B2-17. December 6, & COURIER

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1 B2-17 December 6, 2005 VIA: & COURIER Mr. Robert J. Pellatt Commission Secretary British Columbia Utilities Commission Sixth Floor, 900 Howe Street Box 250 Vancouver, BC, V6Z 2N3 Dear Mr. Pellatt: Re: ( Sea Breeze VCC ) Application for Certificate of Public Convenience and Necessity ( CPCN ) for Vancouver Island Cable Project ( VIC ) Please find enclosed Sea Breeze VCC s response to the BC Utilities Commission s Information Request No. 2 regarding the Vancouver Island Cable Project. Unless the context requires otherwise, the term Sea Breeze in the attached document refers to Sea Breeze VCC. Sincerely,

2 p.1 Reference: Exhibit B2-8, BCUC IR In response to BCUC IR 1.1.1, Sea Breeze states that it and its parent companies have not yet had a fiscal year-end. What will be the fiscal year end for these companies? December 31, 2005.

3 p.2 Reference: Exhibit B2-8, BCUC IR Please provide the most recent quarterly reports for Sea Breeze and Sea Breeze Pacific Juan de Fuca Cable, LP. If quarterly reports are not available, please provide a statement of Assets, Liabilities, Net Worth and Cash and Cash Equivalents for each company that are as current as possible. Please see statements for Sea Breeze and Sea Breeze Pacific Juan de Fuca Cable, LP, attached as Appendix A. APPENDIX A: Statements.

4 p.3 Reference: Exhibit B2-8, BCUC IR 1.3.6, Further to the responses to BCUC IR and 1.3.7, please confirm that (a) municipal operating or franchise fees and (b) property taxes or payments in lieu of taxes are separate and distinct matters. Although (a) municipal operating or franchise fees and (b) property taxes or payments in lieu of taxes may be separate and distinct matters, Sea Breeze uses these terms together to refer to the total payments to which Sea Breeze would be liable in respect of rights of way over, and access to, public and private property for VIC.

5 p.4 Reference: Exhibit B2-8, BCUC IR 1.3.6, Please explain why Sea Breeze believes that it is likely to pay the same amount of taxes as BCTC ($1.1 million annually). As indicated in Sea Breeze s responses to BCUC IRs and 1.3.7, the amount that Sea Breeze will ultimately pay in municipal operating or franchise fees and property taxes or payments in lieu of taxes is dependent on negotiation with relevant municipalities and the value of property rights to be acquired. At this time, Sea Breeze believes that the figure provided by BCTC provides the best estimate of the total amount of municipal operating or franchise fees and property taxes or payments in lieu of taxes to which VIC would also be subject.

6 p.5 Reference: Exhibit B2-8, BCUC IR 1.3.6, Can Sea Breeze confirm whether or not BCTC pays operating or franchise fees to the municipalities that it passes through? Sea Breeze cannot confirm at this time whether BCTC pays operating or franchise fees to the municipalities that it passes through.

7 p.6 Reference: Exhibit B2-8, BCUC IR 1.3.6, If Sea Breeze were required to pay an operating or franchise fee in the amount of, for example, 1 percent of the value of the electricity transported over its system, what would be the forecast annual amount of the fee in this example? Assuming that Sea Breeze is required to pay municipal operating or franchise fees and property taxes or payments in lieu of taxes, Sea Breeze does not believe that it would be subject to an additional franchise fee in the amount of 1 percent of the value of electricity transported over its system.

8 p.7 Reference: Exhibit B2-8, BCUC IR 1.3.6, In the response to BCUC IR 1.3.7, Sea Breeze states that franchise fees would be a pass through. Nevertheless, in the event that there is a difference in the amounts of operating and franchise fees that BCTC and Sea Breeze would pay, please discuss whether this is a difference that the Commission should consider in its comparison of the two applications. If there is a difference, it is something that the Commission should consider in its comparison. Because the VITR project would be effectively taxpayer and ratepayer financed versus the private equity and debt financing of VIC, it may be that any differences could be accounted for in the treatment of the VIC investors taxes. Also, depending upon the nature of any BCUC orders and subsequent lease/contractual arrangements with BCTC/BC Hydro, this issue may require further legal analysis and negotiation with affected municipal entities. Given that only one project will be deemed to be in the public convenience and necessity, that both projects will be effectively putting cables in existing rights of way, and that an equivalent rate of return impact will be applied, there should not be substantial difference in the level of franchise and/or operating fees.

9 p.8 Reference: Exhibit B2-8, BCUC IR Is Sea Breeze relying on BC Hydro s powers of expropriation to obtain Rights of Way which Sea Breeze would be otherwise unable to obtain? Sea Breeze appears to presume that BC Hydro will cooperate with it with respect to expropriation of property rights. Please provide any documentation that supports this presumption. Sea Breeze is investing considerable resources in negotiating acquisition of the necessary underground rights. Sea Breeze is confident that its proposal to compensate property owners for the current fair market value for the acquisition of a permanent right of way will greatly reduce the likelihood of resorting to expropriation. Sea Breeze understands that to the extent that expropriation of land could be necessary for the VIC Project, it needs to rely on BC Hydro for this action. Please see Sea Breeze s response to BCUC IR

10 p.9 Reference: Exhibit B2-8, BCUC IR As the relationships of BC Hydro to BCTC and Sea Breeze differ in a number of ways, please explain why Sea Breeze believes that BC Hydro would be legally entitled to use its expropriation rights with respect to a transmission facility that will be owned by Sea Breeze. Sea Breeze is investing considerable resources in negotiating acquisition of the necessary underground rights. Sea Breeze is confident that its proposal to compensate property owners for the current fair market value for the acquisition of a permanent right of way will greatly reduce the likelihood of resorting to expropriation. It is Sea Breeze's position that BC Hydro would be legally entitled to use its expropriation rights, if it became necessary for the purpose of construction or operation of the VIC facility, pursuant to the provisions of the Hydro and Power Authority Act.

