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LAWSON i ' "DEI B L%4 ii '1- --
1600 Cathedral Place 925 West Georg~a Street
Vancouver, B r~ t~sh Columbia Canada V6C 3L2
3% r r 2s 604 685 3456 ct i 3 r i J 604 669 1620
Vancouver Calgary
Yellowknife
July 14,2010
Ms. Erica Hamiltcn Commission Secrt:tary British Columbia 'Jtilities Commission Sixth Floor - 900 13owe Street Vancouver, B .C. V6Z 2N3
Dear Ms. Hamilton:
Re: British Ccllumbia Utilities Commission (BCUC) FortisBC '[nc. 2009 Rate Design and Cost of Service (Application) Project No. 3698564
We are counsel to British Columbia Hydro and Power Authority (BC Hydro) for its intervention in the BCUC proceeding to review the Application. Under cover of this letter we submit BC Hydro's Final Argument in this matter.
For further information please contact the undersigned.
Yours truly,
Ian D. Webb
CC.
Enc .
Fred James, BC Hydro Registered Illtervenors
Lawson Lundell LLP is a British Columbia Limited Liability Partnership
FOlRTISBC INC.
2009 RATE DESIGN AND COST OF SERVICE
FINAL ARGUMENT
OF: BC HYDRO
JULY 14,2010
Table of Contents
................................................................................................... 1 . Introduction 1
2 . Background ................................................................................................... 2
................................................................................................ 2.1 . Overview 2
............................................................................. 2.2. Chronology of Events 4
2.2.1. April 2001 ant1 March 2002 - BCUC Issues Order Nos . G-38-01
and G-17-02 ................................................................................................ 4
2.2.2. September 2C08 - BC Hydro Applies to Amend Section 2.1 of the
BC Hydro PPA ............................................................................................... 5
2.2.3. January 2009 - BC Hydro and Zellstoff Celgar enter into the
Zellstoff Celgar EPA and EPA Side Letter ..................................................... 6
2.2.4. February 200!J - BC Hydro files Bioenergy EPAs ........................... 9
2.2.5. May 2009 - BCUC Rules on the PPA Amendment Application .... 10
2.2.6. July 2009 - B ZUC Accepts BioEnergy EPAs ............................... 11
2.2.7. March 201 0 - Zeilstoff Celgar GBL Application ............................ 11
........................... 3 . Submissions About The Zellstoff Celgar GBL Application 12
3.1. Upholding the Zellstoff Celgar Position would not be consistent with the
principles of BCUC Ordev Nos . G-38-01 and G-48-09 .................................... 15
3.2. Upholding the Zellstoff Celgar Position would not be consistent with.
and follow. the approach taken by BC Hydro in relation to its self-generation
customers ...................................................................................................... 19
BC Hydro Final Argument
July 14. 2010
3.3. Upholding the Zell:;toff Celgar Position would not be in the best interests
of other FortisBC ratepayers ........................................................................... 22
3.4. Upholding the Zell:;toff Celgar Position would allow Zellstoff Celgar to
arbitrage between fixed, embedded cost of service rates and market prices.. 24
4. Conclusion ................................................................................................. 25
BC Hydro Final Argument
July 14,2010
1 1. INTRODUCTION
2 On October 30, 2009, FortisBC Inc. (FortisBC) filed its 2009 Rate Design and
3 Cost of Service Application (the FortisBC RDA) with the British Columbia
4 Utilities Commission (BCUC:). The FortisBC RDA incorporates the results of a
5 2009 Cost of Service Analysis and seeks BCUC approval, pursuant to sections
6 58 and 61 of the Utilities Cclmmission Act (UCA), of revised rate schedules for
7 certain customer classes arid various revisions to the FortisBC Electric Tariff.
8 On February 15, 201 0, Zelstoff Celgar Limited Partnership (Zellstoff Celgar)
9 applied to the BCUC seekirg a determination that the issue of the
10 appropriateness anld determination of a generation baseline (GBL) for Zellstoff
11 Celgar's pulp mill near Casllegar, B.C. (the Mill) be within the scope of
12 proceeding relating to the FortisBC RDA. By Order No. G-35-10' the BCUC
13 determined that Zellstoff Ce lgar may file evidence concerning the establishment
14 of a GBL with FortisBC, ancl the BCUC would determine whether that evidence
15 was ultimately relevant to the proceeding and, if appropriate, would make
16 determinations in respect 01' a GBL between Zellstoff Celgar and FortisBC. On
17 March 15, 201 0, Zellstoff Celgar filed evidence it described as "relevant to the
18 establishment of a generation baseline (a "GBL") for Zellstoff Celgar Limited
19 Partnership ("Zellstoff Celgx") with FortisBC Inc. ("FortisBC"). . . having an
20 energy component of 13,474 MWh and yielding an average capacity component
21 of 1.5 aMW" (the Zellstoff Celgar GBL ~ ~ ~ l i c a t i o n ) . ~
22 BC Hydro considers that except where an issue impacts BC Hydro or its
23 customers, it is not BC Hyd ?oJs role to make submissions about the manner in
24 which the BCUC regulates =ortisBC. Therefore, BC Hydro is not making
25 submissions about the app~~ovals sought by FortisBC in the FortisBC RDA.
1 Exhibit A-1 0.
* Exhibit C13-7 at page 1.
1 The Zellstoff Celgar GBL A~~plication could potentially impact BC Hydro or its
2 customers because that application is about the amount of low, embedded cost
3 electricity Zellstoff Celgar may purchase from FortisBC and could potentially
4 impact the amount of electricity FortisBC purchases from BC Hydro. In addition,
5 BC Hydro believes that cert3in past events and BC Hydro decisions and
6 agreements have been mischaracterized by parties during this proceeding.
7 Furthermore, Zellstoff Celge~r appears to rely on various incorrect assumptions
8 about BC Hydro's approach to GBLs for its customers. For these reasons, in the
9 following section BC Hydro provides a detailed summary of past decisions,
10 agreements and events thai:, in BC Hydro's view, are pertinent to the BCUC's
11 consideration of the Zellstoff Celgar GBL Application.
12 For the reasons set out in s~xtion 3, below, BC Hydro respectfully submits the
13 BCUC ought to reject the Zellstoff Celgar GBL Application.
14 2. BACKGROUND
15 2.1. Overview
16 BC Hydro sells electricity to FortisBC under the Power Purchase Agreement,
17 dated as of October 1,19921, as amended, (BC Hydro PPA) for the purpose of
18 supplementing FortisBC1s rt?sources to enable it to meet its service area load
19 requirements. According to FortisBC, the BC Hydro PPA "represents an
20 important resource for FortisBC, providing in 2008 approximately 27% of
21 FortisBCTs capacity needs 2nd approximately 24% of its energy needs.'13
22 The BC Hydro PPA was me de in 1993 in accordance with the following directive:
23 "the Commission dilrects B.C. Hydro and [FortisBC] to negotiate amendments to
24 the PPA to incorporate the Commission's findings and directions as set out in
FortisBC 2009 Resource Plan at page 85, lines 10-1 1, the electronic version of which was made available in Exhibit B-3-1, Fortis@C's response to BCUC IR 1.7.1.
