1073 1 MANITOBA CLEAN ENVIRONMENT COMMISSION 2 3 VERBATIM TRANSCRIPT 4 Volume 5 5 6 Including List of Participants 7 8 9 10 Hearing 11 12 Wuskwatim Generation and Transmission Project 13 14 Presiding: 15 Gerard Lecuyer, Chair 16 Kathi Kinew 17 Harvey Nepinak 18 Robert Mayer 19 Terry Sargeant 20 21 Tuesday, March 9, 2004 22 Radisson Hotel 23 288 Portage Avenue 24 Winnipeg, Manitoba 25 1074 1 LIST OF PARTICIPANTS 2 3 Clean Environment Commission: 4 Gerard Lecuyer Chairman 5 Terry Sargeant Member 6 Harvey Nepinak Member 7 Kathi Avery Kinew Member 8 Doug Abra Counsel to Commission 9 Rory Grewar Staff 10 CEC Advisors: 11 Mel Falk 12 Dave Farlinger 13 Jack Scriven 14 Jim Sandison 15 Jean McClellan 16 Brent McLean 17 Kyla Gibson 18 19 Nisichawayasihk Cree Nation: 20 Chief Jerry Primrose 21 Elvis Thomas 22 Campbell MacInnes 23 Ms. Matthews Lemieux 24 25 1075 1 LIST OF PARTICIPANTS 2 3 Manitoba Conservation: 4 Larry Strachan 5 6 Manitoba Hydro/NCN: 7 Ed Wojczynski 8 Ken Adams 9 Carolyn Wray 10 Ron Mazur 11 Lloyd Kuczek 12 Cam Osler 13 Stuart Davies 14 David Hicks 15 George Rempel 16 David Cormie 17 Alex Flemming 18 19 Community Association of South Indian Lake: 20 Leslie Dysart 21 Merrell-Ann Phare 22 23 CAC/MSOS: 24 Byron Williams 25 Bill Harper 1076 1 2 LIST OF PARTICIPANTS 3 4 Canadian Nature Federation: 5 Eamon Murphy 6 Gaile Whelan Enns 7 8 Time to Respect Earth's Ecosystems/Resource Conservation Man: 9 Peter Miller 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1077 1 2 INDEX OF EXHIBITS 3 4 Number Page 5 6 MH-NCN 1004: Approximate Calculation of IRR 7 for 250 MW of wind 1083 8 9 MH-NCN 1005: Response to undertaking from 10 transcript page 789, volume 3 11 fixed three blade turbines vs. 12 Kaplan turbine 1089 13 14 CAC/MSOS-1004: CAC/MSOS simplified 15 illustrative example of DSM 16 program portfolio design 1109 17 18 CNF 1000: Interconnections generation 19 queue 1285 20 21 22 23 24 25 1078 1 2 3 4 INDEX OF UNDERTAKINGS 5 6 UNDERTAKING NO. PAGE 7 8 MH-27: Provide an order of magnitude in 9 terms of the overall cost of the project, what 10 percentage do the contracting opportunities 11 represent 1144 12 MH-28: Referring to the restricted 13 tendering process, provide the percentage of the 14 overall cost that they may represent 15 MH-29: Advise re confusion in public 16 communications about open house of 17 January 28 and 29, 2003 1149 18 MH-30: Advise re consultations 19 undertaken, at what stage there was information 20 for Winnipeggers, and advise nature of three day 21 workshop in July 2003 1261 22 MH-31: Identify appropriate 23 responses re Manitoba Hydro's 24 climate change policy 1262 25 1079 1 2 3 INDEX OF UNDERTAKINGS 4 5 UNDERTAKING NO. PAGE 6 7 MH-32: Advise if implementing 8 DSM program had any impact in terms 9 of planning 1294 10 MH-33: Further provide, if 11 possible, status of the study and 12 if there is anything more to add 1326 13 14 15 16 17 18 19 20 21 22 23 24 25 1080 1 2 TUESDAY, MARCH 9, 2004 3 Upon commencing at 9:05 a.m. 4 5 THE CHAIRMAN: Ladies and gentlemen, welcome 6 on this beautiful morning. With Mother Nature being 7 at work clearing the snow, putting water in the 8 reservoirs, getting us ready and hoping that we're 9 all going to be out of here by the time the birds 10 start chirping and that things start going green, we 11 will continue, in the meantime enlightening 12 ourselves, hopefully. And we will continue with Mr. 13 Williams and Mr. Harper. 14 MR. WOJCZYNSKI: Mr. Chair? 15 THE CHAIRMAN: Yes, Mr. Wojczynski. 16 MR. WOJCZYNSKI: We have a few undertakings 17 and we thought it might be a good time to do those 18 before the cross continued, if that would be 19 acceptable to you. I might add, by the way, Mr. 20 Chair, that last night when I was out by the river, I 21 heard the merlin falcons and the chickadees already 22 so I'm afraid we'd better hurry up. 23 THE CHAIRMAN: I agree. 24 MR. WOJCZYNSKI: Before we get started, with 25 your permission, we would like to have our external 1081 1 expert on wind sworn in. His name is Alex Fleming, 2 President of demand-side management. His CV was 3 circulated previously. And we understand that Mr. 4 Williams was going to do some cross on DSM this 5 morning and we thought it might be useful to have Mr. 6 Fleming join us at this time. We originally were 7 just going to have him when TREE/RCM were going to 8 cross us. They specifically wanted to have our 9 experts. But now that we're going to do a cross on 10 DSM, at least some cross with CAC, we thought it 11 would be useful at this time rather than later in the 12 day with your permission. 