C,,rÀ~9 Go...RE: Project No. 3598419 British Columbia Hydro and Power Authority (BC Hydro) 2006 Integrated Electricity Plan and L TAP Application IS YOURS Enclosed is BC Hydro's Evidence

BC hydro In~ THE POWER

Joanna SofieldChief Regulatory OfficerPhone: (604) 623-4046Fax: (604) 623-4407

regulatory .group~bchydro.com

June 30, 2006

Mr. Robert J. PellattCommission SecretaryBritish Columbia Utilities CommissionSixth Floor - 900 Howe StreetVancouver, BC V6Z 2N3

Dear Mr. Pellatt:

RE: Project No. 3598419British Columbia Hydro and Power Authority (BC Hydro)2006 Integrated Electricity Plan and L TAP Application

IS YOURS

Enclosed is BC Hydro's Evidence on Project Evaluation.

Yours sincerely,

C,,rÀ~9 Go ~CS ttQ' f f

Joanna SofieldChief Regulatory Officer

Enclosure

c. Project No. 3598419 Intervenors

British Columbia Hydro and Power Authority, 333 Dunsmuir Street, Vancouver BC V6B 5R3ww.bchydro.com

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BCH-IEP

BRITISH COLUMBIA HYDRO AND POWER AUTHORITY

2006 INTEGRATED ELECTRICITY PLAN and LONG-TERM ACQUISITION PLAN

Evidence on Project Evaluation

June 30, 2006

BC Hydro 2006 Integrated Electricity Plan and LTAP Application Evidence on Project Evaluation

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INTRODUCTION

This evidence provides a policy level discussion of the impact of legislation and

regulation on British Columbia Hydro and Power Authority (BC Hydro) and its application

to project evaluation and customer rates. It provides a framework for review and includes

a summary of BC Hydro’s current rate of return on equity, weighted average cost of

capital and discount rate.

Its intention is to facilitate a review of the issues surrounding BC Hydro’s project

evaluation based on the regulatory construct for BC Hydro that must be applied in that

review. It provides a policy level framework rather than a prescriptive means to

undertake project evaluation.

BACKGROUND

1.1. BC Hydro as an Agent of the Crown12

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BC Hydro, established under the Hydro and Power Authority Act1 (the Hydro Act), is a

Crown corporation wholly owned by the Province of British Columbia. Pursuant to

section 3 of the Hydro Act, BC Hydro is an agent of the Crown. This is a different

relationship than an ordinary corporation would have with its shareholder. For example,

Provincial Crown agents such as BC Hydro are accountable to the Provincial

Government through a responsible Minister, and have assigned/delegated authority from

the Provincial Government. The Provincial Government may issue directives to

BC Hydro.

Through section 12 of the Hydro Act BC Hydro has the power to:

• Generate, manufacture, distribute and supply power; • Upgrade its power sites; and • Purchase power from or sell power to a firm or person.

BC Hydro is also exempt from most British Columbia statutes (Hydro Act, Section 33). A

copy of the Hydro Act is attached as Appendix 1.

1 RSBC 1996, c.212.

1.2 Regulation of BC Hydro1

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1.2.1 General

BC Hydro is regulated under the Utilities Commission Act2 (UCA) by the British

Columbia Utilities Commission (BCUC), an independent, quasi-judicial, agency of the

Provincial Government. BC Hydro must receive approval from the BCUC for its revenue

requirements. BC Hydro is also bound by Heritage Contract Special Directive No. HC1

(HC1)3, which provides similar definitions to Heritage Contract Special Direction No.

HC2 (HC2)4, which is directed at the BCUC (see below). HC1 requires BC Hydro, under

section 3, to make an annual payment to the Provincial Government. This payment is to

be 85% of “distributable surplus” so long as BC Hydro’s debt:equity ratio does not

exceed 80:20. Distributable surplus is defined as BC Hydro’s consolidated Net Income

for the year less finance charges capitalized5 during the year net of depreciation charged

on capitalized finance charges. A copy of HC1 is attached as Appendix 2.

The BCUC is bound by HC2, passed pursuant to the BC Hydro Public Power Legacy

and Heritage Contract Act.6 A copy of HC2 is attached as Appendix 3.

Section 4 of HC2 provides:

“4 Subject to section 7, in regulating and setting rates for the authority, the commission must ensure that those rates allow the authority to collect sufficient revenue in each fiscal year to enable the authority to (a) provide reliable electricity service, (b) meet all of its debt service, tax and other financial obligations, (c) comply with government policy directives, including, without limitation,

government policy directives requiring the authority to construct, operate or extend a plant or system, and

(d) achieve an annual rate of return on equity equal to the pre-income tax annual rate of return allowed by the commission to the most comparable investor-owned energy utility regulated under the Utilities Commission Act”.

The equity identified in 4(d) is a defined term in HC2. Section 1 of HC2 defines equity as

follows:

“ “equity” means the sum of the following amounts at the end of the fiscal year:

2 RSBC 1996, c.473 3 Order in Council No. 1125 (23 November 2003) 4 Order in Council No. 1123 (23 November 2003) 5 i.e., interest during construction


26 SBC 2003, c.86


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(a) retained earnings; (b) deferred revenue; (c) contributions arising from the Columbia River Treaty; and (d) contributions in aid of construction.”

Herein, “HC Equity” is used to distinguish the above noted definition from the standard

definition of equity, which is referenced as “Commercial Equity”. The return on HC Equity

is also defined in HC1.

Through HC2 and the UCA, the BCUC is provided authority for the execution of its

responsibilities with respect to regulating BC Hydro.

The BCUC, through its authority, establishes BC Hydro’s:

• Revenue requirements; • Customer tariffs; and • Rate of return on equity through determining the most comparable utility.

The BCUC also provides determinations for plans and expenditures related to:

• capital assets; • meeting the demand for energy by acquiring energy from other persons; and • reducing the demand for energy.

1.2.2 Constraints on Regulation The BCUC’s regulation of BC Hydro is subject to HC2 which impacts, in particular,

BC Hydro’s:

a) Components of equity (HC Equity) b) Return on HC Equity c) Capital structure.

These impacts are discussed below.

a) BC Hydro’s Components of Equity (HC Equity)

BC Hydro equity for revenue requirement and rate-making purposes is HC Equity. As

provided by section 1 of HC2, HC Equity comprises the sum of the following four

elements at the end of the fiscal year:

a) Retained earnings;

The accumulation over time of BC Hydro’s annual net income, less the

payment to the Province required pursuant to HC1.


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b) Deferred revenue;

Amounts received by BC Hydro pursuant to agreements under the Skagit

River Treaty. Under these agreements, BC Hydro is required to deliver a

predetermined amount of energy each year for an eighty year period ending

in F2066.

c) Contributions arising from the Columbia River Treaty;

The contributions relate to three dams built by BC Hydro in the mid-1960’s

pursuant to the Columbia River Treaty. The proceeds were contributed to

BC Hydro to assist in financing the dams’ construction. The proceeds were

deferred and amortized to income over the period ending F2025.

d) Contributions in aid of construction.

Amounts paid by certain customers toward the cost of capital assets required

for the extension of services, in accordance with BCUC-approved tariffs.

Contributions in aid of construction are amortized over the expected useful

life of the related asset.

None of the components of HC Equity have a direct relationship to capital expenditures,

although items c) and d) relate to contributions made by others to BC Hydro’s capital

assets. Only item a) retained earnings would be considered an equity item (Commercial

Equity) by an investor-owned utility.

In Table 1 below, each of the four components of HC Equity is identified and compared

to Commercial Equity. The percentage of BC Hydro’s overall financing (sum of debt and

equity) for F2005 is identified and compared. Debt is shown to complete the picture.

Table 1: Comparison of HC Equity and Commercial Equity

Component of BC Hydro Financing

Included in HC Equity

HC Equity; Debt:Equity

Included in Commercial

Equity

Commercial Equity;

Debt:Equity Retained Earnings 20% 20% Deferred Revenue Contributions arising from the CRT

Contributions in aid of construction

10%

Share Capital 0% 0% Debt 70% 80%


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b) BC Hydro’s Return on HC Equity

By section 4(d) of HC2, the BCUC must provide BC Hydro's shareholder (the Provincial

Government) the opportunity to earn a return on HC Equity. The basis for this return on

equity is also determined by section 4(d) and is equivalent to the pre-income tax return

on equity set by the BCUC for the most comparable utility regulated by the BCUC.

The most comparable utility was established as Terasen Gas Inc. (Terasen) in

BC Hydro’s 1994/1995 Revenue Requirements Application hearing7 and has remained

so since that time. Consequently BC Hydro’s allowed return on HC Equity is determined

annually based on the equity return allowed to Terasen, grossed-up for the effective

income tax rate for Terasen as filed with the BCUC. See Table 2 below.

Table 2: Allowed Return on HC Equity F2003 – F2007

F2003 F2004 F2005 F2006 F2007 Allowed Return on HC Equity 15.47% 14.33% 13.91% 13.51% 13.13% The calculation of the F2007 allowed return of 13.13% is as follows8: 12

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1. F2006 approved return for Terasen9 8.8% 2. Terasen’s effective income-tax rate for 2006 33.2% 3. Grossed-up pre-income tax rate of return 13.13% c) BC Hydro’s Capital Structure The operation of HC2 applies, for regulatory purposes, to BC Hydro’s HC Equity and the

return on that equity. Unlike other utilities the BCUC regulates, it cannot “deem” a debt to

equity ratio for BC Hydro or determine a return on that “deemed” equity. These variables

are set by HC2.

When BC Hydro requires funds to finance capital expenditures, it is provided by debt or

operating cash flow. BC Hydro has no ability to access commercial equity markets and

BC Hydro’s balance sheet contains no Commercial Equity except for retained earnings.

7 BCUC Decision of 24 November 2004 concerning BC Hydro’s 1994/95 Revenue Requirements

Application, page 6. 8 BC Hydro’s F07/F08 RRA, filed May 25, 2006, page 2-14. 9 BCUC Order G-14-06.


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On an incremental basis, capital invested by BC Hydro10 is funded by debt – since in the

absence of that additional capital expenditure less debt would need to be issued or more

debt would be paid down from operating cash flow.

At the margin, all funds expended by BC Hydro can be considered to be debt. Generally

when there is a surplus of cash flow, debt is repaid; any time there is a deficit, additional

debt is acquired. No incremental funds originate from equity markets. Therefore,

financing for any capital project can be considered to be supplied by debt.

If the debt:HC Equity ratio reaches 80:20 then, under HC1 section 3, the usual annual

dividend payment of 85% of annual distributable surplus will no longer be paid and these

funds are made available for financing purposes until the debt:HC Equity ratio falls below

80:20. In any period where a dividend is not being paid then financing is essentially

80:20.11 Any direct cash analysis of a project or direct calculation of impact of a project

on rates or on revenue requirements should be based on the direct financing costs. This

provides the actual impact of the project upon BC Hydro’s revenue requirement that it

will be seeking to recover through customer rates. This issue is discussed further below

under section 3.1.

1.3 British Columbia’s 2002 Energy Plan17

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In November 2002 the Provincial Government released its energy policy, “Energy for our

Future: A Plan for BC” (the Energy Plan). BC Hydro’s plans are developed in the

context of, and guided by, the Energy Plan. A copy of the Energy Plan is found at

Appendix A to the 2006 Integrated Electricity Plan (IEP) (Exhibit B-1B).

The Energy Plan has four cornerstones: low electricity rates and public ownership of

BC Hydro; secure, reliable supply; more private sector opportunities; environmental

responsibility and no nuclear power sources.

10 Certain capital expenditures are partially funded by customers with these funds being recorded as Contributions in Aid of Construction and offset an equivalent amount of capital expenditures. 11 The Direct Evidence of Tony Morris, as filed in Projects No. 3698395 and 3698405, Exhibit C6-14, provides additional detail with respect to the operation of HC1 on BC Hydro’s debt:HC Equity. A copy is provided in Appendix 4.


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As outlined at pages 1-2 and 1-3 of the 2006 IEP (Exhibit B-1A), a number of policy

directives continue to affect BC Hydro’s electricity plans and planning processes,

including:

• Policy Action #1, designating BC Hydro’s integrated facilities as “heritage resources”.

A Heritage Contract was established between BC Hydro’s generation and distribution

businesses to preserve the benefits of BC Hydro’s existing generation assets. A

proposed contract was submitted to the BCUC in 2003 and after a public hearing

process recommendations were made by the BCUC to the Provincial Government.

These were accepted by the Provincial Government on November 28, 2003,

resulting in the issuance of HC1 and HC2. The recommendations essentially resulted

in cost-based rates for BC Hydro’s customers with differences between forecast and

actual costs outside the control of BC Hydro being transferred into deferral accounts

for consideration in future rates. As a result customers would generally pay actual

costs rather than the risk premium that would be necessary for BC Hydro to absorb

the risks of those costs outside its control.