BC Hydro Final Argument
July 14,2010
I other sections of this ~ecis ion."~ By Order No. G-85-93 the BCUC approved the
2 BC Hydro PPA as a revision to BC Hydro Electric Tariff Supplement No. 3.
3 FortisBC also has its own hydroelectric generating plants on the Kootenay River,
4 and a power purchase agre sment with Brilliant Power Corporation for the
5 purchase of electricity generated at the Brilliant generating plant (Brilliant PPA).
6 Collectively, the FortisBC plants, the BC Hydro PPA and the Brilliant PPA
7 provided, in 2008, about 99 per cent of FortisBC's energy requirements and
8 about 76 per cent of its peal< capacity requirements. FortisBC relies on short-
9 term and spot wholesale electricity markets to meet any shortfall.
10 The point of supply under the BC Hydro PPA is essentially the points where
11 FortisBC's transmission lines interconnect with BC Hydro's Kootenay Canal
12 Substation. The poilnt of suy~ply is generally referred to as the Kootenay
13 Interconnection.
14 Zellstoff Celgar has self-generating capability at its Mill. In 2007 the nameplate
15 capability of Zellstoff Celgar's extraction turbine generator was 52 MW, average
16 hourly output was 40 MW, and annual output was 350,641 M W ~ . ~ This
17 generator has been in servi1;e at the Mill since 1994.
18 BC Hydro has entered into an electricity purchase agreement with Zellstoff
19 Celgar dated as of January 27, 2009 (Zellstoff Celgar EPA), pursuant to which
20 BC Hydro will purchase nevi, incremental electricity generated from investments
21 that increase Zelstoff Celgar's generating capability from 52 MW to 100 MW. The
22 Kootenay Interconnection i3, the point of delivery for the Zellstoff Celgar EPA.
4 In the Matter of An Application fly British Columbia Hydro and Power Authority for Rate Schedule 3808 and Revised Ponsr Purchase Agreement with West Kootenay Power Ltd., dated April 22, 1993, at page 29.
FortisBC 2009 Resource Plan, supra note 3, at page 88, lines 17-23.
Exhibit C13-7 at page 21.
BC Hydro Final Argument
July 14,2010
Zellstoff Celgar is a bundled electricity service customer of FortisBC, and since
October 1,2006 it has been purchasing energy from FortisBC under FortisBC
Rate Schedule (RS) 33 "L;~rge General Service - Transmission - Time of Use"
rate.7 According to FortisBC, its intention in implementing its time of use rates
"was primarily to shift customer usage from on-peak to off-peak periods to reduce
power purchase costs and defer system capital e~~endi tures."~
The following sections provide a summary, in chronological order, of the
decisions, agreements ancl events that, in BC Hydro's view, are pertinent to the
BCUC's consideration of the Zellstoff Celgar GBL Application.
10 2.2. Chronology of Events
11 2.2.1. April 2001 and March 2002 - BCUC Issues Order Nos. G- 12 38-01 and G-17-02
13 On February 23, 2001 BC Hydro sought guidance from the BCUC in defining the
14 scope and ambit of its obligation to serve customers with self-generating
15 capability under what was then Rate Schedule 1821 - Transmission Service (RS
16 1821) when Howe Sound 13ulp and Paper (HSPP), an RS 1821 customer with
17 self-generating capability, !;ought an order from the BCUC requiring BC Hydro to
18 permit and facilitate sales of incremental (excess) power from HSPP.
19 On April 6, 2001 the BCUC: issued Order No. G-38-01, in which Directive 1
20 states:
2 1 "The Commission directs B.C. Hydro to allow Rate Schedule 1821 22 customers with idle stalf-generation capability to sell excess self- 23 generated electricity, provided the self-generating customers do not 24 arbitrage between errbedded cost utility service and market prices. This 25 means that B.C. Hydro is not required to supply any increased embedded 26 cost of service to a RlS 1821 customer selling its self-generation output to 27 market."
7 T5: 89011 2-89611 (Rate Schedule 33 is provided at Exhibit B-26).
* Exhibit B-3-4, FortisBC response to Zellstoff Celgar IR 1.15.1.
BC Hydro Final Argument
July 14,2010
5
1 The regime was established for one year and was subsequently extended by
2 BCUC Order No. G-17-02, ciated March 14,2002, "until such time as future
3 circumstances warrant furthx review." The principles of BCUC Order No. G-38-
4 01 continue to limit BC Hydro's obligation to serve customers with self-generating
5 capability.
6 2.2.2. September 2008 - BC Hydro Applies to Amend Section 2.1 7 of the BC Hydro PPA
In June and August of 2008 FortisBC entered into agreements with Zellstoff
Celgar and the City of Nelsc n, which purported to enable Zellstoff Celgar and the
City of Nelson to export self-generated power that was being used to serve their
loads and replace the exported power with purchases from FortisBC at
embedded cost rates. The activity contemplated by these agreements indicated
to BC Hydro that FortisBC intended to increase its purchases under the BC
Hydro PPA by approximately 378 ~whlyear ' to replace power exported by
Zellstoff Celgar and the City of Nelson. BC Hydro estimat4d that if it was required
16 to provide this incremental energy to FortisBC at embedded cost rates for the
17 purpose of supporting the export activities of FortisBC1s customers, BC Hydro
18 and its ratepayers could incur a loss of $16.7 million per year.'0
19 To protect itself and its customers from the cost impacts of this activity, on
20 September 16,2008 BC Hyjro applied to the BCUC (the PPA Amendment
21 Application) for approval p~~rsuant to section 58 of the UCA to amend the
22 BC Hydro PPA to clarify that electricity purchased by FortisBC under it cannot be
23 sold to any FortisBC custow~er that is selling self-generated electricity which is
24 not in excess of its load.
In the Matter of British Columbkr Hydro and Power Authority and Application to Amend Section 2.1 of Rate Schedule 3808 Powetr Purchase Agreement, May 6,2009 (the PPA Amendment Decision) at page 27.
I0lbid.
BC Hydro Final Argument
July 14,201 0
1 BC Hydro took the position that the BCUC has determined by Order No. G-38-01
2 that BC Hydro's obligation to provide electricity at low, embedded-cost rates to
3 customers with self-generation capability should be limited to prevent or minimize
4 inappropriate arbitrage between embedded cost utility service and market prices.