13 MR. GREWAR: Sir, could you state your name 14 for the record. 15 MR. FLEMING: It's Alex Fleming. 16 MR. GREWAR: Mr. Fleming, are you aware that 17 it is an offence in Manitoba to knowingly mislead 18 this Commission? 19 MR. FLEMING: Yes, I am. 20 MR. GREWAR: Do you promise to tell only the 21 truth in proceedings before this Commission? 22 MR. FLEMING: Yes, I do. 23 MR. GREWAR: Thank you, sir. 24 MR. WOJCZYNSKI: And then we have a few 25 undertakings that are pertinent to this morning. And 1082 1 Mr. Ken Adams has one, I have one and Mr. Cormie has 2 one. 3 MR. ADAMS: Undertaking number 11 from last 4 Wednesday's transcript, pages 574, 75. We undertook 5 to advise of the status of the negotiations between 6 Manitoba Hydro and the Federal Government regarding 7 the funding responsibility for Northern Diesel 8 Service. 9 I can advise that Manitoba Hydro and 10 representatives of the Federal Government have a 11 meeting scheduled for Friday this week which is the 12 12th of March. And I can also advise that we are in 13 discussions with individual communities to set up 14 meetings with them. The dates of those meetings are 15 a little less -- a little more flexible because they 16 tend to be at the convenience of the communities and 17 are likely to be later in the spring. 18 MR. WOJCZYNSKI: The second undertaking is one 19 that I don't actually have the transcript page number 20 because I didn't have the transcript until just a few 21 moments ago. It was from late yesterday. We had 22 been requested by CAC for an approximate calculation 23 of the IRR for 250 megawatts of wind, consistent with 24 how we did the 450. And we have a sheet which we 25 could distribute and speak to. I believe that was 1083 1 one of the intents of this morning and that Mr. 2 Williams was asking us to do and I believe the 3 Commission also wanted that. 4 Do you want me to wait for that to be 5 distributed? Is that appropriate? 6 THE CHAIRMAN: Yes. 7 MR. WOJCZYNSKI: I assume that we are going to 8 enter this as an exhibit. 9 MR. GREWAR: Mr. Chairman, this would be 10 entered as Exhibit MH-NCN 1004. 11 (EXHIBIT MH/NCN 1004: Approximate Calculation of 12 IRR for 250 MW of Wind) 13 14 MR. GREWAR: There are also copies at the 15 side, Mr. Chairman. I thought they had already been 16 placed there. My apologies. 17 MR. WOJCZYNSKI: We thought, Mr. Chair, that 18 it might be useful for me to go through this very 19 briefly. And I think actually it probably -- there 20 was a lot of detail and a lot of confusion on this 21 whole issue of wind costs and the various, when we 22 did analyses and all the various parameters. This 23 actually I think may be useful to help clarify where 24 our best information is today. So this is probably a 25 useful exercise if you would like me to do that now. 1084 1 THE CHAIRMAN: I will ask Mr. Williams to 2 indicate whether he wants this at this time or not. 3 MR. WILLIAMS: I think it would probably be 4 very helpful, Mr. Chair. 5 THE CHAIRMAN: All right. 6 MR. WOJCZYNSKI: Thank you. So what we have 7 here is four columns. The second column is the 8 information for the 450 megawatt wind addition, 9 further to the 250 we were already assuming in the 10 Manitoba Hydro plan. And this is what we talked 11 about in our rebuttle, we talked about the last four 12 days. That's the 450 megawatt wind addition which 13 gives us 700 megawatts in total. And that's the 450 14 megawatts of wind that has an IRR of 6.1. 15 So all we try to do is list the various 16 assumptions that we have talked about already and 17 they are all summarized here. And I'll go through 18 those very briefly right away. 19 The third column is the new calculation we've 20 done with all our updated information. Now, not 21 exactly what was in the original submission but it's 22 taking all the most recent information and all the 23 updates and consistent with how we had done the 450 24 megawatts, what does the 250 megawatts of wind look 25 like right now? 1085 1 And then the fourth column in the last one is 2 saying given the 6.1 IRR for the 450 megawatts of 3 wind, what are the differences and approximate 4 indication and approximate estimate of the 5 differences in the IRR between the 450 and the 250? 