”). TGVI’s transmission system commences at Coquitlam,
passes through Squamish, crosses the Strait of Georgia to the Courtenay-Comox area and
extends north to Campbell River and south to Victoria. TGVI began service in 1991.
TGVI CPCN Application, Exhibit B2-1, page 1
5. Piped gas systems in North America normally distribute natural gas to customers, and
natural gas is transported from supply areas through pipeline transmission systems. Distributed
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propane service is often used by utilities to serve locations that are either small or remote until
such time it economically feasible to extend natural gas service to the community. This was the
case when the propane system was put in service in Whistler. Today the Whistler load is much
larger than that of many of the communities in which Terasen Gas Inc. (“TGI”) provides natural
gas service. In addition, the completion in 1991 of the TGVI transmission system that runs
through Squamish means that natural gas is in reasonable proximity to the Whistler area.
6. The RMOW and local stakeholders strongly support the extension of natural gas service
to Whistler. The municipality has recently completed its Comprehensive Sustainability Plan,
Whistler 2020: Moving toward a Sustainable Future, that sets out the resort community’s values,
priorities and strategies for achieving its long-term vision of a sustainable community.
Conversion of the existing propane system to natural gas will help the municipality meet many
of its sustainability objectives through the reduction of green house gas emissions and
improvements in air quality. Further improvements in local and regional air quality can be
realized through the implementation of natural gas vehicle (“NGV”) programs to replace diesel
and gasoline fleets. In addition, the construction of a natural gas pipeline to service Whistler will
eliminate the impact of rail and road transport deliveries and the need for propane offloading
and storage sites currently within municipal boundaries.
Resource Plan Update, Exhibit B1-1, pages 7 to 10
7. There are several other events and other issues which support the feasibility and desire
to extend natural gas service to Whistler at this time:
• The current propane system is operating at design capacity and there are very limited
options for expanding the propane system to meet new loads and to continue providing
reliable service;
• The propane supply logistics are becoming increasing complex due to the size and
nature of Whistler’s energy load and the transfer of rail service from BC Rail to Canadian
National Railway (“CN Rail”);
• There is no community support for expansion of the propane system to meet future
growth;
• Whistler will be hosting the 2010 Winter Olympics and will be depending on secure and
reliable service. The Olympic Games are also expected to spur additional development
and increase the occupancy rate to peak levels in the RMOW; and
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• The Sea to Sky Highway upgrade project is currently underway and provides TGVI a
unique opportunity to lower construction costs, reduce road disruptions and minimize
stakeholder impacts.
The Resource Plan Update confirms that the conversion of the propane system to natural gas is
the most cost effective means of serving the community’s energy needs. In addition, natural
gas will also increase the reliability of supply, decrease rate volatility and provide significant
environmental and socio-economic benefits that would not be realized with the propane system.
8. In summary, TGW proposes to convert its existing propane distribution system to natural
gas and to enter into a long-term agreement with TGVI for natural gas transportation service
from Huntingdon to Whistler beginning in the fourth quarter of 2008. TGVI proposes to
construct, own and operate a new pipeline lateral that extends its existing transmission system
from Squamish to Whistler in order to provide service to TGW.
A. TGW RESOURCE PLAN
I. Introduction and Background
9. In August 2004 TGW submitted its 2004 Resource Plan to the Commission. In that Plan
TGW reviewed its resource options for meeting the existing and future energy requirements in
Whistler under various demand scenarios and concluded that extending natural gas service to
Whistler through a pipeline from Squamish was the preferred alternative. As TGW was
completing its 2004 Resource Plan the RMOW was refining its community planning goals and
objectives. The RMOW has completed its comprehensive sustainability plan, Whistler 2020:
Moving toward a Sustainable Future. The preparation of the TGW 2005 Resource Plan Update
has taken into account the community’s vision of a sustainable community.
10. TGW’s resource planning process, which is presented in its 2005 Resource Plan
Update, has been used to assess the current and future energy requirements in Whistler and
the resource options available to TGW to meet those requirements. The resource options have
been measured against TGW resource planning objectives to provide a balanced assessment
by examining financial impacts, security and reliability of supply, rate volatility and
environmental benefits. The 2005 Resource Plan Update provides an updated evaluation of
both propane and natural gas options. The conclusion of the Resource Plan Update is that the
best energy resource for meeting Whistler’s requirements is to extend natural gas service to the
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community through the construction of a natural gas pipeline and conversion of the existing
propane system.
II. TGW Demand Forecast
11. In the Resource Plan, TGW has developed three scenarios in order to examine a range
of annual and design day forecasts of natural gas or propane demand that takes into account
economic, social and technological factors. The three scenarios were identified as: "Business
As Usual", "Sustainable Technology" and "Aggressive Technology". The primary difference
between each of the forecast scenarios is the level of implementation of sustainable energy
technologies such as ground source heat pumps (“GSHPs”) and natural gas vehicle programs.
As a baseline, in order to address the RMOW’s objective to implement renewable energy
systems for new neighbourhood developments, all of the demand scenarios assume there is no
natural gas or propane demand associated with any greenfield development.
Resource Plan Update, Exhibit B1-1, Sections 4.4 and 4.5.
12. The implementation of NGV programs in Whistler will only be realized if natural gas
service is brought to the community, therefore there is no transit or vehicle load included in the
propane demand forecasts associated with the demand scenarios. While propane fuelled
vehicles are a reality, the application of the technology is limited, and the environmental benefits
are not as significant. In any event, to the degree that propane vehicle programs can be
implemented, the refuelling systems are independent and would not be part of the TGW’s
propane distribution system.
Exhibit B1-5, response to BCUC IR 1, Q. 16.3. page 71
13. TGW considers the Sustainable Technology outlook to be the most reflective of a
scenario that balances expected customer demand growth and the Community’s desire to
implement renewable energy systems against economic and technical feasibility. In this
scenario, in addition to the implementation of alternate energy systems for all greenfield
developments, it is assumed that over time some of the existing commercial customer load
leaves the system as energy systems are converted to combined gas/GSHP systems. The
scenario also includes the natural gas load associated with RMOW’s intention to implement
NGV technology for the transit and municipal vehicle fleets, and, to a small degree, load of other
resort and shuttle fleet operators expected to do the same.
Resource Plan Update, Exhibit B1-1, page 21
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14. The Business as Usual (“BAU”) and Aggressive Technology scenarios were also
developed to provide the likely outside limits of possible outcomes. The BAU scenario is
primarily based on using past performance as an indicator of future demand growth. In this
scenario, commercial customers are assumed to be unwilling to make the investment required
to retrofit their energy systems and therefore continue to rely on propane or natural gas as their
primary source of heating energy. Similarly, NGV technology is implemented to a much smaller
degree than in the other scenarios. Overall the natural gas demand in the BAU scenario is
much greater than in the Sustainable Technology and Aggressive Technology scenarios.
Resource Plan Update, Exhibit B1-1, page 21
15. In the Aggressive Technology scenario, conversions of existing heating loads to GSHP
energy systems are implemented much more extensively and rapidly than in the other
scenarios. TGW expects that to reach that level of alternative energy implementation,
significant financial support from provincial and federal governments will be required. In
addition, significant investment in alternate technologies would need to come from end
users/customers. This scenario also assumes that the support for investment in alternate and
cleaner technologies would also result in greater degree of NGV implementation. Overall this
scenario forms the lower boundary of likely demand outcomes.
Resource Plan Update, Exhibit B1-1, page 22
16. TGW’s assessment of the use of renewable energy systems for greenfield developments
and conversions of existing propane or natural gas loads to combined GSHP/NGV was
developed with input from the RMOW and energy consultants to ensure that the amount and
timing of the implementation of these technologies were appropriately incorporated into the
three demand outlook scenarios. The overall impact of implementing this technology in the
Sustainable Technology outlook scenario is discussed in Exhibit B1-11, in the response to CEC
question 4, pages 4 to 6, and is summarized in the following figure:
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Resource Plan Update, Exhibit B1-11, pages 5 and 18 to 19
17. In the above figure, Line A represents the expected energy requirement that could be
served by propane and/or natural gas systems based on the forecast of future growth of the
community. TGW’s natural gas demand outlook excludes any load from greenfield
developments, and therefore the demand forecast is restricted by the Business as Usual
scenario as illustrated by Line B. The expected annual demand for natural gas under the
Sustainable Technology scenario is represented by Line C. The area between Lines C and B
therefore represents the energy load that is expected to be provided through alternative energy
systems in the Sustainable Technology scenario. This figure illustrates that TGW has
considered the impact of Whistler’s sustainable energy strategy in its forecasts, including the
potential for the implementation of renewable district energy systems. The figure also illustrates
that to the degree that customer retrofits from gas to the GSHP system occur at a slower pace,
and/or there is some natural gas load associated with greenfield developments, there is the
reasonable potential for the natural gas demand to be higher than contemplated by the
Sustainable Technology scenario.
Exhibit B1-11, responses to CEC IR 1, Qs. 4.3, 4.4, 4.5 and 14
18. As discussed in Section 5 of the Resource Plan Update, TGW believes the Sustainable
Technology demand scenario reflects a balance of expected customer growth, the RMOW’s
sustainability objectives and the technical and economical feasibility of converting existing
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propane or natural gas loads to renewable energy systems. In establishing the reasonableness
of the associated design day and annual demand forecast associated with residential customers
for this scenario, TGW reviewed a number of factors including customer additions, use per
customer trends, occupancy rates in Whistler, potential conservation measures and the
RMOW’s bed cap development limit.