5 Zellstoff Celgar and FortisE3C took the position in that proceeding that the
6 principles of BCUC Order No. G-38-01 should not be applicable to FortisBC and
7 its customer^.^^
8 2.2.3. January 2009 - BC Hydro and Zellstoff Celgar enter into 9 the Zells toff Celgar EPA and EPA Side Letter
10 As a result of BC Hydro's E3ioenergy Call Phase I Request for Proposals
11 (Bioenergy RFP), BC Hydro and Zellstoff Celgar entered into the Zellstoff Celgar
12 EPA, dated January 27, 2009.
13 The Zellstoff Celgar EPA established and defined a GBL for each season
14 (Seasonal GBLs) for Zellstoff Celgar's Castlegar facility consistent with the GBL
15 methodology BC Hydro has utilized for its customers with self-generation who
16 sell power to BC ~ ~ d r 0 . l ~
17 The Zellstoff Celgar EPA commits Zellstoff Celgar to sell to BC Hydro electricity
18 generated by new, incremcmtal generation capacity in excess of the Seasonal
19 GBL each season. The Zellstoff Celgar EPA includes a standard provision
20 (section 7.4) of the Bioenergy RFP EPAs that requires the seller to sell energy in
21 excess of the GBL exclusively to BC Hydro, and prevents the seller from selling
22 energy below its "Mill Loacl", as defined in each EPA. This standard provision of
23 the Bioenergy RFP EPAs prohibits customers with self-generation from
24 arbitraging between BC Hydro's embedded cost of service and market prices
11 Ibid. at pages 13-1 4.
l 2 Exhibit C12-2 at page 1.
BC Hydro Final Argument
July 14,2010
1 consistent with the principles of BCUC Order No. G-38-01. Section 7.4 of the
2 Zellstoff Celgar EPA states as follows:
"7.4 Exclusivity - 'The Seller shall not at any time during the Term commit, sell or deliver any Energy to any Person, other than the Buyer under this EPA, except:
(a) Pre-COD Energy sold to third Persons in accordance with section 7.1;
(b) that portion of ':he Energy generated in any Season during the Term after CO3 that is less than the Seasonal GBL, and greater than the Mill Load, in each case, for that Season;
(c) during any perod in which the Buyer is in breach of its obligations under section ;'.3; and
(d) during any period in which the Buyer is not accepting deliveries of Eligible Energqf from the Seller due to Force Majeure invoked by the Buyer."
At the time BC Hydro and i!ellstoff Celgar finalized the Zellstoff Celgar EPA, the
BCUC had not ruled on the PPA Amendment Application and had not determined
whether the principles of BCUC Order No. G-38-01 should apply to FortisBC and
19 its customers with self-generating capability. Zellstoff Celgar and FortisBC were
20 taking the position that the principles of BCUC Order No. G-38-01 should not
21 apply to them. As discussed in section 1 of this submission, except where issues
22 impact BC Hydro or its cus':omers it is not BC Hydro's role to make submissions
23 about the manner in which the BCUC ought to regulate FortisBC. For these
24 reasons, BC Hydro agreed to enter into a side letter agreement with Zellstoff
25 Celgar dated January 27, i 009 (the EPA Side ~ e t t e r ) , ' ~ which contemplates
26 Zellstoff Celgar seeking determinations from the BCUC in relation to sales of
27 energy below Zellstoff Celgar's "Mill Load", as defined in the Zellstoff Celgar
28 EPA. Specifically, the EPA Side Letter deals with the possible modification of
29 section 7.4(b) of the Zellstclff Celgar EPA, as follows.
l3 Attached to Exhibit C12-2.
BC Hydro Final Argument
July 14,201 0
1 "In our discussions re jarding the EPA, the Seller took the position that 2 section 7.4(b) should read as follows (the "alternate 7.4(b)"):
3 "(e) that portion of the Energy generated in any Season during the 4 Term after COD that is less than the Seasonal GBL for that 5 Season;".
6 The Parties have executed and delivered the EPA in its present form as 7 to section 7.4(b), probided that this letter is exchanged.
8 This letter confirms our agreement that:
1. The inclusion of section 7.4(b) in the EPA in its present form, and the support of the Parties for the EPA in any proceeding (the "section 71 proceeding") arising from the filing of the EPA with the BCUC under section 71 of the UCA, are without prejudice to the right of (i) the Seller to take a position in any other pending or future regulatclry proceeding before the BCUC, the effect of which if such positiorl were to prevail in that proceeding, would be that (A) FortisBC niay supply electricity to the Seller to serve the Seller's Mill Lcad, in circumstances where the Seller sells self- generated electricity diverted from serving Mill Load, (B) the Seller may sell such self-generated electricity in those circumstances, and (C) sectiorl 7.4(b) of the EPA in its present form should have no force or efkct, and (ii) BC Hydro to take a contrary position. . ..
If the BCUC rr akes an order in any pending or future regulatory proceeding upholding the position described in paragraph I (i) above, then subject to the outcome of any reconsideration or appeal thereol, the Parties shall execute and deliver an agreement arr ending the EPA to substitute the alternate section 7.4(b) for that section in the present EPA, which amendment shall be filed with the BCUC under section 71 of the UCA and shall be subject to acceptance by the BCUC.'"~
Zellstoff Celgar has, in this proceeding, advanced the position described in
paragraph l(i), above. If the BCUC were to uphold Zellstoff Celgar's position,
then the parties would amend section 7.4 of the Zellstoff Celgar EPA by replacing
paragraph 7.4(b) with the "alternate 7.4(b)" in accordance with the EPA Side
Letter. The amend~ment to the Zellstoff Celgar EPA would, subject to acceptance
by the BCUC pursuant to section 71 of the UCA, allow Zellstoff Celgar to divert
self-generated electricity from serving Mill load, to sales into markets. The BCUC
would need to determine whether FortisBC should be obligated to sell electricity
l4 Exhibit C12-2, Attachment 1.
BC Hydro Final Argument
July 14,2010
I to Zellstoff Celgar at a fixed, embedded cost rate (or some other rate) to replace
2 the self-generated electricity Zellstoff Celgar would be able to divert to market
3 sales.
4 If the BCUC were to uphold Zellstoff Celgar's position in this proceeding, it would
5 not have any effect on the Seasonal GBLs in the Zellstoff Celgar EPA.'~ Other
than section 7.4(b), no term or condition of the Zellstoff Celgar EPA would
change. No term or condition of the BC Hydro PPA would be amended.