• Policy Action #15. While BC Hydro also owns and finances the transmission

facilities, it does not manage or operate the network or plan extensions or upgrades

to the network. Such responsibilities have been separated from BC Hydro and, since

2003, reside with British Columbia Transmission Corporation (BCTC). The

relationship between BC Hydro and BCTC is set out in the Master Agreement dated

12 November 2003.

• Policy Action #13, stating that the private sector is to develop new electricity

generation, with BC Hydro restricted to efficiency improvements and capacity

upgrades at existing facilities.

• Policy Action #9, providing that electricity distributors are to acquire new supply on a

least-cost basis. When deciding how to meet a projected power need, BC Hydro’s

distribution business is to “compare the costs of all potential resources, including

Independent Power Producer (IPP) purchases, customer-owned generation,

BC Hydro plant efficiency improvements (Resource Smart), conservation and energy

efficiency, and firm imports”. The BCUC is to oversee acquisition processes “to


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ensure that least-cost options are chosen consistent with the new clean energy goal”

(Energy Plan, page 28).

1.4 Cost-Effectiveness Test3

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The BCUC has provided direction in the past on the criteria that should be used to

evaluate projects. The BCUC has interpreted “least cost” to be “cost-effective”. Two

relevant references are:

a) Vancouver Island Generation Project Decision (Order G-55-03), page 77.

In this Decision the BCUC has identified “cost-effective” as a general description of

what is to be compared across projects. This was described as follows:

The principal distinction between most cost-effective and least-cost is the scope of considerations that are relevant. In the context of this Decision, most cost-effective 12 includes consideration of project characteristics such as reliability, 13 dispatchability, timing, and location as well as the cost or price, in the case of an EPA. Least-cost is taken to only include cost or price considerations. … Safety, reliability and other impacts are relevant factors, along with the cost to ratepayers and the impact on the financial capability of the utility.

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b) The Certificate of Public Convenience and Necessity Guidelines12 provide additional

detail in the “Project Justification” section:

“Project Justification (i) studies or summary statements identifying the need for the project and

confirming the technical, economic and financial feasibility of the project,

identifying assumptions, sources of data, and alternatives considered (if

applicable);

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(ii) a study comparing the costs, benefits and associated risks of the project

and alternatives, which estimates the value of all of the costs and benefits of

each option or, where not quantifiable, identifies the cost or benefit and states

that it cannot be quantified;

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(iii) a statement identifying any significant risks to successful completion of the

project; and

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(iv) a statement of the revenue requirement impact of the project and the

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12 BCUC, Certificate of Public Convenience and Necessity: CPCN Application Guidelines (March 2004)


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BC Hydro accepts the BCUC’s distinction between “cost-effective” and “least cost” and

has adopted the “cost-effective” standard evaluation of projects given that it is a more

comprehensive benchmark which incorporates least-cost but also reflects a broader

range of quantitative and non-quantitative characteristics. “Cost effectiveness”

encompasses the physical and economic life of the project, i.e., the life cycle cost. It

includes the impacts of adding new resources to BC Hydro’s system mix (aggregation)

and also includes foreseeable environmental and social impacts of a project, both

positive and negative, where such impacts could reasonably be expected to have an

impact on BC Hydro’s costs and thus rates at some time through a project’s life.

2. PROJECT AND PROGRAM AREAS IN THIS EVIDENCE 2.1 Framework11

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This evidence will focus on the following four areas. The first three are the general

categories of supply options that are available to BC Hydro, and the fourth is with

respect to investments that BC Hydro may be required to make in transmission facilities

that BCTC determines are necessary to carry out its mandate:

1. Resource Smart;

2. DSM (Both Energy Efficiency (EE) and Load Displacement (LD));

3. IPP Electricity Purchase Agreements (EPAs);

4. Transmission projects funded by BC Hydro.

The word “project” is used in this evidence to describe both individual projects and

programs such as DSM.

Schematically, the structural model of BC Hydro’s electricity supply chain can be

represented as follows:


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BC Hydro

System

IPP EPAs

Resource Smart

BC Hydro Customers

DSM EE & LD

COST-EFFECTIVENESS

Transmission Service

RATE IMPACT AND RISK

Supply Aggregation Demand

Transmission

The evidence presents the comparison of projects at two interfaces:

1. Between BC Hydro and its customers:

• Direct financial revenue requirement and rate impact; and

• Risk analysis with respect to revenue requirement and rate impact.

2. The cost-effectiveness to BC Hydro of projects being added to the BC Hydro system,

be they Resource Smart, IPP EPAs or through actions with customers to reduce

demand (DSM).

The evidence does not address risks faced, or decisions made, by third party suppliers. 2.2 Project Risk10

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All phases of a project’s life include some element of risk. As examples, three areas of

risk with respect to electricity supply projects can be presented as follows:

Risk Type Risk

Direct project characteristics: price/cost, scope/capability and schedule.

• Higher cost than forecast. • Less capability than forecast. • Later in-service date than

forecast. • Shorter economic life than

forecast. • Fuel supply.

Project “need”. Will there be sufficient customer demand through the project life to justify customers paying the project cost?

• Customer demand may not materialize.

• Customer demand may not be there through the life of the asset.

System impacts of the project: Aggregation services are required to incorporate any new facility into the BC Hydro system and re-optimize the overall system.

• The effects of adding a resource impacts the overall operation of the system more negatively than expected.

• The synergistic benefits of adding a resource do not materialize as forecast.

Evaluation of capital projects must reflect the underlying risk. 1

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Two alternate methods of managing project risk are for BC Hydro to:

(1) hold the risk and manage it through some risk/reward scheme; or

(2) pass the risk on and provide the party that holds the risk (the customers) with the

evidence to make informed decisions based on both the expected outcome of a

project and explicit risk analysis.

As determined by HC1 and HC2, the regulatory model is the latter for BC Hydro.

Risk evaluation methods for regulatory proceedings should align with this risk

management model. This is described in more detail in the following sections of this

evidence.

BC Hydro uses a number of methods to evaluate project risk and cost-effectiveness to

the customer. This is predominantly done by first analyzing the expected incremental

rate impact of an investment decision. Cost effectiveness is further evaluated through

economic analysis by examining discounted cash flows and opportunity costs.


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1 3 RATE IMPACT ANALYSIS 3.1 Direct Revenue Requirement and Rate Impact Evaluation2

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In regulating the services of electricity supply, and the relationship between BC Hydro

and its customers, the BCUC has certain functions:

• Ensure appropriate level of service;

• Set just and reasonable rates; and

• Ensure BC Hydro be allowed to collect sufficient revenues to meet all its financial

obligations and comply with Provincial Government policy directives.

In section 1, the regulation of BC Hydro’s revenue requirements and rates was

described. BC Hydro’s costs, and therefore revenue requirements, include ongoing

expenditures, the income statement impact of past and newly in-service capital

expenditures, and costs related to HC Equity.

The express use of Commercial Equity and debt:equity ratios is not available to

BC Hydro (or the BCUC) and therefore is not meaningful in project analysis where the

investment is made by BC Hydro. Costs of operations are paid for from revenue

received from customers through approved tariffs for electricity sold. BC Hydro has no

Commercial Equity other than retained earnings, and has no means of accessing

commercial equity markets.

The direct impact of any project on customers is through the change to the tariffs that

would be caused by the inclusion of project related costs into BC Hydro’s revenue

requirements.

In other jurisdictions and with other regulated companies, it may be possible to define

specific capital structures and deem allowed equity returns as a means of managing the

risk/reward of a given regulated company. A predetermined identification as to what is or

is not at risk to the utility is not a mechanism that is available to the BCUC in regard to

BC Hydro due to the application of HC2. BC Hydro’s proposal for addressing project

risks is addressed in the next section.

Revenue requirement and rate impact analysis for any project undertaken or funded by

BC Hydro can only be completed on the basis of the structure and restrictions in the


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regulatory framework in order for it to reflect reality. Project funding must reflect the

reality that BC Hydro can only raise new funds through the debt market (i.e. 100% debt).

3.2 Risk Analysis regarding Revenue Requirement and Rate Impact3

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There is no direct method to use debt and equity as instruments of oversight of

BC Hydro’s business. It does not have Commercial Equity (except retained earnings) or

a debt:equity structure that can be managed or controlled through a conventional

regulatory process.

However, project risks always exist. Ultimately, BC Hydro expects prudently incurred

project costs to be incorporated into its revenue requirements and accordingly, into

rates.

As a result, BC Hydro proposes that the BCUC treat BC Hydro’s project risk explicitly

through inclusion, in the forecasted range of project costs, of other risk-related

parameters. Examples that exist, and have been used, include projects being tested with

both P50 and P90 cost forecasts; use of ranges of fuel prices; and tests with ranges of

load forecasts. Through the express review of the risks of specific projects, the BCUC

can fulfill its responsibilities and, as necessary, exercise its authority without having to

treat risk through notional debt:equity ratios.

3.3 Case-Specific Issues for the Identified Project Types18

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Each of the project types identified in section 2.1 result in BC Hydro (and ultimately its

customers) taking on risk. Some possible methods that can be used to provide direct

comparison of project risks in each of these areas are set out below.


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1 Project type Issues Regulatory Review Tests Resource Smart

• Capital cost risk • Impact on aggregation

services • Scope/Capability

• Need

• Schedule

• P50, P90 cost estimates • Scenarios

• Verification of design e.g.,

capacity, availability • Range of demand forecast and

scenarios of operating cost (fuel) forecasts

• Schedule credibility DSM • Cost-effectiveness

• Delivery risks • Verifiable savings • Schedule

• Appropriate tests e.g. UC, TRC and RIM tests13

• Scenarios • Audit reports • Schedule credibility

IPP EPAs • Risk allocation, risks allocated to BC Hydro (Need)

• IPP performance/default

• Impact on aggregation services

• Schedule

• Range of demand forecast and scenarios of operating cost (fuel) forecasts

• Review of risk parameters in proposed EPAs

• Scenarios

• Schedule credibility BCTC Transmission14

• Cost control • Market risk, ability to recover

cost (need) • Schedule

• P50, P90 cost estimates • Identified customers, approved

NITS15 • Schedule credibility

By handling risk issues on an independent basis through scenarios or case-specific

analysis, depending on the project and the issues being faced, the underlying risks can

be explicitly reviewed. Project cost-effectiveness, expected revenue requirement and

rate impact tests can be evaluated, both on an as-expected basis and under certain

credible scenarios of future events.

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Project comparisons can be made by evaluating projects on the basis of consistent

economic parameters to the extent possible and incorporating specific scenarios or

13 UC – Utility Cost; TRC – Total Resource Cost; RIM – Rate Impact Measurement 14 This evidence assumes that BC Hydro buys all regulated transmission service from BCTC and all such transmission would therefore be handled by BCTC. Investments in the transmission facilities would be made by BC Hydro pursuant to the Master Agreement and other key agreements. As a regulated service the project evaluation of a transmission project would be expected to be similar to that described for other projects. Any requirements for non-regulated transmission services, or services beyond the Master Agreement, would be on a case by case basis, depending on the specific business needs or opportunities. 15 NITS – Network Integrated Transmission Service


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cases that allow the test of uncertainties or risks that may be different between projects.

Projects that BC Hydro constructs (Resource Smart); purchases (IPP EPAs) or

encourages through incentives (DSM) could all be compared based on their impact on

BC Hydro’s revenue requirements and ultimately rates.

4. ECONOMIC ANALYSIS

As part of, or in addition to, revenue requirement and rate impact analysis, as laid out in

section 3, cost-effectiveness evaluations will include economic analysis of discounted

cash flows and present value calculations of forecasts of the impact of any resource

alternative.

4.1 Weighted Average Cost of Capital (WACC) 10

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For economic analysis, the WACC for BC Hydro projects represents BC Hydro’s risk-

adjusted cost of capital. The WACC is a long-term measure and, when described net of

inflation (constant dollars), should not change to reflect temporary or short-term

movement in costs of capital.

BC Hydro projects which are aligned with BC Hydro’s core operations, as described

earlier in this evidence, can be discounted at the WACC. This holds as long as such

projects do not materially alter the overall risk profile of BC Hydro’s operations. To the

extent that the “riskiness” of an individual project or decision is assessed, through

BC Hydro’s risk analysis, to have a materially different risk profile, such risk may have to

be addressed separately.

BC Hydro proposes to continue to use a 6% real WACC for the economic analysis of

projects, which translates to approximately 8% nominal, given current inflation. This

reflects the underlying risk-adjusted cost of capital. The calculation below sets out the

relative weightings and cost of the capital components to determine the overall WACC.

Capital Cost Total (nominal)Debt 80% 6.70% 5.4%Equity 20% 13.13% 2.6% WACC 8.0%

4.2 Discount Rate1

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Economic analysis of projects can be discounted at the WACC as the projects do not

alter the overall risk profile of BC Hydro’s operations. Due to the global nature of the

WACC, as described above, the discount rate used should be consistent across the

company.

It will be appropriate in some situations to use sensitivity testing around other discount

rates to assess broader ranges of uncertainty of future events that are not sufficiently

reflected in the standard rate.