11 p.10 Reference: Exhibit B2-8, BCUC IR In the event BC Hydro is unable or unwilling to use its expropriation rights for a Sea Breeze transmission facility, please describe how Sea Breeze will deal with such a contingency. Sea Breeze is investing considerable resources in negotiating acquisition of the necessary underground rights. Sea Breeze is confident that its proposal to compensate property owners for the current fair market value for the acquisition of a permanent right of way will greatly reduce the likelihood of resorting to expropriation. Please see Sea Breeze s response to BCUC IR Should BC Hydro be unwilling to use its expropriation rights for a Sea Breeze transmission facility, Sea Breeze would seek further directions, and may apply for an order, from the Commission.

12 p.11 Reference: Exhibit B2-8, BCUC IR Does Sea Breeze have any authority to expropriate access for its right of way? If yes, please explain the basis for this authority. Sea Breeze is investing considerable resources in negotiating acquisition of the necessary underground rights. Sea Breeze is confident that its proposal to compensate property owners for the current fair market value for the acquisition of a permanent right of way will greatly reduce the likelihood of resorting to expropriation. Please see Sea Breeze s response to BCUC IR

13 p.12 Reference: Exhibit B2-8, BCUC IR Has Sea Breeze obtained any advice with respect to its ability to expropriate? If so what advice was obtained? Any legal advice obtained by Sea Breeze with respect to its ability to expropriate is subject to solicitorclient privilege.

14 p.13 Reference: Exhibit B2-8, BCUC IR The response to BCUC IR refers to costs in SEK. Please identify this currency, and provide a list of the currency exchange rates to Canadian dollars by month for the past five years, and the current forecast exchange rate for at least the next three years. The SEK is the Swedish Krona and the table attached as Appendix shows the breakdown of the past month-to-month exchange rates between the Canadian Dollar and the Swedish Krona. Sea Breeze VCC has calculated the forward rates for hedging based on the spot rate of 6.82, for the next three years to mitigate the risk of foreign currency exchange. APPENDIX A: Table showing exchange rates between Canadian Dollar and Swedish Krona.

15 p.14 Reference: Exhibit B2-8, BCUC IR Further to the reference to a 20 month project schedule, please reconcile this with the 15 month construction schedule identified on page 171 of the VIC Application, and provide confirmation from ABB that the VIC Project Schedule in the VIC Application (Exhibit B2-1) is consistent with the cost estimate in the IR response. The 20 month project schedule provided in response to BCUC IR refers to lines 110 through 161 of Figure found in the VIC Application. This period includes procurement, detailed design, DMS, construction, and testing. Approximately five months prior to receiving the environmental authorizations to proceed with construction, procurement, early detailed design, and DMS for the cables and converter stations will take place. Following the receipt of environmental approvals, construction can begin, having a duration of approximately 15 months.

16 p.15 Reference: Exhibit B2-8, BCUC 1.8.5, 1.9.3, 1.9.6, Further to the statement that the ABB cost estimate has an accuracy of ± 15 percent, please explain why a contingency allowance of zero is appropriate for this amount, rather than 15 percent of $278.5 million. Upon signing the EPC contract the price becomes fixed and any potential cost over-runs are to be covered by EPC contract supplier. The EPC contract effectively provides a not to exceed price for the items within its scope. Therefore, a contingency allowance is only appropriate for the items outside the scope of the EPC contract.

17 p.16 Reference: Exhibit B2-8, BCUC 1.8.5, 1.9.3, 1.9.6, While Sea Breeze may eventually negotiate a fixed price for the project, the requirement at this stage of the review of the CPCN Application is a cost estimate that reasonably covers the uncertainties in the project. In the absence of sufficient independent cost estimates to provide a statistically significant probability distribution, in similar circumstances others have applied Monte Carlo concepts to generate a P90 estimate. Please provide a P90 estimate for VIC. Response forthcoming.

18 p.17 Reference: Exhibit B2-8, BCUC 1.8.5, 1.9.3, 1.9.6, If the Commission were to approve a CPCN for VIC subject to the final actual cost being within 10 percent of some specified cost forecast, with Sea Breeze s owners to be responsible for over-runs in excess of 10 percent, what is the amount of the specified cost forecast that would be appropriate for this purpose? Sea Breeze VCC is willing to meet with the Commission to negotiate this cost.

19 p.18 Reference: Exhibit B2-8, BCUC IR , Further to the response to BCUC IR , if one assumes that a HVDC Light facility built for BCTC would have the same cost as an identical facility built for Sea Breeze (and noting that BCTC would be expected to operate both facilities), would Appendix B represent the Annual Rate Impact of VIC if it were owned by BCTC? If not, please explain any differences. Sea Breeze believes this is a question better addressed to BCTC. There would be a difference in cost if VIC were built and owned by BCTC. The reason of such variation remains in the fact that two entities differ in terms of their ownership/governance that consequently affects their abilities/conditions to raise funds, maintain financial ratios, etc. We believe that the following factors, among others, will affect the cost variation: allowable rate of return; allowable debt/equity ratio; cost of debt; municipal tax treatment; insurance; and overheads.