Resource Plan Update, Exhibit B1-1, page 24 and 34 Exhibit B1-4, response to BCUC IR1, Qs. 9.1, 9.2, 9.3.1, 9.4, 9.5.1 and 9.6 Workshop Presentation, Exhibit B1-7, Slides 91, 93 and 94
19. TGW has taken into account recent trends in use per customer in preparing its forecasts
of energy demand. The biggest segment of demand is associated with the large commercial
customers (LGS-3), which represent the large resort hotels. In the last few years the annual
use rate for these customers has been influenced by low resort accommodation occupancy
rates and end-use conservation measures. TGW has incorporated these downward trends in its
forecast of energy demand, however based on information provided by the RMOW and other
stakeholders; occupancy rates are expected to improve. For example, as a winter resort
destination, occupancy rates in recent years have been significantly impacted by poor snow
conditions, a weakened US dollar, added hotel room capacity and the effects of 9/11. The
RMOW‘s objective is to increase occupancy rates by promoting Whistler as a year-round
destination resort and controlling the rate of new developments through implementation of its
“bed cap”. The addition of new more affordable employee housing in Whistler will also put
upward pressure on use per customer as many employees currently commute from
neighbouring communities. While TGW has accepted the current bed cap limit for its demand
forecast, any future changes to the bed cap development limit, will result in higher than
forecasted customer additions and therefore greater annual demand than is reflected in the
forecast scenarios.
Exhibit B1-11, responses to CEC IR1, Qs. 4.1, 5.1, 12 Resource Plan Update, Exhibit B1-1, page 24 Workshop Presentation, Exhibit B1-7, Slides 96 and 97 Exhibit B1-4, responses to BCUC IR1, Qs. 9.3.2.1, 9.4 and 9.6
20. Occupancy rates are expected to reach their highest, during the 2010 Olympics.
Although TGW is not planning its facilities strictly to meet the requirements of this short term
event, increases in the occupancy rates will further increase the system peak during this time
period beyond the current reliable capacity of the existing propane system. This would be true
even if no further customers were added to the Whistler propane system between now and the
commencement of the Olympic Games. In order to ensure the safe and reliable provision of
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energy to support the Olympic Games, temporary facilities or other measures will be required if
natural gas service is not available. These alternative supply measures will add cost and
complexity in terms of supply logistics and security. By contrast, the IP Pipeline will provide
adequate capacity to safely and efficiently meet the community’s peak day requirements during
and after the Olympic Games.
Resource Plan Update, Exhibit B1-1, pages 25 and 77 Exhibit B1-15, responses to BCUC IR 2, Qs. 64.6, 65.1 and 65.4
21. TGW’s demand forecasts do not include specific energy loads associated with the 2010
facilities, which could be served with natural gas if it is available. While still in the planning
phase, it is expected that natural gas will be required at the new Athlete Village to provide fuel
for cooking, fireplaces and back-up for the renewable energy system. The consideration of
increased energy load due to short term high occupancy rates or other loads associated with
such a major event highlights the limitations and lack of resilience of the propane system and
the importance of the window of opportunity currently available to TGW and TGVI to implement
the natural gas resource alternative to serve Whistler.
Resource Plan Update, Exhibit B1-1, pages 25 and 77 Exhibit B1-15, responses to BCUC IR 2, Qs. 64.6, 65.1 and 65.4
III. Natural Gas Demand for NGV
22. The future NGV load included in the demand forecasts is an important element of the
RMOW’s sustainable energy strategy. The load identified in the demand forecast for NGV fleets
is based on existing and planned energy loads that are currently supplied by other energy types,
generally gasoline and diesel. Converting these loads to natural gas provides significant air
quality and GHG reduction benefits that are fundamental in moving Whistler toward its
sustainability goals. In the Sustainable Technology scenario, TGW has only included natural
gas load from vehicles in these fleets for which the technology to switch from conventional fuels
to natural gas is currently available. With the development of new technologies and applications,
the NGV demand could be higher than reflected in this scenario.
Resource Plan Update, Exhibit B1-1, Section 4.6.2, pages 25 to 29 Exhibit B1-4, responses to BCUC IR1, Qs. 13.1, 29.2.3, 29.2.4 and 50.4 Exhibit B1-4, responses to BCUC IR1, Qs. 28.2, Attachments 28.2A and 28.2B
23. The RMOW Council passed resolutions in support of pursuing a natural gas for vehicles
strategy that included the conversion of municipal vehicles and working in partnership with the
transit and waste haulers to implement NGV. Given the RMOW’s strong commitment to an
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NGV strategy, TGW believes that the NGV demand represents a reasonable expectation of
future demand under the Sustainable Technology scenario from this customer segment.
IV. Propane Demand Scenarios
24. The demand forecast scenarios were developed for both natural gas and propane. The
current propane system is operating at design capacity and there are very limited options for
expanding the propane system to meet new loads while continuing to provide reliable service.
In addition, there is no community or municipal support for continued operation or expansion of
the propane system. Therefore, TGW has not considered a high demand or “Business As
Usual” propane scenario. In the Sustainability Technology Scenario, two demand scenarios for
propane were developed. The “No Expansion” scenario assumes that customer load additions
are limited to that which can be met with the existing system, while the “Expansion” scenario
assumes that new loads can be accommodated through the construction of a third storage site
and associated facilities. TGW does not consider expansion of the propane system a viable
option, therefore the “Expansion” scenario is provided for comparison purposes only.
Resource Plan Update, Exhibit B1-1, page 23, Table 4-1 Exhibit B1-4, response to BCUC IR 1, Q. 2.1, page 2
V. Summary of Demand
25. TGW has worked very closely with the RMOW to find an economic and technically
feasible energy solution that meets its community energy planning needs for reliable energy
supply and sustainability. Each of TGW’s forecast scenarios assumes varying degrees of
implementation of renewable forms of energy, based on specific measures to incorporate
alternative energy systems through a combination of government funding and customer
investment. The BAU scenario, which results in the highest demand of the three scenarios, is
based on implementing alternative energies on new greenfield developments only, as these are
the most easily implemented and are more economically feasible than retrofitting existing
buildings. TGW believes that the Sustainable Technology scenario reasonably represents the
economic and technically feasible level at which this renewable energy systems can be
implemented in both greenfield and existing development sites where there is support from the
end use consumer to move toward alternate energy systems. To the degree that consumers
choose not to invest in alternative energy technology and instead remain on conventional gas
technology, TGW expects that actual demand will move higher than the Sustainable Technology
level toward the BAU scenario. Similarly, to the degree that greenfield sites utilize natural gas
as a supplemental energy (for back-up load, fireplaces and/or cooking), TGW also expects
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actual demand to rise above that reflected in the Sustainable Technology level. In order to
reach the Aggressive Technology scenario demand level, significant levels of government
funding will be required to reduce the high cost and other implementation barriers for retrofitting
existing buildings for alternative energy technologies. In recognition of these factors, TGW
submits that the natural gas demand represented by the Sustainable Technology scenario is
reasonable and should be accepted by the Commission.
VI. Natural Gas and Propane Supply and Pricing
26. The propane distribution system in Whistler has grown far beyond original expectations
and is beyond the size and scale of other similar propane distribution systems in British
Columbia as indicated in Exhibit B1-1 table 1-1 page 3. As the largest piped propane system in
Canada, transportation and storage requirements in Whistler are unique and greater than any
other such systems. In effectively managing deliveries to Whistler, TGW is required to procure
and deliver energy in the most cost effective, reliable and efficient manner possible. With its
added scale and supply logistics complexity, this is becoming increasingly more difficult to
achieve with the propane system.
Transportation Supply & Logistics
27. A natural gas pipeline to Whistler is inherently a more secure and simplified means for
the delivery of energy to the community than rail or truck movements of propane. Natural gas
pipeline networks provide an automated and continuous flow of energy from source to end-use
customer. As an underground utility, pipelines are generally only vulnerable to extreme acts of
humans or nature. In comparison, a propane system is more complicated as a “batched”
delivery system which requires a significant number of interactions and transactions up to and
including the offloading process in Whistler. The involvement of multiple human interactions
raises the potential for negative events, causing delays in transit and resulting in the potential
for supply shortfalls or higher costs to maintain reliability.
Workshop Presentation, Exhibit B1-7, Slides 72 to 74 Exhibit B1-15, responses to BCUC IR2, Qs. 67.8 and 67.9, page 31 Exhibit B1-15, response to BCUC IR2, Q. 84.1, page 65
28. As a batched delivery system, the provision of reliable propane supply becomes
increasingly difficult to manage as a community grows. With the limited propane storage in
Whistler and changes to rail operating practices following the acquisition of BC Rail services by
CN Rail, there is little flexibility in the event of a rail disruption, resulting in reduced security of
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supply. An example of a significant development impacting supply reliability is that CN Rail
cannot store loaded tank cars in Squamish. Historically, TGW had an agreement with BC Rail
whereby the rail company stored propane tank cars at its Squamish siding which could be
shuttled to Whistler on short notice and help maintain supply reliability during peak periods.
This service is no longer available.
Resource Plan Update, Exhibit B1-1, page 10, Section 3.1 Exhibit D-4, Letter from MP Energy, paragraph 4 Exhibit D-3, Letter from CN Rail, paragraphs 2 and 6
29. The possibility of increasing propane railcar storage at or near Whistler was examined
but determined to be impractical. The expansion of the Mons facility to hold additional railcars,
in addition to public and municipal opposition, would create significant safety issues if an
attempt were made to use the railway tank cars to create secondary storage. Further, propane
railway tank cars are designed for transportation, not storage. Railcar staging at alternative
locations was evaluated in “Whistler Propane Offloading Feasibility Study” prepared by Fransen
Engineering (Appendix 56.1b, Exhibit B1-4), however no suitable alternatives were identified.
Resource Plan Update, Exhibit B1-1, page 38 Exhibit B1-4, response to BCUC IR1, Q. 56.1, page 115 Exhibit D-3; Letter from CN Rail, paragraph 6
30. To manage the CN Rail reliability problems and the reduced operational flexibility
resulting from the elimination of staging at the Squamish rail yard, TGW in consultation with MP
Energy increased the number of truck deliveries to the Nester’s Plant through the 2005/2006
winter. MP Energy advised that the commitment to a set volume for truck supply would help
secure the availability of trucking and supply capacity in the Vancouver area. Currently there
are no propane production facilities in the Vancouver area, so propane has to be either brought
in by truck or railway tank car and terminalled, or trucked up from the Puget Sound refineries.
