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Mt.

Hayes LNG Storage Facility

IN THE MATTER OF the Utilities Commission Act,


R.S.B.C. 1966, Chapter 473 (the "Act")

AND IN THE MATTER OF an Application by


Terasen Gas (Vancouver Island) Inc.

for a Certificate of Public Convenience and Necessity and


for Approval to enter into a Storage and Delivery Services Agreement

AND IN THE MATTER OF an Application by


Terasen Gas Inc.

for Approval to enter into a Storage and Delivery Services Agreement

Submitted to the
BRITISH COLUMBIA UTILITIES COMMISSION

JUNE 5, 2007
Mt. Hayes LNG Storage Facility

TABLE OF CONTENTS

1. APPLICATIONS ....................................................................................................................1

1.1. Applicants......................................................................................................................1
1.1.1. Name, Address and Nature of Business ...............................................................1
1.1.2. Financial Capability of Applicants..........................................................................2
1.1.3. Technical Capability of Applicants.........................................................................2
1.1.4. Name, Title and Address of Contact......................................................................3
1.1.5. Name, Title and Address of Legal Counsel ...........................................................3
1.2. Project Description ........................................................................................................3

1.3. Project Justification .......................................................................................................5

1.4. Regulatory Review of CPCN Application ......................................................................6

2. OVERVIEW ...........................................................................................................................7

2.1. Introduction....................................................................................................................7

2.2. 2006 Resource Plans ....................................................................................................8

2.3. History of Mt. Hayes LNG Project .................................................................................9

2.4. Development of Current Proposal ...............................................................................11

3. PROJECT DESCRIPTION ..................................................................................................13

3.1. Introduction..................................................................................................................13

3.2. Description of the LNG Storage Facility ......................................................................14


3.2.1. Mt. Hayes Project Site .........................................................................................15
3.2.2. Substation and Power Line .................................................................................15
3.3. Description of the System Facilities ............................................................................16
3.3.1. Pipeline Laterals and Measurement/Odourization Station ..................................16
3.3.2. Transmission System Modifications ....................................................................16
3.4. Pre-Construction Development Activities ....................................................................17

3.5. Project Management ...................................................................................................20

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3.6. Environmental Assessment.........................................................................................21

3.7. Other Approvals ..........................................................................................................22

3.8. Public and Stakeholder Consultation ..........................................................................22


3.8.1. Public Consultation Program ...............................................................................22
3.8.2. First Nations ........................................................................................................23
3.8.3. Resource Plan Consultation ................................................................................23
3.8.4. Socio Economic Assessment ..............................................................................24
3.9. Project Schedule .........................................................................................................24
3.9.1. LNG Storage Facility Project Schedule ...............................................................24
3.9.2. System Facilities Project Schedule .....................................................................25
3.10. Project Description Summary......................................................................................28

4. PROJECT COSTS ..............................................................................................................30

4.1. Capital Cost Forecast..................................................................................................30


4.1.1. EPC Cost Development ......................................................................................30
4.1.2. LNG Storage Facility Capital Cost Estimates ......................................................32
4.1.3. System Facilities Capital Cost Estimates ............................................................33
4.1.4. Capital Cost Approvals ........................................................................................35
4.2. Operating Costs ..........................................................................................................35
4.2.1. Project Operating Costs ......................................................................................35
4.3. Project Cost Summary ................................................................................................37

5. LNG STORAGE FACILITY COST RECOVERY .................................................................39

5.1. Overview .....................................................................................................................39

5.2. A Fair Return on Equity ...............................................................................................39

5.3. LNG Storage Facility Cost of Service..........................................................................41


5.3.1. Adjusted Depreciation Schedule .........................................................................41
5.3.2. Annual Revenue Requirement ............................................................................42
5.3.3. Present Value Assessment .................................................................................44
5.3.4. Capital Cost Impact .............................................................................................45
5.4. TGI Storage Revenues................................................................................................45

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5.4.1. Terms and Conditions .........................................................................................46

6. TGVI AND TGI CUSTOMER DEMAND ..............................................................................49

6.1. TGVI Demand Forecast. .............................................................................................49


6.1.1. Core Demand ......................................................................................................50
6.1.2. Squamish and Whistler Demand .........................................................................50
6.1.3. Industrial Transport Demand ...............................................................................51
6.1.4. Design Year Temperature Variability...................................................................51
6.2. TGI Demand Forecast for the Lower Mainland Region...............................................55
6.2.1. Lower Mainland Core and Transportation Demand.............................................55
6.2.2. Lower Mainland Generation Demand..................................................................56
6.2.3. Lower Mainland Load Duration ...........................................................................57
6.2.4. Peak Period Temperature Uncertainty – Lower Mainland...................................57
6.3. Winter 2006/07 Cold Weather Event...........................................................................57

7. PROJECT JUSTIFICATION................................................................................................59

7.1. Gas Supply Portfolio Assessment ...............................................................................60


7.1.1. Introduction..........................................................................................................60
7.1.2. Summary of Resource Plan - Gas Supply Portfolio Planning Findings ...............61
7.1.3. Combined TGI and TGVI Portfolio Evaluation.....................................................62
7.1.4. New Resource Alternatives .................................................................................62
7.1.5. Impact of Storage Availability on Gas Supply Portfolio .......................................65
7.1.6. Value of LNG Storage Service ............................................................................72
7.1.7. Gas Supply Portfolio Summary ...........................................................................73
7.2. Resource Portfolio Development.................................................................................75
7.2.1. System Description of CTS and TGVI System ....................................................75
7.2.2. TGVI System Capacity Requirements.................................................................77
7.2.3. TGVI Portfolio Development................................................................................78
7.2.4. Comparison with 2006 Resource Plan Results ...................................................81
7.2.5. TGI CTS Portfolio Development ..........................................................................83
7.2.6. BC Hydro Bypass Transportation Agreement .....................................................84
7.2.7. Transportation Service for TGVI..........................................................................85
7.2.8. TGI System Future Expansion Requirements .....................................................85

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7.2.9. Flexibility of LNG Portfolio ...................................................................................88


7.2.10. Resource Portfolio Summary...............................................................................90
7.3. Additional Benefits.......................................................................................................92
7.3.1. Incremental Transportation Revenue ..................................................................92
7.3.2. Security of Supply ...............................................................................................93
7.3.3. Improved System Reliability ................................................................................95
7.3.4. Reduced Rate Volatility .......................................................................................96
7.3.5. Operational Flexibility and Efficiency...................................................................96
7.3.6. Summary of Additional Benefits ..........................................................................98

8. ECONOMIC JUSTIFICATION AND CUSTOMER IMPACTS ...........................................100

8.1. TGVI Portfolio Comparison .......................................................................................100

8.2. Financial Assumptions ..............................................................................................101

8.3. TGVI Baseline Scenario ............................................................................................103

8.4. Sensitivity Scenarios .................................................................................................103

8.5. Impact of Additional Benefits.....................................................................................107


8.5.1. Incremental Transportation Revenues ..............................................................107
8.5.2. Additional Benefits.............................................................................................108
8.6. TGI Portfolio Analysis................................................................................................110
8.6.1. TGI Benefit ........................................................................................................110
8.6.2. TGI Benefit ........................................................................................................111
8.7. TGVI Customer Rate Impact .....................................................................................114
8.7.1. System Cost Allocation Assumptions ................................................................115
8.7.2. Expected Core Market Unit Cost Impact ...........................................................117
8.7.3. Firm Transportation Service ..............................................................................119
8.7.4. Levelized Cost Comparison ..............................................................................120

9. CONCLUSIONS ................................................................................................................122

GLOSSARY

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LIST OF APPENDICES

Appendix A LNG Storage Facility Project Information

Appendix B A Fair Return for Natural Gas Storage Facilities

Appendix C TGVI – TGI Storage Service & Delivery Agreement

Appendix D TGVI Demand

Appendix E Gas Market Information

Appendix F Financial Schedules

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1. APPLICATIONS

Terasen Gas (Vancouver Island) Inc. (“TGVI”) hereby applies to the British Columbia Utilities
Commission (the “BCUC” or the “Commission”) pursuant to Section 45 of the Utilities
Commission Act, R.S.B.C. 1996, Chapter 473, (the “Act”) for a Certificate of Public Convenience
and Necessity ("CPCN") to build the Mt. Hayes liquefied natural gas (“LNG”) storage facility
(“LNG Storage Facility” ) on Vancouver Island and the facilities required to connect the LNG
Storage Facility to TGVI’s natural gas transmission system and associated upgrades (“System
Facilities”) (collectively the “Application” or “Project”).

As part of this Application for a CPCN, TGVI also applies for approval of a return on equity
based on its allowed return on equity plus 50 basis points to be applied on the rate base
associated with the LNG Storage Facility and pursuant to Section 56 of the Act TGVI applies for
approval of the adjusted depreciation schedule set out in this Application associated with the
annual depreciation expense for the LNG Storage Facility. TGVI also requests approval to
recover pre-construction development costs associated with the LGN Storage Facility and the
System Facilities.

TGVI also applies for approval, pursuant to Section 61 of the Act, of a long-term agreement (the
“Storage and Delivery Agreement”) with TGI by which TGVI will provide LNG storage,
liquefaction and vaporization service, and gas delivery and re-delivery service to TGI.

TGI hereby applies for approval, pursuant to Section 71 of the Act, to enter into the Storage and
Delivery Agreement with TGVI.

1.1. Applicants

1.1.1. Name, Address and Nature of Business

TGVI is a company incorporated under the laws of the Province of British Columbia and is a
wholly-owned subsidiary of Terasen Inc. TGVI maintains an office and place of business at
16705 Fraser Highway, Surrey, British Columbia, V4N 0E8. TGVI operates a natural gas
transmission system and distributes natural gas to over 87,000 customers on Vancouver Island

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and the Sunshine Coast. TGVI will own and operate the LNG Storage Facility and the System
Facilities. TGVI will also provide natural gas storage and deliverability services to TGI.

TGI is a company incorporated under the laws of the Province of British Columbia and is a
wholly-owned subsidiary of Terasen Inc. TGI maintains an office and place of business at
16705 Fraser Highway, Surrey, British Columbia, V4N 0E8. TGI operates natural gas
transmission systems and distributes natural gas to over 810,000 customers in the Interior and
Lower Mainland of British Columbia including Squamish.

1.1.2. Financial Capability of Applicants

TGVI is capable of financing this LNG Storage Facility and the System Facilities, either directly
or through its parent Terasen Inc. Terasen Inc has credit ratings for senior unsecured
debentures from Dominion Bond Rating Service and Moody’s Investors Service of BBB (High)
and Baa2 respectively. Terasen Inc has, through its subsidiary companies, completed large-
scale system implementation projects. Terasen Inc. has the financial capacity to undertake
them by means of borrowing and from funds internally generated from business operations.

1.1.3. Technical Capability of Applicants

TGVI and TGI are managed and operated by a common management team and employees.
Together the utilities operate more than 30,000 kilometres of gas transmission and gas
distribution mains and service lines in British Columbia. In addition, TGI has owned and
operated a 0.6 Bcf LNG storage facility located at Tilbury Island, Delta, B.C. since 1971.

TGVI delivers natural gas to approximately 87,000 homes and businesses on the Sunshine
Coast and Vancouver Island. TGVI also provides gas transportation service to six pulp mills and
a gas fired generation facility connected to its system, TGVI designed and constructed its high-
pressure and pipeline (completed in 1991), and has operated the integrated high-pressure and
low-pressure transmission and distribution system since 1996.

TGI has designed, constructed and operated its high pressure pipeline system and distribution
network since 1957, and delivers natural gas to more than 810,000 customers in the Interior and
Lower Mainland of B.C.

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1.1.4. Name, Title and Address of Contact

Communications with respect to this Application should be addressed to the TGVI and TGI
contact:

Scott A. Thomson, C.A.


Vice President, Finance and Chief Financial Officer
16705 Fraser Highway
Surrey, B.C. V4N 0E8

Phone: (604) 592-7784


Facsimile: (604) 576-7074
E-mail: regulatory.affairs@terasengas.com

1.1.5. Name, Title and Address of Legal Counsel

Legal Counsel for this Application is:

Cal Johnson, Q.C.


Fasken Martineau DuMoulin LLP
21st Floor, 1075 West Georgia Street
Vancouver, B.C. V6E 3G2

Phone: (604) 631-3130


Facsimile: (604) 632-3130
E-mail: cjohnson@van.fasken.com

1.2. Project Description

TGVI proposes to construct and own a 1.5 Bcf LNG Storage Facility, at a location referred to as
Mt. Hayes, in the Cowichan Valley Regional District ("CVRD") near Ladysmith, and the System
Facilities required to connect the LNG Storage Facility to TGVI’s natural gas transmission
system. The LNG Storage Facility will allow TGVI to provide both system capacity and a gas
peaking resource for the benefit of TGVI’s customers on Vancouver Island and the Sunshine
Coast. The Project will also allow TGVI to provide storage and delivery services to TGI.

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The Mt. Hayes location in the CVRD is approximately 6 km northwest of Ladysmith. Rezoning
of the site for LNG storage use was approved by the CVRD on May 26, 2004 after a
comprehensive consultation process. TGVI has an option to purchase the property from Island
Timberlands, under an agreement that expires July 31, 2008.

A cost estimate for the LNG Storage Facility has been developed based on information supplied
by consultants and contractors and TGI and TGVI’s own experience in project management of
major capital projects. The major portion of the LNG Storage Facility will be constructed under
a turnkey price engineering, procurement and construction (“EPC”) contract which TGVI expects
to have in place by December 1, 2007. At that time TGVI will have greater cost certainty as the
EPC contract will include a firm price for a major portion of the equipment procurement and
construction activities performed by the EPC contractor. Based on the work performed to date,
the direct capital cost for a 1.5 Bcf LNG Storage Facility at Mt. Hayes is currently estimated at
$165 million in 2007 dollars based on P50 estimate and $186 million based on the current P90
estimate.

As part of the Project, TGVI will also construct 5 km of connecting facilities including
transmission pressure supply and tail gas pipelines from its transmission system near
Ladysmith to the LNG Storage Facility and install gas measurement and odourization facilities.
TGVI will also install extra valving at its Texada Compressor Station and on its marine crossing
to accommodate potential flow reversing due to the presence of the LNG Storage Facility. The
estimated direct P50 to P90 capital cost range is $10.7 million in 2007 dollars for these System
Facilities.

Operating costs for the Project have been determined from TGI experience operating the Tilbury
LNG Facility in Delta, B.C. and from TGVI and TGI experience operating transmission facilities
throughout B.C. The estimated annual fixed operating costs are approximately $1.56 million in
2007 dollars. Variable costs include electricity and fuel usage for liquefaction and vaporization
and will depend on the volume throughputs from year to year.

The current project schedule is based on finalising the EPC contract by December 1, 2007,
which would allow the LNG Storage Facility to be constructed and commissioned by April 2011.
This will allow the LNG tank to be filled over the summer months and be ready for core market
heating season requirements beginning November 1, 2011. The construction of the System

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Facilities is not on the critical path and TGVI is confident that they can be readily completed to
meet the overall project schedule requirements.

1.3. Project Justification

In July 2006, TGVI and TGI filed their 2006 Resource Plans 1 which provide a long term view of
customer growth and evaluate the options available to the utilities to meet the forecast customer
needs. The TGVI Resource Plan identifies the need for expansion of its transmission capacity
to serve current and the forecast loads on Vancouver Island and compare the benefits of an
LNG Storage Portfolio to a Pipe and Compression Portfolio approach. In addition, both
Resource Plans discuss the need and potential costs for new regional storage facilities to
support TGVI and TGI’s growing requirement for cost effective resources to meet core market
peaking requirements.

The Resource Plans conclude that the development of a 1.5 Bcf LNG peak shaving facility on
Vancouver Island is the major component of the preferred portfolio for meeting the requirements
of both utilities over the 25 year planning period. The LNG Storage Facility will provide both
utilities a peaking gas storage resource for which they would otherwise have to contract for
service at Huntingdon/Sumas. By locating the facility on Vancouver Island, it will also provide
TGVI with additional system capacity to serve core customers during cold weather events and
allow it to avoid or significantly defer the expansion of its system through construction of new
compressor stations. Similarly, access to the LNG Storage Facility will allow TGI to avoid
future expansions of the Coastal Transmission System (“CTS”) to continue to provide service to
Burrard Thermal if required. The Project will also improve overall system reliability in the event
of transmission system or upstream outages and provide other benefits

For TGVI, the LNG Storage Portfolio has benefits of avoided costs for storage downstream of
Huntingdon/Sumas and avoided or deferred transmission system capacity expansion. The
results presented in Section 8 of this Application demonstrate a clear preference for the LNG
portfolio over the Pipe and Compression (“P&C”) Portfolio. Having the LNG Storage Facility in
the TGVI market area, and on Vancouver Island in particular, provides a number of other

1The TGVI and TGI Resource Plans can be found on the Terasen Gas web site as follows:
www.terasengas.com/_AboutUs/OurCommitments/PerformancePlanning/PlanningFutureGrowth

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benefits to TGVI customers and to the region. Examples of these are improved TGVI system
reliability, mitigation of upstream system and supply outages, and reduced price volatility in the
region.

For TGI, storage services will be acquired from TGVI under the terms of the proposed Storage
and Delivery Agreement between TGI and TGVI. Since TGI has the alternative of acquiring
additional storage downstream of Huntingdon/Sumas, the charges from TGVI to TGI for LNG
services are based on a forecast of the avoided costs of Huntingdon/Sumas market area
storage. The primary value to TGI of the LNG Storage Facility will be avoided costs for storage
downstream of Huntingdon/Sumas in its gas supply portfolio. The LNG Storage Facility on
Vancouver Island also creates the potential benefit in deferring capacity expansion on the TGI
CTS.

1.4. Regulatory Review of CPCN Application

This Application builds on the LNG Storage Project Application reviewed by the Commission
through a comprehensive regulatory proceeding, including an oral hearing, which concluded in
February 2005. In that proceeding, there were no significant issues or concerns expressed by
party regarding technical, operational, environmental, safety and siting issues. Accordingly, the
Applicants propose that the appropriate review of this Application be a in a written public
proceeding.

ALL OF WHICH is respectfully submitted.

June 5, 2007

On behalf of the Applicants,

TERASEN GAS (VANCOUVER ISLAND) INC. and TERASEN GAS INC.

Original signed by: Tom Loski


_____________________________________
For: Scott A. Thomson
VP, Finance & Regulatory Affairs and
Chief Financial Officer

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2. OVERVIEW

2.1. Introduction

In this Application TGVI is seeking approval to develop, construct, own and operate an LNG
storage facility to be located at Mt. Hayes near Ladysmith in the Cowichan Valley Regional
District on Vancouver Island. The estimated P50 to P90 capital cost range for the 1.5 Bcf LNG
Storage Facility is $165 to $186 million (direct 2007$) and the target in-service date is April 1,
2011.

The LNG Storage Facility will provide substantial benefits to TGVI’s customers and other gas
consumers by providing new storage capacity to the region to alleviate supply and infrastructure
capacity constraints and to improve reliability. In addition, the facility will allow TGVI to avoid
expanding its transmission system to serve its customers by providing capacity to meet winter
load requirements. TGVI’s alternative to the LNG Storage Facility is to continue to grow its
dependence on third party storage providers and to expand its transmission system as required.
In support of TGVI’s investment in this important natural gas infrastructure project, TGVI is
requesting a return on equity be applied on the rate base associated with the LNG Storage
Facility which is more comparable to allowed returns for similar investments elsewhere in North
America while remaining attractive to ratepayers.

TGVI is also seeking approval to construct, own and operate facilities to connect the LNG
Storage Facility to its transmission system. As part of the System Facilities, minor upgrades of
the existing transmission system will also be put in place. The expected total cost of the
interconnecting facilities and other equipment upgrades is approximately $10.7 million (2007$)
and will be in-service to meet the requirements of the LNG Storage Facility construction and
commissioning schedule.

TGVI and TGI are seeking approval for a services agreement (the “Storage and Delivery
Agreement”) under which TGVI will provide storage and delivery services to TGI.

The LNG Storage Facility provides TGVI and its customers with a new storage resource as part
of TGVI’s gas supply portfolio. In addition, the LNG Storage Facility allows TGVI to avoid the
costs of increasing the capacity of its transmission system to meet load growth through the

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addition of compression facilities and pipeline looping. Through the arrangements between
TGVI and TGI, the LNG Storage Facility also provides TGI and its customers with a new storage
resource, as part of TGI’s gas supply portfolio, at a price competitive with its alternative storage
options considered in its gas portfolio. As demonstrated by the analyses in this Application, the
LNG Storage Facility, along with the proposed arrangements between TGVI and TGI, is the
most cost effective option for meeting the expected growth in demand for natural gas on
Vancouver Island and the Sunshine Coast. In addition, there is significant security of supply
and other benefits associated with the location of an LNG storage facility on TGVI’s system on
Vancouver Island.

Figure 2-1 Project Location

Proposed
LNG Storage
Facility

2.2. 2006 Resource Plans

This Application for the Project should be reviewed in the context of TGVI and TGI’s 2006
Resource Plans. TGVI and TGI completed and filed their respective 2006 Resource Plans with
the BCUC in July 2006. The Resource Plans provide a long-term view of customer growth and
evaluate the options available to the utilities to meet the forecast customer needs. Both
Resource Plans discuss the need for new regional storage resources to support TGVI and TGI’s

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growing requirement for cost effective alternatives to meet core market peaking requirements.
The TGVI Resource Plan also discusses the need for expansion of its system capacity to serve
current and forecast loads on Vancouver Island. In TGI’s case, the Resource Plan identifies
that a major expansion may be required on its CTS as early as 2011 depending on the timing of
the proposed retirement of Burrard Thermal.

The Resource Plans conclude that the development of an LNG peak shaving facility with up to
1.5 Bcf of storage on Vancouver Island offers the most cost effective solution for meeting the
requirements of both utilities over the planning period. The facility would primarily be used to
provide to both utilities a peaking gas storage resource as part of their gas supply portfolios. An
on-system storage resource will allow the utilities to reduce their dependence on contracted
services at facilities located in Washington and/or Oregon states and also provide higher
reliability and security of supply benefits. By locating the facility on Vancouver Island, it will also
provide TGVI with additional system capacity to serve core market customers during cold
weather events and allow it to avoid the construction of new compressor stations to meet future
customer peak day growth. The capacity available from an LNG storage facility will also provide
TGVI greater flexibility to continue to serve the existing Island Cogeneration Plant (“ICP”)
without putting customers at risk for stranded capacity. The LNG Storage Facility will also
reduce TGVI’s future transport demands on TGI’s CTS during peaking periods, which in turn will
also allow TGI to defer future transmission system expansions and manage the uncertainty
regarding the long-term operation of Burrard Thermal.

2.3. History of Mt. Hayes LNG Project

TGVI has been investigating the potential to locate an LNG peak shaving facility on Vancouver
Island since 2003. At that time TGVI was assessing transmission system expansion
alternatives to the proposed Georgia Strait Crossing (“GSX”) to meet expected new baseload
generation demand on Vancouver Island. BC Hydro was developing GSX to provide
transportation capacity to Vancouver Island to serve both the existing Island Cogeneration
Project at Campbell River, and the proposed Vancouver Island Generation Project (“VIGP”)
being advanced by BC Hydro at Duke Point. A joint BC Hydro/Williams pipeline project, GSX
was proposed to connect from Sumas across Whatcom County and Georgia Strait to Vancouver
Island and was expected to cost approximately $300 million.

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The VIGP project had been proposed by BC Hydro to meet the expected firm electric capacity
requirements on Vancouver Island by the winter of 2007/08 when the existing HVDC
transmission system was expected to be downgraded. Following the September 2003
Commission decision denying BC Hydro’s CPCN for VIGP, BC Hydro suspended direct
development of VIGP and commenced a Call for Tenders (”CFT”) process to solicit proposals
from independent power producers to develop new generation facilities on Vancouver Island.
An Electricity Purchase Agreement (“EPA”) was subsequently awarded to the proponents of the
Duke Point Power (“DPP”) project in November 2004 supporting the development of a 252 MW
gas-fired combined cycle power plant at Duke Point. BC Hydro subsequently terminated the
GSX project in December 2004 and began exploring gas transportation alternatives for ICP and
the DPP project.

In its 2004 Resource Plan, TGVI concluded that the resource portfolio that included an LNG
storage facility located at Mt. Hayes near Ladysmith was the preferred option to meet growing
gas demand on Vancouver Island, including the expected new generation loads. The facility
would be used to meet the winter peaking capacity requirements of TGVI’s core market, thereby
releasing pipeline capacity to be used by new and existing baseload demand on the system.
Depending on the outcome of BC Hydro’s plans for additional gas-fired power generation, the
resource portfolio contemplated that in addition to the LNG peak shaving facility further pipeline
capacity would have been added through compression and pipeline looping additions to firm up
ICP and to meet the new generation load. The facility would have also provided gas supply
benefits to TGVI’s core customers and any unused capacity could be used to provide storage
services to TGI.

TGVI subsequently applied for a CPCN for the LNG storage facility to meet a November 2007
in-service date and in February 2005 received conditional approval from the Commission. The
approval conditions were as follows:
• a maximum EPC price for facility construction;
• an agreement for storage services provided to TGI;
• a long-term firm transportation service agreement with BC Hydro for the existing ICP and
the proposed DPP project; and
• the commencement of construction by December 31, 2005.

The first two conditions were satisfied; however despite approval of the DPP project by the
Commission in February 2005, BC Hydro terminated the DPP project in July 2005 and

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subsequently pursued the option to meet Vancouver Island’s electrical requirements through
replacement of the HVDC electric transmission lines. A long-term transportation service
agreement for both gas-fired generation facilities therefore could not be reached and
construction of the LNG storage facility did not proceed by December 31, 2005.

2.4. Development of Current Proposal

As described above, the 2004 proposal by TGVI for the 1.0 Bcf Mt. Hayes LNG facility was
justified primarily on the system capacity benefits that would allow TGVI to cost effectively meet
forecasted customer demands including significant increases expected from new generation
loads. If the DPP project had proceeded, the proposed 1.0 Bcf facility would have been the one
component of a LNG Portfolio that also included new compressor stations to increase the base
load capacity of the transmission system to meet the new generation loads. The availability of
an on-system storage resource would also have provided benefits to TGVI’s gas supply
portfolio, however the primary justification for the 1.0 Bcf project at that time was based on
meeting system capacity requirements.

A major distinction between this Application for the LNG Storage Facility and the 2004 project
proposal, is that the principal justification for the development of the 1.5 Bcf LNG Storage
Facility is the provision of a firm gas supply portfolio resource to both TGVI and TGI. The
availability of an on-system resource will reduce the dependence on other off-system storage or
pipeline capacity resources available to serve the Lower Mainland and Vancouver Island service
areas.

As a secondary benefit, the availability of an on-system resource will also provide system
capacity benefits by allowing TGVI to avoid or significantly defer facility additions on its
transmission system across a broad range of customer demand. The proposal in this
Application will also provide TGVI and TGI flexibility to manage the uncertainty regarding future
generation loads in their service areas with no additional risk to other customers. TGVI and TGI
customers will benefit from the enhanced security of supply, system reliability, operational
flexibility and other benefits that can be realized through the addition of an on-system storage
resource.

The 2006 Resource Plans provided an assessment of the benefits of developing an LNG
storage facility on Vancouver Island based on facility sizes ranging from 0.5 to 1.5 Bcf of LNG

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storage and assuming a 2010 in-service date. The assessment concluded that the
development of a storage facility was in the best interest of TGVI’s customers across a broad
range of customer demand. It also concluded that economies of scale could be realized
through the construction of a larger facility thereby allowing TGVI to offer competitive storage
services to TGI and reduce the cost impact to its own customers.

Based on the conclusions from the 2006 Resource Plan, this Application is based on the
development of a 1.5 Bcf facility. The Application also updates the expected Project cost and
schedule based on the current information reasonably available to TGVI, taking into account the
very high level of construction activity occurring in British Columbia and in the North American
energy industry in general. Based on this information, the earliest in-service date that TGVI can
reasonably expect to attain is April 2011. This allows liquefaction to take place over the
summer months and storage services to be available to meet 2011/12 winter requirements.

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3. PROJECT DESCRIPTION

3.1. Introduction

The Project involves the construction of an LNG Storage Facility on the Mt. Hayes site on
Vancouver Island and upgrades to TGVI’s transmission system including the connecting
pipeline laterals to connect to the storage facility. This Section provides descriptions of the
Project components as follows:

• The LNG Storage Facility consisting of a 1.5 Bcf storage tank and ancillary facilities
including liquefaction and vaporization components, and substation and 5 km power line
from the BC Hydro transmission system to provide the required electrical supply to the
site; and

• The System Facilities consisting of all the facilities that will be constructed and operated
as part of TGVI’s transmission system including 5 km dual connecting pipelines, a gas
measurement and odourization facility, and upgrades to existing facilities to allow for bi-
directional flow.

The current Project proposal for a 1.5 Bcf facility is based on the development work carried out
by TGVI to support its 2004 application for a 1.0 Bcf facility at the same site. In support of that
application, TGVI had conducted a thorough public consultation and environmental review
process and received all the necessary permits and approvals to proceed with the construction
of the facility once final BCUC approval had been obtained. TGVI had also completed site
investigation activities and preliminary engineering work and executed a fixed price EPC
contract with a major LNG tank supplier and contractor. As discussed in Section 2.3, at that
time the need for new capacity on Vancouver Island was driven by the requirement to provide
firm transportation service to both the existing ICP and proposed DPP. With the cancellation of
the DPP in July 2005, the LNG project was suspended. However TGVI maintained rights to
acquire the project site and continued to maintain stakeholder relationships to support future
development of the project.

The current Project is based on the same technical configuration, performance and operating
specifications as proposed in the 2004 application, other than those elements required to

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Mt. Hayes LNG Storage Facility

increase the size of the facility to 1.5 Bcf with similarly scaled liquefaction and vaporization
components. Appendix A provides a detailed description of the technical and operation
characteristics of the facility as well as a discussion of the development work performed in 2004
and 2005 that forms the basis of the current proposal. Those issues were fully explored during
the regulatory review of the 2004 application and TGVI believes further review would not
provide any additional information. The Project information provided in this Section 3 is
therefore focused on the elements that are different from the 2004 application and are key to
obtaining approval for the current proposal.

3.2. Description of the LNG Storage Facility

The LNG Storage Facility will be designed with capacities outlined in Table 3-1, with 200 days of
liquefaction to fill the tank if completely utilized in any one season and the ability to send-out at
daily rates up to 10% of the storage capacity.

Table 3-1 LNG Storage Facility Design Capacity

1.5 Bcf Facility Capacities


Design Capacity Volume/Rate Energy/Rate
Storage 1.5 Bcf 1,620,000 GJ
Liquefaction Rate 7.5 MMcfd 8,100 GJ/d
Maximum Send-out Rate 150 MMcfd 162,000 GJ/d

The TGVI LNG Storage Facility process components and descriptions in Appendix A are
generally the same as planned for the 2004 TGVI application for a 1.0 Bcf facility. Changes to
the design, including equipment sizing and site layout, to accommodate a 1.5 Bcf facility have
been made based on preliminary discussions with Chicago Bridge & Iron Company (“CB&I”).
CB&I is the major EPC Contractor that had been previously engaged by TGVI for the 2004
project development and 2005 proposed execution start. Following approval of this Application,
TGVI will work with an EPC contractor to finalize the detailed design of the 1.5 Bcf LNG Storage
Facility. During this design phase, and also during the Project implementation, the EPC
contractor and the TGVI Project team will investigate process alternatives to improve the overall
Project cost and operation.

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Mt. Hayes LNG Storage Facility

3.2.1. Mt. Hayes Project Site

A block of property at the proposed Mt. Hayes site has been optioned by TGVI for purchase
from the owner, Island Timberlands (previously Weyerhaeuser). A 42 hectare (ha) section of
the property was rezoned by the Cowichan Valley Regional District in 2004 to allow construction
and operation of an LNG facility with up to two 1.5 Bcf storage tanks. In addition to the 42 ha
rezoned section, TGVI anticipates retaining an additional 20 ha to the east of the rezoned area
to maintain control over the CSA Code required buffer zone, and return the remaining 80 ha to
Island Timberlands to maintain ownership of and resume forestry operations. Lease of a further
20 ha of Crown land outside the property to the west was previously approved for TGVI through
the British Columbia Oil and Gas Commission (“OGC”) and TGVI anticipates no issues in
renewing this approval to ensure the appropriate buffer is maintained.

Within the 42 ha rezoned area, the physical plant boundaries will encompass approximately 20
ha which will be fenced and contain all the facility components.

Section 1.1.5 in Appendix A describes the siting requirements and the Island Timberlands
(previously Weyerhaeuser) property that has been optioned. The overall facility footprint is not
expected to change to accommodate the larger 1.5 Bcf facility. The storage tank itself will be
larger and be contained within a higher dike, but the facility fenceline is not expected to change
significantly. The 50% increase in equipment capacity sizing will not impact the overall facility
area requirement.

3.2.2. Substation and Power Line

TGVI will install and own an electrical substation adjacent to the BC Hydro transmission system
and a 5 km 25kV power line from the substation to the LNG Storage Facility site to provide the
required electrical supply for the plant. The 7 m right-of-way (“ROW”) for the power line will be
adjacent to the 18 m ROW for the pipelines connecting to the LNG Storage Facility and
generally aligned adjacent to the existing road ROW. TGVI received approval for the power line
ROW from the OGC, and TGVI anticipates no issues in renewing the approval. The location of
the ROW is shown in Figure 1-4, Section 1.1.5 of Appendix A.

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Mt. Hayes LNG Storage Facility

3.3. Description of the System Facilities

The System Facilities include the construction of pipeline laterals from the LNG Storage Facility
site to connect with TGVI’s transmission system, the gas measurement and odourization facility
adjacent to the LNG Storage Facility and minor modifications to the TGVI transmission system
to accommodate bi-directional flow. The System Facilities work is required to accommodate
natural gas delivery to and from the proposed LNG Storage Facility by the TGVI transmission
system.

3.3.1. Pipeline Laterals and Measurement/Odourization Station

TGVI will construct and operate pipeline laterals connecting its transmission pipeline to the Mt.
Hayes LNG Storage Facility and a measurement/odourization station adjacent to the LNG
Storage Facility. These facilities were also reviewed in conjunction with the 2004 application,
and the only modifications are those required to accommodate the higher vaporization capacity
of the LNG Storage Facility (i.e. from 100 MMcfd to 150 MMcfd).

3.3.2. Transmission System Modifications

TGVI is also proposing certain modifications to the existing transmission system in order to
allow bi-directional flow. Generally, TGVI expects that the gas nominated by TGI under the
proposed Storage and Delivery Services Agreement will be redelivered to TGI’s system through
displacement. However, under certain demand conditions, there may be a requirement to
physically flow gas sent out from the LNG Storage Facility to the interconnection between the
TGVI and TGI systems at the Coquitlam compressor station (V1). This requirement was not
contemplated in the 2004 proposal as the maximum send-out capacity of the 1.0 Bcf facility was
lower than in the current proposal (i.e. 100 MMcfd versus 150 MMcfd), and TGVI was not
providing a minimum level of service to TGI. In addition, the 2004 proposal was based on
provision of additional system capacity and it was contemplated that there would significant
baseload throughput on the system to serve the ICP and DPP generation facilities which in turn
would enhance the displacement capacity.

The requirement to flow gas back to the TGI CTS could occur at times when the required
storage service sendout from the LNG Storage Facility is greater than the TGVI System load.
As a result, TGVI will require minor modifications to its existing transmission system to

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Mt. Hayes LNG Storage Facility

accommodate flow in the reverse direction during maximum sendout from the LNG Storage
Facility as follows:

• The existing check valves on the downstream side of each of the two main marine
crossings will be replaced with actuated valves to allow the bi-directional flow. The
actuated valves will provide the same security of undesired reverse flow blockage in the
event of an upstream pipeline failure during normal flow operation of the system.

• The Texada Compressor Station (V-4) will be modified to accommodate reverse flow
operation in order to move peak LNG sendout at non-peak TGVI System demand.
These modifications will require the installation of a second set of side valves and
associated piping and control system changes.

• The TGI/TGVI custody transfer station located at the Coquitlam Compressor Station will
be modified to allow flow from the TGVI transmission system into the CTS. The
modification will include flow measurement, pressure control and overpressure
protection.

3.4. Pre-Construction Development Activities

TGVI undertook significant project development work in support of the 2004 LNG Storage
Project Application and approvals and the subsequent preparation to commence construction in
2005 that included:
• Stakeholder consultation and communication;
• Engineering reports on the site geotechnical and seismic conditions and the LNG
facility design and costing;
• Environmental studies and assessments;
• Memorandum of Understanding (“MOU”) with the Chemainus First Nation (“CFN”);
• Site purchase option agreement and Crown land approvals;
• EPC and construction contracts;
• Historical cost estimate and schedule information; and
• Historical design and specification information.

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Mt. Hayes LNG Storage Facility

The current Application is based on the previous project development work updated to reflect
the increased size of the facility from 1.0 Bcf to 1.5 Bcf and the target completion date of April
2011. To date, TGVI has relied on discussions with consultants and EPC contractors and
TGVI’s own experience in executing projects in order to develop the updated cost estimates and
schedule to support this Application. Nevertheless, there still remains considerable uncertainty
given the high level of construction activity currently occurring in British Columbia in particular
and in the North American energy industry in general. In order to obtain greater cost certainty,
TGVI will undertake additional project development work including the engagement of an EPC
contractor to develop a firm fixed price proposal to construct the facility. The expected costs of
these Project development activities are $1.9 million to December 2007.

TGVI will undertake the further development work in this updating phase to provide greater
confidence in the Project capital cost and to confirm the construction schedule prior to initiating
construction and awarding the major contracts. The objective during this phase is to minimize
capital costs and the potential for cost variance and to reduce required contingency by firming
up the EPC contract price and the total Project estimate immediately prior to Project kick-off
when TGVI issues authorisation to proceed to its project team and major contractors.
Developing a firm facility price as close as possible to the construction start date minimizes the
forward cost uncertainty and helps to minimize the cost uncertainty for the three year
construction period for the EPC contractor, and thus reduces the risk premium the contractor
would include in its firm price provided to TGVI.

In parallel to the EPC price updating, the estimates for the activities managed directly by TGVI
outside the scope of the EPC contract will also be confirmed. Confirmation of the current
estimates will include additional geotechnical investigation and environmental impact
assessment studies to verify the impact of the increase of the size of the storage facility to 1.5
Bcf from the original proposal.

These pre-construction project development activities will commence in June 2007 to support a
commencement of construction by December 1, 2007. The expected costs of these Project
development activities are $1.9 million. The full scope of activities, during this period, is as
follows:
• Stepping up communication and liaison with key stakeholders and local landowners on
Project timing, impacts and opportunities;

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Mt. Hayes LNG Storage Facility

• Updating the Environmental and Social Review and ensuring all environmental studies
reflect the current Project, conditions and regulations;
• Confirming and renewing, as required, those applications for approval that are in place
and those required to start construction December 1, 2007;
• Organizing the Project team and setting up those Project control elements required to
initiate construction;
• Preparation work for the site civil contract including design and RFP documents and
process;
• Further geotechnical investigation for the larger tank foundation and revised site plan;
• Engage EPC contractor to update design for 1.5 Bcf LNG facility and subsequent EPC
price development; and
• Negotiation of EPC contract including appropriate risk allocation with the EPC
contractor.

The expected costs and timing of expenditures for this pre-construction phase are as shown in
Table 3-2. These costs are included in the current capital cost estimates for the LNG Storage
Facility discussed in Section 4.

Table 3-2 Pre-Construction Development Costs

2007 LNG Project Development Updating


$000 Jun Jul Aug Sep Oct Nov
Communications $5 $5 $5 $5 $5 $5
Approvals $0 $0 $12 $12 $12 $0
Project Office $7 $14 $14 $21 $29 $29
Owners Costs Update $0 $0 $25 $25 $25 $0
Site Preparation $0 $168 $216 $71 $10 $10
EPC Contract $205 $205 $260 $260 $205 $0
Mthly Total $217 $393 $532 $394 $286 $44
Cumulative $217 $610 $1,142 $1,535 $1,821 $1,865

At the end of the pre-construction phase, TGVI will have developed revised cost estimates and
have the EPC and other construction contracts in place. TGVI proposes to proceed with the
Project at that time provided that the expected costs are still within the P50 to P90 range
discussed in this Application.

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Mt. Hayes LNG Storage Facility

TGVI will record the expenditures relating to these pre-construction development activities in a
non-rate base deferral account. These costs will be included in the Project costs for
consideration as rate base upon completion of the Project. If at the conclusion at this pre-
construction phase the Project does not proceed as a result of unexpected cost escalation, as
part of this Application TGVI is requesting approval that these costs be recovered from
customers as part of TGVI’s approved cost of service by amortizing over a five year period the
amounts prudently spent. .

3.5. Project Management

TGVI will set up a Project team that will include personnel from TGVI and TGI and other parties
to manage the LNG Storage Facility and System Facilities Projects. The Company personnel
involved in the Project team will draw on TGI’s considerable experience in managing and
completing major projects on time and on budget and experience in the development of the
previous and current applications. The Project manager, who in turn will report to a Project
sponsor, will direct all phases of the Projects after BCUC approval and will execute the overall
Projects utilizing experienced contractors, consulting professionals and Company personnel.

The Project manager will implement a Project execution plan for the development of each
segment of the Project including design and construction quality assurance for all phases. The
majority of specialized services required for environmental management and design and
construction inspection will be under contract to individuals and companies with the
demonstrated skill and experience to complete the work. The Project manager will implement a
Project office team with the resources to manage overall Project costs and provide
procurement, accounting and administration support. TGI operating personnel, experienced at
TGI’s Tilbury LNG Facility, will be deployed to the Project for design review to assist in ensuring
the facility can be efficiently placed into operation upon completion of construction.

TGVI will enter into a turnkey EPC contract for the major portion of the LNG Storage Facility,
including all work inside the facility fence after site grade has been established. The EPC
contractor will manage the design, procurement and construction of the facility according to
performance specifications and contract conditions contractually agreed to with the Project
team.

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Mt. Hayes LNG Storage Facility

The Project manager will execute design and construction of the System Facilities and the
electrical substation and power line associated with the LNG Storage Facility through the use of
local consultants and contractors, managed under the control of the Project office.

3.6. Environmental Assessment

As part of the permitting process supporting the 2004 project proposal, TGVI prepared an
Environmental and Social Review Report (“ESR”) which concluded that no residual post-
mitigation significant impacts are expected to result from the construction and term operation of
the facility. The ESR contemplated the installation of a 1.5 Bcf storage tank and associated
facilities and therefore still applies to the current 1.5 Bcf facility proposal. Section 2.0 of
Appendix A provides a summary of the ESR. The ESR will be reviewed and updated during the
2007 updating phase to ensure TGVI addresses all potential environmental impacts. TGVI will
fulfil all required environmental commitments and mitigation measures for the LNG Storage
Facility.

The full ESR Report 1 was reviewed during the regulatory proceeding for the 2004 project
proposal and in its February 2005 Decision (Section 7.7) the Commission concluded that

“Environmental issues at the proposed Mt. Hayes site were considered in some depth in the
ESR and with two exceptions, no significant environmental impact from the proposed facility
was discovered. The two exceptions relate to water and aquatic systems and vegetation,
both of which can be neutralized with mitigation efforts recommended in the report.”

TGVI will fulfil all required environmental commitments and mitigation measures for the Project.

With respect to the System Facilities, the ESR included an assessment of the pipelines and gas
measurement/odourization facility. The modifications to the TGVI system to accommodate bi-
directional flow was beyond the scope assessed in the ESR. However, this additional work,
including check valve replacements, Texada compressor station modifications and Eagle

1 The complete ESR report can be downloaded from Terasen Gas’s website at the following location
www.terasengas.com/documents/LNG_ESR_Report.pdf

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Mt. Hayes LNG Storage Facility

Mountain custody transfer modifications, is within the compounds of existing TGVI facilities and
will have no significant environmental impacts.

3.7. Other Approvals

The design, construction and operation of natural gas facilities, transmission pipelines and
pipeline facilities are regulated by the OGC, enforcing established provincial legislation, and
provincial and national codes. Section 3.0 in Appendix A lists the key standards, codes, and
approvals relating to the projects.

A 5 km long, 18 m wide ROW for the pipelines was previously approved by the OGC and TGVI
anticipates no issues in renewing the approval which expires in April 2007. The pipelines ROW
will be adjacent to the 7m wide power line ROW, which are shown in Figure 1-4, Section 1.1.5
of Appendix A.

3.8. Public and Stakeholder Consultation

Section 5.0 of Appendix A provides information on the public consultation process undertaken
for the 2004 application. This process was reviewed during the 2004/05 proceedings and in the
February 2005 Decision (Section 7.6) the Commission concluded that:

“The public consultations carried out by TGVI appear to have been adequate and there
was a comprehensive attempt to explain the operation and safety-related issues of an
LNG storage facility to members of the general public. The Commission Panel notes
that there were no adverse submissions by any intervenor in this proceeding that
centred upon safety or environmental concerns related to the LNG storage facility.”

TGVI will ensure to keep all commitments made during the previous development process
public consultation and continue ongoing stakeholder consultation efforts.

3.8.1. Public Consultation Program

The Public Consultation and Siting discussion in Section 5.0 of Appendix A outlines the
comprehensive site selection and public consultation program that was undertaken in 2003 and

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Mt. Hayes LNG Storage Facility

2004 to engage the public and locate a suitable site for the project. This program culminated in
the successful rezoning of the subject Mt. Hayes property. Following the submission of the
2004 application TGVI issued 2 project newsletters (explaining the LNG project, its status and
the expected impacts on the local community) to approximately 3,000 of the closest households
to the Mt. Hayes site following the rezoning and prior to the decision not to proceed with the
LNG project in 2005.

Since that time, TGVI has continued to communicate on a regular basis with the local key
stakeholders of the Mt. Hayes LNG Storage Facility project including the CFN, CVRD, Regional
District of Nanaimo, Town of Ladysmith and City of Nanaimo, and support for the Project
remains strong. As the Project proceeds, TGVI will communicate project developments in a
timely fashion, including a quarterly newsletter to local residents and other stakeholders. TGVI
will address any stakeholder concerns or potential negative impacts and will work to ensure the
positive benefits of the project for the local community are realized.

3.8.2. First Nations

The LNG Storage Facility and the connecting power line and pipelines fall within the traditional
territory of the Chemainus First Nation (“CFN”). TGVI successfully negotiated an MOU with the
CFN in 2005 and has continued to consult with the CFN to maintain the relationship and provide
updates on the status of the project development. TGVI will continue to work with the CFN to
ensure their interests are taken into account and that the project will provide benefits to the
Band in accordance with the MOU. In addition, the Cowichan Tribes (First Nations based in
Duncan) and TGVI have a long history of working together on Vancouver Island and Cowichan
has approached TGVI regarding potential business opportunities related to the Project. TGVI
and CFN, along with the Cowichan Tribes, will continue to have on going discussions with
respect to opportunities that may be available if the Project proceeds.

3.8.3. Resource Plan Consultation

The 2004 and 2006 TGVI Resource Plans also provide details of stakeholder consultation for
the preparation and review of those plans. Since both plans recommend the construction of the
Mt. Hayes LNG Storage Facility as part of the preferred resource portfolio, much of the related
stakeholder consultation included a focus on gathering feedback from stakeholders in regard to
the project. Details regarding those consultation efforts are included in Section 7 of the 2004
Resource Plan and Section 8 of the 2006 Resource Plan respectively.

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Mt. Hayes LNG Storage Facility

3.8.4. Socio Economic Assessment

The construction of the LNG Storage Facility will provide positive benefits to local Vancouver
Island communities as well as to British Columbia and Canada.

The 2004 ESR included an assessment of the socio-economic effects of a 1.0 Bcf facility based
on the cost estimates at that time. The effects of the Project implementation, based on the
current P50 capital cost estimate, are shown in Table 3-3.

Table 3-3 Socio- Economic Effects

Economic Effects
Local Canada Ex-
$Million All BC TOTAL
Area (ex BC) Canada

Total $50.3 $73.0 $22.8 $69.5 $165.3


Employment Person-Yrs
Direct 120 180
Indirect 170 660
Total 290 840

Once in operation, the LNG Storage Facility is expected to employ 9 full time employees and
generate approximately $150,000 in local expenditures annually (not including electricity and
fuel gas). In addition the region will benefit from the local property taxes paid on the LNG
Storage Facility.

3.9. Project Schedule

3.9.1. LNG Storage Facility Project Schedule

Figure 3-1 is a schedule of the timing of major elements of the LNG Storage Facility Project.
TGVI is confident the LNG Storage Facility can be constructed, commissioned and the tank
filled within 46 months from the award of the design-build EPC contract.

The major elements of the schedule critical path are the receipt of BCUC approval of the items
requested in this Application, the development and successful negotiation of the EPC contract in

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Mt. Hayes LNG Storage Facility

the updating phase, the site preparation work and the construction and commissioning of the
LNG Storage Facility.

3.9.2. System Facilities Project Schedule

Figure 3-2 is a schedule of the timing of major elements of the System Facilities Project work.
TGVI is confident the Projects can be constructed and commissioned within the 3 ½ year
construction period to operate in conjunction with the LNG Storage Facility. The extended time
period for System Facilities implementation means TGVI can plan for construction in specific
time periods to minimize any potential negative environmental impacts and minimize
construction costs.

The schedule for each segment of the System Facilities is of short duration relative to LNG
Storage Facility Project schedule and each sub-project will be completed prior to being required
to go into service.

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Mt Hayes LNG Storage Facility

Figure 3-1 LNG Storage Facility Schedule


ID Task Name Duration
2007 2008 2009 2010 2011
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4
1 BCUC 3 mons
2 Application Preparation 1 mon
3 Application Approval 2 mons
4 UPDATING PHASE 6 mons
5 LNG Facility EPC 6 mons
6 Contract Negotiation 2 mons
7 Design Development 2 mons
8 Geotechnical Evaluation 2 mons
9 Cost Development 3 mons
10 Owner's Project Work 3 mons
11 Power Line Update 2 mons
12 Site Prep Design/Contract 3 mons
13 ESR Update 2 mons
14 APPROVALS UPDATING 3 mons
15 OGC - Facility 3 mons
16 Prov Ministries - Permits 2 mons
17 DECISION TO PROCEED 0.25 mons
18 ONGOING COMMUNICATION 49 mons
19 LAND 3 mons
20 Exercise Site Option 0 mons
21 R-O-W Acquisition 3 mons
22 CONSTRUCTION 41 mons
23 TSI Project Work 12 mons
24 Site Grading 4 mons
25 Road Improvements 3 mons
26 R-O-W Preparation 3 mons
27 Power Line 3 mons
28 LNG Facility EPC 37 mons
29 Facility EPC On-Site 30 mons
30 Commission & Test 3 mons
31 Final Acceptance 4 mons
32 FILLING 5 mons
33 Operation by TGVI 5 mons
34 RESTORATION 3 mons

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Mt Hayes LNG Storage Facility

Figure 3-2 System Facilities Schedule


ID Task Name Duration
2007 2008 2009 2010 2011
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4
1 BCUC 3 mons
2 Application Preparation 1 mon
3 Application Approval 2 mons
4 UPDATING PHASE 4 mons
5 Design & Cost Update 2 mons
6 ESR Update 2 mons
7 OGC - Facilities 4 mons
8 Prov Ministries - Permits 2 mons
9 DECISION TO PROCEED - LNG 0.25 mons
10 DECISION TO PROCEED 0 mons
11 ONGOING COMMUNICATION 35 mons
12 LAND 3 mons
13 R-O-W Acquisition 3 mons
14 TGVI PROJECT WORK 40 mons
15 R-O-W's Preparation 3 mons
16 Pipelines 6 mons
17 Gas Msmt/Odour Faciity 6 mons
18 Reverse Flow Facilities 6 mons

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Mt. Hayes LNG Storage Facility

3.10. Project Description Summary

A more comprehensive Project description and development information, including work initially
undertaken for the 2004 application, can be found in Appendix A. Much of the previous
technical development work remains useful for the current proposal, and the current Application
reflects information changes due to the facility size increase and timing.

The LNG Storage Facility Project site requirements and overall environmental and safety
impacts as was reviewed for the 2004 TGVI LNG application remain essentially unchanged for
the current Application. TGVI will fulfil all public consultation commitments and mitigation plans
of TGVI and maintain the level of communication and analysis noted in the 2005 Decision
Section 7.6:

“In summary, TGVI has satisfied the Commission Panel that the selection of
the proposed site was performed with adequate due diligence, sufficient public
and municipal consultation, and with a comprehensive Environmental and
Social Review and operational and safety considerations. The Commission
Panel commends TGVI for the extensive background work, public education
and thorough site analysis that have been carried out for the proposed Mt.
Hayes facility.

Subject to the further required approvals discussed above, the Mt. Hayes site
seems well suited for the location of the project. The Commission Panel is
satisfied that the construction and operation of the proposed LNG storage
facility at Mt. Hayes, with the mitigation measures and safeguards proposed by
TGVI, would not result in any significant health, safety or other impacts on the
public.”

The LNG Storage Facility Project execution will be managed by an experienced Project team to
direct all Project management activities, from approvals, contracting and design to construction
and commissioning.

Increased facility size and the delay of more than 2 years from the 2004 application construction
timing have resulted in higher capital costs for the larger facility. The timeframe to complete the

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Mt. Hayes LNG Storage Facility

Project includes upfront effort to minimize the Project cost and range of potential cost variation,
and provides for the LNG Storage Facility to be in service by April 1, 2011 to allow complete fill
of the storage tank to meet the 2011/12 winter requirement.

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Mt. Hayes LNG Storage Facility

4. PROJECT COSTS

This section provides the range of TGVI’s cost estimates for the LNG Storage Facility and
System Facilities based on current expectations. Updated cost estimate information for a 1.0
Bcf LNG storage facility is also provided to allow comparison to the estimates at the time of the
2004 application. The updated cost for a 1.0 Bcf facility reflects approximately a 40% increase
from 2004, and provides perspective on the overall cost increase of LNG storage facilities due
to escalating equipment and construction costs. The 1.0 Bcf LNG storage facility cost estimates
also provide perspective on the capital costs of the 1.5 Bcf facility relative to the current cost of
a 1.0 Bcf facility.

TGVI believes that these cost estimates provide a reasonable forecast of the costs of the
Project based on proceeding with project implementation by December 1, 2007. TGVI is
therefore requesting approval of this Application provided that once the pre-construction
activities discussed in section 3.4 are complete and the major construction and equipment
procurement arrangements are in place, the expected direct costs continue to fall within current
P10 to P90 cost estimate range discussed in this section. TGVI recognizes, however, that given
the current construction environment, there is some potential for unexpected cost increases. In
that circumstance, TGVI expects that it would be required to demonstrate that Project continues
to be in the best interest of customers prior to triggering construction of the Project.

4.1. Capital Cost Forecast

4.1.1. EPC Cost Development

In the development of the Mt. Hayes LNG Project for the 2004 application to the BCUC, an EPC
LNG contractor was engaged in a sole source process to proceed with the development of a
design-build contract and contract price for a 1.0 Bcf LNG facility. TGVI plans to continue with
this contracting strategy. The rationale to continue with the contracting strategy remains as
explained in the 2004 application, and is even further reinforced in the current high industry
activity levels.