5. EXAMPLE: ABERFELDIE PROJECT ANALYSIS

BC Hydro undertakes a number of different economic analyses of capital projects. These

will differ depending on the nature of the project. For instance, a customer driven project

may require a less rigorous examination of alternatives than a Resource Smart project.

The evaluation completed for Aberfeldie generating station redevelopment (Aberfeldie) is

an example of a project evaluation16.

This evaluation included the following:

• Rate Impact Analysis • Levelized cost analysis • Net Present Value (NPV) Analysis • Comparison to Acquisitions

Key variable identification and assessment is essential to ensure that the appropriate

variables and their impacts are modelled under the various project evaluation

techniques. For Aberfeldie these variables included capital costs, operating costs (such

as water rentals, taxes, operating and maintenance costs and water licence compliance

fees), borrowing costs, decommissioning costs and equipment performance. This set of

variables is typical for Resource Smart projects.

5.1 Rate Impact 26

27

28

Rate impact analysis was prepared assuming 100% debt financing and a depreciation

term of 50 years. The results varied with each scenario given different levels of capital


16

16 A workshop was held on the Aberfeldie project evaluation on April 20, 2006. The material presented is attached to the response to BCUC IR 1.284.1. The EXCEL financial model is attached to the response to CPC IR 1.2.6.


17

1

2

3

4

5

6

costs and other factors. The rate impact identified the difference in customer rates

between redeveloping Aberfeldie and not doing so; it thus indicated the incremental rate

impact of the project.

The types of comparisons that are completed in project evaluations would be similar in

concept to what was presented in the following chart from the Aberfeldie workshop to

present bid price risk analysis.

5.2 Levelized Cost7

8

9

10

Levelized cost analysis identified the average unit cost of electricity from the facility, post

the redevelopment, over a 25 and 50 year life. It also included variations for different

capital and financing costs.

5.3 Net Present Value11

12

13

14

15

NPV analysis was prepared using a number of different electricity price forecasts over a

20-year period. These forecasts represented alternative sources of electricity such as

market purchases. The analysis was again completed using a number of different

scenarios.

5.3 Comparison to Acquisitions16

17

18

An evaluation was completed to identify what might have been the bid price for

Aberfeldie were it to have been bid into the F2006 Call. The evaluation included the


18

1

2

3

4

characteristics of the different sources of supply such as reliability, energy shape,

dispatchability, location, etc.

The response to Columbia Power Corporation Information Request 1.3.2 provides the

following table of Aberfeldie reflecting the terms of the F2006 Call.

Bid Price Reconciliation Units 40 years Discount Rate (nominal) % 6.7% 8.0% Levelized price (flat block) $/Mwh 41 46 Adjustment factor for shape Factor 107% 107% Shape-adjusted levelized price (1) $/Mwh 44 50 Bid Adjustments Tier 1 Discount $/Mwh 2 3 LD's $/Mwh 2 3 Indexation at 50% CPI $/Mwh 9 8 Total adjustments 13 14 Hypothetical bid price $/Mwh 57 64

A more general evaluation comparison discussion is provided at Chapter 8.5 of the 2006

IEP.

5

6

7

8

9

10

11

12

13

14

15

All these analyses were considered together taking into account the sensitivities and

risks around them in order to assist in the decision-making as to whether to proceed or

not with a specific investment, in this case Aberfeldie.

The Aberfeldie analysis consistently used 6.7% as the cost of debt for the assessment of

rate impacts and project evaluation. In addition, the other project evaluation work used

an 8% WACC to reflect BC Hydro’s overall risk-adjusted cost of capital, as noted above

in section 4.1. The use of the WACC and other sensitivity testing enabled a comparison

of different options and provided the ability to reflect unidentified project risks within this

discount rate.

Hydro and Power Authority Act Page 1 of 26

Copyright (c) Queen's Printer,Victoria, British Columbia, Canada IMPORTANT INFORMATION

___A__"___"-,-,'------..-.._-m___"__-"-,-,-,----,----,,--"____0______,--,...._---_._--_._---_..-......--._--_.."._--_._-_..__._,-_.

This Act has "Not in Force" sections. See the Table of Legislative Changes.

HYDRO AND POWER AUTHORITY ACT

(RSBC 1996) CHAPTER 212

ContentsSection

1 Definitions

2 Authority continued

3 Agent of government4 Directors

5 Powers of directors6 Directors' proceedings

7 Interests of directors8 Resolutions

9 Executive committee

10 Appointment of employees

11 Bonds

12 Powers

13 Repealed

14 Tenders

15 Opening tenders

16 Expropriation17 Compulsory supply of power18 Release on expropriation19 Application of expropriation power20 Power of entry, etc.21 Borrowing by authority22 Authorization to borrow from Canada Pension Plan

23 Guarantee of principal and interest24 Guarantees respecting leases25 Borrowing limitation26 Repealed

27 All funds paid into one fund28 Examination and report by Comptroller General

Appendix 1


29 Repealed

30 Liability of authority31 Nuisance actions

32 Application of other statutes33 Certificate deemed to be granted34 Taxation

35 Directives36 Pension arrangements

37 Pension: further provision37.1 Joint management agreement

38 Power to make regulations

Definitions

i In this Act:

"authority" means the British Columbia Hydro and Power Authority

continued under this Act;

"commission" means the British Columbia Utilties Commissioncontinued under the Utilties Commission Act;

"generation" means production by hydraulic, electrical, steam,internal combustion engine, gas, oil or by any other process;

"judge" means a justice of the Court of Appeal or a judge of theSupreme Court;

"owner"

(a) in relation to land, means a person registered in the booksof a land title office as owner of land or of a charge on land,whether entitled to it in the person's own right or in arepresentative capacity or otherwise and includes a lessee inpossession for a term of 3 years or less and a person who isthe owner, although unregistered, of an estate less than thefee simple granted by the Crown, and

(b) in relation to other property, includes a mortgagee, personentitled to a limited estate or interest and a guardian,executor, administrator or trustee in whom any property orinterest in any property is vested;

"power" includes energy, light and heat however developed orproduced, and includes electricity and natural, manufactured ormixed gas, or liquefied petroleum gas;

Appendix 1

Hydro and Power Authority Act Page 3 of26

"power plant" or "plant" includes all land, water, rights to the use ofwater, buildings, works, machinery, installations, materials,devices, fittings, apparatus, appliances, offices, furniture andequipment, vehicles, tools, stores and supplies, including officestores and supplies, constructed, acquired or used or adapted, orthat, in the opinion of the authority, might be used or adapted foror in connection with the generation or supply of power;

"power project" includes any charter, franchise, privilege or otherright, or land, buildings, plant, machinery or equipment acquired,or proposed to be acquired, by a person with a view to thegeneration or supply of power, or any plans, surveys or datamade or assembled with a view to the generation or supply ofpower;

"power site" includes any land, or any lake, river, stream, watercourseor body of water, water licence or privilege, or reservoir, dam,water storage, sluice, canal, raceway, tunnel or aqueduct that isused or that, in the opinion of the authority, might be used for orin connection with the generation or supply of power;

"supply" as a noun means reservation, transmission, distribution,capacity to provide, dealing in and sale; and as a verb has acorresponding meaning.

Authority continued

2 The corporation known as the British Columbia Hydro and PowerAuthority is continued, consisting of persons who are appointed asdirectors and who hold office as provided in this Act.

Agent of government

3 (1) The authority is for all its purposes an agent of the government andits powers may be exercised only as an agent of the government.

(2) The Minister of Finance is the fiscal agent of the authority.

(3) The authority, on behalf of the government, may contract in itscorporate name without specific reference to the government.

Directors

4 (1) The Lieutenant Governor in Council appoints the directors of theauthority who hold office during pleasure.

Appendix 1


(2) The Lieutenant Governor in Council must appoint one or more of

- the directors to chair the authority.

. (3) A chair or other director must be paid by the authority the salary,directors' fee and other remuneration the Lieutenant Governor inCouncil determines.

Powers of directors

5 The directors must manage the affairs of the authority or supervise themanagement of those affairs, and may

(a) exercise the powers conferred on them under this Act,

(b) exercise the powers of the authority on behalf of theauthority, and

(c) delegate the exercise or performance of a power or dutyconferred or imposed on them to anyone employed by theauthority.

Directors' proceedings

6 (1) The directors may, on behalf of the authority, pass resolutionsthought by them necessary or advisable for the

(a) conduct of the affairs of the authority, and

(b) times, places, calling and regulation of meetings ofdirectors and of committees of directors.

(2) The authority may exercise any of its powers or duties by resolutionunless otherwise provided in this Act.

Interests of directors

7 A director of the authority must not, directly or indirectly,

(a) (Repealed 2001-31-1.)

(b) have an interest in any device, appliance, machine, article,patent or patented process that is used in the generation orsupply of power, or

(c) have an interest in a contract for the construction of, ordoing any work on, a power plant.

Resolutions

8 A resolution in writing signed by all the directors is as valid and

Appendix 1


effectual as if it had been passed at a properly called and constitutedmeeting of directors.

Executive committee

9 (1) The Lieutenant Governor in Council may appoint an executive

management committee of the authority that is composed of not morethan 5 directors, and that must, subject to the direction of the directorsof the authority, manage the operations of the authority.

(2) The members of the executive management committee may bepaid remuneration determined by the Lieutenant Governor in CounciL.

Appointment of employees

10 The authority may, without regard to the Public Service Act, appoint asecretary and executive officers, engineers, solicitors, accountants,employees, consultants and agents it thinks necessary for its business,and may define their duties, determine their compensation and providea system of organization to establish responsibilty and promoteefficiency.

Bonds

11 The authority may require bonds of the officers and employees itdesignates.

Powers

12 (1) Subject to the approval of the Lieutenant Governor in Council,

which may be given by order of the Lieutenant Governor in Council, theauthority has the power to do the following:

(a) generate, manufacture, distribute and supply power;

(b) develop power sites, power projects and power plants;

(c) (Repealed RS1996 (Supp)-212-1.)

(d) flood and overflow land, purchase, otherwise acquire,accumulate and store water, raise or lower the level of rivers,lakes, streams and other bodies of water, and purchase andotherwise acquire water records and water privileges;

(e) manufacture and deal in all articles and things required forexercising the powers and duties of the authority;

(f) acquire, maintain, develop, replace, alter, administer,manage, operate and dispose of property;

Appendix 1

Hydro and Power Authority Act Page 6of26

(g) build, make, construct and establish every kind ofstructure, excavation or installation and install every kind ofequipment or facilty;

(h) acquire and protect, prolong and renew patents, patentrights, trade marks, designs, licences, franchises, concessions,and use, exercise, develop, manufacture under or grantlicences or privileges in respect of those acquisitions andexperiment with, test and improve patents, rights, inventions,discoveries, processes or information;

(i) (Repealed 2004-23-14.)

(j) apply for and obtain and exercise any franchise, licence,right or privilege that may be conferred or obtained under anyAct of Canada or of any province;

(k) acquire in accordance with a statute relating thereto theright to enter on roads, highways, railways, rivers, streams,waterways and other public places to erect on, over or underany of them anything for the generation or supply of power;

(I) integrate existing power plants;

(m) purchase power from or sell power to a firm or person;

(n) purchase, subscribe for, underwrite, guarantee thesubscription of and otherwise acquire and deal in, sell anddispose of stock, shares, bonds, debentures, debenture stock,notes, securities and evidences of indebtedness, of anycorporation and any stocks, funds and securities of anygovernment, municipality or other authority;

(0) acquire or lease all or part of the property, assets andundertaking, and assume any of the obligations and liabilitiesof a firm or person carrying on or entitled to carry on anyactivities that the authority is authorized to carryon or thatcan be carried on incidental to or in connection with theexercise of the powers and duties of the authority;

(p) assume duties and obligations of a firm or person,reimburse others for payments made and liabilities incurredand indemnify others against liabilties;

(q) issue securities in exchange for obligations assumed bythe authority or in exchange for securities of any other firm orperson representing those obligations, and enter into any

Appendix 1


covenants or agreements considered necessary or desirablefor that purpose;

(r) amalgamate in any manner with or enter into partnershipwith a firm or person;

(s) enter into a working arrangement with or cooperate with afirm or person carrying on or proposing to carry on an activitythat the authority is empowered to carry on;

(t) by agreement or otherwise, take part in or take over all orpart of the management, supervision or control of thebusiness or operations of a firm or person;

(u) enter into agreements with a firm or person for any of thepurposes of this Act;

(v) finance the operations of a corporation that has powersthe exercise of which, in the opinion of the directors, would bebeneficial to the authority;

(w) do immediately anything referred to in this section incontemplation of future requirements;

(x) do anything necessary or desirable for carrying out any ofthe powers and purposes in this section;

(y) exercise any of the powers in section 22 of the CompaniesAct, R.S.B.C. 1960, c. 67.