20 p.19 Reference: Exhibit B2-8, BCUC IR , In response to BCUC IR 1.2.2, Sea Breeze states that BCUC may determine a revenue requirement for it in accordance with normal regulatory principals. As BCUC is under certain Special Directions with respect to the regulation of BCTC and BC Hydro, does Sea Breeze believe that the Commission s regulation of VIC would mimic its regulation of BCTC and BC Hydro? If yes, please explain the basis for this belief. See Breeze believes that the regulatory process and concepts will be the same, however, the regulation of VIC would not mimic that of a project built by BC Hydro or BCTC. There are few Special Directions issued by the Province of British Columbia that regulate BC Hydro and BCTC financial responsibilities, revenue requirements, Deferral Accounts, financial ratios and set the frameworks for BCUC to oversee the compliance of BC Hydro and BCTC with the above said directions. These are not applicable to Sea Breeze. Sea Breeze expects that conceptually the regulation of Sea Breeze VCC by BCUC should be the same as that of BCTC in regard to revenues requirements and establishment of Deferral Accounts; however, it cannot completely mimic the approach since BCTC and Sea Breeze VCC are entities with different types of ownership and mandate. We believe that in this aspect Sea Breeze is closer to FortisBC and expect that the application of governance of Sea Breeze will be consistent with the same approach BCUC exercise in regard to FortisBC.

21 p.20 Reference: Exhibit B2-8, BCUC IR , The response to BCUC IR , specifically Appendix B for VIC owned by Sea Breeze, uses a capital structure that initially is 28.4 percent equity, an equity charge of percent before tax and a debt cost of 6.70 percent. Further to the response to BCUC IR 1.2.1, what is the equity component and average cost of debt for each of the Path-15 Project and the Neptune Project? Neptune s cost of debt is approximately 6%, with 15% equity in the capital structure. However, Path-15 had a higher cost of debt of roughly 8 to 9% due to the higher interest rates in 2003, (compared to Neptune in 2005). Sea Breeze is of the understanding that Path 15 was financed on a 50/50 debt-equity ratio which is typical for investor-owned utility projects.

22 p.21 Reference: Exhibit B2-8, BCUC IR , If an approved equity change percentage has been established for either of the Path-15 Project or the Neptune Project, please provide this information. Sea Breeze VCC is not privy to this information.

23 p.22 Reference: Exhibit B2-8, BCUC IR , Please restate Appendix B in a form that assumes the debt/equity structure and return on equity that Sea Breeze would propose for regulation of VIC by BCUC, that depreciation will reduce both debt and equity pro rata and a cost of debt equal to what Sea Breeze forecasts that its actual cost of debt will be. Response forthcoming.

24 p.23 Reference: Exhibit B2-8, BCUC IR , Further to the response to BCUC IR 1.2.1, please provide non-confidential confirmations from Energy Investors Funds ( EIF ) and Société Générale ( SG ) that they are prepared to finance VIC under the terms set out in the proceeding question. Both EIF and SG have submitted letters dated December 6, 2005 to Sea Breeze on a confidential basis confirming their confidence in the project s financeability. In these letters, both confirmed to Sea Breeze their willingness to discuss the contents of their letters with BCUC and to permit their disclosure on a selective basis. In addition, it should be noted that to date, EIF has invested USD $2.5 million in transmission project development in British Columbia and has allocated an additional USD $1 million specifically for prosecution of the VIC CPCN.

25 p.24 Reference: Exhibit B2-8, BCUC IR , The response to BCUC IR identifies several conditions precedent to trigger full equity commitment and issuance of debt. Please provide confirmations from EIF and SG of the level of completeness and development of detail of each of the following that each funding party will require before agreeing to finance VIC: (a) CPCN approval, (b) Order directing BCTC to use VIC, (c) Sea Breeze service (lease and operating) agreement with BCTC, (d) BCUC approval of the revenue recovery mechanism for VIC, (e) BCUC determination of prudency of VIC incurred costs. Please see response to BCUC IR

26 p.25 Reference: Exhibit B2-8, BCUC IR , In the absence of a service (lease and operating) agreement between Sea Breeze and BCTC and an approved revenue mechanism for VIC that are acceptable to EIF and SG, how can the Commission have confidence that they will provide funding and that the project is feasible? Based on Energy Investors Funds experience as an equity investor and Société Générale s experience as advisor and lender to independent transmission projects that have been successfully developed in North America, we expect a similar revenue mechanism can be created to provide sufficient cash flows to cover debt service and equity returns. Using the Path 15 Upgrade project in California as an example, the Federal Energy Regulatory Commission approved a 13.5% after-tax rate of return that was also ultimately accepted by the California Public Utilities Commission. The 13.5% rate of return allowed for recovery of all eligible and prudent project development and construction costs, debt service based on a 50 / 50 debt/equity structure (typical for the US electric utilities), and taxes. A similar rate structure was recently approved for the TransBay Project, proposed to run between the City of Pittsburgh, California, and San Francisco.