6 And then once we add all those up, you will get the 7 new IRR for the 250 megawatts of wind. 8 So just running through it very briefly, the 9 capacity, as we said, is the 450 for the larger one, 10 250 for the smaller one. They both have a capacity 11 factor, a best guess of 35 per cent. We're using an 12 inservice date of 2009 for it all coming in that 13 year. In both cases, we use a power resource plan 14 that has no additional new Hydro in the sequence at 15 all. 16 As per requested yesterday, they both have the 17 supply side efficiency enhancements already and the 18 current DSM plan in already. And we used an O&M cost 19 for both, that's approximately 1.3. So there's no 20 change between those. 21 The capital cost is actually, in retrospect I 22 should have put down here, we've got a total capital 23 cost for the large wind of 1,560 and for the small 24 wind of 1,440. And it's broken into two components. 25 I see now that I should have explained that the first 1086 1 component under capital cost is generation. And the 2 one below that is transmission. So if you look under 3 the 450 mega wind, it says 1,350. That's only for 4 the generation component, not transmission. 5 And you will see that the small wind has a 6 slightly higher capital cost because we are assuming 7 there that you get some economies of scale when you 8 go to a much bigger project. And you see that about 9 a 2 and a half, 3 per cent lower capital cost for the 10 bigger -- for the bigger project means a difference 11 of an IRR .6. So the larger project is slightly 12 benefitted by that. 13 On the other hand, if you're going to go up to 14 700 megawatts of wind, we're now going to have to 15 have major transmissions additions around 200 or so 16 kilometres of 230 kV transmission, brand new 17 transmission that wouldn't have been required with a 18 smaller amount of wind. So that increases the 19 capital costs on the transmission side for the bigger 20 wind. And so the smaller wind would have a higher 21 IRR of 1.2. So those are the capital cost ones. 22 The WPPI is the federal incentive. We had 23 said that the 450 megawatts in all likelihood would 24 not be eligible for the federal incentive. We had 25 assumed in our original submission that the smaller 1087 1 wind would be eligible. It may or may not be, 2 particularly out to 2009. Or maybe some of the 250 3 would be and some of it wouldn't be. But in our 4 analysis here, we've assumed for the time being that 5 the smaller project will get the WPPI which helps the 6 IRR something like .8. 7 The wind integration, because we've got a 8 smaller wind in the first place, the 250, we thought 9 that the integration costs would be lower, as low as 10 2 cents perhaps. We think it would probably be 11 somewhat higher but not as high as the 2.6 for the 12 large wind projects. So we assume for the time being 13 the 2 cents here which would mean its IRR would be 14 higher by 1.4. 15 And the production costing, if you've got a 16 smaller amount of wind, the production costing on our 17 system meaning what we'd do with our reservoirs and 18 the tie lines and all that would be very small 19 impact, less than .1. We just use .1 here. 20 So when you add all those up, the large wind 21 would have a 6.1 IRR and the small wind would have a 22 9 per cent IRR if you do assume all of it gets the 23 WPPI. We think that's probably a bit of an 24 overestimate of the IRR. We have been optimistic for 25 the wind for the reasons I've just said. But 9 is 1088 1 probably a good ballpark number if you assume the 2 WPPI is there. If you assume the WPPI isn't there, 3 it drops to 8.2. 4 So I hope that explains the difference between 5 the two and also gives you some better idea of the 6 kind of assumptions we're using overall for our 7 latest information on the wind. 8 THE CHAIRMAN: Thank you. 9 MR. WOJCZYNSKI: I will add there was a 10 question from the Commission as to in addition to 11 this, could we provide the levelized costs. We are 12 still scrambling on that to have something we could 13 provide and our intent is to have hopefully something 14 later on this morning that we could indicate what the 15 levelized costs would be for the same 250 megawatt 16 wind. So sometime this morning we hope to have that. 17 There is a third undertaking Mr. Cormie will 18 deal with. 19 MR. CORMIE: This is in response to day 3, 20 undertaking number 18. Manitoba Hydro committed to 21 providing documentation with regard to a comparison 22 of the three types of turbine designs, the various 23 types of turbines designed and the use of Kaplan 24 turbines. We have compiled a summary table from the 25 report documenting the energy capabilities and the 1089 1 associated water level changes for several 2 alternative plant configurations at Wuskwatim that 3 were assessed as part of our screening studies 4 undertaken back in 1998 and 1999. 