(2) If the authority

(a) acquires all of the property, assets or undertaking of afirm or person,

(b) assumes the obligations and liabilities of a firm or person,

(c) amalgamates in any manner with a firm or person, or

(d) takes over the management, supervision or control of thebusiness of a firm or person,

the authority or the amalgamated corporation, if there is anamalgamation, may exercise and perform any power or duty conferredor imposed on it or on that other firm or person under this or any otherAct for and on behalf of that other firm or person, or the amalgamatedcorporation, or with respect to the property or undertaking of that otherfirm or person, or the amalgamated corporation, with or withoutexercising or performing any other resulting power or duty.

(3) If the authority amalgamates with a firm or person, this Act applies

Appendix 1


as if the amalgamated corporation were the authority.

(4) The Lieutenant Governor in Council may, by order, prescribe theprocedure to be followed in amalgamation of the authority with a firm orperson.

(5) Despite the Land Title Act, if the authority acquires all of theproperty, assets or undertaking of, or amalgamates in any manner with,a firm or person,

(a) all of the interests of that firm or person that areregistered in a land title office are deemed to be registeredinterests of the authority or the amalgamated corporation, asthe case may be,

(b) the registrar of that land title office must accordingly makeall necessary amendments to the register, and

(c) the amendments constitute registration of the interestsunder the Land Title Act in favour of the authority or theamalgamated corporation, as the case may be.

(6) The Lieutenant Governor in Council may make regulationsnecessary for carrying out subsection (5).

(7) Fees must not be paid for anything done under subsection (5)or (6).

(8) Nothing in this section relieves the authority from any requirementof the Utilties Commission Act that applies to the authority undersection 32 (7).

(9) The Lieutenant Governor in Council, by order, may designate anyagreement entered into or to be entered into by the authority that theLieutenant Governor in Council considers relates to the provision ofsupport services to or on behalf of the authority.

(10) For the purposes of subsection (9), "support services" meansservices that support or are ancillary to the activities of the authorityfrom time to time, and includes services related to metering for, billingand collecting fees, charges, tariffs, rates and other compensation forelectricity sold, delivered or provided by the authority, but does notinclude the production, generation, storage, transmission, sale, deliveryor provision of electricity.

(11) Despite the common law and the provisions of this or any otherenactment, if an agreement is designated under subsection (9),

(a) the authority is deemed to have, and to have always had,

Appendix 1


the power and capacity to enter into the agreement,

(b) the agreement and all actions of the authority taken inaccordance with the provisions of the agreement areauthorized, valid and deemed to be required for the publicconvenience and necessity,

(c) the authority is deemed to have, and to have always had,the power and capacity to carry out all of the obligationsimposed under, and to exercise all of the rights, powers andprivileges granted by, the agreement according to its terms,

(d) the agreement is binding on and enforceable by theauthority, according to the agreement's terms, and

(e) subject to subsection (12), the authority is not required to. obtain any approval, authorization, permit or order under the

Utilties Commission Act in connection with the agreement orany actions taken in accordance with the terms of theagreement, and the commission must not prohibit theauthority from taking any action that the authority is entitledor required to take under the terms of the agreement.

(12) Nothing in subsection (11) (e) precludes the commission fromconsidering the costs incurred, or to be incurred, in relation to anagreement designated under subsection (9) when establishing therevenue requirements and setting the rates of the authority.

(13) (Repealed 2004-23-14.)

Repealed

13 (Repealed 2004-23-15.)

Tenders

14 The authority must invite tenders by public advertisement, or whenimpracticable, then by public notice, for the construction and repair ofall power plants, except in the case of pressing emergency, if a delaywould be injurious to the public interest or if from the nature of thework it can be more expeditiously and economically done by the officersand servants of the authority.

Opening tenders

15 The authority must open all tenders received in each case in public at atime and place stated in the advertisement or notice inviting the

Appendix 1


tenders, and the prices must then and there be made known.

Expropriation

i 6 (1) The authority may, for any purpose related to the exercise of itspowers,

(a) expropriate any property, power site, power project orpower plant,

(b) enter, remain on, take possession of and use anyproperty,

(c) on land that it expropriates,

(i) erect, make or place on the land any structure,

installation, excavation or power plant, and

(ii) flood and overflow the land and accumulate andstore water on it, and

(d) require and compel a person who generates or suppliespower to enter into an agreement to supply to the authority asmuch of that power as the authority requires.

(2) If land is expropriated under subsection (1), the Expropriation Act

applies.

(3) If the authority exercises a power under subsection (1) that doesnot constitute the expropriation of land requiring approval under theExpropriation Act, it must obtain the approval of the minister before thepower is exercised.

(4) If the authority expropriates property under subsection (1) other

than land, the authority must notify the Attorney General and, ifrequired by the Attorney General, file a notice describing the property ata place designated by the Attorney General.

(5) Despite any other Act, the property referred to in subsection (3)that is expropriated vests in the authority free and clear of allencumbrances

(a) when the notice is filed under subsection (4), or

(b) if no filng is requested, when the Attorney Generalreceives the notification under subsection (4).

(6) After property vests under subsection (5), the authority must serve

on the owner of the property a notice containing a description of theproperty suffcient to identify it, together with a declaration of readinessto pay compensation in an amount to be agreed on or to be determined

Appendix 1

Hydro and Power Authority Act Page i 1 of26

under subsection (9).

(7) If an owner is absent from British Columbia or is unknown orcannot be served, the Supreme Court may, on the application of theauthority, order that the notice under subsection (6) be published in amanner and for a time that the court thinks proper, and, on publication,the owner is deemed to have been served with the notice.

(8) If the authority exercises its powers under subsection (1), otherthan in relation to the expropriation of land, it must pay compensationfor

(a) the interest, property, matter or thing expropriated,entered on or used, and

(b) damages to any property that directly result from theexpropriation, entry or use.

(9) If the authority and a person entitled to compensation fail to agreeon the amount of compensation payable under subsection (8), theamount must be determined by the Supreme Court.

Compulsory supply of power

17 (1) If the authority is unable to agree with a person required or

compelled to supply power under section 16 (1) (d) on the amount ofpower available for the authority's use or the price to be paid for it or onany matter relating to supplying the power desired, the commissionmust, on application of either party, after a hearing, determine theamount of power, if any, to be supplied and the price to be paid for it,and also any other matter on which agreement has not been reached.

(2) A determination of the commission under subsection (1) is finaL.

Release on expropriation

18 (1) If any power of expropriation is exercised by the authority, theauthority must, by order in writing, release the person whose propertyhas been expropriated from any obligation relating to the purchase orsupply of power or to the purchase or sale of anything required for apower plant.

(2) An order made under subsection (1) is binding on all partiesconcerned.

(3) An order made under subsection (1) has effect only in regard tomatters connected with the property expropriated.

Appendix 1


Application of expropriation power

19 The power of expropriation conferred on the authority extends toproperty, plants, rights, powers and privileges, even though

(a) they are or may be deemed to be devoted to public use, or

(b) the owner possesses the power of taking landcompulsorily,

but the authority does not have the power to take by expropriation landor a plant of a municipality that may be used for the generation orsupply of power.

Power of entry, etc.

20 (1) The authority may, by itself, or by its engineers, surveyors, agents,contractors, subcontractors or employees, for any purpose relating tothe use, construction, maintenance, safeguarding or repair of its plantsor projected plants, or for better access to them and without theconsent of the owner, enter any land and

(a) survey and take levels of it and make the borings, tests orsink the trial pits it thinks necessary,

(b) cut down any trees that, in its opinion, might, in falling orotherwise, endanger the conductors, wires or equipment orother plant of the authority, or that may obstruct the runningof survey lines, and

(c) make or use all roads, trails, bridges, wharves and otherworks and facilities, whether permanent or temporary, thatmay be required for the convenient passing to and from itssurvey lines, plants and projected plants.

(2) Despite anything in this Act, if a claim is made against the authorityfor damage to crops, gardens, shrubs, trees or other growing things, orother damage caused by or incidental to the exercise of powersconferred by this section, if the amount of compensation for damage isnot agreed on, compensation must be determined by the SupremeCourt.

Borrowing by authority

21 (1) Subject to the approval of the Lieutenant Governor in Council and

within the borrowing limitation set out in section 25, the authority, forany of the purposes of the authority, may

Appendix 1


(a) borrow sums of money the authority thinks are required,and

(b) issue notes, bonds, debentures and other securitiesbearing interest at rates and payable as to principal andinterest in currencies and at places and at times and in amanner the authority determines.

(2) The directors of the authority may, by resolution, delegate any oftheir powers or the powers of the authority under this section to anydirector or officer of the authority.

(3) A resolution under this section approved by the required number ofdirectors by telex, telegraph, telephone or any other similar means ofcommunication confirmed in writing or other graphic communication, isas valid and effectual as if it had been passed at a meeting of thedirectors properly called and constituted.

(4) The notes, bonds, debentures and other securities of the authoritymay be made redeemable in advance of maturity at times and at pricesthe directors of the authority determine at the time of the issue.

(5) For this section, the purposes of the authority, without limiting any

other provision of this Act, include the following:

(a) payment, refunding, exchange or renewal of all or anypart of a loan raised or securities issued by the authority,except to the extent that a sinking fund is available for thepayment of the loan or securities, and a recital or declarationin the resolution or minutes of the authority authorizing the'issue of securities as to the amount of any sinking fund soavailable is conclusive evidence of the fact;

(b) payment of all or any part of a loan, liability or bonds,debentures or other securities, payment of which isguaranteed or assumed by the authority;

(c) payment of any other liability or indebtedness of theauthority;

(d) carrying out any of the powers referred to in this Act,providing in whole or in part for expenditures of the authoritymade or to be made in connection with them, reimbursing theauthority for any of those expenditures and repaying all orpart of any temporary borrowings of the authority for any ofthose purposes;

Appendix 1


(e) the exercise of a power, right, function or duty conferredor imposed on the authority by or under this or any other Actor law.

(6) The authority may borrow and may issue under subsection (1) inamounts that will realize the net sum required by the authority for itspurposes, and a recital or declaration in the resolution or minutes of theauthority authorizing the issue of securities to the effect that the issueof the authorized securities is being made for the purposes of theauthority and that the amount is necessary to realize the net sumrequired for the purposes of the authority is conclusive evidence of thefact.

(7) Subject to the approval of the Lieutenant Governor in Council, on

terms and conditions thought advisable, the authority may dispose ofthe notes, bonds, debentures and other securities of the authority,either at the par value of them or at less or more than the par value,and may charge, pledge, hypothecate, deposit or otherwise deal withthe securities as collateral security.

(8) Subject to the approval of the Lieutenant Governor in Council on

terms and conditions thought advisable, the authority may exchangenotes, bonds, debentures or other securities of the authority forsecurities of another corporation

(a) in an amount or amounts equal to or greater or smallerthan the amount or amounts of the notes, bonds, debenturesor other securities of the authority,

(b) bearing interest payable at the same or different time ortimes as the interest payable under the notes, bonds,debentures or other securities of the authority,

(c) bearing interest at the same or a greater or smaller rate asor than the interest payable under the notes, bònds,debentures or other securities of the authority,

(d) due on the same or on an earlier or later date as or thanttJe notes, bonds, debentures or other securities of theauthority, and

(e) callable whether or not the notes, bonds, debentures orother securities of the authority are callable and on the sameor different terms and conditions as or than the notes, bonds,debentures or other securities of the authority if they arecallable.

Appendix 1


(9) Securities of the authority, dealt with as collateral security,

(a) when redelivered to the authority or its nominees on orafter payment, satisfaction, release or discharge, in whole orin part, of any indebtedness or obligation for which thesecurities may have been given as collateral, or

(b) when the authority again becomes entitled to thesecurities,

may be treated by the authority as unissued and, subject to theapproval of the Lieutenant Governor in Council,

(c) may be issued, reissued, charged, pledged, hypothecated,deposited, dealt with as collateral security, sold or otherwisedisposed of on terms and conditions the directors of theauthority think advisable, or

(d) at the option of the authority, may be cancelled, at whichtime, subject to the approval of the Lieutenant Governor inCouncil, fresh securities to the same amount and in the sameform may be issued in place of them with the sameconsequences, and on the issue or reissue a person entitled tothem has the same rights and remedies as if the securitieshad not been previously issued,

but the borrowing power of the authority is deemed not to have beenaffected by the issuance, reissuance, pledging, depositing or selling ofsecurities under this section.

(10) The notes, bonds, debentures and other securities of the authoritymust be in a form determined by the directors of the authority or onbehalf of the authority by the Minister of Finance as fiscal agent for theauthority.

(11) The notes, bonds, debentures and other securities must bear theseal of the authority and, together with any coupons attached, mustbear the signatures in writing of

(a) the chair and another director or offcer, or

(b) other directors or offcers as the authority may determine.

(12) The directors of the authority may provide that the seal of theauthority may be engraved, lithographed, printed or otherwisemechanically reproduced on any security to which it is to be affxed.

(13) The seal of the authority, when mechanically reproduced, has thesame effect as if manually affixed, and any mechanically reproduced

Appendix 1


signature or signatures are for all purposes valid and binding on theauthority even though the person whose signature is reproduced hasceased to hold office before the date of the security or before its issue.