27 p.26 Reference: Exhibit B2-8, BCUC IR , An obvious concern if the Commission approves a CPCN for VIC and denies one for VITR is the impact on customer service on Vancouver Island if Sea Breeze does not proceed with VIC. Is Sea Breeze prepared to put in place in favour of BCTC a sufficient performance bond (which could perhaps be drawn down as the project proceeds) to guarantee completion of the project? The risk of negative impact to customer service on Vancouver Island is not exclusive tovic. For example, continuing community opposition following issuance of a CPCN for the VITR proposal could equally result in delays, or non-completion, of the VITR project. One measure which could mitigate the risk of excessive delays or non-completion of the VIC project would be a reservation for capacity on the Juan de Fuca Cable (See BCUC IR ). Non-completion during construction under an EPC contract is customarily addressed by the contractor s guarantee or performance bond. Prior to commencement of construction, Sea Breeze would be agreeable to the posting of a Letter of Credit, or a performance bond that would allow for compensation related to lost deposits on capital orders, in the event of noncompletion.

28 p.27 Reference: Exhibit B2-8, BCUC IR , What does Sea Breeze believe would be the appropriate amount of such a performance bond? The Letter of Credit, or a performance bond would allow for compensation related to lost deposits on capital item orders, in the event of project non-completion prior to commencement of construction.

29 p.28 Reference: Exhibit B2-8, BCUC IR , In addition to approval of a CPCN, what steps would need to be completed prior to the posting of the performance bond and how long would these be expected to take after approval of the CPCN? Assuming the function of the performance bond is to protect against non-completion during development, the performance bond could be implemented immediately following issuance of the CPCN, and a corresponding rate making tariff being authorized.

30 p.29 Reference: Exhibit B2-8, BCUC IR , In response to BCUC IR , Sea Breeze states the relationship between Sea Breeze and BCTC would be governed by terms and conditions similar in principle to those existing between BC Hydro and BCTC. As discussed at the November 10, 2005 Pre-hearing Conference, it is essential that the Commission have a clear and complete understanding of the costs, risks and balancing of rights and obligations for BCTC and its ratepayers, in the event a CPCN is approved for VIC. As requested in BCUC IR , please file a draft or pro forma service agreement that Sea Breeze proposes for service to BCTC, which defines the relationship between the parties and sets out the terms and conditions of service and the rates for service. If the rates are expressed on a conceptual basis with the amounts to be determined by the Commission at a future date, please provide Sea Breeze s estimate of what this amount would be based on current information. Please include a schedule showing how the rates were calculated. Response forthcoming.

31 p.30 Reference: Exhibit B2-8, BCUC IR In the response to BCUC IR , Sea Breeze states that it will order an extra transformer as a stand by. What would be the cost of the extra transformer, does Sea Breeze expect its charges to BCTC would cover this cost, and is the cost included in the VIC cost estimate? The cost for HVDC converter stations includes one single phase spare transformer located at each site.

32 p.31 Reference: Exhibit B2-8, BCUC IR Further to the response to the proceeding question and to the responses to BCUC IR and regarding the cost of the converter station sites, please provide a revised VIC cost estimate that includes all updated cost information, and identify all changes in the cost estimate. Due to the latest change in exchange rate from to 0.15 between SK to $CDN, Sea Breeze revised the following estimates received from ABB in SK: Turnkey installation of HVDC converters $120,000,000 Submarine cables $54,800,000 Transport, Installation, Testing of cables $40,500,000 U/G cables $41,300,000 Additionally the cost of land for converter stations is estimated as follows: Ingledow $365,000 Pike Lake $

33 p.32 Reference: Exhibit B2-8, BCUC IR , Sea Breeze states in the response to BCUC IR that there may not be any cost to wheel power from the BC/US Border to Port Angeles if DSB agreements were amended to include Port Angeles as a delivery location for DSB. In response to BCUC IR , Sea Breeze states that Vancouver Island energy will be supplied from existing BC Hydro generation. If one assumes that delivery of DSB to Port Angeles is not feasible, what would it cost to wheel power from the BC/US Border to Port Angeles? It should be emphasized that Sea Breeze VCC is not aware of any practical reason why it would not be feasible (with the agreement and cooperation of the BC Government, BC Hydro, Powerex and BPA) to return a portion of the Province s Downstream Benefits through a new delivery point at Port Angeles via the Juan de Fuca Cable. Indeed, Sea Breeze VCC believes that, once the Juan de Fuca Cable is connected, the existing arrangements pertaining to the DSBs may be sufficient to allow Port Angeles to be considered as part of the western interconnection. And, even if that is not the case, BC Hydro and BPA both will have an incentive to enter into negotiations to ensure that Port Angeles can be used as a delivery point for DSBs: from BC Hydro s perspective, to ensure that when energy supply is needed on Vancouver Island in a contingency situation, it can be supplied from DSBs through the Juan de Fuca line; and, from BPA s perspective, because this will aid in addressing existing difficulties in delivering DSBs through the Blaine intertie during winter peaking resulting from BC Hydro s withdrawal from the Puget Sound area curtailment agreement. It should also be emphasized that, even if there were some unforeseen obstacle to returning the DSBs at Port Angeles, Powerex also regularly purchases additional energy from the US and wheels it through the BPA system as part of its usual operations, either for resale to the market at a time when the price is favourable (which Powerex can do by taking advantage of BC Hydro s storage capacity) or for the purpose of satisfying power deficit situations which arise from time to time on BC Hydro s Provincial system. There would be nothing to prevent Powerex from scheduling a portion of the energy it purchases in any event at Mid-C to be delivered at the Port Angeles-Juan de Fuca Cable interconnection point. Wheeling power from the BC-US border to Port Angeles provides a third option for ensuring south to north supply will be available on the Juan de Fuca line when it is needed to address a contingency situation on Vancouver Island. This will be a viable option because of the BPA system upgrades which are