Carriers do not have trucks available on standby as they seek to maximize profits by keeping
their equipment and drivers working at all times. A minimum commitment to the carrier is
required if there is to be service. In MP Energy’s opinion, it is paramount to have this
commitment in order to preserve the delivery flexibility to service a grid system of Whistler’s
magnitude.
Exhibit D-4, Letter from MP Energy, paragraph 5
31. The addition of incremental trucks to TGW’s transportation portfolio increases the
blended transportation charge by 3.2% and also increases the truck traffic on the Sea to Sky
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highway. While truck deliveries are used to temper rail disruptions, they do not provide supply
reliability that is equivalent to the inherent reliability of a natural gas pipeline.
Exhibit B1-15, TGW response to BCUC IR 2, Q. 70.2
Commodity Price Forecast
32. Propane prices generally trade at a premium to natural gas, and therefore extension of
natural gas service to Whistler will provide TGW’s customers with reduced commodity costs.
Although propane is produced from both crude oil refining and natural gas processing, propane
primarily competes with oil based fuels, and therefore historically follows oil commodity prices.
If natural gas prices spike during short periods of high volatility, propane will follow since natural
gas processors have the option of leaving propane in the natural gas stream and selling it for
the price of natural gas.
Resource Plan Update, Exhibit B1-1, Section 3.3, page 13 to14 Exhibit B1-7, Slices 81 to 83
33. In order to compare the propane and natural gas options and to determine relative
customer rate impacts, TGW has used the January 1, 2006 commodity price forecast provided
by GLJ Petroleum Consultants Ltd. (“GLJ”). GLJ is a private energy industry consultant that
provides natural gas and oil products price forecasts on a quarterly basis. The GLJ forecasts
are based on tracking trends in oil and gas industries and the cost of competing fuels. TGW is
confident in the reasonableness of the GLJ forecast by comparing it to other industry
information that is generally available. As discussed in the response to BCUC IR 1, question
21.5 (Exhibit B1-4, page 43-44), GLJ's natural gas price forecast falls within the range of EIA
price forecasts and is slightly, but not unreasonably, lower than the NYMEX forward curve.
Exhibit B1-4, Attachment 22.2 – GLJ January 2006 Quarterly Report Resource Plan Update, Exhibit B1-1, page 15, section 3.4
34. The GLJ forecast shows that propane prices are forecast to move in direct relationship
with oil prices. In order to test the reasonableness of the GLJ forecast of the relationship
between propane and natural gas, TGW compared the GLJ relationship between oil and natural
gas with the NYMEX forward curve differentials based on the January 3, 2006 price strip
(Exhibit B1-15, responses to questions 87.1 and 87.2). As shown in the data reproduced below,
GLJ is forecasting that crude oil and natural gas relationship will narrow to a 6:1 relationship in
the near term and gradually widen to a 7:1 relationship in over the longer term. In contrast, the
NYMEX forward curve showed a 6:1 relationship widening to a 9.1 relationship. In other words,
since propane prices will follow oil prices, the GLJ analysis forecast of differential between
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natural gas and propane is narrower, and therefore more conservative, than the relationship
forecast using the NYMEX data. In addition, the GLJ forecast relationship is narrower than has
been seen on average through the last decade. TGW submits that, on a relative basis, the
propane and natural gas price forecasts used in the evaluation of the proposal to extend natural
gas service to Whistler are reasonable.
Constant 2006$ Year WTI Crude
Oil $/bbl
Henry Hub Natural Gas $/mmBTU
Ratio
1994 21.47 2.42 8.86 1995 22.93 2.12 10.82 1996 26.84 3.08 8.73 1997 24.76 2.97 8.34 1998 17.05 2.55 6.68 1999 22.61 2.72 8.31 2000 34.82 4.99 6.98 2001 29.14 4.54 6.41 2002 28.52 3.67 7.76 2003 33.24 5.88 5.65
Act
ual
2004 43.08 6.44 6.69 Est 2005 57.86 9.17 6.31
2006 57.00 10.50 5.43 2007 54.00 8.60 6.28 2008 49.00 7.20 6.81 2009 45.25 6.60 6.86 2010 43.00 6.25 6.88 2011 40.75 5.90 6.91 2012 40.00 5.75 6.96 2013 40.00 5.75 6.96 2014 40.00 5.75 6.96
Fore
cast
2015 40.00 5.75 6.96
TGW’s Natural Gas Portfolio Costs
35. In order to provide an estimate of the average cost of a natural gas portfolio for TGW’s
distribution customers, a midstream charge was applied against the GLJ commodity price
forecasts. For long-term forecasts, TGI currently estimates that under normal weather
conditions a midstream rate of $0.85/GJ applied against the AECO price forecast is a
reasonable approximation. Similarly, TGVI uses an estimated midstream charge of
approximately $0.51/GJ applied against the Sumas commodity price forecast. As would be
expected, these two approaches result in very similar forecast of the cost of gas delivered at
Sumas for TGW. When these midstream charges are applied to the AECO and Sumas GLJ
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forecasts, the difference is determined to be approximately Cdn$0.06 per GJ on a levelized
basis over 15 years (less than 1%). TGW therefore considers that the use of a midstream
charge of $0.85/GJ applied to the AECO price forecast is a reasonable approach to use to
forecast the average unit cost of natural gas for TGW.
Exhibit B1-4, TGW response to BCUC IR1, Q. 20.4 Exhibit B1-4, TGW response to BCUC IR1, Q. 22.6, page 51
VII. Financial Comparisons of Delivered Cost
36. TGW discussed the financial impacts of converting its distribution system from propane
to natural gas service in Section 7 of the TGW 2005 Resource Plan Update (Exhibit B1-1).
Page 60 of Exhibit B1-1 presented TGW’s conclusion:
The natural gas pipeline scenario provides a lower delivered cost of energy across a range of demand and capital cost sensitivities than the existing propane system does. As such a natural gas solution would enable TGW to improve its competitive position against other energy sources going forward and maintain the viability of the utility and its ability to meet Whistler’s energy needs in a cost-effective and reliable manner.
In the regulatory process between the filing of the Applications and these submissions a number
of changes and updates have been made to the financial analyses, but the conclusion that
natural gas represents the preferred resource option to serve Whistler remains unchanged.
37. The final updates to the financial analyses incorporate the effects of the March 2, 2006
BCUC Decision on return on equity and capital structure for TGVI. The latest changes were
filed in the evidentiary update dated March 17, 2006 (Exhibit B1-28) with additional supporting
information filed on March 24, 2006 (Exhibit B1-31). The following charts from pages 7 and 10
of Exhibit B1-28 depict the comparison of the natural gas and propane scenarios, as updated.
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Chart from Attachment 1, Page 7 of Exhibit B1-28 – Natural Gas Capital Cost Scenarios vs. Propane Base Case
$4.94 $5.67 $6.44$4.64
$2.73$2.73
$2.73
$8.26$8.26
$8.26
$12.88
$-
$5
$10
$15
$20
$25
Pipeline - Low Capital Cost Pipeline - Base Case Pipeline - High Capital Cost Propane: Base Case - NoExpansion
15-y
r Lev
eliz
ed A
vera
ge U
nit C
osts
($/G
J) 5
.76%
Dis
coun
t Rat
e
TGW Delivery Margin TGVI Transport Cost of Gas
Sensitivity to Capital Cost
$15.92 $16.65
$17.42 $17.52
Chart from Attachment 1, Page 10 of Exhibit B1-28 – Demand Scenarios - Natural Gas vs. Propane
$4.96 $4.64$6.90 $6.39 $5.67 $5.24
$2.74$2.73 $2.74
$12.88 $12.88
$12.88 $8.25$8.26 $8.27
$-
$5
$10
$15
$20
$25
Propane: Low Case -No Expansion
Propane: Base Case- No Expansion
Propane: Base Case- Expansion
Pipeline - LowDemand
Pipeline - Base Case Pipeline - HighDemand
15-y
r Lev
eliz
ed A
vera
ge U
nit C
osts
($/G
J)5.
76%
Dis
coun
t Rat
e
TGW Delivery Margin TGVI Transport Cost of Gas
Sensitivity to Demand Forecast
Weighted BCH Tariff(1% escalation)
$15.41
$19.61Long Run Marginal Electricity (2% escalation)
$17.84 $17.52
$19.78
$17.38 $16.65 $16.24
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The charts demonstrate that for TGW customers in Whistler the natural gas scenarios are better
than the propane scenarios under most demand cases and capital cost cases, and no worse
than comparable under all scenarios.
Financial Arrangements
38. In the proposed financial arrangements associated with natural gas service to Whistler,
TGVI will construct and own the IP Pipeline and the final pipeline capital costs will be added to
the rate base of TGVI. A capital contribution will be made by TGW to TGVI which will be
credited in TGVI’s rate base against the gross IP Pipeline capital addition.
TGVI CPCN Application, Exhibit B2-1, page 32
39. TGW will become a transportation service customer on the TGVI transmission system
and pay tolls based on its allocated share of the TGVI transmission cost of service. The
allocation to TGW will be based on a forecast made annually of the TGW peak day
requirements using established and approved transmission cost allocation principles for core
market loads on the TGVI system (Exhibit B1-24, page 3). The costs allocated to TGW will be
based on the full fixed variable methodology currently approved for TGVI by the Commission’s
June 5, 2003 Rate Design Decision, or such other tolling methodologies as may be approved in
future by the Commission.