If the upholding of Zellstoff (:elgar's position and amendment of the Zellstoff
Celgar EPA permitted Zellstoff Celgar to increase its electricity purchases from
FortisBC for the purpose of replacing self-generation previously used to serve
Mill load and diverted to ma-ket sales, then the financial impacts of such activity
would be to FortisBC and it:; other customers. Any increase in FortisBC resource
requirements would have no direct impact on BC Hydro or its customers.
2.2.4. February 2009 - BC Hydro files Bioenergy EPAs
15 On February 17, 2009 BC Hydro filed with the BCUC four electricity purchase
16 agreements from the Bioenergy RFP, pursuant to section 71 of the UCA. The
17 Zellstoff Celgar EPA was orle of the four agreements filed.
18 BC Hydro took the position ~n the Bioenergy RFP that Zellstoff Celgar should be
19 treated the same as the oth13r Bioenergy RFP proponents (notwithstanding that
20 Zellstoff Celgar is a FortisBC customer and its Mill is not located in BC Hydro's
21 service area). The terms an3 conditions of the Zellstoff Celgar EPA are
22 consistent with the terms and conditions of EPAs for BC Hydro customers with
23 self-generation capability who sell electricity to BC Hydro. The GBLs for each of
24 the Bioenergy RFP EPAs were determined on a consistent basis.I6
l5 Exhibit C12-2 at page 3. 16 Ibid, at page 1.
-
BC Hydro Final Argument
July 14,2010
BC Hydro agreed to the EF'A Side Letter because at that time it accepted that it
should not, through the Zel tstoff Celgar EPA, prevent Zellstoff Celgar from
arguing before the BCUC its position that the principles of BCUC Order No. G-
38-01 should not apply to F'ortisBC and its customers. The EPA Side Letter was
not filed with the BCUC as part of the Bioenergy EPA section 71 filing because it
is not part of the Zellstoff Celgar EPA and only provides for amendment of the
Zellstoff Celgar EPA in the event the BCUC upholds a position advanced in a
subsequent proceeding.
2.2.5. May 2009 - BCUC Rules on the PPA Amendment Application
Subsequent to the executicln of the Zellstoff Celgar EPA and the EPA Side
Letter, on May 6,2009 the BCUC issued Order No. G-48-09 and reasons for
decision for the PPA Amendment ~~pl icat ion." The BCUC ordered the
amendment of section 2.1 of the BC Hydro PPA so that it reads as follows:
"(a) The electricity pul-chased under this agreement is solely for the purpose of supplementing FortisBC's resources to enable it to meet its service area load requirements and, shall not be exported or stored, provided that nothing contained herein shall prohibit FortisBC from storing its entitlement resources in its entitlement account pursuant to the Canal Plant Agreement; and
(b) shall not be sold to any FortisBC customer when such customer is selling generated elec:ricity which is not in excess of load.
For greater certainty, paragraph (b) above is to prevent FortisBC self- generating customers from purchasing power at regulated embedded cost rates and simulta ieously selling an equivalent amount of power into available domestic and export market^."'^
27 As is made clear by the final paragraph of section 2.1 of the amended BC Hydro
28 PPA, paragraph 2.l(b) means that FortisBC shall not sell electricity purchased
29 under the agreement to an!/ FortisBC customer who is selling self-generation not
17 The PPA Amendment Decisio~i, supra note 9.
l8 Ibid. at page 31.
BC Hydro Final Argument
July 14,2010
1 in excess of the customer':; actual plant load on a dynamic basis. Section 2.1
2 does not allow FoltisBC to use BC Hydro PPA power to serve load of its self-
3 generating customer at any time when the self-generator is selling an equivalent
4 amount of energy into the market. However, section 2.1 does not prevent
5 FortisBC from using BC Hydro PPA power to serve the load of other customers
6 at such times.
7 The BCUC also determined that the general principles enunciated in BCUC
8 Order No. G-38-01 ought to be extended to customers of ~ o r t i s ~ ~ . ' ~
9 2.2.6. July 2009 - BCUC Accepts BioEnergy EPAs
10 On July 31,2009 the BCU C issued Order No. E-8-09 accepting the four EPAs
11 filed by BC Hydro in connection with the Bioenergy RFP, including the Zellstoff
12 Celgar EPA. Reciital L of E3CUC Order No. E-8-09 states:
13 "The Commission finds that, in the context of [Special Direction No. 101 14 the four EPAs are in the public interest with respect to need and 15 prices and determines that they should be accepted for filing."
16 2.2.7. March 2DIO - Zellstoff Celgar GBL Application
17 On March 15, 2010, the Zollstoff Celgar GBL Application was filed with the BCUC
18 pursuant to leave granted by BCUC Order No. G-35-1 o.~' The leave granted by
19 the BCUC is expressly subject to the proviso that,
20 "Neither the contracti~al generation baseline established in the EPA 2 1 between BC Hydro and Celgar nor the PPA, as amended, are within the 22 scope of this proceeding."21
23 If the BCUC upholds Zellsi:off Celgar's position, then BC Hydro would fulfill its
24 commitment in the EPA Side Letter and amend the Zellstoff Celgar EPA to reflect
/bid. at page 22.
20 Exhibit A-1 0.
21 BCUC Order No. G-35-10, Directive 2.
BC Hydro Final Argument
July 14,2010
1 the "alternate 7.4(b)", subject to acceptance of the amended Zellstoff Celgar EPA
2 by the BCUC under s e c t i o ~ ~ 71 of the UCA.
3 3. SUBMISSIONS ABOUT THE ZELLSTOFF CELGAR GBL 4 APPLICATION
5 Zellstoff Celgar provided the following summary of its position (the Zellstoff
6 Celgar Position) in its evidence submission:
7 "The first Section references the regulatory decisions relevant to whether 8 or not a GBL with FortisBC should be established for Zellstoff Celgar and 9 provides evidence as to the approach taken by British Columbia Hydro
10 and Power Authority ("BC Hydro") to establish GBLs for its self-generation 11 customers.
The second Section reviews recent approaches taken by BC Hydro in establishing GBLs having reference to the basic terms of electricity purchase ag~reements ("EPAs") that BC Hydro has entered into with certain of its customers. Based on the BC Hydro examples, Zellstoff Celgar recommends ;an approach for the determination of its FortisBC GBL and seeks a GBL, based upon its last three full years average generation (1 990 to 1992 inclusive) preceding the failure of its original generator in 1993, having an energy component of 13,474 MWh and yielding an average capacity component of 1.5 ~ M W . " ~ ~
21 Zellstoff Celgar has used the term "FortisBC GBL", and has acknowledged that
22 the purpose of such "FortisBC GBL" is different in nature from the purpose of a
23 GBL set in an electricity purchase agreement:
24 "[TJhe proposed FortisBC GBL and the BC Hydro GBL are intended to 25 serve two different p~trposes. The FortisBC GBL will determine load 26 requirements to be met by FortisBC. The BC Hydro GBL will determine 27 the energy and capacity to be sold to BC Hydro. Therefore, in such 28 context, the conditions will not "equally apply". However, if the GBLs are 29 different, Zellstoff Celgar anticipates that both sets of conditions would be 30 effective at the same time."23
22 Exhibit C13-7 at page 1.
23 Exhibit C13-10, Zellstoff Celgar's response to BCUC IR 1 . I .I (boldface added).
BC Hydro Final Argument
July 14,2010
As BC Hydro understands tlie Zellstoff Celgar Position, the term "FortisBC GBL"
is potentially misleading. The following submissions attempt to clarify the use of
GBLs and Zellstoff Celgar's request.