The sole source process allows the negotiation of contract terms and conditions and allocation
of risks to the party best able to manage each risk. The sole source process allows the Project

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Mt. Hayes LNG Storage Facility

team to be part of the design specification and work scope development resulting in fewer
potential change orders (minimizing future additional cost and schedule delays) during the
construction and commissioning phase. The contract allows access to all of the contractor’s
price development information prior to finalization of the firm price, allowing owner input to
alternatives selection. The process allows the contractor to minimize the contingencies included
in its EPC price based on the scope of work and contract terms and conditions agreed to with
the Project proponent.

TGVI undertook a cost risk analysis of the EPC pricing in late 2006 and has incorporated the
results in the range of EPC estimates in the overall project estimates. To achieve the best EPC
contract pricing in the current high level of industrial construction activity, a key objective will be
to minimize the cost uncertainty in key elements of the Project including major equipment items,
base materials and labour productivity and cost. Developing facility EPC pricing as close as
possible to the construction start date minimizes the forward cost uncertainty and helps to
minimize the cost uncertainty on the two and one-half year construction period for the EPC
contractor and therefore the cost to TGVI. .

EPC price increases from the estimates used in the 2006 TGVI Resource Plan have been
driven by the following key issues:
• Significant cost increases in raw materials prices, including steel, nickel, copper and
aluminium
• Increases in the cost of manufactured equipment, including compressors, pumps,
valves, etc. due to raw materials price increases, increasing demand and increasing cost
of labour
• Increases in the cost of construction equipment, similar to manufactured equipment
• Increases in subcontractor costs, reflecting increases in equipment, labour, fuel, etc.
• Decreases in skilled trades and labour productivity due to shortages and increasing level
of less experienced resources
• Increases in the cost of skilled trades and labour due to heated industry activity, and
competition for skilled personnel.

In discussions with qualified EPC contractors, TGVI has been advised that given the current
construction environment a firm fixed price for the LNG Storage Facility project can be
developed, but would likely contain significant contingency for the items with potential for high

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Mt. Hayes LNG Storage Facility

cost volatility over the project life. During the pre-construction development phase, TGVI will
work with the EPC contractor to evaluate the benefits and risks to having defined elements of
the EPC pricing as fixed or cost reimbursable. Currently identified elements that could be
considered for pricing as cost reimbursable are the major equipment items (where vendors are
currently very reluctant to provide even budgetary pricing), major materials (i.e. tank plate
steels) and skilled trades and labour. The potential overall cost reimbursable component of the
full EPC price could range from 0% to 40%. For all cost reimbursable components TGVI will
undertake a cost risk analysis to assess the potential for cost over runs.

4.1.2. LNG Storage Facility Capital Cost Estimates

TGVI’s current cost estimates for the LNG Storage Facility have been developed using pricing
obtained during the 2005 development of the 1.0 Bcf project facility, information supplied by
consultants, contractors and TGI internal resources, utilizing TGI/TGVI experience in project
management of other major capital projects.

In 2005 TGVI received a firm EPC price for a 1.0 Bcf LNG facility. Since that time TGVI has
received budgetary EPC estimates for both 1.0 Bcf and 1.5 Bcf facilities which provide
perspective on general cost increases as a whole and the cost of increasing the size of the
facility from 1.0 to 1.5 Bcf. The Owner’s components (i.e. those components outside of the EPC
scope) of the LNG Storage Facility capital costs, including the power line and substation, have
been escalated from the 2005 detailed estimates.

Capital cost estimates have increased from the 2005 detailed estimates and the escalated
estimates presented in the 2006 TGVI Resource Plan. The Resource Plan estimates were
based on escalation of 2005 pricing which included a firm EPC price for the 1.0 LNG facility and
estimates of Owner’s costs. Subsequent to the 2006 Resource Plan, updated budgetary prices
for the LNG Storage Facility and off-site work have been developed and the cost increases have
been included in the estimates in the Application.

Table 4-1provides the estimated direct and capital cost estimates for the LNG Storage Facility
for different degrees of confidence. These costs represent the total expected costs, excluding
AFDUC, for the LNG Storage Facility including the EPC Contract and the Owner’s Costs. The

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Mt. Hayes LNG Storage Facility

as-spent estimates assume that the TGVI executes the EPC contact and issues authorisation to
proceed to the contractors by December 1, 2007.

Table 4-1 LNG Storage Facility Costs

LNG Storage Facility Costs (Direct 2007$ millions)


P10 P50 P90
1.5 Bcf LNG Facility $154.9 $165.0 $185.7
1.0 Bcf LNG Facility $116.3 $124.9 $140.8

LNG Storage Facility Costs (As Spent$ millions)


P10 P50 P90
1.5 Bcf LNG Facility $155.7 $166.0 $186.8
1.0 Bcf LNG Facility $116.8 $125.7 $141.6

The EPC contract, for the full scope of work, and will be a fixed lump sum, or fixed lump sum
with a cost reimbursable component. The fixed sum which will limit the potential for further cost
escalation during the construction for those components that within the EPC scope of work.
.Any changes to the EPC scope of work that may occur over the detailed design or construction
period could result in further costs or savings that could impact the final EPC contract costs,
however these are expected to be minimal. The major components of the outside of the EPC
scope of work included in the Owner’s Costs will either be executed immediately (i.e. the site
civil preparation and Project insurance) or within the first year (i.e. power line and substation)
while Project management and construction over-sight costs will be spread evenly over the
course of the 2 ½ year construction period.

4.1.3. System Facilities Capital Cost Estimates

TGVI, in the development of the Mt. Hayes LNG project for the 2004 application to the BCUC,
completed cost estimates for the connecting pipelines and gas measurement and odourization
station based on TGVI and TGI experience in project management of other major system capital
projects and information provided by consultants and contractors. For the current Application
TGVI has updated the capital estimates for the pipelines and station from the 2005 estimates.
TGVI has also now included the costs of the TGVI transmission system modifications, which
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Mt. Hayes LNG Storage Facility

were not in the scope of the 2004 application rationale for the project, to accommodate bi-
directional flow in the system. These estimates are based on previous TGVI and TGI
experience in transmission projects.

The capital cost estimates for natural gas facilities have increased from those in the 2004
application due to the cost increases for materials and manufactured equipment (including pipe,
valves, etc.) and for construction cost in the current heated construction industry. Table 4-2
provides the estimated direct and as-spent capital costs for System Facilities based on the start
of construction of the LNG Storage Facility in December 2007. The System Facilities scope is
for all work outside implemented directly by TGVI outside of the fenceline of the LNG Storage
Facility. These costs in Table 4-2 are not included in the Owners costs that form part of the
LNG Storage Facility costs summarised in Table 4-1.

Table 4-2– System Facilities Project Costs

(Direct 2007$ millions) P10 P50 P90


Pipelines $6.0 $6.4 $6.8
Msmt & Odor Stn $0.8 $0.8 $0.9
Reverse Flow Facilities $2.1 $2.4 $2.7
Project Management $0.1 $0.1 $0.1
Contingency $0.5 $1.0 $1.5
Projects for 1.5 Bcf Facility $9.5 $10.7 $12.0
Projects for 1.0 Bcf Facility $6.3 $7.1 $7.9

(As Spent$ millions) P10 P50 P90


Projects for 1.5 Bcf Facility $10.4 $11.6 $13.2
Projects for 1.0 Bcf Facility $6.9 $7.8 $8.7

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Mt. Hayes LNG Storage Facility

The direct 2007$ for System Facilities activities will be coordinated with the construction of the
LNG Storage Facility Project so that costs are minimized while still meeting the commissioning
and operational requirements. The pipeline laterals and gas measurement/odourization station
will be completed to align with the need for gas delivery for testing and commissioning of the
LNG Storage Facility late in 2010. The TGVI transmission system modifications to
accommodate reverse flow are required to be in service for the winter of 2011/12 and thus will
not likely be constructed until the middle of 2011.

The System Facilities scope of work is typical of project work at TGVI, and is subject to many of
the same project cost risks as the EPC contract, i.e. material and equipment cost volatility and
heated construction environment. The 3 ½ year schedule for the Project over which
expenditures will be made adds further potential for cost variance from the estimates. The
updated estimates will reflect the current cost environment and reduce the P10 to P90 cost
range to the extent reasonably possible.

4.1.4. Capital Cost Approvals

TGVI believes that the cost estimates described in Section 4.1.2 for the LNG Storage Facility
and Section 4.1.3 for the System Facilities provide a reasonable forecast of the costs of the
Project based on TGVI issuing authorisation to proceed December 1, 2007. It is on this basis
that TGVI is requesting approval of this Application provided that once the major construction
and equipment procurement arrangements are in place, the expected direct costs continue to
fall within current P10 to P90 cost estimate range. TGVI recognizes, however, that given the
current construction environment, there is some potential for unexpected cost increases. In that
circumstance, TGVI expects that it would be required to demonstrate that Project continues to
be in the best interest of customers prior triggering the construction of the Project.

4.2. Operating Costs

4.2.1. Project Operating Costs

The fixed (i.e. do not vary with liquefaction or sendout volumes) operating costs (“fixed O&M
costs”) for the LNG Storage Facility are based on actual and budgeted operating costs of the
TGI Tilbury LNG Facility in Delta, B.C. The fixed O&M costs also include adjustments to
account for the larger facility size and maintenance of the access road. Property taxes are

Page 35
Mt. Hayes LNG Storage Facility

based on estimated assessment values and are included in the financial evaluation discussed in
Section 8 but are not included in the fixed O&M costs shown below.

Table 4-3 Fixed Annual Operating Costs

LNG Storage Facility Fixed O&M


1.0 Bcf 1.5 Bcf
2007 $000 Facility Facility
Operators Salary & Benefits $778 $850
Training & Expenses $68 $79
Misc. Materials $57 $71
Consulting $10 $10
Outside Services $121 $152
Sales of LNG $0 $0
Site & Access $51 $56
Insurance $153 $198
Annual Facility Fixed O&M $1,239 $1,416

Trained operating personnel and management will make all decisions relating to the day-to-day
operation of the LNG Storage facility, and be responsible for compliance with all permits and
approvals, including environmental and emergency preparedness and response. TGVI will
ensure training is provided for operating personnel and ensure O&M manuals and EH&S
programs are maintained, as a minimum to the levels provided for the operation of TGI’s Tilbury
LNG Facility.

TGVI will incur estimated additional operating cost of $10,000 per year for the 5 km of pipelines
and additional facilities described as the System Facilities Project.

TGVI will also incur additional Shared Services costs from TGI and other TGVI departments to
cover incremental costs and time commitments for site servicing contracts (i.e. waste removal,
janitorial, etc.), back office administrative support and centralized service O&M functions such
as Instrumentation & Communication Services and Corrosion Services).

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Mt. Hayes LNG Storage Facility

Variable costs reflect the annual electricity and natural gas used during liquefaction, send-out
and holding operations of the LNG Storage Facility. Table 4-4 below summarises the total
annual incremental operating and maintenance costs assuming that on average 50% of the
storage tank volume is used and re-filled.

Table 4-4 Project Operating Costs

2007 $000 1.0 Bcf 1.5 Bcf


Fixed O&M
Facility Fixed O&M $1,239 $1,416
System Facilities $10 $10
Shared Services $134 $134
Total $1,383 $1,560
Variable O&M
Electricity $456 $671
Fuel Gas, GJ 20,234 28,436

4.3. Project Cost Summary

The current cost estimates for the LNG Storage Facility and the System Facilities are
summarised in Table 4-5. These estimates provide the basis for the financial assessments that
support this Application.

Table 4-5

Costs Forecast Probability


Direct 2007$ Millions P10 P50 P90
LNG Storage Facility $154.9 $165.0 $185.7
System Facilities $9.5 $10.7 $12.0
Total Project Costs $164.4 $175.7 $197.7

TGVI believes that these cost estimates provide a reasonable forecast of the costs of the
Project based on TGVI issuing authorisation to proceed December 1, 2007. In order to obtain
higher confidence in these estimates, TGVI will engage in the pre-construction development
phase described in Section 3.4 to confirm the design, costing and construction schedule for the
1.5 Bcf facilities leading to execution of the EPC contract by 1 December 2007.

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Mt. Hayes LNG Storage Facility

TGVI will provide an updated cost estimate report upon completion of the pre-construction
activities and prior to issuing authorisation to proceed. At this time, TGVI is requesting approval
to proceed with the Project provided that once the major construction and equipment
procurement arrangements are in place, the expected direct costs continue to fall within current
P10 to P90 cost estimate range. In the circumstance that cost estimates are higher than this
range, TGVI expects that it would be required to demonstrate that Project continues to be in the
best interest of customers prior to triggering the construction of the Project.

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Mt. Hayes LNG Storage Facility

5. LNG STORAGE FACILITY COST RECOVERY

5.1. Overview

This Application is seeking approval for TGVI to build, own and operate the LNG Storage
Facility at the Mt. Hayes site and to build the System Facilities to connect from the site to its
transmission system. TGVI proposes to recover the incremental cost of service related to the
Project through its customer rates and through revenue it will receive from TGI for storage
services under the Storage and Delivery Services Agreement.

As part of the request for approval of the Project, TGVI is seeking a return on equity on the rate
base associated with the LNG Storage Facility that will allow for returns that are more
comparable to those allowed for similar investments elsewhere in North America. TGVI is also
seeking to establish depreciation rates for the LNG Storage Facility assets.

In addition, TGVI and TGI will enter into a long term agreement (the Storage and Delivery
Services Agreement) whereby TGVI will provide a provide storage services to TGI based on a
portion of the LNG capacity. TGI will make annual payments to TGVI based on a fixed price
that reflects the current view of the cost of new long-term storage resources redelivered to TGI’s
service area. The revenue from TGI will be directly credited against the cost of service of the
LNG Storage Facility, thereby reducing the costs to be recovered from TGVI customers.

5.2. A Fair Return on Equity

TGVI is requesting a return on equity associated with the LNG Storage Facility that would allow
for an additional 50 basis points above that which TGVI would otherwise realize. As discussed
more fully in Appendix B, and summarised below, TGVI believes that this request would allow
TGVI to earn returns on this capital investment that are more comparable, although still lower,
than those realized by similar investments elsewhere in North America.

The LNG Storage Facility will provide a valuable peaking gas supply resource for both TGVI and
TGI as part of their overall gas portfolios and reduce their dependence on downstream storage
resources and/or upstream pipeline capacity. In addition, as an on- system resource, the LNG

Page 39
Mt. Hayes LNG Storage Facility

Storage Facility will allow TGVI to improve the efficiency and reliability of its existing
transmission system.

As discussed in Section 7.1.2, natural gas infrastructure is becoming increasingly constrained


during winter peaking periods in the Pacific Northwest region in which TGVI and TGI compete
for supply. In order to meet the growing peaking requirements of their customers, TGVI and
TGI’s gas supply alternative to the LNG Storage Facility is to promote incremental third party
investment in off-system storage resources and/or upstream pipeline capacity through long term
contractual commitments.

TGVI believes that the public interest is served by fair and appropriate utility returns on
investment. Low returns on equity will, over time, result in underinvestment in infrastructure that
in turn will lead to negative outcomes such as energy price volatility and decreased system
reliability. TGVI believes that the utility returns on equity in BC and Canada are too low in
general but in particular for large infrastructure investments such as the LNG facility the returns
are well below those for similar investment in the US. In addition there appears to be growing
recognition by energy industry participants and stakeholders, including policymakers in
government, regulators and industry, that more favourable investor returns are required to
promote the security, reliability and cost-effectiveness of the energy delivery systems.

In addition, in Canada the dominance over the last ten to fifteen years of utility ROEs being set
by formula-based mechanisms employing an equity risk premium approach relative to long
Canada bond yields has led to widening gap in approved returns for Canadian local distribution
utilities and transmission providers relative to their U.S. counterparts. These trends affect the
longer-term ability of Canadian utilities to attract capital. While the short term impact of these
trends on energy infrastructure may not be obvious, in the longer term where investment risk is
similar, rational investors will put their money in higher return investments.

TGVI believes that the LNG Storage Facility will provide significant value to the customers of
TGVI and TGI. It will also deliver benefits beyond the service territories of TGVI and TGI by
enhancing the robustness and reliability of energy infrastructure in the Pacific Northwest. As
discussed in Section 7 and 8 of this Application, the alternative to the LNG Storage Facility
would be to meet the specific gas portfolio resource requirements by contracting for third party
storage or pipeline resources, if and when available, and to meet TGVI transmission capacity

Page 40
Mt. Hayes LNG Storage Facility

requirements by adding compression and pipeline looping as required. This alternative requires
less upfront capital investment by TGVI, however is not as cost effective and would not deliver
the same level of benefits to customers.

On the basis of all these considerations, TGVI believes its ROE request for the rate base
associated with the LNG Storage Facility of TGVI’s allowed ROE plus 50 basis points to be fair,
reasonable and appropriate.

5.3. LNG Storage Facility Cost of Service

TGVI is proposing to build, own and operate the LNG Storage Facility and System Facilities as
part of its overall natural gas transmission and distribution system. The annual revenue
requirement associated with the LNG Storage Facility will be determined based on current
approved ratemaking principles, however as discussed in the previous section, the allowed
ROE includes 50 basis point return over and above that allowed under TGVI’s ROE as
determined from time to time. TGVI is proposing an adjusted depreciation schedule to help
mitigate the initial impact of the upfront capital investment. The annual revenue requirement
associated with the System Facilities will be determined based on the same principles as the
current transmission plant and is not included in the discussion in this section. The revenue
requirement associated with the System Facilities is included in the Sections 7 and 8 supporting
the financial justification of the Project.

5.3.1. Adjusted Depreciation Schedule

The financial evaluation of the LNG Storage Facility in this Application has been based on
average depreciation expense of approximately 3% per annum. This is consistent with the
treatment proposed by TGVI in its 2004 application and is based on the findings of a
Depreciation Study conducted by Gannett Fleming Valuation and Rate Consultants Inc. in 1999
for TGI. Under current approved rate-making principles, straight line depreciation would be
applied over the life of the Project, which results in a declining rate base and associated
revenue requirement over the life of the facility.

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Mt. Hayes LNG Storage Facility

In order to reduce the impact of the large upfront capital investment associated with the LNG
Storage Facility, TGVI is proposing to apply a modified depreciation schedule over the initial 20
years of operation of the facility. As illustrated in Figure 5-1, the modified depreciation schedule
reduces the depreciation expense in the early years of the project, and thereby will also the
revenue requirement over the same period. The impact of this adjusted depreciation schedule
to TGVI’s shareholder is deferral of capital recovery and a reduction in annual cashflows in the
earlier years of the Project. The accumulated depreciation at the end of the initial 20 years
would be equivalent to depreciation that would have been recorded that if straight line
depreciation had been applied (approximately 60%) at which point the depreciation expense
would revert to 3% per annum. The proposed depreciation schedule for the LNG Storage
Facility and the impact on the annual depreciation expense is shown in Figure 5-1.

Figure 5-1 Proposed Depreciation Schedule


$10

$9 Adjusted Depreciation

4.9%
Straight Line Depreciation
4.6%

$8
4.3%
4.0%

$7
3.8%
3.5%

$6
3.3%
$Millions

3.1%

3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%

$5
2.8%
2.6%
2.5%
2.4%

$4
2.3%
2.2%
2.2%
2.2%
2.1%

2.1%
2.1%

$3

$2

$1

$0
35

37

39

41
29

31

33
23

25

27
11

13

15

17

19

21

20
20

20

20
20

20

20
20

20

20
20

20

20
20

20

20

5.3.2. Annual Revenue Requirement

The direct financial impacts to customers of the proposed depreciation schedule can be
illustrated by comparing TGVI’s expected annual revenue requirement under the proposed
structure to a revenue requirement forecast determined by using straight-line depreciation.

Page 42
Mt. Hayes LNG Storage Facility

This comparison is provided in Figure 5-2 for the P50 Capital Cost estimate for the LNG Storage
Facility. The adjusted depreciation schedule was determined to allow for a lower initial revenue
requirement that would be forecast to increase by 1% per annum. Under straight line
depreciation scenario, the higher depreciation expense initially results in a higher revenue
requirement which declines over time as the rate base declines. Detailed schedules
summarising the financial assumptions and the cost of service calculations are provided in
Appendix F of this Application.

TGVI’s current allowed ROE is 9.07% (based on the current BCUC approved formula) which if
unchanged would give rise in an ROE of 9.57% for the LNG Storage Facility. The financial
evaluations provided in the 2006 Resource Plans and this Application however, assume that
over the long term TGVI’s allowed ROE based on the current approved formula will average
9.5%. Consequently the long-term ROE assumed for the LNG Storage Facility for the purposes
of the financial evaluations and comparisons provided in this Application is 10%.

As illustrated in Figure 5-2, the proposed depreciation schedule initially reduces the annual
costs to customer. The expected revenue requirement under the proposed treatment of the
LNG Storage Facility allows TGVI to better match the costs of LNG Storage Portfolio with the
expected avoided costs of transmission system upgrades that would otherwise be required over
the 25 year planning period evaluated in the 2006 Resource Plan.

Figure 5-2 Annual Cost Comparison

$26
$ Millions
$24
Annual Revenue Requirement

$22

$20

$18

$16 Adjusted Depreciation

$14 Straight Line Depreciation

$12

$10
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032

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Mt. Hayes LNG Storage Facility

5.3.3. Present Value Assessment


The present value of TGVI’s cost of service related to the LNG Storage Facility is illustrated in
the Figure 5-3 based on the P50 capital cost scenarios. The figure compares the present value
of the annual cost of service under different scenarios over the 15 and 25 year planning periods
evaluated in the 2006 Resource Plans. Note that the first year in the planning periods is 2007,
therefore these evaluation periods include the first 11 and 21 years of operation of the LNG
Storage Facility beginning in 2011. These values are presented based on the 6.2% and 10%
discount rates used in the Resource Plan assessment. As discussed in Section 8 of this
Application, the 6.2% rate is the long term forecast of TGVI’s weighted average cost of capital
while the 10% discount rate is a used to reflect uncertainty of future demand and costs.

The Figure also illustrates the impact of the adjusted depreciation schedule. The results show
that adjusted depreciation schedule helps to mitigate the costs over the shorter evaluation
period resulting in savings to customers of $8 million on a present value basis. Over the longer
term customers are relatively indifferent.

Figure 5-3 Present Value Cost of Service Comparison


250
230 230
$Millions Straight Line Depreciation

200 Adjusted Depreciation

165 163
156
Present Value

148
150
125
117

100

50

0
15 Year 25 Year 15 Year 25 Year
----------6.2% Discount Rate---------- ----------10% Discount Rate----------

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Mt. Hayes LNG Storage Facility

5.3.4. Capital Cost Impact

The following table presents the range of the present value of the annual cost of service of the
LNG Storage Facility based on the proposed depreciation schedule, under the different capital
cost scenarios. The values corresponding to the 15 and 25 year evaluation periods are used in
the overall economic evaluation and scenario analysis provided in Section 8.

Table 5-1 Present Value of LNG Storage Facility Cost of Service

$Millions Evaluation Period


PV @ 6.2% Discount Rate 15 Year 25 Year
P10 Capital $140 $219
P50 Capital $148 $230
P90 Capital $163 $254

Evaluation Period
PV @ 10% Discount Rate
15 Year 25 Year
P10 Capital $111 $155
P50 Capital $117 $163
P90 Capital $129 $179

5.4. TGI Storage Revenues

Under the Storage and Delivery Agreement (the “Agreement”), TGI will contract with TGVI for
storage and delivery services. The proposed form of the Storage and Delivery Agreement is
provided in Appendix C. Upon approval of this Application, TGVI and TGI will file an executed
agreement with the Commission.

The terms and conditions of this Agreement have been developed based on the LNG Storage
and Delivery Agreement that had been prepared in support of TGVI’s 2004 CPCN application
and which was approved by the Commission under Order No. G-44-05 dated May 18, 2005.
The proposed Agreement has been revised from the agreement approved in 2005 to provide
greater clarity and to reflect current arrangements. From a commercial perspective, the only
significant changes from the 2005 agreement are as follows:

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Mt. Hayes LNG Storage Facility

ƒ TGI is guaranteed a minimum volume of 1.0 Bcf storage capacity, 100 MMcfd
deliverability and 5 MMcfd of liquefaction over the first 20 years of the Agreement; and

ƒ The price paid for the storage and delivery service is fixed over the initial 20 year term of
the agreement based on the assessment of the cost of incremental market area storage
as provided in Section 7.1 of this Application and Appendix G of the 2006 Resource
Plan.

In the 2004 application, the LNG facility was to be used primarily to serve TGVI capacity and
peaking requirements on Vancouver Island. TGVI planned to mitigate its costs of holding the
LNG facility by putting to TGI any capacity that it would not require from year to year, however
TGI had no assurance on the volume or term of capacity it would be able to use. In the
proposed Agreement in this Application, TGI is contracting for a fixed storage volume and
capacity (Primary LNG Service) at a fixed cost which it will be able to use for long-term portfolio
and capacity planning purposes. TGVI continues to hold the right to put any additional capacity
associated with the remaining 0.5 Bcf storage volume to TGI from period to period
(Supplemental Service) upon provision of 24 months notice. The Supplemental Service is
priced based on the same market value as the Primary LNG Service.

5.4.1. Terms and Conditions

The principal terms of the Agreement are as follows:


• Commencement date of April 2011;
• Minimum Contract term of 35 years;
• Receipt and delivery points at Huntingdon or Eagle Mountain through displacement
and/or physical redelivery if required;
• Capacity:
o For the first 20 years TGI is guaranteed a minimum of 1.0 Bcf of storage capacity
and 100 MMcfd of deliverability (the “Primary Service”); and
o The Primary Service contract levels can be decreased for the remaining term of the
agreement to the degree that TGVI requires the capacity to serve its own customers.
• Price:
o For the first 20 years, TGI pays a fixed monthly charge of $1,002,200 for the Primary
Service;

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Mt. Hayes LNG Storage Facility

o For the remaining term, TGI pays a prorata share of TGVI’s annual costs of service
associated with the LNG Storage Facility for the Primary Service; and
o Variable charges include pass through of variable electric charges and other
commodity related charges.

The revenues from TGI will go directly to reducing the cost of service of the LNG Storage
Facility to TGVI’s customers. TGVI’s net revenue requirement, based on providing only Primary
LNG Service to TGI, is illustrated in Figure 5-4 below:

Figure 5-4 TGVI Net Revenue Requirement

$26
$24
$22
$20
Annual Cost $Miilions

$18
$16
$14
$12
$10
$8 TGVI Net Revenue Requirement
$6 TGI Storage Service Revenues
$4
$2
$0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032

The present value of the TGI payments to TGVI and TGVI’s net revenue requirement (i.e.. the
annual revenue requirement less the TGI payments) are summarised in Table 5-2 for the
corresponding 15 and 25 year planning periods.

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Mt. Hayes LNG Storage Facility

Table 5-2 Present Value TGVI Net Revenue Requirement

$Millions Evaluation Period


PV @ 6.2% Discount Rate 15 Year 25 Year
P10 Capital $50 $84
P50 Capital $58 $95
P90 Capital $73 $119

Evaluation Period
PV @ 10% Discount Rate
15 Year 25 Year
P10 Capital $39 $58
P50 Capital $45 $66
P90 Capital $57 $82

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Mt. Hayes LNG Storage Facility

6. TGVI AND TGI CUSTOMER DEMAND

TGVI and TGI are requesting approval of the LNG Facility Agreement and the Storage and
Delivery Agreement to support the development of the LNG Storage Facility located on
Vancouver Island. Through the proposed contractual arrangement the LNG Storage Facility will
provide both utilities with incremental peaking gas supply and system capacity resources to help
meet growing customer demand in the TGVI and TGI Coastal service regions. As demand on
these systems continues to grow, the regional resources relied on to manage seasonal demand
fluctuations are becoming more scarce since regional demand is also growing. This Section
provides a summary of the relevant demand forecast information for TGVI and the TGI Coastal
service areas and describes some of the seasonal challenges in meeting natural gas demand
that impact the need for new resources. Since the proposed LNG Storage Facility will not serve
TGI’s Interior service area, Interior demand is not reviewed.

The 2006 TGI and TGVI Resource Plans present the long-range customer and demand
forecasts for the respective companies and evaluate the resource requirements to continue
providing reliable service. In both cases, the Resource Plans concluded that an on-system LNG
Storage Facility located on Vancouver Island will help to avoid costs of incremental gas storage
requirements from resources located outside of the TGI and TGVI service regions. The LNG
Storage Facility also has the potential to avoid costs for new facilities on each of the respective
transmission systems.

6.1. TGVI Demand Forecast.

The TGVI 2006 Resource Plan (Section 3) describes the demand forecast and methodology for
TGVI core customers as well as the considerations for future demand from the Vancouver
Island Gas Joint Venture (“VIGJV”), ICP, Squamish and Whistler. TGVI forecasts for both
annual and design day demand, with the annual demand forecast predicting the most likely
yearly consumption assuming normal weather conditions and the design day demand forecast
identifying the highest expected daily consumption that might occur during extremely cold
weather. The design day demand forecast is a critical factor when planning for system capacity
requirements.

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Mt. Hayes LNG Storage Facility

6.1.1. Core Demand

For core market customers, the forecast of demand for natural gas is driven by the forecast for
future customer additions. In its Resource Plan TGVI develops a base demand scenario to
identify the most likely expectation of future core customer additions and resulting demand for
natural gas, as well as high and low demand scenarios to bracket the range of possible
outcomes in core market customer growth. As noted below, minor updates to the long-term
core demand forecast have been made since the submission of the TGVI 2006 Resource Plan,
each having very little or no impact on future planning for the TGVI system.

In its 2006 Settlement Update, submitted to the BCUC in October 2006, TGVI noted a change in
the base number of 2005 customers used to determine the TGVI demand forecast. This
rebasing of the 2005 customer number resulted when TGVI moved its customer database into
new customer information system software. In the newer software (the same software currently
used to manage TGI customer information) a number of accounts previously identified as
customers did not meet the criteria for inclusion as a customer within the new system. The
result of this finding is an adjusted starting point for the number of customers at the beginning of
the forecast period.

A short-term forecast update for both the customer additions and demand was also completed
as an input into TGVI’s 2006 Settlement Update. This forecast update included six additional
months of actual 2006 data that was not available for inclusion in the TGVI 2006 Resource Plan,
and was extended five years into the future to cover the 2007 to 2011 period.

The net effect of the revised customer base and short-term forecast update on the long-term
forecast of both design day and annual demand is small. To review the relative changes, the
original demand forecast presented in Appendix E of the 2006 TGVI Resource Plan can be
compared to the revised forecast incorporating the re-based customer numbers included in
Appendix D of this Application.

6.1.2. Squamish and Whistler Demand

TGVI will also be providing transportation service to two smaller service regions – Whistler and
Squamish. Service to Terasen Gas (Whistler) Inc. (“TGW”) will begin in the fall of 2008, when
the existing propane distribution system is converted to natural gas. The 2006 TGVI Resource

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Mt. Hayes LNG Storage Facility

Plan also considered demand requirements over the planning horizon from Terasen Gas
(Squamish) Inc., which on January 1st 2007 was amalgamated with TGI.

6.1.3. Industrial Transport Demand

TGVI also has two large industrial transportation customers: BC Hydro and the six mills that are
represented by the VIGJV. As identified in the 2006 Resource Plan, following the closure of the
Woodfibre mill, the VIGJV gave notice to reduce its firm contract demand from the current 12.5
TJ/d to 9.1 TJ/d as of April 2007. Based on discussions with the VIGJV, TGVI must assume an
ongoing need to provide a minimum firm demand of 9.1 TJs/d for the foreseeable future. This is
a significant reduction from the VIGJV firm demand forecast in the 2004 Resource Plan, and is
also significantly lower than the mills capability to burn gas. It should also be noted that
although the mills have reduced their firm contract demand under the transportation agreement,
they continue to rely significantly on interruptible service to manage upset conditions, meet
higher demands during winter periods and also to provide flexibility to respond to favourable
market conditions.

As discussed in Section 3.6.2 of the TGVI 2006 Resource Plan, there remains some uncertainty
in the requirement for firm system capacity to meet gas transportation requirements for
BC Hydro to serve ICP. As identified in BC Hydro’s 2006 Integrated Electricity Plan (“IEP”) and
confirmed during ongoing discussions with BC Hydro, ICP will continue to be required as a firm
energy and capacity resource beyond the IEP planning period of 20 years. However, given the
size of the ICP load (45 TJ/d), TGVI would not proceed with transmission system expansions to
meet ICP’s requirements without a long-term commitment from BC Hydro. As a result, for the
purposes of this Application TGVI’s baseline demand scenario assumes that BC Hydro is not a
firm transport customer. A second scenario, however, is assessed wherein BC Hydro enters a
long-term agreement for firm gas service to ICP based on its current contract demand of 45
TJ/d and continues to provide curtailment rights based on the existing 53 hours of distillate fuel
storage.

6.1.4. Design Year Temperature Variability

As described in Section 3.4.2 of the TGVI 2006 Resource Plan, the temperature profile used to
determine the design year load duration curve is developed by averaging the five coldest years
(ranking the days within each year from coldest to warmest) since 1961 and replacing the

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Mt. Hayes LNG Storage Facility

1
coldest day with the statistical design day temperature represented in Heating Degree Days
2
(“HDD”) . Figure 6-1 shows the design year temperature duration curve compared to those of
the 5 coldest years from which it was derived. Figure 6-2 focuses on the coldest 30 days of this
temperature duration curve and shows how the variability of temperatures is greatest within
approximately the coldest 20 days of the curve. These graphs illustrate the range of potential
temperatures around the design year temperature profile that need to be considered when
planning resources to meet peak period requirements.

Figure 6-1 TGVI Design Weather vs. Five Coldest Winters


35

1968
30
1971
1978
25
Heating Degree Days

1984
1985
20 Design

15

10

0
1 31 61 91 121 151 181 211 241 271 301 331 361
th
N Coldest Day of Year

1
Design day temperature estimated using extreme value analysis.
2
HDD and HDD18 refer to a measure of the coldness of the weather experienced. The number of heating degree
days for a given day is calculated based on the extent to which the daily mean temperature falls below a reference
temperature of 18 degrees Celsius.

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Mt. Hayes LNG Storage Facility

Figure 6-2 TGVI Design Weather vs Five Coldest Years – First 30 days

32

30
1968
28
1985
Heating Degree Days

26 Design

24

22

20
1984
1971
18

1978
16
1 5 9 13 17 21 25 29
th
N Coldest Day of Year

Figure 6-3 displays the chronological weather data for each of the 5 years used in developing
the design year temperature profile. Comparing this data further illustrates the potential
variability in the distribution of weather in any one year from the design year temperature profile.
The graphs highlight other weather factors that need to be considered in planning to meet gas
supply requirements including the potential for multiple extreme cold weather events in a single
year and the potential for sustained cold weather during peak period events. Note that for this
comparison is based on “Contract Year” refers to the gas contract year, which is the period
between November 1st of any given year to October 31st of the following year.

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Figure 6-3 Five Coldest Years – Heating Degree Days for Winter Period
35.0

31.1
30.0
Contract Year 1968
25.0

Design Year
HDD18

20.0

15.0

10.0

5.0

0.0
Date 01/11/1968 16/11/1968 01/12/1968 16/12/1968 31/12/1968 15/01/1969 30/01/1969 14/02/1969 01/03/1969 16/03/1969 31/03/1969
35.0

30.0
Contract Year 1971
25.0 24.4
Design Year

20.0
HDD18

15.0

10.0

5.0

0.0
01/11/71 16/11/71 01/12/71 16/12/71 31/12/71 15/01/72 30/01/72 14/02/72 29/02/72 15/03/72 30/03/72
35.0

30.0

25.6 Contract Year 1978


25.0
Design Year
HDD18

20.0

15.0

10.0

5.0

0.0
01/11/78 16/11/78 01/12/78 16/12/78 31/12/78 15/01/79 30/01/79 14/02/79 01/03/79 16/03/79 31/03/79

35.0

30.0
Contract Year 1984
25.0
21.1
Design Year
20.0
HDD18

15.0

10.0

5.0

0.0
01/11/84 16/11/84 01/12/84 16/12/84 31/12/84 15/01/85 30/01/85 14/02/85 01/03/85 16/03/85 31/03/85

35.0

30.0
28.2 Design Year Contract Year 1985
25.0
HDD18

20.0

15.0

10.0
Design Day
5.0 HDD18 = 28.7
0.0
01/11/1985 16/11/1985 01/12/1985 16/12/1985 31/12/1985 15/01/1986 30/01/1986 14/02/1986 01/03/1986 16/03/1986 31/03/1986

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Mt. Hayes LNG Storage Facility

The data in Figure 6-3 shows that in 1984, the coldest temperature that occurred was reached
on three separate days during two separate cold weather spells. 1968 and 1971 each featured
two extreme cold period peaks, with the second peak period lasting several days longer than
the first. 1985 was characterized by a sustained, early season peak in November, followed by a
second cold peak much later in the season. It is these multiple and/or extended cold weather
events, combined with experiencing a near design day temperature that will put the greatest
strain on the TGVI gas transportation system’s ability to meet peak demand. Gas supply and
storage portfolios need to be flexible enough to balance both the cost of resources and the
ability to meet demand under a wide range of weather patterns that could affect the entire
British Columbia and Pacific Northwest region.

6.2. TGI Demand Forecast for the Lower Mainland Region

The TGVI and TGI 2006 Resource Plans identified the benefits for TGI’s Lower Mainland
service area (also referred to as the Coastal Region) customers from TGI’s participation in the
LNG Storage Facility. As a result, TGI is proposing to contract for gas storage at the facility as
part of its gas supply portfolio. An examination of gas supply portfolio alternatives therefore
requires a review of the demand forecast for the TGI’s Lower Mainland customers.

6.2.1. Lower Mainland Core and Transportation Demand

The TGI demand forecast, presented in the TGI 2006 Resource Plan, shows that design day
demand for core market customers in the Lower Mainland will continue to grow, while demand
from transportation customer classes for TGI is assumed to have little or no net growth over the
planning period. The details of the customer additions and demand forecast for the base
scenario for TGI’s Lower Mainland service area are contained in Appendix E of the TGI 2006
Resource Plan.

Similar to TGVI, the short-term portion of the TGI forecast was updated in late 2006 to include
actual data from the early part of the year in order to provide a revised 2007 demand forecast
for the 2006 Annual Review and Mid-Term Assessment Review of TGI’s 2004-2007
Performance Based Rate Plan (“The TGI Annual Review”). There was no change in the
Demand forecast methodology and the update resulted in only small adjustments to the TGI
demand forecast as presented in the 2006 Resource Plan. These minor adjustments have no
impact on the long-term transmission system planning for the TGI CTS.

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6.2.2. Lower Mainland Generation Demand

TGI provides firm transportation service across the CTS to feed TGVI’s transmission system at
Eagle Mountain and to serve BC Hydro’s Burrard Thermal Generating Station. TGI’s 2006
Resource Plan identified that future expansions on the CTS will principally be driven by the
future requirements of Burrard Thermal. BC Hydro’s 2006 IEP indicates that three of the six
generating units are currently required to provide firm capacity and that by 2009 all six units
would be required. The IEP also indicated that BC Hydro is considering retirement of Burrard
Thermal in 2014 provided the capacity can be replaced by that time.

At the time the Resource Plan was prepared, three of six generating units were operational for
both voltage support and electricity generation. As identified by BC Hydro during the 2006 IEP
regulatory review, a fourth unit was re-commissioned in 2006 and is currently available for
dispatch. Evidence provided at the BCUC hearing for BC Hydro’s 2006 IEP, indicates that
justification for advancing this recommissioning was based on meeting BC Hydro’s system
3
capacity requirements as well as providing other economic benefits . BC Hydro also indicated
that feasibility studies to bring one or both of the remaining units on-line before 2009 are also
currently underway, demonstrating a continued need for Burrard Thermal’s dependable
capacity.

Through the IEP regulatory review process, it was also established that the replacement of the
Burrard Thermal capacity is dependant on the proposed construction of the Interior to Lower
Mainland (ILM) electric transmission reinforcement line. Further, although BC Hydro indicated
that it expected that the ILM could be completed as early as 2014, there remains considerable
uncertainty regarding the routing, permitting and construction schedule. BC Hydro also
identified that the requirement for the ILM could be deferred for up to seven years under the
scenario where Burrard Thermal remained operational or was repowered. Due to this
uncertainty, as part of this Application TGI has further evaluated CTS expansion requirements
assuming Burrard Thermal continues to require firm service beyond 2014.

3
BC Hydro. August, 2006. Generation Operations Business Case: Recommissioning of Burrard G1. 12p. Exhibit B-
51 of the 2006 IEP / LTAP Hearing before the BCUC (BCUC Project No. 3698419).

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6.2.3. Lower Mainland Load Duration

As with TGVI, TGI forecasts core load duration for both normal and design year conditions over
the planning period. Section 3 of the 2006 TGI Resource Plan describes the methodology and
results of the design year load duration forecast, represented as load duration curves. For
planning purposes, since extreme cold weather events typically occur only when a deep Arctic
4
air mass covers the entire province of BC , coincidental peaks are assumed for the design years
of both the TGVI and TGI Coastal systems.

6.2.4. Peak Period Temperature Uncertainty – Lower Mainland

Since regional weather patterns affecting Vancouver Island would typically be affecting the
Lower Mainland over the same period, multiple and or extended cold weather events that would
affect TGVI would also affect the rest of BC. Therefore, discussion regarding temperature
uncertainty for TGVI contained in Section 6.1.4 above also applies to TGI. In the Lower
Mainland, extreme weather events will impact a much larger customer base than that of TGVI,
creating additional supply challenges during peak weather events.

6.3. Winter 2006/07 Cold Weather Event

British Columbia experienced an extreme cold weather event early in the 2006/07 winter
5
season. On Vancouver Island, temperatures reached a cold period peak of -4OC on November
27th and -6OC on November 28. These temperatures correspond with the 7th and 4th coldest
days respectively of the TGVI forecast design year temperatures. As expected, temperatures
on the same days in the Lower Mainland reached a similar cold peak of -5.7OC and -8.4OC, each
temperature falling between the 6th and 7th and the 3rd and 4th coldest days respectively of the
TGI Lower Mainland service area design year.

Although temperatures (on Vancouver Island) in 2004 and 2005 dipped to -4.7 OC and -4.1 OC in
January of each respective year, it has been ten years since similar temperature patterns to the
November 2006 event were last reached. On January 29 and 30, 1996, the TGVI system
experienced -5.7 OC and -4.3 OC respectively. In December the same year, temperatures moved

4
Pacific Meterology Inc., September 2003. Return Periods of Low Mean Daily Temperature for the Lower Fraser
Valley. 6p. This report was provided to the Commission on October 20th, 2006 in response to BCUC IR No. 1,
Question 2.1, page 3 for the 2006 TGI Resource Plan.
5
Temperatures measured as the average of hourly temperature readings over a gas day

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Mt. Hayes LNG Storage Facility

between -5.1 OC and -3.8 OC over a 5 day period. While many years can pass between these
extended cold events, the recent cold weather experienced across the Province underscores
why the TGI and TGVI systems need to be designed to meet demand during extreme cold
weather.

Two aspects of the November 2006 cold weather event emphasize the challenges in planning
for gas supply on the TGVI and TGI transmission systems. First, the fact that this event
occurred so early in the heating season is critically important to meeting the gas supply
requirements of core customers throughout the remainder of the winter. Second, the fact that
this weather affected both TGVI and TGI service areas coincidently supports the need for
peaking resources to serve both systems. The possibility that additional cold weather events
will follow in the same winter season remains, affecting all of BC.

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7. PROJECT JUSTIFICATION

TGVI and TGI Resource Plans provide a long-term view of customer growth and assess the
options available to the utilities to meet the forecasted customer needs. The 2006 Resource
Plans conclude that the availability of up to a 1.5 Bcf LNG peak shaving facility located on
TGVI’s transmission system offers a cost effective option for meeting the future requirements of
both utilities over the 25 year planning period examined in the Resource Plans. The LNG
Storage Facility will primarily be used to provide both utilities a peaking gas storage resource to
include in their gas portfolio mix. By locating the facility on Vancouver Island, it also provides
TGVI with additional system capacity to serve customers during cold weather events and allows
TGVI to avoid the construction of new compressor stations and looping to meet future customer
peak day growth. The facility will also reduce TGVI’s future transport demands on TGI’s
Coastal Transmission System (“CTS”) during peaking periods which in turn also allows TGI to
defer future expansions. An on-system resource will allow the utilities to reduce their
dependence on contracted storage services at facilities located in Washington and/or Oregon
states and also provide additional reliability and security of supply benefits.

This Section expands on the assessment provided in the 2006 Resource Plans supporting the
development of an on-island LNG Storage Facility. The gas portfolio, system capacity and other
on-system benefits are examined in separate sections as follows:

ƒ Gas Supply Portfolio Assessment: Section 7.1 assesses the value of access to the
LNG storage resource as an alternative to TGI’s and TGVI’s other gas portfolio
resource options to meeting peaking gas supply requirements;

ƒ Resource Portfolio Development: Section 7.2 examines the expansion requirements of


the TGVI and TGI transmission systems to meet future growth that can be avoided or
deferred if the LNG Storage Facility moves forward; and

ƒ Other On-System Benefits: Section 7.3 provides an assessment of additional benefits


provided through greater operational flexibility and enhanced reliability and security of
supply obtained by having access to an LNG storage facility on Vancouver Island.

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Mt. Hayes LNG Storage Facility

An overall evaluation that considers the gas portfolio, system capacity and other on-system
benefits is provided in Section 8. This evaluation continues to support the conclusions reached
in the Resource Plans that the availability of the LNG Storage Facility on Vancouver Island is
the preferred option to meet TGVI’s and TGI’s long-term requirements for storage resources
and system capacity and provides many other benefits.

7.1. Gas Supply Portfolio Assessment

7.1.1. Introduction

The 2006 Resource Plans for TGI and TGVI reviewed long-term resource adequacy and
identified preferred supply strategy to meet projected demand. Section 5 of the Resource Plans
provide an overview of gas supply portfolio planning including an assessment of regional market
conditions and incremental resource options to arrive at the following conclusions:

• Shorter duration resources such as market area storage provide a cost effective solution
which best aligns TGI and TGVI supply portfolios with projected demand;
• In that assessment, market area storage refers to downstream stream storage
resources, primarily Jackson Prairie (“JP”) Storage and Mist Storage.
• Value of incremental peaking resources at Huntingdon/Sumas market at minimum will
be the expected cost of that market area storage plus redelivery transport;
• Growing uncertainty in availability and cost of incremental market area storage and
associated redelivery transport in the Pacific Northwest introduces long-term supply risk
to TGI and TGVI gas supply portfolios; and
• An on-system LNG storage resource can provide long-term supply security and cost
certainty relating to incremental storage requirements and mitigate risk of expiring
contracts.

This Section examines the gas supply portfolio benefits provided by the availability of the
proposed LNG Storage Facility at Mt Hayes. It begins with a review of gas supply portfolio
findings identified in the 2006 Resource Plans including updated market evaluation for a
peaking resource. The second part assesses storage requirements for purposes of quantifying
the value of an on-system LNG storage resource to TGI and TGVI gas supply portfolios.

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Mt. Hayes LNG Storage Facility

7.1.2. Summary of Resource Plan - Gas Supply Portfolio Planning Findings

Section 5 of the TGVI and TGI 2006 Resource Plans identified that existing resources in the
TGVI and TGI gas supply portfolios are insufficient to meet projected demand and concluded
shorter duration resources would be most effective to meet the majority of incremental
requirements. In addition to this resource inadequacy, the assessment recognized an inherent
supply and cost risk associated with expiry of existing contracts with third party market area
storage providers.

The influence of regional issues on long-term portfolio planning and availability of resource
options were also discussed in the Resource Plans. Key challenges relating to procurement of
long-term supply included expected growth and changing nature of regional demand combined
with a lack of reserve capacity in current natural gas infrastructure in the Pacific Northwest and
longer lead times for large infrastructure projects.

These regional drivers are supported by findings in the 2006 Northwest Gas Outlook Update
that identifies a currently constrained pipeline and storage capacity during extreme peak
demand conditions and the need for incremental infrastructure to maintain long-term resource
adequacy in the region. A copy of the final report is provided in Appendix E of this Application.

The Resource Plans identified potential incremental resource options to include Westcoast T-
South transport and downstream market area storage (JP or Mist) with associated firm
transportation service on Northwest Pipeline (“NWP”). An economic assessment of the future
cost of these alternatives was used to derive the value of an incremental peaking resource at
Huntingdon/Sumas; a price floor set by market area storage plus redelivery transport and a
price ceiling set to Westcoast T-South transport.

The main objective of this assessment was to emphasize that while expected costs of existing
regional resources provide a mechanism to estimate the current value of incremental resources,
uncertainty in availability of preferred incremental resource options will be the primary driver of
supply and price risk in the gas supply portfolio.

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7.1.3. Combined TGI and TGVI Portfolio Evaluation

Currently, two separate legal entities exist to serve the TGI and TGVI natural gas customers.
As a result, independent gas supply portfolios and contracts are maintained for TGI and TGVI,
but management of planning and operations is conducted on a combined basis. Accordingly,
assessment of storage requirements provided in this Section is based on the combined
requirements of the TGI and TGVI portfolios. The evaluation of the combined gas supply impact
has been made to simplify analysis and recognize portfolio synergies with respect to similar
planning and procurement criteria, resource requirements, and potential for increased efficiency
in resource utilization.

TGI and TGVI are examining the potential for amalgamation of the two legal entities, which
structure would also result in one gas supply portfolio to serve the combined service areas.
However, examination of the merits of having an on-system LNG storage resource available is
not dependant on whether or not an amalgamation proceeds at any time in the future.

7.1.4. New Resource Alternatives

7.1.4.1. Gas Supply Portfolio – Portfolio Efficiency via Resource Diversity

Characteristics and costs, specific to a resource, determine the economic and operational fit in
the gas supply portfolio. TGI and TGVI recognize the value of a supply portfolio characterized
by resource diversity. Diversity in supply facilitates operational flexibility, more efficient use of
resources, and minimizes potential for stranded cost. As such, the choice in incremental
resource is based on a combination of relative cost of market alternatives and its impact on
cost, operation, and risk of the total supply portfolio.

Figure 7-1 illustrates the role of resource diversity in meeting the cost effective criteria. The
chart highlights that the seasonal nature of demand and increased variability of winter peaking
load relative to summer demand is best met with a high deliverability shorter duration resource.
It identifies that current portfolio composition includes minimal access to on-system storage
resources. The baseload component shows effectiveness of pipeline assets to meet constant
demand; however, when pipeline is used to meet weather sensitive loads it has a higher
potential for under utilization when compared to shorter duration resources

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Figure 7-1 2006/2007 Normal and Design Load vs. Supply – TGI & TGVI

7.1.4.2. Economic Assessment of Market Alternatives

The 2006 Resource Plans for both TGI and TGVI (Appendix G – “Market Area Storage
Analysis”) provides a high-level economic assessment of the cost of an incremental peaking
resource at the Huntingdon/Sumas market. The analysis is based on comparative cost of using
Westcoast T-South transport or JP storage with associated NWP redelivery transport to
structure a peaking resource equivalent to a 10-day LNG service. The market alternative of
upstream storage with associated Westcoast T-North and T-South transport offers an effective
seasonal resource but is the highest cost solution to meet peaking requirements and therefore
was excluded in this evaluation.

The following discussion on analytical assumptions and findings relate to an updated economic
analysis of market alternatives based on the assessment provided in Appendix G of the
Resource Plan. Updated schedules can be found in Appendix E of this Application.

The calculations assume incremental availability of Westcoast T-South capacity at a firm


transportation toll of C$0.39/Mcf escalating annually at 1.62%; this escalation is based on
assessing WEI Cost of Service excluding deferral accounts and variable costs from 2005 to
2007. Other cost variables include a premium associated with winter daily commodity
purchases at Station 2 and fuel requirements. The potential for T-South toll mitigation via off-
system sales is accounted by assuming a maximum of 33% (or equivalent of 100% toll recovery

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Mt. Hayes LNG Storage Facility

for 120 days) of annual fixed costs can be recovered. This assumption is consistent with
historical value of T-South reflected in winter and annual average Sumas – Station 2 commodity
price differential of C$0.21/GJ (or 100% toll recovery for 104 days) and C$0.12/GJ (or 34% toll
recovery per annum) respectively.

The minimum expected cost of market area storage is based on cost of service rates associated
with the JP storage expansion capacity offered in the 2006 NWP JP Storage Open Season plus
firm redelivery transport on NWP. These assumptions equate to a storage reservation cost of
US$3.10/Dth (or of capacity for a service that would be equivalent to the proposed 10-day LNG
service). This cost is determined from the expansion rates filed by NWP to FERC on July 13,
2006 [reference to Docket No. CP06-416] and the detail calculations are shown in Appendix E.
The annual cost of firm redelivery transport on NWP is based on current offerings to TGI based
on 151-day winter service at the full firm transport tariff. On an annual basis, this equates to
approximately 40% (i.e. 151 divided by 365) of the NWP TF-1 rate which is estimated to be
US$0.39/Dth. Variable cost components include storage injection fuel and fuel requirements for
transport on NWP.

The use of underground storage such as JP storage to structure a 10-day LNG service requires
an increased capacity allowance to account for differences in withdrawal characteristics. The
daily withdrawal rate of an LNG resource is constant whereas withdrawal rate of underground
storage is subject to decline as total storage inventory reduces. To account for this decline in
daily withdrawal rate a 15-day storage capacity at JP storage is used to evaluate the cost of a
10-day LNG equivalent service.

Implicit in this analysis is the unrestricted access to incremental resources. However, as


discussed in the 2006 Resource Plans and summarized in Section 7.1.2 of this Application,
regional competition for peaking supply and minimal availability of NWP redelivery transport
create uncertainty in the ability to procure long-term downstream storage contracts to meet
incremental needs. In recognition of this uncertainty in resource availability scenarios of NWP
redelivery transport costs at 40% TF-1 and 50% TF-1 have been calculated to capture current
market offerings and the rate at which T-South transport with mitigation becomes cost
competitive.

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Figure 7-2 provides an updated cost comparison of resource alternatives used to structure a 10-
day LNG equivalent service. The chart indicates market value of an incremental peaking
resource will, at minimum, be equivalent to the cost of market area storage plus associated firm
redelivery transport. The maximum value will be capped at the expected cost of Westcoast T-
South transport plus a premium associated with winter daily commodity purchases and zero toll
mitigation revenue.

Based on the stated cost assumptions, unrestricted availability to incremental resource options,
and accounting for T-South mitigation revenue potential, it is expected the value to TGI and
TGVI of an incremental peaking resource at Huntingdon/Sumas will be within a floor price of
C$115/GJ and a ceiling price of C$137/GJ.

Figure 7-2 Cost Comparison of Alternatives for a 10-day LNG Equivalent Service at
Huntingdon/Sumas.