5 The full report has been given to Mr. Grewar. 6 And it should be noted that in the table, the 7 run-of-the-river mode is actually referred to as 8 base-loaded and it's distinguished from the shaping 9 and peaking mode of operations. The Kaplan turbine 10 was investigated and all three modes of operated, 11 base-loaded, run-of-the-river peaking and shaping. 12 Thank you. 13 THE CHAIRMAN: Thank you. 14 MR. WOJCZYNSKI: Mr. Chair, we also have 15 another undertaking from Ms. Lyn Wray to complete 16 this morning. 17 MR. GREWAR: If we could just enter this as an 18 exhibit for now just to keep some consistency and 19 order. This would be, as explained, response to 20 undertaking from transcript to page 789, volume 3, 21 and we would list it as MH-NCN 1005. 22 23 (EXHIBIT MH/NCN 1005: Response to Undertkaing 24 from transcript 789, volume 3, fixed three 25 blade turbines vs the kaplan turbine) 1090 1 2 THE CHAIRMAN: Ms. Wray? 3 MS. WRAY: Thank you, Mr. Chair. This is in 4 response to undertaking 15 on the transcript. And it 5 related to questions as to where the loans that are 6 being made by Manitoba Hydro to NCN are recorded in 7 the Manitoba Hydro financial statements. 8 Manitoba Hydro's loan to NCN is recorded under 9 the line "Current and other assets" on the balance 10 sheet. I think I had said accounts receivable before 11 but it's "Current and other assets." Interest income 12 on the NCN loans is netted in finance expense. There 13 is also an IRR response which details the loan 14 balances and that's CEC MH NCN round 2 NFAAT 18-A. 15 And just for clarity, and I may have put this on the 16 record already, but our Manitoba Hydro 67 per cent 17 share of cumulative earnings from the partnership are 18 reflected in retained earnings on the electric 19 operations balance sheet. NCN's portion of net 20 income is deducted from electric operations net 21 income and the line "Other revenue" as I believe I 22 indicated earlier. And NCN's minority interest on 23 the electric balance sheet is reported between the 24 liabilities and equity section as NCN investment in 25 the Wuskwatim project. 1091 1 There is one other undertaking, undertaking 13 2 in which Dr. Kinew had asked where we recorded 3 charges that would be made by the NEB for hearings 4 that Manitoba undertakes on export sales. They are 5 recorded under water rentals and assessments. And 6 they don't necessarily relate to the costs for our 7 particular applications but rather our pro rata share 8 cost recovery from all electric utilities exporting 9 to the U.S. and appearing before the NEB. 10 THE CHAIRMAN: Thank you, Ms. Wray. I just 11 want to clarify, Mr. Wojczynski, the figures in the 12 document you provided with the approximate 13 calculations and assumptions regarding a 250 14 megawatts or a small wind generation system versus a 15 larger one would make taking into account that there 16 would be the federal incentive or that there wouldn't 17 be making a net difference of .8 IRR? 18 MR. WOJCZYNSKI: Yes, sir. 19 THE CHAIRMAN: Thank you. Any further 20 comments in regards to the documents that we just 21 tabled from the panel? Mr. Williams. 22 MR. WILLIAMS: Yes. Thank you, Mr. Chair. 23 And good morning to you and to members of the Panel. 24 Again, with me to my right in a lovely lavender shirt 25 is Mr. Harper. I'm going to speak to him about that. 1092 1 And in a much more CAC/MSOS-ish colour back in the 2 audience is Mr. Chuck Cruden. So he's here as well 3 on behalf of the Society of Seniors. So I welcome 4 him. 5 Mr. Wojczynski, I thank you for the response 6 to the interrogatory. I can assure you Mr. Higgin 7 will be very happy as well. And I have a few more 8 questions about wind and I may integrate a bit in 9 terms of your response to my questions. And where 10 I'd like to start is just comparing the uncertainties 11 of wind development versus Wuskwatim, kind of the 12 relative uncertainties. I guess a starting point, 13 would it be fair to say that the uncertainties 14 surrounding the capital costs related to wind are 15 greater than the uncertainties related to the capital 16 costs related to Wuskwatim? 