R E 1 1 O"+k, Poit Off~ce Bag 8000 Pl~nce Rupeli. B C C'inacia V8J 4H3 Tei 1250) 624-95 1 I Fax 1250) 621-4990

July 11,2006

Mr. Robert J. Pellatt Commission Secretary British Golurnbia Utilities Go I ii .yy'-jg

* *dL 8

Box 250,900 Howe Street 6th Floor Vancouver, BC V6Z 2N3

Dear Sirs:

Re: Dispute by Bdley TerIlliinals Inc. of BG Hydro and Power AutlhoriQ's Detenniination of Initial Customer Baseline Load

Ridley Teminals Inc. ("'RTI") disputes BC Hydro's detemkation of its initial Customer Baseline Load (""BY), and respectfully submits that the CBL baseline for RTI should reflect the fact that its energy consurnptlon for 2005 was artificially low due tofirce majeure, specifically the closure of two mines that had used its facility. Alternatively, in the event that the CBL baseline cannot be adjusted on the basis offirce majeure, the adjustment sou&t should be made pursuant to section 6.2.2 of the CBL Determination Guidelines in recowition of RTT's unique sibation in a manner consistent with the overall rate design principles.

Background

RTT is a Federal Crown Corporation, which owns and operates a terminal on Ridley Island near Prince Rupert. The terminal, which opened in 1984, was built to provide an export point for vast resewes of metallurgical and themal coal in northeastern. British Columbia. RT19s terminal is one of the most advanced terminals of its kind, making it a world leader "Ihe efficient and reliable movement of coal and other bulk co odities from unit trains onto ships. The teminal has an m u a l shipping capacity of 16 million tomes, which can be expanded to 24 million tomes.

More infomation on RTI can be found at ww.di.ca.

In terms of energy efficiency, RT19s facility is state-of-the-art, and discussions with BC Hydro representatives as part of this process have produced no suggestions as to how RTI can mate~ally reduce its energy consumption based on its current output.

RTI semes an iqorlant function in the economy of British Columbia, padicularly Northern British Columbia, since it is a gateway to foreign markets. The coal indusb-y in Northern BC is emerging from several years of decline and RTI's terminal is integral to sustaining that economic growth. As coal output increases, RTI's energy consumption increases correspondingly.

DOG. #6021~2 iSO 9OOlII4OO1/1XOO I Regisiered - A Federai Crown Corporation

C5-3

In these circumstances, the initial CBL deternilination unfairly penalizes RTI as the economy of Northern BC iqroves . RTI submits that this situation is not consistent with the intent of the CBL Guidelines, which are designed to send a price signal supporting cost-effective groMith while not impinging economic development. Adjustments are required to ensure that the stepped rates are truly revenue neubal, as intended. RTI submits that its unique sibation can and should

odated within the fimework of the CBL Guidelines, and in particular the provisions dealing with force majeure or section 6.2.2.

ssion Order No. G79-05 and the Relevant Provisions of the GBL Deter GuideEnes

The British Columbia Utilities Go ission") deternilined in Order No. 6-79- 05 (approving the Negotiated Settlement issued on June 15, 2005) that the "Negotiated Settlement can reasonably be expected to achieve the objectives for stepped rates as identified in the Energy Plan."

British Columbia's Energy Plan, "Energy For Our Future: A Plan For BC" (the ""Energy Plan9') established as dual objectives energy efficiency and economic growth. For instance, Policy Action #2l provides: "'New rate stmctures will provide better price signals to large electricity consumers for conservation and energy efficiency." The Energy Plan also recognized that ""Energy policy and economic policy are inextficably linked. The gove restoring a strong and vibranl provincial economy with employment opportunities for Brrtish Columbians."

As noted by the Go ission in its Reasons for approving the Negotiated Settlement, these dual objectives meant that stepped rates "would be designed such that the last block of energy consumed would reflect the cost of new supply and would be revenue neutral." Revenue neutrality is an important concept, as rates that penalize a customer whose consumption increases due to economic growth run counter to the iqortant objective of restoring a strong and vibran( provincial economy.

ission's Report and Rec endations Regarding a Heritage Contract for BC Hydro's eneration Resources epped Rates and Transmission Access reco dation ff12) that the CBL used for applgng stepped rates to indust~al customers

should be based on past experience adjusted for anomalies. It Is by this means that revenue neutrality is achieved.

The approved CBL Detemination Guidelines state the following:

3.1.1 For customers taking service under RS 1823 a single "Energy C13L9' will be determined. This Energy CBL will be representative of normal historic annual energy consumption by the customer's plant, and will be applied as a cumulative annual threshold for purposes of the stepped rate stmcbre in RS 1 823. Gonsuqtion under RS 1880 is excluded for these purposes.

3.1.2 The initial Energy CBL, vvhich will be effective upon implementation of RS1823, will be detemined on the basis of the customer's energy consumption for the twelve Billing Periods of calendar 2005.