34 p.33 contemplated between Blaine and Port Angeles as part of the Juan de Fuca Project (see response to BCUC IR ). BPA Transmission Rates as of October 1, 2005 are as follows: A. LONG-TERM FIRM PTP TRANSMISSION SERVICE: $1.216 per kilowatt per month B. SHORT-TERM FIRM AND NON-FIRM PTP TRANSMISSION SERVICE For each reservation, the rates shall not exceed: 1. Monthly, Weekly, and Daily Firm and Non-Firm Service a. Days 1 through 5 $0.056 per kilowatt per day b. Day 6 and beyond $0.043 per kilowatt per day 2. Hourly Firm and Non-Firm Service 3.50 mills per kilowatthour ($3.5/MWh) In any event, this third option would only rarely need to be used, in a Vancouver Island contingency situation, and only if power could not, for some reason, either be obtained through the return of DSBs, or purchased by Powerex, at a Port Angeles delivery point. However, to the extent additional costs might arise to wheel power from the BC-US border to Port Angeles, Sea Breeze accepts they should be taken into account in negotiating/determining the price to be paid by BCTC to purchase or lease firm south to north transmission capacity on the Juan de Fuca line, to ensure that ratepayers will realize the benefit of Sea Breeze s proposal to sell or lease that capacity at a negotiated price based in principle on a discount from BCTC s VITR revenue requirement, plus an additional credit for system benefits (see Sea Breeze s responses to BCUC IRs , , (VIC) and BCUC IR (VITR)).

35 p.34 Reference: Exhibit B2-8, BCUC IR , If BC Hydro were to purchase power for Vancouver Island at Mid-C, what would it cost to transport or wheel such power to Port Angeles (on a unit basis)? This qwuestion may be better addressed to BC Hydro/Powerex. Sea Breeze believes that if BC Hydro/Powerex were to purchase power at Mid-C for delivery to Vancouver Island via the Port Angeles- Juan de Fuca Cable interconnection, there should be no additional price payable to BPA for transmission service beyond what would be payable in any event for delivery of the same quantity of power to British Columbia via the Blaine intertie.

36 p.35 Reference: Exhibit B2-8, BCUC IR , In response to BCUC IR , Sea Breeze states that BPA has initiated an Interconnection Facilities Study. Will this study address all BPA system upgrades required to move power at the rated capacity both north and south on the Juan de Fuca system? BPA system upgrades required in connection with the Juan de Fuca line were identified in BPA s System Impact Study (see Sea Breeze s response to BCUC IR (VIC) and BCUC IR (VITR)). Sea Breeze expects the Interconnection Facilities Study to address the cost of those upgrades.

37 p.36 Reference: Exhibit B2-8, BCUC IR , When will the study be completed? The System Impact Study has been completed (see Sea Breeze s response to BCUC IR (VITR)). The Interconnection Facilities Study has not yet been completed, but Sea Breeze does not anticipate it causing in delays in the Juan de Fuca Project.

38 p.37 Reference: Exhibit B2-8, BCUC IR , At this time, what is the excess firm capacity that is available at Port Angeles that could flow to Vancouver Island if the Juan de Fuca line were in operation? The System Impact study for the Sea Breeze DC Interconnection completed by ABB for BPA details the firm capacity as it is currently as well as what is planned after the Olympic Peninsula network is reinforced. The actual capability may vary with the time of year as well as the area load.refer to Sea Breeze s response to BCUC IRs and (VIC), as well as BCUC IR (VITR) above. Olympic Peninsula Existing Network Summer Contingency Nomogram- All Limits

39 p.38 Olympic Peninsula Existing Network Winter Contingency Nomogram All Limits

40 p.39 Olympic Peninsula Level 2 Reinforcements Network Summer Contingency Nomogram- All Limits Base Nomogram - Summer: All Limits Considered DC Tie Export (MW) DC Tie Im port (MW) Peninsula Load (MW)

41 p.40 Olympic Peninsula Level 2 Reinforcements Network Winter Contingency Nomogram All Limits

42 p.41 Reference: Exhibit B2-1, pp , Exhibit B2-8, Response to IRs 1.2.1, 1.2.2, 1.2.3, Please further clarify the exact nature of the order that Sea Breeze is seeking, preferably by providing a draft Order. Response forthcoming.

43 p.42 Reference: Exhibit B2-1, pp , Exhibit B2-8, Response to IRs 1.2.1, 1.2.2, 1.2.3, In view of the timely resolution required for the Vancouver Island power supply challenge, please confirm what issues related to rates and terms of service, if any, Sea Breeze believes should be a part of this proceeding. Response forthcoming.

44 p.43 Reference: Exhibit B2-1, p. 202, Exhibit B2-8, Response to IR Please confirm whether the Sea Breeze cost of capital is relevant to the project selection. Sea Breeze VCC believes that the cost of capital is relevant to the project selection. However, Sea Breeze believes the project capital cost to be the dominant determining factor.

45 p.44 Reference: Exhibit B2-1, p. 202, Exhibit B2-8, Response to IR Please indicate over how many years Sea Breeze expects to recover its investment. In other words, what is the expected average annual depreciation rate? Sea Breeze VCC expects to match the investment recovery period with the life of debt facility. Currently, the annual depreciation charge is based on the 40 years life of debt and amounts to 2.5% per year.