($Cdn/GJ) ANNUAL GAS STORAGE & DELIVERY COST


$200
$183

$150 $137
$131
$115
$100

$50

$-
JP + JP + 1 T-South T-South
TF-1@40% TF-1@50% (mitigated) (no mitigation)

7.1.5. Impact of Storage Availability on Gas Supply Portfolio

7.1.5.1. Analytical Approach – SENDOUT® Model

For portfolio analysis and development of a preferred resource mix TGI and TGVI are assisted
with the use of New Energy Associates’ SENDOUT® gas supply planning model. SENDOUT®
uses linear programming principles to simulate gas networks, a portfolio of supply, storage, and
transportation options to determine optimal resource dispatch and portfolio composition by
considering economic parameters and operational constraints.

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Mt. Hayes LNG Storage Facility

The model is consistent with TGI’s and TGVI’s planning standard as optimized resource
selection and utilization is based on finding the least cost supply portfolio over a defined time
period which can meet daily demand under design year weather conditions.

TGI and TGVI use SENDOUT® to analyze supply requirements, resource alternatives, and
portfolio behaviour to different marketing conditions. Planning scenarios are created to model
specific decision context followed by sensitivity analysis to identify key decision drivers and test
resiliency of the optimized resource portfolio.

For this Application SENDOUT® has been used to assess incremental market area storage
requirement across the range of costs discussed in the previous Section and summarized in
Figure 7.2.

7.1.5.2. Key Modelling Assumptions

Primary input assumptions relate to demand, commodity prices, economic and operational
characteristics of supply, storage, and transportation resources, and mitigation revenue
opportunities.

Models of TGI and TGVI gas supply portfolios were created to represent existing and
incremental resource options under a design year demand.

The portfolios assumed the majority of existing storage and transportation contracts will be
retained during the full study period. Currently contracted capacity at Aitken Creek and Mist
storage were assumed to be fully renewed. The level of contracted JP storage was based on
renewal of existing contracts that have not been recalled and includes capacity awarded to TGI
as part of the 2006 NWP JP storage Open Season. All current transportation contracts were
assumed to be renewed with the exception of T-South transport where de-contracting up to a
maximum of 20% of existing contracted capacity was allowed.

Incremental resource alternatives included T-South transport, upstream storage and associated
T-North pipe, and market area storage of 15 and 26 day duration with associated NWP
redelivery capacity. The decline in storage deliverability was modelled. Mitigation revenue
opportunities via off-system commodity resales were included at each market hub.

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Mt. Hayes LNG Storage Facility

SENDOUT® allows detailed modelling of economic parameters to enhance portfolio analysis.


The fixed costs of incremental resources were those identified in Section 7.1.4.2. The variable
costs, commodity requirements, and mitigation revenue are derived from an optimized daily
dispatch of resources.

7.1.5.3. Gas Portfolio Base Case Results

The gas portfolio base case scenario models the expected resource cost and commodity prices
under design year demand conditions. Results of this scenario aim to identify directional
movements in portfolio composition and resource preferences primarily driven by projected
demand. SENDOUT® provides a theoretical optimum solution of the preferred resource mix
under the assumptions of perfect foresight of cost, demand, and resource availability; infinite
decision flexibility in resource additions or reductions; and is specific to a set of input
assumptions. As such, these results demonstrate economic preference for specific resource
characteristics to provide a guideline in resource requirements and portfolio composition.

7.1.5.3.1. Optimal Resource Mix and Preferred Resource Characteristic

Figure 7-3 and Figure 7-4 represent an optimized mix of resources required to meet projected
design year demand. The first chart indicates the composition of resources utilized to meet
peak day demand while the second shows incremental storage requirements.

An inadequacy in the existing supply portfolio to meet long-term demand is confirmed by the
selection of incremental resources. Figure 7-3 shows long-term incremental requirements is
best served by a combination of market area storage and pipe where the optimal portfolio
composition includes market area storage equivalent to approximately 35 to 40% of TGI and
TGVI peak day demand.

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Mt. Hayes LNG Storage Facility

Figure 7-3 Peak Day Resource Use as % of Peak Day – TGI & TGVI Gas Portfolio Base Case

45%

40%
% o f Pe a k D a y (F u e l In c lu s iv e )

35%

30% preferred portfolio includes 37%


market area storage to meet TGI and
25% TGVI peak day demand
20%

15%

10%

5%

0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Alberta Upstream Storage US Supply & Curtailment
Station 2 Market Area Storage

Figure 7-4 identifies preferred resource characteristics to meet incremental storage


requirements assuming that there are no future constraints on the availability of resources. The
chart shows zero pick up of Mist and an annual increase in JP storage. These resource choices
indicate that under the base cost assumptions, high deliverability shorter duration market area
storage is a better economic fit in the existing gas supply portfolio to meet TGI and TGVI
projected demand. If competitively priced, the storage resource provided by the proposed LNG
Storage Facility offers an alternative to meet the preference for shorter duration storage
resources and would replace the incremental component of JP storage shown in the Figure.

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Mt. Hayes LNG Storage Facility

Figure 7-4 Optimized Storage Peak Day Use – TGI & TGVI Gas Portfolio Base Case

800
Optimised Peak Day Deliverability TJ/D

700

600
Shorter duration market area storage
500 preferred over upstream and longer duration
market area storage
400

300

200

100

0
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029
Tilbury LNG Mist Storage Jackson Prairie Storage

7.1.5.3.2. Market Area Storage At Risk

The above incremental storage requirements are conditional on guaranteed renewal rights of
existing contracted capacity with third party storage providers that have not provided termination
notice. Figure 7-5 compares optimized market area storage requirements to the current
capacity contracted or owned by TGVI and TGI. The Figure highlights the supply risk
associated with potential recall of existing contracted capacity at expiry. The gap between the
optimal requirement and firm contracts also represents the market area storage requirement
exposed to uncertainty in availability and cost.

The chart includes optimal market area storage requirements at a NWP redelivery transport rate
of 40% and 50% TF-1 to recognize how the optimal allocation between resources can vary
under different cost assumptions. For example, the reduced storage requirement when
redelivery is priced at 50% TF-1 reflects increasing competitiveness of T-South transport as
total cost of market area storage rises. However the continued inclusion of market area storage
at a higher redelivery cost demonstrates a long-term preference for shorter duration resources.

Also highlighted in the chart is a level of existing contracted and company owned market area
storage that is below optimal requirements. This shortfall is a reflection of prevailing market
conditions regarding lack in availability of incremental market area storage and associated

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Mt. Hayes LNG Storage Facility

redelivery transport and represents the potential for long-term decline in the portfolio’s economic
efficiency.

The availability of an on-system LNG storage resource offers an opportunity to reduce the
identified resource gap and introduce cost certainty to a portion of market area storage
requirements. Figure 7-5 demonstrates that a 1.5 Bcf 150 MMcfd (162,000 GJ/d) peaking
resource can be fully utilized to meet storage requirements of TGI and TGVI and indicates the
availability of the proposed Mt. Hayes LNG storage does not eliminate future requirement for
incremental resources to meet projected demand.

Figure 7-5 Market Area Storage Contracts & Future Requirements - TGI & TGVI

800
MARKET AREA STORAGE PROFILE
700

TF-1@40%
600
Mist Contract
TF-1@50%
500 JPS Contract
TJ/d

Tilbury LNG
400 335 TJ/d Requirement (TF-1@40%)
184 TJ/d
Requirement (TF-1@50%)
300 Early Expiration

200

100

-
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

7.1.5.4. Drivers of Resource Selection – Sensitivity of Market Area Storage


Requirement

The gas portfolio base case scenario results represent an optimal solution that is specific to the
input assumptions on demand, resource availability and cost, commodity prices, and mitigation
revenue opportunities. To identify key decision drivers in resource selection, sensitivity analysis
is performed to test resiliency of the optimal portfolio. The following discussion identifies
significant factors, other than the cost of resources, that can change the choice between the use
of transport and storage resources.

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Results of sensitivity analysis on commodity prices indicate resource selection is insensitive to


absolute changes in prices. Figure 7-6 provides a comparison of market area storage
requirement based on GLJ Petroleum Consultants Ltd. (“GLJ”) April 1 2006 and GLJ January 1
2007 commodity price forecasts. The January 2007 update shows a 17% increase in the long-
term gas price forecast, adjusted for foreign exchange rate, relative to the April 2006 edition.
The analysis shows absolute changes in commodity prices primarily impact a portfolio’s variable
cost related to supply purchases while the decision to select transport or storage is largely
driven by fixed demand charges, and therefore changes in commodity prices have nominal
impact the market area storage requirements.

Figure 7-6 Market Area Storage Requirement Sensitivity to Commodity Price Forecast

720
Storage Optimal Peak Day Use TJ/D

700
680
660
640
620
600
580
560
540 Apr 2006 GLJ Forecast - Current Base
520 Jan 2007 GLJ Forecast
500
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Other cost drivers of resource selection are the relative differences between commodity prices.
These differences primarily relate to seasonal (summer – winter) and location (variation
between purchase points). Previous analysis indicates higher summer-winter commodity price
differentials increase the preference for storage. On the other hand, elevated locational
differentials raises the value of transport connecting the two price points and could reduce the
preference for shorter duration market area storage. In either case it is the mitigation revenue
potential for either resource that increases the preference for that resource rather than the need
to meet portfolio demand. As summer-winter and locational differentials narrow, portfolio
composition is determined by the relative fixed cost of resource options.

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Mt. Hayes LNG Storage Facility

TGI and TGVI adopt a planning criterion that bases resource decisions on the obligation to
provide safe, reliable, and cost effective natural gas supply to meet the needs of customers.
Revenue from mitigation activity has a higher degree of uncertainty than the demand charges
associated with a resource. As such, long-term decisions are made in the context of estimates
of summer-winter and locational price differentials which recognize the potential for mitigation
revenue while at the same time attempting to not unduly bias the portfolio toward specific
resources based on that potential.

7.1.6. Value of LNG Storage Service

The development of the LNG Storage Facility on TGVI’s system will provide both utilities with a
new peaking resource alternative that can help meet future requirements for shorter duration
resources and reduce the requirement for acquiring additional off-system market area storage
or transport resources. The value of the LNG Storage Facility as a peaking resource in the gas
portfolio can therefore be measured by the expected cost of the alternative resource options; in
this case JP storage with associated redelivery and WEI transport.

An assessment of LNG storage value based on these resource alternatives is detailed in


schedules provided in Appendix E of this Application. Table 7-1 summarizes the gas supply
benefit for 15 year and 25 year evaluation periods commencing 2007 which is consistent with
planning periods used in the 2006 Resource Plans. The expected in-service date of the LNG
Storage Facility is 2011; therefore these values are equivalent to the avoided costs of alternate
resource options associated with over the first 11 year and 21 years of operation of the LNG
Storage Facility. The results show that the present value of the LNG storage service to the TGI
and TGVI gas supply portfolios over the 25 year evaluation period is between $203 million and
$241 million with a corresponding levelized annual value between $19 million and $22.1 million.

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Table 7-1 Present Value of Resource Alternatives

Supply Alternative 15 Year Evaluation 25 Year Evaluation


$Millions Period Period
Annual Annual
PV @ 6.2% Discount Rate PV PV
Levelized Levelized
JP Storage with NWP transport 135 18.9 203 19.0
WEI transport with mitigation 152 20.7 241 22.1
PV @10% Discount Rate
JP Storage with NWP 108 18.9 145 19.0
WEI transport with mitigation 121 20.5 170 21.6

7.1.7. Gas Supply Portfolio Summary

The 2006 Resource Plans for TGI and TGVI identified a long-term deficiency in supply-demand
balance and concluded shorter duration market area storage is the cost effective incremental
resource to meet projected demand.

An assessment of expected future cost of incremental Westcoast T-South transport and JP


storage with associated redelivery on NWP indicates that the market value of an incremental
peaking resource at Huntingdon/Sumas will at minimum be equivalent to cost of market area
storage plus associated firm redelivery transport and up to a maximum set by expected cost of
Westcoast T-South transport.

The impact of a peaking resource on TGI and TGVI gas supply portfolios was evaluated using
SENDOUT®; an optimization model based on least cost principles. The analysis quantified
incremental resource requirements to identify an optimum portfolio composition includes market
area storage equivalent to 35 to 40% of TGI and TGVI peak day requirements. The modelling
also demonstrated cost effectiveness of a peaking resource at a cost equivalent to 2006 NWP
Jackson Prairie Open Season and 40% TF-1 NWP redelivery transport.

Implementation of a procurement strategy to achieve this preferred portfolio composition is


challenged by prevailing uncertainty in availability of incremental shorter duration resource and
associated redelivery in the Pacific Northwest. Supply and cost risk in long-term gas portfolio

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Mt. Hayes LNG Storage Facility

planning is further magnified when the potential for recall of currently contracted market area
storage at expiry is considered.

Availability of the proposed Mt. Hayes LNG storage offers a supply solution that facilitates
alignment of TGI and TGVI supply portfolios to projected demand and helps to alleviate the
resource gap illustrated in Figure 7-5. This Figure demonstrates a 1.5 Bcf with 150 MMcfd or
163 TJ/d deliverability) peaking resource can be fully utilized to meet market area storage
requirements of both utilities and indicates that the availability of this new LNG storage capacity
does not eliminate future requirement for incremental resources.

As an on-system LNG storage resource, access to the Mt. Hayes LNG Storage Facility allows
TGVI and TGI an opportunity to mitigate long-term cost and supply uncertainty associated with
incremental market area storage and redelivery transport.

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Mt. Hayes LNG Storage Facility

7.2. Resource Portfolio Development

A primary objective of TGVI and TGI resource planning is to provide a review of the capacity
and expansion alternatives for the major transmission systems such that the utilities can
continue to meet expected customer demand over the long term. Section 6 in each of the TGVI
and TGI 2006 Resource Plans provides an assessment of the requirements on the TGVI
System and the CTS and concludes that an on-island LNG storage facility would allow both
utilities to avoid or significantly defer transmission expansion facilities such as pipeline looping
or compression additions.

This section expands and updates the resource requirement assessment provided in the 2006
Resource Plans.

7.2.1. System Description of CTS and TGVI System

The CTS provides transportation from the Huntingdon trading point to various metering and
regulating stations in the Fraser Valley and Metro-Vancouver area. As shown in Figure 7-7, the
CTS consists of a 265 km network of pipelines and includes the Langley compressor station
which is used to maintain transmission pressures during periods of high demand, and the
existing Tilbury LNG storage facility. The Tilbury Facility is used to meet peaking gas supply
requirement as well as increasing system deliverability to the CTS during high demand periods.
The CTS serves as the backbone for distribution systems serving the core market demands in
the Lower Mainland, as well as BC Hydro at Burrard Thermal and TGVI at Eagle Mountain in
Coquitlam. As described in the TGI 2006 Resource Plan, future expansions on the CTS will
largely be driven by the future requirements to service Burrard Thermal and the TGVI System.

The TGVI System commences at the interconnection with the CTS in Coquitlam. Through a 615
km transmission pipeline, in combination of three dual marine crossings, and several small size
laterals, and compressor stations in Coquitlam (V1), Port Mellon (V3), and on Texada Island
(V4), the system delivers natural gas to various metering and pressure regulating stations
located at customer sites and communities on Sunshine Coast and on Vancouver Island.
Figure 7-8 illustrates the route and basic components of the existing TGVI System, and
locations of the major industrial customers and distribution networks.

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Mt. Hayes LNG Storage Facility

Figure 7-7 Coastal Transmission System

Figure 7-8 TGVI Transmission System

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Mt. Hayes LNG Storage Facility

7.2.2. TGVI System Capacity Requirements

The TGVI System is used to serve the gas requirements for core market customers on
Vancouver Island, the Sunshine Coast and Squamish and for large industrial customers – the
six pulp and paper mills currently represented by the VIGJV and BC Hydro for the ICP
generating facility at Campbell River. Following completion of a pipeline lateral from Squamish
in 2008, the TGVI System will also serve the community of Whistler. As described in Section
6.3 of the TGVI 2006 Resource Plan, the TGVI System capacity is currently constrained during
peaking periods and TGVI relies on a right to call back firm transportation capacity from BC
Hydro during design weather events in order to serve its core market peak heating load
requirements. This right to call back capacity is limited by ICP’s ability to fuel switch and the
amount of distillate storage at the ICP facility site.

Figure 7-9 TGVI Design Day Forecast

250
TGVI Design Day Forecast
Terajoules per Day

200

150

100

TGVI Core Squamish


50 Whistler VIGJV
BC Hydro 2006 Capacity

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year beginning November

Figure 7-9 compares the current TGVI System deliverability of approximately 151.5 TJ/d to the
core market and transport demand forecast. As discussed in Section 3 of its 2006 Resource
Plan, TGVI continues to see strong core demand growth on its system and also expects to
continue serving the six mills currently represented by the VIGJV over the planning period. In
addition, BC Hydro has identified in its 2006 IEP that the ICP is required as a long-term firm

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Mt. Hayes LNG Storage Facility

capacity and energy resource, and therefore TGVI also expects that BC Hydro will continue to
require transportation service beyond the expiry of its existing agreement in 2007.
Nevertheless, given the significant size of the ICP demand (45 TJ/d) relative to the overall
demand on the TGVI system and in the absence of a long-term transportation commitment from
BC Hydro, for resource planning purposes the TGVI baseline demand scenario assumes the
ICP is not a firm customer. However, a demand scenario to serve the firm requirements for the
ICP is also assessed. In this case, it is also assumed that TGVI retains the capacity right to
curtain the ICP up to the limit of the ICP current distillate fuel storage capacity of 100 TJ,
equivalent to 53 hours of the ICP operation at full load. For the purposes of this Application
therefore, two demand scenarios are examined when assessing future TGVI resource
requirements:

Baseline Demand Scenario

• Base core market forecast for TGVI, TGW and TGI’s Squamish service; and
• Industrial demand of 9.1 TJ/d associated with the long-term demand of the six mills
currently represented by the VIGJV.

Base plus ICP Demand Scenario

• Baseline Demand Scenario plus ICP firm Contract Demand of 45 TJ/d; and
• ICP Capacity Curtailment right of up to 45 TJ/d but a maximum of 100 TJ in any one
winter.

7.2.3. TGVI Portfolio Development

Section 6.5 of TGVI’s 2006 Resource Plan identifies the two separate resource portfolio
strategies used to identify future compression and looping requirements on the TGVI System to
meet expected customer demand. In the LNG Storage Portfolio, it is assumed that an LNG
storage facility is put in-service at Mt Hayes that provides TGVI both capacity and peaking gas
supplies during the core market winter peaking periods and therefore allows the deferral of
transmission capacity expansion facilities. In the P&C portfolio, an on-system storage resource
is not available, and TGVI must expand its transmission system capacity to meet its peaking
requirements.

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Mt. Hayes LNG Storage Facility

Hydraulic simulation modelling of the TGVI System was used to identify the timing and
requirement for compression and looping additions under these two separate portfolio
approaches 1. The results of the hydraulic modelling are summarized in Table 7-2 identifying the
resource and required timing of each addition. In the LNG Storage Portfolio, it is assumed that
the LNG Storage Facility is in service in 2011, and therefore Table 7-2 shows the costs of the
System Facilities in 2011.

In the P&C portfolio, the results for the Baseline Demand Scenario show that the first capacity
expansion is required in 2013 when new compressor stations at Squamish (V2) and Dunsmuir
(V5) would be necessary to meet the expected capacity requirement for the winter of 2013/14.
In the Base plus ICP Demand Scenario, the requirement for Squamish Compressor is advanced
to 2010 followed by additional facilities in 2012 and 2013.

In the LNG Storage Portfolio, the modelling shows that in the Baseline Demand Scenario, the
on-system storage services from the LNG storage facility allows TGVI to defer any transmission
system addition beyond the end of the planning period to 2031. Similarly, in the Base plus ICP
Demand Scenario, having on-system storage services available allows significant deferral of
compression and pipeline facility additions, with only the potential for the Squamish Compressor
(V2) addition in 2019. As is discussed more fully in Section 7.2.9 below, these results also
indicate that the LNG Storage Portfolio would put TGVI in a position to provide BC Hydro firm
transportation service for the ICP (assuming the availability of 53 hours of curtailment) at least
until 2019 without having to make any compression or pipeline looping investments.

In the P&C portfolio, the schedule of resource additions matches that shown in Table 6-1 of
TGVI’s 2006 Resource Plan (page 98). In the LNG Storage Portfolio, however, the results are
more favourable than that shown in the 2006 Resource Plan. The main difference is that in the
Resource Plan, the hydraulic modelling assumed that only 0.5 Bcf LNG storage with 50 MMcfd
of vaporization capacity would be available to be utilized for TGVI’s purposes, while as
explained in Section 7.2.4, the results in Table 7-2 take into consideration that the proposed
LNG Storage Facility consists of 1.5 Bcf storage capacity with 150 MMcfd of deliverability.

1 Detailed descriptions of the different resource options were provided in the Appendix H, I and J of the TGVI 2006
Resource Plan.

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Mt Hayes LNG Storage Facility

Table 7-2 TGVI System Expansion Facilities


Pipe & Compression Portfolio Squamish Dunsmuir Coquitlam Sechelt Crofton Watershed
V2 V5 V1-U4 V3b V6 25.3 km Loop
[P10 - millions 2007$ direct] $22.2 $22.0 $12.5 $22.0 $22.2 $29.7
[P50 - millions 2007$ direct] $24.2 $24.0 $13.6 $24.0 $24.0 $32.6
[P90 - millions 2007$ direct] $27.4 $27.3 $15.4 $27.3 $27.3 $35.9
Demand Scenarios
Baseline Demand 2013 2013 2017 2021 2027
Base + ICP 2010 2013 2012 2013 2027 2029

LNG Storage Portfolio System Squamish Dunsmuir Coquitlam Sechelt Crofton Watershed
Facilities V2 V5 V1-U4 V3b V6 25.3 km Loop
[P10 - millions 2007$ direct] $10.4 $22.2 $22.0 $12.5
[P50 - millions 2007$ direct] $11.7 $24.2 $24.0 $13.6
[P90 - millions 2007$ direct] $13.1 $27.4 $27.3 $15.4
Demand Scenarios
Baseline Demand 2011
Base + ICP 2011 2019 2029 2028

Legend
System Facilities included inteconnections, measurement, and pipeline reversibility facilities associated with the LNG
System Facilities
Storage Facility.
Squamish V2 Compressor Station Addition
Dunsmuir V5 Compressor Station Addition
Coquitlam V1-U4 4th Unit Addition to Compressor Station V1
Sechelt V3b Compressor Station Addition
Crofton V6 Compressor Station Addition
Watershed 25.3 km Loop Pipeline Looping with NPS 12 to existing NPS 10 from downstream of Watershed.

Note: For LNG portfolio to meet core markets + JV, V5 is deferred beyond 2031 by utilizing up to 60 mmscfd of LNG
deliverability on design peakday only without exceeding its 0.5 bcf LNG storage capacity limit. This is acceptable as
TGI is expected to call on Mt Haynes LNG on design peakday as well.

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Mt. Hayes LNG Storage Facility

7.2.4. Comparison with 2006 Resource Plan Results

TGVI’s 2006 Resource Plan assessed the TGVI system expansion requirements in the LNG
Storage Portfolio based on the availability of a 0.5 Bcf storage facility and 50 MMcfd of
deliverability. In this Application, TGVI is proposing to build the LNG Storage Facility based on
1.5 Bcf of storage capacity and 150 MMcfd of vaporization capacity or deliverability. TGVI will
initially reserve up to 0.5 Bcf and 50 MMcfd of deliverability for serving its own customers, will
contract with TGI for the remaining capacity. Under the terms of the proposed storage and
delivery services agreement between TGVI and TGI, TGI will contract for a minimum of 1.0 Bcf
of storage capacity and 100 MMcfd of deliverability for the initial term of 20 years. After the
initial term, TGVI can decrease the capacity available to TGI to the degree it requires that
capacity to serve its own customers.

Although TGVI is initially reserving up to 50 MMcfd of deliverability for its own use, the fact that
the total vaporization capacity will be 150 MMcfd effectively provides TGVI with even greater
deliverability to meet its system capacity requirements during peaking events. Since extreme
cold weather events are caused by Arctic air mass coverage of the entire province of BC
including Vancouver Island, the design day demand from Vancouver Island, Sunshine Coast
and the Lower Mainland are generally expected to be coincidental (see Section 6.2.3).
Therefore, it is reasonable to expect in the event of a design weather event the LNG Storage
Facility would be delivering LNG simultaneously to meet both TGVI and TGI’s requirements.
Nevertheless, in the unlikely scenario where TGI is not experiencing an extreme cold weather
event coincidentally with TGVI, and is not nominating peaking supplies from the LNG Storage
Facility, TGVI would be able to use the unutilized vaporization capacity to meet its own
requirements.

The facility addition forecast for the LNG Storage Portfolio shown in 2006 TGVI Resource Plan
(refer to Table 6-1, page 98) was based on the limitation of 50 MMcfd of vaporization capacity.
Under this constraint, in the Baseline Demand Scenario, the Squamish compressor (V2) would
be required in 2029 To defer the V2 compressor addition beyond the resource planning period
ending in 2031, TGVI would require up to 60 MMcfd in LNG deliverability on the single design
day in Years 2029 to 2031. This additional LNG deliverability would not result in exceeding the
0.5 Bcf LNG storage capacity that TGVI is reserving for its own use. As a result, the V2

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Mt. Hayes LNG Storage Facility

compressor addition is removed from the TGVI LNG storage portfolio for the Baseline Demand
Scenario.

In the Base plus ICP Demand Scenario, the requirement for the V2 Compressor in 2019 is
determined by LNG storage capacity rather a deliverability limitation. It therefore can only be
deferred if TGVI has access to more than 0.5 Bcf LNG storage capacity over the winter period.
At that time, it could potentially be more cost effective for TGVI to arrange for use of some of
TGI’s storage capacity than to build the V2 Compressor; in particular if BC Hydro does not
intend to renew its ICP Electricity Purchase Agreement when it expires in April 2021. However,
this would change the value of the storage capacity to TGI and therefore for the purposes of this
Application it is assumed that the V2 Compressor will be required in 2019 for the Base plus ICP
Demand Scenario.

Table 7-3 compares the present value of cost of service associated with the incremental TGVI
system facilities for the 15 and 25 year planning periods beginning in 2007. In the LNG Storage
Portfolio, the costs include the System Facilities associated with the LNG Storage Facility,
however the cost of the storage Project itself is not included. The difference between the two
portfolios represents the value of the capacity benefit the LNG Storage Facility will provide to
TGVI before taking into account the gas portfolio benefits discussed in Section 7.1. Section 8
provides an overall assessment of the LNG Storage Facility taking into account the costs of the
facility relative to gas portfolio and capacity benefits. Note that this comparison is based on the
P50 capital cost estimates in both portfolios.

Table 7-3 TGVI Capacity Benefits

25 Year Evaluation Period


PV @ 6.2% Discount Rate P&C LNG Storage TGVI Capacity
Portfolio Portfolio Benefits
Baseline Demand Scenario (115) (21) 94
Base plus ICP Demand Scenario (148) (51) 97
PV @ 10% Discount Rate
Baseline Demand Scenario (72) (15) 57
Base plus ICP Demand Scenario (99) (32) 67

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Mt. Hayes LNG Storage Facility

15 Year Evaluation Period


PV @ 6.2% Discount Rate P&C LNG Storage TGVI Capacity
Portfolio Portfolio Benefits
Baseline Demand Scenario (48) (14) 34
Base plus ICP Demand Scenario (83) (20) 64
PV @ 10% Discount Rate
Baseline Demand Scenario (36) (11) 24
Base plus ICP Demand Scenario (64) (15) 49

7.2.5. TGI CTS Portfolio Development

Section 6.3.3 of the TGI 2006 Resource Plan discusses the capability of the CTS to meet
forecast demand and concludes that the Coquitlam segment in the Lower Mainland could have
a significant constraint in the near to medium term. The requirement for CTS capacity
expansion is driven by the CTS core market demand growth, firm transportation service to
Burrard Thermal and TGVI takeaway capacity at Eagle Mountain. The assessment of the CTS
capacity requirement to support these loads takes into account a number of factors:

• TGI’s contractual requirements under the TGVI Wheeling Agreement and the BC
Hydro Bypass Transportation Agreement;
• TGVI’s take-away capacity at Eagle Mountain under different scenarios (i.e. P&C
portfolio versus LNG Storage Portfolio);
• Burrard Thermal’s gas consumption rate under full load; and
• BC Hydro’s forecast of the requirement for Burrard Thermal as a firm capacity resource
as provided in the 2006 IEP.

The assessment provided in the TGI 2006 Resource Plan concluded that the CTS capacity
expansion could be required as early as 2011 if the proposed Mt. Hayes facility did not proceed
and TGVI subsequently expanded its transmission system capacity through compression
additions, and therefore increasing its transportation requirement through the CTS to Eagle
Mountain. This expansion requirement also assumes the TGVI Base plus ICP demand
scenario, the CTS high core market demand, and all six units are required at Burrard Thermal
for which BC Hydro holds capacity under the Bypass Transportation Agreement. It was also
identified in the Resource Plan that if Burrard Thermal is retired, the current CTS capacity would

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Mt. Hayes LNG Storage Facility

be sufficient to serve the remaining loads over the planning period. Figure 7-10 below illustrates
the capacity of the CTS to serve the expected demands in the Coquitlam area under this
scenario.

Figure 7-10 TGI CTS Capacity to Serve Coquitlam Area

7.2.6. BC Hydro Bypass Transportation Agreement

BC Hydro, under the Bypass Transportation Agreement, holds 275 TJ/d firm capacity on the
CTS for Burrard Thermal and currently assigns some of its capacity to TGVI to support firm
transportation service to ICP on Vancouver Island. That bypass agreement expires in 2030;
however BC Hydro has the right to terminate the agreement as early as 2009 upon payment of
a termination fee based on the book value of the facilities that were constructed to provide
service under the agreement.

As discussed in Section 6.2.2, there are currently four operational units at Burrard Thermal and
the remaining two units are expected to be re-commissioned and operational to meet firm
system capacity requirements by winter 2008/09. In its 2006 IEP, BC Hydro has also indicated
that it is considering alternatives to allow the retirement of Burrard Thermal. This would first
require the construction of the proposed ILM transmission project. BC Hydro has indicated the
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Mt. Hayes LNG Storage Facility

ILM transmission project could be completed in 2014 at the earliest; however, BC Hydro has
also indicated that if Burrard Thermal is not retired or is re-powered the requirement for the
completion of the ILM transmission project could be deferred for up to seven years.

7.2.7. Transportation Service for TGVI

TGVI, through its wheeling agreement with TGI, holds transportation capacity on the CTS to
move gas from Huntingdon to the beginning of the TGVI System at Coquitlam. Under the terms
of the agreement, the annual demand charges are based on the estimated cost and capacity of
a bypass pipeline to meet the contract demand. The maximum contract demand, based on
volume, is equivalent to 140 TJ/d at a minimum hourly delivery of 260 psig. For long-term
planning purposes, however, TGI has assumed a minimum delivery pressure of 300 psig, and
TGVI deliveries based on the forecasted requirements under the different demand scenarios
and considering both the P&C and LNG Storage Portfolios approaches.

The initial 20 year term of the Wheeling Agreement expires in July 2011 with TGVI having the
right to extend one 20 year term thereafter. TGVI also holds the right to increase its contract
demand to double the current maximum value upon timely notice to TGI. The incremental
demand rate increase would be based on the estimated cost of any incremental facility addition
to the bypass pipeline to meet the new capacity requirement. Under all scenarios, TGVI is
expected to require additional wheeling capacity to meet its requirements over the long term;
however this capacity requirement is much lower in the LNG Storage Portfolio where core
market peaking demand is met with supply from the LNG Storage Facility. In addition, under
the proposed arrangements, TGI will also have access to its own peaking supply from the LNG
Storage Facility. Redeliveries from the on-island storage facility to the Lower Mainland is done
through displacement which has the effect of further reducing the TGVI’s wheeling capacity
requirement through the CTS during peaking periods.

7.2.8. TGI System Future Expansion Requirements

Section 6.3.4 of the TGI 2006 Resource Plan identifies the principle alternatives in meeting the
CTS capacity requirements. In this section, the potential for storage services associated with
the LNG Storage Facility to defer the CTS expansion requirement through phased construction
of the Nichol Coquitlam loop is assessed.

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The TGI 2006 Resource Plan shows that with TGI’s base core market demand forecast and with
Burrard Thermal removed from service by March 2014 as indicated in the BC Hydro 2006 IEP,
the CTS would not require any capacity expansion. However, the Resource Plan also shows
that if the TGI core market demand growth approaches the high demand forecast, the CTS
capacity expansion could be required as early as 2011. As illustrated in Figure 7-10, if and
when Burrard Thermal is retired, the CTS would have sufficient system capacity to satisfy the
CTS core market demand and TGVI takeaway capacity at Eagle Mountain without any
additional facility expansion for the duration of the study period ending in 2031. These results
are based on TGI’s base core market demand forecast provided in the 2006 Resource Plan.

Table 7-4 summarizes the timing of CTS expansion requirements under the different TGVI
scenarios assuming that BC Hydro continues to require firm transportation for Burrard Thermal
for the planning period.

In the TGVI P&C portfolio, the potential for continuing operations at Burrard Thermal beyond
2014 could trigger three phases of looping of the CTS through the planning period ending in
2031. At least two phases are triggered in the period to 2021, the period which the ILM
transmission project can be deferred if Burrard Thermal continues to be in operation. In the
TGVI Base + ICP Demand Scenario, Table 7-4 shows that the first phases could be required in
2013 and 2014.

For both TGVI demand scenarios, the LNG Storage Portfolio results in less take away capacity
from Eagle Mountain, and therefore reduces the requirement for CTS capacity over the P&C
portfolio. In addition, as TGI is proposing to contract for deliverability and storage capacity from
the LNG Storage Facility as part of TGI’s gas supply portfolio, and the delivery of TGI’s peaking
supplies from the LNG Storage Facility is largely done through displacement 9, there would be
further reduction in CTS capacity requirement to TGVI. As is shown in the table, the availability
of the LNG Storage Facility will defer the need for any CTS facility additions until very late in the
planning periods even if the retirement of Burrard Thermal is deferred.

9 TGI would take TGVI’s gas at Huntingdon and TGVI would use TGI’s gas from the LNG facility to serve Vancouver Island loads.

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Table 7-4 CTS Facility Expansion Requirements with Six operational units at Burrard Thermal
Pipe & Compression Portfolio 4.89km x 30” 4.56km x 30” 4.44km x 30”
loop Nichol - Port loop Cape Horn - loop Coquitlam -
Mann Coquitlam Noon’s Crk

[P10 - millions 2007$ direct] $22.4 $20.9 $20.4


[P50 - millions 2007$ direct] $29.9 $27.8 $27.2
[P90 - millions 2007$ direct] $37.4 $34.8 $34.0
Demand Scenarios
Baseline Demand 2014 2017 2029
Base + ICP 2013 2014 2028

LNG Storage Portfolio 4.89km x 30” 4.56km x 30” 4.44km x 30”


loop Nichol - Port loop Cape Horn - loop Coquitlam -
Mann Coquitlam Noon’s Crk

[P10 - millions 2007$ direct] $22.4 $20.9 $20.4


[P50 - millions 2007$ direct] $29.9 $27.8 $27.2
[P90 - millions 2007$ direct] $37.4 $34.8 $34.0
Demand Scenarios
Baseline Demand 2031
Base + ICP 2028

Legend
Nichol- Port Mann Loop Pipeline Looping 4.89 km long with NPS 30 from Nichol Valve Station to Port Mann
Valve Station
Cape Horn-Coquitlam Loop Pipeline Looping 4.56 km long with NPS 30 from Cape Horn Valve Station to
Coquitlam Regulator Station
Coquitlam-Noon's Creek Loop Pipeline Looping 4.44 km long with NPS 30 from Coquitlam Regulator Station to
Noon's Creek Valve Station

Given that BC Hydro is considering the retirement of Burrard Thermal as early as 2014, the
economic benefit of being able to avoid CTS capacity additions has a wide range, however
access to the LNG Storage Facility clearly provides TGI greater flexibility to manage the
uncertainty related to the long-term operation of Burrard Thermal.

Table 7-5 below summarizes the present value of the incremental cost of service associated
with the expansion facilities shown in Table 7-4 based on continued operation of Burrard
Thermal. The financial schedules supporting the cost of service are shown in Appendix F. The
difference between the P&C Portfolio and the LNG Storage Portfolio represents the TGI
Capacity Benefits that TGI would realize under this scenario if the LNG Storage Facility
proceeds.

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Table 7-5 TGI Capacity Benefits (Assuming 6 Units at Burrard Thermal)

25 Year Evaluation Period


P&C LNG Storage TGI Capacity
PV @ 6.2% Discount Rate Portfolio Portfolio Benefits
Baseline Demand Scenario $45 $1 $44
Base plus ICP Demand Scenario $52 $4 $48

PV @ 10% Discount Rate

Baseline Demand Scenario $28 $0 $28


Base plus ICP Demand Scenario $34 $2 $32

15 Year Evaluation Period


P&C LNG Storage TGI Capacity
PV @ 6.2% Discount Rate Portfolio Portfolio Benefits
Baseline Demand Scenario $21 $0 $21
Base plus ICP Demand Scenario $28 $0 $28

PV @ 10% Discount Rate

Baseline Demand Scenario $15 $0 $15


Base plus ICP Demand Scenario $21 $0 $21

7.2.9. Flexibility of LNG Portfolio

TGVI is proposing to construct and put the LNG Storage Facility in service by April 2011. The
facility will provide gas portfolio benefits to both utilities by providing access to on-system
storage and peaking gas supplies to meet the winter 2011/12 requirements. As discussed in
this Section 7.2, the LNG Storage Facility will also provide flexibility for the utilities to manage
the uncertainty of generation demand associated with ICP and Burrard Thermal.

As discussed in Section 7.2.2, the TGVI System is currently constrained and beyond 2010
cannot continue to meet all the firm loads it currently serves (including ICP) without establishing
additional system capacity during peaking periods. Availability of the LNG Storage Facility will
allow TGVI to meet demand requirements for the Baseline Demand Scenario without any
additional pipe and compression facilities over the planning period to 2031. In addition, once

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the LNG Storage Facility is in service, TGVI could continue to provide firm capacity to ICP at
least until 2019, assuming 53 hours of curtailment continues to be available, or meet additional
firm capacity requirements associated with the VIGJV member mills.

Figure 7-11 illustrates the peak day system capacity of the TGVI System for the LNG Storage
Portfolio in the Baseline Demand scenario where no additional system facilities are constructed
once the LNG Storage Facility is in place. The figure assumes that TGVI would reserve a
maximum of one third of the storage and deliverability of the 1.5 Bcf facility in order to meet core
market and firm transport demands on its own system.

The Figure illustrates the additional peak day system capacity that could be offered on a short-
term basis to meet additional firm transportation demand under the LNG Storage Portfolio.
Beginning in winter 2011/12, there is additional firm system capacity available above the
demand from the core market and the six mills of the VIGJV. There would be adequate firm
system capacity available to meet the ICP demand up to and including winter 2014 without the
use of distillate fuel. Thereafter, to winter 2019, there would be firm capacity to ICP in
combination with the use of its current 100 TJ of distillate fuel storage. For winter 2018 and
2019, the additional peak day capacity would not be constrained by TGVI’s LNG deliverability
limit of 50 MMcfd, but rather would be constrained by the TGVI’s LNG storage limit of 0.5 Bcf
required to meet the core market demand and firm transportation demand for the whole winter
season.

It is important to identify that the additional system capacity would not necessarily be available
on an interruptible basis. For example if BC Hydro chooses not to continue holding firm
transportation for the ICP, TGVI would optimize the amount of LNG storage capacity and
deliverability it would reserve for itself based on its gas portfolio requirements from year to year.
Once the heating season commences, TGVI would not elect to use its storage capacity and
deliverability to provide interruptible service as this could gas portfolio at risk during peaking
events and reduce the value of the storage resource. However to the degree that the amount of
LNG service TGVI holds exceeds the minimum service it requires to meet its firm capacity
requirements, incremental interruptible service may be available.

If the LNG Storage Facility does not proceed and on-system storage services are not available,
TGVI will expand with compression additions to meet demand growth as described for the

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Baseline Demand Scenario in the Section 7.2.3. With no long-term firm commitment from BC
Hydro, the compression additions would not be constructed to meet the ICP firm requirements
and the firm capacity available from period to period would be limited as illustrated in Figure
7-12 below. In this scenario, BC Hydro will have to put in other facilities or arrangements to
allow it to continue to consider the ICP as a firm electrical capacity resource.

7.2.10. Resource Portfolio Summary

The assessment of capacity requirements and the resource portfolios of the TGVI System and
the CTS concludes that the development of the LNG Storage Facility on Vancouver Island to
provide an on-system storage resource offers the best opportunity for both utilities to avoid or
defer future transmission system expansions in the form of pipeline looping and compression
addition, and provide flexibility to manage uncertainty of future generation demand while
minimizing the risk of stranding pipeline and compression assets.

The availability of on-system storage and peaking capacity will provide immediate capacity
benefits to TGVI since its system is currently constrained to meet its core market demand
growth and the existing transport demand during winter peaking periods. TGVI would avoid
future transmission system expansion as well as reduce its capacity requirement through the
CTS.

The capacity benefit from the LNG Storage Facility will also put TGVI in position to offer firm
service to the ICP for a longer period of time which helps to reduce average system costs to all
TGVI customers. The capacity benefit of the provided by storage services to TGI depends on
the future decisions by BC Hydro on the long-term operation of Burrard Thermal. However
these benefits could be significant by allowing TGI to avoid major pipeline looping in the urban
environment of the Lower Mainland should Burrard Thermal continue to operate beyond 2014.
In short, availability of the LNG Storage Facility affords BC Hydro a longer timeframe to
determine its long-term gas demand for ICP and Burrard power generation without incurring
additional cost to gas customers.

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Figure 7-11 Firm Service Available – LNG Portfolio

250

Design Day
LNG System Capacity
Storage

200
56 52 48 45 42 38 35

19
7
Peakday Demand [TJ/d]

150
24 17 13 9

100

50
Available Design Day Capacity
Joint Venture Member Mills
Whistler
Squamish
TGVI Core
0

25
06

27

28

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30

31
07

08

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10

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20

Figure 7-12 Firm Service Available – Pipe and Compression Portfolio 20

250.0

V6
V3

V2 & V5
200.0
12

1
15

3
26

21
24

17
19

V1-U4
Design Day
System
3

1
6
8

Capacity
5
8

1
12
Peakday Demand [TJ/d]

150.0
9

1
13
17
24

100.0

50.0
Avail Design Day Capacity
Joint Venture Member Mills
Whistler
Squamish
TGVI Core
0.0
26

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31
06

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7.3. Additional Benefits

The proposed LNG Storage Facility located on Vancouver Island and connected to TGVI’s
transmission system offers additional benefits in terms security of supply, improved system
reliability, reduced price volatility and increased operating flexibility. In addition, as discussed in
previous paragraph, the LNG Storage Facility will enhance TGVI’s ability to provide a higher
level of firm transportation service. These benefits are described below.

These additional benefits were reviewed during the regulatory filing process of the TGVI CPCN
application in 2004 for an LNG project at Mt. Hayes with a 1.0 Bcf storage capacity and 100
Mcfd deliverability. The BCUC concluded in the 2005 Decision that an on-island LNG facility
significantly improves security of supply against system outages and provides operational
flexibility, reduces gas price volatility, and provides a useful additional resource for balancing of
the TGVI System (Section 9.3.1, 9.3.2 and 9.3.4 pages 56-57). With a larger 1.5 Bcf storage
capacity and 150 MMcfd deliverability, the LNG Storage Facility will be able to extend these
benefits to TGI’s CTS as well.

7.3.1. Incremental Transportation Revenue

In both the LNG portfolio and the P&C Portfolio for the Baseline Demand Scenario, additional
system capacity is available from year to year that could be used to provide additional firm
transportation service and which in turn would reduce the average unit cost of transmission
service and mitigate the rate impact to all TGVI customers. As discussed in Section 7.2.9 and
illustrated by comparing Figure 7-11 and Figure 7-12, the available incremental firm
transportation capacity is greater in the LNG Storage Portfolio than the P&C Portfolio.

The value of this benefit can be estimated by assuming that on average 10% to 25% of the
additional firm transport capacity is contracted from year to year. Assuming an average unit
rate of $0.90 per GJ/d of capacity, the present value of the incremental transportation service is
summarized in the Table 7-6 which demonstrates that the LNG portfolio offers significantly
greater opportunity value than the P&C Portfolio. Note that this benefit flows directly to existing
customers. The lower value over the 25 Year evaluation period reflects the fact that more
capacity is available in the later years in the period under the P&C Portfolio as can be seen by
comparing the Figure 7-11 and Figure 7-12.

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Table 7-6 Incremental Transport Revenue


Incremental Transport
Revenue Benefit
25 Year 15 Year
Evaluation Evaluation
$ Million Period Period
PV @ 6.2% Discount Rate $27 $36
PV @ 10% Discount Rate $27 $32

7.3.2. Security of Supply

From a regional perspective, the TGVI and TGI Lower Mainland service areas are characterized
by a lack of market area storage and dependence on a single supply corridor from the
Westcoast and Northwest pipeline systems. As the LNG Storage Facility is located at what is
effectively the tail-end of this regional system, use of gas supply from this facility to mitigate the
effect of a supply restriction would benefit all customers downstream of the restriction.

In the event of an upstream failure that limits physical delivery capacity, TGVI and TGI could
use the capacity of the LNG Storage Facility to maintain supply on Vancouver Island and to
reduce delivery requirements on the CTS. For example, under system upset or emergency
conditions the LNG Storage Facility could provide enough on-Island supply to meet roughly 25
days of average core market winter demand.

As a recent example, the cold weather event of late November 2006 affected a large portion of
the Pacific Northwest region with temperatures dropping lower than the normal weather year
coldest temperature; the heat sensitive demands reached higher than normal year peak values.
Coincident with the cold weather event, the Westcoast T-south system on November 27, 2006
experienced declining system pressures which resulted in a reduction in T-South delivery
capacity to Huntingdon. As a result, Westcoast had difficulties meeting its firm gas nominations.
This condition also impacted the NWP system by reducing supply available to move south to
service the PNW. Had the condition been extended, it would have also impacted downstream
storage redeliveries. TGI was able to use LNG from its Tilbury Facility in the Lower Mainland to
mitigate this particular threat of supply restriction until Westcoast system pressures were
restored to acceptable levels. The availability of the supply from the LNG Storage Facility in
conjunction with the Tilbury Facility will enhance the capability of TGI and TGVI to manage such
events.
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As regional resources become more constrained to meet growing demand across the Pacific
Northwest, the probability of such events impacting the supply demand balance increases. The
value of the benefit of enhancing the on-system storage capability for TGVI and TGI can be
quantified by estimating the cost to the utilities to compete for replacement or emergency supply
in the spot market. Figure 7-13 provides the historical Sumas daily price from 1996 and
compares the highest price seen in each winter to the average winter price. Excluding the
2000/01 outlier, the data shows that the premium over the average winter price has been
US$0.41 to $9.66 per MMBtu, which is equivalent to an average premium of US$3.05 per
MMBtu. This represents a potential annual avoided cost to TGVI and TGI of $75,000 to $1.7
million, or an average of $549,000, based on incremental supply of 150 MMcfd from the LNG
Storage Facility on Vancouver Island to mitigate market disconnects on any one day.

Figure 7-13 Historical Sumas Price

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7.3.3. Improved System Reliability

Availability of the LNG Storage Facility will also provide alternate system capacity and supply to
core customers on the TGVI System in the event of capacity reduction or interruption due to
compressor unit outage or pipeline damage on the TGVI system.

The TGVI transmission system, operating at a MOP of 2160 psig, relies on its entire installed
compressor horsepower to provide system capacity to meet peak day demands. In the unlikely
event of an outage of the T70 compressor unit (ISO 9670 hp) at Coquitlam (V1) Station
coincident with cold weather conditions, the reduced transmission system capacity would not be
sufficient for winter 2008 to meet core market demand plus the firm transportation to the mills of
the VIGJV for the 5 coldest days on the design year load duration curve. The duration of
potential system shortfall would increase to 12 days by winter 2012 with increasing core market
demand. To limit the duration of potential outage, TGVI plans to acquire a T70 spare engine in
2007. With the spare engine, the outage would be limited to 2 days, the time required to
change the engine. In order to mitigate the service impact of system upset or emergency
conditions, the LNG Storage Facility could provide enough on-Island supply to meet at least the
10 days of core market demand during the coldest weather period, or roughly 25 days of core
market demand during an average winter period.

Without access to an on-system resource such as that provided by the LNG Storage Facility, in
the event of a complete transmission service interruption due to compressor unit failure or
pipeline damage for two or more days, TGVI would have to shut off service at customers’
meters from both the transmission and all of the distribution systems during initial outage; and
would be required to perform safety checks of the gas systems; then relight individual
customers’ gas appliances as the transmission service is recovered and the distribution systems
are reactivated.

Depending on the severity of an interruption on the transmission system, TGVI would minimize
customer outage by systematically shutting off services to selective communities to maximize
the survival time of the remaining communities. For an event of partial transmission service
interruption affecting a major community the size of Nanaimo or Victoria, the direct cost for the
shut off, system safety check and relight, based on an average cost of $70 per customer, would
be in the range of $1.2 and $3.0 million, respectively based on forecast customer counts in
2010.

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The direct cost of shut off, system safety check and relight to TGVI customers from a complete
system service interruption would be in the range of $8 million in 2010 to $11 million by 2031.
The service shut off, safety checks, and service restoration of the entire transmission and all of
the distribution systems could take up to 5 to 7 weeks during such a major outage depending
on the number of field operations personnel available including external resources from mutual
aid programs with other gas utilities.

With the availability of the LNG Storage Facility, TGVI would be able to utilize LNG to replace
system capacity loss due to single compressor unit outages or transmission damage to serve
core market customers downstream of the damage, while customers upstream of the damage
would continue to be supplied as normal. The mitigation of gas service interruptions by means
of the LNG Storage Facility would minimize revenue losses for TGVI, while also minimizing
impacts on the local economy by maintaining critical service to hospitals and shelters for
customers during cold weather.

7.3.4. Reduced Rate Volatility

The LNG Storage Facility will help reduce rate volatility for the customers of TGVI and TGI, and
other regional gas consumers. A large storage facility close to a major market helps mitigate
commodity price increases during periods of peak demand. Such commodity price increases
were evident in the two recent cold snaps in the Pacific Northwest. On November 28, 2006,
when Vancouver experienced the coldest day since December 1996, the Sumas gas price was
$11.82 per GJ. This is a $2.23 Cdn per GJ increase over the average gas price of the 10 days
before and 10 days after November 28, 2006. Again on January 12, 2007, when Vancouver
experienced the 12th coldest day since December 1996, the Sumas gas price was $9.27 per
GJ, which is a $1.38 Cdn per GJ increase over the average gas price of the 10 days before and
10 days after January 12, 2007. The LNG Storage Facility will increase regional supply capacity
and decrease the risk of regional price disconnects.

7.3.5. Operational Flexibility and Efficiency

LNG storage gives superior load following capability both in terms of capacity and energy. This
capability enables its use as an intermediate or seasonal supply, not just as a peaking resource,
as well as a resource for balancing and quick response to pressure upset situations.

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7.3.5.1. Balancing

As an on-system supply, access to, and use of, the LNG Storage Facility will be a valuable
addition to the balancing resources currently available to both TGVI and TGI.

Both TGVI and TGI schedule gas supply from third parties through day-ahead nomination based
on forecasted weather. Imbalances often occur due to weather forecast adjustments or demand
variations. The error in the TGVI and TGI daily temperature forecast, at a 95% confidence level,
is 3 degree Celsius, and is equivalent to 9 TJ/d for TGVI and 72 TJ/d for the TGI customers
served by the CTS. Opportunities for same-day adjustments to match the forecast to the actual
demand are limited due to fixed re-nomination schedules associated with third party transport
and storage resources.

As an on-system resource, availability of the LNG Storage Facility will provide an efficient
means to balance supply on the system compared to TGVI’s current resource options. TGVI
and TGI will be able to call on LNG supply on short notice and will not be hindered by upstream
re-nomination schedules or by TGVI’s contracted capacity agreements. As an on-system
resource, dispatched at the request of TGVI and TGI, LNG storage at the LNG Storage Facility
provides greater flexibility for upward nominations to eliminate imbalances on both TGVI System
and the CTS.

Other than the physical capabilities of the LNG Storage Facility, there are essentially no
limitations on the number of hours or days in the year that the LNG supply can be used. The
send out rate can be varied continuously which will allow TGVI to respond quickly and
accurately to variations in demand. Gas deliveries from the LNG Storage Facility do not have to
follow third-party pipeline nomination schedules so the service can be provided on much shorter
notice and flow can be altered to best match TGVI and TGI’s requirements for capacity and
supply on an hour-by-hour basis. As an on-system resource, the LNG Storage Facility can also
be dispatched on short notice in response to transient flow conditions that may develop on the
pipeline helping to mitigate the impact of significant transport load fluctuations.

7.3.5.2. Operational Efficiency

Without access to on-system storage, the TGVI System relies on line-pack to meet the transient
demands from the industrial customers (i.e. the VIGJV and ICP) directly on the transmission

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system as well as customers on the distribution systems. In order to have the flexibility to react
to a transmission system pressure upset condition caused by an unplanned compressor
shutdown or valve closure, the line-pack pressure level is maintained at a level higher than that
required for normal operation. The higher line-pack increases compression fuel usage.

With LNG supply available to react quickly to a pressure upset condition, TGVI would be able to
optimize its line-pack level while maintaining the same level of flexibility.

7.3.5.3. Operations and Maintenance

From an operational perspective LNG supply from the LNG Storage Facility will provide greater
flexibility to deal with the requirements of planned maintenance on the TGVI System. LNG will
be used as a source of secondary supply to extend the duration that pipeline facilities can be
removed from service.

Currently, during maintenance on the transmission system that requires the sections of the
pipeline to be out of service, downstream customers rely solely on line-pack and service to
transport customers must be restricted. These requirements restrict the windows for operation
and maintenance work. The LNG Storage Facility would provide a secondary source of supply
that would allow greater flexibility for scheduling this work so that restrictions could be avoided.

7.3.6. Summary of Additional Benefits

The additional benefits provided by the proposed LNG Storage Facility discussed in this Section
7.3 are summarized below:

• Incremental Firm Transport Revenue could provide a benefit of between $32 to 42


million over the planning period (Section 7.3.2 and Table 7-6);

• Security of supply is enhanced by the location of the LNG Storage Facility, effectively at
the end of regional transmission infrastructure that serves TGVI and TGI’s service areas
(Section 7.3.2). The facility would help mitigating any impacts of any upstream supply
restrictions or price disconnects;

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Mt. Hayes LNG Storage Facility

• Improved system reliability is realized by the availability of an alternate supply source for
TGVI’s customers in the event of an interruption or loss of system pressure on TGVI’s
System (Section 7.3.3). This significantly reduces the risk of service interruptions and
associated relight costs;

• The LNG Storage Facility will help reduce commodity price volatility for customers of
TGVI and TGI and other regional gas consumers that compete for gas at
Huntingdon/Sumas by providing for additional capacity during periods of peak demand
(Section 7.3.4); and

• Operational flexibility and efficiency benefits will be realized by the provision of an


additional resource for balancing and quick response to upset conditions (Section 7.3.5).
The use of the LNG Storage Facility as a secondary supply allows greater flexibility for
scheduling of operations and maintenance work.