17 MR. WOJCZYNSKI: Yes. 18 MR. WILLIAMS: And that's because while we 19 expect wind capital costs to go down, we can't be as 20 certain of how far or how fast they will go down, 21 correct? 22 MR. WOJCZYNSKI: Yes. 23 MR. WILLIAMS: We do know that they will have 24 to come down significantly before wind is 25 economically viable; is that correct? 1093 1 MR. WOJCZYNSKI: They would have to come down 2 16 to 19 per cent to get the kind of -- to get the 3 IRRs we have down here. And 6 per cent I wouldn't 4 think of as being economic. It still has some 5 profit. 9 per cent or 8.2, it probably would be 6 considered -- it would be considered as profitable I 7 would say and economic. 8 MR. WILLIAMS: In terms of other -- the 9 relative uncertainties again between Wuskwatim and 10 wind, I take it you would agree that in terms of the 11 level of output, there is more uncertainty associated 12 with the potential level of output from wind versus 13 the potential output from Wuskwatim. Would that be 14 fair? 15 MR. WOJCZYNSKI: Yes. There is two elements 16 to that. One is the overall average energy and one 17 is what we call the dependable energy. And at this 18 point, there is probably as or greater uncertainty in 19 the amount of wind we're going to have for such 20 facilities, particularly if you get to larger 21 amounts. Presumably over time, as we and others have 22 more wind monitoring results in many years and many 23 more locations, we'll have a better handle on that. 24 But at this time, that's certainly the case. 25 MR. WILLIAMS: And that compares to what we 1094 1 discussed yesterday which is the many years of 2 history that you have in terms of water flows 3 relating to the overall system and the Burntwood as 4 well? 5 MR. WOJCZYNSKI: Yes, and the very detailed 6 design information, yes. 7 MR. WILLIAMS: And in terms of transmission 8 costs, would you agree with me that the uncertainty 9 relating to transmission costs in terms of wind 10 sites, at least until they are selected, would be 11 greater than the uncertainty related to transmission 12 costs related to Wuskwatim? 13 MR. WOJCZYNSKI: Yes. 14 MR. WILLIAMS: And you touched upon it in your 15 undertaking response of this morning in terms of WPPI 16 or WPPI, I'm not sure. I start to blush whenever I 17 say WPPI I have to say. But I guess in terms of the 18 level of federal subsidy, in the small wind context, 19 there is some uncertainty with regard to the federal 20 subsidy and that's a timing issue; is that right? 21 MR. WOJCZYNSKI: It's more than a timing 22 issue. I'll try and be really brief. The current 23 program has a cap of 1,000 megawatts. There's been a 24 lot -- and it's phasing out. We've got a couple more 25 years for new projects to be able to be applicable 1095 1 for it. There's been a lot of lobbying to have that 2 extended and have the megawatt amount extended. The 3 Federal Government has been very reluctant to do that 4 so far. We would not be surprised to see some 5 extension of it and some increase in the cap because 6 right now there's many thousand megawatts more 7 applicants than there are -- than the 1,000 8 megawatts. But even if it's extended and -- if it's 9 not extended, then the full 250 definitely will not 10 be eligible for the WPPI in my opinion. 11 But there's a significant likelihood there 12 will be some extension and some expansion and then a 13 good portion of the 250 would be. But even in such 14 an extension case, it's unlikely that the 450 15 megawatts or a large portion of the 450 would be 16 eligible. 17 MR. WILLIAMS: So in terms of wind, there's 18 uncertainty in terms of the federal subsidy and 19 obviously Wuskwatim does not rely on one. So that 20 would be a difference in terms of uncertainties? 21 MR. WOJCZYNSKI: Absolutely. 22 MR. WILLIAMS: Okay. In terms of 23 uncertainties with regard to export prices, would it 24 be fair to say that it's basically a wash in terms of 25 uncertainty for Wuskwatim and for wind? 1096 1 MR. WOJCZYNSKI: In terms of the export prices 2 per se, it's a wash. I hesitate a little bit because 3 the wind integration firming and shaping cost, but 4 you're probably going to be talking about that really 5 so I'll wait. 6 MR. WILLIAMS: It's next on my list. But 7 there is, and you mentioned it specifically with 8 regard to small wind in particular, but there are 9 uncertainties relating to firming and shaping with 10 regard to wind that would not exist to the same 11 degree with regard to Wuskwatim; is that correct? 12 MR. WOJCZYNSKI: Absolutely. 