Exhibit B1-24, response to BC Hydro IR2, Q 1.0 (b) Exhibit B1-13, response to BC Hydro IR1, Q 2.0 (a) and (c)
40. The costs allocated to TGW annually will be converted to a Unit Toll by dividing the total
allocated cost by the forecast TGW annual throughput (Exhibit B1-2, Appendix 2, page 5). The
Unit Toll approach is fair and reasonable since it places a similar revenue recovery obligation on
TGW as is required of other core market customers on the TGVI system.
Exhibit B1-13, response to BC Hydro IR No.1, Q. 2d, page 3
TGW Capital Contribution
41. The TGVI rate base addition and the TGW capital contribution amounts were determined
on the basis of having the forecast annual revenues paid by TGW to TGVI equal the net
incremental cost of service of the IP Pipeline on a present value basis over a 15-year period
(2009 – 2023 inclusive). These calculations make use of the Sustainable Technology demand
scenario and base capital costs. Based on these assumptions it is proposed that the TGVI net
rate base addition will be limited to $21.6 million. Under the base capital cost scenario the
capital contribution paid by TGW to TGVI at the time natural gas service is put in place would be
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$15.5 million. Under these assumptions, as illustrated in Exhibit B1-28, Attachment 1, page 24,
TGVI customers will realize a financial benefit of $0.5 million arising from the expected TGW toll
revenue exceeding the net cost of service for the IP Pipeline over the longer term. Additional
benefits to TGVI customers will occur if the IP Pipeline qualifies for 8% CCA tax treatment as
discussed below.
Evidentiary Update, Exhibit B1-28, page 2
42. It is proposed that TGW bear the risk of variations in the capital costs from the base cost
scenario. The TGW capital contribution will therefore be the actual pipeline capital costs less
$21.6 million (Exhibit B1-28, page 2). If the actual pipeline capital cost exceeds the base capital
cost of $37.1 million (Exhibit B1-28, Attachment 1, Page 23) the capital contribution will be
greater than $15.5 million and conversely, if the actual capital cost is less than the base capital
cost, the capital contribution will lower than $15.5 million. The limitation on the TGVI rate base
addition to $21.6 million provides an important element of risk mitigation to TGVI’s existing
customers associated with adding TGW as a customer on the TGVI system.
Sensitivity Cases
43. The first chart in paragraph 37 above displays the effect of the base, high and low capital
cost scenarios on the delivered cost of energy in Whistler. Under the low and base capital cost
scenarios, the forecast delivered cost of energy is lower for natural gas than for the "No
Expansion" propane scenario. Under the high capital cost scenario, the delivered cost of
energy for natural gas is similar to that in the "No Expansion" propane scenario. Since the TGVI
rate base addition will be limited to $21.6 million, TGVI customers are sheltered from the effects
of capital cost variations.
44. The second chart in paragraph 37 above displays the effect of demand forecast
variations on the delivered cost of energy in Whistler. The natural gas scenarios are better than
the corresponding propane scenarios on this comparison.
45. An additional demand forecast variation that was reviewed in response to Commission
information requests (Exhibit A-3, Question 11, Exhibit A-7, Question 46 and Exhibit A-21) was
to conduct the financial analyses excluding NGV load. An analysis of the base case demand -
base capital cost scenario adjusted to exclude the NGV load indicated the levelized delivered
cost for natural gas was comparable to the "No Expansion" propane scenario (compare Exhibit
B1-31, Attachment 2, Table 1, Lines 4 and 7). Note that in the "No Expansion" propane
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scenario, TGW has suspended customer additions to its systems, and the financial comparison
does not include the cost for this load to be met by other resources.
46. TGW does not submit that there are no circumstances in which the delivered cost of
natural gas in Whistler is higher than for propane. This could occur if there is a compounding of
negative factors such as those that were updated in response to Exhibit A-21 based on
assumptions initially set out in Exhibit A-3, Question 11. These assumptions included high
capital costs, an alternate approach to establishing the premium for propane over natural gas
based on historic pricing differentials, exclusion of the forecast NGV load and others. As
discussed above TGW believes that the commodity price forecasts that it has used in the
evaluation of the natural gas and propane options are consistent with current market
fundamentals and industry opinion and therefore are reasonable. With respect to NGV load
TGW believes its forecast of future NGV load is reasonable based on support for NGV from the
RMOW and other parties in Whistler. While the information provided in Exhibit B1-31,
Attachment 2, Table 2 provides information about possible outcomes with respect to natural gas
and propane in Whistler, TGW submits that the likelihood of all the negative assumptions
specified in Exhibit A-3, Question 11 occurring is very limited and the Commission should give
little if any weight to that compounding of negative factors. TGW submits that the evidence in
this proceeding fully supports the conversion of the Whistler distribution system to natural gas.
IP Pipeline Tax Treatment
47. Exhibit B1-28 provides an analysis of a different tax treatment for the pipeline on the
basis that it qualifies for CCA Class 49, which is a new CCA class for transmission pipelines that
has an 8% CCA rate. As discussed at page 3 of Exhibit B1-28, there is a reasonable likelihood
that the pipeline will qualify for Class 49 when the relevant tax legislation is passed into law.
However, the Applications and financial calculations are based on a Class 1 - 4% CCA tax
treatment of the pipeline. Exhibit B1-28 identifies a present value benefit over fifteen years of
approximately $1.9 million for TGVI transmission customers, and a benefit to TGW customers in
the delivered cost of natural gas of about $0.20/GJ, with 8% CCA treatment of the pipeline and
the capital contribution. TGVI and TGW will seek the most favourable tax treatment possible for
the pipeline and the capital contribution.
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Competitiveness with Other Sources of Energy
48. The updates to charts and tables from Section 7 of Exhibit B1-1 filed in Exhibit B1-28 do
not change the original observations in Sections 7.1.4 and 7.1.5 of the TGW 2005 Resource
Plan Update regarding the competitiveness in Whistler of propane and natural gas with
electricity and ground source heat pumps.
49. TGW will continue to be competitively challenged against electricity under either propane
or natural gas scenarios. However, TGW’s competitiveness relative to electricity is significantly
improved with natural gas compared to propane. As indicated in Exhibit B1-28, TGW has
reviewed the March 15, 2006 Application by BC Hydro to set its current rates as interim as of
April 1, 2006 in anticipation of a two year revenue requirement application. The March 15
Application identifies a forecast large drop in net income for BC Hydro in its fiscal years F2007
and F2008. TGW expects that that electricity rate increases to be sought will likely be in excess
of the forecast increase of 1% included in the TGW and TGVI applications. TGW has not
reflected any adjustments in its competitive electricity comparisons to reflect BC Hydro rate
increase beyond the assumed 1% annual escalation. Should electricity rate increases greater
than 1% annually be approved in the near to medium term, the competitive position of natural
gas in Whistler would improve against electricity.
50. As discussed at pages 57 to 59 of Exhibit B1-1, the competitive challenge of GSHPs to
natural gas or propane lies primarily in greenfield developments. Retrofit GSHP installations are
generally at a competitive disadvantage and will likely depend on availability of financial
incentives to proceed. TGW’s demand forecasts have considered the issues of competitiveness
with other energy forms and those considerations have been appropriately accommodated in
the demand scenarios.
Financial Comparison Summary
51. The financial analyses based on the best and most current assumptions as provided in
the evidentiary update in Exhibit B1-28 support the conclusion that natural gas is the preferred
source of energy for Whistler and that the CPCN applications should be approved. TGW and
TGVI submit that the capital contribution, the annual tolls to be paid by TGW to TGVI, and the
other terms and conditions of service provide reasonable assurance that the existing customers
of TGVI will not be negatively affected by the addition of the IP Pipeline to TGVI’s rate base and
cost of service. Further, there is a reasonable likelihood of net benefit accruing to TGVI’s
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customers over the longer-term), and even in the shorter term if the 8% CCA tax treatment is
permitted for the IP Pipeline.
Evidentiary Update, Exhibit B1-28, Attachment 1, Page 24, 25-Year PV Evidentiary Update, Exhibit B1-28, Attachment 2, Page 2, 15-Year or 25-Year PV columns
VIII. Other Benefits
52. Natural gas service to consumers in Whistler will provide benefits in addition to the
financial benefits discussed in the previous section. As discussed in the Resource Plan Update
(pages 60 to 64), natural gas service is better in terms of meeting the resource planning
objectives regarding security of supply, rate volatility and socio-economic impacts.
53. As discussed in paragraphs 27 and 28 above, compared to the existing propane system,
the immediate reliability benefit is that the IP Pipeline will eliminate the complexity of the
logistics involved in providing propane to a system of Whistler’s magnitude.
54. Both propane and natural gas are subject to market place supply and demand
fluctuations. Whistler propane customers have experienced commodity-related rate changes
that are both more frequent and larger in absolute terms than those experienced by Lower
Mainland natural gas customers. TGW customers will benefit from the supply diversification
provided by the large TGI natural gas and mid-stream portfolio relative to the comparatively
small propane portfolio. Delivery charge changes tend to be gradual in comparison to the
market-based commodity portion of customer rates. Extension of natural gas service to
Whistler will decrease the commodity component of customer rates, i.e. that component most
subject to volatility. In summary customers in Whistler will benefit from the reduced volatility
resulting from the introduction of natural gas service.
Resource Plan Update, Exhibit B1-1, pages 61 and 62 Exhibit B1-4, TGW responses to BCUC IR1, Qs. 24.2 and 55.1
55. The natural gas alternative compares favourably to continued use of the propane system
with respect to on air quality and greenhouse gas (GHG) emission benefits. An analysis of
expected energy use in 2010 under the Sustainable Technology scenario reveals an annual
GHG reduction of 7,300 tonnes of CO2 equivalents, or a 15% reduction in GHG intensity for
residential, commercial and institutional end-uses, as a result of converting the propane system
to natural gas. A similar analysis for NGV fleets over conventional fuel vehicles (gasoline and
diesel) reveals an annual reduction of 885 tonnes of CO2 equivalents for anticipated vehicle
conversions. Contaminate emission reductions of between 20% and 95% are also observed for
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the replacement of conventional fuel (gasoline and diesel) vehicles with NGV technology for a
range of contaminates including CO, NOx, NMOG, SOx, particulates (20% reduction from
gasoline and 95% reduction from diesel), Sulphur and others. The reduction of these
contaminants helps to improve human and environment health through the region. All GHG and
contaminate reductions favour natural gas resource over propane, and represent a major step
toward the RMOW's sustainability goals.