Doe. #6021v2 - 2 -

However, the CBL Detemination Guidelines also contennplate an adjusment to account for force majeure. Section 3.1.3 provides:

If the customer's plant or operations were affected by Force Majeure events during the twelve Billing Periods of calendar 2005, BC Hydro will adjust the historic data to remove the effect of these events. Nomally, BC Hydro will use data from the days, weeks, or months prior to the event to make the adjustment; however, BC Hydro may also refer to appropriate data firom the s m e period during the prior year for guidance in making the adjustment.

The CBL Detemination hidelines also recognize that, apart &om force majeure, there may be adjustments that are justifiable within the principles of the tariff. Section 1.0 Overview provides in part:

BC Hydro recognises that these CBL Detemination Guidelines may not caplure all adjustments that may be justifiable within the principles of the tariff. Hence, in circunnstances where customers propose adjustments that are not defined in these CBL Detemination Guidelines, and where the Commission is in agreement, BC Hydro will mend the tariff practice to acco odate similar adjustments in the future. To the extent that the sum of the adjusted GBL's exceed reasonably anticipated consumption of the non-exempt customers, CBLs may be prorated.

Section 6.2.2 provides:

If the customer proposes adjustments that are not defined in these CBL Determination Guidelines, BC Hydro will discuss the proposed adjustments with the customer. In cases where BC Hydro agrees with the customer's proposed adjustments and they are consistent with BC Hydro's overall rate design principles, BC Hydro will file the proposed CBL with the Commission. In eases where BC Hydro does not agree with the proposed adjustments and they are not consistent with BC Hydro's overall rate design principles, BC Hydro will file the CBL in accordance with the CBL Detemination Guidelines. The customer can file its proposed CBL with the Go ission and indicate that its CBL is under dispute. In these circumstances, BC Hydro will provide information where requested by the Commission. However, the Go ission will deternine the final CBL.

This process recognises that BC Hydro cannot anticipate precisely all adjustments that may be justifiable within the principles of the tariff. m e r e the Commission accepts an adjustment not previously acco odated in the tariff, BC Hydro will mend the tariff practice to accommodate similar adjustments in the future. To the extent that the sum of the adjusted CBL's exceed the reasonably anticipated consunnption of the non-exempt customers, CBLs may be prorated.

Doe. #6021v2

Application of Initial GBL Deter ation GuideHnes to RTI

The use of RT19s energy consumption in 2005 to detemine the CBL (as set out in Section 3.1.2 of the CBL Detemination Guidelines) is not representative of nomal amual energy consumption by RTI's terminal. The spreadsheet included with this letter of dispute as AppendH 6'"A9hows RTI's tonnes handled per year and our energy consumption (MWH) back to 1988, as well as the forecast numbers though 2008. To sumarize, .Erom 1988 to 1999, the terminal averaged 6.1 million tomes handled per year, with energy consumption avera@ng 13,684 MWH. The 2001-2003 average, however, was 2.2 million tomes and 7,760 MWEI. RTI forecasts volumes to return to these historic levels by 2007, and to exceed them in 2008. A graphic representation of this data appears at Appendlix ""B".

RTI has estimated the impact of the new Stepped Rate formula on its electricity costs over the next few years, and compared them to the costs RTI would likely have incurred under the existing 1821 Rate Schedule. Over the next three years (2006 to 2008), RTI estimates an average excess electricity cost of $85,000 per year. This is, on average, a 25.5% increase in RTI's cost. The details of this calculation are shown in Appendix "A". RTI submits that the impact of the new 1823 Rate Schedule is anything but revenue neutral to the old 182 1 Rate Schedule.

The reason for the decline in volume expefienced by RTI over the last few years, and the expected recovery in the coming years, are due to factors beyond RTI's control. As a coal terminal, RT19s volume is dictated to a large extent by the volumes mined at coalmines, particularly those coalmines in Northeast BC. In 2000 and 2003, the two historic Norlheast BC coalmines (Quintette and Bullmoose) closed. This led directly to the decrease in RT19s activity.

There are now a number of new coalmines operating in Northeast BC, including those operated by Western Canadian Coal Corp., Pine Valley Mining Ltd., and NEMI Northern Energy & Mining Inc. RTI's activity will increase in direct proportion to the success of these cowanies in generating new economic activity in this region of the province.

The intent of the new rate schedule is to encourage companies to use energy more efficiently, while still encouraging economic development. However, the new rate schedule 1823, when applied to RTI, instead penalizes RTI for the impact of new economic activity in the province.

Force Majeure

Section 3.1.1 of the CBL Detemination Guidelines provides that t-he CBL baseline should reflect "nomal" annual energy consumption by the customer. From 1988 to 1999, RT19s annual energy consumption ranged behveen approximately 12,014 MWH and 14,487 MWH, and averaged 13,684 MWH. RTI submits that this range represents its 6'norma199 energy consumption. The closing of the Quintette and Bullmoose mines in 2000 and 2003, respectively, directly resulted in a significant decrease in RTI's business, and a corresponding significant departure from our "normal" energy consumption. Tn 2000, the year the Quintette mine closed, energy consuqtion was 10,178 MWH. From 2001 to 2003, after the closure of the Quintette mine, the average energy consuqtion was 7,760 MWH. Ln 2004, after the Bullmoose mine closed, energy eonsumption decreased to 6,039 MWH. RT19s 2005 energy consumption rose slightly to 6,460

Doc, #602 1 v2

MWH. Energy consumption for 2006 is expected to be similar to 2000, and for 2007 and 2008 is projected to return to the pre-2000 "normal" range.

