Scott A. ThomsonVP, Finance & Regulatory Affairs & Chief Financial Officer 16705 Fraser Highway Surrey, B.C. V3S 2X7 Tel: (604) 592-7784 Fax: (604) 592-7890 Email: scott.thomson@terasengas.com www.terasengas.com

May 1, 2006 British Columbia Utilities Commission 6th Floor, 900 Howe Street Vancouver, B.C. V6Z 2N3 Attention: Mr. R.J. Pellatt, Commission Secretary Dear Sir: Re: Terasen Gas (Squamish) Inc. Propane Customer Service On August 1, 1991, Terasen Gas (Squamish) Inc. (“TG Squamish”, or the “Company”) converted its piped propane system to a natural gas (“Gas”) system, following of the construction of the Terasen Gas (Vancouver Island) Inc. (“TGVI”) high pressure transmission pipeline, and commenced Gas service. Customers connected to the piped propane system were converted to Gas. At that time TG Squamish also provided metered bulk tank service (bottled propane) to a number of customers who were not attached to the piped propane system. The majority of these customers were in the Garibaldi and Brackendale areas, as Gas service was not yet available in these areas TG Squamish continued to provide metered bulk tank service to these customers under the Small General Service Rate No. 1 Schedule 1 General Service Propane Rate. On November 17, 1997 TG Squamish applied for approval of a main extension to serve customers in Garibaldi and Brackendale (“GBMX”). At that time, there were 97 residential and 4 commercial customers receiving metered bulk tank service (see Appendix 1). As part of the approval of the main extension, the Ministry of Energy, Mines and Petroleum Resources stated that “… a handful of bottled propane customers will not be able to benefit from these extensions, and will need ongoing bottled propane service after these extensions are complete. Squamish Gas [now TG Squamish] is to work with BCUC staff to ensure the appropriate arrangements are in place to serve the needs of these customers”. Since the completion of the GBMX, the majority of bulk tank service customers have converted to Gas service. However, as at year end 2005, there were 21 residential and 3 commercial bulk tank service customers that had not connected to Gas service. All of these customers except for one commercial bulk tank service customer are “on main” and therefore could receive Gas service. TG Squamish does not actively pursue new propane customers as it believes there are competitive alternatives available for these customers to continue with propane service. TG Squamish is seeking British Columbia Utilities Commission (“BCUC” or the “Commission”) approval under Section 41 of the Utilities Commission Act to cease operation of metered bulk propane service to the 24 customers currently receiving this service from TG Squamish.

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May 1, 2006 British Columbia Utilities Commission Terasen Gas (Squamish) Inc. – Propane Customer Service Page 2 Changes to Customer Contact Through the original approval for the disposition of Customer Care assets effective December 1, 2002 TG Squamish customers were provided billing services by Terasen Gas Inc. (“TGI”), through CustomerWorks Limited Partnership (“CWLP”). Call handling continued to be performed by the TG Squamish office in Squamish, in addition to propane related measurement and supply processes. These in-house propane services included all propane customer inquiries, payments, billing and propane procurement activities. Due to the very limited number of bottled propane customers that remained, it was and still is not viable to move these customers to the larger Customer Information System billing environment at that time. On July 29, 2005 BCUC Order No. C-15-05 approved the application for a Certificate of Public Convenience and Necessity for the Customer Care Conversion for TGVI and TGW and approval for an Amendment to the TGI Client Services Agreement. Effective March 20, 2006 CWLP began providing billing services for TGVI customers. Through the negotiating process the Company also discussed the possibility of CWLP providing call handling for TG Squamish and was able to negotiate a better rate than it would otherwise have been able to achieve because negotiations were conducted in conjunction with the TGVI conversion. Beginning in late Q2 2006, TGI, through Accenture Business Services for Utilities (“ABSU”), on behalf of CWLP, will begin providing all call handling for TG Squamish Gas customers. This will enable the standardization benefits of the island integration project to be extended to TG Squamish customers including extended call centre hours, additional payment options, and increased systems and interface automation. As a result, the TG Squamish office will no longer perform customer contact activities including inbound call handling. Staff changes will be made and there will no longer be customer contact staff available at the TG Squamish local office to respond to customers, including propane customer inquiries or to manage the procurement and delivery of propane supply for the bulk propane customers. This change in call handling services is cost neutral to TG Squamish. In order to effect these changes, TGI will also be amending the customer service agreement with CWLP. TG Squamish evaluated what would be required in order to continue providing service to the 24 propane customers and arrived at two options: continue to provide customer contact in house, or outsource to ABSU. In order to provide in house service, TG Squamish would have to hire staff to procure and manage propane deliveries as well as to continue to provide customer care support and call handling activities. Approximate staffing cost, including benefits, would be $65,000 per year or approximately $2,700 per customer per year. TG Squamish requested that ABSU provide a quote to provide call handling for the 24 propane customers, the nature of which is outlined below:

Capital Set Up - $10,800 Ongoing Monthly Costs - $1,080

In addition, under the outsourcing scenario, TG Squamish would still require staff to procure and manage propane deliveries. TG Squamish estimates the cost of this function at approximately $25,000 per year. Total yearly costs under the outsourcing scenario would be approximately $38,000 or $1,600 per customer. Under either scenario, the effect of retaining these customers is that TG Squamish would incur additional costs, which would affect rates of all TG