(14) Subject to the approval of the Lieutenant Governor in Council and

within the borrowing limitation set out in section 25, the authority mayalso borrow by way of temporary loans from any person the sums onthe terms, for the purposes and on the conditions the directors of theauthority determine, by way of bank overdraft or line of credit, or by thepledging as security for the temporary loans of notes, bonds,debentures or other securities of the authority pending the sale of themor in place of selling them, or in whatever other manner the directors ofthe authority determine.

(15) Any cheques, promissory notes or other instruments necessary ordesirable in connection with the borrowing of money and the obtainingof advances by way of temporary loans as set out in subsection (14)may be executed in whatever manner the directors of the authoritydetermine.

(16) The Minister of Finance, as fiscal agent of the authority, mayarrange all details and do, transact and execute all deeds, matters andthings that are required during the negotiation of a loan or for placing aloan.

(17) Money raised by the authority under this section must be paid bythe authority into the fund established under section 27.

(18) to (23) (Repealed 2004-23-15.)

Authorization to borrow from Canada Pension Plan

22 Despite anything in this Act, the authority may, in the resolution undersection 21, authorize the Minister of Finance or, with the concurrence ofthe Minister of Finance, authorize the Minister of Finance of Canada todetermine any matter required to be determined under section 21 for

(a) borrowing money from the Canada Pension PlanInvestment Fund established under the Canada Pension Plan,and

(b) issuing and selling to the Receiver General and Minister ofFinance of Canada for the credit of the Canada Pension PlanInvestment Fund debentures as security for the loans.

Guarantee of principal and interest

Appendix 1


23 (1) The Lieutenant Governor in Council, for and on behalf of thegovernment, may guarantee the payment of the principal and interest ofand on any of the following:

(a) notes, bonds, securities, debentures, debenture stock,loans or obligations issued by the authority or the payment ofwhich is assumed by the authority;

(b) notes, bonds, securities, debentures, debenture stock orloans issued by a firm or person if

(i) all of the property, assets or undertaking of the firmor person has been acquired by the authority,

(ii) the obligations and liabilties of the firm or personhas been assumed by the authority,

(ii) the firm or person is amalgamated with theauthority, or

(iv) the management, supervision or control of thebusiness of the firm or person has been taken over bythe authority.

(2) The guarantee under subsection (1) must bear the manual,engraved, lithographed or printed signature of the Minister of Finance,or the manual, engraved, lithographed or printed signature orsignatures of the other offcer or offcers of the Ministry of Finance of

British Columbia designated by the Lieutenant Governor in Council.

(3) The engraved, lithographed or printed signature of the Minister ofFinance or of any other officer is for all purposes the signature of thatperson, and is binding on the government even though the personwhose signature is reproduced may not have held office at the date ofthe notes, bonds, debentures or other securities or at the date of thedelivery of them, and despite any change in any of the persons holdingthe office between the time when the signature is affxed and the dateof delivery of the notes, bonds, debentures or other securities.

(4) The Lieutenant Governor in Council may make arrangements for thesupply of money necessary to fulfil the requirements of a guarantee,and may advance the amount necessary out of the consolidated revenuefund.

(5) In the hands of a holder of a note, bond, security or debenture, a

guarantee signed in accordance with subsection (2) is conclusiveevidence that this section has been complied with, and the governmentbecomes liable for the payment of the principal and interest of the note,

Appendix 1


bond, security or debenture guaranteed, according to its tenor.

Guarantees respecting leases

24 (1) The government may, on terms approved by the Lieutenant

Governor in Council, guarantee payments of the authority under a leasemade by or to the authority.

(2) The Lieutenant Governor in Council may authorize

(a) the Minister of Finance, or

(b) an officer of the Ministry of Finance,

to sign the guarantee on behalf of the government, and the signature ofthat person on the guarantee is conclusive proof that this section hasbeen complied with.

(3) Money required to be paid by the government in respect of aguarantee given under this section must be paid out of the consolidatedrevenue fund without an appropriation other than this Act.

Borrowing limitation

25 The aggregate of the sums that may be borrowed under this Act, afterpayment of discount, commission, brokerage and all other expenses ofall such loans, must not exceed the aggregate net sum of $8 billion800 million, and in calculating the aggregate net sum the following mustbe deducted:

(a) sums borrowed by the authority for any of the purposesreferred to in section 21 (5) (a) and (b);

(b) sums borrowed by the authority that have been repaid bythe authority otherwise than out of the proceeds of the sale ofsecurities of the authority issued for the purpose or out of asinking fund;

(c) sums borrowed by the authority to repay all or part of anyoutstanding temporary loans of the authority;

(d) the amount of debt of another firm or person assumed bythe authority or money borrowed to repay the debt assumed;

(e) the total amount of indebtedness under securitiesexchanged for obligations or securities of another firm orperson;

(f) securities of the authority hypothecated or pledged by theauthority as collateral security for temporary loans of the

Appendix 1


authority, except to the extent that the net sum realized onany subsequent sale by the authority of the securities exceedsthe amount of the temporary loan paid or to be repaid fromthe proceeds of the sale;

(g) the value, as determined by the Minister of Finance, ofsinking fund balances attributable to the authority.

Repealed

26 (Repealed 2004-23-15.)

All funds paid into one fund

27 (1) All funds, including borrowings, income and revenue, that come

into the hands of the authority, whether as agent, trustee, owner orotherwise, form one fund, out of which the authority must make anyand all expenditures necessary for its purpose.

(2) The authority must account for the fund and payments from thefund in its annual report as provided in this Act.

Examination and report by Comptroller General

28 (1) The Minister of Finance may direct the Comptroller General of

British Columbia to examine and report to the Treasury Board on any orall of the financial and accounting operations of the authority.

(2) The accounts of the authority must at least once in every year, beaudited and reported on by an auditor or auditors, and the costs of theaudit must be paid by the authority.

(3) (Repealed 2004-23-15.)

Repealed

29 (Repealed 2004-2~-15.)

Liability of authority

30 (1) The authority may sue and be sued in its own corporate name for

any right or obligation acquired or incurred by it on behalf of thegovernment as if the right or obligation had been acquired or incurredon its own behalf and also in respect of any liabilities in tort to which itis made subject by this Act.

(2) The authority is liable in tort for the damages for which if it were aprivate person of full age and capacity it would be subject

Appendix 1


(a) for torts committed by its servants or agents, and

(b) for a breach of duty that attaches to the ownership,occupation, possession or control of property.

(3) An action or other proceeding does not lie against the authority oragainst a servant or agent of the authority or against the governmentfor

(a) any claim against the authority or a servant or agent ofthe authority if a pension or compensation has been paid or ispayable out of the consolidated revenue fund or out of anyfunds administered by an agent of the government for thedeath, injury, damage or loss in respect of which the claim ismade, or

(b) an act or omission of a servant or agent of the authorityunless the act or omission would, apart from this section,have given rise to a cause of action in tort against thatservant or agent or his or her personal representative.

(4) In all proceedings to which the authority is a party, the court maypronounce a judgment or make an order or direction as to costs infavour of or against the authority.

Nuisance actions

31 Despite section 30, the authority is not liable in an action based onnuisance or on the rule in Rylands v. Fletcher, unless the authority wasnegligent.

Application of other statutes

32 (1) Despite any specific provision in any Act to the contrary, except asotherwise provided by or under this Act, the authority is not bound byany statute or statutory provision of British Columbia.

(2) The authority is an employer under the Workers Compensation Act.

(3) Money owing, payable or accruing due from the authority as salary

or wages to any of its members or employees may be attached underthe Court Order Enforcement Act the same as money owing, payable oraccruing due from any person to the Crown, and for that purpose thatAct applies to the authority.

(4) Money, as defined in section 25 of the Family MaintenanceEnforcement Act, that is owing, payable or accruing due from the

Appendix 1


authority to any of its members or employees may be attached orgarnished under section 15, 18 or 24 of that Act, and that Act applies tothe authority.

(5) Service of all orders, notices and processes required to be servedon the authority as garnishee or attachee must be effected by personal

service on the secretary of the authority or by leaving the document ordocuments at the secretary's offce.

(6) The Lieutenant Governor in Council may, by regulation, makeapplicable to the authority any statutory provision.

(7) The following Acts and provisions apply to the authority:

(a) the Auditor General Act;

(b) (Repealed 1998-30-93.)

(b.l) the Budget Transparency and Accountabilty Act;

(c) Division 5 of Part 5 of the Business Corporations Act;

(d) (Repealed 2001-30-16.)

( e) the Debtor Assistance Act;

(f) (Repealed 2003-46-22.)

(g) the Employment Standards Act;

(h) the Environmental Assessment Act;

(i) the Environmental Management Act;

(j) the Expropriation Act;

(k) sections 4.1, 53, 53.1, 54, 56, 56.3, 56.4, 63, 77 and 79of the Financial Administration Act;

(k.l) the Financial Information Act;

(I) the Forest Act;

(m) the Geothermal Resources Act;

(m.l) the Greater Vancouver Transportation Authority Act;

(n) the Heritage Conservation Act;

(0) the Human Rights Code;

(p) the Insurance (Motor Vehicle) Act;

(q) the Labour Relations Code;

(q.l) sections 93.1 and 93.3 of the Land Act;

(r) the Limitation Act;

Appendix 1


(s) the Ombudsman Act;

(s.l) the Pension Benefits Standards Act;

(t) the Integrated Pest Management Act;

(u) the Petroleum and Natural Gas Act;

(v) the Property Transfer Tax Act;

(v.l) the Public Sector Employers Act;

(w) sections 3 and 5 of the Railway Act;

(w.l) the Safety Standards Act in respect of electricalequipment and regulated work respecting electrical equipmentas those terms are defined under that Act;

(x) the Utiities Commission Act, except sections 50, 51 (c),52, 57 (2), 95 and 98;

(y) (Repealed 2003-53-154.)

(z) Part 1, Part 2, except sections 27, 28, 30, 43 and 50, Part4, Part 5 and Part 6, except section 101 (3) (b), of the WaterAct;

(z.l) the Wildfire Act.

(8) The Transmission Corporation Act applies to the authority in themanner and to the extent contemplated by that Act.

Certificate deemed to be granted

33 For the purposes of the Utilities Commission Act and the Gas Utilty Act,the authority with respect to works existing on September 11, 1980, isdeemed to have been granted an energy operation certificate under theUtiities Commission Act and is deemed to be authorized andempowered under the Gas Utilty Act to carryon business as a gasutility throughout British Columbia.

Taxation

34 (1) With the approval of the Lieutenant Governor in Council, the

authority may make annual grants to the Surveyor of Taxes withrespect to a rural area and to municipalities and other localgovernments within the territorial jurisdiction of which the authoritygenerates, transmits or sells electric power or otherwise carries onbusiness.

(2) Except as provided by order of the Lieutenant Governor in Council,

Appendix 1


land and improvements of the authority as defined by the School Actmust be included for the calculation of Provincial grants to schooldistricts and the net taxable value of land and improvements of theauthority as defined in the School Act must be assessed and taxed ineach year.

(3) An order of the Lieutenant Governor in Council under subsection (2)

may be made for any period, whether before, on or after, or partlybefore and partly after April 6, 1968.

Directives

35 Despite the Utilties Commission Act, the Lieutenant Governor in Council

may issue directives directing the authority in a fiscal year to pay to thegovernment an amount specified in the directive and may issuedirectives directing the authority in a fiscal year to pay to the personsconstituting one or more classes of the authority's past or presentcustomers an amount specified in the directive.

Pension arrangements

36 (1) With the approval of the Lieutenant Governor in Council, the

authority may

(a) establish and maintain a fund for the payment ofsuperannuation allowances or allowances on the death ordisabilty of directors and employees,

(b) make regulations providing for

(i) contributions to the fund by the authority anddirectors and employees,

(ii) the terms and conditions on which superannuationallowances or other allowances may be payable, and

(iii) the persons to whom allowances may be paid,

(c) make regulations providing for

(i) the continuation or amendment of existingsuperannuation or retirement plans or arrangements orfor the integration of former plans with any planestablished under this section,

(ii) meeting or removing any diffculty arising out of theconcurrent administration of the plan established underthis section and the plan or plans in effect at the timethat subparagraph (i) becomes effective, and

Appendix 1


(iii) preserving and giving effect to the rights of allpersons accrued or accruing under former plans,

and the regulations may be applicable generally or toparticular cases, and

(d) (Repealed 1999-44-61.)

(e) amend any regulation made under this section.

(2) Despite this or any other Act, the matters respecting the

establishment and maintenance of a fund for the payment ofsuperannuation allowances or allowances on the death or disability ofdirectors or employees under subsection (1), including

(a) contributions to the fund by the authority and directorsand employees,

(b) the terms and conditions on which superannuationallowances or other allowances may be payable, and

(c) the persons to whom allowances may be paid,

must not be the subject of a collective agreement between the authorityand its employees.