RTI submits that the closure of the Quintette and Bullmoose mines constitutedforce majeure within the meaning of section 3.1.3 of the CBL Detemination Guidelines. These mine closures were entirely beyond the control of RTI, and yet had a significant impact on RTI's business and the level of energy consumption. The fact that the closures occurred before 2005 is i the application of section 3.1.3, since the effects of the closures continued to be felt throughout 2005.

RTT submits that, in the circumstances, the CBL baseline for RTI should be adjusted with reference to the usage prior to the closure of the Quintette mine. Section 3.1.3 contemplates BC Hydro referrling, for instance, "to appropriate data from the s m e period during the prior year for guidance in making the adjustment."

The specific order being sou&t is discussed at the end of this submission.

Adjustment Pursuant to Section 6.2.2

The CBL Determination Guidelines contemplate adjustments to the CBI, baseline, even in the absence offorce majeure. RTI submits that, in light of the unique situation faced by RTI, the adjustment proposed below as a result offorce majeure is wholly justifiable within the p~nciples of the tariff and should be made pursuant to section 6.2.2.

As noted above, the Energy Plan established as dual objectives energy efficiency and economic grourth. For instance, Policy Action #2 1 provides: "New rate stmctures will provide better price signals to large electricity consumers for conservation and energy efficiency." The Energy Plan also recognized that "Energy policy and economic policy are inextricably linked. The

ent is committed to restoring a strong and vibrant provincial economy with ernployrnent oppomnities for British Columbians." Adjusting RTI's initial CBL in the manner sou&t would achieve an appropriate balance between those dual objectives.

As noted above, RTI's facility is state-of-the-art, and discussions with BC Hydro represeIllatives as part of this process have produced no suggestions as to how RTI can materially reduce its energy consumption based on its currelll output. The coal industry in Northern BC is emerging from several years of decline and RTI's teminal is integral to sustaining that economic growth. As coal output increases, RTI's energy consumption has a corresponding increase.

The assumption inherent in the CBL Determination Guidelines, which are designed to send cost signals without impinging economic development, is that the billing record in 2005 reflected "normal" consumption by the customer. This is simply not the case with RTI, and the result is that the initial CBL penalizes RTI for the economic recovery of the coal markets in Northeastern BG.

RT19s position, set out below, recognizes that its use of electricity is Largely a function of the amount of coal shipped by mines. Conceptually, it is approp~ate for the purposes of establishing the initial CBL for RTI to treat RT19s facilily as an extension of the mines that it serves, and those mines are increasing their output.

Doe. #602 1 v2 - 5 -

Conclusion and Order Sought

RTI respectfully submits that its initial CBL baseline for 2006 be determined based on RT19s average usage during the 3 year period 1997 to 1999. This would result in a CBL baseline of 13,147 MWH. This period predates the mine closures, and thus more accurately reflect "nomal" consumption. This proposed baseline is slightly lower than the 12 year average (from 1988 to 1999) of 13,684 MWH, and was selected because this 3 year period is the most recently available data not affected by the mine closures. By way of reference, the average for the 5 year period preceding the mine closures (is. &-om 1995 to 1999) was 13, 124 MWH.

An adjustment of this nature to the initial CBL of RTI would achieve, to the extent possible, revenue neutrality, and would thus be consistent with Reco endation #12 of the BCUC Repont that the CBL used for applying stepped rates to industrial customers should be based on past experience adjusted for anomalies. Whether this adjustment is made on the basis of force majeuve or Section 6.2.2, the principle remains the same.

Yours truly, RIDLEU TERMINALS INC.

Cam McIntyre, CA Chief FinanciaI Officer

cc: MS. Joanna Sofield, Chief Regulatory Officer British Columbia Hydro and Power Authority

Matthew Ghikas, Fasken Mantineau DuMoulin

Doc. #6021v2

Ridley Terminals Inc. Stepped Rate Analysis 1988 to 2008

Appendix A

Tonnes MWH per 1821 1821 Tier I Tier I Tier 2 Tier 2 1823 % Year (000's) MWH Tonne Rate Cost CBL Rate Cost Rate Cost Cost Difference Increase

1989 5,947 1990 6,197 1991 6,418 1992 6,177 1993 5,617 1994 6,815 1995 6,378 1996 5,071 1997 6,880 1998 5,328 1999 6,019 2000 3,915 2001 2,114 2002 1,820 2003 2,676 2004 893 2005 1,015

est 2006 3,600 est 2007 5,500 est 2008 8,500

Ave: (85,084) 25.49%

Doc. #6021v2

Ridley Terminals Inc. Tonnes Handled and MWH Used 1988 to 2008

Appendix B

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