Resource Plan Update, Exhibit B1-1, page 65 to67 Exhibit B1-4, TGW responses to BCUC IR1, Qs. 28.2, 29.2.3 and 44.1, and Attachments 1.1, 28.2 A, and 28.2 B Exhibit B1-11, TGW responses to CEC IR No.1, Q. 6 Exhibit B1-15, TGW response to BCUC IR1, Q. 60.3
56. In addition to the GHG and air quality benefits of the natural gas alternative, the natural
gas alternative also offers benefits by reducing land and noise relative to the existing propane
system. Residential and commercial development is encroaching ever closer to TGW’s two
propane handling and distribution facilities in Whistler and complaints regarding the noise
impacts of these facilities are on the rise. Implementing the natural gas alternative will actually
allow TGW to remove these facilities, along with their visual and noise impacts on the
community. Since the natural gas pipeline and distribution lines would be located in existing
right-of-ways below grade, there will be no land area impacts from the natural gas project and
both visual and noise concerns with the existing propane facility will be eliminated. The
evaluation of the two resource options under the socio-economic objective favours conversion
of the existing system to natural gas, which creates community benefits that also assists the
RMOW moving closer to its sustainability goals.
Resource Plan Update, Exhibit B1-1, page 68 Exhibit B1-4, TGW responses to BCUC IR1, Q. 19.1
B. STAKEHOLDER CONSULTATION
57. Section 8 of the 2005 Resource Plan Update documents the comprehensive stakeholder
consultation process being undertaken by TGW and TGVI with regard to the projects which are
the subject of the CPCN applications. In addition to direct stakeholder consultation, TGW and
TGVI also actively participated in the community planning initiatives in Whistler (“Whistler 2020”)
to ensure that TGW’s Resource Plans would be integrated with and respond to the future
direction and requirements of the Whistler community.
58. Consultation activities to date have included meetings with and presentations to the
business community, the municipal government, elected officials, First Nations, VANOC,
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community groups and individuals. Community input was also received through several Open
Houses and participation in the Whistler 2020 Energy Task Force and the Open Houses relating
to the energy components of Whistler 2020. TGW and TGVI have integrated the feedback
provided through the stakeholder consultation into the current project proposals.
59. It is important to note that there is no community support for expansion of the existing
propane system. Conversely, TGW and TGVI have received overwhelming support from
stakeholders for proceeding with the construction of the natural gas pipeline and conversion of
the propane system.
I. RMOW
60. The Whistler community with its tourist-based economy is keenly aware of the need to
protect local air quality and to reduce the community’s contribution to environmental
degradation. Whistler has a very active and environmentally conscious population and this
emphasis is reflected in the Whistler 2020 community plan. The RMOW has recognized the
immediate environmental and air quality benefits that the conversion of the propane system will
provide and has consequently indicated its support for proceeding with the conversion of the
gas system through the Council resolutions set out on page 8 of the Resource Plan Update
(Exhibit B1-1).
61. The Resource Plan Update also highlights that the RMOW’s support for the natural gas
project is based on the belief that natural gas can provide a foundation for the long term
transition towards more sustainable and renewable energy choices: conversion from diesel fuels
to natural gas and potentially hydrogen and primarily meeting new load growth with ground
source heat pump technologies that rely on natural gas for peaking and back-up.
62. A letter of support by the RMOW was provided on December 7, 2005 and is included in
Appendix 9 of the TGW CPCN Application (Exhibit B1-2)
II. Commercial Customers and Businesses
63. Representatives of TGW and TGVI have maintained an on-going dialogue with major
commercial customers in Whistler to keep them informed on energy matters and the potential to
extend natural gas service to Whistler. Page 24 of the TGW CPCN Application (Exhibit B1-2)
provides a summary of the key customers and stakeholders consulted with regard to the natural
gas project. Support among the commercial customer group for the pipeline project is high as it
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provides an opportunity to displace relatively more costly and volatile propane with natural gas.
Cost containment has become a more pressing concern due to reduced revenues in recent
years as a result of poor snow conditions, a strengthening Canadian dollar and the continuing
effects of 9/11.
64. As discussed on page 8 of the Resource Plan Update, ensuring the reliability of energy
supply to cost-effectively meet future requirements were also key concerns expressed by the
local businesses. These concerns are made more pronounced given the expected increase in
tourism and world focus on Whistler leading up to, during and following the upcoming Olympic
Games. A reliable energy system is critical to the long-term success of this resort community.
III. Private Citizens
65. In addition to commercial customers, TGW and TGVI met with a number of private
individuals with Open Houses providing the venues for direct consultation with interested
citizens. Two Public Open Houses were hosted by TGW and TGVI in 2005 that specifically
focused on the Squamish to Whistler pipeline project and the conversion of the propane system
in both Squamish and Whistler. Most of the individuals were very aware of the project and
expressed strong support for moving forward with the project. A particular concern of many
residents was relayed to the Companies by both the RMOW and the MLA with regard to the
noise relating to the delivery of propane at the Mons siding. The continuing concern that the
propane system poses to the local community and the attendant support for the pipeline as a
long-term solution to this problem is documented in the letter provided by MLA Joan McIntyre
(see Appendix 4 of the TGW CPCN Application).
IV. First Nations
66. First Nations consultation activities are documented in Section 8.4 of the Resource Plan
Update and Section 5.5.5 of the TGW CPCN Application. A letter of intent was executed with
the Lil’wat Nation on June 28, 2005 in respect of the CPCN applications (filed in Exhibit B2-1,
Appendix 6). TGW and TGVI are currently in negotiations to finalize an accommodation
agreement with the Lil’wat Nation. TGW and TGVI have signed an agreement with the
Squamish First Nation (Exhibit B1-30, Confidential). The letter submitted by the Squamish First
Nation documents that all accommodation and consultation requirements of the Crown in
respect of this project have been fully resolved and that the Squamish First Nation is supportive
of the project (Exhibit C8-6).
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V. Summary
67. TGW and TGVI have undertaken extensive public and stakeholder consultation in
respect of the pipeline and natural gas conversion project. Public, commercial customer and
local government support for the projects is very strong. Natural gas is recognized as the
preferred fuel to meet the community’s needs in a safe, reliable and cost-effective manner.
Stakeholders recognize that the highway upgrade project provides a unique opportunity for the
community to convert to a more stable, reliable and economic energy platform.
C. TGW APPLICATION FOR A CPCN
I. Summary of the Application
68. Natural gas has been in reasonable proximity to Whistler since 1991 when TGVI’s
transmission system was built. As discussed above, TGW has concluded that the conversion of
the propane system to natural gas with service is the preferred solution to meet the long-term
requirements of the community. TGW is applying, pursuant to section 45 of the Act, for a CPCN
and seeks approval of the following:
• The conversion of the existing propane system to natural gas;
• The proposed transportation service arrangements with TGVI for natural gas
transportation service from Huntingdon to Whistler, including payment of a capital
contribution from TGW to TGVI;
• Addition of the capital contribution amount to rate base at the time natural gas service
commences, and amortization of the capital contribution over 50 years (i.e. 2% per year);
• Transfer of the net book value of the propane facilities (less salvage value of the propane
tanks) and net proceeds from the sale of land into a deferred charge for recovery in rates
over a 20-year period (5% amortization rate) commencing in 2009; and
• Recovery of pipeline study costs incurred prior to 2004 and currently recorded in a non-
rate base deferral account.
TGW CPCN Application, Exhibit B1-2, page 2
69. The conversion from propane to natural gas service (the “NG Project”) includes
construction of a pressure regulating station in the Function Junction area of Whistler,
conversion of the distribution piping system from propane to natural gas, upgrading of TGW-
owned customer meters and regulators and retrofitting of customer appliances to use natural
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gas, decommissioning of the existing propane storage and rail-offloading facilities, and the
disposal of salvageable equipment and redundant land. The target in-service date is October
2008.
TGW CPCN Application, Exhibit B1-2, pages 3 and 4
70. TGVI will provide natural gas transportation service through the construction of the IP
Pipeline. As summarized in Part D of these submissions, TGVI has developed three capital
cost scenarios for the project based on different outcomes of MOT approvals and coordination
of construction with the highway project. Under the proposed Capital Contribution Agreement,
at the time natural gas service is put in place TGW will make a payment to TGVI for those costs
that exceed $21.6 million. The range of the total capital cost to TGW of the NG Project,
including the capital contribution, as updated by Exhibit B1-28, is summarized in the following
table:
Low Case Base Case High CasePre-Approval Development Costs (2006) $750 $750 $750TGW Capital Contribution to TGVI 8,828 15,519 22,276Station, Conversion, and Upgrades 5,226 5,226 5,347AFUDC 150 150 153Recovery of Pipeline Study Deferral Account 1,287 1,287 1,287 Subtotal 16,241 22,931 29,814Decommissioning & Disposition (1,841) (1,841) (1,663) Total TGW Rate Base Addition $14,399 $21,090 $28,151Note: Due to rounding, numbers may not add exactly
000$ As SpentLine Item
TGW CPCN Application, Exhibit B1-2, page 4, as updated by Exhibit B1-28 Attachment 1
II. Existing Propane Distribution System
71. The propane distribution system in Whistler has grown far beyond original expectations,
and beyond the size and scale of other propane distribution systems in British Columbia and
Canada. TGW currently provides propane gas distribution services to more than 2,350
residential and commercial customers. With annual deliveries exceeding 750,000 GJs and
approximately 100 kilometres of distribution pipe, TGW’s propane system is unique in terms of
the size of the customer base it serves and the scale of the facilities required by its continued
operation.