The determination of a generator baseline, or GBL, does not by itself accomplish
anything. The GBL concept is simply used to identify incremental / decremental
generation in relation to an established baseline level of self-generation output. A
GBL can be used where riglits and obligations of the utility and self-generating
customer are to be determined by whether the customer's self-generation is
more than or less than the established baseline level of generation. This is
similar to the customer bascline load (CBL) concept which is used where rights
and obligations of the utility and customer (e.g., energy pricing) are determined
by whether the customer's load is more than or less than an established baseline
level of load.
To achieve a desired objeclive (for example, minimization of inappropriate
arbitrage), the rights and obligations of the utility and self-generating customer
can be determined for conditions where the customer's actual self-generation is
more than or less than an appropriatelv set GBL. Not just any GBL will
accomplish the objective of minimizing inappropriate arbitrage; the GBL must be
appropriate to the circumst:~nces of the specific customer and there must be
20 appropriate terms and conditions in the electricity purchase agreement and/or
21 electricity supply agreement.
22 Although Zellstoff Celgar seeks determination of a "FortisBC GBL", its issue is
23 really about the extent of Fc,rtisBC1s obligation to serve the Mill load at embedded
24 cost of service rates at times when Zellstoff Celgar is using its existing self-
25 generating capability for sales into available markets.24 Therefore, it is probably
24 Mr. Mewin confirmed this in his opening statement: "From our perspective, the obligation to serve self-generation customers is one of the central issues in this proceeding." (Exhibit C13-14 at page 1 ).
BC Hydro Final Argument
July 14,2010
1 more accurate to describe what Zellstoff Celgar seeks as a BCUC determination
2 that FortisBC has the obligz~tion to serve all but 13,474 MWh and 1.5 aMW of the
3 Mill load at average embedded cost rates2= notwithstanding the fact that FortisBC
4 has historically served a much smaller portion of the Mill load26 because Zellstoff
5 Celgar has served the Mill I ~ a d from self-generation. If the BCUC were to make
6 such a determination, Zellsloff Celgar would then be able to sell all of its
7 generation output in excess of 13,474 MWh and I .5 aMW into available markets
8 for market prices, and replace approximately 40 MW of electricity required to
9 serve the Mill load with purc;hases from FortisBC at low, embedded cost rates.
10 Zellstoff Celgar has provided the following summary of the reasons it believes the
11 BCUC should support its pc~sition:
12 "In summary, Zellstoff Celgar asserts that it is appropriate to establish a 13 FortisBC GBL for its sctlf-generation because:
14 1. doing so would be consistent with the direction of the Commission in 15 Order G-38-01, the priiciples of which have been expressly extended to 16 FortisBC customers by Order G-48-09;
2. doing so would be tlie only approach that is consistent with, and follows, that taken by EIC Hydro in relation to its self-generation customers;
3. doing so would be i r i the best interests of other FortisBC ratepayers as increased power purchases from FortisBC would increase Zellstoff Celgar's RIC Ratio; and
4. Zellstoff Celgar will not arbitrage between embedded-cost utility service and market prices and the conditions associated with the establishment of a FortisBC GBL will ersure that Zellstoff Celgar is not able to do so."27
26 The following subsections c~f this submission address each of the four assertions
27 above.
25 Zellstoff Celgar argues that FoFtisBC has an obligation to serve the load requirements of Zellstoff Celgar at "average embedded costs" (Exhibit C13-14, Zellstoff Celgar Opening Statement at page 1).
26 Exhibit C13-7 at page 24. 27 Ibid. at page 5.
BC Hydro Final Argument
July 14,2010
1 3.1. Upholding the Zellstoff Celgar Position would not be consistent with 2 the principles of BC:UC Order Nos. G-38-01 and G-48-09
3 Zellstoff Celgar's issue is about the extent to which FortisBC is obligated to serve
4 the Mill load if Zellstoff Celgar chooses to divert its existing self-generation from
5 its historical Mill-load-serving use, to a market-sales use.
6 The obligation to serve is not absolute. The UCA provides that the BCUC may
7 relieve a public utility of the obligation to serve, as follows:
8 "After a hearing and for proper cause, the commission may relieve a 9 public utility from the obligation to supply service under this Act on terms
10 the commission considers proper and in the public in te re~t . "~~
11 The BCUC has limited BC tiydro's obligation to serve customers with self-
12 generating capability by Order No. G-38-01:
"...to allow Rate Scheclule 1821 customers with idle self-generation capability to sell excess self-generated electricity, provided that the self- generating customers do not arbitrage between embedded cost utility service and market prices. This means that B.C. Hydro is not required to supply any increased embedded cost of service to a RS 1821 customer sellling its self-generation output to market. The Commission recognizes that consid srable debate may ensue over whether a self- generator has met this principle, but the Commission expects B.C. Hydro to make every effort to agree on a customer baseline, based either on the historical energy consi~mption of the customer or the historical output of the generator."29
24 The following commentary irom the Commission Staff Report attached to BCUC
25 Order No. G-38-01 is also i~~forrnative of the BCUC's intentions in making the
26 directive above:
27 "B.C. Hydro concluded that incremental generation could be measured 28 using a customer baseline approach as proposed in the Willis Energy 29 Services Ltd. submission, based either on the customer's historic load or 30 the actual use of the self-generator. The definition of incremental 31 generation would neec to be established, but it should be developed on
UCA, subsection 28(3).
'' BCUC Order No. G-38-01, Directive 1 (boldface added).
BC Hydro Final Argument
July 14,2010
1 the principle that the customer must receive no additional 2 embedded cost energy while it is selling the output of its self- 3 generation assets. . . .
4 The representative 01 the Ministry of Employment and Investment 5 indicated at the Workshop that the provincial government is primarily 6 concerned that other ratepayers not be harmed as a result of the activities 7 of Rate Schedule 18211 self-generating customer^."^^
8 In BC Hydro's view, the directive above is an exercise of the BCUC's power to
9 relieve BC Hydro of its obligation to serve on terms relating to decisions by self-
10 generating customers to divert existing self-generation from serving customer
11 load, to market sales. The objective is to ensure that BC Hydro's other
12 ratepayers are not harmecl as a result of such decisions.
