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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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DM_VAN/259183-00005/6486979.1

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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DM_VAN/259183-00005/6486979.1

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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DM_VAN/259183-00005/6486979.1

$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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DM_VAN/259183-00005/6486979.1

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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DM_VAN/259183-00005/6486979.1

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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DM_VAN/259183-00005/6486979.1

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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DM_VAN/259183-00005/6486979.1

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