TGW CPCN Application, Exhibit B1-2, pages 5 and 7
72. Requirements for transportation of propane to, and its storage in, Whistler are unique
and greater than for other such systems. Demands in Whistler can fluctuate up to 50% over a
48-hour period due to the resort nature of the community. The primary mode of propane
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transportation to Whistler is rail for volume, cost, and public impact reasons. Transit times can
be affected by shipping delays, loading facility problems, rail delays, and propane production
disruptions, but trucks can be dispatched to mitigate some variances in railcar transit time. For
long-term planning, TGW currently designs its propane system to provide storage for four days
of design day demand to allow for these problems and other supply interruptions.
Exhibit B1-15, TGW responses to BCUC IR 2, Qs. 65.1, 65.2, 65.3 and 65.4
73. TGW operates two propane storage and vapourization facilities: Nesters and Function
Junction. At Nesters, there are eleven 30,000 USG tanks and three vapourizers. TGW also
operates a railcar offloading facility at Mons siding in Whistler to supply the majority of propane
to Nesters. At Function Junction, there are four 30,000 USG tanks and one vapourizer. Trucks
are solely used to supply propane to Function Junction. The Resource Plan Update, page 38
shows that the propane system is currently operating at capacity based on days of storage. The
current system has a working storage of 22,280 GJ whereas the 4-coldest day requirement for
winter 2005/06 is 22,471 GJ and grows to 23,699 GJ in winter 2007/08. The current propane
facilities cannot accommodate growth in demand.
Resource Plan Update, Exhibit B1-1, page 38 Exhibit B1-4, TGW response to BCUC IR1, Q. 35.1 Resource Plan Update, Exhibit B1-1, page 1
74. System capacity is determined by a combination of days of storage in tanks, propane
vapourization send-out, and distribution system capacity. While TGW has historically been able
to provide reliable service to its customers, the two storage and vaporization facilities have been
“built-out” since 2001. As a result, the storage and vapourization reserves have steadily
declined with actual peak day demand growth. Further, if a forecast design day occurred now, it
would test the system capabilities more severely than has ever been experienced in the past,
including when the system was in its much smaller pre-1998 configuration.
Exhibit B1-15, response to BCUC IR2, Q. 59.4
III. Propane Options to meet Future Loads
75. Since the Nesters and Function Junction are fully built out, a new storage site is required
to increase system storage capacity. As outlined in the response to BCUC IR1, question 52.1
(Exhibit B1-4), TGW completed a rigorous site selection process to determine a site that would
provide a realistic long-term solution for Whistler needs. Costs to build and interconnect this
new site, Cal-Cheak, in order to meet long-term demand are estimated to be $18.6 million
(direct $2005). In response to BCUC IR1, question 56.3 (Exhibit B1-4), TGW also prepared a
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cost estimate of $9.6 million to demolish, rebuild, and expand the Nesters site with larger tanks
and expand the railcar siding serving that location. However, as noted by TGW in the response,
this would only result in a 15% increase in capacity, and the development would be inconsistent
with the expressed interests of the RMOW and public concerns. TGW submits that neither the
establishment of a new storage site nor the expansion of the Nesters site are cost-effective
means of providing Whistler gas consumers with their long-term energy requirements.
Furthermore, these options are not supported by the community and are inconsistent with the
RMOW’s sustainable energy strategy.
Resource Plan Update, Exhibit B1-1, page 41 and Appendix G
IV. Capital Cost Estimates for the Whistler Natural Gas Project
76. Total direct costs for the NG Project are $7.47 million for the Base Case prior to
offsetting proceeds from the salvage of redundant propane facilities and the sale of land. Of this
amount, $5.19 million is associated with direct capital costs. All direct capital costs have been
analysed in detail. The major cost component is Appliance Retrofits at a cost of $3.30 million.
This estimate is based on a review of TGW customer records, an assessment of labour rates
including consultation with the contractor that performed the Victoria upgrade, an estimate of
conversion labour and material costs, and a survey of per diem expenses. The cost items have
also been reviewed by TGI personnel experienced in conversion work.
TGW CPCN Application, Exhibit B1-2, page 18 Exhibit B1-5, TGW response to BCUC IR1, Q. 8.1 Exhibit B1-5, TGW response to BCUC IR1, Q. 9.2 Exhibit B1-5, TGW response to BCUC IR1, Q. 9.3
77. The implementation of natural gas service will allow some of the existing propane
facilities to be taken out of service, with resulting proceeds from the sale. Of the estimated
proceeds for land and propane tank sale, net of site reclamation, the most significant
component is the land value. Land appraisals were performed in May 2004 to determine the
market values of Nesters and Function Junction. The Nesters site was appraised at $1.2 million
and the Function Junction site was appraised at $0.73 million, for a total of $1.93 million. TGW
has assumed that the combined net market value for sites at Nesters and Function Junction
remains constant in nominal dollars to summer 2009.
TGW CPCN Application, Exhibit B1-2, page 21
78. The response to BCUC IR 1, question 45.1 (Exhibit B1-4) shows the sensitivity range
related to the uncertainty of each of the cost components of the conversion the existing propane
system to natural gas. The uncertainty of each cost component is estimated based on the detail
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of available data. These ranges of uncertainty were used in a Monte Carlo analysis to
determine an appropriate level of contingency for the NG Project. A P50 and P80 cost estimate
were used for the Low/Base and High case respectively. TGW submits that its estimates of
costs for the NG Project have been fully tested through the IR process, and have been
demonstrated to be reasonable.
Exhibit B1-4, TGW response to BCUC IR1, Q. 45.1 Exhibit B1-5, TGW response to BCUC IR1, Q. 2.1
V. TGW Rate Base Treatment
79. As outlined in the TGW CPCN Application (Exhibit B1-2), Section 5.4, the TGW rate
base and cost of service in the natural gas scenarios includes the existing distribution network,
the capital contribution to TGVI, the natural gas conversion costs, the undepreciated propane
facilities (net of salvage and proceeds from the sale of land and equipment) and the Pipeline
Study deferral account. TGW seeks the approvals described in the following paragraphs with
respect to these items.
80. TGW seeks approval for the accumulated balance of the Pipeline Study Deferral
Account to be added to rate base at the end of 2008 and to commence amortization in 2009 at
the rate of 5% per year. TGW made these expenditures and deferral account entries in keeping
with prior BCUC Orders as set out in Exhibit B1-17, page 20 and 21. TGW also outlined the
value of the pre-2004 studies to the current application at Exhibit B1-5, pages 62 and 63 and
therefore submits that these costs are appropriate for recovery as requested.
81. Addition of the capital contribution amount to rate base at the time natural gas service
commences, and amortization of the capital contribution over 50 years (i.e. 2% per year). This
amortization period is reasonable in that it matches the depreciation period of the IP Pipeline,
the physical asset to which the capital contribution relates.
82. The transfer the net book value of the propane facilities (less salvage value of the
propane tanks) and net proceeds from the sale of land into a deferred charge for recovery in
rates over a 20-year period (5% amortization rate) commencing in 2009. TGW submits that it is
appropriate to recover these costs since the expenditures on these assets were prudently
incurred in the providing of utility service in Whistler. This treatment of retired propane plan is
consistent with past Commission decisions such as with TGS when its system was converted
from propane to natural gas Exhibit B1-17, BCUCIR2, Q.30.3). The 20 year amortization
period is reasonable in that it is similar to the remaining life of the propane facilities.
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VI. Capital Cost Risk Sharing Mechanism
83. As discussed in paragraph 42, under the proposed Capital Contribution Arrangement
TGW will bear the risk of variations in capital costs from the base cost scenario. With respect to
cost overruns and shareholder responsibility, as discussed in the response to MEMPR IR1,
question 6.1, page 7, the Companies are of the view that generally the shareholder should not
be held responsible for costs that are prudently expended. As discussed in the response to
BCUC IR1, question 9.1, page 17, TGVI appreciates that all stakeholders benefit if the project is
delivered at the lowest possible cost but doesn't believe its allowed return adequately
compensates it for taking on project cost escalation beyond its reasonable control on projects
for which a CPCN has been issued. Similarly, it is the position of the Companies that it is not
reasonable for shareholders to be at risk for the cost of repairs or upgrades during the first five
years that the pipeline is in service, as the return on equity and capital structure of TGVI do not
include as an element of business risk the risk associated with such a guarantee (the response
to BCUC IR2, question 45.2, page 13). However, TGVI and TGW would be prepared to
consider a risk sharing arrangement for aggregate cost overruns beyond the total of the capital
costs of the TGW distribution project, plus the high cost estimate of the IP Pipeline but excluding
all capital costs that are dependant on MOT approvals, provided there is a benefit sharing
arrangement for cost savings as compared to this estimate (response to BCUC IR1, question
9.1, page 17).
Exhibit B2-2, response to BCUC IR1, Q. 9.1, page 17 Exhibit B2-3, response to BCUC IR2, Q. 45.2, page 13 Exhibit B1-12, response to MEMPR IR1, Q. 6.1, page 7
D. TGVI APPLICATION FOR A CPCN
84. TGVI has applied for a CPCN to construct, own and operate an intermediate pressure
pipeline lateral from Squamish to Whistler in order to extend natural gas service to TGW. TGVI
has developed the IP Pipeline project proposal based on coordinating construction with the Sea
to Sky Highway (“S2S”) upgrade project that is currently underway. Coordination with the
highway upgrade project provides TGVI a unique opportunity to lower construction costs,
reduce road disruptions and minimize stakeholder and environmental impacts.