46 p.45 Reference: Exhibit B2-1, p. 202, Exhibit B2-8, Response to IR Please indicate the term of the contract Sea Breeze expects to negotiate with BCTC. The term of the contract will be tied to the amortization life of the debt facility. The amortization life of the debt facility is expected to be 40 years.

47 p.46 Reference: Exhibit C31-10, BCUC IR 1.5.1, Appendix 1.5.1A, BCUC IR Appendix 1.5.1A is the Sea Breeze Market Rate Authority application to FERC. At page 4 it states: BPA is projecting a capacity deficiency to occur under an N- 1 reliability criterion around on the Olympic Peninsula, where the south end of the Juan de Fuca Project would interconnect and to which the Juan de Fuca Project could deliver power Please confirm that by 2008/09 BPA expects to be constrained in its capacity to deliver power to serve the existing load on the Olympic Peninsula, specifically in the Port Angeles area, or explain what the statement means. The statement as made by Sea Breeze is believed to have been correct. The ABB Interconnection System Impact Study has identified reinforcements that are necessary to implement the JdF project. See Sea Breeze s response to BCUC IR (VIC). BPA subsequently indicated in its August 19, 2005 FERC filing concerning the Juan de Fuca Project that it does not agree that it has projected a capability deficiency under N-1 reliability criterion around based on current planning assumptions for the Olympic Peninsula (page 2 of Appendix A of Sea Breeze s response to BCTC IR (VITR)). Sea Breeze Pacific Juan de Fuca Cable, LP commented further on BPA s filing in its August 24, 2005 FERC filing (Appendix B of Sea Breeze s response to BCTC IR (VITR)). See also Sea Breeze s response to BCUC IR (VIC).

48 p.47 Reference: Exhibit C31-10, BCUC IR 1.5.1, Appendix 1.5.1A, BCUC IR In the foregoing circumstances and without reinforcement of the BPA system, would it be possible for BC Hydro or others to contract firm capacity on the BPA system to deliver power to Port Angeles? If yes, please explain. If BPA were constrained in its capacity to deliver power to serve the existing load on the Olympic Peninsula, it would not be possible for BC Hydro or others to contract long-term firm capacity on the BPA system to deliver power to Port Angeles without reinforcement of the BPA system. However, short term firm and non-firm capacity could possibly be available.

49 p.48 Reference: Exhibit C31-10, BCUC IR 1.5.1, Appendix 1.5.1A, BCUC IR In the foregoing circumstances, please explain how the Juan de Fuca project will contribute to providing power to Vancouver Island under peak load conditions. All required upgrades to the BPA system needed to ensure that sufficient firm capacity will be available on the BPA system to allow power to be moved at the rated capacity both north and south on the Juan de Fuca line will be completed as part of the Juan de Fuca Project. This would include any capacity that BC Hydro/Powerex or others may wish to purchase or lease for the export of power to the United States through Port Angeles. (See also response to BCUC IR (VIC).)

50 p.49 Reference: Exhibit B2-8, IR Response In view of the sentiments expressed in Exhibit C19-1 for VITR does Sea Breeze wish to restate that it is confident that no material impediments exist with respect to municipal agencies? If yes please explain how Sea Breeze will satisfy the concerns of White Rock. Initial discussions with White Rock prior to submission of the Application indicated that there were no material impediments to the project. After the application was submitted, Sea Breeze undertook a presentation to White Rock City Council on September 26, In its letter marked as Exhibit C19-1 (VIC), now Exhibit C57-1, the City identifies its concerns with the VIC Project. The three concerns underlying the City Council s opposition to the VIC project are as follows: 1) Disruption to City streets; 2) Loss of parking space; and 3) Discussions and approvals with FREMP. Discussions with residents during the initial public meeting identified possible alternatives to the proposed route which would reduce the impact to City streets. Sea Breeze is currently reviewing these alternatives. Disruption to parking areas would be minimized by scheduling work during the non-peak fall or early spring period. See Sea Breeze s response to BCTC IR Since Sea Breeze s presentation to White Rock City Council, Sea Breeze has held discussions with FREMP which has advised that it would likely become an active participant in the environmental assessment process, which will be led by the BC Environmental Assessment Office. Accordingly, the City s concern that FREMP will oppose the project may be premature. In addition, Sea Breeze has met with members of several environmental non-governmental organizations (ENGOs) in the White Rock and Surrey area on November 23, 2005, including members of the Boundary Bay Conservation Committee, the White Rock Ratepayers Association, Friends of Semiahmoo Bay, and White Rock and Surrey Naturalists. Members of Sea Breeze s environmental team were in attendance including a marine biologist, wildlife biologist, civil engineer, and consultation consultant. This meeting focused on several issues of concern to these groups, and opportunities for information sharing were identified. Based on the above information, Sea Breeze believes that it will be able to address the City s concerns

51 p.50 such that there will not be any material impediments with respect to municipal agencies.

52 p.51 Reference: Exhibit B2-8, IR Response Does Sea Breeze have any alternate routes with respect to the landfall at White Rock? If so please describe. What additional costs would be incurred? Two other landfall sites were considered: Semiahmoo Park Adam/Beecher Road at Crescent Beach The landfall at Semiahmoo Park was considered less feasible due to: Construction in Semiahmoo Park Proximity to Cambell River Estuary Potential First Nations Archaelogical issues. First Nations consultation issues. The HDD drill length would be approximately 1400m to reach the same depth as the proposed White Rock HDD location. The estimated costs for HDD at this landfall location are estimated to be 50% to 100% greater than the current location. The landfall at Beecher/Adams Avenue was considered less feasible due to: The HDD drill length would be approximately 4920m to reach the same depth as the proposed White Rock HDD location. This length is unfeasible for HDD cable pullback and excavation in intertidal areas with high environmental and ecological issues would have to be considered. The costs for this option were not estimated by Sea Breeze in its evaluation of this potential landfall location since the HDD installation is not feasible.