13 MR. WILLIAMS: And I guess the one other level 14 of uncertainty that we may get into a bit later today 15 is that in terms of Wuskwatim, there is some level of 16 uncertainty in terms of the actual business and 17 partnership arrangements. And would the same hold 18 true for wind? 19 MR. WOJCZYNSKI: I don't view there being much 20 risk and uncertainty in terms of the partnership side 21 with NCN on Wuskwatim, nothing significant. And on 22 the wind side, I don't know that there's really 23 significant uncertainties there in terms of 24 arrangements. Will there be people who want to 25 develop wind and sell to us at the export prices that 1097 1 are available, that there's a lot of uncertainty. 2 But in terms of the partnership kind of arrangements, 3 as Mr. Adams had indicated, the Shell partnership is 4 not doing that well right now. But we could be 5 looking at independence, totally independent from us 6 doing it. And we would utilize the same NUG 7 approach, non utility generation approach we've been 8 using with Sequoia. 9 But there's at least as much uncertainty on 10 the wind side as there would be on the Wuskwatim 11 partnership side. But neither case is significant. 12 MR. WILLIAMS: We may get into that a bit 13 later but I didn't want to kind of sidetrack us at 14 this point in time. 15 MR. WOJCZYNSKI: I might want to add, too, you 16 mentioned the export price uncertainty. 17 MR. WILLIAMS: Yes. 18 MR. WOJCZYNSKI: And I may have given the 19 impression in my discussion in response to your 20 questions yesterday, sir, that we may have given an 21 impression that profitability is at risk from 22 uncertainty in political decisions in our export 23 markets; for instance, Bush not ratifying Kyoto. So 24 if I had given that impression, I just wanted to 25 clarify that that is not the case and there's sort of 1098 1 three reasons for that. 2 The first is that the export estimates that we 3 are using already assume that the U.S.A. particularly 4 in the world more generally never ratified Kyoto as 5 it stands. That's already built into our forecast. 6 And the forecast assumed there will be a gradual 7 implementation of greenhouse gas management in the 8 United States and the world around us but not in the 9 Kyoto time frame or framework. 10 And as a matter of fact, I don't believe I've 11 said this at all on the record yet and I realize it's 12 probably useful to clarify, that we had talked a bit 13 about the Bush Administration relaxing the 14 environmental regulations on coal generation. But 15 that is already built into our forecast. This isn't 16 some new factor that's going to be harmful to us. 17 For instance, and the best example is if you 18 go to the Global Insights Report, the amount of 19 existing coal generation assumed to be extended in 20 life and actually expanded in capacity without 21 significant environmental additional costs because of 22 a decision by the Bush Administration to relax the 23 EPA requirements under the Clean Air Act. But that's 24 already built into our forecasts. 25 So the second point is if the U.S.A., after 1099 1 this upcoming election, did, with a new 2 administration, ratify Kyoto or something very 3 similar to it, the export rates would likely be much 4 higher than anything we've included in our forecasts, 5 even higher than our forecast of the high. So that 6 would be like a bonus. So it's not that there's a 7 risk that they won't do something, actually be a 8 bonus way above what we've already assumed. 9 The last point here is if there's no societal 10 or political will to increase environmental 11 stringency at all over the next 10 to 15 years which 12 I think most of us would consider highly unlikely, if 13 that did happen, the reference case would apply and 14 the advancement IRR for Wuskwatim would still be in 15 the order of 9 and a half per cent which we consider 16 to be very attractive and very profitable. 17 So I just didn't want there to be a 18 misimpression. Thank you. 19 MR. WILLIAMS: Thanks. Back to wind. We have 20 talked about some uncertainties in terms of just kind 21 of a general comparison wind versus Wuskwatim. Have 22 I missed anything? Are there any other ones that 23 when we're kind of looking at the relative 24 uncertainties that you'd like to share? 25 MR. WOJCZYNSKI: I think we've said enough on 1100 1 that. We could get into more details but it's 2 probably not useful. 