TGVI CPCN Application, Exhibit B2-1, page 2, section 1.2 Exhibit B2-3, TGVI response to BCUC IR 2, Q. 44.1 Exhibit B1-13 response to BCH IR 1, Q. 1.0
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I. Intermediate Pressure Pipeline Project Description
85. The IP Pipeline consists of approximately 50 km of NPS 8, 300 psig steel intermediate
pressure pipeline starting at the existing TGVI Squamish meter station and ending at a TGW
regulating station in the Function Junction area of Whistler, with additional metering and
regulating equipment at the existing Squamish station. The pipeline route from Squamish to
Whistler uses the highway and municipal road right-of-way. However, the final alignment within
the right-of-way will only be known as the project proceeds. The maximum operating pressure
(“MOP”) is specified as 300 psig based on the policy limit set by Ministry of Transport (“MOT”)
for pipelines within roads and on bridges.
TGVI CPCN Application, Exhibit B2-1, page 3, section 1.2
86. The pipeline project has been under development since 1996 as a solution to meet
growing energy demand in Whistler. In 1998, TGW completed a thorough technical design and
third party review of the pipeline and routing to meet MOT requirements. The costs are recorded
in an approved deferral account and all of the work has been incorporated in the current project
providing the basis for the routing evaluation, technical design and MOT permitting.
Resource Plan Update, Exhibit B1-1, page 13 TGVI CPCN Application, Exhibit B2-1, pages 5 and 10 Exhibit B1-5, response to BCUC IR1, Qs. 5.1.1, 12.2 and 12.3
87. The modification of the pipeline from the previous proposal to a 300 psig MOT policy
compliant pipeline in concert with the major S2S highway upgrade work including bridges now
underway presents the unique opportunity for TGVI to minimize costs. Significant cost savings
are available through coordinating the pipeline installation with the road construction work,
thereby avoiding duplicate rock removal, paving and traffic management work and costs.
Additional cost savings may also be available if the pipeline is incorporated in the bridge
designs and installed on the new bridges.
TGVI CPCN Application, pages 5, 10, & 13 sections 3 and 4.3 Workshop Presentation, Exhibit B1-7, Slide 44 Exhibit B1-5, responses to BCUC IR1, Q. 5.1.1, 12.2 and 12.3
II. Capital Cost Estimates
88. Realizing the potential to minimize costs requires co-ordinated and concurrent
construction with the S2S project. The design-build nature of the S2S project means that the IP
Pipeline will be built in phases, with the final pipeline placement and degree of construction
coordination known only as construction of the highway proceeds. To address this uncertainty,
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TGVI developed three separate construction cost estimates that consider different levels of
coordination with the highway project and pipeline placement scenarios:
• A “low cost” scenario whereby construction is well coordinated with S2S, and MOT
provides approval to install the pipeline on all new bridges;
• A “base cost” scenario whereby a shoulder or ditch alignment is permitted but the
construction is out of sequence with S2S and separate aerial crossings are employed;
and
• A “high cost” scenario whereby the construction is out of sequence with S2S and includes
unfavourable alignments and/or extensive use of horizontal directional drilling.
TGVI CPCN Application, Exhibit B2-1, Section 4.4, page 4.4.1
89. The most current cost estimates associated with each of these scenarios were provided
in the Evidentiary Update filed on March 17, 2006 (Exhibit B1-28) and are summarized in the
table below. These estimates include the impact of the Squamish First Nation agreement that
was filed on March 17, 2006 as Exhibit B1-33 (Confidential). With the exception of the low cost
scenario, these estimates remain consistent with the information provided in the original
Application.
IP Pipeline Cost Scenario ($000) Low Base HighDirect Costs ($2005) $27,692 $33,813 $39,692Inflation 1,466 1,630 2,100AFDUC 1,374 1,673 1,974Total Capital (As Spent) $30,532 $37,116 $43,765
TGVI CPCN Application, Exhibit B2-1, page 22, Table 6 TGVI CPCN Application, Exhibit B2-1, page 32 Evidentiary Update, Exhibit B1-28, pages 23 to 25
90. Based on the discussions with MOT and the S2S contractor, Peter Kiewit & Sons, TGVI
believes that the base cost scenario is a reasonable estimate of the most likely outcome. Given
that the design of the IP Pipeline is within the MOT guidelines for pipelines with roads and on
bridges, TGVI also believes that there is reasonable potential for MOT to provide the necessary
approvals regarding bridge crossings and pipe placement to move costs toward the low cost
scenario. However, due to the design-build nature of the S2S upgrade project, the actual level
of benefits will only be known as the project proceeds.
Exhibit B2-2, response to BCUC IR1, Qs. 17.1 and 31.1
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III. Project Schedule
91. TGVI is targeting a high level of construction coordination with the S2S upgrade project
in order to achieve the least cost and least amount of traffic disruption. The detailed S2S
upgrade project design work is now underway and TGVI has entered into a memorandum of
understanding with Peter Kiewit Sons, the S2S Design-Build contractor, to facilitate project
coordination and timely exchange of design information.
TGVI CPCN Application, Exhibit B2-1, pages 12-13, section 4.3.3
92. In order to maximize the benefits of coordinating the pipeline project with highway
construction, TGVI is seeking timely approval by the Commission in order to proceed with the
2006 design and construction activities. The alternative of delaying the project until completion
of the highway upgrade would mean that all potential and significant cost savings could be lost.
In addition, any significant delays in obtaining approvals beyond May 2006 could have an
impact on the ability to co-ordinate with the S2S upgrade project contractor for 2006
construction activities.
Exhibit B2-3, response to BCUC IR2, Qs. 38.2 and 39.1
IV. Impact on Upstream Facilities
93. TGVI’s current system capacity is approximately 153 TJ/d based on the current
distribution of load on its system. Future demand growth on the TGVI system is expected to be
driven largely by the residential and commercial customers (core market) on Vancouver Island
and will require facility additions from time to time. However, the nature and the timing of new
facilities will primarily depend on the long-term requirements at BC Hydro (for the Island Co-gen
Project) and the VIGJV.
TGVI CPCN Application, Exhibit B2-1, page 9, Section 4.2.2 Workshop Presentation, Exhibit B1-7, Slide 110
94. TGVI is currently re-examining long-term system requirements based on the forecast
demand on its system and expects to file an updated Resource Plan by mid 2006. As in its
2004 Resource Plan, TGVI's 2006 update will provide an assessment of the benefits of a
storage portfolio versus expansion of transmission capacity to meet future core demand growth.
Preliminary results confirm that the addition of the Whistler load does not immediately trigger a
requirement for any additional facilities. As TGW’s peak day requirement is expected to be
relatively flat over the planning period, future facility requirements will be triggered by TGVI core
market growth or future contracting decision by BC Hydro or the VIGJV.
Exhibit B2-2, TGVI response to BCUC IR1, Q. 6.3
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Exhibit B2-3, TGW/TGVI responses to BCUC IR 2, Qs. 43.1 and 43.2
E. TRANSPORTATION SERVICE AGREEMENT
I. Form of Agreement
95. In the CPCN Applications, TGVI and TGW request that the Commission approve the
proposed firm transportation service agreement (“TSA”) between the parties. The proposed
form of the transportation service agreement was included in the TGW CPCN Application
(Exhibit B1-2, Appendix 2) and the TGVI CPCN Application (Exhibit B2-1, Appendix 8), and has
been available for review and comment by Interveners throughout the regulatory review
process.
96. An executed copy of the TSA has been filed in Exhibit B1-33. The executed TSA differs
from the form of agreement included in the CPCN Applications only in the addition of Article 4.2.
This new Article limits TGW’s Contract Demand to a maximum of 12,000 GJ/day (the initial
design capacity of the intermediate pressure pipeline) unless otherwise agreed to by the parties.
As discussed in TGW’s response to BCUC IR1, Question 25.4.1 (Exhibit B1-5, page 90), TGW
has not contemplated any long-term demand scenario that exceeds the capacity of the
intermediate pressure pipeline, therefore the addition of this clause is not expected to result in
any restriction of service to TGW. Nevertheless, if this scenario were to occur, TGVI could seek
to increase the capacity of the Whistler lateral through looping, MOP adjustment or
compression.
Exhibit B2-2, TGVI response to BCUC IR1, Qs. 7.8 and 15.2
97. Although related, TGW and TGVI are separate legal entities, therefore the TSA is
structured as if between two unrelated parties (Exhibit B2-2, response to BCUC IR1, Q. 36.2).
In addition, pursuant to Article 1, the agreement incorporates TGVI’s General Terms and
Conditions for Gas Transportation Service (“GT&Cs”) which includes nomination, balancing, and
force majeure and other standard provisions
II. TGW Contract Demand and Tolling Methodology
98. TGVI currently provides transportation service to VIGJV, BC Hydro, TGS and its own
core market customers. As a customer on TGVI’s system, TGW is most similar to TGS and to
TGVI’s own core market customers in that TGW is a distribution company serving residential
and commercial customers having an average daily load of approximately 30% of its design day
requirement (i.e. load factor of approximately 30%). In contrast, TGVI’s industrial customers,
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VIGJV and BC Hydro, are generally expected to have a daily demand that is relatively flat
throughout the year.
Exhibit B1-24, response to BC Hydro IR2, Q. 1(a) Exhibit B1-17, response to BCUC IR2, Q. 43.1
99. TGVI’s current cost allocation principles and rate design were approved in the
Commission’s June 5, 2003 Decision on the Rate Design Application of Centra Gas (now
TGVI). In that decision the Commission established the appropriate cost allocation principles
that underpin the setting of rates and the rate design for the different classes of customers on
TGVI’s system at that time. The Decision also recognized that the rates for TGS and the VIGJV
were mandated by the Special Direction, and therefore the Decision did not address the
appropriate rate design for TGS. In its Application, TGVI is not seeking any change in toll
design for any service reviewed in the Rate Design proceeding. Moreover, TGVI’s proposal for
TGW’s rates is based on the same cost allocation principles that were approved by the
Commission in its 2003 Decision. TGVI considers that the allocation of costs to TGW based on
TGW’s forecast of its maximum daily requirement, or design day demand, is consistent with the
cost allocation principles used to determine the allocation of transmission costs to TGS and to
TGVI’s core market customers. It is also consistent with allocation of costs to the transport
customers on the basis of Contract Demand.