53 p.52 Reference: Exhibit B2-8, IR Response Sea Breeze states that it is willing to negotiate a near term not-to-exceed turnkey price if the Commission wishes If the Commission were to set a cap on recoverable costs at the best estimate of Sea Breeze, would Sea Breeze be able to secure financing for the project? What is this estimate? Please see Sea Breeze s response to BCUC IR

54 p.53 Reference: Exhibit B2-8, IR Response Is Sea Breeze aware of any limitations for BC Hydro in returning the DSB s? If so please explain. It is Sea Breeze s understanding that: the DSBs are owned by the Province of British Columbia and managed/marketed by Powerex on the Province s behalf; Powerex has the option to take delivery of the Province s DSB entitlement either at the Canada-US border or at points in the United States; and there are certain restrictions governing the amount of power that can be delivered to the eastern and western interconnections, but it is believed that the majority of power is returned at the western interconnection. Sea Breeze believes the existing arrangements pertaining to the DSBs may be sufficient to allow Port Angeles to be considered as part of the western interconnection, and that, even if that is not the case, the parties involved could negotiate the return of a portion of the DSBs via a new delivery point Port Angeles, and in fact would have a strong incentive to do so (see responses to BCUC IRs and (VIC)).

55 p.54 Reference: Exhibit B2-8, IR Response In assuming that BC Hydro could return the DSB s through the Juan de Fuca route, has Sea Breeze considered what would be the additional costs for wheeling through BPA and the Sea Breeze Systems? If so, please provide an estimate (per MWH). If not, please explain why not. Assuming Port Angeles could be used as a western delivery point for DSBs, there should be no additional wheeling cost for DSBs returned via the Port Angeles-Juan de Fuca Cable interconnection. Should negotiations to include Port Angeles as a delivery location for DSB fail, Powerex can request transmission on direction Blaine/Port Angeles when actual delivery is required. The cost of wheeling power will be determined by BPA wheeling charges applicable at that time. Currently BPA wheeling charges are not to exceed USD 3.5/MWh for hourly firm and non-firm transmission and for long-term transmission USD / KW-month (USD 1.67 / 100% load factor).

56 p.55 Reference: Exhibit B2-8, IR Response Has Sea Breeze been made aware of any ongoing discussions between BPA, BC Hydro and BCTC with regard to the possible use of the Juan de Fuca project and in particular the return of the DSB s? Please explain. Sea Breeze has no firsthand knowledge of specific discussions in relation to the use of the Juan de Fuca Project and the return of downstream benefits on that line. However, given the benefits of another potential intertie between British Columbia and Washington State that will arise from the construction of the Juan de Fuca Project, and given that these parties continually interact in relation to inter-jurisdictional operational and planning issues, it is highly unlikely that discussions surrounding the Juan de Fuca line including issues relating to the DSBs have not been discussed. Sea Breeze has also received a news release indicating that Powerex has withdrawn from the Puget Sound Area curtailment protocol (a regional response to curtailment order needed when BPA is returning downstream benefits during winter peaking). Given this development it would be very advantageous for the parties to discuss the possibility of returning downstream benefits through the Juan de Fuca line to relieve congestion in the Puget Sound area.

57 p.56 Reference: Exhibit B2-8, IR Response Please explain the basis for Sea Breeze s belief that discussions between the parties above were concerning the DSB s. See response to BCUC IR

58 p.57 Reference: Exhibit B2-8, IR Response Does the response to this IR cover Sea Breeze s response to IR in Exhibit C31-10 regarding Intervenor Evidence in Exhibit C31-6? If not please explain what further response will be forthcoming. Sea Breeze s response to this IR augments Sea Breeze s answer to BCUC IR (VITR).

59 p.58 Reference: Exhibit B2-8, Response to BCUC IR Please describe the specific amounts and anticipated times of contributions by Sea Breeze Power Corp., Boundless Energy NW, Inc., and the United States Power Fund. Response forthcoming.

60 p.59 Reference: Exhibit B2-8, Response to BCUC IR What is the specific amount of the cumulative contribution made by United States Power Fund, and has it already been made? Please refer to BCUC IR United States Power Fund has made an unconditional commitment for an initial contribution of US$1 million to be applied towards completion of the CPCN for VIC. Receipt of funds by Sea Breeze is expected during the week of December 5, 2005.

61 p.60 Reference: Exhibit B2-8, Response to BCUC IR Considering the Juan de Fuca Cable Project appears to be technically capable of meeting the current needs of electrical supply to Vancouver Island, the two extremes of the transmission cost would be the market opportunity cost on the high end, and the recovery of investment and rate of return on the low end. Has Sea Breeze made an evaluation of what this range is likely to be, and if so, would it provide this information? Although it is technically correct that there are two potential "extremes of the transmission cost", Sea Breeze has not specifically evaluated the two extremes referred to in the question. Sea Breeze is proposing that BCTC acquire the south to north capacity on the Juan de Fuca Project to alleviate the transmission deficiency anticipated for Vancouver Island. An embedded cost analysis in these circumstances is not relevant. The opportunity costs to BCTC (deferral of VITR and other system costs) is a better measure, hence Sea Breeze's proposal that BCTC be charged a fraction of these costs.