(3) Despite subsection (1), the regulations for a superannuation planmay provide for payment to the authority from the amount standing tothe credit of a contributor or former contributor sums necessary tomake good any default in accounting for any money belonging to theauthority that was entrusted to the contributor or any debt that may bedue by the contributor to the authority.

(4) If a contributor dies while in the service of the authority, a paymentfrom the fund to a person nominated by the contributor or to thecontributor's spouse is not subject to the control of the creditors of thecontributor and does not form part of the contributor's estate.

(5) Despite any requirement or agreements existing and applicable toany superannuation or retirement plan or scheme for the benefit of anyoffcers or employees of the authority or corporation formed byamalgamation under this Act or a partnership formed under this Act, theLieutenant Governor in Council may rescind the appointment of anytrustee under any plan or scheme and appoint a trustee or trustees inplace of that trustee.

(6) The trustee appointed by the Lieutenant Governor in Council under

subsection (5) need not be a trust company.

Appendix 1


Pension: further provision

37 Any superannuation plan established under section 36 may include thedirectors and employees of any entity

(a) that is or has been a subsidiary of or associated with theauthority, and

(b) that is declared by resolution of the executivemanagement committee to be or to have been, for any period,part of the authority for the purposes of superannuation.

Joint management agreement

37 .1 (1) In this section:

"agreement" means the joint management agreement referred to insubsection (2);

"pension fund" means the British Columbia Hydro and Power

Authority Pension Fund established under the pension plan;

"pension plan" means the British Columbia Hydro and Power Authority

Pension Plan established under B.C. Reg. 109/99.

(2) Despite section 36 (2), the authority may enter into a jointmanagement agreement with the trade unions that represent itsemployees for the joint trusteeship of all or part of the pension plan andpension fund, or for any other matter relating to the pension plan orpension fund on which agreement is reached.

(3) The authority and the trade unions must establish appropriate

mechanisms whereby the views and interests of the authority's non-unionized employees and retirees are fairly represented in thenegotiation of the agreement.

(4) The agreement must not require any change to the pension plan orpension fund that would render the pension plan ineligible forregistration under the Pension Benefits Standards Act or the Income TaxAct (Canada).

(5) When the agreement is entered into, the authority must adoptthose plan rules and other instruments that are necessary to amend andcontinue the pension plan and pension fund in accordance with theagreement and, thereafter, the pension plan and pension fund

(a) must be administered as provided by the agreement,

Appendix 1


(b) may be amended as provided by the agreement, and

(c) are not subject to sections 36 and 37 of this Act.

(6) Despite subsection (2), the non-unionized employees and theretirees of the authority not represented by the trade unions maybenefit from and be made subject to the agreement, and the authorityand the trade union representatives have the power to enter into theagreement on behalf of those persons and, if entered into, theagreement is binding on those persons.

Power to make regulations

38 The Lieutenant Governor in Council may make regulations referred to insection 41 of the Interpretation Act.

Copyright (c) Queen's Printer, Victoria, British Columbia, Canada

Appendix 1

. ,

PROVINCE OF BRfrl$H COLUMBIA

ORDER OF THE LIEUTENANT GOVERNOR IN COUNCIL

Order inCQIlnc1 No. 1125 . ApproV8and OrdeffNOV 2.7 Z003

ca ~mm--.Exect.vc! Council Cbombet$, Vi~rb.

On the recommendatiQn of the undersigned. th Lieuten.ani GQvernor, by and with the advice and consnt ofth Executive Council. order that, effective July). 200,

(3) Spedal Dirtive No.4, dated Mar 30, 200 and mad under $rt.cion 35 of ùm H)--dro and Power Auulwrit Ad,is repe;aed and

th attached Speial Dìrçctivc No. nCI ls made.(b)

8Cu. ~. _O~.!'i/fv-Sif4.. -...-I"... ~,.. l. ~ ~ Ð

DEC 01 2003

C~ f'_Jr -,..Routir1g..._.._...._-_._.._..'£~

'''.''''U''''.'.''''_'''U.............:-.-....,..i~......._-....".._~.--~..,"'.~- ,.._--~

..

) mu pà/' ufor adlJn¡.rtfiitiw I'UrpUI o./yA"thorllJ' under wh:dd Ordiu is madt:

A~ and Sècúon:- Hydro and Power Aw!!(lrit.' Act. s. 35

Otllr ($pefy):-

/ '10 7 12003(33Novembe 19, 2003

Appendix 2

.

HERITAGE SPECIAL DIRECTIVE NO. HCI TO THE.BRITISH COLUl\lBIA HYDRO AND PO'-'ER AUTHORITY

Definitons

i 1n this Special Dirtive:

;'Ad" me-.as th H)vJro Glt PQwer AuHwri Act;

"d èbt" means, in rehitÌon to afiscJ year or the :authority. the wnounl obtniied by

(a) addng th oul.ing amoinitsof the foUQwing at the end of thfiscyear

(i) bowing!;(Ii) boods;

(:ü) notes;

(iv) debentures, an

(b) deducting from the amount detrmined under panph (a) th sum of the

_.(I(the f9U9WiJJ,gJwoiinUat Jhc.~nd.Qrtbe fl6ciùYC¡¡

(i) ¡¡inking funds;

Oi) tempora investmnts;(ii) repurchas debt;

udis.ributablè surplus" meas, for ä fis.4i yeM,

(n) th corrSOUdiited net inçom~,ead by the 311thrity and its subsidiaresfrom all sourc, 3$ refleced in the authority's audire consolidate

finnna. $fAte.ments for lht fuca yea,less

(b) il fimm .ch.'cs caphalizcd dung the fiscal yea, net of depr.cati.onchlUged on capitti:ud fin~ clargßS:

''equity' means the sum of the following amounts at !. end of the Íi$èã ye-a

(a) retted earings;

(b) ijferæ revenue;

(c) contrbutions arsing frm the Columbia River Treaty;

(d) contrbuúons io iiid of con$uuctlon.

Application

2 Ths Special Diretive is issued to the authority under secon 35 of the Act.

:;Annuai p.ymnt

3 On or before Joot: 30 of each yc. afl.r 200, the dif'ctor5 of the liithOrity must C~~ti auûiority to pay 10 the go\'emmenl, fotdeposit into th consolidated revenue fund,

an amount equal to

Appendix 2

-. ~

(a) 85% of th nuilorÎty'g distrbutable $Iuplus for the ptt'Yous fiscl yea oflb~ a.~tbority, or

(b) if the payment reuired lJJ)d.,J ths setioo would mult iì1 tbt dtbtequit)'ratio of the authority exceding 80:20, Ihe. greest amount iilat can 00 paidby the authority without çai.sing ID iii.tbority's debll~u¡ty ratio, nfta tMpaYßrßt is mad, to t:xooi: S(J:20.

Appendix 2

PROVINCE OF BRITISH COLUMBIA

ORDER OF THE LIEUTENANT G,OVERNOR IN COUNCil

Orer in (;un No. -- 1123 , Apve and Otrte Nav 2, 7 ZDOS

d.~~ ~Executive Counl Clumbe.rs \-'idona

On the reommendation of the undersigned the Lieutenant Governor, by and witbthe advice and consent oftbe Executive Council. orders that, effective April 1. 200, the attache Speial Dlrtion No. HC2 b mae.

8C~ ~~'E.~~15-~'

DEC 01 2003

RoutjOg,",,~~ ~. . .""~..--..~..

. --'--"'--.----_..w_-.-. . .,_.--_. .-.._....' -~~Ì'';~ff-......u..

('!ü ¡ldrf ÍJ for áiÜtfàli." f'(Jst¡ Miy rm i" nor p;iirll 0 r.l" Ai:íhor1ly UMes whidJ Order Is made:

J Arl an !iUO:- BC Hydro Public PQwer Legacy arid Heritage ConrraCl A ct. sections 3 and 4. - - . ~OiJ (~pe¡h):-

NCl1,'embet 20, 21X13 I '10 ¥ 12313

Appendix 3

HERITAGE SPECIA D.IRECTION NO. BC2 TO THEBRITISH COLUMBIA UTlITIE COMMISSION

Definitions

1 In this SpedAt Dirion:

"Act" meas th BC llro Public PDf'êf Legacy un H~ritage OmracIA(.T.

Udebi" mes, in relation to :a fi~1 ytar of tbt; authority, the amunt obtaned by

(II) Adding the out¡uuding amountS of th following at the end of th fisca

year

(1) bowing!!;(ü) bonds;

(iii) note;(iv) dentu$, an

(b) d~ctinS' from !h amoum ooennnc under paagr.pb (a) the sum of thof the following amounts at the end of tbe fisc year

(i) $ÍnIng funds;

(H) tempo ÎnvestmenlS¡.---_...._---,.- -- .~-_.__._-_.~ (jilT repurrhåš---débt""'------ --

"equUy" means the surn of the following amounts at lhend of thefisc year:

(3) rene earings;

(b) ddenò revenue;

(t) contrbutions arsing frm ti Co1umbia Rìw:r Treat)';

(d) c()tt\:ooiions in aid of COtltlnctìon;

"government pone) dlredh'l" meas "diretive in writing to the authonty fromthe IninistereJuged with the ndministrtlon of the H)v.Jro 'lfd PQwer AuthorityAt."t

'''le1Ìtae contradtt ~ans th document attached as Appendix A to this Speial

D¡~IiQß;~'heritae d1!r~n,d açcount'" means an account eetBlished under section 7 (a) of

this Speci.aI DirectiQn;

"'herltnge energy-' ha the same meaing as in the heritage CQntrcl~

"llèrltage payment obligation" has thc same meaning as in th heritage contrct;

''huitage reurCC- hu the saé meaning iI ín the ht'r1tage contraet~

.'td~ În(:ome" me.a; th audited net income of Powerex Corp., acording 10

ge:emlJy .a.epie.daccoond1.8 principles, adjust by,

(a) if the audited net income is less than zero, adding th amount necessar tomake it zero, and

.,,

Appendix 3

(b) where audite net income is greatr th $200 miffon. subtrjiçtig any

amount in ,~ms or $20 mion;'~trnsìoD rate cUSmers" mes industra1 orcommela1 customers of the

authority who ar eligible for ££rvice unde rates designed by the comissionunder section 3.

AppUççtiòn2 This Spedal Direction is issue to the commission uOO66 sections 3 and 4 of the Act.

ConslderatiQn in designIng rates for_tlnsmlssson rale cuilomer$

3 (i) In designig ra for th auorty's lrönsmi$sionrae customt-t. thecommission must ensure that those rats ar cOl1$îssnt with reommendations #8to#l5 inclusive in th commission's fe-port an ieommenda.t1ons to the

Lieutenat Governor in Councl dated OctQoor 17. 203.

(2) Without limting 5ubsectÎon (1). ib~ commission must ensure lhe foHowing:

(a) the ra~s fonhe authority's trnsmission rate custc:nnø are subje.ct to(0 the tenns and conditions found in Supplements 5 and 6 to the

authority's taff. an

(i.ì) atj'oter tenns ancondiitQ:01S iM commission ooosiders appropriaie

for thæ;e ras;

. (Pl.. cust~1!~-~~--_C?~Yf1lluJiJ.PlË-Plt!tsll(ir~()inmQ!V?_l,llershipmmY çngagein load aggregation for energy. jf e.ach plant

(1) is in operation, Md

(ii) mee the requiremenl. to he a transmission rate cusiometlhat are s.t

out in the authority's taff, or .is othe.rwi$e authorize by wecommission to be trted as 8 trm¡mission rate custQmer;

(c) lh authority publishes th Tier 2 rate in the manner and with the freuencyreuire by the commission.

Basis for e$t:abll~hIng autority revenue requir.ments

4 Subject to sectiQn? in regulntng an settng rltes for the authorty. the commission

must ensure that those ras allow the authonty to col1ect suffcient revenUe in each

fisc year to enable the 8UtbOrit)' to

(a) prvide reliable e)etncity servce.(b) meet aU of its det service. wand other financial obligiitions,

(c) comply with govemme:rrt policy directives. including, without limitation,gòvemmèilt policy dirctivc-s reuiring the authority to constrct, oprate orextend a plant or system, and

(d) achieve an annua rat of .return on equity equal to the pre~inco(! UlXànnuál iate of rètUmallowèd by me coinmíssìòn to me mu-~t comparbbe

investor-owned energ utility fegulatcd under t: Uiìlties CQmmÎ$sion Act.

oDetermining thè cost of energy

5 In !t~tûng theanthQrlty' s rates. the cQmmission

;2 016

Appendix 3

(a) must ~t the heritage contrCt n. ifit wue a legally binding agre~m.ent

betWèèß 2 an$-JCD~ par,(b) must dene tbe cnerg fe-qIt by the authorlty to IIea :itS dome$6c

semc.e obUg¡iOIl an must determine th cot to th ~uthrity of th

ponion of that .ruirtd energythät is in txces of th energy ~pplied Utt~th bçrliag; conmt

(c) mlly employ .imy i:tcbanism. formula or method referrd to in sectQn 60(I) (b. t) of the Utilities Comtnicrr Mr, and

(d) unless a different mechas. fonlla or meihodis employed underpargraph (c), must ensure thllt electricity use by the aiiority to meet its

dom.nc senice obligations is provided to custome on a cost-.f-sef''Ïcebasis.