13 The BCUC has also determined that the general principles of BCUC Order No.
14 G-38-01 ought to be extended to FortisBC and its customers:
15 "The Commission Panel is persuaded that a rate allowing for the sale of 16 power by self-generators, not in excess of their historical loads, is unjust 17 and unreasonable and therefore contrary to the public interest for the 18 reasons that follow. 'The Panel is of the view that the general principles 19 enunciated in Order (;-38-01 ought to be extended to customers of 20 ~ o r t i s ~ ~ . " ~ '
21 Thus, the BCUC has determined that FortisBC is not required to supply any
22 increased embedded cost of service to a FortisBC customer with self-generating
23 capability as a result of that customer's decision to sell its self-generation output
24 to market.
25 BC Hydro submits that the overall objective of the principles established by
26 BCUC Order No. G-38-01 is, as is typical with public utility regulation, to balance
27 the interests of the utility and all of its ratepayers. The principles of BCUC Order
28 No. G-38-01 seek to balance the obligation to serve customers with self-
29 generating capability; the desire of customers with self-generating capability to
30 BCUC Order No. GI-38-01, Appendix A at page 4 (boldface added). 31 PPA Amendment Decision at page 22; also referred to by BCUC Counsel at T5: 97011-5.
BC Hydro Final Argument
J U I ~ 14,2010
1 maximize the return on their investment in generation; and the need to protect
2 the utility and all other ratepayers from the negative effects of arbitrage by self-
3 generating customers between the fixed, embedded cost rates of the utility and
4 market prices. As Mr. Hobbr; stated, "the supply of power at average embedded
5 costs was never intended tcl provide an opportunity for the customer with self-
6 generation to take advantacle of that arbitrage opportunity."32 The BCUC has
7 balanced these objectives by limiting the utility's obligation to serve a customer
8 with self-generating capability if that customer chooses to sell its generation into
9 the market.
10 In the PPA Amendment Dec:ision, the BCUC made the following comments and
11 determinations regarding the obligation of the utility to supply embedded cost
12 power to self-generators making sales into the market:
13 "The principle stated in Order G-38-01 did not preclude any power sales 14 by self-generators, onl;/ sales of power that would increase the 15 consumption of embedded cost power as a result. In other words, BC 16 Hydro was not required to provide increased supply of embedded cost 17 power to supply base bad requirements and hence support additional 18 export sales by the customer. So it is clear, self-generators were 19 permitted to sell self-generated power in excess of their base load.
20 While this is a simple concept, it does require some definition of the 21 "customer baseline", which would be based "either on the historical 22 energy consumption 01 the customer or the historical output of the 23 generator." (Order G-38-01, Section 1)
24 Generally, the Commi:sion Panel believes that self-generators should be 25 able to sell any self-geqerated power that is not required by their base 26 loads, and we would pi-efer to use the term "excess generated power" to 27 mean any power gene-ated net of load on a dynamic basis.. ..
28 In the end, the Commiission Panel has decided that there must be a 29 simple definition of what constitutes "excess power" and we define 30 that term to mean power "net of load on a dynamic basis." The 31 Commission Panel determines that any self-generators, as owners 32 of the generation facilities, should have the flexibility to reduce 33 domestic load as they see fit in the commercial circumstances at
BC Hydro Final Argument
July 14,201 0
1 hand in order to optimize the export of self-generated power. What 2 will not be permitted is the supply of embedded cost power to 3 service the domestic load, at any time when the self-generator is 4 selling power into the market."33
5 As noted by the BCUC in the extract above, the principles of BCUC Order No. G-
6 38-01 preclude power sales by self-generators that would increase the
7 consumption of embedded cost power as a result.
8 BCUC Order Nos. G-38-0' and G-48-09 seek to balance the interests of the
9 utility and all of its ratepayers by allowing a self-generator to sell any self-
10 generated power that is nclt required by its base load while preventing it from
11 increasing consumption of embedded cost power from the utility as a result of its
12 decision to sell self-generated power diverted from serving base load.
13 In the following evidence, IVlr. Hobbs appears to be confirming the same
14 principle:
15 "And so as long as the customer identifies the level of service from the 16 utility, and only supplies that load requirement from the utility, and never 17 self-supplies it, then there's no arbitrage. 18 ... 19 I think the customer should really have the election. It should be at the 20 election of the custon~er what the GBL is. Once the customer has made 2 1 the election, then a n~~mber of doors are closed going forward and they 22 ought to be closed going forward."34
23 In BC Hydro's view, Zellstoff Celgar decided in 1994 to self-supply the Mill load. If
24 Mr. Hobbs is suggesting that Zellstoff Celgar should be able to revisit that
25 decision now, after self-supplying its Mill load for some 16 years, then BC Hydro
26 does not agree with the pclsition of Mr. Hobbs in that regard.
27 Zellstoff Celgar appears tc be seeking a determination from the BCUC that its
28 "base load" be set based cln what Zellstoff Celgar's generator output and
33 PPA Amendment Decision at pages 28-29 (boldface in original).
34 T5: 982122-98311 3.
- -
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1 purchases from FortisBC would have been if the Mill owner had not built a
2 generator in 1993-94 and used it to serve Mill load. BC Hydro does not agree
3 with that approach. As disci~ssed above, the determination of a GBL does not by
4 itself accomplish anything. The historical load and generation should be
5 determined consistent with the principles of BCUC Order Nos. G-38-01 and G-
6 48-09, which are intended to prevent increased consumption of embedded cost
power from the utility as a rt?sult of selling self-generation into markets.
The fact is that the generator built at the Mill in 1993-94 has always been used to
serve the Mill load. Zellstoff Celgar has sold surplus power into the market when
the self-generation output has exceeded actual Mill load. Zellstoff Celgar's most
recent energy sales and pul-chase figures confirm that in both 2008 and 2009, its
generator output exceeded the Mill load, resulting in net sales3= The pattern of
use has been to sell only when self-generation exceeds load and to purchase
only at times when load exceeds generator output.
BC Hydro submits that the decisions to build generation to serve the Mill load
and use that generation to serve the Mill load for some 16 years can not be
undone. The decisions havt? closed the door to now increasing purchases from
FortisBC at embedded cost of service rates to enable increased sales of self-
generation at market prices. That door ought to be closed consistent with the
20 principles of BCUC Order hos. G-38-01 and G-48-09.