62 p.61 Reference: Exhibit B2-8, Response to BCUC IR Please describe the negotiations and other steps that have been taken to contractually enable the interconnection of the Juan de Fuca Cable Project to BPA and the provincial transmission grid, and the remaining contractual steps, and their timelines, which need to be satisfied to realize the interconnection. The procedures for interconnecting the Juan de Fuca Cable project to the BPA and BCTC grids are detailed in the respective agencies OATTs and Interconnection Procedures. There is little or no negotiation involved other than in the study scopes that direct what interconnection and system upgrade alternatives are to be considered. At this point, the Project has completed the Interconnection System Impact Study with BPA and has started the Facilities Study process. Following the completion and acceptance by the Project of the Facilities Study it will be tendered an Interconnection Agreement. The BPA Facilities Study is tentatively scheduled to take from 90 to 120 days to complete. The same general procedures are followed by BCTC. The project has not as of this date entered into discussion with BCTC on the scope of the Interconnection System Impact Study. Once initiated, this study would take about 90 days to complete, and it would be followed shortly thereafter by a Facilities Study, also requiring about 90 days. BCTC s OATT makes provisions for combining the Interconnection and Facilities Studies into one process.

63 p.62 Reference: Exhibit B2-8, Response to BCUC IR On what principles would uncontracted available capacity on the Juan de Fuca Cable project be made available for post-contingency response purposes, and what capability would system operators have to dispatch this unused capacity? Any short term uncontracted capacity on the Juan de Fuca Cable Project would be made available on the OASIS systems of the interconnected utilities. In this regard, it would be presumed to be available to the operator for whatever purposes were deemed appropriate, whether for economy interchange, contingency response or other. Similarly, any short-term overload capacity would be made available for grid operating contingences on a priority basis. The project would seek to hold additional open seasons or contract negotiations for any long term uncontracted capacity.

64 p.63 Reference: Exhibit B2-8, Response to BCUC IR Please describe Sea Breeze s preferred method of real-time control of the proposed Juan de Fuca Cable Project. The daily exchange of power across the Port Angeles-Pike Lake link would be controlled in essentially the same way as the Ingledow-Custer link, by the control centres of BCTC and BPA. The general conditions of exchange, as far as MW flow in given periods, either seasonally or daily are concerned, and conditions for emergency exchange during contingencies in either of the two systems are concerned, will need to be governed by an agreement between BCTC, BPA and Sea Breeze. Sea Breeze is interested in negotiating an agreement to provide BCTC with real time control over the Juan de Fuca line.

65 p.64 Reference: Exhibit B2-8, Response to BCUC IR In the event of a supply shortage on either side of the proposed Juan de Fuca Cable Project due to multiple contingencies, please describe what would prevent any unused capacity of the project, if in service, from being dispatched, if technically possible, to relieve the supply shortfall. Consistent with the response to BCUC IR (VIC), the action taken by the respective control centres to provide mutual assistance during multiple or any other unforeseen contingencies, will need to be governed by an agreement between BCTC, BPA and Sea Breeze. Unlike AC technology, the HVDC Light technology is fully controllable and Sea Breeze would expect the operator to be able to abide by the contractual obligations in place.

66 p.65 Reference: Exhibit B2-8, Response to BCUC IR Please explain why the Converter Station Site value of Converter Station ID A (described as north of Ingledow) is so much less than the Converter Station Site values of Converter Station IDs B, C, and D (described as south of Ingledow). The difference in estimated value is related to the per hectare price for the parcels estimated from the total property area. For the parcel containing Site A, the per hectare value is $243,243/ha and for the parcel containing Sites B, C, and D the value is $737,156.53/ha. Sea Breeze does not know the underlying reasons for the difference in the 2005 Assessed Land Values.

67 p.66 Reference: Exhibit B2-8, Response to BCUC IR Please provide a detailed line item estimate showing labour, material, equipment and indirect costs for each line item for the $2.0 million cost of the interconnection to the Ingledow Substation. With reference to response to BCUC IR 1.7.4, the following is breakdown of the interconnection cost to the Ingledow Substation: Major electrical equipment $610,000 Other material and P&C equipment $400,000 Labour and contracts $540,000 Subtotal $1,550,000 Engineering $150,000 Contingencies $300,000 Total $2,000,000

68 p.67 Reference: Exhibit B2-8, Response to BCUC IR Has Sea Breeze prepared an estimate of the fibre optic line for internal purposes? If yes, please provide it. Sea Breeze VCC estimates for the fibre optic cable option, for internal purposes, is approximately $400,000.

69 p.68 Reference: Exhibit B2-8, Response to BCUC IR The cash flow profile shows considerable expenditures in April of 2006 and Are there corresponding performance bonds proposed to be posted by the contractor, to enable recovery of those expenditures for non-performance? Yes. The EPC contract will include an outline of performance guarantees and non-performance penalties.

70 p.69 Reference: Exhibit B2-8, Response to BCUC IR On what basis did Sea Breeze determine that 2010 was a reasonable time for replacement of all the VIT synchronous condensers? In the absence of better information from BCTC, the year 2010 was chosen based on the assumption that these old rotating machines, operating beyond their reasonable life expectancy, will be due for replacement in 2010 when two synchronous condensers will be 43 years old and the other two will be 33 years old. Sea Breeze has also assumed that it would be more economical to replace all of them at the same time with SVC of equivalent capacity to provide system support required to be available for VITR project.