3 MR. WILLIAMS: Just in terms of Hydro's 4 analysis of wind, my sense is that your perspective 5 is that wind comes with any kind of your core 6 business mandate as a source of new generation but it 7 also presents a number of challenges and 8 uncertainties. Would that be fair? 9 MR. WOJCZYNSKI: Yes. 10 MR. WILLIAMS: And would it also be fair to 11 say that these challenges and uncertainties are 12 fairly significant? 13 MR. WOJCZYNSKI: Yes. 14 MR. WILLIAMS: Would you say that these 15 challenges and uncertainties are more significant 16 than for Wuskwatim? 17 MR. WOJCZYNSKI: Yes. 18 MR. WILLIAMS: Thank you. I am going to turn 19 to DSM and -- 20 MR. MAYER: Before you do that, I just had one 21 question here. I think Mr. Williams said that you 22 perceived wind is to be within your core business. I 23 thought I heard you say earlier when answering 24 questions about the steam turbine and where you 25 considered the risk there, I wasn't sure you 1101 1 mentioned that is to be within your core business 2 area. I see Manitoba Hydro as being Hydro. I 3 thought that was the core. I am wondering how it is 4 you could consider wind or thermal to be sort of 5 within your core business area? 6 MR. ADAMS: Maybe I can respond to that, Mr. 7 Mayer. Our core business is to supply electricity to 8 the customers with all the other qualifications that 9 go with it. How we produce it is a means to an end, 10 not the end in itself. And so we consider the supply 11 of electricity from any source to be part of our core 12 business. So whether it's from steam, gas turbines, 13 Hydro, wind, solar energy, geothermal heat, DSM and 14 so on, we consider that all to be part of our core 15 business. 16 MR. MAYER: Would nuclear be included in that 17 list? 18 MR. ADAMS: Absolutely. I mean if we were to 19 consider that nuclear was an appropriate path to 20 follow, we would consider it. And don't get me 21 wrong, where a lot of the energy we are buying from 22 other areas is at least in part generated by nuclear. 23 But what we do say is that 97 per cent of the 24 energy we actually produce comes from Hydro. Clearly 25 we have a lot more experience building and operating 1102 1 Hydro plants than we do thermal stations. Although 2 we've been in the thermal business for 40 something 3 years. 4 MR. MAYER: Thank you, sir. 5 THE CHAIRMAN: May I ask another question. 6 Mr. Wojczynski, you've indicated that in these 7 calculations and assumptions that you've made, you 8 took for granted that there would not be any 9 relaxation. In fact, there may be an expansion in 10 the greenhouse emission in the United States for the 11 next foreseeable future. 12 Do these assumptions also include additional 13 benefits from greenhouse gas emissions, the sale of 14 the opportunities there to the United States? 15 MR. WOJCZYNSKI: Yes. We assume that our 16 benefits and our export price from reducing 17 greenhouse gases is directly tied to whether or not 18 there is a greenhouse gas management in the States. 19 So our reference case has no benefit whatsoever in 20 the price for reducing greenhouse gases. Our three 21 environmental premium scenarios have a price benefit 22 built into them but in the earlier years, there's a 23 low probability attached to that. And in none of the 24 cases, even the high case, does the price benefit for 25 greenhouse gas management equal to what it would have 1103 1 been if the United States had ratified Kyoto. 2 So there is some price benefit in 3 environmental premium scenarios but it's lower than 4 would have been with Kyoto. 5 THE CHAIRMAN: Okay. 6 MR. WILLIAMS: Mr. Kuczek and Mr. Fleming and 7 for the benefit of the panel and perhaps Mr. Grewar, 8 we're going to move into the area of DSM. And we 9 have come up with a very last exhibit for this 10 proceeding, I'm hoping anyways, at least this 11 cross-examination. And we've shared that with Mr. 12 Kuczek and Mr. Fleming and the Hydro panel. And my 13 understanding is that Hydro and NCN don't have any 14 objections to us sharing it with the Commission. 15 I think there's some copies on the back table 16 there. So unless there's any comment by Hydro or 17 NCN, we'd like to ask Mr. Grewar to distribute that 18 exhibit. 19 MR. GREWAR: Mr. Williams, is it the Exhibit 20 CAC/MSOS New DSM Potential versus Current Programs or 21 is it the simplified illustrative example of DSM 22 Program portfolio? 23 MR. WILLIAMS: Yes. I apologize for that, Mr. 24 Grewar. We're referring to the document CAC/MSOS 25 Simplified Illustrative Example of DSM Program 1104 1 Portfolio Design. 