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8. ECONOMIC JUSTIFICATION AND CUSTOMER IMPACTS

This Section discusses the economic justification for the TGVI LNG CPCN Application and the
benefits to TGI of entering into a long-term firm agreement with TGVI for storage services from
the LNG Facility. The value of the LNG storage resource is considered first for TGVI and then
TGI followed by an analysis of the customer rate benefits for TGVI of the LNG facility.

The economic justification for TGVI considers the combined costs and benefits of the LNG
Facility cost of service (from Section 5), the gas supply benefits and revenues from TGI (from
Section 7.1) and the TGVI system benefits (Section 7.2). For TGI the evaluation considers CTS
capacity benefits (Section 7.2) and mid-stream benefits that arise in specific circumstances.
The economic benefits for TGVI and TGI are developed for a base case (the Baseline Scenario)
and several sensitivity scenarios. In addition, a discussion of the significance of Other Benefits
as identified in Section 7.3 is included.

The last component of this Section discusses possible approaches to the treatment in TGVI’s
cost of service of the net LNG costs and provides a comparison of customer rate impacts of the
LNG portfolio and the Pipe and Compression portfolio under these possible treatments of the
LNG costs.

8.1. TGVI Portfolio Comparison

As discussed in TGVI’s 2006 Resource Plan, the LNG Storage Portfolio provides the most cost-
effective solution for meeting TGVI’s long term capacity and peaking gas requirements. In
addition, by constructing a 1.5 Bcf facility, TGVI is able to reduce average per unit cost of
storage through the economies of scale realized by the larger size of the facility. In this way by
offering firm storage services to TGI at a fixed price, TGVI is subsequently able to reduce the
cost impact to its own customers. This section provides the comparison of the LNG Storage
and P&C Portfolios for TGVI for the 1.5 Bcf facility in a similar fashion to that presented in
section 7.2 of the TGVI 2006 Resource Plan based on the updated costs provided in this
Application.

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Under the approvals sought in this Application TGVI will own and operate the LNG facility. TGVI
will, under the terms of the Storage and Delivery Services Agreement, provide a 1 Bcf and 100
MMcfd of the LNG Storage Facility capacity to TGI at a fixed price that is has been determined
based on the value to TGI of an incremental storage resource delivered to its system at
Huntingdon/Sumas. TGVI proposes to allocate the remaining costs to the gas supply and
transmission components of its cost of service based first on the recognition of the value of the
LNG service as a storage resource in its gas portfolio and the residual as transmission capacity
benefits for all customers on its system.

For TGVI, the benefit of the LNG Storage Portfolio as compared to the Pipe & Compression
Portfolio is driven by both the gas portfolio benefits and system capacity benefits. This section
compares the outcome of the two portfolio approaches side by side based on the following
assumptions:

ƒ TGVI System Costs reflects the incremental cost of service of the transmission facilities
added by TGVI under the different scenarios as discussed in Section 7.2.3 and summarised
in Table 7.3. In the LNG Storage Portfolio, TGVI System Costs include the cost of the
System Facilities.

ƒ LNG Cost of Service reflect TGVI’s annual cost of service associated with the LNG Storage
Facility as discussed in Section 5.2 and summarised in Table 5-1.

ƒ TGVI Gas Supply Benefit represents the value of the storage resource to TGVI’s gas
portfolio. The valuation of the storage resource is discussed in Section 7.1. Note that the
values summarised in Table 7-1 is for the total capacity of the 1.5 Bcf facility, whereas the
TGVI Gas Supply Benefit is based the 0.5 Bcf of capacity TGVI reserves for its own use.

ƒ TGI storage revenues reflect the price TGI pays under its agreement with TGVI for 1.0 Bcf
storage capacity as discussed in Section 5.3

8.2. Financial Assumptions

The 2006 Resource Plans provided a forecast of customer demand, gas supply and facility
requirements over a 25 year planning period ending in 2031. In addition, financial comparisons
of the different portfolio options were provided for 15 and 25 year evaluation periods beginning

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at the same point as the 25 year planning horizon. The use of two different evaluation periods
illustrates the sensitivity of the analysis to the length of the study period and is consistent with
the recommendations of the Commission Panel in its February 2005 decision as follows:

“In future resource plans, to address TGVI’s concerns about sub-optimal solutions, the
Commission Panel recommends that the Utility also conduct 15-year and 25-year
evaluations as sensitivity cases to assess the effect of the length of the study period.”
(page 18, end of section 3.2.2)

Note that the 25 year planning period begins in 2007 while the expected in-service date for the
LNG Storage Facility is 2011. Accordingly, the 15 and 25 year evaluation periods include only
the first 11 and 21 years of operation of the LNG Storage Facility.

Similarly, the present value calculations in the financial analysis was performed using both a
6.2% and 10% discount rate and is also consistent with the recommendations of the
Commission in the February 2005 decision as follows:

“The Commission recommends that TGVI consider its capital structure for the planning
period in the annual Resource Plan updates, and use a range of discount rates to reflect
the possible capital structure. In future Resource Plans, TGVI should present financial
comparisons using both a discount rate that is based on its after-tax cost of capital, and
higher discount rates to reflect risks to cash flows.” (page 21, end of section 3.2.3)

The 6.2% discount rate represents the forecast of TGVI’s after tax weighted average cost of
capital based the 60/40 debt equity split and an assumed long term ROE of 9.5% based on the
current ROE formula. The higher discount rate of 10% is used as a sensitivity to reflect the
uncertainty with future costs and demand.

Appendix F provides a summary of the financial assumptions used in the cost of service
analysis and detailed schedules supporting the financial results provided in following sections.

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8.3. TGVI Baseline Scenario

This scenario is based on TGVI’s Baseline Demand Forecast, P50 capital costs, and gas supply
benefits based on the same unit value paid by TGI to TGVI pursuant to the Storage and
Delivery Services Agreement. The results in Table 8-1 show that the net costs of the LNG
Storage Portfolio to TGVI, based on the arrangements proposed in this Application, are
significantly lower than the cost of the P&C Portfolio. The Baseline scenario demonstrates a
large present value net benefit from the LNG Storage Portfolio over both the fifteen-year and
twenty-five year evaluation periods and for both discount rates. Over the 25 year evaluation
period, the net saving is expected to be $66 million ($49 versus $155 million) while in the 15
year evaluation period, which includes only the first eleven years of operation of the LNG
Storage Facility, savings of $21 million ($27 versus $48 million) would be realized.

Table 8-1 TGVI Portfolio Comparison – Baseline Case

PV @ 6.2% PV @10%
($ Millions) LNG LNG
P&C P&C
25-Year Evaluation Period Storage Storage
Portfolio Portfolio
Portfolio Portfolio
TGVI System Costs $115 $21 $72 $15
TGVI LNG Costs 230 163
TGVI Gas Supply Benefit (68) (48)
Storage Revenues from TGI (135) (97)
Net Portfolio Cost $115 $49 $72 $33
15-Year Evaluation Period PV @ 6.2% PV @10%
TGVI System Costs 48 14 36 11
TGVI LNG Costs 148 117
TGVI Gas Supply Benefit (45) (36)
Storage Revenues from TGI (90) (72)
Net Portfolio Cost $48 $27 $36 $21

8.4. Sensitivity Scenarios

This section summarises the evaluation a number of different scenarios performed in order to
measure the impact of the net benefits of the Project resulting from any change in any of the

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base case assumptions such as capital costs, forecast demand and/or market value of alternate
storage resources. The scenarios that were assessed are described in Table 8-2 below:

Table 8-2 Description of Sensitivity Scenarios

Scenario Assumptions
Baseline Scenario • LNG and TGVI System costs based on P50 Capital Costs and
(Sec 8.3) TGVI Baseline Demand scenario (no firm service to ICP)
• Gas Supply Benefits based on JPS + discounted TF1
• TGI Revenues based on Storage & Delivery Agreement
Base + ICP • LNG and TGVI System costs based on TGVI Base + ICP
Scenario Demand scenario which includes firm service to ICP
• All other assumptions same as Baseline Scenario
Low Core Demand • LNG TGVI System Costs based on low core demand forecast
Scenario and no firm service to ICP
• All other assumptions same as Baseline Scenario
High Cost • LNG and TGVI System costs based on P90 Cost Estimates and
Scenario TGVI Baseline Demand
• All other assumptions same as Baseline Scenario
Upside Case • LNG and TGVI System Costs based on P10 Cost Estimates and
TGVI + ICP Demand Scenario
• Gas Supply Benefits based on avoided WEI Costs
• TGI revenues the same as Baseline Scenario

Appendix F provides the summary tables for each of these scenarios as shown for the Baseline
Scenario described in Table 8-1. The results for each scenario are shown Table 8-3 and Table
8-4 for the 25 and 15 year evaluation periods respectively. In these summary tables, the Net
LNG Benefits represent the cost savings that would be realized as a result of the Project over
the evaluation periods relative to the Pipe and Compression Portfolio approach. The Baseline
Scenario is shown for comparison purposes.

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Table 8-3 Net Portfolio Costs Sensitivities – 25 Year

Net Portfolio Cost ($ Millions) PV @ 6.2%


P&C LNG Net LNG
25-Year Evaluation Period Portfolio Portfolio Benefits
Baseline Scenario 115 49 66
Base + ICP Demand Scenario 148 79 69
Low Core Demand Scenario 80 48 32
High Cost Scenario 135 74 61
Upside Scenario 139 52 87
PV @ 10%
Baseline Demand Scenario 72 33 39
Base + ICP Demand Scenario 99 50 49
Low Core Demand Scenario 49 32 17
High Cost Scenario 85 50 35
Upside Scenario 93 31 62

Table 8-4 Net Portfolio Costs Sensitivities – 15 Year

Net Portfolio Cost ($ Millions) PV @ 6.2%


P&C LNG Net LNG
15-Year Evaluation Period Portfolio Portfolio Benefits
Baseline Demand Scenario 48 27 21
Base + ICP Demand Scenario 83 32 51
Low Core Demand Scenario 32 26 6
High Cost Scenario 57 43 14
Upside Scenario 78 18 60
PV @ 10%
Baseline Demand Scenario 36 21 15
Base + ICP Demand Scenario 64 24 40
Low Core Demand Scenario 23 20 3
High Cost Scenario 42 33 9
Upside Scenario 60 13 47

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The results of the sensitivity analysis show that there are positive net benefits provided by the
Project across a broad range of assumptions, and over both the fifteen and twenty five year
evaluation periods. Below are some important observations:

• Only the Base + ICP and the Upside scenarios assume that BC Hydro continues to be a
long term customer on TGVI’s System for service to ICP, however all scenarios show
positive net benefits. Hence, the justification for the Project is not dependant on
obtaining long term firm agreement with BC Hydro;

• In the Base + ICP scenario, the LNG Net Benefits are comparable to the Baseline
Scenario over the 25 year evaluation period, and are significantly higher over the shorter
term evaluation period since the LNG facility allows significant deferral of pipe and
compression expansion facilities that would otherwise be required early in the planning
period to serve ICP;

• The High Cost scenario which assesses the impact of the P90 cost estimates results in
higher costs in both the P&C and LNG Portfolios, however the impact on the Net LNG
Benefit is relatively small (e.g. $61 million for the High Cost Scenario versus $66 million
for the Baseline Scenario at 6.2% discount as shown in Table 8.3); and

• The Net LNG Benefits in the Low Core Demand scenario are lower than in the Baseline
scenario as the lower demand (and no service to ICP) defers the requirement for
expansion facilities in the Pipe & Compression Portfolio. However, this scenario
continues to provide positive benefits. In addition, as discussed in section 7.2.9, the
LNG Storage Facility will provide significantly higher capacity to provide short firm term
service to ICP and/or incremental transport loads that would not be available under the
P&C Portfolio.

Note that the LNG Net Benefits results represent avoided costs of alternate storage resources
and capacity expansion facilities and do not include consideration of the additional benefits
described in section 7.3 which would further increase the value of the Project to customers.
This potential is discussed in the following section.

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8.5. Impact of Additional Benefits

8.5.1. Incremental Transportation Revenues

As discussed in section 7.2.9, the LNG Storage Facility provides greater flexibility to continue to
serve ICP or future firm demands from the industrial customers thereby offering the potential to
further reduce the average unit cost impact to customers. The potential value of incremental
transportation revenues associated with this increased flexibility to the customers on TGVI’s
system assumed in the Baseline Demand scenario (i.e. Core TGVI, TGW and Squamish
customers and the VIGJV) is discussed in Section 7.3 and summarised in Table 7-5.
Consideration of this value in the net benefits further improves the Project value as shown in
Table 8-5 for the Baseline Scenario.

Table 8-5 Baseline Scenario Adjusted Net Benefits

PV $Millions Discount Rate


25 Year Evaluation Period 6.2% 10%
Net LNG Benefits (Table 8-3) 66 39

Net Incremental Transportation 33 32


Revenues (Table 7-6)
99 71
Adjusted Net Benefits
PV $Millions Discount Rate
15 Year Evaluation Period 6.2% 10%
Net LNG Benefits (Table 8-4) 21 15

Net Incremental Transportation 42 37


Revenues (Table 7-6)
63 42
Adjusted Net Benefits

The value of the flexibility realized by the LNG Storage Facility applies to all the scenarios
described in Section 8.4. While Tables 8.3 and 8.4 summarise the value of the avoided costs
realized by the LNG Storage Portfolio relative to the Pipe & Compression Portfolio, the potential
to realize additional transportation revenues provides further value to customers by allowing
TGVI to use its transmission system more efficiently and thereby reduce unit costs and

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subsequent rate impacts. The impact on the range of potential outcomes associated with the
Scenarios described in Table 8-3 and Table 8-4 is summarised in Table 8-6.

Table 8-6 Potential Range of Adjusted Net Benefits

PV $Millions Discount Rate


25 Year Evaluation Period 6.2% 10%
Net LNG Benefits (Table 8-3) 32 to 87 17 to 62

Net Incremental Transportation 33 32


Revenues (Table 7-6)
65 to 120 49 to 94
Adjusted Net Benefits
PV $Millions Discount Rate
15 Year Evaluation Period 6.2% 10%
Net LNG Benefits (Table 8-4) 6 to 60 3 to 47

Net Incremental Transportation 42 37


Revenues (Table 7-6)
48 to 108 40 to 84
Adjusted Net Benefits

8.5.2. Additional Benefits

In the 2004 Commission proceeding, in addition to financial benefits TGVI identified a number of
additional benefits relating to security of supply, reduced rate volatility, reduced CTS expansion
costs, balancing and reduced risk of stranded assets. The Commission Panel discussed the
merits of these additional benefits in Section 9 of its February 2005 decision and concluded:

The Commission Panel concludes that, in addition to the financial costs and benefits
discussed in the next Chapter, the LNG portfolio would have several material benefits for
TGVI ratepayers, compared to portfolios that include only compression, pipeline looping
and curtailment. (2005 Decision page 58)

Section 7-3 of this Application provides further review and assessment of the additional benefits
that would be provided by the LNG Storage Facility. Aside from the incremental transportation

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revenues discussed in 8.5.1, the following benefits and the potential financial impacts were
discussed:

• Security of Supply (section 7.3.2);


• Improved System Reliability (section 7.3.3);
• Reduced Rate Volatility (section 7.3.4); and
• Operational Flexibility and Efficiency (section 7.3.5).

Each of these items has the potential to improve the justification for the LNG Storage Facility by
improving operational flexibility or avoiding or mitigating the cost consequences of adverse
circumstances. TGVI believes they are important factors to consider in the evaluation of this
Project.

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8.6. TGI Portfolio Analysis

TGI is supporting the Project by entering into a long-term arrangement with TGVI for storage
and delivery services. Under terms of the Agreement, as described in Section 5.3, TGI will pay
a fixed price charge for the initial term 20 years following which the annual demand charge will
be based on an allocated share of TGVI’s cost of service of the LNG Storage Facility.

The primary benefit of the Agreement to TGI is access to an incremental storage resource as
part of its midstream gas portfolio. The LNG Storage Facility will help TGI to meet incremental
peaking requirements on its system and also help to mitigate the cost and availability risk
associated with its existing storage portfolio. As discussed in Section 7.2.5, in addition to a
midstream portfolio resource, the LNG Storage Facility will also provide TGI the flexibility to
manage the uncertainty relating to the future of Burrard Thermal without requiring it to expand
the CTS.

8.6.1. TGI Benefit

TGI’s cost for storage services under its agreement with TGVI reflects the cost of an
incremental storage resource based on the current JP storage expansion project and NWP
redelivery capacity. As discussed in Section 7.1 of this Application, and Appendix G of the TGI
2006 Resource Plan, the capacity offered by the JP storage expansion project was fully
subscribed and there is limited firm redelivery capacity available. There is no certainty on the
availability and cost of future downstream storage expansion capacity. TGI’s primary alternative
to meeting future requirements is therefore to hold additional upstream pipe capacity. As a
result, the assessment of the maximum value of the storage resource from TGI’s perspective is
the value of holding Westcoast T-South capacity assuming a historical level of mitigation as
discussed in section 7.1.4.2. The forecast of JP storage plus redelivery costs and WEI transport
form the potential range of value provided by the LNG Storage Facility as summarised in Table
8-7. These values correspond to those shown in Table 7.1 prorated for the 1.0 Bcf of firm
capacity of the 1.5 Bcf facility for which TGI is contracting under the Storage and Delivery
Services Agreement.

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Table 8-7 TGI Midstream value

PV $Millions Discount Rate


25 Year Evaluation Period 6.2% 10%
WEI transport with mitigation 161 113
TGVI Demand Charges* 135 97
Net Midstream Benefit 26 16
Discount Rate
15 Year Evaluation Period
6.2% 10%
WEI transport with mitigation 101 81
TGVI Demand Charges* 90 72
Net Midstream Benefit 11 9
*Equal to 2/3 of value JP Storage with NWP transport from Table 7-1.

8.6.2. TGI Benefit

Table 8-8 describes the three separate scenarios that were evaluated to assess the financial
benefits of the LNG Storage Facility to TGI through the Storage and Delivery Services
Agreement. These scenarios correspond to the similar TGVI scenarios described in Table 8-2.
The High Cost Scenario is excluded since the payments TGI makes to TGVI under the Storage
and Delivery Services Agreement are fixed based on the value of alternate market storage and
therefore not dependant on the final cost of the LNG Storage Facility. The Low Core Demand
scenario is also excluded since the requirements for CTS upgrades are driven by Burrard
Thermal and changes in core growth would have a negligible impact.

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Table 8-8 Description of TGI Scenarios

Scenario Assumptions
Baseline Scenario • TGVI Baseline Scenario
• Storage Value based on Storage & Delivery Agreement (i.e.
JPS plus redelivery)
• Burrard retired and BTA terminated in 2014
Base + Burrard • TGVI Base + ICP Scenario
Scenario • Storage Value based on Storage & Delivery Agreement
• Avoided CTS costs assumes operation of Burrard to 2021
Upside Scenario • TGVI Base + ICP Scenario
• Gas Supply Benefits based on avoided WEI Costs
• Avoided CTS costs assumes operation of Burrard to 2021

The results are summarised in Table 8-9 and Table 8-10 for the 25 year and 15 year evaluation
periods. As before, the evaluation periods commence in 2007 and therefore include only 21
and 11 years of LNG storage services assuming the LNG Storage Facility goes into service in
2011.

In the baseline scenario, Burrard is assumed to be retired in 2014 and therefore there are no
avoided CTS expansion costs. It is also assumed that TGI is able to access future incremental
downstream storage resources at the current cost of expansion and re-delivery capacity on
which the contract with TGVI is based. The other two scenarios assume that the agreement
with TGVI for storage services allows TGI to avoid CTS expansion facilities in order to meet its
obligations to serve Burrard Thermal until at least 2021. In the Upside Scenario, it is also
assumed that the alternative midstream resource to the TGVI LNG storage services is priced at
the cost of holding WEI pipeline capacity (with mitigation).

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Table 8-9 TGI Net Benefits – 25 Year

Net Portfolio Cost ($ Millions) PV @ 6.2%


Capacity Midstream Net
25-Year Evaluation Period
Benefit* Benefit** Benefit
Baseline Scenario 0 0 0
Base + ICP + Burrard Scenario 48 0 48
Upside Scenario 48 26 74
PV @ 10%
Baseline Demand Scenario 0 0 0
Base + ICP + Burrard Scenario 32 0 32
Upside Scenario 32 16 48
*Capacity Benefit from Table 7-5

**Midstream Benefit from Table 8-7

Table 8-10 TGI Net Benefits – 15 Year

Net Portfolio Cost ($ Millions) PV @ 6.2%


Capacity Midstream Net
25-Year Evaluation Period
Benefit Benefit Benefit
Baseline Scenario 0 0 0
Base + ICP + Burrard Scenario 28 0 28
Upside Scenario 28 11 39
PV @ 10%
Baseline Demand Scenario 0 0 0
Base + ICP + Burrard Scenario 21 0 21
Upside Scenario 21 9 30
*Capacity Benefit from Table 7-5

**Midstream Benefit from Table 8-7

The results show that the financial benefits TGI would realize from the Project ranges from 0 to
$74 million over the 25 year evaluation period or up to $39 million over the shorter period which
encompasses the first 11 years of operation of the LNG Storage Project.

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In addition to these financial cost savings, the construction of an storage facility will allow TGI to
realize many of the same benefits as TGVI that are described in section 7.3. In particular
security of supply (section 7.3.2), reduced rate volatility (section 7.3.4) and operational flexibility
and efficiency (section 7.3.5).

8.7. TGVI Customer Rate Impact

Sections 8.3 and 8.4 compare the net present value of the incremental costs for TGVI of the
LNG Storage Portfolio with the P&C Portfolio. The analyses show that the LNG Storage
Portfolio is the preferred alternative for meeting future system demand requirements because it
supports TGVI’s ability to provide natural gas services to its customers at the least delivered
cost. This section provides an assessment of the relative customer rate impacts of the two
portfolios based on certain assumptions. However, TGVI is not seeking at this time approval of
any allocation or rate design approach for recovery of the LNG Storage Portfolio net costs from
its customers.

As part of this Application, TGVI is seeking approval of the LNG Storage Facility, System
Facilities, and TGI Storage and Delivery Agreement. TGVI is also seeking approval of the ROE
treatment and the adjusted depreciation schedule associated with respect to LNG Storage
Facility. The allocation of costs and design of rates to recover the cost of the LNG Storage, net
of revenues from TGI, and the cost of the TGVI connecting facilities will be the subject of a
future rate review. This section examines the estimated cost allocations based as much as
possible on current approved rate design principles for TGVI. The rate impacts depicted in the
following figures and table are illustrative and present a reasonable range of outcomes.

The LNG storage capacity will be used differently by each utility. TGI will use the capacity as
part of its gas supply portfolio. Since the price to TGI in the Storage and Delivery Agreement is
based on the alternative storage resource – Jackson Prairie storage and redelivery to Sumas –
no incremental impact on the TGI gas supply portfolio is assumed. TGVI will use the LNG
capacity as part of its gas supply portfolio and also for system capacity to meet its firm peak day
obligations. Accordingly, the discussion below focuses on the impact to TGVI customers.

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8.7.1. System Cost Allocation Assumptions

The TGVI customer rate impacts were assessed for both the LNG Storage and the P&C
Portfolios under the Baseline Demand Scenario (i.e. TGVI, TGW and Squamish Core Demand
and the VIGJV). The assessment was based on current TGVI cost allocation principles where
applicable. The cost allocations for the LNG Storage Portfolio assumed that TGVI would assign
a portion of the LNG Storage Facility costs to its gas supply portfolio based on the same unit
value of storage implicit in the Storage and Delivery Agreement with TGI. The costs assigned to
the TGVI gas supply portfolio are offset by the share of the avoided midstream supply costs
discussed in Section 7.1 and Appendix E that TGVI will realize. TGVI’s remaining LNG Facility
costs, net of revenue from TGI (“Net LNG Storage Facility Costs”), have been allocated to core
market and transportation customers using two different approaches described in more detail
below.

Figure 8-2 below, illustrates the portion of the LNG Storage Facility costs, in this case for the
year 2015, that are assigned to TGI, the TGVI gas supply portfolio and the Net LNG Storage
Facility costs. These figures assume P50 capital costs.

Figure 8-2

TGI
Illustrative Allocation of Costs
Storage and
$Millions
Delivery

$12.6M

TGVI LNG TGVI


Storage $6.3M Gas Supply
Facility Portfolio

$1.9M
TGVI
Net LNG
Storage

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In this illustrative example, in 2015, of the $20.8 million LNG Storage Facility costs, $12.6
million is the responsibility of TGI, while $6.3 million is assigned to the TGVI Gas Supply
Portfolio. The TGI amount of $12.6 million is the annual charge for 2015 in the Storage and
Delivery contract based on 1.0 Bcf of capacity and 100 MMcfd deliverability. The TGVI
amount of $6.3 million allocated to TGVI’s gas supply portfolio is half of annual charge to
TGI in 2015 since TGVI has half of TGI’s capacity in the facility (i.e., 0.5 Bcf of capacity and
50 MMcfd deliverability). The residual LNG Storage Facility amount of $1.9 million is
counted as a system capacity benefit and is allocated to core market and transportation
customers on an illustrative basis under the following two LNG Storage Portfolio cost
allocation approaches:

Approach 1
• Net LNG Storage Facility costs are allocated to all TGVI customer classes (i.e., core
market and transportation customers);
• Net LNG Storage Facility costs and TGVI transmission system costs are allocated to all
customers based on the firm contract demand of transport customers and forecast core
market peak day demand;
• Distribution system costs are allocated to core market customers only.

Approach 2
• Net LNG Storage Facility costs are allocated to core market customers only;
• TGVI transmission system costs are allocated to all customers based on firm contract
demand of transport customers and peak demand of core customers net of TGVI’s
portion of the LNG Storage Facility sendout capacity; and
• Distribution system costs are allocated to core market customers only.

The Baseline Demand Scenario assumes that BC Hydro is not a firm customer (for ICP) and
therefore transmission capacity is not expanded to meet the contract demand for ICP.
However, as discussed in section 6.1.3, TGVI expects that BC Hydro will continue to require
some level of transportation service for ICP over the planning period. For the purposes of this
analysis, a simplifying assumption was made that BC Hydro will contract from period to period
on average at a level equal to 50% of ICP’s current contract demand of 45 TJ/day. This
simplifying assumption could also as a proxy for interruptible revenues for service to ICP.

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For the LNG Storage Portfolio, once the LNG Storage Facility is in service, as discussed in
section 7.2.9, TGVI will have sufficient capacity to provide firm transportation service to ICP to
meet the full demand of 45 TJ/d, assuming 53 hours of curtailment is available, at least until
2019. As illustrated in Table 7-1, the LNG Storage Portfolio is identical for both the Baseline
Demand Scenario and the Base plus ICP Demand Scenario up to 2019 when the Squamish
compressor may be required. Therefore an additional scenario was assessed for the LNG
Storage Portfolio in which BC Hydro contracts for firm capacity on a year by year basis for ICP’s
full 45 TJ/d requirement through 2018.

8.7.2. Expected Core Market Unit Cost Impact

Based on the principles and assumptions described above, Figures 8-3 and 8-4 illustrate the
expected average delivery cost (excluding cost of gas) to serve core market customers under
the two allocation approaches for the LNG Storage Portfolio compared with the P&C Portfolio. In
Figures 8.3 through 8.6, the average delivery cost (excluding cost of gas) for the P&C Portfolio
is plotted as the line graph, and the bars represent the LNG Storage Portfolio.

Figure 8.3 assumes the Net LNG Storage Facility costs are allocated to all customers
(Approach 1). Figure 8.4 assumes those net costs are allocated to core market customers only
(Approach 2). Both Figures 8.3 and 8.4 present the allocated unit delivery costs for the core
market in $/GJ with the bars representing the LNG Storage Portfolio and the line representing
the P&C Portfolio. The results show similar allocated costs to core customers for both portfolios
over the near term to 2015; however over the longer term to 2031 the LNG Storage Portfolio
shows increasingly lower allocated costs than the P&C Portfolio because of the ability to avoid
add compression facilities to meet incremental demands.

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Figure 8-3
Core Market Average Delivery Cost (Excluding Cost of Gas)
Approach # 1
10

7
Unit Delivery Cost ($/GJ)

2 Allocated Unit Delivery Cost LNG


Allocated Unit Delivery Cost P&C
1

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Figure 8-4
Core Market Average Delivery Cost (Excluding cost of Gas)
Approach # 2
10

7
Unit Delivery Cost ($/GJ)

Allocated Unit Delivery Cost LNG


2
Allocated Unit Delivery Cost P&C

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

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8.7.3. Firm Transportation Service

The forecast average cost for firm transportation service customers is illustrated in the Figures
8-5 and 8-6 employing the two allocation approaches described above. These figures present
the forecast allocated unit costs in $/GJ/day for firm transportation customers with the bars
representing the LNG Storage Portfolio and the line representing the P&C Portfolio. Figure 8-5
assumes the Net LNG Storage Facility costs are allocated to all customers and transmission
system costs are allocated based on core peak demand plus transportation contract demand
(Approach 1). Figure 8-6 assumes the Net LNG Storage Facility costs are allocated to core
market customers only (Approach 2). The results again show that the LNG Storage Portfolio
will allow TGVI to offer firm transportation services at comparable or lower allocated cost over
time, than the P&C Portfolio. As is the case for the core market customers, this benefit is
expected to increase if other loads are added to the TGVI system.

Figure 8-5
Firm Transportation Service Average Cost
Approach #1
1.4

1.2

1.0
Unit Delivery Cost ($/GJ)

0.8

0.6

Allocated Unit Delivery Cost LNG


0.4
Allocated Unit Delivery Cost P&C

0.2

0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

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Figure 8-6
Firm Transportation Service Average Cost
Approach # 2
1.4

1.2

1.0
Unit Delivery Cost ($/GJ)

0.8

0.6

0.4

Allocated Unit Delivery Cost LNG


Allocated Unit Delivery Cost P&C
0.2

0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

8.7.4. Levelized Cost Comparison

The allocated delivery costs (i.e. excluding the cost of gas) for core market and transportation
customers are shown in Figures 8-3 through 8-6 an annual basis. To facilitate a better
comparison of the results of these alternative portfolio and allocation approaches, Table 8-11
below shows the levelized allocated costs (excluding gas costs) for core market and
transportation customers using 15- and 25-year evaluation periods to 2021 and 2031
respectively. A sensitivity scenario is also provided showing the impact in the LNG Storage
Portfolio of providing firm contract demand of 45 TJ/D to BC Hydro for ICP through 2018. After
2018 the ICP contract demand is reduced by 50% as additional compression facilities would be
required at that point to provide the full contract demand. The capability of providing firm
capacity to BC Hydro until 2018 is applicable only to the LNG Storage Portfolio and represents a
potential increased benefit for TGVI’s customers provided by the Project.

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Table 8-11 Comparison of Levelized Allocated Average Delivery Costs Excluding Gas Costs

Levelized Allocated Cost Levelized Allocated Cost


2011 - 2022 2011 - 2032
($/GJ) ($/GJ)
LNG LNG Pipe & LNG LNG Pipe &
Baseline Scenario Approach 1 Approach 2 Compression Approach 1 Approach 2 Compression

Core Market 7.65 7.52 7.75 7.77 7.63 8.02

Firm Transport 0.96 1.14 1.17 0.94 1.13 1.17


Impact of Firm
Service to ICP to
2018
Core Market 7.35 7.08 7.56 7.32

Firm Transport 0.83 1.07 0.85 1.08

Conclusions and Observations:

• The results show that the allocation of the LNG Storage Facility costs either to the core
market only or to all customers provide benefits for both the core market and
transportation customers. The levelized allocated unit costs for the LNG Storage
Portfolio are lower under either allocation approach and for both evaluation periods
than the levelized allocated unit costs for the P&C Portfolio; and

• There is the possibility of further benefits being achieved from the LNG Storage facility
if service to ICP is maintained at the full contract demand as long as system capacity
allows. Additional firm transportation revenues from ICP have the potential to further
lower the allocated unit costs for core market and transportation customers.

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Mt. Hayes LNG Storage Facility

9. CONCLUSIONS

This Application requests approval from the Commission for:

• TGVI to construct and operate the 1.5 Bcf Mt. Hayes LNG Storage Facility and recover
costs based on requested ROE treatment and adjusted depreciation rate;

• TGVI to construct and operate System Facilities which include transmission system
reverse flow valves and transmission pipeline laterals required for TGVI to benefit from
the LNG Storage Facility; and

• TGVI and TGI to enter into a long term Storage and Delivery Services Agreement.

The target in-service date for the proposed facilities is April 1, 2011, and the estimated direct
capital costs for the LNG Storage Facility and System Facilities are as follows:

Table 9-1
Capital Costs Forecast Probability
As Spent $Millions P10 P50 P90
LNG Storage Facility 157.4 167.8 188.8
System Facilities 10.4 11.6 13.2
Total Direct Costs 167.8 179.5 202.0

TGVI will proceed with pre-construction development activities required to confirm current cost
estimates and schedule to support project initiation by 1 December 2007. TGVI is requesting
approval to proceed with the Project if at that time the cost estimates continue to fall within the
current P10 to P90 forecast. This Application also seeks approval for TGVI to recover the costs
associated with the pre-construction development activities if the Project does not proceed at
the conclusion of the pre-construction phase due to unforeseen cost escalation.

This Application is consistent with the conclusions and actions set out in both the TGVI and TGI
2006 Resource Plans. The analyses presented in this Application demonstrate that the
construction, ownership and operation of an LNG Storage Facility near Mt. Hayes on Vancouver

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Mt. Hayes LNG Storage Facility

Island under arrangements presented herein, is in the best interest of TGVI, TGI and their
customers.

Among the major benefits of the LNG Storage Facility will be the ability of both utilities to reduce
dependence on services that are, or would otherwise be, contracted at facilities located outside
their service areas, and provide higher reliability and security of supply through access to on-
system storage resources. The approvals sought in this Application will allow TGVI to avoid
costs associated with pipe and compression infrastructure that would otherwise be required to
meet the growing core customer demand in the TGVI service area. The LNG Storage Facility
will also allow TGI to significantly defer future transmission system expansion that might be
required, depending on BC Hydro’s future plans for Burrard Thermal.

The pricing structure being sought through the proposed contractual arrangements reduces
costs to TGVI in the early years of facility operation, thereby benefiting TGVI and its customers
by offering the least cost option for meeting growth in core customer demand on Vancouver
Island and the Sunshine Coast. In addition to providing a cost effective long term solution for
core market customers, the proposed LNG Storage Facility will also allow TGI and TGVI to
manage the uncertainty associated with serving future demand from electrical generating
facilities in each service area.

Page 123
GLOSSARY

Annual demand – the cumulative daily demand for natural gas over an entire year.

Avoided cost – the incremental cost that a utility would incur to purchase gas supplies
and capacity equivalent to that saved under a demand side management
program. Components of avoided cost could include energy, capacity, storage,
transmission and distribution.

BCUC (British Columbia Utilities Commission). The BCUC is the provincial body
regulating utilities in British Columbia.

Bcf – Billion cubic feet

CFT (Call for Tenders) – in this document, CFT refers to a specific Call for Tenders that
BC Hydro has initiated as part of a review of electricity supply options for
Vancouver Island.

Cogeneration – in this document, cogeneration refers to the generation of both


electrical and thermal power simultaneously by utilizing the waste heat from a
gas turbine to generate steam.

Commission – see BCUC.

Compression, compressor station – the application of increased pressure to a natural


gas pipe system to create gas flow. Higher levels of compression can be applied
to increase the carrying and storage capacity of the pipe. Increased pressure is
applied through a compressor station constructed along the pipeline.

Core, core customers, core market – residential, commercial and small industrial
customers that have gas delivered to their home or business (bundles sales).
Terasen Gas purchases natural gas and delivers it to the customer in a bundled
sales rate. Core Market customers typically use a significant portion of their gas
requirements for heating applications, resulting in weather sensitive demand.

CPCN (Certificate of Public Convenience and Necessity) – a certificate obtained


from the British Columbia Utilities Commission under Section 45 of the Utilities
Commission Act for the construction and/or operation of a public utility plant or
system, or an extension of either, that is required, or will be required, for public
convenience and necessity.

CPI – Consumer Price Index

CPR (Conservation Potential Review) – a study completed to identify opportunities for


energy savings across gas and electrical energy delivery infrastructures and
improvements to overall energy utilization efficiency.

CSA – Canadian Standards Association

CTS – Terasen Gas Inc.’s Coastal Transmission System


CVRD – Cowichan Valley Regional District

Daily demand – the amount of natural gas consumed by Terasen Gas’ customers
throughout each day of the year.

Demand forecast – a prediction of the demand for natural gas into the future for a given
period and under a specified set of expected future conditions.

Demand side, Demand side programs – defined as “any utility activity that modifies or
influences the way in which customers utilize energy services”. From Terasen
Gas’ perspective, the primary objectives of demand side programs are to
increase the overall economic efficiency of the energy services it provides to
customers and maintain the competitive position of natural gas relative to other
energy sources.

Design-day demand, design hour demand (see also: peak day or peak hour demand)
– the maximum expected amount of gas in any one day (with respect to TGVI) or
hour (with respect to TGI, Lower Mainland) required by customers on the TGVI or
TGI systems. Since Core customers' demand is primarily weather dependent,
design-day or design-hour demand is forecasted based upon a statistical
approach called Extreme Value Analysis, which provides an estimate of the
coldest day weather event expected with a 1 in 20 year return period. For
transportation customers, the design-day is equivalent to the firm contract
demand. (See also: peak day).

EPA - Electricity Purchase Agreement.

EPC – Engineering, procurement and construction.

ESR – Environmental and Social Review Report

GJ – Gigajoule – A measure of energy of natural gas - one billion joules. One joule of
energy is equivalent to the heat needed to raise the temperature of one gram (g)
of water by one degree Celsius (ºC) at standard pressure (101.325 kPa) and
standard temperature (15ºC).

GLJ - GLJ Petroleum Consultants Ltd. is a private petroleum industry consultancy


serving clients who require independent advice relating to the petroleum industry,
including the preparation of natural gas and oil price forecasts on a quarterly
basis.

ha - hectare

Heating degree day – A measure of the coldness of the weather experienced. The
number of heating degree days for a given day is calculated based on the extent
to which the daily mean temperature falls below a reference temperature, 18
degrees Celsius.

Huntingdon/Sumas – gas flow regulating stations on either side of the British Columbia
/ US border through which much of the regional gas supply is traded.
I-5 Corridor – the natural gas regional market area served by infrastructure located
along Interstate 5 in the north western US. The I–5 Corridor includes B.C.’s
Lower Mainland and Vancouver Island, Western Washington and Western
Oregon.

ICP (Island Cogeneration Plant) – A cogeneration plant located at Elk Falls, Campbell
River supplying electricity and thermal energy on Vancouver Island.

IEP (Integrated Electricity Plan) – BC Hydro’s 2006 Integrated Resource Plan.

ILM – Interior to Lower Mainland electrical transmission capacity improvement project


proposed by British Columbia Transmission Corporation.

JP (Jackson Prairie) Storage – downstream storage resources.

JV (Joint Venture) – see Vancouver Island Gas Joint Venture.

LNG (Liquefied natural gas) – natural gas cooled to -160 oC at atmospheric pressure
condenses to a liquid. One volume of this liquid is formed from approximately
620 volumes of natural gas. The clear liquid weighs about half as much as the
same volume of water.

LNG Import Terminals - Terminals that receive liquefied natural gas that is shipped in
large tankers from overseas. LNG Import terminals are considered base load
supply resources not peaking resources.

LNG Storage Facility – in this Application, refers specifically to an LNG storage tank
and infrastructure located inside the site fence, including liquefaction and
sendout infrastructure.

Load – the total amount of gas demanded by all customers at a given point in time.

Load duration, load duration curve – a graphical representation of the daily loads over
a period of time, typically one year, sorted from highest load to lowest load.

Looping – the twinning of sections of gas transmission pipeline to improve flow


characteristics within the service area.

LTAP - BC Hydro’s Long Term Acquisition Plan which identifies the preferred resources,
both supply and demand, which the utility intends to acquire over the long-term to
serve the growing demand for electricity in BC.

Market Area Storage – natural gas storage facilities and services that are located near
the consuming market. It is generally characterized by high deliverability and low
capacity.

MEMPR - Ministry of Energy and Mines and Petroleum Resources.

MMcfd - 1 million cubic feet per day.


MOP - maximum operating pressure.

MOU – Memorandum of Understanding

NWGA - NorthWest Gas Association is a trade organization of the Pacific Northwest


natural gas industry. Its members include six natural gas utilities, including
Terasen Gas, serving communities in Idaho, Oregon, Washington and British
Columbia, and three interstate pipelines that move natural gas from supply
basins into and through the region.

NWP – Northwest Pipeline.

Off-system Storage – natural gas storage facilities that are located outside of TGVI or
TGI service areas.

On-system Storage – Natural gas storage facilities and services attached to the natural
gas transmission or distribution systems owned and operated by TGI or TGVI.

OGC – British Columbia Oil and Gas Commission.

Peak day / peak hour demand – see Design day / hour demand

P90, P50, P10 Cost Estimate – The probability, based on a statistical distribution, that
actual costs will be at or below a given cost estimate value. For example, a P90
cost estimate of $100,000 has a 90% probability that actual costs will be at or
below the stated value of $100,000 for that estimate.

PJ – Petajoule – equal to 1,000 Terajoules or 106 Gigajoules.

Portfolio, resource – resource portfolio refers to selected supply and / or demand


resources that, when grouped together, can meet the future demand and supply
needs of a service area.

Portfolio, gas supply – gas supply portfolio refers to a combination of different


upstream gas supply resources that can be purchased or contracted by TGI
and/or TGVI to ensure that gas supply and delivery to the TGI and TGVI systems
meets customer demand throughout the planning period.

psig – pounds per square inch gauge.

Resources – demand side and supply side means available to meet forecasted energy
needs. Examples of supply side resources within the context of the Resource
Planning process are Pipeline Looping, Compression and Storage. Examples of
demand side resources are industrial customer curtailment and load
management programs for residential and commercial customers.

ROW – Right-of-way.

Tcf – Trillion cubic feet.

TJ – Terajoule – equal to 1000 Gigajoules


TGI – Terasen Gas Inc. a subsidiary of Terasen Inc.

TGVI – Terasen Gas (Vancouver Island) Inc. a subsidiary of Terasen Inc.

TGVI Transmission System – the gas transmission pipeline and related facilities
owned and operated by TGVI extending from a point of connection with the
Terasen Gas Inc. system in Coquitlam, British Columbia to various delivery
points on the Sunshine Coast and Vancouver Island.

Tilbury facility / Tilbury LNG Storage Facility – an existing, on-system LNG storage
facility located in the Tilbury industrial area in Delta, BC owned and operation by
TGI .

VIGJV (Vancouver Island Gas Joint Venture) – a Vancouver Island Gas Joint
Venture, a joint venture of seven pulp & paper mills who contract for
transportation services as a single entity. The joint venture is comprised of the
following corporations and limited partnerships: Howe Sound Pulp and Paper
Limited Partnership, Catalyst Paper Corporation, Pope & Talbot and Western
Pulp Limited.
Appendix A
LNG PROJECT INFORMATION
Appendix A Mt. Hayes LNG Storage Project

APPENDIX A

Table of Contents
1.0 Projects Description .......................................................................................................1
1.1 LNG Storage Facility Project .........................................................................................1
1.1.1 LNG Storage Facility Project Development............................................................................. 1
1.1.2 Mt. Hayes LNG Storage Facility Site....................................................................................... 1
1.1.3 LNG Facility Description.......................................................................................................... 1
1.1.4 Public Consultation and Siting................................................................................................. 4
1.1.5 Site Size Requirements........................................................................................................... 6
1.2 System Facilities Project ...............................................................................................9
1.2.1 Pipelines and Measurement/Odourization Station .................................................................. 9
1.2.2 Rights-of-Way........................................................................................................................ 10
1.2.3 Reverse Flow Transmission Modifications............................................................................ 10

2.0 Environmental Assessment .........................................................................................10


3.0 Other Approvals ............................................................................................................13
3.1 Design, Construction and Operations .........................................................................13
3.2 Site Rezoning and Land Purchase..............................................................................13
3.3 Private Land Rights .....................................................................................................13
3.4 Crown Land Rights......................................................................................................14
3.5 Access Road Use........................................................................................................14
4.0 Safety and Integrity.......................................................................................................14
4.1 LNG Storage Facility Integrity .....................................................................................14
4.2 LNG Storage Facility Integrity Methodology................................................................14
4.3 LNG Storage Facility Hazards.....................................................................................15
4.4 LNG Storage Facility Fire Protection Systems ............................................................16
4.4.1 Construction – Risk to the Forest .......................................................................................... 16
4.4.2 Operation – Facility Risk to the Forest .................................................................................. 16
4.4.3 Operation – Fire Risk to the Facility ...................................................................................... 17
4.5 Other LNG Storage Facility Safety Issues...................................................................17
4.6 Pipeline Integrity..........................................................................................................18
4.7 Seismicity ....................................................................................................................18
4.7.1 Seismic Design and Mitigation .............................................................................................. 18
4.8 Facility Security ...........................................................................................................19
4.9 Emergency Response Plan (ERP) ..............................................................................20
4.10 Local Notification and Involvement..............................................................................20
5.0 Public Consultation ......................................................................................................20
5.1 Public Consultation Program.......................................................................................20
5.2 First Nations ................................................................................................................21
5.3 Socio Economic Assessment ......................................................................................21
6.0 Project Management, Engineering and Construction................................................21
7.0 Liquefied Natural Gas (“LNG”) ....................................................................................22
7.1 What is It? ...................................................................................................................22
Appendix A – LNG Storage Facility Project Information Page i
Appendix A Mt. Hayes LNG Storage Project

7.2 Usefulness...................................................................................................................22
7.3 Composition ................................................................................................................22
7.4 Safety ..........................................................................................................................23
7.5 Temperature Effects....................................................................................................23

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Appendix A Mt. Hayes LNG Storage Project

APPENDIX A

TGVI PROJECT INFORMATION

Appendix A provides project information for the LNG Storage Facility and the System Facilities
projects that is partially based on the 2004 1.0 Bcf facility information that was developed by
TGVI and supplements the updated information in Sections 3 and 4 of this Application. The
2004 project information was conditionally approved by the Commission in the 2005 Decision.
Project description, environmental assessment, site selection, public consultation, safety and
integrity, approvals and project execution remain essentially the same for the current Application
other than an increase in the LNG Facility size up to 1.5 from 1.0 Bcf.

In this current Application, TGVI is proposing to construct a new 1.5 Bcf LNG storage facility at a
location referred to as Mt. Hayes located in the Cowichan Valley Regional District near
Ladysmith on Vancouver Island., an electrical supply, two pipeline laterals and transmission
system improvements.

The larger facility size and high level of industrial construction activity have resulted in higher
capital costs, and resultant socio-economic benefits.

1.0 PROJECTS DESCRIPTION

1.1 LNG STORAGE FACILITY PROJECT


The project work includes a 1.5 Bcf LNG storage facility to be constructed at a location referred
to as Mt. Hayes near Ladysmith on Vancouver Island and an electrical substation and electrical
power line from the BC Hydro transmission system to the LNG Storage Facility site.

1.1.1 LNG Storage Facility Project Development


In addition to the TGVI 1.0 Bcf LNG Storage Facility project development work, TGVI has
incorporated the experience and expertise of TGI in operating, maintaining and upgrading the
Tilbury LNG Facility which has been in service since December 1970. Project development has
also incorporated information provided by major LNG Facility construction contractors and
consultants as well as TGVI and TGI's extensive pipeline systems construction and project
management experience.

1.1.2 Mt. Hayes LNG Storage Facility Site


A site has been selected at a location referred to as Mt. Hayes in the CVRD, approximately 6
km NW of Ladysmith. Rezoning of the site for an LNG Facility use was approved by the CVRD
on May 26, 2004. The property, owned by Island Timberlands (previously Weyerhaeuser), has
been optioned for purchase upon full Project approval.

1.1.3 LNG Facility Description


The LNG Storage Facility is being designed with capacities as outlined in the following table
with 200 days of liquefaction to fill the tank if completely utilized and the ability to send-out at
daily rates up to 10% of the storage capacity.

Appendix A – LNG Storage Facility Project Information Page 1


Appendix A Mt. Hayes LNG Storage Project

Figure 1-1
1.5 Bcf FACILITY CAPACITY TABLE
Design Capacity Volume/Rate Energy/Rate
Storage 1.5 Bcf 1,620,000 GJ
Liquefaction Rate 7.5 MMcfd 8,100 GJ/d
Max. Send-out Rate 150 MMcfd 162,000 GJ/d

An LNG storage facility consists of six major elements, each offering design options and
alternative operational systems that need to be evaluated in the final design phase. The
components are:
• feed gas purification;
• liquefaction;
• LNG storage;
• send-out;
• facility ancillary equipment and facilities;
• utility connections and connection to pipelines

Previously, an Engineering, procurement and construction LNG contractor had been engaged to
provide a front end engineering and design (“FEED”) study and firm price for a 1.0 Bcf facility in
early 2005 in anticipation of approval of the previous application. The EPC contractor provided
the facility design to the level required to provide a firm price for a turnkey facility, and had
resolved some of the design options in each of the major elements. The results of that work
and additional review with the EPC contractor on the 1.5 Bcf facility are reflected in the following
commentary, but may be subject to review with the development of the detailed design of the
1.5 Bcf facility size as proposed in this Application.

1.1.3.1 Feed Gas Purification


Liquefaction of natural gas requires process temperatures to -162oC (-260oF). Any impurities
such as water, carbon dioxide, heavy hydrocarbons and odorant in the feed gas must be
removed to prevent process equipment from fouling or plugging by the freezing of these
impurities. A variety of purification systems are available with selection dependent upon the
feed gas composition. Due to the expected carbon dioxide and water content of the feed gas,
TGVI anticipates using either a molecular sieve or amine purification system. The impurities
removed by the sieve are returned back to the gas transmission system to be mingled with the
natural gas flowing downstream while those removed by an amine system would be removed
and disposed of in an environmentally friendly manner.

1.1.3.2 Liquefaction
Following the purification process, the clean gas stream is sent to a refrigeration unit where the
gas is cooled and condensed to its liquid state for storage. The most commonly used liquefiers
make use of one of the following designs:
• cascade cycle;
• mixed refrigerant cycle;
• expander cycle.

The LNG Storage Facility will incorporate a mixed refrigerant cycle liquefier (similar to the
process used at Tilbury) as it has a lower capital and operating cost, and is the predominant
standard at similar LNG peak-shaving facilities throughout North America. This process

Appendix A – LNG Storage Facility Project Information Page 2


Appendix A Mt. Hayes LNG Storage Project

requires a compressor of approximately 3.4 MW (4,500 hp), which will be electrically driven. A
net liquefaction rate of 7.5 MMcfd will be specified.

1.1.3.3 LNG Storage


After liquefaction, the LNG is stored in a single containment, double walled, insulated tank. The
internal tank pressure is limited to near atmospheric pressure (2 psig) while keeping the LNG at
-162oC. A thermal insulation system, consisting of expanded perlite and foam glass, separates
the inner and outer shells. The inner shell, which is in direct contact with the LNG, is made of
9% nickel alloy steel. The outer shell, designed to hold the insulation and act as a vapour
holding vessel, is made of carbon steel. The tank height is expected to be in the order of 45 m
and the diameter in the order of 62 m.

The 1.5 Bcf (69,600 m3 actual volume) net useable volume tank will be surrounded by earthen
dike impoundment constructed from locally sourced materials including shot rock made
available on site from required site grading activities. The impoundment (earthen dike),
capable of holding the total volume of the LNG tank, will be constructed according to current
LNG codes and standards. The height and diameter of the dike will be determined in the final
design phase, however, the preliminary design includes a dike in the order of 5 m to 7 m in
height. Figure 1-2 provides a conceptual image of an LNG Facility with an earthen dike.

Figure 1-2

Conceptual Single containment storage tank with secondary containment earthen dike

Appendix A – LNG Storage Facility Project Information Page 3


Appendix A Mt. Hayes LNG Storage Project

1.1.3.4 Send-out
A send-out system performs the following functions:
• pumping LNG from storage to transmission line pressure;
• vapourizing LNG by heating the LNG to return it to vapour;
• controlling natural gas flow and temperature.

The total send-out capacity is separated into two independent send-out systems (trains) with
interconnections, with each system capable of sending out 75 MMcfd. This will provide
redundancy for failure of any send-out train or component thereof at normal send-out rates, it
will support send-out rates as low as approximately 15 MMcfd (20% of the smallest single train
capacity), and will provide total send-out capacity of 150 MMcfd.

1.1.3.5 Ancillary Equipment and Facilities


In addition to the basic functions of liquefying, storing and send-out of natural gas, other
ancillary equipment systems are required. These systems include:

• Boil-off compressors to compress gas which evaporates inside the tank enabling delivery
of the gas to the main transmission system flowing downstream. Boil-off will be specified
as a maximum of 0.05% of tank volume per day;
• Security systems including such items as fencing, lighting, closed circuit cameras (“CCTV”)
and card locked gates as well as perimeter motion detectors;
• Backup electrical power generation to ensure sufficient power to control the facility and
send-out (but not to liquefy) in the event of loss of supply from the electric utility. The
facility will include a diesel powered generator due to its lower capital cost;
• Fire protection and control systems, including water monitors at strategic locations within
the facility fed from an onsite water storage tank, replenished from a pond to be
constructed to collect runoff water;
• Dry chemical fire extinguishers;
• Independent monitoring and safety shutdown controls, including remote control and
computer assisted control and shut down systems to isolate and shut down as required.

1.1.3.6 Powerline and Communications


TGVI will construct and own a 25 kV electric transmission line and substation which will be
designed to applicable codes and electric utility standards. Electrical power is required for
general facility utilities and to supply the electric motors driving the liquefaction compressor,
boil-off compressor and send-out pumps. A fibre optics communications line to serve the LNG
Storage Facility will be installed on the electrical power poles.

1.1.4 Public Consultation and Siting


The siting of the LNG Storage Facility considered the requirement to receive supply and send
out into the TGVI System. In addition, the selection of the location of the facility also considered
operational flexibility and capacity benefits to the TGVI transmission system and generally is
optimal when located closest to major peak loads.

Studies were initiated by TGVI, the 2004 proponent of the LNG Facility in the previous
application, to determine whether suitable areas within the TGVI service area, and eventually a
site, could be identified to locate the facility. The area chosen for the study included a ten (10)
km wide band centred on the TGVI main transmission pipeline on Vancouver Island.

Appendix A – LNG Storage Facility Project Information Page 4


Appendix A Mt. Hayes LNG Storage Project

Approximately 25 Candidate Areas were identified that met siting criteria. Following this step, a
helicopter supported field reconnaissance was undertaken to gain further understanding of the
characteristics of the Candidate Areas in regard to terrain and geotechnical conditions as well
as location within the viewshed of populated areas. Based on this study and further pipeline
system hydraulic analyses, three potential sites (“Candidate Sites”) were selected for further
study.