Retrn Qn equ6 In s.ttìng the authty's rates. the commission must aJlow th auwority an annual rate

of return on equity calc.ulnned \Ising ftJ consoliated operating income, whichforrast conwlidaied Opemml18 income Îs c-a1cul::ted on the b;;is of forwast trdeincome.

Deferral accounts

1 When regulttg lld settng tae'S for ~ au..Dri~y, the commission:

.~._.cl),m:$l-lg~Jhe.~nIDrrtytQts'!!pJisbun-n~e or rrQr~ atC-Ql!ßts toreffe;t ,,mJrecord varanes betwen

(0 the heritage payment oblígatîon and the alUDonty's forecast of theherhagc payment obligation. and

(ii) lhe tre income and the iithority' s foreast of lrde income,

(b) may allow the authoriy to cSniJbb one or more other deferraccounts foroth purpcs, and

(c) must set or regulate the authority's rates in suc a way as to aUow thedcferr acçounts to be cleare from time to time and within a reasonable

peod of time.

Annual distrbutble 5urplusas allowed

8 When regulatng an setting rn forme authority, th commission must ensur thatddose rate aUow !b authty (0 allocat .annual distrbutable surplus~În the miUerspccìfied by th Lieutenant Governor in Council under section 4 of the Act or secûon35 of lhe H),tire a1 Power Authority Act.

~30f6

Appendix 3

APPENDIX A TO HEIUTAGE SPECIAL DJRCTION No. HC2

HEJUTAGE CoN1CT

WHRAon NovemOO 25, ZO, Ure Prvioo of Britis Coliimbia rdea E'erg (QJ Ou&Wrê, APla for :a.c. (the "EnèTgy Plan);

AN WHRES the Ener Pla oulline Ciin polley iiúonr; degned to ensure .British ColumbìDDsbavcoonLÙued a~5 to I'uffcierrt supplìC$ofdeplmda1e iQW~os eteci1ty:

AND WllREAS tbe EnttPJàI prvtdes in ~licy Aciion #1 that a legislat hcñttge çontrt wil bec~ bcwe Be Hydr's gcnmûCI /irre-cf-lliw ànd BC Hydr's dislrbuti 1ì~.bwfMSSfor an inmal term of 10 yea.

DofilUons

11ORE. BC:H Distrbution ind BCH Gencratìon (th "paes") ägr~ as Ct!lIoW's.

. ~",~--_...'-.~-m..._u"'

ff

1. In this Agrßl~l:"Acl' rneiis ih BC Hydro public Power ùgac an Htriagt COltracf Acl;

.. Agl'1Mii' mcn5 this HcrÎ~geCOnlrDCl ìndudíng ScbcuJe A;

"Apcilary Senb RelnmenM" merg seic n~ WdcJJvCT cncrgy;

"BC Hydro" mees i:Briiim Colúmbi. I:ydfo imd ~we Authorty:

"BCH Distrbllti01~' meas Bc:J.i~()'s~istr¡bu3í~c 1i~~~r~;tJsín~~; .

.'BCD Gmenttion" me BC Hydr'$ gene:ûon 11tle.of.busíæss;

.'CommIlo::" me:an ÙJe Brilib Columbía Utíliiè: CommlssiQn;

"'eriiaeekctrdty" ¡ns .rr caacit)', c/WZgy and ;:ciJâ1 $CIX ila! BCH

GeneratQU is required 10 $t,W1y tö BCH Dí$i:ibulÌôôi under Ibis Agmm1ent;

"heritae "eìer mccns,

(ii) $ubje.i tò piuiigr (b), 4900 GW,b pe ye l('s !b energ ge"~rnCèd forddivf! uner the Skagt ValC)' Tre. or

(b) the quantity or~erg determined by th~ Comtuí$ioÐ under section g of thìsA~i fa be äeriiBg epey;

''beri~ge paymtnt oblig_mm" means

(ii) .subjoc to pp$grph (b), tiie annual payrnpt dct(!rmin in açooance wÌIÌ the~dure wt OUI ìn Schexh;;le A to thí$ AgrtCment. or

(b) the annual paymcßt dc:termine4 by ihe Commís$.ofl unòèrsotlon 8 of this

Agre.i to be th hcri.tage payment obligation;

''hrrtae ffouti: IJns lliè Electric Pocitiies and Thc:nnal Fiiilitics debed in

ScheduJe A 10 th Tee of Reference. together with

(3) the n:l¡¡ted civil works IInd plluit, ::nd

(b) potetìal future in,,'esimenti Lhaa increa th capatity. (:ne orancíUiv 5èicecapabiUiy or such radlìties, i.ncluding poltCltìal f\\ture uniuS imd 6 at Micc iudpotltial f\\tu uniu 5 ~d 6 i' R.vel:;.okt;

"Ordet' mcs an onkr or the CommissiQ1;1'Tl!rm or Rtference" mens Siihedule A, Term of Refi.rç.nct. 10 Ora-in-CounciJ No.

02312003:

4016

Appendix 3

"TraClf Pricløl. AgtKmebtt. mes th TrfeJ' Prcing Agrent fpr Electrcity anOa date ApI I, 2003 betWn BC Hydim Po~n: Cb. as amen frm dinto time;

WVW'lIhS fisc yea.

EE~hy Siippiy

2. DCH Geraton m1J1 provide i.he ru1l cnpacity ofthc heritage rrOOrce 10 BCH DistributionOD a prarty call 'b¡aa.

Obbl1J¡rlonto suppft

3, 8CH (knenùon must supply tc BCH Dmrbuiioii. 111 ea Yea, dr herwge cnerg' or 5tuhI~r nmount of I:t:g) li may be r.cuircd by BCH DistrbUlon.

Ob(í~tfon to dølv

4. BCH Generation ''111 d(\Uver th heitage energy to DCH DiSl:r''mtlOß &1 the ''arious poinJ8 orimerorriilXlÌoo QtdJ gMerating $lÎOtlS indtr in ~ hMcarcsourcc wiih die :BC HydrIlanmii;ion grd o: at pQißtB of biternnetion with odee udliûes lI --proprlate.

RèlPOO$Jbllit (or obtalnlng1JiinnlrrJQn MJVfc

S. BCH Distrbution wil be responsible for òbtainig Ilsmissi-n serices for e~rgy prvide toHCR Dìstrbui101.

AnCillar 8erlc

Th~piit$mãii/díheëijtWÎty !!vnilille it) ilëiitiii: isöii'no dßlivecnery to riet

CUiitomer demd an to s.fy ihe panics' AiiUar Seice ReqUirDts. regardlesi; ofwheih.. pnWiflQII for self-supply is made undtr an)' iaff.

Pa)"rtt7. BtH DislJbutiol' must. on or beft)re tÌè e,nd or each Yea, pay to BCH Generation dn amount

oouaJ to me hertage payment oblígatio¡¡.

Adju.imiit

8. Th p;i~ aclmDwle.ge that

(ii) the Coission may, by Orde, modIfy (me Of bolh of the definitions of "herta,gceney" and "h-rilAge paymenn obtignt((n" if th commission is satisfied that 11change in cintan~ has pclanendy iiffec~

(i) th clíppbUíty of th belàge rerceS t. prvide one or both of cnpacity

and eiierg)/, or

(ii) th authora,"s co$, of gencrottng the h~t.go energy, and

(b) any !ìuch mOdifcatiOn wil autømaticidly modify lbe heritage energy ot the hertagepayment Dbtigatioo., as the C3.'; rony be without furtef ucon by the parits.

IrifMmatin IUchn9f ¡me! c=atI

9. E.ch ~ wil coniinu 10 !rly proyìde the ower with any rouiCle informtion to faciUtate

the cooinat Md optíína option ofme BC Hydô system,

. Dmpute ,e.elutln

IO (I) The paries wil mate ~mJblc effons to f'oh'e disputes arsing in rclBtiD1 co ddí~AgQCIDtnl al ihi: staff Jewel

5016

Appendix 3

.. .

(2) A$ ~ issu may be dealt wíth by mimaEemein Jevds wiahin e:b pmy tö --èhieirtim~ly tÇ$Olu'I(jn.

(3) JUUçthai cann.otbe relve in a lÙely nurrr at senior iniineecmile'Ycls.may be

rdelT by either pary to the oommi::ion fOt resolulÎon

Term an l.lnati

i 1. (1) 111i$ Agrment .sll ttt en Apri I. 200.

(2) 'f Agrement in~y be terminated by lJõvernment. with S yeas notce,MY tie mer

Apri i, 2.0 and if such iiot ii; ¡:h'èn. th Agr~men( shaU lermjna~ at the end of th

j-ytinotic4: pcnod without. any furter acion by ûû pirrtiC$ 0.1' the govemmèt.

Da as of Ibis - diiy of .200.

Dcn DIstbJlion BC Genration

SCHEDULE A

HERIAGEPA YMENT OBLIGATION

- ThifhwtããepäYnïèm-óbll"gãtC,ñ' r¡jrãñTYêê~iSlluni:ÎGttnrdewmìßed by - ._-.... ---_.

t OJ DddJ1i8 tbO$ of w;¡ fo:1owingcO$ts incc.d by BCH OenmDD in 'te YeM t.a11hcG:mmis¡On orden may be im:Ji:ed in Ù'c heritage paymi:iu oblignno.n:

(i) cost of energy $lIç11 as tl cost or water n:nmls and ener púrcllas,includng purcfue; of gas and deGttcliy. reuìt to supply beriUUe ele(-

trity;

(ij)opcating COts such ä.i. the cots of operating Md miiìnl.ining tt heritage

fClourc$, íiitliiding aDhtlocon t)( corptccO$;

(Hi) aU costs of owning i: hcrUlge re$Ouroes ìrnludîng. without lìmitaorr,

dereciatin. inttSl, finaDC charges ¡uK! oth ast rehiicd expen~;

(iv) nil com or p::yments feinted to genaan-rclaie lnsmission iiessreuire b)' th hcntazc reoues;

(y) the applicable return on equity on invesiments in heritage reoo badòfj Heritage Spew Dirccton No, HC2 to th~ Com.mission onde ibDU!horÜy of Ihc Act, and

(b) by subtraclingfTom thi; sum obtaíned urit! p.-agrapp (ii), any re\'~nues BCH~nmtion recivtS from ott~ services proided from the beri.;ge I'Llrc.e,including:. without limha1Îon.

.(i revenUU related to Sk!;ii Vancy 1'rt), obJìgia(ions.

OJ) revenue from provision of ancilar servce to the trsmìssion op81orin l"pct of third p,-m use of tlc ÏIMmission syste, 3nd

Oii revenues frm (Ili' sale of i;orplw hydr elcXniât)'iiiidcr s~tion .9 of dieTrllnsfer Prcing Agreeent

6016

Appendix 3

1

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101112131415161718192021222324252627282930313233343536373839404142

Exhibit C6-14British Columbia Transmission Corporation (BCTC)

Certificate of Public Convenience and Necessity (CPCN) ApplicationVancouver Island Transmission Reinforcement Project (VITR)

Sea Breeze Victoria Converter Corporation (Sea Breeze)CPCN Application for Vancouver Island Cable Project (VIC)

Projects No. 3698395 and 3698405

DIRECT TESTIMONY OF TONY.MORRIS

01. Please introduce yourself to the British Columbia Utilties Commission(BCUC).

A1. My name is Tony Morris. I am Manager, Enterprise Strategy and Investmentwith British Columbia Hydro and Power Authority (BC Hydro).

Q2. What is the subject of this evidence?

A2. This evidence is being provided to demonstrate the effect that incrementalcapital investments undertaken by BC Hydro have on BC Hydro's cost ofservice and therefore its rates.

Q3. Who is the owner of BC Hydro?

A3. The Province of British Columbia.

04. How are BC Hydro's rates determined?

A4. Pursuant to the provisions of the Utiliies Commission Act, R.S.B.C. 1996, c.473 and "Heritage Special Direction No. HC2 to the British Columbia UtiltiesCommission" (HC2) passed pursuant to the BC Hydro Public Power Legacyand Heritage Contract Act, S.B.C. 2003, c. 86.

Q5. What features of HC2 are of particular significance in determining thecost of service impact of incremental capital investments?

A5. The most significant feature is the unique definition of "equity" for BC Hydrofound in HC2.

06. How is "equity" defined for BC Hydro?

A6. Equity is a defined term in HC2. HC2 has been filed as evidence in thisproceeding and has been marked as Exhibit A2-8.

Section 1 of HC2 defines equity as follows:

""equity means the sum of the following amounts at the end of the fiscalyear:

(a) retained earnings;

Appendix 4

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10111213141516171819202122232425262728293031323334353637383940414243444546

Exhibit C6-142

(b) deferred revenue;(c) contributions arising from the Columbia River Treaty;(d) contributions in aid of construction."