Exhibit B2-3, response to BCUC IR2, Q. 41.1 Exhibit B1-24, response to BC Hydro IR2, Q. 1(b)
100. Pursuant to the Article 5 of the TSA, TGW will make monthly payments to TGVI based
on an amount obtained by multiplying a Unit Toll by the total quantity of gas delivered to TGW
during that period. The Unit Toll is based on TGVI’s forecast of fixed costs for transmission
service allocated to TGW divided by the TGW’s forecast Annual Requirement for that Contract
Year. TGVI will allocate costs to TGW on the basis of TGW’s Contract Demand relative to the
total demand on its system, and therefore TGW’s share of transmission costs will also depend
on TGVI’s forecast of other core market and firm industrial loads on its system.
101. Article 4.1 and Article 5.1 of the TSA require that TGW’s forecast of Contract Demand
and Annual Requirement must represent a genuine estimate of its maximum daily requirement
and total annual requirement in each contract year. TGW and TGVI are related companies that
are both managed by TGI, and demand forecasts for each utility will be based on the same
methodology. In addition both utilities are regulated by the BCUC, and it is expected that TGVI
and TGW’s demand forecasts used for the determining TGW’s allocated costs and Unit Toll will
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be reviewed from time to time by the Commission through annual reviews, revenue requirement
applications and reviews of resource plans. This oversight by the Commission provides
protection to both TGW and TGVI, and their customers.
Exhibit B2-2, response to BCUC IR1, Qs. 4.1, 4.2 and 5.1 Exhibit B1-5, response to BCUC IR 1, Q. 25.4.2 Exhibit B1-14, response to BCOAPO IR 1, Q. 1.11
102. On an annual basis, TGW’s Contract Demand will be used to determine the allocation of
TGVI transmission system costs to TGW. These allocated costs will be divided by the
associated forecast of annual volumes to determine the $/GJ Unit Toll. TGW’s forecast of
annual demand is based on “normal weather” which in turn is based on the average
temperatures over the past 10 years. If the weather is colder than normal, TGW’s annual
volumes will be greater than forecast and TGVI will recover more revenue than forecast. If the
weather is warmer than normal, TGW’s volumes may be lower than forecast and TGVI may
under recover costs in that year. On average, however, TGVI can expect to fully recover that
portion of its costs that are allocated to TGW.
Exhibit B1-14, response to BCOAPO IR1, Q. 1.10 Exhibit B1-13, response to BC Hydro IR1, Q. 2(g)
103. The proposed Unit Toll is expressed as a dollar per GJ delivered value and will apply to
both firm and interruptible deliveries. Under the TSA, TGW has the rights to daily firm
transportation service up to its Contract Demand, which as discussed above is based on TGW’s
forecast of its design day requirement. The forecast of the design day is based on a statistical
analysis to determine the coldest day that is expected to occur in a 20 year return period (e.g.
has a 5% probability of occurring in any one year). Every other day of the year it is expected
that TGW’s transportation requirement will be lower than the stated Contract Demand. If an
extreme weather event occurs such that additional gas transport maybe required, TGW can
request interruptible service. In contrast, the expectation for an industrial transport customer is
that it will utilize its contract demand on most days of the year. As a result the frequency that
such customer would request capacity in excess of its contract demand, or interruptible service,
can be very high. In the case of industrial customers that may make frequent use of IT service,
the IT toll is structured in order to encourage such customers to contract for firm service to meet
their expected daily requirements. Such a structure is not appropriate for TGW since its
expected maximum use of the system is represented by its Contract Demand.
Resource Plan Update, Exhibit B1-1, Section 4.1, page 17 Exhibit B1-20, response to BC Hydro IR2, Q. 1(a) Exhibit B1-17, response to BCUC IR2, Q. 43.1
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104. TGVI considers that the proposed tolling methodology for TGW is fair and reasonable.
In the 2003 Rate Design Decision, the Commission recognized that it is appropriate to consider
different rate structures for different classes of customers, while having regard to competitive
position to alternate energy sources and desirability of reasonable rates. TGW is a local
distribution company serving core market customers similar to TGS and TGVI’s core markets,
and TGS is expected to be on the system for the foreseeable future. The proposed revenue to
cost ratio of 1.0 will support TGW’s objective of providing affordable service to its residential and
commercial customers without requiring cross subsidization from TGVI’s other customers.
However, even at this level, TGW’s rates will still be competitively challenged against electricity. Exhibit B-17, response to BCUC IR2, Q. 43.1, page 33
105. The Companies consider the terms of the TSA to be reasonable, and fair, as between
TGW and TGVI and their respective customers. The Companies request that the TSA, as
executed, be approved by the Commission.
F. CAPITAL CONTRIBUTION AGREEMENT
106. As part of the CPCN Applications, TGVI and TGW are requesting that the Commission
approve the proposed arrangements between the parties whereby TGW will make a capital
contribution to TGVI upon the completion of the facilities to serve Whistler and the
commencement of natural gas service. The principal terms of the proposed agreement are
summarized in TGW’s response to BCUC IR1, Q. 24.1 (Exhibit B1-5, page 86).
107. An executed copy of the Capital Contribution Agreement has been filed in Exhibit B1-33.
Article 1 of the agreement provides for TGW to make a contribution to TGVI that is equal to all
of TGVI’s reasonable costs to develop, construct and commission the Whistler Facilities,
including AFUDC, that exceed $21.6 million. As discussed in paragraphs 41 and 42 above, this
effectively reduces the net rate base addition to TGVI to $21.6 million, and places the risk of
cost overruns on TGW.
108. The Companies consider the terms of the Capital Contribution Agreement to be
reasonable, and fair as between TGW and TGVI and their respective customers. The
Companies request that the Capital Contribution Agreement, as executed, be approved by the
Commission.
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G. OTHER
109. TGVI has been exploring the possibility of some form of amalgamation or merger of the
separate gas utility entities including TGW and TGVI, for implementation at some as yet
undetermined future date. TGVI has not reached a conclusion with respect to that option. If a
form of amalgamation is pursued it expects that an application will be filed with the Commission
seeking approval of such amalgamation, including the rate proposed. It is expected that the
Commission will review that application in accordance with its powers under the Act. At this
time it is premature to establish or discuss how any group of customers might be treated in an
amalgamation or merger.
Exhibit B1-10, TGW response to VIGJV IR 1, Q. 5.1
H. TIMING REQUIREMENTS
110. In the cover letter submitted with the Resource Plan Update (Exhibit B1-1), a regulatory
review process to culminate in a Commission decision by Friday April 27, 2006 was proposed.
An early decision was required to support co-ordination of the construction of the pipeline with
that of the Sea-to-Sky upgrade project, with the first phase of pipeline construction to occur in
the summer of 2006. In Exhibit B1-6 dated January 23, 2006 the TGVI and TGW submitted its
comments following the January 17, 2006 Procedural Conference. In that letter the Companies
revised the earlier regulatory process proposal to provide for a Commission decision by May 11,
2006, in consideration of the items raised during and subsequent to the Procedural Conference.
As discussed in the response to BCUC IR2, question 38.2, TGW and TGVI believe that the IP
Pipeline project costs will begin to increase if Commission approval is not received by mid-May.
On page 54 of the Transcript Volume 2, The Chairperson asked if TGW and TGVI wanted the
decision by May 11. In consideration of the current timetable, the Companies now request a
Commission decision by May 19, 2006.
Exhibit B1-1, Cover Letter, page 2 Exhibit B1-6, page 5 Exhibit B2-3, response to BCUC IR 2, Q. 38.2, page 2 Transcript Vol. 2, Page 54
I. CONCLUSION
111. In its 2005 Resource Plan Update TGW has assessed the resource options for Whistler.
After consideration of both propane and natural gas service, and TGW's obligation to provide
safe and reliable service that meets the requirements of present customers and future
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customers in its service area, TGW has concluded that converting the Whistler propane system
to natural gas is the best means of providing such service.
112. The evidence before the Commission demonstrates that the conversion of the propane
system to natural gas will allow TGW to provide service at the lowest delivered cost, improve
competitiveness, enhance the reliability and security of supply, reduce rate volatility and provide
significant environmental and stakeholder benefits. The propane system is at capacity and the
evidence demonstrates that the options for expansion of the propane system are not cost
effective.
113. Extension of natural gas to Whistler is strongly supported by the RMOW and local
stakeholders, and is consistent with the community’s sustainability objectives. The project is an
integral component of the RMOW’s sustainable energy strategy and supports the RMOW’s
objectives to reduce greenhouse gas emissions and improve air quality. In addition, the natural
gas pipeline will eliminate the need for road and rail transport movements of propane and
offloading and storage facilities within the municipal boundaries.
114. At this time there is a unique opportunity to minimize costs and highway traffic disruption
by coordinating the pipeline construction schedule with the Sea-to-Sky highway upgrade project.
This unique opportunity should not be missed.
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115. TGW and TGVI submit that the Commission should issue to TGW a CPCN to convert
the Whistler propane system to natural gas and should issue to TGVI a CPCN for the
construction and operation of the intermediate pressure pipeline from Squamish to Whistler.
TGW and TGVI also submit that the Commission should grant its permission for TGW to cease
the operation of its propane distribution service when natural gas service commences and that
the Commission should approve the other matters listed in paragraph 2 of these Submissions.
All of which is respectfully submitted.
Original signed by C.B. Johnson Original Signed by M.T. Ghikas
________________________ __________________________
C.B. Johnson, Q.C. M.T. Ghikas
Counsel for Terasen Gas (Whistler) Inc. and Terasen Gas (Vancouver Island) Inc.
March 31, 2006