These three sites were:


• West of Mt. Hayes;
• West of Mt. Prevost;
• Duke Point Industrial Area.

Meetings and presentations were held with local governments (municipal and regional) and First
Nations to outline the rationale for the project and the site selection process. Open Houses
were held in early December 2003 in Duncan and Cedar to introduce the public to the project
and the characteristics of LNG, to answer any questions brought forward, and to solicit opinions
on the Candidate Sites.

Based on further analyses of the three Candidate Sites and the information gained from the
public at the initial Open Houses, the site west of Mt. Hayes was chosen as the preferred site for
the facility. The Mt. Hayes site was chosen because:
• The site offers good foundation and geotechnical conditions;
• The site is well hidden from the viewshed to the east, where people live, and is isolated
from land uses other than commercial forestry;
• Most of the facility site has been clearcut logged;
• Potential environment and archaeological values were considered minor;
• The pipeline connection to the TGVI transmission system does not significantly impact
property owners and does not cross any fish-bearing streams;
• There is existing access to the site;
• Site related construction and operating costs are reasonable;
• The public who attended the Open Houses in December did not voice a concern about the
Mt. Hayes location.

Following the decision to select the site west of Mt. Hayes for the LNG Facility, TGVI held
another Open House on January 14, 2004, at the North Oyster School on Cedar Road. The
purpose of this meeting was to fully inform the public about the decision and to further respond
to questions raised by the public as well as to provide those members of the public who did not
attend the earlier Open Houses, an opportunity to learn about the project. The general view of
the public who attended the Open House was that TGVI had made an appropriate decision in
selecting Mt. Hayes as the preferred site and that the construction and operation of an LNG
Facility at the location was generally acceptable.

On February 2, 2004, TGVI filed an application for rezoning with the CVRD for a portion of a
property owned by Island Timberlands (formerly owned by Weyerhaeuser). Following a Town
Hall meeting and Public hearing, the application for rezoning was approved by the CVRD on
May 26, 2004.

Appendix A – LNG Storage Facility Project Information Page 5


Appendix A Mt. Hayes LNG Storage Project

The following Figure 1-3 illustrates the general location of the proposed LNG Storage Facility.
Figure 1-3

General Location of proposed LNG Storage Facility

1.1.5 Site Size Requirements


A block of property at the Mt. Hayes site has been optioned from the owner, Island Timberlands
(previously Weyerhaeuser). The 142 ha (350 acre) site is shown on the following Figure 1-4.

The inset in Figure 1-4 provides an outline of the Island Timberlands property (142 ha), the area
within the property that has been rezoned (42 ha), and the area of Crown land outside the
property (20 ha) to the west, which TGVI seeks to control to ensure thermal radiation setback is
maintained as per the CSA code. The option agreement with Island Timberlands anticipates a
future subdivision of the 142 ha lands to allow TGVI to return to Island Timberlands the portions
of the property not required by TGVI as operational area or buffer zone to enable Island
Timberlands to maintain ownership of and resume forestry operations on that portion of the
property. TGVI anticipates retaining an additional 20 ha of property to the east of the rezoned
area, to contain the required buffer zone, and returning the remaining 80 ha to Island
Timberlands.

Appendix A – LNG Storage Facility Project Information Page 6


Appendix A Mt. Hayes LNG Storage Project

Within the 42 ha rezoned area, the physical facility boundaries will encompass approximately 20
ha.

The location of the proposed powerline rights-of-way and the access road are also noted in
Figure 1-4. Each of these components is described below.

Appendix A – LNG Storage Facility Project Information Page 7


Appendix A Mt. Hayes LNG Storage Project

Figure 1-4

LNG Site and Utility Connections Locations

Appendix A – LNG Storage Facility Project Information Page 8


Appendix A Mt. Hayes LNG Storage Project

1.1.5.1 Buffer Zone


The CSA Z276 Code requires a series of thermal radiation setback zones to surround an LNG
facility. The size of the setbacks is determined in accordance with the code based on the
dimensions of the impoundment which surrounds the LNG tank. These setback zones are
required to ensure that the public gathering places and public buildings, in existence at the time
of facility siting, are located a specified distance from the LNG facility to manage potential
impact should a fire result within the impoundment area. The design-build contractor provided
design work indicating the buffer zones could extend to approximately 400 m from the centre of
the impoundment area for a 1.0 Bcf facility. A portion of such an extended buffer area extends
beyond the Island Timberlands property onto Crown land to the west. TGVI intends to own or
control all of the area required to maintain the code setback distances based on the actual
facility design to ensure public use or development will not encroach upon the facility buffer over
time.

TGVI has previously successfully applied to the OGC for a lease for approximately 20 ha to
extend control over Crown land adjacent to the west of the Island Timberlands property as
shown in Figure 1-4. The OGC permits expired in April 2007 and TGVI is confident of renewal
of the permits.

1.1.5.2 Rights-of-Way
The approximately 5 km long, 7 m wide TGVI 25kW electric transmission line right-of-way and
the 18 m wide TGVI pipelines right-of-way are intended to be parallel rights-of-way adjacent to
the existing access road into the facility site. The access road will be relocated by TGVI over a
portion of its length to avoid a gravel extraction site and to remove some steep segments with
tight turns and will be upgraded from its existing condition. The rights-of-way pass through
private and Crown land requiring easement from both private landowners and the Crown. TGVI
has previously successfully made application to the OGC for the required Crown land
easements for the pipeline and powerline and the access road improvements. The OGC
permits which expire in April 2007 are in the process of being renewed by TGVI. The general
location of the road and rights-of-way are indicated in Figure 1-4.

1.2 SYSTEM FACILITIES PROJECT


The System Facilities Project scope of work includes two pipeline laterals and a
measurement/odourization facility to connect the LNG Storage Facility to the existing TGVI
transmission pipeline, and minor modifications to the TGVI transmission system to
accommodate reverse flow.

1.2.1 Pipelines and Measurement/Odourization Station


The LNG Storage Facility must be connected to the transmission system with two pipelines. The
pipelines provide connection to the TGVI transmission system for the supply of feed gas and
also for the return of natural gas (the impurities from the purification process, tail gas) during
liquefaction. The two pipelines required during liquefaction then serve to return natural gas to
the transmission system during vapourization and send-out.

TGVI anticipates constructing 2 pipelines (8” and 10”) approximately 5 km in length to connect
the TGVI Facility to the transmission system.

Custody transfer measurement of gas into and out of the LNG Facility is required and gas in the
TGVI system must be odourized. The TGVI measurement and odourization station, adjacent to
the LNG Facility, will provide these essential services.
Appendix A – LNG Storage Facility Project Information Page 9
Appendix A Mt. Hayes LNG Storage Project

1.2.2 Rights-of-Way
An approximately 5 km long, 18 m wide pipeline right-of-way is required for the pipeline laterals.
The 18 m wide right-of-way and the proposed 7 m wide 25kW electric transmission line right-of-
way and are intended to be parallel rights-of-way adjacent to the existing access road into the
facility site. The rights-of-way pass through private and Crown land requiring easements from
both private landowners and the Crown. TGVI has previously successfully made application to
the OGC for the required Crown land easements for the pipelines. The OGC permits expired in
April 2007 and TGVI is confident in the success of renewal of the approvals. The general
location of the right-of-way is indicated in Figure 1-4 of Appendix A.

1.2.3 Reverse Flow Transmission Modifications


In addition to the connecting pipelines and the measurement/odourization facility as identified in
the 2004 application, TGVI will require minor modifications to its existing transmission system to
allow flow in the reverse direction during the maximum sendout from the LNG Facility. There
will be a requirement to flow gas back to the TGI system from the TGVI system (with a 1.5 Bcf
facility with a 150 MMcfd sendout capacity) at times when the required combined storage
service sendout of TGVI from the LNG Facility is greater than the TGVI system load.

The existing check valves on the downstream side of each of the two marine crossings on the
transmission system will be replaced with actuated valves to allow the reverse flow direction.
The actuated valves will provide the same security of reverse flow blockage in the event of an
upstream pipeline failure during normal flow operation of the system.

The Texada Compressor Station (V-4) must be modified to accommodate reverse flow
operation in order to move the reverse flow required during peak LNG sendout at non-peak
TGVI system demand. These modifications will require the installation of a second set of side
valves and associated piping and control system changes.

The TGI/TGVI custody transfer station located at Eagle Mountain, Coquitlam, must be modified
to accommodate the reverse flow operation to allow flow from the TGVI transmission system
into the TGI transmission system. The modification will include flow measurement, pressure
control and overpressure protection.

2.0 ENVIRONMENTAL ASSESSMENT

TGVI completed an Environmental and Social Review (“ESR”) for the Project in 2004, based on
a 1.5 Bcf facility. The work scope included in the ESR included the LNG facility, the electrical
transmission line, the pipeline laterals and measurement/odourization station and the road
upgrades. The ESR formed a significant component of the public consultation program in
support of the site rezoning application to the CVRD.

The ESR concluded that "With the successful implementation of the mitigation measures
recommended in this report, no residual post-mitigation significant impacts are expected to
occur." A summary of the "Project Impact Significance" results of the ESR are repeated here as
Table 2-1. The 2005 Decision stated in Section 7.7 “Environmental issues at the proposed
Mount Hayes site were considered in some depth in the ESR and with two exceptions, no
significant environmental impact form the proposed facility was discovered. The two
exceptions relate to water and aquatic systems and vegetation, both of which can be neutralized
with mitigation efforts recommended in the report.”

Appendix A – LNG Storage Facility Project Information Page 10


Appendix A Mt. Hayes LNG Storage Project

TGVI confirmed in 2004 that an application under the BC Environmental Assessment Act
("BCEAA") is not required for the 1.5 Bcf LNG Facility as the project falls below the threshold for
energy storage projects. TGVI has reconfirmed with the B.C. Environmental Assessment Office
that the project does not require application to their department. A Canadian Environmental
Assessment Act ("CEAA") assessment is also not required as no CEAA triggers were found
during the site assessment.

System Facilities work beyond the scope of the 2004 ESR includes the modifications to the
TGVI transmission system to allow reverse flow direction. This work, including check valve
replacements, Texada compressor station modifications and Eagle Mountain custody transfer
modifications, are within the compounds of existing TGVI facilities and will have no significant
environmental impacts.

Appendix A – LNG Storage Facility Project Information Page 11


Appendix A Mt. Hayes LNG Storage Project

Table 2-1
Environmental Assessment Summary of Project Impact Significance

Impact Significance*
Impact Topic
Unmitigated Mitigated
PHYSICAL ENVIRONMENT
• Geology and Soils N N
• Natural Hazards N N
• Water and Aquatic Systems S N
• Air Quality and Climate N N

BIOLOGICAL ENVIRONMENT
• Vegetation S N
• Wildlife N N
• Fish and Fish Habitat N N

HUMAN ENVIRONMENT
• Urban and Rural Settlement N N
• Transportation N N
• Forestry N N
• Recreation N N
• Archaeology N N
• Aesthetics N N
• Noise N N
• Domestic Water Supply N N
• Economic Effects B B

FACILITY AND PUBLIC SAFETY


• Forest Fires N/A N
• Seismicity N/A N
• Facility Integrity N/A N
• Pipeline Integrity N/A N
• LNG Transportation N/A N
• Site Security N/A N

CUMULATIVE EFFECTS
• Construction N N
• Operation N N
*
N= Not Significant
S= Significant
B= Beneficial
N/A = Not applicable; project design and construction standards incorporate these
requirements
U= Unknown due to lack of information

Appendix A – LNG Storage Facility Project Information Page 12


Appendix A Mt. Hayes LNG Storage Project

3.0 OTHER APPROVALS

3.1 DESIGN, CONSTRUCTION AND OPERATIONS


The design, construction and operation of LNG storage facilities are regulated by the OGC. The
LNG Storage Facility and System Facilities projects will conform to the most recent edition of
the standards, codes and regulations in Table 3-1 and others as applicable.
Table 3-1 Primary Codes and Regulations

Code Edition Description


B.C. Pipeline Act and Pipeline 2004 Provincial Regulation of the Design, Construction and
Regulation Operation of Pipeline Facilities
CSA Z 276 2001 LNG Production, Storage, and Handling
CSA Z662 2003 Oil and Gas Pipeline Systems
NBC, BCBC & CVRD Req’ts 2005 National Building Code of Canada 2005
C.E.C. 2006 Canadian Electrical Code Part 1, most recent Edition
API 620 App. Q 10th Design and Construction of Large, Welded, Low Pressure
Storage Tanks
CSA B51 2003 Boiler, Pressure Vessel, and Pressure Piping Code
CAN/CSA A23.3-94 (R2000) 2004 Design of Concrete Structures
Terasen Standards As Standards for Equipment, Materials, Construction
Applicable Procedures, Inspection, Testing, Security and Safety

The powerline will be designed and constructed to electric utility engineering and construction
standards. The design and construction of the electrical substation will conform to the Canadian
Electrical Code CSA 22.1

3.2 SITE REZONING AND LAND PURCHASE


The CVRD approved for rezoning a portion of the property optioned previously by TGVI (owned
by Island Timberlands) to allow construction and operation of an LNG Storage Facility. The
CVRD gave approval to that rezoning application on May 26, 2004. A copy of the approval
bylaw which allows for two 1.5 Bcf LNG tanks was included in Appendix 7 of TGVI’s 2004
Application for a CPCN for the LNG Storage project. The property was optioned by means of a
two-year option agreement which has subsequently been extended until July 31, 2008.

3.3 PRIVATE LAND RIGHTS


The LNG Facility is to be located entirely on land which will be owned by TGVI and will require
no private easements. The connecting power line, pipeline laterals and road will cross land
primarily owned by Island Timberlands, TimberWest Forest Limited ("TimberWest") and the
Crown. Only one other private land holding will be impacted. All impacted land owners are
aware of TGVI’s requirements and no difficulties are anticipated in securing any of the private
land easements.

Appendix A – LNG Storage Facility Project Information Page 13


Appendix A Mt. Hayes LNG Storage Project

3.4 CROWN LAND RIGHTS


Crown land easements will be required for portions of the power line and pipeline laterals and in
addition, TGVI proposes a lease over a segment of Crown land immediately adjacent to the
west of the LNG Facility property. This crown lease will enable TGVI to maintain control over
lands which fall within the code required thermal setback buffers.

Approval for the Crown land leases was received in 2005, which expired in April 2007, and
TGVI is confident in the successful renewal of the approvals.

3.5 ACCESS ROAD USE


TGVI requires the use of existing access roads owned and operated by TimberWest to access
the Mt. Hayes Site. The access road(s) will need to be relocated in some sections and
improved and TGVI has a road use agreement with TimberWest to cover improvements and
road use to ensure access to the LNG Storage Facility is acceptable.

4.0 SAFETY AND INTEGRITY

4.1 LNG STORAGE FACILITY INTEGRITY


LNG has been safely handled for many years throughout the world and has an excellent safety
record. Over the last 50 years, there have been no impacts to any member of the public as a
result of any incidents arising from LNG operations of the kind envisioned herein.

Worldwide, there are currently about 240 peak shaving LNG storage facilities 1 (three in
Canada), some operating since the mid-1960s. The U.S.A. has the largest number of LNG
facilities in the world with 113 active spread across the U.S.A., with the highest concentration of
facilities in the north-eastern region.

4.2 LNG STORAGE FACILITY INTEGRITY METHODOLOGY


LNG Storage Facility integrity is addressed through a combination of regulatory compliance and
industry standards, resulting in multiple layers of safety in design and operation of the proposed
facility:

• The first layer is provided through LNG specific design of the storage and piping systems,
employing suitable materials and proven design throughout the facility. All design,
materials and construction will comply with the Canadian code for LNG facilities and the
requirements of the Pipeline Act and Regulations. The inner storage tank holding the LNG
will be constructed of 9 percent nickel steel, the most commonly used material for inner
tanks in the LNG industry. No LNG tank constructed of 9 percent nickel steel has ever
failed.
• The second layer is isolation and containment systems in the unlikely event of a leak or
spill of LNG. The facility is divided into numerous process segments that can be
automatically isolated from each other. The storage tank and LNG piping will be
surrounded by earthen dikes that can contain the entire contents of any spill or leak,
including the entire contents of the tank.
• The third layer is the use of safety systems to detect abnormal conditions to shut off the
flow of LNG to any leak or spill, to isolate the section and minimize the lost volumes. The
facility will employ gas, liquid and fire detection systems activating automatically and

1
University of Houston Law Center Institute for Energy, Law & Enterprise, Introduction to LNG, An Overview of Liquefied Natural
Gas (LNG) Its Properties, the LNG Industry, Safety consideration, January 2003.
Appendix A – LNG Storage Facility Project Information Page 14
Appendix A Mt. Hayes LNG Storage Project

remotely-activated shut-off, shut-down and fire-fighting systems in the event of any


emergency. These systems are continuously monitored by on-site personnel who can also
manually activate any safety system. In addition, the LNG Storage Facility will be
monitored 24/7 at TGI’s gas control centre located in Surrey, British Columbia.
• The fourth layer is the establishment of safe separation distances as required in the
regulatory codes and standards. TGVI will maintain control over land around the facility so
that the required buffer zone is maintained for the life of the facility.
• The fifth layer is the employment of proven and well-established and documented
operating and maintenance procedures, standards and practices. These documents, in
use at the existing TGI Tilbury LNG Facility, will be adapted to the specific requirements of
the proposed facility at Mt. Hayes. Participation in industry organizations and ongoing
review of these documents allow TGVI and TGI to keep up with developments in
technology and industry practices. Incorporated in these documents are clear
requirements for training of personnel, emergency preparation and safety procedures.
Cooperation with local emergency response agencies is incorporated in the operating
standards. Trained personnel will operate the TGVI facility at Mt. Hayes, and will
participate in development of all operating and maintenance procedures, standards and
practices.

4.3 LNG STORAGE FACILITY HAZARDS


The hazard most recognized in connection with the siting of an LNG facility is the potential for a
large-scale spill of LNG and the potential of a subsequent fire which could threaten the public
and employees and/or damage adjacent properties and the facility. The design of the LNG
Storage Facility minimizes this hazard. The safety systems are designed to minimize any spill
or leak and isolate and make safe the entire facility.

The proposed LNG storage tank contains the greatest volume of product in the facility. The
inner tank (the LNG primary containment) will be constructed of 9 percent nickel steel which has
been proven to withstand the cryogenic temperature (-162oC) of the LNG. An earthen dike will
provide impoundment, and will be designed to hold the entire contents of the inner tank in the
extremely unlikely event of a leak in the LNG tank.

Design of the LNG storage facility, per the codes, addresses a sustained pool fire which could
result if the LNG in the storage tank were to leak, empty into the earthen dike and catch on fire.
Such an event would create a large steady state pool fire for a sustained period of time. The
maximum thermal radiation hazard from such an event at any point around the facility is
determined through computer modelling 2 and is a function of the size of LNG pool, wind
direction and speed, relative humidity, ambient temperature and distance. The heat radiation
effect drops rapidly as the distance from the fire increases. The radiation zone for the proposed
1.5 Bcf TGVI Facility is expected to extend to a maximum of approximately 400 m from the
centre of the containment dike. TGVI will control use of the land and the activity of public and
personnel in all radiation areas considered within the codes. Since 1960, the world’s LNG
facilities (approximate 240) have recorded about 7,500 facility-years of experience. During this
time there has been no large spill of LNG.

LNG that spills or leaks will flow, much like water, to the low spots in the surrounding area,
where it will gradually evaporate. Along with a multitude of systems and equipment which are
designed to prevent any such spills or leaks from occurring in the first place, the proposed LNG

2
Determined by computer simulation program “LNG FIRE 3”, developed by Risk & Industrial Safety Consultants for Gas Research
Institute, 1996.
Appendix A – LNG Storage Facility Project Information Page 15
Appendix A Mt. Hayes LNG Storage Project

Storage Facility design also will utilize the natural properties of LNG and rely on “passive” safety
systems (e.g. channelling to specifically sited sump within the dike) which do not require the
operation of equipment or human intervention to function. In addition, the facility will incorporate
many hazard detection systems which will detect any spill, leak or fire as soon as possible and
allow equipment to be shut down and isolated so as to minimize the scale of such an event.

Once collected, any spilled LNG will evaporate slowly and can be monitored by the operating
staff at the facility to ensure no further hazard arises as a result of the spill. Initially the gas is
colder and heavier than the surrounding air and can create a fog or vapour cloud above the
released liquid. As the gas warms up it mixes with the surrounding air and begins to disperse.
If the vapour cloud encounters an ignition source, it can ignite only if the methane/air mixture is
in the 5 to 15 percent flammability range. The CSA code sets out the design criteria for the
control of the vapour to mitigate any impacts.

4.4 LNG STORAGE FACILITY FIRE PROTECTION SYSTEMS


Prevention of any fire occurs primarily through application of the five layers of facility integrity
noted in 4.2 above. To reduce the effects of a fire that does happen, the proposed LNG
Storage Facility will have a fire water system. A pond will be constructed on site to collect local
runoff water. Water from the pond will be utilized to fill an onsite fire water tank that will supply
the fire water system. An underground firewater pipe will encircle the facility. Branches will
feed various fire fighting locations with multiple hydrants to keep any equipment cool in the
event of fire at any adjacent location. Water is not used to fight an LNG fire, as the warm water
will increase the rate of vapourization of the cold liquid. Water is also not typically used to fight
or extinguish a natural gas vapour fire but is typically used to cool and protect facilities adjacent
to a fire and to fight non-gas related fires. Extinguishing a natural gas fire itself is achieved
through elimination of the supply of natural gas to the fire location.

Dry chemical fire extinguishing equipment to directly fight any natural gas (or other compound)
fire will be located throughout the facility. Dry chemical skidded, wheeled and hand held units
will be incorporated in the fire protection plan for the LNG Storage Facility.

4.4.1 Construction – Risk to the Forest


Construction of the LNG Storage Facility, with the attendant process work areas, and pipeline,
powerline and road construction, pose little risk of forest fire. Heavy equipment with firefighting
capability will be onsite at all required times in case a fire starts accidentally. The sites will be
cleared prior to construction activities. Piling and burning of the slash will be conducted under
provincial regulations, and will result in a reduced fuel load at the site.

The construction phase will include the development of an Emergency Response Plan ("ERP").
Construction workers will be briefed on the need for fire safety and proper response in case of
fire.

4.4.2 Operation – Facility Risk to the Forest


The risk to the surrounding forest area from a fire at the LNG Storage Facility is minimal.
TGVI’s Facility will be designed to fail safe by isolating equipment, containing spills and
accommodating fire without harm to surroundings. The facility design, combined with fire
warning and suppression systems that meet or exceed CSA requirements and industry
standards, provide a high level of protection against fire risk to the forest. At ambient
temperatures, without a source of ignition, the LNG would rapidly evaporate and dissipate. In
the event of ignition, water and dry chemical fire fighting equipment is available on site to fight

Appendix A – LNG Storage Facility Project Information Page 16


Appendix A Mt. Hayes LNG Storage Project

potential facility fires and keep adjacent facilities cool. The code designated thermal setback
areas will mitigate potential impacts to the public.

TGVI proposes to remove trees within a minimum of 100 m of the tank dike to mitigate the
potential for a fire at the LNG Storage Facility from impacting the adjacent forest.

4.4.3 Operation – Fire Risk to the Facility


Protection of the LNG tank from forest fires is an important consideration in TGVI’s design,
construction, and operation of the LNG Storage Facility sited in the forest environment. The fire
potential on south-eastern Vancouver Island is highly seasonal and protection services are
available.

The following mitigation measures will minimize the risk to the LNG Storage Facility from forest
fires:
• Maintain an appropriate separation distance (minimum 100 m) between the tank dike and
the forest;
• Ensure that the ERP includes cooperation with the Island Timberlands, the regulators, and
local fire departments;
• Use non-flammable materials for construction of all facilities on site;
• Install a firewater storage and pumping system with underground piping, fire hydrants, fire
monitors and hose cabinets installed in critical areas to cool facilities in the event of a
surrounding forest fire.

Given the specifics of project design, impacts resulting from a forest fire are considered to be of
low magnitude.

4.5 OTHER LNG STORAGE FACILITY SAFETY ISSUES


LNG facilities present other safety issues that are of relatively lower significance and
consequence than a fire, as far as the protection of the public is concerned. The facility design
and specific operating procedures will address these other hazards, which include:

• Personnel exposed to direct contact with LNG (liquid at -162oC) or very cold LNG vapours
could sustain severe frostbite (or freeze burns). The potential extent of this cryogenic
hazard is limited to the immediate area around equipment, piping and tanks containing
LNG. Protective clothing and shields will be used to mitigate this hazard;
• Methane gas, the primary component of LNG, is colourless, odourless and is classified as
an asphyxiate (when released it displaces air). Separation distances and gas detection
systems will be used to mitigate this hazard;
• The process of liquefying natural gas removes almost all of the components that give LNG
any detectable odour. All vapourized LNG leaving the LNG Storage Facility will be
odorized to meet government and pipeline standards. Fuel gas used in the LNG Storage
Facility will also be odorized. Additional hazard mitigation includes gas detection in areas
of possible leaks;
• Distances between property lines, buildings, electrical equipment, process equipment,
impoundments, and the proposed LNG storage tank will meet or exceed the spacing
requirements of CSA standards;

Appendix A – LNG Storage Facility Project Information Page 17


Appendix A Mt. Hayes LNG Storage Project

• The LNG Storage Facility will utilize continuous monitoring equipment to detect hazardous
conditions. Hazard detection will include: evidence of combustible gas, cold temperatures
from LNG spills, fire, smoke, and high pressure in tanks and vessels;
• Quantities of other compounds may be stored on site as part of the liquefaction or back-up
systems (e.g. diesel, propane, etc.) depending on the final specific design that is approved.
TGVI will ensure all appropriate and required safety systems are in place for these
compounds.

4.6 PIPELINE INTEGRITY


The LNG Facility will be connected to the TGVI transmission system by two pipeline laterals,
each 273 mm (10”) diameter pipelines of approximately 5 km length.

The pipeline laterals to the LNG Facility will be designed in compliance with the code
requirements of the Canadian standard “CSA Z662 Oil and Gas Pipeline Systems” and the B.C.
Pipeline Act. The design, construction and operation of TGVI’s pipeline systems are reviewed
and approved by the BC OGC, which is the responsible agency for regulations related to
construction, operations and maintenance for natural gas pipelines which operate at over 100
psig.

The laterals to the proposed LNG Facility will be buried a minimum of 0.7 m within a proposed
18 m wide right-of-way. The pipeline right-of-way is patrolled periodically via helicopter, in
addition to ground patrols. TGVI is a member of BC One Call, a notification service for anyone
wishing to dig in the vicinity of the pipeline. TGVI also maintains a complete list of all land
owners impacted by the pipeline right-of-way, and has a yearly pipeline awareness program.

The pipeline valves and the current pipeline conditions of the entire pipeline are monitored
centrally for all of TGVI’s transmission pipeline systems by a SCADA (Supervisory Control and
Data Acquisition) system which is manned 24/7. Emergency actions may be initiated remotely
by the SCADA operator in the event of a pipeline incident.

TGVI pipelines and laterals are capable of being internally inspected and once placed into
operation they become part of a systematic integrity inspection program.

4.7 SEISMICITY
South-western British Columbia including Vancouver Island is located within a seismically active
area. One of the mechanisms that results in earthquakes is continental drift, which involves the
slow movement of various continental and oceanic plates relative to one another. Movement
along a subduction zone involving the oceanic Juan de Fuca plate tending to slide down under
the edge of the continental plate which includes Vancouver Island is an important factor in the
seismicity of southern Vancouver Island and nearby parts of the coast.

4.7.1 Seismic Design and Mitigation


Earthquakes near the study area could potentially result in relatively high seismic motions.
Such earthquakes could occur as a result of fault movements along or close to the subduction
zone, or along faults within the continental plate overlying the subduction zone, such as the
Cowichan System.

The current edition of the Canadian Standard CSA Z276, which applies to LNG production,
storage, and handling, specifies two levels of earthquake motions that need to be considered
during facility design:
Appendix A – LNG Storage Facility Project Information Page 18
Appendix A Mt. Hayes LNG Storage Project

1. Operating Basis Earthquake ("OBE"), where the structures and systems will be designed to
remain operable during and after the OBE event. The current code specifies the OBE basis
as a 10 percent probability of exceedence within a 50-year period (corresponding to a 1:475
year event) and the proposed CSA Z276 update maintains this requirement;

2. Safe Shutdown Earthquake ("SSE"), where there will be no loss of containment capability of
the tank and it will be possible to isolate and maintain the LNG container during and after
the SSE event. The current code specifies the SSE basis as a 5 percent probability of
exceedence within a 50-year period (corresponding to a 1:1,000 year event). The draft CSA
Z276 update is proposed to specify a 1:2,475 year event (or approximately 1:2,500 year
event) which is the same as the design basis earthquake used in the current National
Building Code.

The LNG Facility will be designed to the higher standards encompassed in the proposed
revisions of the various codes incorporating the most recent knowledge and predictions of the
potential seismic motions. The proposed CSA Z276 requirements for the OBE and SSE seismic
events will be used as a minimum standard. A site specific seismic study by geotechnical and
seismic experts has been carried out to define local seismic design parameters. This study
includes consideration of both regional conditions as well as local conditions such as nearby
faults within the Cowichan Fold and Thrust Zone.

It should be further noted that the shaking which would be experienced in a very large
subduction earthquake could last much longer than the shaking from a smaller event, although
the local ground motions might be similar depending on the distance and attenuation
characteristics. The longer period of shaking will be considered in the design of the facilities.

There are about three hundred LNG storage tanks of this size and type in the world. Many of
these tanks are located in parts of the world that are more seismically active than the Mt. Hayes
location, such as Japan, Korea, Turkey and Greece. Because of the significant industry
experience, the methods for seismic design are well known and well accepted in the
international engineering community. The LNG storage tank, buildings, equipment and piping
proposed for the LNG Facility at the Mt. Hayes location are all well within the industry’s seismic
design and construction experience, practice and capabilities.

4.8 FACILITY SECURITY


The security strategy for the facility will include controlling all access by individuals and vehicles
onto the site. The entire boundary of the facility site, including the LNG storage and
vapourization facilities will be fenced with chain link and a top guard that meet or exceed
recognized industry standards as to gauge and height. The number of access points to the
LNG-related facilities will be limited to an absolute minimum, but will include at least one
emergency gate. The access points will have video monitoring, with feeds into the facility control
room. An employee will be required to manually or remotely unlock gates to allow access to
any persons or vehicles.

The monitoring and detection systems at the proposed facility will function on a “24/7” basis and
consist of intrusion detection alarms, CCTV, regular (but random) patrols and lighting. These
systems, as well as the security communication system, will be operated and monitored at the
control room.

LNG Facility operation and management will establish liaison with all appropriate government
security and emergency response agencies. TGVI is prepared to protect the public, employees
Appendix A – LNG Storage Facility Project Information Page 19
Appendix A Mt. Hayes LNG Storage Project

and the LNG Storage Facility from all threats or potential damage that can be defined as
reasonable, credible and defensible. The design of the facility, including the TGVI controlled
separation zone around the facility and the earthen dikes will minimize any potential impacts to
the public. TGV will ensure that training is provided to LNG facility operating personnel and that
the LNG facility is operated in compliance with Canadian regulations.

4.9 EMERGENCY RESPONSE PLAN (ERP)


TGI has an existing LNG Facility in Delta, B.C. which has operated successfully for over 30
years as well as thousands of kilometres of transmission pressure pipelines. TGVI considers
safety and emergency response to be of prime importance and will remain proactive in
improving the ERP and the safe operation of the LNG Facility. TGVI is committed to:
• Developing a site and location specific ERP for the proposed Mt. Hayes LNG Storage
Facility;
• Meeting or exceeding relevant laws and regulations and cooperating with local authorities;
• Regularly testing and improving emergency response plans;
• Ensuring appropriate resources and training to implement the plans;
• Monitoring industry development of improvements to emergency response issues.

The ERP will clearly lay out the methodology for TGVI employees to effectively manage any
emergency at the LNG storage facility. The ERP is developed to minimize injury to the public
and employees, to minimize damage to property and the environment, and to promote rapid
return to normal operation.

The ERP lays out the organization, duties and responsibilities of all facility and off-site support
personnel, including corporate emergency response centres. Chains of command are clarified,
including appropriate contact and communication with local and provincial emergency response
agencies.

4.10 LOCAL NOTIFICATION AND INVOLVEMENT


TGVI is committed to working with local and provincial authorities on all aspects of the proposed
LNG storage facility. Specific to the ERP, TGVI will work with the local Fire Department(s),
emergency response and regulatory authorities to achieve a high level of comfort and
communication, including ongoing dialogue on emergency preparedness and responsibilities for
response and cooperation and involvement in facility emergency exercises on a regular basis.

5.0 PUBLIC CONSULTATION

TGVI will be responsible for the project development process public consultation. The previous
TGVI consultation efforts were addressed in The 2005 Decision Section 7.6 “The public
consultations carried out by TGVI appear to have been adequate and there was a
comprehensive attempt to explain the operation and safety-related issues of an LNG storage
facility to members of the general public. The Commission Panel notes that there were no
adverse submissions by any intervenor in this proceeding that centred upon safety or
environmental concerns related to the LNG storage facility.”

5.1 PUBLIC CONSULTATION PROGRAM


The public consultation information provided in Section 1.1.4 above and in the 2004 ESR
outlines the comprehensive site selection and public consultation program that was undertaken
Appendix A – LNG Storage Facility Project Information Page 20
Appendix A Mt. Hayes LNG Storage Project

by TGVI in 2003 and 2004 to engage the public and locate a suitable site for the project. This
program culminated in the successful rezoning of the subject Mt. Hayes property.

Public consultation has continued with the key stakeholders and will continue through the
permitting, construction and operation phases of the project to ensure that project developments
are communicated in a timely fashion, TGVI is aware of any stakeholder concerns, any potential
negative impacts are mitigated and positive benefits of the project for the local community are
realized.

5.2 FIRST NATIONS


Although the majority of the lands affected by the LNG Facility and right-of-ways involve private
lands, with only a small impact to Crown lands, all the proposed TGVI facilities fall within the
traditional territory of the Chemainus First Nation ("CFN"). TGVI successfully negotiated a
Memorandum of Understanding (MOU) with the CFN in 2005

5.3 SOCIO ECONOMIC ASSESSMENT


The construction of the LNG Storage Facility and connecting facilities (estimated cost of $166
million) will provide positive benefits to local Vancouver Island communities as well as to British
Columbia and Canada.

The 2004 Environmental and Social Review Report included an assessment of the socio
economic effects of a 1.0 Bcf LNG storage facility as cost estimated at that time. The effects of
the project implementation, based on the current P50 capital cost estimate, are shown in Table
5-1.
Table 5-1

Economic Effects
Local Canada Ex-
$Million All BC TOTAL
Area (ex BC) Canada
Total $50.3 $73.0 $22.8 $69.5 $165.3
Employment Person-Yrs
Direct 120 180
Indirect 170 660
Total 290 840

Once in operation, the facility is expected to employ 9 full time employees and generate
approximately $150,000 in local expenditures annually (not including electricity and fuel gas).
Local property taxes paid on the LNG Storage Facility are estimated in the range of $500,000
annually.

6.0 PROJECT MANAGEMENT, ENGINEERING AND CONSTRUCTION

The LNG Storage Facility and System Facilities project team will also include personnel from
TGI and other parties to manage the all aspects of the project. TGI personnel involved in the
TGVI project team will draw on TGI’s considerable experience in managing and completing
major projects on time and on budget and experience in the development of the previous and
current applications. A TGVI project manager, who in turn will report to a TGVI project sponsor,

Appendix A – LNG Storage Facility Project Information Page 21


Appendix A Mt. Hayes LNG Storage Project

will direct all phases of the Project after BCUC approval and will execute the overall project
utilizing experienced contractors, consulting professionals and TGVI personnel.

TGVI will enter into a turnkey EPC contract for the 1.5 Bcf LNG Facility, including all work inside
the facility fence after site grade is established. The EPC contractor will manage the design,
procurement and construction of the major portion of the LNG Storage Facility according to
performance specifications and conditions contractually agreed to with TGVI. TGVI had
previously completed an Expression of Interest review with major LNG contractors and selected
an EPC contractor and negotiated a sole source contract for the 1.0 Bcf LNG storage facility.
TGVI completed negotiation of contract terms and conditions and performance specifications for
the 1.0 Bcf facility in support of the EPC contract.

TGVI will contract with an EPC contractor to provide an operational 1.5 Bcf LNG facility, to be
in-service approximately 40 months after Notice to Proceed (schedule as outlined in Section 5)
to allow the LNG tank to be full at November 1, 2011. Development of facility design and a firm
price for the EPC contract will take place as late as possible prior to the desired project
construction start date (issuing of the Notice to Proceed) to minimize contingency requirements
for future market, materials, equipment and industry volatility.

The power line installation will be managed by the TGVI project team engaging local consultants
and contractors, separate from the scope of the LNG facility work undertaken by the EPC
contractor.

The project manager will implement a project execution plan for the development of each
segment of the overall project including design and construction quality assurance for all
phases. TGI personnel experienced in LNG operations will be involved in the LNG Storage
Facility Project as required to ensure all facilities can be efficiently placed into operation upon
completion of construction in conformance with TGVI, TGI and industry practices.

7.0 LIQUEFIED NATURAL GAS (“LNG”)

7.1 WHAT IS IT?


When natural gas is cooled to a temperature of approximately -162°C (-260°F) at atmospheric
pressure, it condenses to a liquid called liquefied natural gas (“LNG”). One volume of this liquid
is formed from approximately 620 volumes of gas at atmospheric pressure and ambient
temperature. Conversely when vaporized, 620 cubic feet of gas are produced from every cubic
foot of liquid. This clear liquid weighs about half as much as the same volume of water.

7.2 USEFULNESS
The large ratio of the volume of gas to the volume of liquid (620:1) makes storage of natural gas
in the liquid state attractive. The reduced volume and liquid state also makes possible alternate
methods of transportation where conventional gas pipelines are not practical.

7.3 COMPOSITION
LNG is composed primarily of methane and may also contain ethane and some heavier
hydrocarbons. Small quantities of nitrogen, which often occur in natural gas, may also be
dissolved in LNG. Prior to liquefaction to produce LNG, natural gas must be treated to remove
carbon dioxide, water, sulphur compounds an all such constituents that could form solids at
LNG temperatures and plug process equipment.

Appendix A – LNG Storage Facility Project Information Page 22


Appendix A Mt. Hayes LNG Storage Project

7.4 SAFETY
LNG will not burn or explode and must be returned to its vapour state and then mixed in a ratio
of 5% to 15% gas in air before it is capable of supporting combustion.

7.5 TEMPERATURE EFFECTS


At atmospheric pressure, LNG boils at approximately 260°F (162°C) below zero. This is
classified as a "cryogenic" temperature. The field of cryogenics includes: the processes and
equipment used to produce liquefied gases such as LNG; the equipment used to store,
transport, and handle them; and all the phenomena that are produced by the cold temperature.

Marked changes in the physical behaviour of many materials occur at LNG temperatures.
Rubber at cryogenic temperature, for example, loses its resiliency and shatters like glass if
dropped or struck by a hammer. Carbon steel undergoes a change from a ductile material that
fails by stretching at warmer temperatures to a brittle material that fails by cracking at cryogenic
temperatures. While some of the familiar materials of construction are not suitable at LNG
temperatures, many materials such as 9% nickel alloy steel, aluminium, stainless steel and
concrete are well proven in use at these cryogenic temperatures.

Appendix A – LNG Storage Facility Project Information Page 23


Appendix B
A FAIR RETURN FOR NATURAL GAS STORAGE
INVESTMENT
Appendix B A Fair Return for Natural Gas Storage Investment

APPENDIX B

A FAIR RETURN FOR NATURAL GAS STORAGE INVESTMENT

The LNG Storage Facility will provide a valuable peaking gas supply resource for both TGVI and
TGI as part of their overall gas portfolios and reduce their dependence on third party
downstream storage resources and/or upstream pipeline capacity. In addition, as an on-system
resource, the LNG Storage Facility will allow TGVI to defer or avoid transmission system
expansions and improve the efficiency and reliability of its existing transmission system.

In Section 7.1 of the Application, the Company describes how the LNG Storage Facility will
provide storage services for TGI at a rate that is competitive with reasonable and appropriate
proxies for market rates. The same rate is assumed for TGVI in allocating a portion of the
remaining LNG cost of service to TGVI’s gas supply portfolio. The residual LNG Storage
Facility cost of service after deduction of TGI revenues and the allocation to TGVI’s gas supply
is attributed to the transmission system capacity requirement and results in costs that are well
below the costs of the pipe and compression alternative, as described in Section 7.2. In Section
7.3 the Company describes the additional benefits that TGVI and TGI customers will receive as
a result of the Project. In summary, customers of TGVI and TGI will receive storage service and
TGVI customers will receive increased system capacity, along with additional benefits. Under
the Project as proposed by the Company these services and benefits will be received at rates
that are at or below market alternatives. The economic justification, which is set out in Section
8, as well as the portfolio comparison analyses included in Section 7, have been determined
based on the Company’s proposal for an allowed ROE for the LNG Storage Facility set at 50
basis points above TGVI’s base-level ROE.

1 Natural Gas Infrastructure Regional Constraints

As summarised in Section 7.1.2 of the Application, natural gas infrastructure in TGVI and TGI’s
market area, the Pacific Northwest region, is becoming increasingly constrained during winter
peaking periods. In order to meet the growing peaking requirements of their customers, TGVI
and TGI’s gas supply alternative to the LNG Storage Facility is to promote incremental third
party investment in off-system storage resources and/or upstream/downstream pipeline capacity
through long term contractual commitments.

For more than 20 years there have been no major new investments in natural gas storage in
British Columbia. Presently there are only two natural gas storage facilities in British Columbia.
The Unocal Aitken Creek Storage, a supply area facility in northern BC, is the largest storage
facility in the province and is used by TGI as a seasonal resource. The second is TGI’s Tilbury
LNG, which is located in the Lower Mainland market area and is the only peak shaving storage
facility in BC. The Tilbury LNG facility is located on Tilbury Island in Delta, BC and has been in
operation since 1971.

TGVI’s proposed LNG Storage Facility will represent the first significant investment in a natural
gas storage facility in British Columbia in the last 20 years.

In the Pacific Northwest, there are only four LNG peak shaving storage facilities, and two major
underground gas storage facilities. The largest LNG facility is located in Plymouth, Washington
and is owned and operated by Northwest Pipeline Company (a subsidiary of Williams

Appendix B – A Fair Return for Natural Gas Storage Investment Page 1


Appendix B A Fair Return for Natural Gas Storage Investment

Companies Inc.). It has a storage capacity of 2.4 billion cubic feet, and a regulated return on
equity equal to Williams’ (black box settlement, approximately 11.2%, with a common equity
component of approximately 55%). The Plymouth LNG storage facility is regulated by the
Federal Energy Regulatory Commission (the “FERC”). Northwest Natural owns and operates
two LNG facilities, one located in Newport, Oregon and the second located in Portland, Oregon,
which is similar in size to the TGI’s Tilbury LNG facility. Both of these facilities are regulated by
the Public Utility Commission of Oregon, and have allowed returns on equity equal to Northwest
Natural’s Oregon allowed return on equity of 10.2%, and an approved common equity
component of 49.5%. Puget Sound Energy owns and operates a small satellite LNG peak
shaving facility located in Gig Harbor, with a storage capacity of 0.031 billion cubic feet. With
the exception of the small Gig Harbor satellite facility, which became operational in 2004, the
remaining three facilities have been in operation ranging from 20 to 35 years. Terasen Gas is
not aware of any definitive plans for additional peak shaving LNG storage facilities in the region
for the foreseeable future, although Terasen Gas understands that Cascade Natural Gas
Corporation is evaluating a potential peak shaving facility in its service territory.

The two underground storage facilities, which are described in more detail in Appendix G of the
TGVI 2006 Resource Plan, are Jackson Prairie (JP) storage, located in Chehalis, Washington
and co-owned by Northwest Pipeline Company, Avista Corporation, and Puget Sound Energy
(operated by Puget Sound Energy), and the Mist storage facility, located in Mist, Oregon and
owned and operated by Northwest Natural. JP storage is regulated by FERC and the
Washington Utilities and Transportation Commission, and each owner’s applicable allowed
return on equity is applied to their portion of the facility. The approved return on equity for
Northwest Pipeline Company as noted above is approximately 11.2%, with a common equity
component of approximately 55%. The approved return on equity for Puget Sound Energy is
10.3%, with an approved common equity component of 43%. Finally, the approved return on
equity for Avista Corporation is 10.4%, with an approved common equity component of 40%.
The Mist storage facility, owned and operated by Northwest Natural, is regulated by FERC and
the Public Utility Commission of Oregon, and it has an allowed return and equity capital
component equal to Northwest Natural’s, as noted above, which is 10.2%, and 49.5%
respectively.

The Jackson Prairie storage facility has been in operation since 1964, and is currently
undergoing a facility expansion, increasing delivery by 300 MMcf per day and the working gas
capacity by 6.3 Bcf, which is expected to be completed by 2010. TGI participated in the open
season for the JP storage facility expansion and was awarded a long term contract which has
subsequently been approved by the Commission. The need for regional storage resources was
highlighted by the fact that the JP storage facility expansion was oversubscribed in the open
season process.

The Mist storage facility has been in operation since 1989. In the year 2000, the Mist storage
facility underwent an expansion to allow for interstate services, and another recent expansion,
completed in 2007. Northwest Natural is not planning on expanding the Mist facility again until
at least 2012. Prior to the year 2000, Mist was used exclusively to meet Northwest Natural’s
core market requirements. With regard to the interstate services for the Mist facility, Northwest
Natural has an incentive arrangement on the revenues from these services which enable it to
achieve higher returns than its approved regulated ROE (currently 10.2% as discussed above).

As discussed above, Unocal’s Aitken Creek storage facility in northeast British Columbia is a
supply area resource. The Aitken Creek facility was developed in the mid-eighties and has

Appendix B – A Fair Return for Natural Gas Storage Investment Page 2


Appendix B A Fair Return for Natural Gas Storage Investment

expanded since then. Until recently, it has operated as an unregulated facility. After receiving
notice in 2006 that the BCUC intended to regulate the Aitken Creek facility a regulatory process
ensued in which Unocal has been seeking an exemption from rate regulation. The regulatory
process involved a written hearing process that resulted in a May 17, 2007 Decision and letter
from the Commission to the Province requesting approval to issue an exemption order to
Unocal for many but not all of the exemption provisions sought for the Aitken Creek facility. The
aspect of this Aitken Creek exemption process that is germane to the current discussion is that
the imposition of rate regulation and regulated returns on the Aitken Creek facility would
discourage new investment by Unocal in the facility.

As discussed above, no new LNG or underground storage facilities of significant size have been
developed in the region in recent years. Expansions at existing underground storage facilities
have occurred and the additional capacity from these expansions has generally been taken up
in short order, confirming that there is demand for these resources in the market place. Terasen
Gas observes that where there has been natural gas storage capacity developed in more recent
years it has been in the PNW where returns are relatively higher than the regulated allowed
returns in British Columbia, where there have not been any developments in new storage in
roughly 20 years.

2 Natural Gas Storage Infrastructure Concerns - North America

There have been two significant decisions recently from the FERC and the Ontario Energy
Board (“OEB”) signalling the need for regulatory forbearance in the natural gas storage market,
in order to facilitate capital investment in natural gas storage infrastructure.

FERC issued Order No. 678 on June 19, 2006, which established more flexible criteria for the
evaluation of applications for market-based pricing of natural gas storage services. FERC
Order No. 678 implements Section 312 of the Energy Policy Act of 2005, which permits FERC
to authorize storage providers, in appropriate circumstances, to charge market-based rates,
even when the storage providers cannot demonstrate that they lack market power. This final
rule was adopted to encourage the development of natural gas storage facilities in the United
States, as well as to reduce the price volatility of natural gas.

The Energy Policy Act of 2005, released on August 8, 2005 outlined that FERC may authorize a
storage provider to charge market based rates, if the provider can demonstrate that ‘‘(A) market-
based rates are in the public interest and necessary to encourage the construction of the
storage capacity in the area needing storage services…”, among other criteria. FERC Order
No. 678 recognizes that, storage providers may require incentives through deregulation and
market-based rates in order to encourage storage investment in areas in need of natural gas
storage resources.

On November 7, 2006, the OEB issued EB-2005-0551 Natural Gas Electricity Interface Review
Decisions with Reasons. In its decision, the OEB stated that they will refrain from regulating the
pricing for a significant portion of Ontario’s natural gas storage. The OEB Decision reserves
enough storage capacity in the existing storage facilities for forecast utility core market
requirements but permits market-based pricing for capacity over and above the reserved
amount and for any future storage expansions. The OEB believes that by refraining from
regulating the price of natural gas storage services, this decision will ensure the development of
much needed storage facilities, (which are primarily targeted for electricity generation).

Appendix B – A Fair Return for Natural Gas Storage Investment Page 3


Appendix B A Fair Return for Natural Gas Storage Investment

The FERC and the OEB are not the only regulatory bodies that are grappling with the growing
need for additional investment in energy infrastructure, not just natural gas storage, and
methods to facilitate such investment. In Nevada, certain new facilities that are considered by
the regulator to be “critical facilities”, based on criteria regarding reliability, diversity of supply
and price stability are permitted incremental allowed returns for the investment. In Iowa,
legislation has been enacted to allow specific ROEs to attract development of electric power
generating and transmission facilities within Iowa. This statute applies to rate-regulated public
utilities within the state.

Although the circumstances are not entirely the same in British Columbia (no two jurisdictions
are perfectly comparable), as those considered in the FERC and OEB rulings, as well as those
in the states of Nevada and Iowa, the Company is of the view and that higher allowed returns
for projects will encourage investment in much needed important energy infrastructure, including
natural gas storage, which will benefit all energy consumers in British Columbia and the region.

3 FERC Ruling to Promote Electric Transmission Investment

On July 20, 2006, FERC issued Order No. 679, and amended its regulations to establish
incentive-based rate treatments for electric transmission investments in order to encourage
transmission infrastructure investment. FERC Order No. 679 was issued pursuant to Section
1241 of the Energy Policy Act of 2005, “Transmission Infrastructure Investment”, which added
section 219 to the Federal Power Act. Section 1241 directed FERC to establish a rule that
would encourage investment in electricity transmission infrastructure. Section 1241 also
directed FERC to include in its order a provision for “a return on equity that attracts new
investment in transmission facilities...” The purpose of this rule was to benefit consumers by
ensuring reliability and decreasing the cost of power delivery by reducing electric transmission
congestion through encouraging capital investment in an aging electric grid system. In order to
receive a higher return on equity, a public utility must justify the requirements for the new facility
by demonstrating that it will increase transmission capacity and improve reliability. In addition
the utility must explain whether and how the proposed facility is included in a regional planning
process. Finally, the utility must explain how the proposed return on equity was derived and
justify why it is necessary and appropriate.

On October 31, 2006, FERC authorized a return on equity for the owners of the ISO New
England transmission grid, which included an incentive rate. The incentive rate was granted to
encourage electric transmission investment and increase the grid reliability in the New England
region. The FERC decision granted a specific ROE incentive of 100 basis points and confirmed
a link between the cost of the return on equity incentive and the benefits to New England
electricity consumers from the increase in transmission investment.

FERC determined that a base-level return on equity of 10.2 percent was appropriate. This was
based on a proxy group made up of United States northeast utility companies. FERC then
determined that this base-level return should be adjusted by: 50 basis points (or one-half
percent), which was in return for the transmission owners’ agreement to transfer the operational
control of their facilities to ISO New England, 100 basis points (or 1 percent), which is an
incentive to encourage transmission investment and expansion in the New England region, and
74 basis points, which reflected updated bond data. The resulting returns on equity were 11.7
percent covering the initial rate effective date of February 1, 2005 to October 31, 2006, and 12.4

Appendix B – A Fair Return for Natural Gas Storage Investment Page 4


Appendix B A Fair Return for Natural Gas Storage Investment

percent going forward. This FERC decision once again demonstrates that higher allowed
returns for capital projects are required to encourage capital investment in infrastructure.

4 The Rationale for a Fair Return

The Company believes that the LNG Storage Facility will, in addition to providing additional
reliability and security of supply as well as other benefits, allow for the provision of storage
services for gas customers in BC at costs in line with market rates based on reasonable proxies,
and will allow for the addition of transmission capacity for the TGVI system at a cost well below
the next best alternative. This favourable outcome in terms of costs from a customer
perspective, has been determined based on an ROE enhancement of 50 basis points over the
TGVI base-level allowed ROE for the LNG Storage Facility-related equity.

As stated above, TGVI and TGI’s alternative to the LNG Storage Facility for meeting its growing
peaking requirements is to promote, through long term contractual commitments, investment by
others in incremental off-system storage resources and/or upstream pipeline capacity. It is
likely that investments in off-system storage resources would occur in jurisdictions where higher
returns are allowed by regulators. Off-system storage investments elsewhere in the PNW will
not allow TGVI’s customers to realize the additional benefits of on-system reliability and security
of supply, and other benefits as described in the Application. Furthermore, if the gas supply
needs were met by new off-system storage, TGVI would not realize the benefits of avoided pipe
and compression costs. Consequently, the overall cost to TGVI’s customers would be greater,
fewer benefits would be realized, reliability and security of supply would be diminished at the
same time as another regulated utility was achieving higher returns on its incremental storage
investments funded by ratepayers in British Columbia. TGVI also notes that the development of
the LNG facility within BC is strongly consistent with the themes in the 2007 BC Energy Plan of
energy security and self sufficiency in the province.

In Canada over the last ten to fifteen years utility ROEs have been set predominantly according
to formula-based methodologies using an equity risk premium approach relative to long Canada
bonds. This has led to a widening gap in approved returns for Canadian local distribution
utilities and transmission providers relative to their U.S. counterparts. When the formula-based
ROE approach was adopted in the mid-1990s Canadian utility ROEs were comparable to the
ROEs being awarded in U.S. jurisdictions. Since the mid-1990s the effect of the formula-based
equity risk premium ROE methodology has been to reduce the allowed ROEs of Canadian
utilities to levels 100 to 170 basis points lower than their U.S. utility counterparts. Canadian
utility ROEs have declined even more dramatically in the same period relative to North
American low risk industrial returns. The issue of utility comparable earnings relative to low risk
industrial returns was addressed in the Commission’s March 2, 2006 decision on TGI and
TGVI’s Application to Determine the Appropriate Return on Equity and Capital Structure. In that
decision the Commission indicated that the comparable earnings approach deserved
consideration but there was insufficient evidence on the record to give weight to this approach in
arriving at the allowed ROEs. These trends are affecting the longer-term ability of Canadian
utilities to attract capital. While the short term impact of these trends on energy infrastructure
may not be obvious, in the longer term where investment risk is similar, rational investors will
put their money in higher return investments.