21 3.2. Upholding the Zellstoff Celgar Position would not be consistent with, 22 and follow, the approach taken by BC Hydro in relation to its self- 23 generation customcrrs
24 In its submissions Zellstoff Celgar has stated that in respect of the establishment
25 of an appropriate GBL it wishes to be on the same footing as customers of BC
26 Hydro with self-generation capability:
35 Zellstoff Celgar Historic Data table in Exhibit C13-7 at page 24.
BC Hydro Final Argument
July 14,201 0
"Zellstoff Celgar accepts that it should be subject to the same rights and restrictions as ratepayers in the BC Hydro service area and that the establishment of an appropriate GBL, taking into account historical consumption or output, is an appropriate method to effect such objective. However, in order to afford fair and equitable treatment to Zellstoff Celgar, historical incremental self-generation must be considered for setting the FortisBC GBL for Zellstoff Celgar, just as it is for setting GBLs for BC Hydro's custo~mers."~~
BC Hydro submits that with respect to the terms of the Zellstoff Celgar EPA
including the GBLs defined therein, Zellstoff Celgar is on the same footing as
customers of BC Hydro with self-generation capability. As discussed in sections
2.2.3 and 2.2.4 of this subrr~ission, the Zellstoff Celgar EPA establishes and
defines Seasonal GBLs for the Mill that were determined using the same GBL
methodology BC Hydro uses for its customers with self-generation who sell
power to BC Hydro.
All of the GBLs for the Bioenergy RFP EPAs, including Zellstoff Celgar's, were
determined after reviewing recent electricity usage, generation output, and plant
production data. BC Hydro explained the importance of using a recent timeframe
when setting the GBLs for the Bioenergy RFP EPAs, as follows:
"Establishing a GBL: 1) allows customers wlth existing self-generation, who wish to add new or incremental gleneration, to bid into a BC Hydro call for energy similar to other IPPs, and
2) prevents arbitrage c~pportunities by ensuring energy currently generated by such customers to serve their respective loads is not being sold to BC Hydro under an EPA.
As such, under the Biclenergy EPAs BC Hydro is ensuring it is purchasing "new" generation from the proponents and is not providing an opportunity for customers to displace their self-generation with embedded cost rates for the purpose of selling their self-generation to BC Hydro at call prices."37
36 Exhibit C13-7 at page 12. 37 Exhibit B-3-4, FortisBC response to Zellstoff Celgar IR 1.30.1, quoting BC Hydro's response to a BCUC Information Request during the Bioenergy Call Phase 1 Electricity Purchase Agreements
BC Hydro Final Argument
July 14,201 0
In the course of the Bioene~gy RFP process, BC Hydro examined Zellstoff
Celgar's historical energy purchases and sales. Based on historical energy
purchase and sale patterns, it appeared that the Mill was self-sufficient and had
net purchases of approxim;itely zero for the year 2 0 0 7 . ~ ~ This accords with
Zellstoff Celgar's evidence In this proceeding, that its load in 2007 was 349,275
MWhIyr and its generator output was 350,641 ~ w h l ~ r . ~ ' Zellstoff Celgar states
that its purchases from ForlisBC that year totaled 22,560 MWhIyr, and Zellstoff
Celgar's power sales were 23,926 ~ ~ h l ~ r . ~ ~ Mr. Swanson confirmed that the 23
GWhIyr that Zellstoff Celgar purchased in 2007 was purchased only when it was
generating power at below mill load.4' Zellstoff Celgar has also stated that its
sales are "on a net of load basis. We sell them above our load and we sell sort
of on an hourly or I think it rnight even be a two-hour type basis. So we're in the
spot market . . ."42 This means that in 2007, Zellstoff Celgar served all of the Mill
load from self-generation when it could, and purchased from FortisBC only at
times when Mill load exceeded self-generation output, but on an annual basis its
16 purchases were slightly less than its sales.
17 Although some of the Bioerlergy RFP EPAs have GBLs that permit sales to BC
18 Hydro not in excess of actual load, the principles of BCUC Order No. G-38-01
19 have been respected in all cases. The GBLs were set at levels that ensure that
20 BC Hydro is purchasing new, incremental, or idle generation and that the
21 proponents would not have an opportunity to displace the self-generation they
22 were using at that time to serve their loads. In this proceeding Zellstoff Celgar
proceeding. See also C13-7 Appendix B, BC Hydro's letter of October 5, 2009 to the BCUC at page 4.
38 2007 was the last full year bef we the Bioenergy RFP was initiated.
39 Zellstoff Celgar Historic Data table in Exhibit C13-7 at page 24.
40 Ibid.
41 T2: 27219-14.
42 T5: 935125-93612.
BC Hydro Final Argument
July 14,2010
has attempted to deconstruct BC Hydro's approach to setting G B L S , ~ ~ but it has
acknowledged that its account is based on incomplete in f~rmat ion.~~ As a result,
Zellstoff Celgar has drawn erroneous conclusions. The details of how a specific
GBL has been determined are necessarily confidential in nature because their
disclosure would reveal cc mmercially sensitive information about the customer's
operations.
BC Hydro's objective in setting a GBL for an EPA is that self-generation that the
customer is using to serve its plant load will continue to be used to serve the
plant load so that the EPA will not cause increased purchases from BC Hydro.
Any energy produced above the GBL so determined is considered incremental,
excess energy (as per the principles of BCUC Order No. G-38-01) and is eligible
for sale under the EPA. The Zellstoff Celgar Position is not consistent with these
1 3 objectives.
14 In BC Hydro's view, upholding the Zellstoff Celgar Position would provide rights
15 to Zellstoff Celgar that are not available to BC Hydro's customers.
16 3.3. Upholding the Zellstoff Celgar Position would not be in the best 17 interests of other IrortisBC ratepayers
18 If the BCUC upholds the Zellstoff Celgar Position, Zellstoff Celgar would increase
19 its purchases from FortisBC which would likely increase FortisBC's resource
20 requirements (and costs). If FortisBC were to purchase from Zellstoff Celgar the
21 electricity between the requested FortisBC GBL and the BC Hydro GBL," then
22 there would be no increase in resource requirements but the difference between
23 the buy and sell prices w o ~ l d simply be a new cost to FortisBC making other
