AMPC Aid to Cross 9 1/17/2020 Letter from BC Hydro President & COO to BCUC on Interior to Lower Mainland Transmission Line arbitration decision

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News May 16, 201 8

Letter from BC Hydro President & COO to BCUC on Interior to Lower Mainland Transmission Line arbitration decision

Mr. David Morton

Chair

Bri tish Columbia Umities Commission

Suite 410. 900 Howe Street

Vancouver, BC. V6Z 2N3

Dear Chairman Morton

RE: British Columbia Hydro and Power Authority (BC Hydro) Interior to Lower Mainland (ILM) Project

Arbitration Decision

I am wri ting to you today lo provide you wilh an update and further information regarding BC Hydro's completed

Interior to Lower Mainland Transmission Line project, and in particular. the arbi lration process that BC Hydro has

been engaged in since 201 4 with our prime contractor on the project, Flatiron Graham Joint Venture (FGJV) . The

arbilration decision was released on March 29, 2018.

As you know, the Interior to Lower Mainland Transmission Line is a 247 kilometre long, 500-kilovolt power line that

stretches from Merritt to Coqu1tlam. The line is the largest expansion to B.C.'s transmission syslem in the past 30

years. BCHydro awarded a design build con lracl for the line in 2011 to FGJV and construction began in the spring

of 2012. FGJV was to complele the line by October 2014 and the forecast in-service date for the project was

January 201 5. However, the in-service date was pushed back to late 2015, a year later than planned.

The new line was built through challenging and diverse terrain in B.C.'s southern interior on Crown and private

land and crosses mountains. grasslands. major rivers and highways.

The portion of the line running through the area of the Fraser Valley near Spuzzum was part1cularty challenging.

An alternate route alignment was explored as part of an arrangement with a local First Nation group Ultimately. we

decided to return to the original route alignment and to construct the Spuzzum portion of the line ourselves, rather

than using FGJV. The arbitrator found that changes In the Spuzzum portion of the hne delayed FGJV's work and

that BC Hydro is responsible under the contract for certain costs associated with this delay

There were also disruptions to FGJVs construction schedule due to issues related to access to private land and

archaeological sites that were identified. The arbitrator determined that BC Hydro is required under the contract to

compensate FGJV for some costs due to lost productivity because of these disruptions.

The contractor's claim against BC Hydro was substantial, ranging in value over time from $285 to $360 million.

While the arbitrator dismissed a number of elements of the FGJV claim. he determined that the contractor was

entitled to additional payments under the contract, largely attributable to the Spuzzum portion of the line and the

disruption costs as discussed above. We have calculated these additional costs payable under the award to be

approximately $84.7 million. In addition . BC Hydro has held-back $17 4 million from amounts we owed to FGJVas

compensation for liquidated damages payable to BC Hydro under the contract. However, based on the arbitrator's

award. BC Hydro must now pay out approximately $13.1 million of the hold-back amount because we are nol

entitled to all the liquidated damages we claimed . We also must pay interest on some of these award amounts.

Based on our calculations, the total award, including interest and the payment of hold-back amounts, is in the

range of $95 to $105 million . BC Hydro and FGJV have asked the arbitrator to clarify certain aspects of the

Decision and his clanfications may affect the final award amounts. We antiapate that the clarification process will

conclude in May or June. at which time we should be able to determine the total value of lhe award with more

certainty. It is also possible that BC Hydro or FGJV may appeal the award .

The final construction cost of the ILM transmission hne was $723 million. which Is slighUy less than the budgeted

amount of $725 million in the BCuc·s deasion approving the Certificate of Public~ nvenience and Necessity

https://www.bchydro.com/news/press _ centre/news _releases/2018/bchydro-ilm-project-decision.html

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AMPC Aid to Cross 9 1/17/2020 Letter from BC Hydro President & COO to BCUC on Interior to Lower Mainland Transmission Line arbitration decision

(BCUC Order No. C-4-08). Based on our calculations, the arbitrator's award to FGJV increases the forecast cost of

the Interior to Lower Mainland transmission project to approximalely $818 million to $828 million , subject to the

outcome of the clarifications and any appeals.

1/Vhile the arbitration decision isn 't the outcome we were hoping for, there are lessons learned we can take forward,

several have already been implemented. These lessons include potentially different contractual arrangements on

linear-impact projects as compared to point-impact projects and management of interfaces between project

activities and third parties. BC Hydro has also made significant investments in systems and staff to improve

contract management and understanding of contractor performance to allow better project management on all BC

Hydro projects. Those lessons and final project costs will be more fully described in our final Project Completion

Report. which we expect to file in summer 2018.

Sincerely,

Chris O'Riley

President & Chief Operating Officer. BC Hydro

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