As is being recognized in other jurisdictions across the continent, it is important that there is an
appropriate climate for investment in important energy infrastructure, including additional natural

Appendix B – A Fair Return for Natural Gas Storage Investment Page 5


Appendix B A Fair Return for Natural Gas Storage Investment

gas storage, within the province. There have not been new greenfield storage resources
developed in the province or the Pacific Northwest in the past 20 years and the Company is of
the view that these important infrastructure investments need to be encouraged, and that can be
done through the provision of a fair and comparable return. Specifically, the Company is of the
view that an additional 50 bps of allowed return proposed for the Project is reasonable and
appropriate as it will promote much needed investment in a scarce resource in the region and
more importantly in British Columbia, that will provide storage service to the customers of TGVI
and TGI at or below the costs of alternatives. Furthermore, the Commission routinely approves
storage contracts with off system providers whose costs include returns significantly higher than
those being proposed for this project. The investment in this Project which delivers unique
benefits to utility customers over the alternatives should be allowed an appropriate and fair
return.

Appendix B – A Fair Return for Natural Gas Storage Investment Page 6


Appendix C
STORAGE & DELIVERY AGREEMENT
Schedule 1

This Storage and Delivery Agreement


made as of this day of , 2007

BETWEEN:
TERASEN GAS (VANCOUVER ISLAND) INC. a company incorporated under
the laws of British Columbia having an office at 16075 Fraser Highway, Surrey,
British Columbia (“TGVI”)

AND:
TERASEN GAS INC. a company incorporated under the laws of British Columbia
having an office at 16075 Fraser Highway, Surrey, British Columbia (“TGI”)

as sometimes referred to herein jointly as the “Parties” and individually as a “Party”.

WHEREAS

A. TGVI intends to construct a Liquefied Natural Gas (“LNG”) Storage Facility on


Vancouver Island at Mount Hayes near Ladysmith that is scheduled to be
available for usage on the Commencement Date.

B. TGVI operates an integrated natural gas transmission and distribution system


that serves customers on the Sunshine Coast and Vancouver Island.

C. TGI is interested in contracting with TGVI for LNG storage and delivery services
for the benefit of TGI’s core market customers.

NOW THEREFORE, in consideration of the promises set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:

1. DEFINITIONS

In this Agreement:

“Agreement” means this Storage and Delivery Agreement;

“BCUC” means the British Columbia Utilities Commission and any successor regulatory
authority;

“Capacity Demand Charge” is the demand rate for providing Storage Capacity
expressed in dollars per GJ;

“Coloured Gas Tax Commodity Charge” has the meaning set out in section 14.1 a);

“Commencement Date” has the meaning set out in section 2.1;

“Day” means the twenty-four hour period beginning 7:00 a.m. Pacific Clock Time;

“Delivery Service” has the meaning set out in section 3.2;

-1-
Schedule 1

“Firm Liquefaction Rate” has the meaning set out in section 3.1 a);

“Firm Liquefaction Service” has the meaning set out in section 3.1 a);

“Firm Redelivery Service” has the meaning set out in section 3.2 b);

“Firm Storage Capacity” means the maximum quantity of gas that TGI has the right to
store at the LNG Facility pursuant to section 4.1;

“Firm Storage Service” has the meaning set out in section 3.1 b);

“Firm Vaporization Rate” means that maximum level of Firm Vaporization service per
Day as contracted for by TGI, and that TGVI is obliged to provide pursuant to section
4.1;

“Firm Vaporization Service” has the meaning set out in section 3.1 c);

“Force Majeure” means a condition, cause or event that is beyond the reasonable
control of a Party and not caused in whole or in part by its default, and includes acts of
war, revolution, riot, sabotage, vandalism, earthquakes, storms, lightning, weather
conditions and other acts of God, local or national emergencies, strikes, lockouts, work
slowdowns and other labour disputes, acts and orders of government or regulatory
authorities, provided "Force Majeure" will not include an act of negligence or intentional
wrongdoing of the Party or any lack of money or credit by the Party and will not include:
(a) loss by either Party of markets (unless it is a result of an act of Force Majeure); or (b)
inability economically to use or sell gas; or (c) either Party’s loss of gas supply (unless it
is a result of an act of Force Majeure); or (d) an ability to sell gas to a market at a more
advantageous price; or (e) depletion of either Party’s LNG in the LNG Facility. ”Force
Majeure” will include a curtailment or interruption on WEI Transmission South (“T-
South”) resulting in a reduction in the supply of TGVI’s firm supply or a declaration of
Force Majeure by any transmission pipeline other than WEI that transports gas on a firm
basis on TGVI’s behalf;

“Initial Term” has the meaning set out in section 2.2;

“Interruptible Delivery Service” has the meaning set out in section 3.2 a);

“Interruptible Liquefaction Service” has the meaning set out in section 6.2;

“Lapsed pro-rata” means that the maximum rate for the remainder of a Day will be the
firm rate times the number of hours remaining in the Day after a nomination becomes
effective divided by twenty four;

“Liquefaction Commodity Charge” has the meaning set out in section 14.1 b);

“LNG Facility” is the LNG Storage facility at Mount Hayes near Ladysmith on
Vancouver Island that is scheduled to be available for usage on the Commencement
Date;

“LNG Service” has the meaning set out in section 3.1;

-2-
Schedule 1

“LNG Service Gas” means the quantity of gas used during liquefaction, storage and
vaporization of gas at the LNG Facility;

“Primary LNG Service” has the meaning set out in section 4.1;

“Secondary Term” has the meaning set out in section 2.2(b);

“Storage Inventory” is that volume of gas that TGVI records as being as being stored in
the LNG Facility for TGI;

“Storage Year” means a twelve month period, beginning on any April 1, which falls
within the term of the Agreement except in the first year when “Storage Year” is the
period from the Commencement Date to the next March 31;

“Summer Period” means the period from April 16 to October 14;

“Supplementary LNG Service” has the meaning set out in section 4.1;

“Supplementary Service Notice” has the meaning set out in section 4.3;

“TGVI System” means the TGVI transmission system;

“Transportation Fuel Gas” means the quantity of fuel gas used on the TGVI system to
deliver gas to the LNG Facility.

“V1” means the TGVI Eagle Mountain Compressor Station;

“Vaporization Commodity Charge” has the meaning set out in section 14.1 c);

“Vaporization Demand Charge” is the demand rate for providing vaporization service
expressed in dollars per GJ per day;

“WEI” means Westcoast Energy Inc.; and

“Winter Period” means the period from October 15 to April 15.

2. TERM

2.1 The commencement date (“Commencement Date”) for the provision of LNG Service
under this Agreement is the later of April 1, 2011 or such date notified by TGVI to TGI
pursuant to section 2.3.

2.2 The term of this Agreement is for a period of 35 Storage Years and consists of two
periods as follows:

a) the Initial Term is the period of 20 Storage Years beginning on the


Commencement Date; and

b) the Secondary Term is the period of 15 Storage Years following the Initial Term.

-3-
Schedule 1

2.3 The term will automatically extend for consecutive one year periods until such time either
Party provides the other Party with at least two years’ written notice of termination.
Upon the provision of such notice this Agreement will terminate on the March 31 which is
at least two years after the date on which the written notice is provided.

2.4 TGVI will provide 60 days written prior notice to TGI of the Commencement Date. TGVI
will notify TGI in writing no later than November 1, 2008 of any expected change in the
Commencement Date due to delay in commencement of construction of the LNG
Facility. TGVI will also use reasonable efforts to notify TGI of any expected changes in
the Commencement Date during the construction of the LNG Facility.

3. STORAGE AND DELIVERY SERVICE

3.1 During the term of this Agreement, TGVI will provide to TGI the following services
(collectively the “LNG Service”) at the LNG Facility:

a) Firm Storage Service for the storage of gas in a liquid state at the LNG Facility
based on the Firm Storage Capacity in each Storage Year pursuant to 4.2 and
4.4;

b) Firm Liquefaction Service for the conversion of gas from a gaseous state to a
liquid at a Firm Liquefaction Rate equal to 0.5% of the Firm Storage Capacity;
and

c) Firm Vaporization Service for the conversion of gas from a liquid state to a
gaseous state at the Firm Vaporization Rate in each Storage Year pursuant to
4.2 and 4.4.

3.2 During the term of this Agreement, TGVI will provide to TGI the following services
(collectively the “Delivery Service”):

a) Interruptible Delivery Service from V1 to the LNG Facility; and

b) Firm Redelivery Service, with the place of redelivery being, as TGVI so elects
from time to time, at either V1 or at the interconnection between the systems of
TGI and WEI at Huntingdon.

3.3 TGVI may elect to provide Delivery Service either through either or a combination of
displacement or physical transportation of gas to meet TGI’s nominations.

4. CONTRACT LEVELS

4.1 In each Storage Year TGVI will provide LNG Service to TGI based on the

a) Primary LNG Service levels pursuant to 4.2 and 4.3; and

b) Supplemental LNG Service levels pursuant to 4.4.

-4-
Schedule 1

4.2 During the Initial Term, TGVI will make available to TGI the following minimum level of
LNG Service (“Primary LNG Service)” at the LNG Facility:

a) Firm Storage Capacity of 1.0 Bcf; and

b) Firm Vaporization Rate of 100 MMcfd.

4.3 TGVI may make a one time reduction to the Primary LNG Service levels it makes
available to TGI during the Secondary Term by providing written notice to TGI at least
two years prior the expiry of the Initial Term. The Primary LNG Service level in the
Secondary Term may be decreased only to the degree TGVI reasonably forecasts it will
require the capacity to serve customers connected on TGVI’s transmission and
distribution system.

4.4 In each Storage Year, TGVI may provide TGI with Supplemental LNG Service in addition
to the Primary LNG Service by providing written notice to TGI at least two years before
the commencement of a Storage Year, ("Supplementary Service Notice") specifying:

a) the Storage Year to which the Supplementary Service Notice relates;

b) the supplemental Firm Storage Capacity in the LNG Facility that will be available
to TGI for that Storage Year; and

c) the supplemental Firm Vaporization Rate of the Firm Vaporization Service that
will be available to TGVI for that Storage Year.

4.5 The storage capacity and vaporization at the LNG Facility that TGVI makes available to
TGI pursuant to each Supplementary Service Notice will be the storage capacity and
vaporization, subject to section 4.4, that TGVI reasonably forecasts will be surplus to the
requirements of the customers on TGVI's natural gas transmission and distribution
system.

4.6 Unless otherwise agreed by the Parties, the Firm Storage Capacity specified in a
Supplementary Service Notice may not be less than the quantity of gas that can be
vaporized in six days nor greater than the quantity of gas that can be vaporized in twenty
days, at the Firm Vaporization Rate specified in the same Supplementary Service
Notice.

5. LNG SERVICE - Capacity

5.1 During each Storage Year TGVI will provide TGI with the Firm Storage Capacity for
which TGI has contracted pursuant to section 4.1.

6. LNG SERVICE - Liquefaction

6.1 Subject to sections 11.1 b) and 11.5, on each Day TGVI will provide TGI with Firm
Liquefaction Service at the lesser of (i) the Firm Liquefaction Rate, or (ii) the volume of
gas that TGI delivers to TGVI, net of Transportation Fuel Gas and LNG Service Gas, on
that Day.

-5-
Schedule 1

6.2 If TGVI has available liquefaction capacity that is not being utilized on a Day, then TGI
may increase the liquefaction rate for its gas on that Day above the Firm Liquefaction
Rate at no incremental cost. This additional liquefaction capacity will be made available
as Interruptible Liquefaction Service.

6.3 In the event that more than one party contracting for LNG Service from TGVI wishes to
increase their liquefaction rate above their firm rate and this results in a service
constraint, the excess liquefaction capacity will be allocated pro-rata amongst such
parties based on each party’s respective Firm Liquefaction Rate.

7. LNG SERVICE - Vaporization

7.1 Subject to section 11.1 d) and section 11.5, on each Day upon TGI nominating to TGVI,
TGVI will provide TGI with Firm Vaporization Service up to the Firm Vaporization Rate in
effect for the applicable Storage Year.

7.2 If TGVI has available vaporization capacity that is not being utilized on a Day then, TGI
may increase the vaporization rate for its gas on that Day above the Firm Vaporization
Rate, provided TGVI is able to redeliver the gas to TGI. If later during that Day TGVI
requires this service for its own requirements then the vaporization rate for TGI may be
reduced to no less than the Firm Vaporization Rate for the remainder of the Day as
provided in section 10.5.

7.3 In the event that more than one party contracting for LNG Service from TGVI wishes to
increase their vaporization rate above their firm rate and this results in a service
constraint, the excess vaporization capacity will be allocated pro-rata amongst such
parties based on each party’s respective LNG firm vaporisation rate.

7.4 TGVI is not be obligated to vaporize for TGI any amount of LNG greater than the amount
of LNG TGI has in storage at the LNG Facility at that point in time.

8. DELIVERY SERVICE - Interruptible Delivery Service

8.1 Each Day TGI will deliver to TGVI at the inlet of V1 the quantity of gas that TGI specifies
for delivery to, and liquefaction at, the LNG Facility on that Day plus the applicable LNG
Service Gas and Transportation Fuel Gas.

8.2 Each Day TGVI will, subject to capacity constraints on the TGVI system, deliver to the
LNG Facility the gas delivered to it by TGI on that Day, less the applicable allowance for
Transportation Fuel Gas.

8.3 TGVI will make available to TGI sufficient Interruptible Delivery Service during the period
from April 1 to October 31 of a Storage Year to deliver to the LNG Facility the quantity of
gas that will fill, based on a gas being liquefied at the Firm Liquefaction Rate for that
Storage Year, the Storage Capacity that TGI has contracted for that Storage Year, and
the applicable LNG Service Gas.

8.4 The priority for the delivery of TGI gas to the LNG Facility will be the same as the priority
of shippers using interruptible transportation on the TGVI System.

-6-
Schedule 1

8.5 This Agreement does not oblige TGVI to provide to Interruptible Delivery Service to the
LNG Facility during the Winter Period.

8.6 TGVI will deduct the LNG Service Gas from the quantity of gas delivered to the LNG
Facility to determine the quantity of gas that is liquefied and stored on behalf of TGI at
the LNG Facility.

9. DELIVERY SERVICE - Firm Redelivery Service

9.1 Each Day TGVI will provide TGI with Firm Redelivery Service for the TGI gas vaporized
at the LNG Facility on that Day pursuant to Article 7.

9.2 Firm redeliveries will be on a Lapsed Pro-rata basis.

10. NOMINATIONS

10.1 TGI will nominate for delivery to the LNG Facility at least one and one half (1 1/2) hours
before TGVI must make its nominations on the WEI system nomination cycles and TGVI
will notify TGI at least one hour before the time that TGVI must make its nominations of
the authorized quantity of gas that TGVI will deliver to the LNG Facility for TGI.

10.2 TGVI will notify TGI at least one hour before the WEI evening or intra-day one (“ID-1”)
nomination cycle if TGI’s previously authorized nomination for delivery to the LNG
Facility has been modified. TGI’s previously authorized nomination will not be modified
by TGVI, without TGI’s approval, after the ID-1 cycle.

10.3 TGI will nominate to TGVI the quantity of gas TGI requires to be vaporized and
redelivered at least two hours prior to the time when TGI requires the gas during the
Winter Period, and at least twelve hours prior during the Summer Period.

10.4 To the extent, pursuant to section 7.2, that TGVI wishes to reduce within a Day the
quantity of gas authorized to be vaporized and redelivered to the Firm Vaporization
Rate, TGVI will provide TGI with at least one hour’s notice of any such reduction.

10.5 To the extent that TGI wishes to increase or decrease within a Day the quantity of gas
that is authorized to be vaporized and redelivered, TGI will provide at least one hour’s
notice to TGVI prior to the change in the vaporization rate. To the extent that TGI
wishes to increase the rate of vaporization above the Firm Vaporization Rate, such an
increase must be authorized by TGVI before becoming effective.

10.6 Changes in the Firm Liquefaction and Interruptible Delivery Service, Firm Vaporization
Rate and Firm Redelivery Service during a Day are subject to Lapsed Pro-rata.

10.7 Nominations by and confirmations between TGI and TGVI will be sent to the attention of:

a) Nominations from TGI to TGVI to Operations Manager; and

b) Confirmation from TGVI to TGI to Manager, Midstream.

-7-
Schedule 1

Either Party may change the contact specified above by giving the other Party notice of
such change.

10.8 Nominations and confirmations will be in electronic form as established from time to time
by TGVI.

10.9 If the WEI nomination cycles, or their names, change, the Parties will amend this
Agreement to accord with the revised nomination cycles.

11. PERFORMANCE OBLIGATIONS

11.1 Subject to section 11.2, TGVI has the following obligations to TGI during the term of this
Agreement:

a) To make sufficient available Interruptible Delivery Service to the LNG Facility for
the Summer Period of a Storage Year to meet the obligation as set out in section
8.3;

b) To provide Firm Liquefaction Service at the Firm Liquefaction Rate each Day of
the Storage Year, except on the Days when planned maintenance is being
performed by TGVI for the liquefaction component of the LNG Facility;

c) To provide during each Storage Year the capacity in the LNG Facility to store up
to the Firm Storage Capacity contracted by TGI for that Storage Year;

d) To provide during each Storage Year Firm Vaporization Service at the Firm
Vaporization Rate contracted by TGI for that Storage Year and to provide Firm
Redelivery Service for the TGI gas vaporized from the LNG Facility to TGI,
except on the Days when planned maintenance is being performed by TGVI on
the vaporization component of the LNG Facility.

11.2 In each Storage Year, TGVI will use reasonable commercial efforts to schedule planned
maintenance such that planned maintenance in any Storage Year does not exceed a
cumulative period of 60 days for each of the vaporization and liquefaction components of
the LNG Facility and shall only occur during:

a) May 1 to September 30 with respect to the vaporization component; and

b) December 1 to February 28 with respect to the liquefaction component.

Prior to April 1 of each year, TGVI will provide TGI with a forecast schedule of planned
maintenance to take place over the next 12 months.

11.3 In each Storage Year, if TGVI is unable to meet its obligations to TGI as set out in
section 11.1, TGVI will provide TGI with a demand charge credit as set out below:

a) to the extent that TGVI has not provided sufficient Interruptible Delivery Service
and Firm Liquefaction Service, or otherwise credited TGI’s Storage Inventory,
such that TGI’s Storage Inventory on 1 November is equal to lower of the Firm
Storage Capacity or the total volume nominated by TGI, the demand charge

-8-
Schedule 1

credit will be equal to the to the amount obtained by multiplying the demand
charges otherwise payable in that Storage Year pursuant to 13.1 and 13.3 by the
quantity that remains unfilled; and

b) to the extent that TGVI is not required to provide a demand charge credit
pursuant to 11.3(a) and TGVI is unable to provide Firm Redelivery Service to
match TGI’s nominations, up to the Firm Vaporization Rate, the demand charge
credit will be equal to the amount obtained by multiplying the annual Vaporization
Demand Charge provided in Schedule A by the quantity of gas not redelivered.

TGI's sole remedy, and TGVI's sole obligation, for the failure of TGVI to perform its
obligations under this Agreement are the provision of demand charge credits as set out
above.

11.4 If there is a shortfall in vaporization or liquefaction capability at the LNG Facility on any
Day the shortfall will be allocated between TGI, other parties contracting for service at
the LNG Facility, and TGVI, on a pro rata basis.

11.5 In any Storage Year, TGVI’s obligations are limited to crediting TGI’s Storage Inventory
account up to the Firm Storage Capacity for which TGI has contracted the case of
nominations for liquefaction, and redelivering gas to TGI in the case of nominations for
vaporization. Nothing in this Agreement will require TGVI to operate its transmission
facilities or require service from the LNG Facility to match the nominations from TGI on
the Day.

12. FORCE MAJEURE

12.1 Except for TGI’s obligation to make payments under this Agreement, if either Party is
rendered unable, in whole or in part, by Force Majeure to carry out its obligations under
this Agreement, then upon such Party’s giving notice of the particulars of such Force
Majeure to the other Party as soon as reasonably possible (with such notice to be
confirmed in writing), the obligations of the Party giving such notice, from the inception of
the Force Majeure, will be suspended and excused during the continuance of any
inability so caused. The obligations of the affected Party will be suspended and excused
for such time only to the extent they are affected by such Force Majeure. The cause of
the Force Majeure will be remedied by the affected Party with all reasonable diligence
and dispatch.

13. DEMAND CHARGES

13.1 During the Initial Term, each month, TGI will pay to TGVI the sum of the following
amounts:

a) In respect of the Primary LNG Service, a monthly demand charge equal to


$1,002,200; and

b) In respect of the Supplemental LNG Service, an amount equal to one twelfth of the
sum of:

-9-
Schedule 1

i) the amount obtained by multiplying the Capacity Demand Charge, as set out
in Schedule A, by the supplemental Storage Capacity contracted by TGI for
that Storage Year pursuant to 4.4; and

ii) the amount obtained by multiplying the Vaporization Demand Charge, as set
out in Schedule A, by the supplemental Firm Vaporization Rate contracted by
TGI in that Storage Year pursuant to 4.4.

13.2 If the Storage Year in the initial year of the term of this Agreement is less than 12
months such that TGI is unable to fill its Firm Storage Capacity before November 1 of
that year, then a reduction in the monthly demand charge for the Primary LNG Service
for the initial year will determined based volume that TGI was unable to fill.

13.3 Following the Initial Term, in respect of the Primary LNG Service and the Supplemental
LNG Service, TGI will pay to TGVI a monthly demand charge based on an allocation of
TGVI’s annual revenue requirement associated with the LNG Facility, as approved by the
BCUC from time to time. The allocation to TGI will be determined from year to year based
on Firm Storage Capacity and Firm Vaporization Rate contracted by TGI in that year
pursuant to clause 4.1

14. COMMODITY CHARGES

14.1 In each month, TGI will pay to TGVI the following commodity charges:

a) an amount equal to the Coloured Gas Tax Commodity charge taxes payable by
TGVI in respect of TGI gas delivered to the LNG Facility under the Motor Fuel
Tax Act (British Columbia); and any excise or other taxes payable by TGVI in
respect of TGI gas delivered to the LNG Facility in that month (“Coloured Gas
Tax Commodity Charge”); and

b) an amount obtained by multiplying the Liquefaction Commodity Charge, as set


out in Schedule A, by the amount of TGI gas liquefied at the LNG Facility in that
month. The Liquefaction Commodity Charge will be adjusted from period to
period to reflect changes in the applicable BC Hydro rate per kWh.

c) an amount obtained by multiplying the Vaporization Commodity Charge, as set


out in Schedule A, by the amount of TGI gas vaporized at the LNG Facility in that
month. The Vaporization Commodity Charge will be adjusted from period to
period to reflect changes in the applicable BC Hydro rate per kWh.

15. FUEL GAS

15.1 TGVI will on a daily basis provide TGI with an estimate of Transportation Fuel Gas and
LNG Service Gas.

15.2 TGVI on a monthly basis will reconcile the estimated Transportation Fuel Gas with the
actual usage and provide TGI with a summary. TGI and TGVI will cooperate to ensure
that any imbalances are kept as close to zero as possible.

- 10 -
Schedule 1

15.3 TGVI on an annual basis will reconcile the estimated LNG Service Gas with actual
usage and provide TGI with a summary. TGI and TGVI will cooperate to ensure that
any imbalances are kept as close to zero as possible

16. BILLING

16.1 TGVI will provide TGI by the 15th of each month beginning in the month following the
commencement of the term of this Agreement with an invoice relating to the preceding
month for:

a) the monthly demand charge for the Primary LNG Service contracted by TGI;

b) the demand charge for the month for Supplementary LNG Service contracted for
by TGI, setting out the Capacity Demand Charge and the Vaporization Demand
Charge for the month at rates set out in Schedule A;

c) the Coloured Gas Tax Commodity Charge for the month setting out the rate for
the commodity charge for the month and the quantity of TGI gas delivered to the
LNG Facility in the month;

d) the Liquefaction Commodity Charge for the month setting out the rate per GJ as
set out in Schedule A and the quantity of TGI gas liquefied;

e) the Vaporization Commodity Charge for the month setting out the rate per GJ per
day as set out in Schedule A and the quantity of TGI gas vaporized; and

f) any demand charge credits pursuant to section 11.4.

16.2 In addition to the invoice, TGVI will provide TGI with a summary for the preceding month
setting out:

a) TGI’s Storage Inventory at the beginning and end of the month;

b) the quantity of gas delivered to the LNG Facility in the month,

c) the amount of gas liquefied and the amount of gas vaporized by Day for TGI,

d) the amount of gas redelivered to TGI by TGVI by Day and delivery point; and.

e) Transportation Fuel Gas and LNG Services Gas.

16.3 TGI will pay TGVI the amount associated with the invoice on the 25th of the month the
invoice is received or ten days after the receipt of the invoice, whichever is later.

16.4 In the event that TGI is late in paying the invoice then TGVI will assess TGI and TGI will
pay to TGVI a late payment fee equal to the current prime interest rate charged by the
Main Branch of the Toronto-Dominion Bank in Vancouver, British Columbia, to its most
creditworthy commercial customers, plus 4%, per annum paid on a daily basis.

- 11 -
Schedule 1

17. NOTICES

17.1 Except as may be expressly provided otherwise in this Agreement, any notice, request,
authorization, direction, or other communication under this Agreement will be made
given in writing and will be delivered in person, or by facsimile transmission, properly
addressed to the intended recipient as follows:

a) If to TGI: Terasen Gas Inc.


16705 Fraser Highway
Surrey, B.C. V4N 0E8
Attention: Vice President, Gas Supply and Transmission
Facsimile: 604-592-7420

b) If to TGVI: Terasen Gas (Vancouver Island) Inc.


16705 Fraser Highway
Surrey, B.C. V4N 0E8
Attention: Vice President, Finance and Regulatory Affairs
Facsimile: 604-592-7890

Either Party may change its address specified above by giving the other Party notice of
such change in accordance with this section 17.1

18. REGULATORY AUTHORITY

18.1 This Agreement is subject to all rules, regulations, orders and other requirements of
each governmental and regulatory authority having jurisdiction over this Agreement, the
Parties or either of them, including without limitation, the BCUC.

18.2 This Agreement is subject to the approval of the BCUC.

19. GOVERNING LAW

19.1 This Agreement and the respective rights and duties of the Parties arising out of this
Agreement will be governed by and construed, enforced and performed in accordance
with the laws of the Province of British Columbia.

20. EFFECT OF WAIVER OR CONSENT

20.1 No waiver or consent by either Party, expressed or implied, or any breach or default by
the other Party in the performance of any of such other Party’s obligations under this
Agreement will operate or be construed as a waiver or consent to any other breach or
default hereunder. Failure of a Party to complain of any act of the other Party or to
declare the other Party in breach or default with respect to this Agreement, irrespective
of how long that failure continues, does not constitute a waiver by the Party of any of its
rights with respect to that breach or default.

21. HEADINGS

21.1 The headings for the sections of this Agreement are for convenience of reference only
and in no way affect the meaning or interpretation of any of the provisions of this
Agreement.

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Schedule 1

22. SEVERABILITY

22.1 Except as otherwise stated in this Agreement, any provision or section declared or
rendered unlawful by a court of law or regulatory agency with jurisdiction over this
Agreement, the Parties or either of them, or deemed unlawful because of statutory
change, will thereupon be deemed to have been severed from this Agreement and will
not otherwise affect the lawful obligations that arise under other provisions of this
Agreement.

23. ASSIGNMENT

23.1 Subject to the provisions of this section 23.1, this Agreement will enure to and be binding
upon the respective successors and permitted assigns of the Parties. Neither Party may
assign this Agreement without the prior written consent of the other Party, which consent
will not be unreasonably withheld, provided, that either Party may assign its interest
under this Agreement (a) to any entity that, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with such Party,
(b) to any entity into which it consolidates or merges or (c) as security to the holder of
any indebtedness, present or future, of such Party, without the prior written approval of
the other Party, but no such assignment will operate to relieve the assigning Party of any
of its obligations under this Agreement. Any Party’s transfer or assignment in violation of
this section 23.1 will be void.

24. RESPONSIBILITY FOR DAMAGE

24.1 As between the Parties, TGI will be deemed to be in exclusive control and possession of
gas which is the subject of this Agreement and will be responsible for any damage or
injury caused thereby prior to the point at which TGVI receives gas pursuant to this
Agreement and after the point TGVI redelivers gas pursuant to this Agreement. As
between the Parties, TGVI will be deemed to be responsible for any damage or injury or
damage caused thereby after the point at which TGVI receives gas pursuant to this
Agreement and prior to the point at which TGVI redelivers gas pursuant to this
Agreement.

25. WARRANTY

25.1 TGI warrants that (i) it has good title to all gas to be received to be received by TGVI
under this Agreement, (ii) it has the right to deliver such gas, and (iii) that such gas is
free from all liens and adverse claims, and agrees, if notified by TGVI, to indemnify TGVI
from and against all suits, actions, debts, accounts, damages, costs, losses, and
expenses (including reasonable lawyers’ fees) arising from or out of any adverse legal
claims of any and all persons and entities regarding title to such gas. TGI agrees to pay,
or cause to be paid or delivered in kind to the parties entitled thereto, all royalties,
overriding royalties or like charges against such gas or the value thereof.

- 13 -
Schedule 1

26. TERMINATION

26.1 If either Party is at any time in material breach of or default under this Agreement (the
“Defaulting Party”), the other Party (the “terminating Party”) will have the right to
terminate this Agreement by giving the Defaulting Party written notice of such
termination. Such termination will be effective upon the Defaulting Party’s receipt of
such notice of termination pursuant to this section 26.1. For the purposes of this section
26.1, a Party will be deemed to be in material breach if or default under this Agreement if
such Party:

a) fails to cure any material breach under this Agreement by such Party prior to the
later of (i) the expiration of thirty days after the Terminating Party gives the
Defaulting Party written notice of the breach or default; and (ii) the date upon
which the Terminating Party gives the Defaulting Party written notice of
termination;

b) is unable to meet its obligations as they become due or such Party’s liabilities
exceed its assets in the aggregate; or

c) makes a general assignment of substantially all of its assets for the benefits of its
creditors, files a petition of bankruptcy, commences, authorizes or acquiesces in
the commencement of a proceeding or cause under any bankruptcy, insolvency
or similar law for the protection of creditors or have such petition filed or
proceeding commenced against it, or seeks other relief under any applicable
insolvency laws.

In no event will either Party incur any liability (whether for lost revenues or lost profits or
otherwise) as a result of any termination of this Agreement pursuant to this section 27.

26.2 Either party shall have the right to terminate this Agreement should the LNG Facility not
proceed to construction by giving written notice of termination to the other party not later
than November 1, 2008.

26.3 All rights and remedies of either Party under this Agreement and at law and in equity will
be cumulative and not mutually exclusive and the exercise by one Party of one right or
remedy will not be deemed a waiver of any other right or remedy available to that Party.
Nothing contained in any provision of this Agreement will be construed to limit or exclude
any right or remedy of either Party (arising on account of the breach or default by the
other Party or otherwise) now or hereafter existing under any other provision of this
Agreement.

27. WAIVER OF CERTAIN DAMAGES

27.1 In no other event will either Party be liable to the other Party for consequential,
incidental, punitive, special, exemplary or indirect damages, in tort, strict liability,
warranty, contract, equity or otherwise.

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Schedule 1

28. DISPUTE RESOLUTION

28.1 All disputes arising under or relating to this Agreement, except only disputes with respect
to which the BCUC has jurisdiction, which the BCUC is prepared to exercise, shall, after
the parties have attempted in good faith to settle the dispute between themselves, be
submitted to and finally settled by arbitration under the Commercial Arbitration Act. The
arbitration will take place in Vancouver, British Columbia before a single arbitrator and
will be administered by the British Columbia Commercial Arbitration Centre (“BCICAC”)
in accordance with its “Procedures for Cases under the BCICAC Rules.

29. ENTIRE AGREEMENT

29.1 This Agreement constitutes the entire Agreement between the Parties relating to the
subject matter contemplated by this Agreement. There are no prior or contemporaneous
agreements or representations (whether written or oral) affecting such subject matter.
No amendment, modification or change to this Agreement will be enforceable, except as
specifically provided for in this Agreement, unless reduced to writing and hereafter
signed (which may be done by facsimile) by both Parties.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their
authorized representatives as of the date first written above.

Terasen Gas Inc. Terasen Gas (Vancouver Island) Inc.

By _________________________ By _______________________________

Name: Jan Marston Name: Randy Jespersen

Title: Vice President, Gas Supply & Title: President


Transmission

- 15 -
Schedule 1

SCHEDULE A

SCHEDULE OF DEMAND RATES AND COMMODITY CHARGES

ANNUAL DEMAND CHARGES FOR SUPPLEMENTARY LNG SERVICE

Capacity Demand Charge – $2.79 /GJ per GJ of


Storage Capacity

Vaporization Demand Charge – $83.84 /GJ/Day

COMMODITY CHARGES FOR PRIMARY AND SUPPLEMENTARY LNG SERVICE


Vaporization Commodity Charge (estimated) $0.09/GJ
Liquefaction Commodity Charge (estimated) $0.35/GJ

* Electrical Commodity Charge is based on BC Hydro’s Transmission Service Stepped Rate


Schedule 1823, at the current rate of 2.770 cents per kWh effective February 1, 2007. Future
charges will be adjusted to reflect changes in BC Hydro’s rate.

- 16 -
Appendix D
TGVI DEMAND
APPENDIX D - TGVI Demand Forecast Details (excluding ICP and JV)

TGVI Year-Ending Accounts


by Rate Class
TGVI 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RGS 81,732 85,030 88,348 92,056 95,686 99,514 103,083 106,357 109,633 112,787 115,628 118,193 120,649 122,853 125,057
SCS1 4,058 4,153 4,267 4,376 4,474 4,543 4,643 4,733 4,821 4,905 4,979 5,046 5,112 5,172 5,230
SCS2 1,815 1,855 1,905 1,950 1,997 2,068 2,113 2,153 2,195 2,234 2,267 2,296 2,322 2,346 2,368
LCS1 1,505 1,539 1,580 1,617 1,654 1,715 1,752 1,784 1,816 1,843 1,867 1,887 1,906 1,924 1,942
LCS2 562 573 590 600 614 637 651 664 677 689 701 709 718 726 734
AGS 807 827 845 866 882 899 918 935 951 967 983 996 1,009 1,022 1,035
LCS3 130 132 138 144 150 155 159 162 165 168 171 174 176 178 181
HLF 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
ILF 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
CRxx 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total 90,624 94,124 97,688 101,624 105,472 109,546 113,334 116,803 120,273 123,608 126,611 129,316 131,907 134,236 136,562

Percent Change in Year-end


Accounts by Rate Class
TGVI 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RGS 4.0 3.9 4.2 3.9 4.0 3.6 3.2 3.1 2.9 2.5 2.2 2.1 1.8 1.8
SCS1 2.3 2.7 2.6 2.2 1.5 2.2 1.9 1.9 1.7 1.5 1.3 1.3 1.2 1.1
SCS2 2.2 2.7 2.4 2.4 3.6 2.2 1.9 2.0 1.8 1.5 1.3 1.1 1.0 0.9
LCS1 2.3 2.7 2.3 2.3 3.7 2.2 1.8 1.8 1.5 1.3 1.1 1.0 0.9 0.9
LCS2 2.0 3.0 1.7 2.3 3.7 2.2 2.0 2.0 1.8 1.7 1.1 1.3 1.1 1.1
AGS 2.5 2.2 2.5 1.8 1.9 2.1 1.9 1.7 1.7 1.7 1.3 1.3 1.3 1.3
LCS3 1.5 4.5 4.3 4.2 3.3 2.6 1.9 1.9 1.8 1.8 1.8 1.1 1.1 1.7
HLF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ILF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CRxx 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total 3.9 3.8 4.0 3.8 3.9 3.5 3.1 3.0 2.8 2.4 2.1 2.0 1.8 1.7
TGVI Annual Use Rate
by Rate Class (GJ/Yr)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RGS 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7
SCS1 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0
SCS2 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6
LCS1 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5
LCS2 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9
AGS 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9
LCS3 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0
HLF n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
ILF n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
CRxx n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

TGVI Annual Demand


by Rate Class (TJ)
TGVI 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RGS 4,615 4,806 4,997 5,199 5,411 5,627 5,829 6,014 6,199 6,378 6,538 6,683 6,822 6,947 7,071
SCS1 269 275 282 290 297 301 308 314 320 325 330 334 339 343 347
SCS2 529 540 553 567 581 601 615 626 638 650 659 668 675 682 689
LCS1 1,350 1,378 1,411 1,446 1,480 1,535 1,568 1,597 1,625 1,650 1,671 1,689 1,706 1,722 1,738
LCS2 1,303 1,329 1,361 1,392 1,425 1,478 1,511 1,541 1,571 1,599 1,627 1,646 1,666 1,685 1,704
AGS 1,113 1,138 1,163 1,193 1,218 1,241 1,267 1,291 1,313 1,335 1,357 1,375 1,393 1,411 1,429
LCS3 2,334 2,370 2,423 2,477 2,549 2,634 2,702 2,753 2,804 2,855 2,906 2,957 2,991 3,025 3,076
HLF 273 273 273 273 273 273 273 273 273 273 273 273 273 273 273
ILF 158 158 158 158 158 158 158 158 158 158 158 158 158 158 158
CRxx 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Firm Demand 11,943 12,267 12,622 12,995 13,391 13,849 14,230 14,566 14,902 15,222 15,519 15,783 16,023 16,246 16,484

TGVI Design Day Demand


2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
All Customer Classes 111.5 114.9 118.5 122.3 126.0 129.8 133.5 136.9 140.2 143.3 146.2 148.7 151.1 153.3 155.6

Appendix D - Page 1
APPENDIX D - TGVI Demand Forecast Details (excluding ICP and JV)

TGVI Year-Ending Accounts


by Rate Class
TGVI 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Note: The forecast details shown in this Appendix include some variations
RGS 127,222 129,479 131,501 133,825 136,216 138,717 141,387 144,170 147,084 150,074 from the forecast details appended to the 2006 TGVI Resource Plan:
SCS1 5,288 5,344 5,397 5,456 5,516 5,576 5,642 5,708 5,778 5,847 1 Updated to include rebased total customers as
SCS2 2,389 2,413 2,434 2,456 2,481 2,506 2,536 2,567 2,598 2,629 identified in the 2006 Settlement Update.
LCS1 1,960 1,978 1,994 2,013 2,032 2,051 2,071 2,092 2,113 2,134 2 Updated to include 2006 mid-year actuals as presented
LCS2 741 748 755 764 773 782 791 800 809 818 in the 2006 Settlement Update.
AGS 1,048 1,060 1,071 1,083 1,096 1,109 1,122 1,135 1,148 1,161 3 Updated to reflect the dissolution of the CRxx rate class.
LCS3 183 186 189 191 194 197 200 203 206 209 4 For annual demand, the first five years of forecast builds on
HLF 7 7 7 7 7 7 7 7 7 7 monthly average customer and use, while long range forecast
ILF 8 8 8 8 8 8 8 8 8 8 shows year-end customer data.
CRxx 0 0 0 0 0 0 0 0 0 0 Forecast methodology remains consistent with that described in
Total 138,846 141,223 143,356 145,803 148,323 150,953 153,764 156,690 159,751 162,887 the TGVI 2006 Resource Plan.

Percent Change in Year-end


Accounts by Rate Class
TGVI 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
RGS 1.7 1.8 1.6 1.8 1.8 1.8 1.9 2.0 2.0 2.0
SCS1 1.1 1.1 1.0 1.1 1.1 1.1 1.2 1.2 1.2 1.2
SCS2 0.9 1.0 0.9 0.9 1.0 1.0 1.2 1.2 1.2 1.2
LCS1 0.9 0.9 0.8 1.0 0.9 0.9 1.0 1.0 1.0 1.0
LCS2 1.0 0.9 0.9 1.2 1.2 1.2 1.2 1.1 1.1 1.1
AGS 1.3 1.1 1.0 1.1 1.2 1.2 1.2 1.2 1.1 1.1
LCS3 1.1 1.6 1.6 1.1 1.6 1.5 1.5 1.5 1.5 1.5
HLF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ILF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CRxx 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total 1.7 1.7 1.5 1.7 1.7 1.8 1.9 1.9 2.0 2.0
TGVI Annual Use Rate
by Rate Class (GJ/Yr)
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
RGS 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7
SCS1 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0
SCS2 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6 294.6
LCS1 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5 906.5
LCS2 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9 2,342.9
AGS 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9 1,392.9
LCS3 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0 17,951.0
HLF n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
ILF n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
CRxx n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

TGVI Annual Demand


by Rate Class (TJ)
TGVI 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
RGS 7,194 7,321 7,436 7,567 7,702 7,844 7,995 8,152 8,317 8,486
SCS1 351 354 358 362 366 370 374 378 383 388
SCS2 695 702 708 714 722 729 738 747 756 765
LCS1 1,754 1,770 1,785 1,802 1,819 1,836 1,854 1,872 1,891 1,910
LCS2 1,720 1,736 1,752 1,773 1,794 1,815 1,836 1,857 1,878 1,899
AGS 1,447 1,463 1,479 1,495 1,513 1,531 1,549 1,567 1,585 1,603
LCS3 3,110 3,161 3,212 3,246 3,297 3,348 3,399 3,450 3,501 3,552
HLF 273 273 273 273 273 273 273 273 273 273
ILF 158 158 158 158 158 158 158 158 158 158
CRxx 0 0 0 0 0 0 0 0 0 0
Total Firm Demand 16,701 16,939 17,160 17,390 17,643 17,903 18,174 18,454 18,741 19,032

TGVI Design Day Demand


2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32
All Customer Classes 157.7 160.0 162.0 164.3 166.7 169.2 171.8 174.5 177.3 180.1

Appendix D - Page 2
Appendix E
GAS MARKET INFORMATION
Page: 1 of 6

GLJ Petroleum
Consultants

PRODUCT PRICE AND MARKET FORECASTS


FOR THE CANADIAN OIL AND GAS INDUSTRY

Quarterly Update
January 1, 2007

Prepared by
Leonard Herchen, P.Eng.

4100, 400 - Third Avenue S.W., Calgary, Alberta, Canada T2P 4H2
Internet: http://www.GLJPC.com

GLJ Petroleum Consultants


Page: 2 of 6

January 1, 2007

GLJ Petroleum Consultants has prepared the enclosed price and market forecasts after a
comprehensive review of information available through to December 2006. Information sources
include numerous government agencies, industry publications, Canadian oil refiners and natural
gas marketers. The accuracy of all factual data, from all sources has been accepted as represented
without detailed investigation by GLJ Petroleum Consultants. The forecasts presented herein are
based on an informed interpretation of currently available data. While they are considered
reasonable at this time, users of these forecasts should understand the inherent high uncertainty in
forecasting any commodity or market. These forecasts will be revised periodically as market,
economic and political conditions change. These future revisions may be significant.

GLJ Petroleum Consultants


Page: 3 of 6

GLJ PETROLEUM CONSULTANTS


PRODUCT PRICE AND MARKET FORECASTS
FOR THE CANADIAN OIL AND GAS INDUSTRY
January 1, 2007

GLJ Petroleum Consultants has completed a quarterly update of our commodity price forecasts
as presented on the attachments. Revisions in the forecasts reflective of current market conditions
have been incorporated. A summary of near-term forecasts follows:

NATURAL GAS PRICES

October 1, 2006 January 1, 2007


Calendar Year Calendar Year
Henry Hub Gas Price - ($US/MMBTU)
2007 7.75 7.25
2008 8.15 7.50
Chicago 30 Day Spot Gas Price – ($US/MMBTU)
2007 7.90 7.10
2008 8.30 7.45
Sumas 30 Day Spot Gas Price - ($US/MMBTU)
2007 6.65 6.60
2008 7.50 6.85
AECO-C 30 Day Spot Gas Price – ($Cdn/MMBTU)
2007 7.50 7.20
2008 8.00 7.45
Average Alberta Plant-Gate Gas Price - ($Cdn/MMBTU)
2007 7.30 7.00
2008 7.80 7.25
Aggregator Plant-Gate Gas Price - ($Cdn/MMBTU)
2007 7.30 6.90
2008 7.80 7.25
B.C. 30 Day Spot Plant-Gate Gas Price - ($Cdn/MMBTU)
2007 7.35 7.05
2008 7.85 7.30

CRUDE OIL PRICES

October 1, 2006 January 1, 2007


Calendar Year Calendar Year
WTI @ Cushing Price - ($US/BBL)
2007 65.00 62.00
2008 60.00 60.00
Light, Sweet @ Edmonton Price - ($Cdn/BBL)
2007 72.00 70.25
2008 66.50 68.00

GLJ Petroleum Consultants


Table 1
GLJ Petroleum Consultants
Crude Oil and Natural Gas Liquids
Price Forecast
Effective January 1, 2007

NYMEX WTI Near Light, Sweet


Bank of Month Futures Contract Brent Blend Crude Oil Bow River Crude Oil Heavy Crude Oil Medium Crude Oil Alberta Natural Gas Liquids
Canada Crude Oil at Crude Oil (40 API, 0.3%S) Stream Quality Proxy (12 API) (29 API, 2.0%S) (Then Current Dollars)
Average Noon Cushing Oklahoma FOB North Sea at Edmonton at Hardisty at Hardisty at Cromer Edmonton
Exchange Constant Then Constant Then Constant Then Constant Then Constant Then Constant Then Spec Edmonton Edmonton Pentanes
Inflation Rate 2007 $ Current 2007 $ Current 2007 $ Current 2007 $ Current 2007 $ Current 2007 $ Current Ethane Propane Butane Plus
Year % $US/$Cdn $US/bbl $US/bbl $US/bbl $US/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl
1996 1.6 0.733 27.41 21.99 25.46 20.43 36.63 29.39 31.32 25.13 25.00 20.06 32.53 26.10 n/a 22.31 17.15 30.06
1997 1.6 0.722 25.28 20.61 23.53 19.18 34.17 27.85 25.97 21.17 17.68 14.41 29.10 23.72 n/a 18.62 18.73 30.91
1998 0.9 0.675 17.41 14.42 15.49 12.83 24.58 20.36 17.68 14.64 11.41 9.45 20.47 16.95 n/a 11.15 12.44 21.83
1999 1.7 0.673 23.08 19.29 21.31 17.81 33.14 27.69 28.53 23.84 23.54 19.67 30.42 25.42 n/a 15.89 18.70 27.71
2000 2.7 0.673 35.56 30.22 33.36 28.35 52.43 44.56 41.48 35.25 32.17 27.34 46.96 39.91 n/a 32.18 35.60 46.31
2001 2.6 0.646 29.76 25.97 27.92 24.37 45.14 39.40 31.74 27.70 19.41 16.94 36.16 31.56 n/a 31.85 31.17 42.48
2002 2.2 0.637 29.12 26.08 27.91 24.99 45.04 40.33 35.55 31.83 29.67 26.57 39.62 35.48 n/a 21.39 27.08 40.73
2003 2.8 0.721 33.95 31.07 31.61 28.93 47.70 43.66 35.09 32.11 28.69 26.26 41.03 37.55 n/a 32.14 34.36 44.23
2004 1.8 0.768 43.99 41.38 40.60 38.20 56.30 52.96 39.18 36.86 30.95 29.11 48.63 45.75 n/a 34.70 39.97 54.07
2005 2.2 0.825 59.07 56.58 57.54 55.12 72.14 69.11 46.94 44.97 35.56 34.07 59.11 56.62 n/a 43.04 51.80 69.47
2006 (e) 2.1 0.882 67.61 66.22 67.47 66.08 74.70 73.16 52.94 51.85 42.75 41.87 63.55 62.24 n/a 43.97 66.64 75.69
2007 Q1 2.0 0.870 62.00 62.00 60.50 60.50 70.25 70.25 47.75 47.75 37.75 37.75 61.25 61.25 23.75 45.00 56.25 71.75
2007 Q2 2.0 0.870 62.00 62.00 60.50 60.50 70.25 70.25 49.25 49.25 39.50 39.50 61.25 61.25 23.50 45.00 56.25 71.75
2007 Q3 2.0 0.870 62.00 62.00 60.50 60.50 70.25 70.25 51.25 51.25 42.25 42.25 61.25 61.25 23.50 45.00 56.25 71.75
2007 Q4 2.0 0.870 62.00 62.00 60.50 60.50 70.25 70.25 47.75 47.75 37.75 37.75 61.25 61.25 26.50 45.00 56.25 71.75
2007 Full Year 2.0 0.870 62.00 62.00 60.50 60.50 70.25 70.25 49.00 49.00 39.25 39.25 61.25 61.25 24.25 45.00 56.25 71.75
2008 2.0 0.870 58.75 60.00 57.25 58.50 66.75 68.00 48.00 49.00 39.25 40.00 58.00 59.25 25.25 43.50 50.25 69.25
2009 2.0 0.870 55.75 58.00 54.25 56.50 63.25 65.75 46.75 48.75 38.25 39.75 55.00 57.25 26.25 42.00 48.75 67.00
2010 2.0 0.870 53.75 57.00 52.25 55.50 60.75 64.50 45.50 48.25 37.50 39.75 52.75 56.00 26.50 41.25 47.75 65.75
2011 2.0 0.870 52.75 57.00 51.25 55.50 59.50 64.50 45.25 49.00 37.25 40.25 51.75 56.00 26.50 41.25 47.75 65.75
2012 2.0 0.870 52.00 57.50 50.75 56.00 58.75 65.00 44.75 49.50 37.50 41.50 51.25 56.50 27.75 41.50 48.00 66.25
2013 2.0 0.870 52.00 58.50 50.50 57.00 58.75 66.25 44.50 50.25 37.75 42.50 51.25 57.75 28.25 42.50 49.00 67.50
2014 2.0 0.870 52.00 59.75 50.75 58.25 59.00 67.75 44.75 51.50 37.75 43.50 51.25 59.00 29.00 43.25 50.25 69.00
2015 2.0 0.870 52.00 61.00 50.75 59.50 59.00 69.00 44.75 52.50 37.75 44.25 51.25 60.00 29.50 44.25 51.00 70.50
2016 2.0 0.870 52.00 62.25 50.75 60.75 59.00 70.50 44.75 53.50 37.75 45.25 51.25 61.25 30.00 45.00 52.25 72.00
2017 2.0 0.870 52.00 63.50 50.75 62.00 58.75 71.75 44.75 54.50 37.75 46.00 51.25 62.50 30.75 46.00 53.00 73.25
2018+ 2.0 0.870 52.00 +2.0%/yr 50.75 +2.0%/yr 58.75 +2.0%/yr 44.75 +2.0%/yr 37.75 +2.0%/yr 51.25 +2.0%/yr Escalate at 2.0 % per year

Historical futures contract price is an average of the daily settlement price of the near month contract over the calendar month.

