Transmission Expansion Policy

1. Transmission ExpansionPolicy Draft Implementation Plan Rohan Soulsby May 15, 2007 IPPBC Transmission Committee Meeting

2. Objectives of Discussion • To provide an update on BCTC’s Transmission Expansion Policy (TEP) activities • To address implications of the BC Energy Plan • To discuss collaborative efforts on identification and evaluation of TEP opportunities • To obtain feedback on the proposed forward action plan and draft TEP investment criteria • Feedback

3. BCTC TEP - Recap • BCTC filed its TEP Paper with the BCUC in December 2005 • In January 2006, the BCUC responded favorably: • “… the Commission emphasizes at this time that it regards the policy as a dynamic document, which it expects will evolve over time as updates to the 2002 Provincial Energy Plan and other events occur.” • and “… it would therefore expect to define the scope for review of the policy at such time as BCTC advances the first associated project.” • Project Categories: • Advancing Planned Upgrades • Increasing the Size of Planned Upgrades • “Greenfield”- New projects not driven by customer requests • Ratepayers underwrite capacity increments beyond contracted need

4. BC 2007 Energy Plan and TEP • BCTC anticipated the BC Government’s EP2 as a major contextual setting input to the next steps of TEP implementation: Self-Sufficiency • To meet electricity needs including “insurance” • Ongoing importance of trade Broader and More Progressive Approach to Transmission Planning • To ensure that new transmission infrastructure will be in place to reliably meet the province’s future electricity needs Congestion Relief • Meeting and maintaining an un-congested system • Ensure a system robust enough to support the most efficient use of generation resources from a province-wide perspective

5. Opportunities to Apply TEP Four Broad Categories of Potential Opportunities • IPPs • Trade / Wheeling • Load Growth • System Optimization

6. IPP Driven Opportunities The Opportunity The Benefits • Optimized investment over longer term • Potential to facilitate IPP clustering, providing additional investment optimization, e.g..having the infrastructure in place may attract IPPs. • Potentially faster service to IPPs in the future as infrastructure would be already in place. • Less risk to BC Hydro energy acquisition • Utilize TEP to build Tx capacity to serve future IPP requirements Y W A IPP A The Risks • Forecasted IPP development does not materialize, resulting in stranded investment. • Greater risk with overbuilding at the Regional System level than at the Bulk System level. • It may be less risky to base investment on forecast IPP clusters than on any single forecast IPP. IPP C IPP B X Z Line of Separation • Current practice is to investment no more than the minimum required to serve contracted IPPs (Green), e.g. investment W-X. • With additional future IPPs (Red) in the area, investment Y-Z may be required, potentially leaving investment W-X stranded, a sub-optimal solution for rate payers. • Any incremental investment that requires the inclusion of non-contracted IPPs in order to be justified, would fall under TEP.

7. Trade/Wheeling Driven Opportunities The Opportunity The Benefits • Economic value of trade. • Economic value of PTP wheeling fees. • Utilize TEP to build Tx capacity to pursue Trade/Wheeling economic opportunities. There are several drivers of this opportunity including: • Provincial Energy Policy of self sufficiency will drive additional generation capacity • Additional domestic load driven investment is required to address Tx congestion (e.g. ILM) driving the opportunity to build additional capacity at marginal costs • Aging infrastructure is driving the need for infrastructure replacement, driving the opportunity to build additional capacity at marginal costs The Risks • Stranded investment. • Additional Tx capacity is acquired by market participants that are only pursing wheeling and not trade opportunities, thereby limiting the economic opportunity. Line of Separation • All Tx investments justified on the basis of non-contracted Trade/Wheeling opportunities fall under TEP.

8. Domestic Load Opportunities The Opportunity The Benefits • There is an opportunity for BCTC to utilizeTEP to make Tx investments to serve incremental probabilistic load, e.g.industrial and remote communities or other future load. • Optimized system investment • Potential to stimulate load (economic development) The Risks • Additional load forecasts do not materialize • Non-profitable load is stimulated Line of Separation • Any incremental Tx investment justifications that are based on load over and above that included in BC Hydro forecasts are TEP driven.

9. Supply Driven Bulk & Regional System Optimization Opportunity – System Flexibility The Benefits • Greater system flexibility to meet a broader range of resource scenarios going forward • Reduced probability of RMR generation • Optimized generation redispatch • Reduced line losses • Site and Rights of Way acquisition • There is an opportunity to advance projects within the current planning horizon or increase capacity in order to achieve greater flexibility into the Tx system. There may also be an opportunity to make investments in earlier stages to have the project shelf ready. Example Path XYZ The Risks Advancement of Investment C • Carrying cost of investment • Stranded investment • Risks may be lower with advancing projects or building additional capacity in the bulk system compared to the regional system Tx Path Capacity Tx Path Capacity Requirement Line of Separation Tx Investment C • Any incremental Tx investment justifications that require any of the following would require the utilization of TEP: • Tx investment that creates greater capacity than needed to serve the NITS ApplicationContingency and contracted Firm PTP requirements. • Scenarios that are based on resources not included in the NITS application • Scenarios based on resource configurations not included in the NITS application • Scenarios that include resource considerations beyond the timeframe of the NITS application New Large Scale Generator Drives Increase in Tx Capacity Requirement Tx Investment B Tx Investment A Planning Horizon

10. TEP Implementation Action Plan BCTC TEP Schedule Apr May May June July Aug Sep Oct Nov Dec Jan Feb Mar

11. BCTC Roles In Pursuing TEP • Neutral information collector • Confidential integrator of market information separate for: • IPP-driven opportunities • Trade/wheeling opportunities • Second look at load forecasts and work with BC Hydro in load scenario and sensitivity analysis • WECC coordination and oversight • TEP investment and risk analysis • Proponent for TEP investments

12. TEP Investment Criteria - Draft • Main Investment Criteria: • Positive Ratepayer Financial Impact (TEP should never impose a net cost on ratepayers on a forecast basis) • 2nd Level Investment Criteria: • Lower Cost Of New Energy Supply • Reduced Risk Of Not Acquiring Generation (Resulting in default to higher cost generation or Load Not Served (LNS)) • Trade Profit To BC Hydro Ratepayers from TEP Facilitated Generation • Trade Profit to BC Hydro Ratepayers by Removing Transmission Constraints to Economic Opportunities • Transmission System Optimization (addressing incrementalism) • Optimize investment to serve potential load

13. Stakeholder Input on TEP Process • Additional stakeholder input is sought on these items: Fairness to stakeholders Planning horizon – 20 yrs, 30 yrs? Confidentiality and data management Risk evaluation criteria and assessment Timetable and resource commitments Regulatory processes

14. Discussion • Questions ? • Feedback ? • Suggestions ?