Only item (a) retained earnings, above, would meet the standard commercialdefinition of equity. Herein, "HC Equity" is used to distinguish the abovenoted definition from the standard commercial definition of equity, which isreferenced as "Commercial Equity.

Q7. Does HC2 apply to the capital structure of any other company?

A7. No. HC2 was issued by the Lieutenant Governor in Council (LGIC) and isspecific to the regulation of BC Hydro.

Does BC Hydro have the authority to raise Commercial Equity throughthe sale of shares?

Q8.

A8. No, BC Hydro does not have the authority to raise Commercial Equity throughthe issuance of common shares given its governing legislation, the Hydro andPower Authority Act, R.S.B.C. 1996, c. 212. As such, BC Hydro has neverraised Commercial Equity and has no outstanding common or other shares.BC Hydro has always raised new funds through the issuance of debt.

Q9. How does the definition of HC Equity affect BC Hydro's cost of service?

A9. Pursuant to HC2, the BCUC is directed to set rates so as to give BC Hydrothe opportunity to earn a specified return on its equity as defined in HC2.

Q10. Is there any portion of the definition of HC Equity that is particularlyimportant in determining the effect of incremental investments on BCHydro's rates?

A10. Yes. The inclusion of retained earnings in the definition of HC Equity is ofparticular importance as it may be impacted by incremental capitalinvestments by BC Hydro. None of the other components of HC Equity areaffected by incremental capital investments by BC Hydro.

011. How does the Province receive payments from the profits of BC Hydro?

A 11. Section 35 of the Hydro and Power Authority Act empowers the LGIC to givedirectives to BC Hydro to pay specified amounts to government. Pursuant tothat authority, the LGIC issued "Heritage Special Directive No. HC1 to theBritish Columbia Hydro and Power Authority (HC1), under which BC Hydro isrequired to pay a percentage of its distributable surplus (as defined in HC1) ineach fiscal year to the government prior to June 30 in the next fiscal year.

Appendix 4

1

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10111213141516171819202122232425262728293031323334353637383940414243444546

Exhibit C6-143

Q12. How much does BC Hydro pay to the Province?

A 12. The amount of the annual payment is calculated pursuant to section 3 of HC1and is based on BC Hydro's distributable surplus in anyone fiscal year.

Section 3 of HC1 reads as follows:

"Annual Payment

On or before June 30 of each year after 2004, the directors of the authoritymust cause the authority to pay to the government, for deposit into theconsolidated revenue fund, an amount equal to

(a) 85% of the authority's distributable surplus for the previous fiscal yearof the authority, or

(b) if the payment required under this section would result in thedebt/equity ratio of the authority exceeding 80:20, the greatest amountthat can be paid by the authority without causing the authority'sdebt/equity ratio, after the payment is made, to exceed 80:20."

Q13. What is the effect of section 3(a) of HC1?

A13. Unless section 3(b) of HC1 applies, BC Hydro must pay the Province anannual payment equal to 85% of the previous fiscal year's distributablesurplus. The effect of section 3(a) is the retention, by formula, of 15% of eachyear's distributable surplus, which retention then forms part of the funds usedfor BC Hydro's operations. In other words, unless section 3(b) applies, theamount of the retained earnings is calculated by formula and is independentof the level of BC Hydro's capital spending.

Q14. What is the effect of section 3(b) of HC1?

A 14. Section 3(b) applies if the debt to HC Equity ratio of BC Hydro is at or above80:20. It is formula-based. Whenever section 3(b) applies, BC Hydro isrequired to reduce its annual payment, thereby increasing the amount ofdistributable surplus included in retained earnings. If BC Hydro incurs a netloss, there is no payment to government and retained earnings are reducedby the full amount of the loss.

Thus, there are three, mutually exclusive, situations that are possible:

1. BC Hydro's debt levels are sufficiently low so that the debt to HC Equityratio does not reach 80:20 and therefore does not invoke section 3(b)("Situation 1");

Appendix 4

1

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101112131415161718192021222324252627282930313233343536373839404142434445

Exhibit C6-144

2. BC Hydro's debt levels increase to such a level that the debt to HC Equityincreases to 80:20. Once that increase occurs, the annual payment isreduced (resulting in the HC Equity increasing) to bring the debt to HCEquity ratio back to 80:20 ("Situation 2"); or

3. BC Hydro's debt level increases so that even with the elimination of theannual payment and the retention of all distributable surplus, the debt toHC Equity ratio stays at or above 80:20 ("Situation 3").

015. When BC Hydro undertakes incremental capital investments, how arethey financed?

A 15. BC Hydro must fund new investment through cash flow or debt because, asoutlined above, it cannot issue Commercial Equity and its revenues fromoperations are determined by the formula found in HC2.

Q16. How does incremental borrowing affect BC Hydro's cost of service?

A 16. It depends on which of the three situations described above exists.

Q17. What is the effect of Situation 11

A 17. So long as BC Hydro's debt to HC Equity ratio remains below 80:20, BCHydro will continue to retain 15% of its distributable surplus every year andfunds required to sustain cash flow are raised through debt. There is nochange in the percentage of retained earnings and therefore the debt to HCEquity ratio for the purposes of financing capital programs is 100:0.

018. What is the effect of Situation 2?

A 18. For Situation 2 to occur, a period of high capital growth would be required toincrease the debt to HC Equity ratio from the existing ratio to 80:20.

If that were to occur, then section 3(b) of HC1 would be in effect. As a result,there would be changes in the level of retained earnings year to year as theannual payment varied in response to the debt to HC Equity ratio reaching80:20. Coupled with the actual debt level, this may cause either a netincrease or decrease in the percentage of annual retained earnings.

A change in retained earnings would change the total amount of HC Equityand could provide the equivalent of up to, but not more than, 20% of newcapital funding. This partial provision of HC Equity to new capital fundingarises from the additional cash being retained (by reducing the annualpayment) being augmented to the debt financing.

Appendix 4

1

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1011121314151617181920212223242526272829303132333435

Exhibit C6-145

Q19. What is the effect of Situation 3?

A19. If BC Hydro's capital investments were high enough that there were notsufficient annual payment reductions to maintain the 80:20 ratio, thenadditional debt must be acquired. As a result, section 3(b) of HC1 would notprovide sufficient relief and the capital programs would return to being 100%debt financed. As a result, the debt to HC Equity ratio wil increase above80:20.

With Situation 3, no annual payment to the Province occurs and all earningsare retained.

020. Are there any other situations in respect of HC1 and HC2 that couldaffect the debt to HC Equity ratio for capital financing?

A20. No. Under the current regulatory regime, the above-noted three situationsare the full scope of what can occur. When section 3(b) of HC1 is not ineffect, then new capital programs are financed with 100% debt. Whensection 3(b) of HC1 is in effect, then the debt to HC Equity ratio for fundingnew capital programs may fall below 100% debt, and could be as low as80:20 however, it wil not drop below 80% debt financing.

Q21. What is the extent of the possible variation in debt to HC Equity that canoccur as a result of the effect of HC1 as identified in the abovesituations?

A21. The "bookends" for incremental funds being raised for any and all capitalprograms are 100:0 debt to HC Equity and 80:20 debt to HC Equity.

Unless section 3(b) is in effect, all funds raised for capital programs arethrough debt.

Q22. Does that complete your testimony?

A22. Yes.

Appendix 4

Exhibit C6-14

1225 Elmwood Place.North Vancouver, B.C.V7P 2X8

Anthony (Tony) Morrs C.A. C.B.V.

Telephone: 604.623.4299(l?us)604.985.7998 (res)

e-mail: tony.morrislishaw.ca

A practical and innovative business leader with. excellent financial, analytical andcommunication skils; adept at balancing many priorities while leading teams whichdevelop and implement creatie and effective solutions.

CAREER HIGHLIGHT

BC Hydro, Vancouver 1989- 2006

The third largest electrical utility in Canada with 430 employees, assets of $12 billion andannual revenues of $3. 7 billion; BC Hydro generates, transmits and distributes electricitto 1.7 million customers in Briish Columbia and the U.S. West Coast.

May 2005- Present Manager, Enterprise Strategy and Investment(Acting Chief Regulatory Oficer)

. Led two newly combined groups (Corporate Strategy and Corporate Finance). For fivemonths was also the acting head of the Regulatory Group. Specific accomplishmentsincluded:

. Managed the development of a 20-year Corporate Financial ModeL.Led the corprate-wide process to translate BC Hydro's long-term goals into short-term priorities and initiatives.Re-organized the Regulatory Group and improved employee commitment.

.

.

1998 - 2005 Group Controller

Held senior financial management positons in a number of diferent Unes of Business(Generation, Operations, Executive Operations and Marketing & Customer Services).Operations included Customer Services and Generation as well as staff functions such asCorporate Human Resources, Aboriginal Relations and Environmental Affairs.

Key accomplishments included:

. Led the financial aspets of the successful Heritage Contract application to the BritishColumbia Utilties Commission (BCUC);

. . Significantly improved the relationships between the Generation line of Business(LOB) and the Corporate Group. Developed a 22-point plan and achieved over 90%of planned targets within twelve months. The resulting relationship improvementdecreased the time frame typically required for Corporate Group approval ofGeneration Group projects.

. Successfully implemented a new large industrial customer billng system for theMarketing and Customer Services Group. This project had been planned for at leastthree years but had been stalled under previous financial managers due to the lack ofan identified business value.

Appendix 4

Anthony ~ Morris, C.A. C.B.V. Exhibit C6-14

. Introduced a standardized, systematic planning approach for the Marketing andCustomer Servces Group resulting in the group receiving specal commendationfrom BC Hydro's Board and approval to proceed wih needed work.

. Have been seconded to manage financial aspects of significant Hydro initiatives (tosort out significant reportng and internal control issues at BC Hydro's CustomerServices Group; to manage all financial aspects of the F2005/6. revenue requirementapplication to the BCUC, and to coordinate all financial aspects of an earlierprivatization attempt).

. Nominated for the Presidents Award (2002) and a Generation Leadership Award(2003).

. Have consistently received positive feedback from groups supported about thepracticality and effectiveness of my stye.

. Provide support, coaching and mentoring in a broad range of areas to other BCHydro managers and staff on an informal basis.

1994 -1997 Corporate Controller

Reporting to the Vice-President and Chief Financial Oficer, responsible for the overallfinancial integrity of the Company, including the business planning, financial andaccounting functions. Had direct responsibilty for 140 employees and functionallyresponsible for a further 200. Our financial team's accomplishments included:

. Managed the preparation of the Company's Business Plan; introduced financialforecasts for both the short and medium-term. Reduced Plan preparation time by twomonths and costs by 30%. The published Plan significantly reduced ad-hoc workrequired to respond to information requests from the provincial government and otherparties.

. Managed Revenue Requirement Rate Applications to the BCUC for 1993 and 1994;reduced application preparation time by 40% and regulatory hearing time by 50%compared with previous applications.

. Through the management of the annual planning process, planned and achievedoperating cost reductions per customer of 22% over four years.

. Developed and implemented market-based transfer pricing for the Strategic BusinessUnits (SBU) which was well accepted by senior management.

. Implemented financial statements and performance measures for each SBU

. Initiated and led "business education" course for managers throughout BC Hydro.

. Reduced the size of the Controllers Division by 20% (30 people) while workincreased.

. Developed and implemented an "Employee Development" program for all staff.

(2)

Appendix 4

Anthony ~ Morrs, CA C.B.V.

198-199

Exhibit C6-14

Various Managerial Roles - Cotroller's Division

Reportng to the Controller, responsible for all internal and external financial reportng.Also had responsibilit for financial policies, proures, financil sysems and training.. During this time:

. . Implemented a new financial reporting strcture that improved timeliness by 50% aswell as allowing improved analyis of reported result.

. Received BC Hydro's Innovative leadership Award for 1993.

Price Waterhouse, Vancouver (now PriceWaterhouseCoopers) 1978 -1989

. . 1986-1989 Managerl Director Busines Valuation Servces

. 1982-1985 Audit Manager

. 1978-1982 Senior Consultant, Price Waterhouse Consultng

As a Consultant I Business Valuator, worked on a variety of projects incuding advsing theProvince of BC on priatization initiatives and working as part of the World Bank team torestructure the procsses and system at MVMT (the Hungarian National Electric Utility).

SELECTED EDUCATION AND PROFESSIONAL DEVELOPMENT

Chartered Accountant (1980 B.C; 1974 England and Wales)Chartered Business Valuator (1989) .Queens University (1997) Residential Executve Development Program.

COMMUNnY INVOLVEMENT

Mental Patients Association - Director, Vice- Chair and Treasurer (6 years)Boy Scouts of Canada - Scout Leader and Board Member (3 years)North Shore Girls Soer - Coach and Manager (11 years)North Shore Unitarian Church - Social Resposibilit Chair (6 years)

(3)

Appendix 4

Documents

C,,rÀ~9 Go...RE: Project No. 3598419 British Columbia Hydro and Power Authority (BC Hydro) 2006 Integrated Electricity Plan and L TAP Application IS YOURS Enclosed is BC Hydro's Evidence