Revised 1-Jan-07

Page: 4 of 6
GLJ Petroleum Consultants
Table 2
GLJ Petroleum Consultants
Natural Gas and Sulphur
Price Forecast
Effective January 1, 2007

NYMEX Futures Contract Midwest Alberta Plant Gate Saskatchewan Plant Gate British Columbia Alberta
Last 3 Day Price Price @ Chicago AECO/NIT Spot Spot Sulphur Sulphur
Constant Then Then Then Constant Then Westcoast Spot FOB at Plant
2007 $ Current Current Current 2007 $ Current ARP Aggregator Alliance SaskEnergy Spot Sumas Spot Station 2 Plant Gate Vancouver Gate
Year $US/mmbtu $US/mmbtu $US/mmbtu $Cdn/mmbtu $/mmbtu $/mmbtu $/mmbtu $/mmbtu $/mmbtu $/mmbtu $/mmbtu $US/mmbtu $/mmbtu $/mmbtu $US/LT $Cdn/LT
1996 3.18 2.55 2.73 1.39 1.57 1.26 1.63 n/a n/a 1.52 1.28 1.32 1.60 1.47 36.28 14.44
1997 3.23 2.63 2.75 1.84 2.07 1.69 1.96 n/a n/a 1.84 1.75 1.70 2.10 1.98 34.75 11.50
1998 2.58 2.14 2.21 2.03 2.27 1.88 1.94 n/a n/a 2.05 2.13 1.60 2.15 2.00 24.59 -6.51
1999 2.72 2.27 2.33 2.92 3.29 2.75 2.48 n/a n/a 2.83 2.97 2.15 2.90 2.78 33.74 6.93
2000 4.60 3.91 3.96 5.08 5.79 4.92 4.50 4.60 n/a 4.79 5.13 4.17 5.00 4.88 38.14 13.59
2001 5.02 4.38 4.45 6.21 6.95 6.07 5.41 5.30 5.61 5.71 6.13 4.56 6.35 6.29 18.29 -14.66
2002 3.63 3.25 3.25 4.04 4.33 3.88 3.88 3.83 3.82 4.04 4.08 2.68 4.00 3.93 29.38 3.04
2003 5.58 5.11 5.46 6.66 7.09 6.49 6.13 5.89 6.69 6.40 6.68 4.66 6.40 6.32 59.81 39.83
2004 6.47 6.09 6.13 6.88 7.13 6.70 6.31 6.16 6.44 6.48 6.78 5.26 6.55 6.45 62.99 38.61
2005 8.93 8.55 8.24 8.58 8.79 8.42 8.30 8.32 8.45 8.36 8.30 7.13 8.20 8.10 63.50 33.77
2006 (e) 7.41 7.26 6.93 7.02 7.11 6.96 6.45 6.40 6.45 6.69 6.95 6.27 6.80 6.45 55.69 19.82
2007 Q1 7.00 7.00 6.90 7.00 6.80 6.80 6.80 6.80 6.40 6.95 6.90 6.60 7.00 6.85 55.00 19.50
2007 Q2 7.00 7.00 6.90 6.95 6.75 6.75 6.70 6.65 6.45 6.85 6.85 6.25 6.95 6.80 55.00 19.50
2007 Q3 7.00 7.00 6.90 6.95 6.75 6.75 6.70 6.65 6.45 6.85 6.85 6.25 6.95 6.80 55.00 19.50
2007 Q4 8.00 8.00 7.75 7.85 7.60 7.60 7.60 7.50 7.35 7.75 7.75 7.35 7.85 7.65 55.00 19.50
2007 Full Year 7.25 7.25 7.10 7.20 7.00 7.00 6.95 6.90 6.65 7.10 7.10 6.60 7.20 7.05 55.00 19.50
2008 7.35 7.50 7.45 7.45 7.10 7.25 7.25 7.25 7.05 7.40 7.40 6.85 7.45 7.30 45.00 8.00
2009 7.20 7.50 7.50 7.75 7.25 7.55 7.55 7.55 7.10 7.70 7.70 7.05 7.75 7.60 40.00 2.50
2010 7.05 7.50 7.60 7.80 7.15 7.60 7.60 7.60 7.20 7.75 7.75 7.05 7.80 7.65 40.00 2.50
2011 6.95 7.50 7.65 7.85 7.05 7.65 7.65 7.65 7.25 7.80 7.80 7.05 7.85 7.70 41.00 3.50
2012 7.00 7.75 7.90 8.15 7.20 7.95 7.95 7.95 7.50 8.10 8.10 7.30 8.15 8.00 41.50 4.50
2013 7.00 7.90 8.05 8.30 7.20 8.10 8.10 8.10 7.70 8.25 8.25 7.45 8.30 8.15 42.50 5.50
2014 7.00 8.05 8.20 8.50 7.20 8.30 8.30 8.30 7.85 8.45 8.45 7.60 8.50 8.35 43.50 6.50
2015 7.00 8.20 8.35 8.70 7.25 8.50 8.50 8.50 8.05 8.65 8.65 7.75 8.70 8.55 44.00 7.50
2016 7.00 8.40 8.55 8.90 7.25 8.65 8.65 8.65 8.20 8.80 8.80 7.95 8.90 8.70 45.00 8.50
2017 7.00 8.55 8.70 9.10 7.25 8.85 8.85 8.85 8.40 9.00 9.00 8.10 9.10 8.90 46.00 9.50
2018+ 7.00 +2.0%/yr +2.0%/yr +2.0%/yr 7.25 +2.0%/yr Escalate at 2.0 % per year +2.0%/yr

Unless otherwise stated, the gas price reference point is the receipt point on the applicable provincial gas transmission system known as the plant gate.
The plant gate price represents the price before raw gas gathering and processing charges are deducted.
AECO-C Spot refers to the one month price averaged for the year.
Historical futures contract price is an average of the daily settlement price over the last 3 days of the near month contract.
Revised 1-Jan-07

Page: 5 of 6
GLJ Petroleum Consultants
Page: 6 of 6

Oil Price History and Forecast

100.00 1.00

90.00 0.90

80.00 0.80
Exchange Rate ($US/$Cdn)

70.00 0.70

60.00 0.60

$US/$Cdn
$/Barrel

50.00 0.50

40.00 Light Sweet @ Edmonton 0.40

30.00 0.30

20.00 0.20

WTI ($US/Bbl)
10.00 0.10

0.00 0.00
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 2007 2008

Natural Gas Price History and Forecast

20.00 1.00

18.00 0.90

16.00 0.80
Exchange Rate ($US/$Cdn)

14.00 0.70

12.00 0.60
$US/$Cdn
$/ MMbtul

10.00 0.50

8.00 0.40
AECO-C ($Cdn/MMbtu)
6.00 0.30

4.00 0.20

2.00 0.10
Henry Hub ($US/MMbtu)
0.00 0.00
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 2007 2008

GLJ Petroleum Consultants


Appendix E: Regional Gas Supply Outlook
Avoided Market Area Storage Costs

Market Area Storage Cost (Jackson Prairie)


1 Source: Natural Gas Price Forecast from GLJA [Jan 2007], Storage and Transport Rates: Gas Supply, Terasen Gas
2 Calendar Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
3
4 RATE CHARGES
5 Sumas Summer Price ($US/MMBtu) $ 6.64 $ 6.86 $ 7.00 $ 7.17 $ 7.33 $ 7.50 $ 7.67 $ 7.82 $ 7.98 $ 8.14 $ 8.30 $ 8.46 $ 8.63 $ 8.81 $ 8.98 $ 9.16 $ 9.35 $ 9.53 $ 9.72 $ 9.92 $ 10.12
6 NWP 15 day storage charge ($US/MMBtu) * $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10 $ 3.10
7 NWP Injection/Withdrawal Fuel Rate (%) 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.58%
8 NWP TF-1 Transport Demand Charge ($US/MMBtu) $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 0.39
10 NWP Transport Fuel Rate (%) 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92%
11 Storage Deliverability Required Mcf/d 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000
12
13 STORAGE CHARGE ($US 000)
14 Demand: NWP Storage Charge for 150MMcf/d x 15 days $ 5,335 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113 $ 7,113
15 Fuel: Injection Fuel Charge for 5-day (15-day first year) $ 88 $ 30 $ 31 $ 32 $ 33 $ 33 $ 34 $ 35 $ 35 $ 36 $ 37 $ 38 $ 38 $ 39 $ 40 $ 41 $ 41 $ 42 $ 43 $ 44 $ 45
16 9 months charge first year
17 TRANSPORT CHARGE ($US 000)
18 Demand: NWP TF-1@40% Transport Charge for 365 day $ 6,532 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710 $ 8,710
20 Fuel 1: NWP Transport for 5-day Injection (15-day first year) $ 293 $ 101 $ 103 $ 105 $ 108 $ 110 $ 113 $ 115 $ 117 $ 119 $ 122 $ 124 $ 127 $ 129 $ 132 $ 135 $ 137 $ 140 $ 143 $ 146 $ 149
22 Fuel 2: NWP Transport for 5-day Withdrawal (2-day first year) $ 39 $ 101 $ 103 $ 105 $ 108 $ 110 $ 113 $ 115 $ 117 $ 119 $ 122 $ 124 $ 127 $ 129 $ 132 $ 135 $ 137 $ 140 $ 143 $ 146 $ 149
23
24 TOTAL STORAGE & TRANSPORT
25 ($US 000) $ 12,287 $ 16,054 $ 16,059 $16,065 $ 16,070 $ 16,076 $ 16,081 $ 16,087 $16,092 $16,097 $16,103 $16,108 $16,114 $16,120 $16,126 $16,132 $16,138 $16,144 $16,151 $16,157 $16,164
26 ($Cdn 000) applying Fx = 0.85 $Cdn/$US $ 14,455 $ 18,887 $ 18,893 $18,899 $ 18,906 $ 18,913 $ 18,919 $ 18,925 $18,932 $18,938 $18,944 $18,951 $18,958 $18,965 $18,972 $18,979 $18,986 $18,993 $19,001 $19,009 $19,017
27
28 Please note, for the Year 2011: Only 9 months of demand charges are applied as Storage Year starts 1 April 2011. Please note Conversion Factors: GJ/MMBtu 1.055056
29 Full 15 day injection commodity & fuel charge is applied to fill storage in the first year. Subsequent years, only 5 day injection is applied to correspond to 5 days of withdrawal each year. GJ/Mcf 1.07588
30 2 days withdrawal charge is applied in year one, as there are only two winter months (November & December)
31
32
33 STORAGE COST: PRESENT VALUE (Year 2010 $) NWP TF-1@40%
34 Evaluation Period (Years) 15 25 15 25
35 Discount Rate 6.2% 6.2% 10.0% 10.0%

36 STORAGE CHARGE ($US 000)


37 Demand: NWP Storage Charge for 150MMcf/d x 15 days $ 50,752 $ 76,002 $ 40,528 $ 54,453
38 Fuel: Injection Fuel Charge for 5-day (15-day first year) $ 294 $ 438 $ 241 $ 320

39 TRANSPORT CHARGE ($US 000)


40 Demand: NWP TF-1@40% Transport Charge for 365 day $ 62,146 $ 93,066 $ 49,627 $ 66,679
41 Fuel 1: NWP Transport for 5-day Injection (15-day first year) $ 972 $ 1,450 $ 798 $ 1,060
42 Fuel 2: NWP Transport for 5-day Withdrawal (2-day first year) $ 747 $ 1,225 $ 588 $ 850

43 TOTAL STORAGE & TRANSPORT


44 ($US 000) $ 114,910 $ 172,181 $ 91,781 $ 123,363
45 ($Cdn 000) applying Fx = 0.85 $Cdn/$US $ 135,189 $ 202,566 $ 107,978 $ 145,133
46 Levelized Storage Year Cost ($Cdn 000) starting in 2011.** $ 18,944 $ 18,956 $ 18,948 $ 18,955
47
48 Unit Charge based on period & discount rate 12yr @ 6.2% 22yr @ 6.2% 12yr @ 10% 22yr @ 10%
n
49 Fixed unit charge ($Cdn/GJ) $ 111.87 $ 113.00 $ 111.31 $ 112.31
unit charge
NPV = where n is the period (12 year or 22 year) and discount rate is 6.2% or 10%
50 Variable unit charge ($Cdn/GJ) $ 1.99 $ 2.08 $ 2.01 $ 2.07
( 1 + discount rate ) i
51 Unit charge ($Cdn/GJ) $ 113.86 $ 115.08 $ 113.32 $ 114.38 i =1
52
53
54 Data Source: Natural Gas Price Forecast from GLJA [Oct 2006] - http://www.gljpc.com/pdfs/pricing.pdf
55 Transport Rate on Northwest Pipe posted - http://www.1line.williams.com/Files/Northwest/NorthwestInfoPostingFrameset.html
56 * Storage Rate on NWP of $US 3.10/MMBtu = (($0.00478 x capacity x 365-days + $0.05576 x deliverability x 365-days)/capacity)
57 where: deliverability = 150,000 MMscf/d; storage days = 15 days; capacity = deliverability x storage days.
58 capacity charge of $0.00478 and demand charge of $0.05576 as per expansion rate filed by Northwest Pipeline to FERC on July 13, 2006; reference to Docket No. CP06-416
59 ** Levelized Cost corrected for storage year; i.e. 9/12 charge adjustment removed for the first year.

Page 1
Appendix E: Regional Gas Supply Outlook
Avoided Market Area Storage Costs

WEI Transport Cost: Summary of T-South Cost with mitigation payments (2011 onwards)
1 From GLJA [Jan 2006] one year create summer/winter pricing (use forward curve relationship)….94% summer and 108% winter (forward market over forward 3 years) 2% excalation as per GLJA
2 Calendar Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
3 GLJA AECO One Year ($Cdn/MMBtu) $ 7.85 $ 8.15 $ 8.30 $ 8.50 $ 8.70 $ 8.90 $ 9.10 $ 9.28 $ 9.47 $ 9.66 $ 9.85 $ 10.05 $ 10.25 $ 10.45 $ 10.66 $ 10.88 $ 11.09 $ 11.31 $ 11.54 $ 11.77 $ 12.01
4 GLJA AECO One Year ($US/MMBtu) using GLGA Fx 0.87 US/Cdn $ 6.83 $ 7.09 $ 7.22 $ 7.40 $ 7.57 $ 7.74 $ 7.92 $ 8.08 $ 8.24 $ 8.40 $ 8.57 $ 8.74 $ 8.92 $ 9.09 $ 9.28 $ 9.46 $ 9.65 $ 9.84 $ 10.04 $ 10.24 $ 10.45
5 GLJA AECO One Year ($Cdn/GJ) $ 7.62 $ 7.91 $ 8.05 $ 8.25 $ 8.44 $ 8.63 $ 8.83 $ 9.00 $ 9.18 $ 9.37 $ 9.56 $ 9.75 $ 9.94 $ 10.14 $ 10.34 $ 10.55 $ 10.76 $ 10.98 $ 11.20 $ 11.42 $ 11.65
6 GLJA AECO Storage Year ($Cdn/GJ) $ 7.69 $ 7.94 $ 8.10 $ 8.29 $ 8.49 $ 8.68 $ 8.87 $ 9.05 $ 9.23 $ 9.42 $ 9.60 $ 9.80 $ 9.99 $ 10.19 $ 10.40 $ 10.60 $ 10.82 $ 11.03 $ 11.25 $ 11.48 $ 11.71
7 Station-2 Winter Price = 108% Storage Year ($Cdn/GJ) $ 8.30 $ 8.58 $ 8.75 $ 8.96 $ 9.17 $ 9.38 $ 9.58 $ 9.77 $ 9.97 $ 10.17 $ 10.37 $ 10.58 $ 10.79 $ 11.01 $ 11.23 $ 11.45 $ 11.68 $ 11.91 $ 12.15 $ 12.40 $ 12.64
8 Station-2 Summer Price = 94% Storage Year ($Cdn/GJ) $ 7.23 $ 7.47 $ 7.61 $ 7.80 $ 7.98 $ 8.16 $ 8.34 $ 8.51 $ 8.68 $ 8.85 $ 9.03 $ 9.21 $ 9.39 $ 9.58 $ 9.77 $ 9.97 $ 10.17 $ 10.37 $ 10.58 $ 10.79 $ 11.00
9 Sumas Winter Price (US$/MMBtu) $ 7.97 $ 8.23 $ 8.39 $ 8.59 $ 8.79 $ 8.99 $ 9.18 $ 9.37 $ 9.55 $ 9.74 $ 9.94 $ 10.13 $ 10.34 $ 10.54 $ 10.75 $ 10.96 $ 11.18 $ 11.40 $ 11.63 $ 11.86 $ 12.10
10 Sumas Summer Price (US$/MMBtu) $ 6.64 $ 6.86 $ 7.00 $ 7.17 $ 7.33 $ 7.50 $ 7.67 $ 7.82 $ 7.98 $ 8.14 $ 8.30 $ 8.46 $ 8.63 $ 8.81 $ 8.98 $ 9.16 $ 9.35 $ 9.53 $ 9.72 $ 9.92 $ 10.12
11 Sumas Winter Price ($Cdn/GJ) $ 8.89 $ 9.18 $ 9.36 $ 9.58 $ 9.80 $ 10.02 $ 10.24 $ 10.44 $ 10.65 $ 10.86 $ 11.08 $ 11.30 $ 11.53 $ 11.75 $ 11.99 $ 12.23 $ 12.47 $ 12.72 $ 12.97 $ 13.23 $ 13.49
12 Sumas Summer Price ($Cdn/GJ) $ 7.41 $ 7.65 $ 7.80 $ 7.99 $ 8.18 $ 8.37 $ 8.55 $ 8.72 $ 8.89 $ 9.07 $ 9.25 $ 9.44 $ 9.63 $ 9.82 $ 10.02 $ 10.22 $ 10.42 $ 10.63 $ 10.84 $ 11.06 $ 11.28
13
14 T-South Demand Charges ($Cdn/Mcf) $ 0.40 $ 0.40 $ 0.41 $ 0.42 $ 0.42 $ 0.43 $ 0.44 $ 0.44 $ 0.45 $ 0.46 $ 0.47 $ 0.47 $ 0.48 $ 0.49 $ 0.50 $ 0.50 $ 0.51 $ 0.52 $ 0.53 $ 0.54 $ 0.55
15 T-South Demand Charges, Calendar Year ($Cdn/GJ) $ 0.37 $ 0.37 $ 0.38 $ 0.39 $ 0.39 $ 0.40 $ 0.41 $ 0.41 $ 0.42 $ 0.43 $ 0.43 $ 0.44 $ 0.45 $ 0.45 $ 0.46 $ 0.47 $ 0.48 $ 0.48 $ 0.49 $ 0.50 $ 0.51
16 T-South Demand Charges, Storage Year ($Cdn/GJ) $ 0.37 $ 0.38 $ 0.38 $ 0.39 $ 0.39 $ 0.40 $ 0.41 $ 0.41 $ 0.42 $ 0.43 $ 0.43 $ 0.44 $ 0.45 $ 0.46 $ 0.46 $ 0.47 $ 0.48 $ 0.49 $ 0.49 $ 0.50 $ 0.51
17 Station-2 Daily Gas Price = 1.5 times Winter Price ($Cdn/GJ) $ 12.45 $ 12.87 $ 13.12 $ 13.44 $ 13.75 $ 14.07 $ 14.37 $ 14.66 $ 14.95 $ 15.25 $ 15.56 $ 15.87 $ 16.19 $ 16.51 $ 16.84 $ 17.18 $ 17.52 $ 17.87 $ 18.23 $ 18.59 $ 18.96
18 Sumas Summer/Station-2 Winter daily Differential ($Cdn/GJ) $ 5.05 $ 5.21 $ 5.32 $ 5.45 $ 5.57 $ 5.70 $ 5.82 $ 5.94 $ 6.06 $ 6.18 $ 6.30 $ 6.43 $ 6.56 $ 6.69 $ 6.82 $ 6.96 $ 7.10 $ 7.24 $ 7.39 $ 7.53 $ 7.69
19 Station-2 Daily Winter T-South Fuel 3.3% ($Cdn/GJ) $ 0.41 $ 0.42 $ 0.43 $ 0.44 $ 0.45 $ 0.46 $ 0.47 $ 0.48 $ 0.49 $ 0.50 $ 0.51 $ 0.52 $ 0.53 $ 0.54 $ 0.56 $ 0.57 $ 0.58 $ 0.59 $ 0.60 $ 0.61 $ 0.63
20
21 Fixed cost (150MMcfd x 365days x T-South Demand Charge)(9 months first year) $ 16,274 $ 22,050 $ 22,407 $ 22,770 $ 23,139 $ 23,514 $ 23,895 $ 24,282 $ 24,675 $ 25,075 $ 25,481 $ 25,894 $ 26,313 $ 26,740 $ 27,173 $ 27,613 $ 28,060 $ 28,515 $ 28,977 $ 29,446 $ 29,923
22 Variable based on (150 MMcf/d x 5 days) (two days first year) $ 4,205 $ 4,550 $ 4,641 $ 4,752 $ 4,863 $ 4,974 $ 5,083 $ 5,184 $ 5,288 $ 5,394 $ 5,502 $ 5,612 $ 5,724 $ 5,838 $ 5,955 $ 6,074 $ 6,196 $ 6,320 $ 6,446 $ 6,575 $ 6,706
23 Total before mitigation $ 20,479 $ 26,600 $ 27,048 $ 27,522 $ 28,002 $ 28,488 $ 28,977 $ 29,466 $ 29,963 $ 30,469 $ 30,983 $ 31,506 $ 32,037 $ 32,578 $ 33,128 $ 33,687 $ 34,256 $ 34,835 $ 35,423 $ 36,021 $ 36,630
24
25 Mitigation (4 out of 5 winter months) -$ 2,735 -$ 6,947 -$ 7,060 -$ 7,174 -$ 7,290 -$ 7,408 -$ 7,528 -$ 7,650 -$ 7,774 -$ 7,900 -$ 8,028 -$ 8,158 -$ 8,291 -$ 8,425 -$ 8,561 -$ 8,700 -$ 8,841 -$ 8,984 -$ 9,130 -$ 9,278 -$ 9,428
26 Total after mitigation $ 17,745 $ 19,653 $ 19,988 $ 20,348 $ 20,711 $ 21,079 $ 21,449 $ 21,816 $ 22,189 $ 22,568 $ 22,955 $ 23,347 $ 23,747 $ 24,153 $ 24,567 $ 24,987 $ 25,415 $ 25,851 $ 26,293 $ 26,744 $ 27,202
27
28 Please note, for the Year 2011: Only 9 months of Fixed Charges are applied as transport starts 1 April 2011. Please note Conversion Factors: GJ/MMBtu 1.055056
29 Fuel component of the Variable charge has only 2-day usage to reflect the need for two winter months (November & December) GJ/Mcf 1.07588
30 Variable cost: This is the 5 day usage charge for fuel and the added cost of summer/winter differential to secure supply.
31
32 WEI TRANSPORT COST: PRESENT VALUE (Year 2010 $)
33 Evaluation Period (Years) 15 25 15 25
34 Discount Rate 6.2% 6.2% 10.0% 10.0%
35 Fixed cost (150MMcfd x 365days x T-South Demand Charge) $ 166,752 $ 264,895 $ 132,452 $ 186,332
36 Variable based on (150 MMcf/d x 5 days) (two days first year) $ 35,890 $ 57,491 $ 28,564 $ 40,410
37 Total before mitigation $ 202,642 $ 322,386 $ 161,016 $ 226,742
38
39 Mitigation (4 out of 5 winter months) -$ 50,416 -$ 81,338 -$ 39,754 -$ 56,730
40 Total after mitigation $ 152,226 $ 241,048 $ 121,262 $ 170,012
41
42 Levelized Yearly Cost, before mitigatin ($Cdn 000) starting in 2011 $ 27,544 $ 29,557 $ 27,270 $ 28,839
43 Levelized Yearly Cost, after mitigation ($Cdn 000) starting in 2011 $ 20,691 $ 22,100 $ 20,537 $ 21,623
44
45 Unit Charge based on period & discount rate 12yr @ 6.2% 22yr @ 6.2% 12yr @ 10% 22yr @ 10% n
46 Before mitigation unit charge ($Cdn/GJ) $ 170.67 $ 183.15 $ 168.98 $ 178.70
NPV =
unit charge
where n is the period (12 year or 22 year) and discount rate is 6.2% or 10%
47 After mitigation unit charge ($Cdn/GJ) $ 128.21 $ 136.94 $ 127.26 $ 133.99 ( 1 + discount rate ) i
i =1
48
49
50 Data Source: Natural Gas Price Forecast from GLJA [Jan 2006] - http://www.gljpc.com/pdfs/pricing.pdf
51 Transport Rate on Northwest Pipe posted - http://www.1line.williams.com/Files/Northwest/NorthwestInfoPostingFrameset.html

Page 2
Fall 2006

2006 NORTHWEST GAS


OUTLOOK UPDATE
T
his updated document, compiled by the Northwest Gas Association (NWGA) and its members, highlights key findings
of the group’s 2006 annual report, the Northwest Gas Outlook: Natural Gas Demand, Supply and Service Capacity in the
Pacific Northwest. Beginning this year, only this summary document will be in print form; the full annual report and its
appendices will be posted electronically on the NWGA web site (www.nwga.org).

The intent of the Outlook is to provide a consensus industry perspective of the region’s current and projected natural
gas demand, supply, delivery capability and price. For purposes of this report, the Pacific Northwest is defined as Idaho,
Oregon, Washington and British Columbia (BC). This forecast covers the period beginning November 1, 2006, and ending
October 31, 2011.

By sharing factual information about the dynamics of the regional natural gas industry, the Association hopes to:

• Build a broad-based awareness of the natural gas industry throughout the region.
• Cultivate a common outlook as industry participants work through the challenges of ensuring a reliable
supply of natural gas to serve growing regional demand.
• Encourage discussion about region-wide energy issues beyond natural gas, including a better understanding of the
potential impacts of various energy choices across fuels and the need for more integration in energy planning.
• Promote public policies and industry and consumer actions that will ensure the wise and most cost-effective use of
natural gas.

About the NWGA


The Northwest Gas Association (NWGA) is a trade organization of the Pacific Northwest natural gas industry. Its members
include six natural gas utilities serving communities in Idaho, Oregon, Washington and British Columbia, and three
interstate pipelines that move natural gas from supply basins into and through the region (see map on page 2).

NWGA members transport or distribute almost all of the natural gas consumed in the Pacific Northwest. Members include
Avista Corporation, Cascade Natural Gas Corporation, Duke Energy Gas Transmission (DEGT), Intermountain Gas Company,
NW Natural, Puget Sound Energy, Terasen Gas, TransCanada Gas Transmission Northwest (GTN), and Williams Northwest
Pipeline.
NW GAS OUTLOOK UPDATE 2006
Northwest Gas Association Member’s Service Area Map

NWGA Member Contact Information


Avista Corporation (800) 227-9187 www.avistacorp.com
Cascade Natural Gas Corporation (206) 624-3900 www.cngc.com
Duke Energy Gas Transmission (604) 691-5500 www.duke-energy.com
Intermountain Gas Company (208) 377-6000 www.intgas.com
NW Natural (503) 226-4211 www.nwnatural.com
Puget Sound Energy (425) 454-6363 www.pse.com
Terasen Gas (800) 773-7001 www.terasengas.com
TransCanada’s GTN System (503) 833-4000 www.gastransmission.com
Williams’ Northwest Pipeline (801) 583-8800 www.williams.com

Northwest Gas Association - (503) 624-2160 - www.nwga.org 2


NW GAS OUTLOOK UPDATE 2006

Summary of Key Conclusions


The Pacific Northwest regional natural gas market faces the future in relatively good health, despite challenges of increased
competition for supply; growing demand regionally, continentally and across the globe; lagging development of new
continental, offshore and imported resources; and the potential for higher prices triggered by a tight demand/supply balance
and high crude oil prices. The industry will continue to monitor customer needs and obtain supply, encourage the wise use of
natural gas, build the necessary infrastructure and manage gas prices through commodity purchasing and hedging strategies.
However, public policy-makers and industry decision-makers will have a significant impact on the availability and price of natural
gas in the coming decades based on whether and how swiftly they can work together to address critical issues facing natural gas
consumers today.

Demand
Regional demand for natural gas will continue to grow over the next five years, with most of the growth driven by a rising
number of residential and commercial customers. Meanwhile, energy efficiency efforts prompted by higher prices in recent
years continue to moderate everyday (or “base”) fuel use. Conversely, peak demand loads (during cold winter weather, for
example) are growing more rapidly than base loads, although the region is just now surpassing demand levels last seen in the
mid-1990s and is still below record 1999-2001 volumes.) This change in the nature of the region’s load (called load shape) has
implications with regard to future infrastructure investments the industry will need to make in order to serve higher short-term
spikes in demand.

Supply
While still benefiting from its proximity to two prolific gas-producing regions, Pacific Northwest consumers are increasingly
competing for that gas with other regions of North America. To meet future regional and continental demand, North America
will require new incremental supplies including liquefied natural gas (LNG) from across the globe as well as new supply sources
closer to home like Alaskan gas, Canadian frontier gas, offshore gas, and non-conventional resources such as coalbed methane
reserves. Development of many of these is moving forward, but rapidly escalating finding and development costs, exploration
and drilling restrictions and regulatory hurdles still impede progress.

Capacity
Existing natural gas pipeline and storage capabilities – including storage expansions already under way or planned – are
adequate to serve regional needs for the next five years under normal conditions, although an extreme peak in demand could
stretch the region’s infrastructure capacity. Contracting patterns on the region’s upstream pipelines also continue to change as
natural gas producers and marketers who previously held capacity on these pipelines now have access to new markets for their
gas supplies. In response, demand-side interests in the region (e.g., local distribution companies, power generators, industrial
customers) are acquiring additional transport capacity to ensure sustained access to available supply. While Canadian supply
continues to be available to flow to the Northwest market, shipping costs to the region have increased because fewer shippers
are paying for a greater share of the pipeline transmission costs.

Prices
Wholesale (wellhead) prices for natural gas have been on the rise since 2002 and averaged $7.45 per thousand cubic feet in 2005
according to the U.S. Energy Information Administration (EIA). The EIA projects that the average wholesale price of natural gas in
2006 will be lower than in 2005 and will then resume an upward trend, primarily due to declining traditional supplies, a growing
reliance on new and more expensive sources of supply and sustained high crude oil prices1. While a temporary surplus of natural
gas (resulting from a mild winter and abundant supplies in underground storage) caused regional and continental prices to fall
during the summer of 2006, a tight demand/supply balance is expected to keep pressure on prices. In fact, the spot price of
natural gas jumped almost 30 percent in one week during a 2006 summer heat wave. Still, the Pacific Northwest continues to
benefit from being located adjacent to robust gas-producing regions resulting in access to some of the lowest cost gas supply in
Northern America.

1
U.S. Energy Information Association, Short Term Energy Outlook, August 8, 2006.

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NW GAS OUTLOOK UPDATE 2006

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NW GAS OUTLOOK UPDATE 2006

Regional Demand
Key Conclusions
1. Over the next five years, natural gas consumption (as measured by energy content, or decatherms - Dth) in the region is
expected to grow an average of 2.1 percent per year, with a cumulative projected growth rate of 8.1 percent. Most of
this growth reflects increased demand anticipated from residential and commercial customers.
2. The region’s peak load is growing more rapidly than its base load. This has significant
Peak load:
implications for the type of new capacity most appropriate to serve the region’s needs.
Gas consumption that
3. The number of natural gas customers continues to grow in the Pacific Northwest, increases significantly or
although the use per customer is lower than in the late ‘90s. Recent warmer weather “peaks” during certain periods,
patterns have contributed, but consumers have also responded to higher natural gas usually because of temperature
prices with a variety of conservation techniques including better weatherization, more
conditions. Northwest loads peak
efficient appliances and equipment, and energy-conscious use practices.
in the winter for
4. The region must ensure that it is using its energy resources in the wisest, most effective space heat and again in the
ways possible. For instance, natural gas cannot directly power computers and lights, summer (due to electric
but is more efficient than electricity when burned for space and water heating generation for air conditioners).
or for cooking.

A Closer Look
As noted, natural gas demand in the Pacific Northwest is expected to grow 8.1 percent through 2011, given normal weather and
expected economic and population growth (called “base case”). This projection is slightly lower than in past years (the 2005
Outlook report projected 9.3 percent cumulative growth over five years), but represents a sizable shift in market forces behind
that growth. Whereas demand by gas-powered electric generation facilities drove projections in previous years, anticipated
demand by that customer group has flattened significantly in the face of volatile natural gas prices. Also contributing to the shift
in projected gas demand for generation is a sufficiency of electricity in parts of the region with plenty of water for hydropower
generation in 2006 and significant alternative energy developments, especially wind.

Instead, expected demand growth among residential/commercial consumers is powering overall growth. This partly reflects a
growth in the number of consumers – due to an expanding economy and population – as well as the higher cost of alternative
energy sources, such as electricity and oil. Since natural gas is a good value for home heating, it remains the fuel of choice for
space and water heat in most new single-family home construction and many older electric furnaces and water heaters are being
replaced with natural gas units. Forecast growth in demand for each customer group under a number of growth scenarios is
shown in Table 1.
Table 1. Projected Demand through 2011 - Average Annual & Cumulative

Northwest Gas Association - (503) 624-2160 - www.nwga.org 5


NW GAS OUTLOOK UPDATE 2006
Weak economic conditions and higher gas prices in recent years have significantly eroded industrial demand, which declined by
nearly one-third between 1999 and 2004. Today, while industrial use is still proportionally larger than other customer groups, the
margin is shrinking, and demand by this customer segment is growing significantly more slowly than any of the other sectors. As
shown in Figure 1, residential customer demand is expected to surpass industrial demand by 2009-10. Figure 2 shows projected
total annual demand growth for each of the next five years.
Figure 1. Projected Regional Demand by Sector – Base Case, 2006-11

Figure 2. Projected Total Annual Natural Gas Demand Growth, 2006-11

Northwest Gas Association - (503) 624-2160 - www.nwga.org 6


NW GAS OUTLOOK UPDATE 2006

Finally, Figure 3 shows projected Figure 3. Projected Annual Demand by Growth Case, 2006-2001
annual demand under each of the
three growth scenarios explored
by the larger Outlook report: Base
case, low-growth and high-growth.
Low growth assumes slower than
expected economic growth while
high growth considers a more
rapid economic expansion and
greater requirements for gas-fired
electrical generation. Projected gas
prices also figure prominently in
the respective forecasts. The low
case reflects higher than expected
natural gas prices, and the high case
lower than expected prices. (Note
that under the base case scenario,
total regional demand is not
expected to return to 2001 volumes
until sometime after 2011 – a lasting
legacy of the 2001 energy crisis.)

Trends in Demand Growth


While the region’s natural gas consumption continues to grow, the nature of that consumption has changed in recent years.
Increased energy conservation efforts triggered by rising energy prices have not only slowed the rate of demand growth, but
changed customer load profiles and composition (Figure 4). Normal, year-around or base loads (e.g., industrial processes only
nominally affected by weather like kilns to dry lumber or boilers for food processing) are growing more slowly than peak loads,
which are triggered by weather or other short-term factors (e.g., home heating).

Figure 4. Change in Load Composition, 1999 Actual Compared to 2005 Actual


This change has important implications
for the natural gas industry since it affects
the region’s overall capacity needs as well
as purchasing/contracting requirements
to serve potentially more volatile
customer loads. For instance, pipelines
are usually built to serve base loads, while
storage facilities are typically the most
cost-effective method of meeting short
term surges in demand. Not surprisingly,
no new pipelines are planned to serve
the region by 2011, but several gas
storage facilities are expanding. For more
information, see the Regional System
Capacity section later in this document.

Northwest Gas Association - (503) 624-2160 - www.nwga.org 7


NW GAS OUTLOOK UPDATE 2006

What This Means


How can the region’s growing natural gas demand best be met? Answer: encouraging even more efficient use of this vital
resource while simultaneously working to expand access to existing and new supplies. (The need to expand supplies is
discussed in the following Regional Supply section.)

Encouraging Wise Energy Use


Demand for natural gas is something nearly every consumer can control. With proper information and often minimal expense,
consumers can take a variety of steps to reduce their usage and monthly bills. Customers have already significantly curbed
regional demand – often with technical and/or financial help from energy efficiency programs offered by gas and electric utilities
or other entities – by installing more efficient furnaces and appliances, programmable thermostats, better insulation and double-
pane windows.

However, more can be done. The American Council for an Energy Efficient Economy (ACEEE) estimates that widespread adoption
of cost-effective energy efficiency measures throughout the U.S. could lower projected national gas usage by 10 percent by 2020
and cut the wholesale price of natural gas by 25 percent 2.

Helping Utilities Help Customers


Under traditional rate structures, natural gas utilities are not encouraged to Decoupling:
promote energy efficiency programs. Simply put, the less gas consumers use, the
Separating the direct link between
less revenue a utility receives to cover its fixed costs.
gas sales volume and recovery of
Regulators throughout the U.S. and Canada are beginning to adopt innovative authorized fixed costs, usually by
rate structures like decoupling to address this disincentive where appropriate. In establishing a rate structure that
addition to conserving a valuable resource, the resulting reduction in overall use allows a utility to recover its fixed
may help to temper prices in both the short- and long-term, putting more money costs regardless of how much gas it
back into the pockets of customers, lowering business energy costs and, in turn, distributes.
stimulating the economy.

Additional information on decoupling and energy efficiency can be found in the


Fall 2006 white paper, Natural Gas Demand in the Pacific Northwest, also posted on the NWGA website.

2
Testimony of R. Neal Elliot, ACEEE Industrial Program Director, submitted to the U.S. House Government Reform Subcommittee on Energy and Resources, Sept. 14, 2005.

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NW GAS OUTLOOK UPDATE 2006

Regional Supply
Key Conclusions
1. The Pacific Northwest market still benefits from its proximity to two large gas-producing regions
– the Western Canadian Sedimentary Basin (WCSB), consisting of an expansive area
covering northwest British Columbia and most of Alberta; and the U.S. Rocky Mountains,
including primarily Colorado, Utah and Wyoming – see Figure 5. Production from these
areas is projected to increase by 2011, with the most of the growth occurring in the Rockies.

2. However, the region is increasingly competing for those resources with other North
American markets. New pipelines built in recent years provide access to these supplies by growing
markets in the Midwest and Northeast, and proposed pipelines will sustain the
trend (e.g., The Rockies Express Pipeline proposed by Kinder Morgan
to ship 1.8 Bcf/day of gas from the Rockies to Ohio and Pennsylvania).
Liquefied natural gas:
3. With U.S. and Canadian natural gas demand expected to grow nearly 30 Gas made liquid by cooling
percent by 2025, and declining and/or restricted supplies elsewhere on the
to -259° F. LNG occupies
continent, we will soon need additional natural gas resources to serve
both the Pacific Northwest and the rest of North America. This will most about 1/600 of the volume
likely come in the form of liquefied natural gas (LNG) imports, of vapor, which makes
which are expected to make up more than 20 percent of U.S. shipping long distances possible.
supply by 2025 according to the EIA.

4. Besides LNG imports, Alaskan gas, Canadian frontier gas and development
of offshore gas supplies (which are currently restricted from
development by moratorium) and non-conventional resources such as
coal-bed methane reserves will be vital to serve the future
growth in gas demand.

5. To ensure supply can keep pace with demand, we must build on recent efforts to encourage
exploration, development and production and re-examine the restrictions on offshore drilling.

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NW GAS OUTLOOK UPDATE 2006

Figure 5. Production Areas Serving the Pacific Northwest

The Pacific Northwest relies on natural gas produced in the WCSB and the U.S. Rockies. About
half of the gas consumed in the region comes from the portion of the WCSB located in northeast
British Columbia (BC).

A Closer Look
Total annual natural gas production in the WCSB and Rockies, currently 24 billion cubic feet per day (Bcf/d), could approach 29 Bcf/d by 2011 according
to some estimates3 – an increase of 13 percent. Most of that growth is expected to occur in the Rockies. Figures 6 and 7 show various forecasts for
production growth in each area.

3
Wood Mackenzie, Long-term Market Outlook to 2020, August 2006.

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NW GAS OUTLOOK UPDATE 2006

Figure 6. Current WCSB Gas Production Forecasts

Figure 7. Current Rockies Gas Production Forecasts

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NW GAS OUTLOOK UPDATE 2006

In all, the two production areas have about 85 trillion cubic feet (Tcf) of remaining proven reserves (a “working inventory” of natural gas that can
be economically recovered using today’s technologies), with a combined ultimate resource potential (best estimate of total resources, even if not
yet economically feasible to access) of 500 Tcf. As shown in Figure 8, proven reserves change over time – in response to the maturity of a given
production area, improvements in exploration and production technologies, public policy changes, pipeline expansions that provide market
access to supplies and other dynamics of the gas commodity market.

Figure 8. Proven Reserves - Rockies4

While ample resources exist to serve our region, several factors hamper development in production areas. Barriers include
drilling rig and personnel shortages in the short term, infrastructure expansion needs in the mid term and limited access to
offshore resources as well as non-park public lands in the U.S. (under which proven gas reserves lie) in the longer term. For
example, drilling is not allowed in the waters off the East Coast of the U.S. or the West Coast of either the U.S. or Canada, nor is it
allowed in the eastern Gulf of Mexico.

Furthermore, as already noted, the Pacific Northwest is increasingly competing with the rest of North America for supply from
our own producing regions. For example, Canada is expected to export less gas to the U.S. as its own needs grow. In addition,
as pipelines increasingly link production areas with the larger continental market, the regional market is more influenced by
continental demand and supply (see Figure 9).

Therefore, although we have more than adequate natural gas supplies to serve regional consumers in the near future, we need to consider the longer
term, particularly since the process of siting, permitting, financing and building new natural gas supply and delivery facilities can take upwards of five
years.

4
Source: EIA, U.S. Crude Oil, Natural Gas and Natural Gas Liquids Reserves Report, September 2005.

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NW GAS OUTLOOK UPDATE 2006

Figure 9. North American Natural Gas Flows5

What This Means


Meeting future demand cannot be achieved solely by expanding production in our traditional supply areas or offshore. It will also require the
construction of major new pipeline projects to connect gas production in Alaska and the Canadian Mackenzie River delta, over the longer term
developing unconventional resources and importing more natural gas from around the globe – in addition to enhanced energy conservation efforts.
As many existing North American resources mature and experience production declines, we must explore all available potential new resources. Some of
the most promising include:
• Frontier gas supplies in the Mackenzie River Delta (Canada) and the Alaska North Slope, with enough proven natural gas reserves
to satisfy U.S. natural gas demand by itself for more than a decade.6 Alaskan gas, projected to come online in 2017, will be the
single largest potential domestic source of relief for North American gas consumers.
• Offshore resources. More than 130 Tcf of offshore natural gas resources in North America are currently off limits to development
because of federal off-shore drilling moratoria – 80 Tcf off U.S. shores and 50 Tcf in Canada (including 40 Tcf off the coast of British
Columbia).7 Both nations are reviewing their offshore oil and natural gas exploration and production policies.

5
Energy and Environmental Analysis, Inc. (EEA), April 2006, Base Case
6
American Gas Association, Meeting Consumer Demand for Natural Gas – Supply Side Action Is Needed Now, February, 2003.
7
Interstate Oil and Gas Compact Commission, Untapped Potential: Offshore Oil and Gas Resources Inaccessible to Leasing, March 2006

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NW GAS OUTLOOK UPDATE 2006

• Coal-bed methane (CBM) reserves. Extracted from coal seams, CBM is already being produced in significant quantities in the U.S.
According to the Energy Information Administration (EIA), in 2001 it accounted for about 7 percent of U.S. annual natural gas
production and its potential has barely been tapped; the U.S. Rockies alone contain estimated CBM reserves of 596 Tcf. In Canada,
where CBM reserves are estimated at 500 Tcf, drilling activity is increasing rapidly. 8
Besides CBM, other non-conventional natural gas resources are increasingly accessible (e.g., shale and “tight” gas – natural gas that
exists in rock formations with low porosity and/or permeability). Recovery of these resources will be assisted by the development
of new discovery, drilling and extraction technologies.
• Liquefied natural gas (LNG) imports. LNG is currently exported by 12 countries including Indonesia, Algeria, Malaysia, Qatar,
Nigeria, Australia, Oman, Brunei, United Arab Emirates, Russia, Trinidad and Tobago, and the United States. Together these countries
possess an annual export capacity of nearly 7 Tcf. Supply from these countries is expected to increase by 30 percent to more than
9 Tcf by 2007. An additional 3 Tcf in exports is expected from new producing countries like Egypt which joined the ranks of LNG
exporting countries in 2005.9

Growing Role of LNG


As shown in Figure 10, imported natural gas supplies will serve a growing role in the continental and regional energy picture. The EIA projects LNG
imports must increase from under 1 Tcf in 2004 to more than 6 Tcf by 2025 – a six-fold increase – to meet projected continental demand. That would be
enough to serve some 20 percent of U.S. natural gas consumers.

Figure 10. Projected Mix of Resources Needed to Meet Future Demand

LNG (green area) will play a vital role in serving the U.S. demand over the next decades as overall U.S. and Canadian supplies grow
only slightly or hold steady. Alaskan gas will provide a much needed domestic supply boost after 2017.

8
Alberta Geological Survey, Introduction to Coal- bed Methane Exploration Areas in Alberta, October, 2003.
9
EIA, The Global Liquefied Natural Gas Markets: Status and Outlook, 2004.

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NW GAS OUTLOOK UPDATE 2006

Figure 11. Proposed LNG Import Terminals in the Pacific Northwest 10


Recent technological improvements have made the cost of LNG
imports more competitive, spurring interest in expanding or building
new LNG import terminals throughout North America. In the U.S.
alone, four existing terminals are being expanded, and the first new
terminal in 20 years began service in March 2005. More than 40 new
terminals have been proposed, including four in Oregon and two in
British Columbia (see Figure 11).

Clearly, access to North American frontier, off-shore, non-


conventional and global natural gas resources is critical to the
region’s energy future.

Additional supply information, including a more in-depth discussion


of LNG, can be found in the January 2006 white paper, Natural Gas
Supply in the Pacific Northwest, also posted on the NWGA website
(www.nwga.org).

10
California Energy Commission, May, 2005.

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NW GAS OUTLOOK UPDATE 2006

Regional System Capacity


Key Conclusions
1. Under expected conditions, existing natural gas pipeline and storage capacities and planned storage expansions are adequate to
serve regional needs. Projected peak day demand (assumed extreme cold weather occurring simultaneously across the region)
approaches the capacity of the region’s infrastructure, which is being used very efficiently and has little redundancy.
2. The changing nature of the region’s natural gas demand (peak load growing faster than base load) means we must
continue to closely monitor infrastructure adequacy. Because stored gas is generally a more cost-effective means of
meeting seasonal and peak market needs, the industry has already responded by expanding the region’s gas storage
capacity.
3. Contracting patterns on the region’s Canadian upstream pipelines also continue to change. Gas producers and marketers
historically held much of the capacity on these pipelines. For a variety of reasons, these shippers relinquished significant volumes
of capacity in recent years. Demand-side interests in the region have stepped in to acquire some of the available capacity in order
to ensure continued access to reliable gas supplies at upstream trading hubs. The remaining uncontracted capacity on upstream
pipelines is available to flow gas on an interruptible basis in response to market demand in the region.
4. As the region’s electricity industry plans its future energy resource mix – including wind and any additional gas-fired
generation plants – the region would benefit from a more integrated approach to infrastructure planning so the two
industries can coordinate anticipated demand with supply and infrastructure needs.

A Closer Look
The region’s 44,000 mile network of transmission and distribution pipelines is designed to meet the base load requirements of the Pacific Northwest
on an ongoing basis, while underground and LNG storage assets provide a cost-effective means of meeting the additional needs of the region on peak
winter days. Together, pipelines and storage – along with interruptible pipeline transportation service contracts – give the industry flexibility in serving a
dynamic customer load.
Figure 12. Capacity of Pipelines and Storage to Meet Regional Peak Demand
Figure 12 shows the
current delivery capacity
of pipelines and storage
facilities serving the region
in MDth/day (thousand
decatherms per day). The
region’s pipeline operators
all completed major
pipeline expansions in
the 1990s through 2003,
but no additional pipeline
expansions are expected
through 2011. However,
several storage facility
expansions are occurring or
being explored.

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NW GAS OUTLOOK UPDATE 2006

Peak Day Analysis Figure 13. Capacity of Pipelines and Storage to Meet Regional Peak demand

Currently, pipelines and


storage facilities serving
the region are capable of
delivering more than 5.9
million Dth/day of gas on
a peak day, and will have
expanded to more than 6.4
Dth/day by the end of the
forecast period. In the base
case growth scenario (i.e.,
expected demand growth),
with assumed extreme
cold weather occurring
simultaneously across the
region, capacity falls just short
of meeting regional peak
needs in 2009-10 and in 2010-
11 (see Figure 13: red line and
yellow bars). There is adequate
capacity to serve the region’s
peak day requirements under the Low Demand Growth scenario throughout the forecast period.
While residential and commercial service would not likely be interrupted in any case, there is a chance industrial customers without firm service
agreements could face service curtailments. The risk of this scenario increases in the high demand growth case, which could create a capacity shortfall
as early as 2007-08. Fortunately, due to prevailing regional weather patterns, it is rare for a coincidental peak to occur. Extreme weather is more likely to
affect only parts of the region and usually in succession, not simultaneously.

I-5 Corridor Extended Winter Analysis


Analyses of winter-time supply and demand for a moderately cold year and a low-hydro year in the I-5 Corridor
were conducted for the 2010-11 heating year. The temperature in a moderately cold year differs depending
on the specific region but occurs about 15 percent of the time. A low-hydro year is one in which lower than
average stream flows reduce hydroelectric generation and increase demand for gas-fired electric generation.
The low-hydro year in this analysis was based on actual hydro generation data from 2001.
For each of the scenarios, both base case and high growth case demand were plotted against pipeline
capacity, underground storage and peaking resources such as LNG storage to gauge the adequacy of
deliverability capacity. The high demand case was used in order to test the “worst case.” (While the
probability of these scenarios occurring at the same time is low, the Western energy crisis in 2000-2001
demonstrates that it is not impossible.)
The shapes of the curves was derived using analyses performed in 2004 and updated with the latest forecast
of core, industrial and power generation loads included in this update. The shape of core and power
generation demand are different for a moderately cold year than for a normal or low-hydro year, while that for
industrial load is the same in all cases.

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NW GAS OUTLOOK UPDATE 2006

Results of the base case analyses demonstrated that if the I-5 Corridor’s delivery capacity remains available at present levels, with no interruption of
deliverability over the winter, existing resources would be sufficient to meet base case demand, as well as expected demand in moderately cold or
low-hydro circumstances, through 2011 (see Figures 14-15).

Figure 14. 2010-11 Winter Analysis Base Case Demand – Moderately Cold

Figure 15. 2010-11 Winter Analysis Base Case Demand – Low Hydro

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NW GAS OUTLOOK UPDATE 2006

Results of the high growth demand case analyses indicate the potential for unserved demand during the 2010-11 heating year under both the
moderately cold and low-hydro scenarios (see Figures 16 and 17). Potential consequences of unserved demand include significant price volatility and
the curtailment of non-core – typically industrial – loads. As mentioned previously, it is very unlikely that core customers (residential and commercial)
would experience service interruptions under these scenarios.

Figure 16. 2010-11 Winter Analysis High Case Demand - Moderately Cold Year

Figure 17. 2010-11 Winter Analysis Hogh Case Demand - Low Hydro Year

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NW GAS OUTLOOK UPDATE 2006

It is important to emphasize that the only scenarios that produced results demonstrating a potential capacity deficit were the ones that utilized the
higher than expected demand growth projections. While unlikely to occur, they are worth discussing because they can help the region weigh the
price tag for investing in additional future capacity against the perceived need for that capacity – whether under normal circumstances or unusually
severe scenarios.

Trends in Pipeline Capacity Contracting


As noted, use of the region’s pipelines has changed in recent years. Historically, much of the transportation capacity from British Columbia and
Alberta to the U.S. Pacific Northwest was held by supply-side interests including producers, supply aggregators and marketers. Construction of new
pipeline capacity from Western Canada to Midwest gas markets and beyond in recent years has provided producers a greater array of market options
for their production. At the same time, the number and activity of third-party gas marketers serving the region has declined. Accordingly, the volume
of capacity held by producer/marketer shippers on Canadian upstream pipelines serving the Pacific Northwest has declined. Consequently, local gas
companies and large end-use customers (e.g., industrial consumers, power generators) have been compelled to purchase gas and to contract directly
for pipeline capacity from trading hubs situated closer to Canadian production. This represents a significant change, as many of these entities
historically purchased gas from suppliers at major border export points like Sumas, Washington.
As a result of this transition in capacity ownership from suppliers to consumers, there is currently a capacity surplus on the upstream pipelines
that bring Canadian gas to the region. For example, 40 percent of Duke Energy’s T-South pipeline, which moves gas from production areas in
Northeast British Columbia to Vancouver and to the U.S. Pacific Northwest at Sumas, Washington, is currently un-contracted. Likewise, 20 percent
of TransCanada’s Gas Transmission Northwest (GTN) pipeline, which moves gas from production areas in Alberta to the Inland Northwest and
through to California markets at Malin, California, is un-contracted. In contrast, Williams Northwest Pipeline, which brings U.S. gas to the region from
production areas in the Rockies and moves Canadian gas around the region, is fully contracted.
The redistribution of capacity ownership on Canadian upstream pipelines is expected to continue. It is important to note that Canadian supplies
remain available to the region – regardless of who owns the transport capacity – though it may be shipped on an interruptible rather than
guaranteed (firm) basis. For instance, natural gas demand in portions of the region was driven up by cold weather in December, 2005. At the time, the
T-South pipeline operated at peak capacity on the south end of the system at the Huntingdon/Sumas delivery area. A considerable volume of gas
flowed on an interruptible transport basis during the event, demonstrating that supply and capacity is available to serve the market when demand is

Table 2. Existing Pacific Northwest Storage and LNG Facilities

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NW GAS OUTLOOK UPDATE 2006

high. In order to mitigate the risk of curtailment that exists with interruptible transport capacity, end-users that require reliable supply must arrange for
firm pipeline capacity from key upstream trading locations or contract for firm supply from a third party who will assume the obligation of ensuring
delivery.

Storage Capacity and Expansions


With peak loads growing more rapidly than base loads in the region, storage capacity is increasingly important. Currently, the region is served by over
36 million Dth of working gas capacity (gas available to the marketplace – see Table 2) in underground natural gas storage facilities and more than 5
million Dth of capacity in above-ground liquefied natural gas (LNG) storage facilities, for a total regional storage capacity of 41.6 million Dth. This alone is
enough to serve the entire region for almost a week under the most extreme conditions.
To meet growing peak demand, several storage expansions are now underway or proposed. NW Natural expects to add another 50 MDth/day in
withdrawal deliverability to its Mist facility by 2007-08. The owners of the Jackson Prairie Storage Project have filed for a FERC certificate to increase firm
deliverability by up to 312 MDth/day to come on line in late 2008. This is in addition to ongoing capacity (total working gas) expansions at both facilities.
Meanwhile, Terasen Gas continues to explore siting a LNG storage facility to serve peak demand loads on Vancouver Island for operation by 2010-11. This
would supplement the several smaller LNG storage facilities already serving the region (not to be confused with the larger scale LNG import facilities
discussed earlier under Regional Supply). Typically, these LNG peaking resources are used only during extreme weather events or to alleviate constraints
in transmission systems where underground storage is not available.

What This Means


Much like arteries in the human body, the region’s natural gas pipelines serve a living, breathing market that is never static. Storage facilities serve as
energy reserves to be called upon as needed. Together, the system keeps natural gas flowing to customers.
Given our best estimates at this time, the natural gas infrastructure serving the region is satisfactory for now, but capacity holders must anticipate and
then act when investments need to be made. In the past, the market has responded appropriately when expansions were needed, and infrastructure
operators will continue to check the market by soliciting interest when warranted. Public agencies must be equipped to respond in a timely fashion to
the need for additional infrastructure by implementing streamlined permitting and siting processes.

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NW GAS OUTLOOK UPDATE 2006

Regional Prices
Key Conclusions
1. Across North America natural gas demand/supply balance will remain tight over the next five years (see Regional
Demand and Regional Supply summaries), resulting in the continuation of natural gas price volatility. Ongoing demand
growth, when new supply resources reach the markets, as well as volatility in the crude oil market and increasing
competition for global natural gas supplies, will be among drivers influencing prices over the longer term.
2. In the short term, weather remains a primary driver of natural gas prices. As long as demand and supply remain tightly
balanced, surges in demand caused by cold (heating) or hot (electric generation for air conditioning) weather and
disruptions in supply as a result of weather-related damage (e.g. hurricanes) will continue to affect prices. For instance,
damage to production facilities in the Gulf of Mexico caused by Hurricanes Katrina and Rita sent natural gas prices soaring
during the latter third of 2005. In contrast, a mild winter in 2005-06 contributed to high storage inventories across North
America, which drove prices down during the summer and fall of 2006.
3. Still, the Pacific Northwest continues to benefit from lower prices than other regions and gas continues to be a good
value relative to other energy options, particularly for heating.
4. Public policy-makers and industry decision-makers will have a significant impact on the availability and price of natural
gas in the coming decades based on whether and how swiftly they can work together to address critical issues facing
natural gas consumers.

A Closer Look
While natural gas prices moderated in 2006, due largely to a combination of weather-related factors, they are unlikely to return to the lows of
prior decades. As discussed in the Regional Supply section, the Pacific Northwest is increasingly sharing natural gas from nearby producing
regions with the larger North American market. Accordingly, regional gas consumers now pay prices for natural gas that more closely reflect
those of the broader market and are subject to price movements that occur in those markets, particularly the energy intensive U.S. Northeast
and Southwest.
Figure 18. NWPCC/EIA Natural Gas Price Projections
Figure 18 shows the natural gas price forecast
used by the Northwest Power and Conservation
Council (NWPCC) in its Fifth Northwest Electric
Power and Conservation Plan. The band
bounded by the low and high price estimates
describes the range of prices for natural gas
Sources: Northwest Power And Conservation Council - 5th Power Plan, January, 2005. EIA,
forecast by the NWPCC. The orange line 2006 Annual Energy Outlook ‘06.
represents the average gas price forecast used
in NWPCC models for projecting the reference
or expected mix of various sources of future
electrical generation in the Pacific Northwest
(e.g., gas-fired combined cycle turbines, wind
energy, coal, etc.). Note that the EIA projections
– which have the benefit of more recent data
– are at the higher end of the NWPCC’s range.

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NW GAS OUTLOOK UPDATE 2006

Figure 19. Natural Gas and Crude Oil Price Correlation11 Also affecting natural gas prices in the near
term are historically high prices for crude oil
(see Figure 19). In fact, oil prices contribute to
the price of other commodities in the energy
complex (coal, natural gas, etc.) as its price
fluctuates. Also contributing to the price linkage
between oil and natural gas is the fact that many
large industrial consumers, including some
electrical generation facilities, can burn either
fuel. Consequently, they will switch between the
two as price dictates.

A complex interplay of other factors also


contribute to energy price volatility. Natural gas
end-users such as utilities and power generators
work to control these price drivers as much as
possible through price management activities
that mix short and long-term purchases,
balance risk, and ultimately acquire the requisite
What This Means resources for regional customers at reasonable
Strategic planning by the natural gas industry cannot itself, prices. Figure 20 illustrates a typical portfolio of
however, overcome the price squeeze being felt by Pacific resources.
Northwest and other North American customers. Public policies Figure 20. Industry Tools to Balance Resources Manager Prices12
and the regulatory environment heavily influence the industry’s
ability to operate effectively – either expediting market flexibility or
Underground
posing serious hurdles that can skew the demand/supply balance Storage

– and therefore can play a huge role in future gas prices.