24 FortisBC ratepayers worse off.
43 Exhibit C13-7 at pages 6-1 1.
44 Exhibit C13-7 at page 6. 45 As suggested by Zellstoff Celgar in Exhibit C13-10, its response to BCUC IR 1.7.1.
BC Hydro Final Argument
July 14,2010
1 If there is an increase in Fo~tisBC resource requirements, then to the extent
2 FortisBC's incremental cost of new resources is greater than its incremental
3 revenues from increased sales to Zellstoff Celgar, the net increase in costs would
4 flow through to higher rates for other FortisBC ratepayers, making them worse
5 off. FortisBC has also raised the concern that this arbitrage would ultimately
6 benefit Zellstoff Celgar to the detriment of other ratepayers:
7 "Celgar wants the abiliiy to increase its power requirements from FortisBC 8 to roughly 40 MW at ernbedded cost rates, despite the fact that it will 9 likely increase the costs of power supply for all customers as a result."46
10 I 1 As noted by the BCUC in the PPA Amendment Decision, the exact dollar amount
12 of the increase in costs to other ratepayers is not important because it is the
13 policy principles surround in!^ the treatment of self-generating customers that are
15 Zellstoff Celgar has stated that limiting FortisBC's obligation to serve the Mill load
16 at embedded cost rates w o ~ ~ l d be unfair compared to the way new customers or
17 customers experiencing load growth are treated:
"As long as FortisBC has an obligation to serve Zelstoff Celgar at embedded cost rates, '.hen Zellstoff Celgar should not be asked to hold other customers harmlsss as is suggested in the question. In this regard, Zellstoff Celgar is no d fferent than any new customer or any other customer experiencing load growth.. .. New customers, customers with load growth, and returr~ing retail customers (subject to notice provisions) are not required to hold other customers harmless from the increase to the average embedded cost rates resulting from added power supply costs. Therefore, it wculd be unfair and inequitable to require Zellstoff Celgar to hold other c~stomers harmless as contemplated by FortisBC in this IR . "~~
29 BC Hydro does not agree with that position. Unlike a new customer or customer
30 with load growth, the activity Zellstoff Celgar would undertake if the BCUC
46 Exhibit B-16, FortisBC Reply Evidence, at page 17 lines 1 1-1 3. 47 PPA Amendment Decision at page 27.
48 Exhibit C13-11, Zellstoff Celgar's response to FortisBC IR 1.2.3.
BC Hydro Final Argument
July 14,2010
1 upholds its position would not increase FortisBC's service area "domestic"
2 electricity consumption. Any increased resource requirements for FortisBC would
3 not be needed to serve new "domestic" load; they would be needed to enable
4 Zellstoff Celgar to dlivert existing self-generation from serving Mill load to sales
5 into markets, most likely to serve loads outside FortisBCJs service area. The Mill
6 load would not increase, nor would the output of Zellstoff Celgar's existing
7 generation, but there would be a transfer of value from FortisBC and its other
8 customers to Zellstoff Celgr r. In BC Hydro's view, this is precisely the outcome
9 the BCUC sought to prevent when it issued Order No. G-38-01.
10 3.4. Upholding the Zellstoff Celgar Position would allow Zellstoff Celgar 11 to arbitrage between fixed, embedded cost of service rates and 12 market prices
13 In BC Hydro's view, Zellstof f Celgar seeks to arbitrage between the embedded
14 cost of FortisBC power and market prices.
15 Zellstoff Celgar accepts tha': arbitrage is unfair to other ratepayers, and must be
16 preventedI4' but it has re-defined the term "arbitrage" and mischaracterized the
17 interaction between a GBL and arbitrage so as to conclude there would be no
18 arbitrage, so defined.
19 With respect to the definition of arbitrage, Zellstoff Celgar made the following
20 statement:
2 1 "Zellstoff Celgar adopt:; the definition of arbitrage as stated by BC Hydro 22 in response to Exhibit 13-7, Zellstoff Celgar IR 1.6.1 in the G-48-09 23 proceeding, and consitiers "arbitrage" to be the act of increasing or 24 decreasing energy pur:hases and/or sales to take advantage of short- 25 term swings in market pricing relative to embedded cost rates."50
26 The referenced BC Hydro irlformation request response instead described
27 arbitrage between embedded cost and market prices as a situation where a
49 Exhibit C13-13, Opening State~nent of Zellstoff Celgar's counsel at page 1 50 Exhibit C13-10, Zellstoff Celga.'~ response to BCUC IR 1 .I .I.
BC Hydro Final Argument
July 14,2010
customer "is simultaneousl;~ buying and selling electricity in two different markets
(i-e., buying electricity from a cost-of-service regulated utility and selling
electricity in the open markst) to take advantage of different prices." It does not
matter whether the purchases and sales are pursuant to long-term contracts to
take advantage of a long-term pricing differential, or short-term contracts to take
advantage of spot market prices.
With respect to Zelllstoff Celgar's assertion that "As the establishment of a GBL
fully addresses the arbitrage issue, the level at which a GBL is set is not affected
by arbitrage concern^"^', BC Hydro submits that the determination of a GBL does
not by itself prevent arbitrage. An appropriatelv-set GBL together with
appropriate terms and contlitions in the EPA, or BCUC-approved limitations on
the utility's obligation to serve, will prevent arbitrage of the type the BCUC sought
to prevent in Order No. G-38-01.
Zellstoff Celgar has stated that it has no intention of arbitraging between
embedded-cost utility service and market prices based on its own
definition of arbitrage and tlie incorrect assumption that any GBL
approved by the BCUC wo~lld fully address the arbitrage issue.
Clearly Zellstoff Celgar's objective is to buy electricity from FortisBC at
relatively low prices and sell electricity into open markets at higher prices.
In BC Hydro's submission, Zellstoff Celgar is proposing to arbitrage
between utility embedded cost and market prices contrary to the principles
of BCUC Order Nos. G-38-01 and G-48-09.
23 4. CONCLUSION
24 BC Hydro submits that the BCUC should reject the Zellstoff Celgar GBL
25 Application because it is nclt consistent with the principles of BCUC Order Nos.
Exhibit C13-7 at page 5.
BC Hydro Final Argument
July 14,2010
1 G-38-01 and G-48-09; it is not consistent with the approach taken by BC Hydro in
2 relation to its customers with self-generation capability; it would not be in the best
3 interests of other FortisBC ~'atepayers; and it would allow Zellstoff Celgar to
4 arbitrage between fixed, embedded cost of service rates and market prices
5 contrary to principles established by the BCUC.
6 If the BCUC were to nevertl~eless decide to uphold the Zellstoff Celgar Position,
7 then BC Hydro would make the amendment to the Zellstoff Celgar EPA in
8 accordance with the EPA Side Letter as discussed in section 2.2.3, above,
9 subject to acceptance by the BCUC pursuant to section 71 of the UCA. To the
10 extent FortisBC7s resource requirements increase as a result of such
11 determinations, FortisBC cc~uld not use BC Hydro PPA power to meet the
12 increase as discussed in section 2.2.5, above. No term or condition of the BC
13 Hydro PPA would be amended.
14 ALL OF WHICH IS RESPECTFULLY SUBMITTED
17 Ian D. Webb
18 Counsel for BC Hydro & Power Authority
BC Hydro Final Argument
July 14,201 0