May 1, 2006 British Columbia Utilities Commission Terasen Gas (Squamish) Inc. – Propane Customer Service Page 3 Squamish customers, in order to provide service to 24 propane customers. TG Squamish is of the view that it is not fair and reasonable for its Gas customers to incur these additional costs for the 24 propane customers. While the Terasen Gas group of companies do provide piped propane to customers in Whistler and Revelstoke, only bottled propane continues to be offered to the 24 customers in Squamish. TG Squamish is not intending to add additional bottled propane customers to grow this part of the business as there are other companies who provide this service competitively and as a core part of their business. Customer Options TG Squamish believes that customers would not be disadvantaged by the Company exiting this area of business as the current 24 customers could either switch to Gas service or continue to receive bottled propane service from a local distributor. The cost to convert customer appliances for residential customers from propane to gas is typically in the range of $500-$1000 depending upon appliance make up and contractor pricing. This cost would have to be born by the customer along with a $300 connection fee in order to receive gas service in the GBMX service area. TG Squamish Gas service is substantially cheaper than bottled propane, based upon current rates and TG Squamish would expect a customer to recoup their conversion costs within 1-2 years. If TG Squamish rates change as a result of the elimination of the Rate Stabilization Agreement, TG Squamish still expects gas to be more cost effective than bottled propane and as such customers who switch will still see a benefit and will recoup their costs over time. For those customers who do not wish to convert to Gas, they can continue to receive propane service from either Superior Propane (who currently delivers propane for TG Squamish) or from another local supplier. At current gas station propane rates, customers in TG Squamish would pay virtually the same cost for propane as they currently pay on the TG Squamish rate (see Appendix). Should approval be granted by the Commission, the following communication plan would be implemented by TG Squamish: • A letter would be sent to all customers informing them of the change to their service, and

encouraging customers to switch to Gas, along with a listing of local gas fitters. • Follow up phone calls will be made to those customers who haven't made contact with

Terasen 2-3 weeks after the letter is sent. • Additional information to be provided through phone calls based on customer interest. • Option A - convert to Gas; • Option B - provide information on how to purchase propane from local suppliers - contact

information to be provided to those customers wanting to consider this option. • All customers will receive a final phone call 7 days prior to cancellation of propane service. • Any customers we were unable to contact by phone will receive a "final notice" letter

delivered to their door.

May 1, 2006 British Columbia Utilities Commission Terasen Gas (Squamish) Inc. – Propane Customer Service Page 4 Deferral Account Balance As at December 31 2005, there was a credit balance in the Deferred Propane Purchase Costs account of approximately $38,000. This balance has been built up over a period of four years as a result of the propane charge under Small General Service – Schedule 1 General Service Propane Rate being higher than the cost of propane. TG Squamish does not intend to use this deferral account balance to pay for the conversion of the remaining bottle propane customers as this would be unfair to customers that already paid to convert from propane to gas without any financial assistance from TG Squamish. TG Squamish also investigated whether or not it would be feasible to refund the deferral balance to the specific bottle propane customers who received service from 2001-2006 but it determined that it would be costly to administer this process. TG Squamish will therefore seek approval for the disposition of this account by way of a separate application, likely as part of the next Revenue Requirement Application. As a result of the change of call handling services provided to TG Squamish, the additional cost to continue to provide propane service, the availability of bottled propane from local propane companies, and availability of Gas service TG Squamish requests Commission approval under Section 41 of the Utilities Commission Act to cease providing service to the 24 bottled propane customers in the Squamish service area effective June 15, 2006, and eliminate the Small General Service Rate No. 1 – Schedule 1 General Service Propane Rate Schedule. If there are any questions regarding this filing, please contact Jason Wolfe at (604) 592-7516. Yours very truly, TERASEN GAS (SQUAMISH) INC. Original signed by: Tom Loski

For: Scott A. Thomson Attachment

Appendix 1

Terasen Gas (Squamish) Inc.Propane Price Comparison TG Squamish vs. MJ Ervin Pump Price Survey

12 1 litre = 11.0619469 ccf3 1 ccf = 0.0904 litre4567 Minimum Monthly Charge $17.71 per month *Price 0.592 cents per litre8 <300 ccf per month $17.71 per month9 301-7,999 ccf per month $5.143 per 100 ccf10 >8,000 ccf per month $5.077 per 100 ccf1112 Typical Monthly usage 2,521.217 ccf Typical Monthly usage 227.918 litres13 Typical Monthly bill Typical Monthly Cost14151617 Typical Annual bill $131.95 multiplied by 12 months = $1,583 Typical Annual Cost $134.94 multiplied by 12 months = $1,61918

19*Source - MJ Ervin & Associates Week ly Pump Price Survey - April 25, 2006. Average of Vancouver and Victoria Price

Conversions

$17.71 + $5.143 multiplied by 2,221.217 ccf (2521.217 ccf less 300 ccf included ) divided by 100 (rate in 100 ccf) = $131.95

227.918 litres multiplied by 0.592 cents/litre = $134.94 per month

Current Terasen Gas (Squamish) Rate Current MJ Ervin Published (Vancouver/Victoria Average) Price