Financial
Derivatives
Impact of Public Policy on Natural Gas Prices (futures,
options, etc...)

Two recent studies looked at the effects public policy choices (or
Long-term
lack of them) could have on future natural gas prices. An American Contracts
(1+ years)
Gas Foundation (AGF) study issued in February 2005 – Natural Gas
Outlook to 2020 – analyzed future U.S. natural gas prices based on
Short-term
three alternative public policy scenarios: existing, expected and Contracts
(1-12 months)
expanded.
Daily/spot
The existing, or status quo, scenario described in the 2005 AGF Market
(30 days or less)
study assumed continuing restrictions on off-shore and Rocky
Mountain drilling, no functional Alaskan pipeline and no new
LNG terminals. The expected scenario assumed a more diverse
natural gas supply, with major contributions from Alaska (by 2014)
and imported LNG, but continued drilling restrictions. Finally, the
expanded scenario assumed new supplies from Alaska and LNG
and development of limited resources off the East Coast and Gulf of
Mexico and in the Rockies.

11
EIA, Annual Natural Gas and Crude Oil Prices, as of December 31, 2004. 1.0 represents a perfect, one-to-one correlation.
12
Illustration courtesy of American Gas Association.

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NW GAS OUTLOOK UPDATE 2006

The expanded policy scenario could save Figure 21. AGF Future Gas Prices under Three Public Policy Scenarios
consumers more than $500 billion over
the expected scenario between 2005 and
2020, the study found (see Figure 21.) It
notes, however, that both the expected
and expanded scenarios require significant
changes in public policy – currently being
examined by Congress.
Similarly, in its 2003 Natural Gas Study, the
National Petroleum Council (NPC) identified
two policy scenarios: a “reactive path” and a
“balanced future.” The reactive (or minimal
action) path assumed some action is taken
Forecasted prices are five year averages.
to increase efficiency and conservation,
enable the Alaskan gas pipeline, overcome
siting opposition to LNG terminals, and allow increased drilling in the Rockies. Supply and demand would continue to be tight,
the NPC found, resulting in higher and more volatile prices.
The NPC’s recommended “balanced future” scenario assumed more aggressive steps to maximize supply and infrastructure
development and fuel-switching flexibility, resulting in lower price projections. Such actions could save energy consumers up to
$1 trillion in natural gas costs over the next two decades, the study found (see Figure 22).
Figure 22. NPC – Policy Impact on Future Gas Prices
Recent Public Policy Actions

Recent policy initiatives in


both the U.S. and Canada
mean we have already taken
some important first steps.
The U.S. Energy Policy Act
of 2005 provides a fresh
blueprint for the supply,
delivery and efficient use
of natural gas and other
forms of energy – directly
benefiting homeowners and
commercial consumers who
have struggled with rising
energy prices since 2000.
The Act encourages more
natural gas production in
the U.S., increasing imports of LNG, and promoting research on promising new sources of natural gas, such as coal-bed methane
and methane hydrates. It encourages expansion of natural gas pipelines and the construction of more underground natural gas
storage facilities. And the Act promotes innovative technologies, such as natural gas fuel cells, to encourage more efficient use.
By separate action earlier in the year, Congress also enacted provisions to expedite construction of the Alaska Gas Pipeline, which
will connect readily available stores of natural gas to the consuming regions of North America.

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NW GAS OUTLOOK UPDATE 2006

In addition, both British Columbia and Alberta have recently implemented aggressive natural gas supply strategies that are
producing results. Royalty relief, road construction in remote areas and other incentives have spurred natural gas production
gains in targeted areas.

Since these policy changes cannot bring overnight resolution to the supply/demand imbalance, it will take some time for the
results to benefit consumers. For example, it takes years for new natural gas production (and pipelines to deliver it) to reach the
market. The licensing and construction of new LNG import terminals alone is a three- to five-year effort. Likewise, changing
consumer behavior – to adopt new technology or otherwise conserve energy – takes time to achieve.

Moderating future gas prices will require additional proactive steps by the industry and policy-makers on both sides of the
equation – addressing supply (encouraging development of new resources) and demand (encouraging the wise use of existing
resources).

More details about projected natural gas prices in the region can be found in the full Outlook study online at www.nwga.org.
Additional information on prices, including key price drivers, can be found in the September 2005 white paper, Natural Gas Prices
in the Pacific Northwest, also posted on that website.

Implications
Based on the data collected for, and conclusions drawn from, the 2006 Outlook study, several important actions can be identified
that will help balance the region’s energy future. Some of these are the responsibility of gas industry members, but customers,
public interest groups, policy-makers and regulators are all key stakeholders in this energy market – with important roles to play.

Improving Regional Understanding and Awareness


Fostering a better understanding of natural gas – its implications for the regional economy and contributions to the way of life
enjoyed by the people of the Pacific Northwest – is a top priority for the industry.

For instance, natural gas is likely to continue to play a role in fueling new electrical generation in the region because of its
environmental and economic attributes, as well as market uncertainties facing other potential fuel sources. Consequently, the
region could benefit from a more integrated approach to energy system planning. Increased collaboration and consultation
among gas and electric interests in the region will help to ensure sufficient supply and capacity exists to meet all of the future
energy needs of the Pacific Northwest.
Wise Use of a Valuable Resource
Ensuring the effective and efficient use of natural gas is another priority of the industry in the Pacific Northwest. Conservation
is an important part of the picture, which is why some companies are seeking innovative rate structures that help align the
interests of the consumer and the shareholder where it makes sense to do so. Likewise, the many efficiency tax credits included
in the U.S. Energy Policy Act and similar Canadian initiatives are further evidence that energy efficiency is being encouraged as
the right, not merely a “green,” choice.

Equally important is ensuring that the right fuel is being employed for the right purpose, wherever the choice is feasible. For
example, electricity is the only source of energy that can power lights, computers and the like. Natural gas, on the other hand,
can be used for cooking or to heat homes and hot water directly; or it can be used to generate electricity for the same purposes.
Yet more than half of the energy available in natural gas can be lost when it is used to generate electricity. Furthermore, once
a decision is made with regard to which energy source to use for what applications, it will be many years before that decision is
revisited.

Northwest Gas Association - (503) 624-2160 - www.nwga.org 26


NW GAS OUTLOOK UPDATE 2006

In addition to encouraging consumers to retrofit heating systems or replace appliances, public policy can boost investment
in new energy efficiency technologies, such as advanced meters that can support “time-of-use” (TOU) rate structures.
Innovative technologies like these give consumers the ability to more closely manage their energy usage. They also serve
to “flatten” demand peaks that can strain delivery systems or require costly spot-market purchases.

Securing Abundant Supplies from Diverse Sources


Ensuring that the Pacific Northwest is served with an adequate mix of natural gas supplies and infrastructure is vital for the
region to sustain a growing economy. We must work with regulators and engage policy-makers and the public now, to
secure long-term supply and transportation capacity into the region.

At a minimum, this means aligning regulatory processes with system planning efforts to overcome costly delays and
educating the public about the true risks and rewards of resource and pipeline development. To access global LNG
supplies, for example, we need to encourage coordination among local, state and federal agencies to streamline the siting/
permitting process for import terminals and get out the facts about LNG’s lengthy safety record.

Recent policy initiatives in the states and provinces is one step to unlock the resources at our fingertips and balance our
energy future. Partnering public policy, regulatory innovation and consumer education will create a powerful force in the
mission to promote the highest and best use of natural gas, balance demand and supply, and stabilize prices for current
and future consumers.

This Northwest Gas Outlook Summary was published by the Northwest Gas Association (NWGA) to provide policy makers, opinion leaders
and the media with accurate and timely information about the region’s natural gas market, including projected supply, demand and
prices, and status of the gas delivery system (pipelines and storage). A more comprehensive NW Gas Outlook can be found on our web site
at www.nwga.org.

NWGA members include six natural gas utilities serving communities in Oregon, Washington, Idaho and British Columbia, and three
interstate pipelines that move natural gas from supply basins into and through the region. NWGA members deliver or distribute all of the
natural gas consumed in the Pacific Northwest. If you would like to use any of the material and/or graphics please contact the NWGA at
(503) 624-2160 for permission.

5335 SW Meadows Road, Suite 220, Lake Oswego, Oregon 97035 • Tel: 503-624-2160 • www.nwga.org
Please Note: All facts & figures included in this newsletter are accurate at the time of printing.
However, they are subject to change without notice due to changes in the market.

Northwest Gas Association - (503) 624-2160 - www.nwga.org 27


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NW GAS OUTLOOK UPDATE 2006

Appendix
Data Tables
NW GAS OUTLOOK UPDATE 2006

A-1
NW GAS OUTLOOK UPDATE 2006

A-2
NW GAS OUTLOOK UPDATE 2006

A-3
NW GAS OUTLOOK UPDATE 2006

A-4
NW GAS OUTLOOK UPDATE 2006

A-5
NW GAS OUTLOOK UPDATE 2006

A-6
NW GAS OUTLOOK UPDATE 2006

A-7
NW GAS OUTLOOK UPDATE 2006

A-8
NW GAS OUTLOOK UPDATE 2006

A-9
NW GAS OUTLOOK UPDATE 2006

A-10
Appendix F
FINANCIAL SCHEDULES
Appendix F Mt. Hayes LNG Storage Project

APPENDIX F

Table of Contents

Page
Financial Assumptions 1
Baseline Scenario
Table 1.1 TGVI Portfolio Comparison - Summary 2
Table 1.2 TGVI Portfolio Comparison - Annual Summary 3
Table 1.3 TGVI System Cost Summary 4
Table 1.4 TGVI Incremental Facilities - P&C Portfolio - Revenue Requirement 5
Table 1.4.1 TGVI Incremental Facilities - P&C Portfolio - Rate Base Summary 6
Table 1.5 TGVI Incremental Facilities - LNG Portfolio - Revenue Requirement 7
Table 1.5.1 TGVI Incremental Facilities - LNG Portfolio - Rate Base Summary 8
TGVI Portfolio Sensitivities
Table 2.1 Base + ICP Scenario 9
Table 2.2 Low Core Demand Scenario 9
Table 2.3 High Cost Scenario 10
Table 2.4 Upside Case 10
LNG Summary – P50, P90, P10 Capital Cost Estimates
Table 3.1 LNG Storage Revenue Requirement, P50 Capital Cost Estimate 11
Table 3.1.1 LNG Storage Rate Base, P50 Capital Cost Estimate 12
Table 3.2 LNG Storage Revenue Requirement, P90 Capital Cost Estimate 13
Table 3.2.1 LNG Storage Rate Base, P90 Capital Cost Estimate 14
Table 3.3 LNG Storage Revenue Requirement, P10 Capital Cost Estimate 15
Table 3.3.1 LNG Storage Rate Base, P10 Capital Cost Estimate 16
TGI CTS Incremental Facilities (assuming Burrard Thermal at 6 Units)
Baseline Demand
Table 4.1 CTS Revenue Requirement - LNG Portfolio 17
Table 4.1.1 CTS Rate Base Summary - LNG Portfolio 18
Table 4.2 CTS Revenue Requirement - P&C Portfolio 19
Table 4.2.1 CTS Rate Base Summary - P&C Portfolio 20
Base + ICP Demand
Table 4.3 CTS Revenue Requirement - LNG Portfolio 21
Table 4.3.1 CTS Rate Base Summary - LNG Portfolio 22
Table 4.4 CTS Revenue Requirement - P&C Portfolio 23
Table 4.4.1 CTS Rate Base Summary - P&C Portfolio 24

Appendix F – Financial Schedules Page i


Appendix F Mt. Hayes LNG Storage Project

Financial Assumptions

Depreciation
• LNG Storage: 2.1 - 4.9 % per year - Figure 5-1 of the Application
• Compression: 3.5% per year
• Pipe: 2% per year
• Power Line: 2% per year
• Buildings: 3.77% per year

Inflation: 2% per year


• Capital
• O&M
• Property Tax

Capital Costs
• LNG - Table 4-1 of the Application
• TGVI Facilities related to LNG - Table 4-2 of the Application
• TGVI Compression & Pipe - Table 7-2 of the Application
• CTS Facility Expansion - Table 7-4 of the Application

Operating & Maintenance


• LNG - Tables 4-3, 4-4 of the Application
• Compression
o New unit at new station - $0.6M per year (2007$)
o New unit at existing station - $0.4M per year (2007$)

Income Tax
• Combined Federal / Provincial: 31% (2010+)
• Capital Cost Allowance:
o Buildings - Class 1 (4%)
o LNG Equipment - Proposed Class in 2007 Federal Budget (8%)
o Pipe - Class 49 (8%)
o Power Line - Class 47 (8%)
o Compression - Class 7 (15%)

Debt / Equity Split: 60/40

Return on Equity
• TGVI Other Assets: 9.5%
• TGVI LNG: 10%

Debt Costs: 5.8%

Appendix F – Financial Schedules Page 1


Appendix F Mt. Hayes LNG Storage Project

Table 1.1
Baseline Scenario
TGVI Portfolio Comparison - Summary (Reprinted from Section 8, Table 8-1)
6.2% 10%
($ Millions)
P&C LNG P&C LNG
25-Year Evaluation Period
Portfolio Portfolio Portfolio Portfolio
TGVI System Costs (Table 1.2, Lines 1&3) 115 21 72 15
TGVI LNG Costs (Table 1.2, Line 4) 230 163
TGVI Gas Supply Benefit (Table 1.2, Line 5) (68) (48)
Storage Revenues from TGI (Table 1.2, Line 6) (135) (97)
Net Portfolio Cost 115 49 72 33
15-Year Evaluation Period
TGVI System Costs (Table 1.2, Lines 1&3) 48 14 36 11
TGVI LNG Costs (Table 1.2, Line 4) 148 117
TGVI Gas Supply Benefit (Table 1.2, Line 5) (45) (36)
Storage Revenues from TGI (Table 1.2, Line 6) (90) (72)
Net Portfolio Cost 48 27 36 21

Appendix F – Financial Schedules Page 2


Appendix F Mt. Hayes LNG Storage Project

Table 1.2
Baseline Case
TGVI Portfolio Comparison - Annual Summary ($Millions) Calendar Year
(2007-2021) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
P&C Portfolio

1 TGVI System Costs (Table 1.3, Line 4) $0.2 $0.3 $0.5 $0.1 $7.6 $8.1 $8.5 $8.6 $11.2 $11.6 $11.9 $11.8
2 Net Portfolio Cost $0.2 $0.3 $0.5 $0.1 $7.6 $8.1 $8.5 $8.6 $11.2 $11.6 $11.9 $11.8

LNG Portfolio

3 TGVI System Costs (Table 1.3, Line 8) $0.2 $1.1 $1.7 $1.9 $2.0 $2.0 $2.1 $2.1 $2.1 $2.1 $2.1 $2.1
4 TGVI LNG Costs (Table 3.1, Line 9) 0.0 12.9 20.2 20.4 20.6 20.8 21.1 21.3 21.5 21.7 21.9 22.2
1
5 TGVI Gas Supply Benefit 0.0 (4.8) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3)
2
6 Storage Revenues from TGI 0.0 (9.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6)
7 Net Portfolio Cost $0.2 ($0.5) $3.1 $3.4 $3.7 $4.0 $4.2 $4.5 $4.7 $4.9 $5.1 $5.3

8 Net LNG Benefits (Line 2-7) $0.0 $0.8 ($2.6) ($3.3) $3.9 $4.1 $4.3 $4.2 $6.5 $6.7 $6.8 $6.6

Present Value
TGVI Portfolio Comparison - Annual Summary (continued) 25 Yrs(2010 - 31) 15 Yrs(2010 - 21)
(2022-2031) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 6.2% 10% 6.2% 10%
P&C Portfolio

1 TGVI System Costs (Table 1.3, Line 4) $16.4 $16.7 $16.9 $17.2 $17.4 $17.2 $22.2 $22.5 $22.8 $23.0 $115 $72 $48 $36
2 Net Portfolio Cost $16.4 $16.7 $16.9 $17.2 $17.4 $17.2 $22.2 $22.5 $22.8 $23.0 $115 $72 $48 $36

LNG Portfolio

3 TGVI System Costs (Table 1.3, Line 8) $2.0 $2.0 $1.9 $1.9 $1.8 $1.8 $1.7 $1.7 $2.0 $2.0 $21 $15 $14 $11
4 TGVI LNG Costs (Table 3.1, Line 9) 22.4 22.6 22.8 23.1 23.3 23.5 23.8 24.0 24.3 24.5 230 163 148 117
1
5 TGVI Gas Supply Benefit (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (6.3) (68) (48) (45) (36)
2
6 Storage Revenues from TGI (12.6) (12.6) (12.6) (12.6) (12.7) (12.7) (12.7) (12.7) (12.7) (12.7) (135) (97) (90) (72)
7 Net Portfolio Cost $5.4 $5.6 $5.8 $6.0 $6.2 $6.3 $6.5 $6.8 $7.3 $7.5 $49 $33 $27 $21

8 Net LNG Benefits (Line 2-7) $10.9 $11.1 $11.1 $11.2 $11.2 $10.9 $15.7 $15.8 $15.5 $15.5 $66 $39 $21 $15
Notes:
1: 1/3 of Storage Value (Appendix E, Avoided Market Area Storage Costs,Jackson Prairie,Lines 26 & 40)
2: 2/3 of Storage Value (Appendix E, Avoided Market Area Storage Costs,Jackson Prairie,Lines 26 & 40)

Appendix F – Financial Schedules Page 3


Appendix F Mt. Hayes LNG Storage Project

Table 1.3
Baseline Case
TGVI System Cost Summary ($Millions) Calendar Year
(2007-2021) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Pipe & Compression Portfolio
1 TGVI Facilities (Table 1.4, Line 7) $0.0 $0.0 $0.0 ($0.5) $6.9 $7.2 $7.5 $7.5 $10.0 $10.2 $10.4 $10.3
2 Incremental System Fuel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Incremental Wheeling 0.2 0.3 0.5 0.6 0.7 0.8 1.0 1.1 1.2 1.3 1.5 1.6
4 Total TGVI System Cost $0.2 $0.3 $0.5 $0.1 $7.6 $8.1 $8.5 $8.6 $11.2 $11.6 $11.9 $11.8

LNG Storage Portfolio


5 TGVI Facilities (Table 1.5, Line 7) $0.0 $0.7 $1.1 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2
6 Incremental System Fuel 0.0 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
7 Incremental Wheeling 0.2 0.3 0.5 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
8 Total TGVI System Cost $0.2 $1.1 $1.7 $1.9 $2.0 $2.0 $2.1 $2.1 $2.1 $2.1 $2.1 $2.1

9 TGVI System Benefits (Line 4-8) $0.0 ($0.8) ($1.3) ($1.8) $5.6 $6.0 $6.4 $6.5 $9.1 $9.5 $9.8 $9.8

TGVI Capacity Benefit Summary (continued) Present Value


(2022-2031) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 25 Yrs 15 Yrs
Pipe & Compression Portfolio 2010 - 2031 2010 - 2021
6.2% 10% 6.2% 10%
1 TGVI Facilities (Table 1.4, Line 7) $14.7 $15.0 $15.1 $15.2 $15.3 $15.0 $19.9 $20.1 $20.2 $20.2 $100 $63 $41 $31
2 Incremental System Fuel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0 0
3 Incremental Wheeling 1.6 1.7 1.8 1.9 2.1 2.2 2.3 2.5 2.6 2.8 14 9 7 5
4 Total TGVI System Cost $16.4 $16.7 $16.9 $17.2 $17.4 $17.2 $22.2 $22.5 $22.8 $23.0 $115 $72 $48 $36

LNG Storage Portfolio


5 TGVI Facilities (Table 1.5, Line 7) $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.1 $13 $9 $8 $7
6 Incremental System Fuel 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 (0.0) (0.0) 1 1 1 1
7 Incremental Wheeling 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.8 0.8 7 5 5 4
8 Total TGVI System Cost $2.0 $2.0 $1.9 $1.9 $1.8 $1.8 $1.7 $1.7 $2.0 $2.0 $21 $15 $14 $11

9 TGVI System Benefits (Line 4-8) $14.3 $14.7 $15.0 $15.3 $15.5 $15.4 $20.5 $20.8 $20.8 $21.0 $94 $57 $34 $24

Appendix F – Financial Schedules Page 4


Appendix F Mt. Hayes LNG Storage Project

Table 1.4
Pipe & Compression Portfolio
TGVI Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
Revenue Requirement Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.2 $1.4 $1.4 $1.5 $1.6 $2.0 $2.1
2 Property & Other Taxes 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.2
3 Depreciation & Amortization 0.0 0.0 0.0 0.0 2.1 2.1 2.1 2.1 2.8 2.8
4 Income Tax 0.0 0.0 0.0 (1.6) (1.2) (0.8) (0.4) (0.7) (0.4) (0.0)
5 Return on Equity 0.0 0.0 0.0 0.4 2.3 2.3 2.2 2.2 2.8 2.7
6 Interest 0.0 0.0 0.0 0.3 2.1 2.1 2.0 2.0 2.5 2.4
7 Total Revenue Requirement $0.0 $0.0 $0.0 ($0.5) $6.9 $7.2 $7.5 $7.5 $10.0 $10.2

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $2.1 $2.3 $3.0 $3.1 $3.2 $3.2 $3.3 $3.5 $4.3 $4.4 $4.5 $4.6
2 Property & Other Taxes 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.5 0.5 0.5 0.5 0.5
3 Depreciation & Amortization 2.9 2.9 4.1 4.2 4.1 4.2 4.2 4.2 5.6 5.6 5.7 5.7
4 Income Tax 0.3 (0.4) 0.0 0.5 0.8 1.1 1.3 0.5 0.9 1.3 1.6 1.9
5 Return on Equity 2.6 2.7 3.8 3.6 3.5 3.4 3.2 3.3 4.5 4.3 4.1 4.0
6 Interest 2.3 2.5 3.4 3.3 3.2 3.1 2.9 3.0 4.1 3.9 3.8 3.6
7 Total Revenue Requirement $10.4 $10.3 $14.7 $15.0 $15.1 $15.2 $15.3 $15.0 $19.9 $20.1 $20.2 $20.2

Present Value ($Millions) 6.2% 10.0%


8 15 Years (2010 - 2021) $41 $31
9 25 Years (2010 - 2031) $100 $63

Appendix F – Financial Schedules Page 5


Appendix F Mt. Hayes LNG Storage Project

Table 1.4.1
Pipe & Compression Portfolio
TGVI Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
Rate Base Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $0.0 $0.0 $9.5 $61.9 $62.2 $62.5 $65.7 $82.2 $82.6
2 Accumulated Depreciation 0.0 0.0 0.0 (0.0) (1.0) (3.1) (5.2) (7.3) (9.8) (12.5)
1
3 Deferred Charges 0.0 0.0 0.0 0.4 0.3 0.3 0.3 0.3 0.3 0.2
4 Working Capital 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
5 Total Rate Base $0.0 $0.0 $0.0 $9.9 $61.3 $59.4 $57.6 $58.8 $72.8 $70.4

Plant Summary
6 Opening $0.0 $0.0 $0.0 $0.0 $61.8 $62.1 $62.3 $62.6 $82.0 $82.4
7 Additions 0.0 0.0 0.0 61.8 0.3 0.3 0.3 19.4 0.4 0.4
8 Ending 0.0 0.0 0.0 61.8 62.1 62.3 62.6 82.0 82.4 82.8
9 Average Plant in service $0.0 $0.0 $0.0 $9.5 $61.9 $62.2 $62.5 $65.7 $82.2 $82.6

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $83.0 $89.0 $120.4 $121.0 $121.6 $122.2 $122.8 $129.8 $165.3 $166.1 $167.0 $167.9
2 Accumulated Depreciation (15.4) (18.2) (21.6) (25.7) (29.8) (33.9) (38.0) (42.2) (47.1) (52.6) (58.3) (63.9)
1
3 Deferred Charges 0.2 0.4 0.3 0.2 0.2 0.2 0.1 0.3 0.3 0.2 0.2 0.1
4 Working Capital 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2
5 Total Rate Base $67.9 $71.3 $99.2 $95.6 $92.1 $88.6 $85.0 $88.1 $118.7 $113.9 $109.1 $104.3

Plant Summary
6 Opening $82.8 $83.2 $120.1 $120.7 $121.3 $121.9 $122.5 $123.1 $164.8 $165.7 $166.6 $167.4
7 Additions 0.4 36.9 0.6 0.6 0.6 0.6 0.6 41.7 0.8 0.9 0.9 0.9
8 Ending 83.2 120.1 120.7 121.3 121.9 122.5 123.1 164.8 165.7 166.6 167.4 168.3
9 Average Plant in service $83.0 $89.0 $120.4 $121.0 $121.6 $122.2 $122.8 $129.8 $165.3 $166.1 $167.0 $167.9
Notes
1: Debt issue costs

Appendix F – Financial Schedules Page 6


Appendix F Mt. Hayes LNG Storage Project

Table 1.5
LNG Storage Portfolio
TGVI Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
Revenue Requirement Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Property & Other Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Depreciation & Amortization 0.0 0.0 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
4 Income Tax 0.0 (0.1) (0.1) (0.1) (0.0) (0.0) 0.0 0.0 0.1 0.1
5 Return on Equity 0.0 0.4 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4
6 Interest 0.0 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
7 Total Revenue Requirement $0.0 $0.7 $1.1 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Property & Other Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Depreciation & Amortization 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
4 Income Tax 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2
5 Return on Equity 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3
6 Interest 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
7 Total Revenue Requirement $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.1

Present Value ($Millions) 6.2% 10.0%


8 15 Years (2010 - 2021) $8 $7
9 25 Years (2010 - 2031) $13 $9

Appendix F – Financial Schedules Page 7


Appendix F Mt. Hayes LNG Storage Project

Table 1.5.1
LNG Storage Portfolio
TGVI Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
Rate Base Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $1.9 $12.4 $12.5 $12.5 $12.6 $12.6 $12.7 $12.8 $12.9
2 Accumulated Depreciation (0.0) (0.0) (0.1) (0.4) (0.7) (1.0) (1.3) (1.6) (1.9) (2.1)
1
3 Deferred Charges 0.0 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0
4 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5 Total Rate Base $0.0 $2.0 $12.3 $12.1 $11.9 $11.6 $11.4 $11.2 $11.0 $10.7

Plant Summary
6 Opening $0.0 $0.0 $12.4 $12.4 $12.5 $12.6 $12.6 $12.7 $12.8 $12.8
7 Additions 0.0 12.4 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
8 Ending 0.0 12.4 12.4 12.5 12.6 12.6 12.7 12.8 12.8 12.9
9 Average Plant in service $0.0 $1.9 $12.4 $12.5 $12.5 $12.6 $12.6 $12.7 $12.8 $12.9

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $11.3 $11.3 $11.4 $11.5 $11.5 $11.6 $11.7 $11.7 $11.8 $11.9 $12.0 $12.0
2 Accumulated Depreciation (2.0) (2.2) (2.5) (2.7) (3.0) (3.2) (3.4) (3.7) (3.9) (4.2) (4.4) (4.7)
1
3 Deferred Charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5 Total Rate Base $9.3 $9.1 $8.9 $8.7 $8.6 $8.4 $8.2 $8.0 $7.9 $7.7 $7.5 $7.3

Plant Summary
6 Opening $11.2 $11.3 $11.4 $11.4 $11.5 $11.6 $11.6 $11.7 $11.8 $11.9 $11.9 $12.0
7 Additions 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
8 Ending 11.3 11.4 11.4 11.5 11.6 11.6 11.7 11.8 11.9 11.9 12.0 12.1
9 Average Plant in service $11.3 $11.3 $11.4 $11.5 $11.5 $11.6 $11.7 $11.7 $11.8 $11.9 $12.0 $12.0
Notes
1: Debt issue costs

Appendix F – Financial Schedules Page 8


Appendix F Mt. Hayes LNG Storage Project

Table 2.1
Base + ICP Scenario
TGVI Portfolio Comparison

($ Millions) 6.20% 10%


25-Year Evaluation Period P&C LNG P&C LNG
Portfolio Portfolio Portfolio Portfolio
TGVI System Costs 148 51 99 32
TGVI LNG Costs (Table 1.2, Line 4) 230 163
TGVI Gas Supply Benefit (Table 1.2, Line 5) (68) (48)
Storage Revenues from TGI (Table 1.2, Line 6) (135) (97)
Net Portfolio Cost 148 79 99 50
15-Year Evaluation Period
TGVI System Costs 83 20 64 15
TGVI LNG Costs (Table 1.2, Line 4) 148 117
TGVI Gas Supply Benefit (Table 1.2, Line 5) (45) (36)
Storage Revenues from TGI (Table 1.2, Line 6) (90) (72)
Net Portfolio Cost 83 32 64 24

Table 2.2
Low Core Demand Scenario
TGVI Portfolio Comparison
6.20% 10%
($ Millions)
P&C LNG P&C LNG
25-Year Evaluation Period
Portfolio Portfolio Portfolio Portfolio
TGVI System Costs 80 20 49 14
TGVI LNG Costs (Table 1.2, Line 4) 230 163
TGVI Gas Supply Benefit (Table 1.2, Line 5) (68) (48)
Storage Revenues from TGI (Table 1.2, Line 6) (135) (97)
Net Portfolio Cost 80 48 49 32
15-Year Evaluation Period
TGVI System Costs 32 13 23 10
TGVI LNG Costs (Table 1.2, Line 4) 148 117
TGVI Gas Supply Benefit (Table 1.2, Line 5) (45) (36)
Storage Revenues from TGI (Table 1.2, Line 6) (90) (72)
Net Portfolio Cost 32 26 23 20

Appendix F – Financial Schedules Page 9


Appendix F Mt. Hayes LNG Storage Project

Table 2.3
High Cost Scenario
TGVI Portfolio Comparison
6.20% 10%
($ Millions)
P&C LNG P&C LNG
25-Year Evaluation Period
Portfolio Portfolio Portfolio Portfolio
TGVI System Costs 135 22 85 16
TGVI LNG Costs (Table 3.2, Line 11) 254 179
TGVI Gas Supply Benefit (Table 1.2, Line 5) (68) (48)
Storage Revenues from TGI (Table 1.2, Line 6) (135) (97)
Net Portfolio Cost 135 74 85 50
15-Year Evaluation Period
TGVI System Costs 57 15 42 12
TGVI LNG Costs (Table 3.2, Line 10) 163 129
TGVI Gas Supply Benefit (Table 1.2, Line 5) (45) (36)
Storage Revenues from TGI (Table 1.2, Line 6) (90) (72)
Net Portfolio Cost 57 43 42 33

Table 2.4
Upside Case
TGVI Portfolio Comparison
6.20% 10%
($ Millions)
P&C LNG P&C LNG
25-Year Evaluation Period
Portfolio Portfolio Portfolio Portfolio
TGVI System Costs 139 48 93 30
TGVI LNG Costs (Table 3.3, Line 11) 219 155
1
TGVI Gas Supply Benefit (80) (57)
Storage Revenues from TGI (Table 1.2, Line 6) (135) (97)
Net Portfolio Cost 139 52 93 31
15-Year Evaluation Period
TGVI System Costs 78 19 60 14
TGVI LNG Costs (Table 3.3, Line 10) 140 111
1
TGVI Gas Supply Benefit (51) (40)
Storage Revenues from TGI (Table 1.2, Line 6) (90) (72)
Net Portfolio Cost 78 18 60 13
Note:
1:1/3 of Storage Value (Appendix E, Avoided Market Area Storage Costs, WEI Transport,Lines 26 & 40)

Appendix F – Financial Schedules Page 10


Appendix F Mt. Hayes LNG Storage Project

Table 3.1
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P50 Capital Cost Estimate
Revenue Requirement Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Fixed Operating & Maintenance $0.0 $1.7 $2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6
2 Property & Other Taxes 0.0 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9
3 Depreciation & Amortization 0.0 0.0 4.1 4.0 4.0 4.1 4.1 4.2 4.3 4.5
4 Income Tax 0.0 (0.6) (1.0) (0.6) (0.2) 0.2 0.6 1.0 1.3 1.6
5 Return on Equity 0.0 5.8 7.4 7.2 7.1 6.9 6.8 6.6 6.4 6.3
6 Interest 0.0 5.0 6.4 6.3 6.1 6.0 5.8 5.7 5.6 5.4
7 Total Revenue Requirement (Fixed O&M) $0.0 $12.5 $19.8 $20.0 $20.2 $20.4 $20.6 $20.8 $21.0 $21.2
8 Variable Operating & Maintenance 0.0 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
9 Total Revenue Requirement (incl Var O&M) $0.0 $12.9 $20.2 $20.4 $20.6 $20.8 $21.1 $21.3 $21.5 $21.7

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $2.6 $2.7 $2.7 $2.8 $2.8 $2.9 $3.0 $3.0 $3.1 $3.1 $3.2 $3.3
2 Property & Other Taxes 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1
3 Depreciation & Amortization 4.7 4.9 5.2 5.4 5.8 6.1 6.5 6.9 7.4 7.9 8.4 9.0
4 Income Tax 1.9 2.2 2.4 2.6 2.9 3.1 3.3 3.5 3.7 4.0 4.2 4.4
5 Return on Equity 6.1 5.9 5.7 5.5 5.3 5.1 4.8 4.5 4.3 4.0 3.6 3.3
6 Interest 5.3 5.1 4.9 4.8 4.6 4.4 4.2 3.9 3.7 3.4 3.2 2.9
7 Total Revenue Requirement (Fixed O&M) $21.4 $21.6 $21.9 $22.1 $22.3 $22.5 $22.7 $23.0 $23.2 $23.4 $23.7 $23.9
8 Variable Operating & Maintenance 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6
9 Total Revenue Requirement (incl Var O&M) $21.9 $22.2 $22.4 $22.6 $22.8 $23.1 $23.3 $23.5 $23.8 $24.0 $24.3 $24.5

Total Revenue Requirement (Line 9)


Present Value ($Millions) 6.2% 10%
10 15 Years (2010 - 2021) $148 $117
11 25 Years (2010 - 2031) $230 $163

Appendix F – Financial Schedules Page 11


Appendix F Mt. Hayes LNG Storage Project

Table 3.1.1
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P50 Capital Cost Estimate
Rate Base Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $142.2 $185.0 $185.1 $185.3 $185.4 $185.5 $185.6 $185.8 $185.9
2 Accumulated Depreciation 0.0 0.0 (2.0) (5.9) (9.8) (13.8) (17.7) (21.8) (25.9) (30.2)
1
3 Deferred Charges 0.0 1.1 1.0 0.9 0.8 0.7 0.6 0.4 0.3 0.2
4 Working Capital 0.0 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $0.0 $144.1 $184.8 $180.9 $177.0 $173.0 $169.1 $165.0 $160.9 $156.6

Plant Summary
6 Opening $0.0 $0.0 $184.9 $185.1 $185.2 $185.3 $185.4 $185.6 $185.7 $185.8
7 Additions 0.0 184.9 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
8 Ending 0.0 184.9 185.1 185.2 185.3 185.4 185.6 185.7 185.8 186.0
9 Average Plant in service $0.0 $142.2 $185.0 $185.1 $185.3 $185.4 $185.5 $185.6 $185.8 $185.9

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $186.1 $186.2 $186.4 $186.5 $186.7 $186.8 $187.0 $187.1 $187.3 $187.5 $187.6 $187.8
2 Accumulated Depreciation (34.7) (39.4) (44.3) (49.6) (55.2) (61.2) (67.5) (74.2) (81.3) (89.0) (97.1) (105.9)
1
3 Deferred Charges 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Working Capital 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $152.2 $147.6 $142.7 $137.6 $132.2 $126.4 $120.2 $113.7 $106.7 $99.2 $91.2 $82.7

Plant Summary
6 Opening $186.0 $186.1 $186.3 $186.4 $186.6 $186.7 $186.9 $187.0 $187.2 $187.4 $187.5 $187.7
7 Additions 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
8 Ending 186.1 186.3 186.4 186.6 186.7 186.9 187.0 187.2 187.4 187.5 187.7 187.9
9 Average Plant in service $186.1 $186.2 $186.4 $186.5 $186.7 $186.8 $187.0 $187.1 $187.3 $187.5 $187.6 $187.8
Notes
1: Debt issue costs

Appendix F – Financial Schedules Page 12


Appendix F Mt. Hayes LNG Storage Project

Table 3.2
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P90 Capital Cost Estimate
Revenue Requirement Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Fixed Operating & Maintenance $0.0 $1.7 $2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6
2 Property & Other Taxes 0.0 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9
3 Depreciation & Amortization 0.0 0.0 4.5 4.5 4.5 4.6 4.6 4.7 4.8 5.0
4 Income Tax 0.0 (0.7) (1.2) (0.7) (0.2) 0.3 0.7 1.1 1.5 1.8
5 Return on Equity 0.0 6.5 8.3 8.1 8.0 7.8 7.6 7.4 7.2 7.1
6 Interest 0.0 5.6 7.2 7.0 6.9 6.7 6.6 6.4 6.3 6.1
7 Total Revenue Requirement (Fixed O&M) $0.0 $13.8 $21.8 $22.1 $22.3 $22.5 $22.7 $23.0 $23.2 $23.4
8 Variable Operating & Maintenance 0.0 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
9 Total Revenue Requirement (incl Var O&M) $0.0 $14.1 $22.3 $22.5 $22.7 $23.0 $23.2 $23.4 $23.7 $23.9

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $2.6 $2.7 $2.7 $2.8 $2.8 $2.9 $3.0 $3.0 $3.1 $3.1 $3.2 $3.3
2 Property & Other Taxes 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1
3 Depreciation & Amortization 5.3 5.5 5.8 6.1 6.5 6.9 7.3 7.8 8.3 8.9 9.5 10.2
4 Income Tax 2.1 2.4 2.7 3.0 3.2 3.5 3.7 4.0 4.2 4.5 4.7 4.9
5 Return on Equity 6.9 6.6 6.4 6.2 5.9 5.7 5.4 5.1 4.8 4.5 4.1 3.7
6 Interest 5.9 5.7 5.6 5.4 5.1 4.9 4.7 4.4 4.1 3.9 3.5 3.2
7 Total Revenue Requirement (Fixed O&M) $23.7 $23.9 $24.1 $24.4 $24.6 $24.9 $25.1 $25.4 $25.6 $25.9 $26.1 $26.4
8 Variable Operating & Maintenance 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6
9 Total Revenue Requirement (incl Var O&M) $24.2 $24.4 $24.7 $24.9 $25.2 $25.4 $25.7 $25.9 $26.2 $26.5 $26.7 $27.0

Total Revenue Requirement (Line 9)


Present Value ($Millions) 6.2% 10%
10 15 Years (2010 - 2021) $163 $129
11 25 Years (2010 - 2031) $254 $179

Appendix F – Financial Schedules Page 13


Appendix F Mt. Hayes LNG Storage Project

Table 3.2.1
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P90 Capital Cost Estimate
Rate Base Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $160.1 $208.2 $208.3 $208.5 $208.6 $208.7 $208.9 $209.0 $209.1
2 Accumulated Depreciation 0.0 0.0 (2.2) (6.6) (11.0) (15.4) (19.9) (24.4) (29.0) (33.8)
1
3 Deferred Charges 0.0 1.2 1.1 1.0 0.9 0.7 0.6 0.5 0.4 0.2
4 Working Capital 0.0 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $0.0 $162.1 $207.9 $203.5 $199.1 $194.7 $190.2 $185.7 $181.1 $176.3

Plant Summary
6 Opening $0.0 $0.0 $208.2 $208.3 $208.4 $208.5 $208.7 $208.8 $208.9 $209.1
7 Additions 0.0 208.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
8 Ending 0.0 208.2 208.3 208.4 208.5 208.7 208.8 208.9 209.1 209.2
9 Average Plant in service $0.0 $160.1 $208.2 $208.3 $208.5 $208.6 $208.7 $208.9 $209.0 $209.1

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $209.3 $209.4 $209.6 $209.7 $209.9 $210.0 $210.2 $210.3 $210.5 $210.7 $210.8 $211.0
2 Accumulated Depreciation (38.9) (44.1) (49.7) (55.7) (62.0) (68.7) (75.8) (83.4) (91.4) (100.1) (109.3) (119.1)
1
3 Deferred Charges 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Working Capital 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $171.3 $166.0 $160.6 $154.8 $148.6 $142.1 $135.1 $127.7 $119.8 $111.3 $102.3 $92.6

Plant Summary
6 Opening $209.2 $209.3 $209.5 $209.6 $209.8 $209.9 $210.1 $210.2 $210.4 $210.6 $210.7 $210.9
7 Additions 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
8 Ending 209.3 209.5 209.6 209.8 209.9 210.1 210.2 210.4 210.6 210.7 210.9 211.1
9 Average Plant in service $209.3 $209.4 $209.6 $209.7 $209.9 $210.0 $210.2 $210.3 $210.5 $210.7 $210.8 $211.0
Notes
1: Debt issue costs

Appendix F – Financial Schedules Page 14


Appendix F Mt. Hayes LNG Storage Project

Table 3.3
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P10 Capital Cost Estimate
Revenue Requirement Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Fixed Operating & Maintenance $0.0 $1.7 $2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6
2 Property & Other Taxes 0.0 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9
3 Depreciation & Amortization 0.0 0.0 3.8 3.8 3.8 3.8 3.9 3.9 4.1 4.2
4 Income Tax 0.0 (0.5) (1.0) (0.5) (0.1) 0.2 0.6 0.9 1.2 1.5
5 Return on Equity 0.0 5.4 6.9 6.8 6.6 6.5 6.3 6.2 6.0 5.9
6 Interest 0.0 4.7 6.0 5.9 5.7 5.6 5.5 5.4 5.2 5.1
7 Total Revenue Requirement (Fixed O&M) $0.0 $11.9 $18.8 $18.9 $19.1 $19.3 $19.5 $19.7 $19.9 $20.1
8 Variable Operating & Maintenance 0.0 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
9 Total Revenue Requirement (incl Var O&M) $0.0 $12.2 $19.2 $19.4 $19.6 $19.8 $20.0 $20.2 $20.4 $20.6

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $2.6 $2.7 $2.7 $2.8 $2.8 $2.9 $3.0 $3.0 $3.1 $3.1 $3.2 $3.3
2 Property & Other Taxes 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1
3 Depreciation & Amortization 4.4 4.6 4.8 5.1 5.4 5.7 6.1 6.5 6.9 7.4 7.9 8.4
4 Income Tax 1.8 2.0 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1
5 Return on Equity 5.7 5.5 5.4 5.2 5.0 4.7 4.5 4.3 4.0 3.7 3.4 3.1
6 Interest 4.9 4.8 4.6 4.5 4.3 4.1 3.9 3.7 3.5 3.2 3.0 2.7
7 Total Revenue Requirement (Fixed O&M) $20.3 $20.5 $20.7 $20.9 $21.1 $21.4 $21.6 $21.8 $22.0 $22.2 $22.4 $22.7
8 Variable Operating & Maintenance 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6
9 Total Revenue Requirement (incl Var O&M) $20.8 $21.0 $21.2 $21.5 $21.7 $21.9 $22.1 $22.4 $22.6 $22.8 $23.1 $23.3

Total Revenue Requirement (Line 9)


Present Value ($Millions) 6.2% 10%
10 15 Years (2010 - 2021) $140 $111
11 25 Years (2010 - 2031) $219 $155

Appendix F – Financial Schedules Page 15


Appendix F Mt. Hayes LNG Storage Project

Table 3.3.1
LNG Storage Portfolio
TGVI LNG Storage, 1.5 Bcf Facility, P10 Capital Cost Estimate
Rate Base Summary ($Millions) Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $133.3 $173.4 $173.6 $173.7 $173.8 $173.9 $174.1 $174.2 $174.3
2 Accumulated Depreciation 0.0 0.0 (1.8) (5.5) (9.2) (12.9) (16.7) (20.5) (24.4) (28.4)
1
3 Deferred Charges 0.0 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2
4 Working Capital 0.0 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $0.0 $135.1 $173.2 $169.6 $165.9 $162.2 $158.5 $154.7 $150.9 $146.9

Plant Summary
6 Opening $0.0 $0.0 $173.4 $173.5 $173.6 $173.7 $173.9 $174.0 $174.1 $174.3
7 Additions 0.0 173.4 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
8 Ending 0.0 173.4 173.5 173.6 173.7 173.9 174.0 174.1 174.3 174.4
9 Average Plant in service $0.0 $133.3 $173.4 $173.6 $173.7 $173.8 $173.9 $174.1 $174.2 $174.3

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $174.5 $174.6 $174.8 $174.9 $175.1 $175.2 $175.4 $175.6 $175.7 $175.9 $176.1 $176.2
2 Accumulated Depreciation (32.6) (37.0) (41.6) (46.6) (51.8) (57.4) (63.3) (69.6) (76.3) (83.5) (91.1) (99.2)
1
3 Deferred Charges 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Working Capital 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
5 Total Rate Base $142.7 $138.4 $133.9 $129.1 $124.0 $118.6 $112.8 $106.7 $100.1 $93.2 $85.7 $77.7

Plant Summary
6 Opening $174.4 $174.5 $174.7 $174.8 $175.0 $175.1 $175.3 $175.5 $175.6 $175.8 $176.0 $176.1
7 Additions 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
8 Ending 174.5 174.7 174.8 175.0 175.1 175.3 175.5 175.6 175.8 176.0 176.1 176.3
9 Average Plant in service $174.5 $174.6 $174.8 $174.9 $175.1 $175.2 $175.4 $175.6 $175.7 $175.9 $176.1 $176.2
Notes
1: Debt issue costs

Appendix F – Financial Schedules Page 16


Appendix F Mt. Hayes LNG Storage Project

Table 4.1
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
CTS Revenue Requirement Summary - LNG Storage Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Return on Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5 Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
6 Total Revenue Requirement $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0
3 Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.1)
4 Return on Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8
5 Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9
6 Total Revenue Requirement $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $2.7

Present Value ($Millions) 6.2% 10.0%


7 15 Years (2010 - 2021) $0 $0
8 25 Years (2010 - 2031) $1 $0

Appendix F – Financial Schedules Page 17


Appendix F Mt. Hayes LNG Storage Project

Table 4.1.1
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
CTS Rate Base Summary - LNG Storage Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
6 Additions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
7 Ending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
8 Average Plant in service $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $26.8
2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.5)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $26.4

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
6 Additions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 53.7
7 Ending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 53.7
8 Average Plant in service $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $26.8

Appendix F – Financial Schedules Page 18


Appendix F Mt. Hayes LNG Storage Project

Table 4.2
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
CTS Revenue Requirement Summary - Pipe & Compression Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 $0.1
2 Depreciation & Amortization 0.0 0.0 0.0 0.0 0.7 0.7 0.7 1.4 1.4 1.4
3 Income Tax 0.0 0.0 0.0 0.0 (0.0) (0.3) (0.3) (0.2) (0.4) (0.3)
4 Return on Equity 0.0 0.0 0.0 0.0 0.6 1.1 1.1 1.7 2.2 2.2
5 Interest 0.0 0.0 0.0 0.0 0.7 1.3 1.3 1.9 2.5 2.5
6 Total Revenue Requirement $0.0 $0.0 $0.0 $0.0 $1.9 $2.8 $2.9 $4.8 $5.7 $5.8

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1
2 Depreciation & Amortization 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 2.3 2.3 2.3
3 Income Tax (0.2) (0.1) 0.0 0.1 0.2 0.3 0.4 0.5 0.5 0.5 0.2 0.3
4 Return on Equity 2.2 2.1 2.1 2.1 2.0 2.0 2.0 2.0 1.9 2.6 3.3 3.2
5 Interest 2.5 2.4 2.4 2.3 2.3 2.3 2.2 2.2 2.2 2.9 3.7 3.6
6 Total Revenue Requirement $5.9 $5.9 $6.0 $6.0 $6.1 $6.1 $6.1 $6.1 $6.1 $8.4 $9.5 $9.6

Present Value ($Millions) 6.2% 10.0%


7 15 Years (2010 - 2021) $21 $15
8 25 Years (2010 - 2031) $45 $28

Appendix F – Financial Schedules Page 19


Appendix F Mt. Hayes LNG Storage Project

Table 4.2.1
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Baseline Demand
CTS Rate Base Summary - Pipe & Compression Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $0.0 $0.0 $0.0 $19.1 $38.2 $38.4 $57.5 $76.6 $77.0
2 Accumulated Depreciation 0.0 0.0 0.0 0.0 (0.3) (1.0) (1.7) (2.7) (4.1) (5.4)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $0.0 $18.7 $37.2 $36.7 $54.8 $72.6 $71.5

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $0.0 $38.1 $38.3 $38.5 $76.5 $76.8
6 Additions 0.0 0.0 0.0 0.0 38.1 0.2 0.2 38.0 0.3 0.3
7 Ending 0.0 0.0 0.0 0.0 38.1 38.3 38.5 76.5 76.8 77.2
8 Average Plant in service $0.0 $0.0 $0.0 $0.0 $19.1 $38.2 $38.4 $57.5 $76.6 $77.0

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $77.3 $77.7 $78.1 $78.4 $78.8 $79.2 $79.6 $80.0 $80.4 $104.3 $128.3 $129.0
2 Accumulated Depreciation (6.8) (8.2) (9.6) (11.0) (12.4) (13.8) (15.2) (16.6) (18.1) (19.9) (22.2) (24.5)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $70.5 $69.5 $68.5 $67.5 $66.4 $65.4 $64.4 $63.4 $62.4 $84.4 $106.1 $104.5

Plant Summary
5 Opening $77.2 $77.5 $77.9 $78.3 $78.6 $79.0 $79.4 $79.8 $80.2 $80.6 $128.0 $128.6
6 Additions 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 47.4 0.6 0.7
7 Ending 77.5 77.9 78.3 78.6 79.0 79.4 79.8 80.2 80.6 128.0 128.6 129.3
8 Average Plant in service $77.3 $77.7 $78.1 $78.4 $78.8 $79.2 $79.6 $80.0 $80.4 $104.3 $128.3 $129.0

Appendix F – Financial Schedules Page 20


Appendix F Mt. Hayes LNG Storage Project

Table 4.3
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Base plus ICP Demand
CTS Revenue Requirement Summary - LNG Storage Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Return on Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5 Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
6 Total Revenue Requirement $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9 0.9 0.9 0.9
3 Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) (0.4) (0.3) (0.2)
4 Return on Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 1.5 1.5 1.5
5 Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9 1.7 1.7 1.7
6 Total Revenue Requirement $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $2.5 $3.7 $3.8 $3.8

Present Value ($Millions) 6.2% 10.0%


7 15 Years (2010 - 2021) $0 $0
8 25 Years (2010 - 2031) $4 $2

Appendix F – Financial Schedules Page 21


Appendix F Mt. Hayes LNG Storage Project

Table 4.3.1
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Base plus ICP Demand
CTS Rate Base Summary - LNG Storage Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
6 Additions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
7 Ending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
8 Average Plant in service $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $25.3 $50.7 $50.9 $51.1
2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.4) (1.3) (2.2) (3.2)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $24.8 $49.3 $48.7 $48.0

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $50.6 $50.8 $51.0
6 Additions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.6 0.2 0.2 0.2
7 Ending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.6 50.8 51.0 51.3
8 Average Plant in service $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $25.3 $50.7 $50.9 $51.1

Appendix F – Financial Schedules Page 22


Appendix F Mt. Hayes LNG Storage Project

Table 4.4
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Base plus ICP Demand
CTS Revenue Requirement Summary - Pipe & Compression Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Operating & Maintenance $0.0 $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 $0.1 $0.1 $0.1
2 Depreciation & Amortization 0.0 0.0 0.0 0.7 1.3 1.3 1.3 1.3 1.3 1.3
3 Income Tax 0.0 0.0 0.0 (0.0) (0.4) (0.6) (0.4) (0.3) (0.2) (0.0)
4 Return on Equity 0.0 0.0 0.0 0.6 1.7 2.2 2.1 2.1 2.1 2.0
5 Interest 0.0 0.0 0.0 0.6 1.9 2.4 2.4 2.4 2.3 2.3
6 Total Revenue Requirement $0.0 $0.0 $0.0 $1.8 $4.5 $5.4 $5.5 $5.6 $5.6 $5.7

Revenue Requirement Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Operating & Maintenance $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1
2 Depreciation & Amortization 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 2.2 2.2 2.2 2.2
3 Income Tax 0.1 0.2 0.2 0.3 0.4 0.4 0.5 0.6 0.6 0.2 0.4 0.5
4 Return on Equity 2.0 2.0 2.0 1.9 1.9 1.9 1.8 1.8 2.5 3.1 3.1 3.0
5 Interest 2.3 2.2 2.2 2.2 2.1 2.1 2.1 2.0 2.8 3.5 3.5 3.4
6 Total Revenue Requirement $5.7 $5.8 $5.8 $5.8 $5.8 $5.8 $5.8 $5.8 $8.1 $9.2 $9.2 $9.3

Present Value ($Millions) 6.2% 10.0%


7 15 Years (2010 - 2021) $28 $21
8 25 Years (2010 - 2031) $52 $34

Appendix F – Financial Schedules Page 23


Appendix F Mt. Hayes LNG Storage Project

Table 4.4.1
TGI CTS Incremental Facilities, P50 Capital Cost Estimate
Base plus ICP Demand
CTS Rate Base Summary - Pipe & Compression Portfolio Calendar Year
(2007-2019) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Plant $0.0 $0.0 $0.0 $18.6 $55.0 $73.0 $73.3 $73.7 $74.0 $74.3
2 Accumulated Depreciation 0.0 0.0 0.0 (0.3) (1.3) (2.6) (3.9) (5.2) (6.5) (7.8)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $0.0 $0.0 $0.0 $18.3 $53.7 $70.4 $69.4 $68.4 $67.5 $66.5

Plant Summary
5 Opening $0.0 $0.0 $0.0 $0.0 $37.2 $72.8 $73.2 $73.5 $73.8 $74.2
6 Additions 0.0 0.0 0.0 37.2 35.6 0.3 0.3 0.3 0.3 0.3
7 Ending 0.0 0.0 0.0 37.2 72.8 73.2 73.5 73.8 74.2 74.5
8 Average Plant in service $0.0 $0.0 $0.0 $18.6 $55.0 $73.0 $73.3 $73.7 $74.0 $74.3

Rate Base Summary (continued)


(2020-2031) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

1 Plant $74.7 $75.0 $75.4 $75.8 $76.2 $76.6 $76.9 $77.4 $100.8 $124.3 $124.9 $125.6
2 Accumulated Depreciation (9.2) (10.5) (11.8) (13.2) (14.6) (15.9) (17.3) (18.7) (20.5) (22.7) (24.9) (27.1)
3 Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
4 Total Rate Base $65.5 $64.5 $63.6 $62.6 $61.6 $60.6 $59.7 $58.7 $80.3 $101.6 $100.0 $98.4

Plant Summary
5 Opening $74.5 $74.9 $75.2 $75.6 $76.0 $76.4 $76.7 $77.1 $77.6 $124.0 $124.6 $125.2
6 Additions 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 46.4 0.6 0.6 0.7
7 Ending 74.9 75.2 75.6 76.0 76.4 76.7 77.1 77.6 124.0 124.6 125.2 125.9
8 Average Plant in service $74.7 $75.0 $75.4 $75.8 $76.2 $76.6 $76.9 $77.4 $100.8 $124.3 $124.9 $125.6

Appendix F – Financial Schedules Page 24

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