2 MR. GREWAR: Thank you. 3 MR. WILLIAMS: Now, before anyone spends too 4 much time looking at that, I'm going to ask you to 5 tear your eyes away from it for just a second or two 6 and pay some attention to me. And, Mr. Kuczek and 7 Mr. Fleming, what I'd like to do is, we'll get to 8 that in a few minutes, but what I'd like to do is 9 because I was left a little uncertain on Wednesday on 10 how DSM works. So what I'd like to do is do kind of 11 a high level overview of DSM and then come back to 12 specific elements of it afterwards. Is that 13 satisfactory? You're nodding your head so I take it 14 that's fine. 15 MR. KUCZEK: Yes. 16 MR. WILLIAMS: Now, my understanding is that 17 basically, and I'm referring here for the reference, 18 if you're looking for reference, to CEC first round 19 interrogatory 21(a). I don't think it's necessary to 20 refer to it but if you wish it. Do you have that, 21 Mr. Kuczek? 22 MR. KUCZEK: The number was what again? 23 MR. WILLIAMS: 21(a). 24 MR. KUCZEK: Yes. 25 MR. WILLIAMS: Now my understanding is 1105 1 basically Hydro's DSM, under its planning process, 2 energy efficient opportunities are identified through 3 various channels including industry and other market 4 contacts; is that correct? 5 MR. KUCZEK: Correct. 6 MR. WILLIAMS: And then these are generally 7 assessed for their economic attractiveness using two 8 levels of evaluation, a high level assessment and a 9 more detailed assessment; is that right? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And we'll get into this in a 12 bit more detail in a few minutes but the high level 13 assessment involves comparing the expected benefits 14 to the incremental capital costs associated with the 15 energy efficient measure; is that right? 16 MR. KUCZEK: Yes, in general. It's more of a 17 screening test, if anything. 18 MR. WILLIAMS: And would that be the kind of 19 analysis that's performed in the DSM market potential 20 study or something similar to that? 21 MR. FLEMING: I don't think it would be fair 22 to say a cursory DSM potential study. We've looked 23 at the market in detail and the technologies in some 24 detail. Although overall, it's a high level view of 25 the marketplace, a high level view of residential, 1106 1 industrial and commercial energy consumption. 2 MR. WILLIAMS: Okay. Thank you very much, Mr. 3 Fleming. Mr. Kuczek, what I'm going to concentrate 4 now on is the Hydro process and then we'll get back 5 to the market opportunities potential. 6 After Hydro does a high level screening, 7 basically, those opportunities which pass the high 8 level assessment, Hydro then undertakes a more 9 detailed assessment; is that right? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And that involves developing 12 program concepts and designs, focus on transforming 13 the marketplace; is that fair? 14 MR. KUCZEK: Yes. 15 MR. WILLIAMS: And that it also involves 16 estimating projected energy savings and projected 17 costs associated with promoting the product, correct? 18 MR. KUCZEK: Yes. We do that with a high 19 level assessment as well. It's just more detail with 20 the second level. 21 MR. WILLIAMS: Fair enough. And these revised 22 costs and benefits are then added to the benefit cost 23 analysis to determine the cost benefit of the 24 initiative; is that right? 25 MR. KUCZEK: Yes. 1107 1 MR. WILLIAMS: And the primary tool for that 2 is something that is known as total resource, the 3 total resource cost test or TRC? 4 MR. KUCZEK: Yes. 5 MR. WILLIAMS: And generally, to be 6 acceptable, opportunities must pass the total 7 resource cost test of about one? 8 MR. KUCZEK: They must pass one, yes. 9 MR. WILLIAMS: And at this more detailed 10 analysis, opportunities are also assessed using 11 something called the rate impact measure test or RIM; 12 is that right? 13 MR. KUCZEK: Yes. 14 MR. WILLIAMS: And generally, opportunities 15 aren't pursued unless they have a RIM of 0.8; is that 16 correct? 17 MR. KUCZEK: We don't have a set criteria for 18 passing RIM. We look at each individual program on 19 its own and with the objective of having an overall 20 program that has a RIM of 1. But it's not a set 21 criteria. 22 MR. WILLIAMS: And that's helpful. And just 23 so I understand this, what you do is essentially 24 programs for opportunities that pass the total 25 resource cost test are aggregated to form DSM 1108 1 resource options; is that right? 2 MR. KUCZEK: Yes. 3 MR. WILLIAMS: And then they are evaluated 4 against other potential resource options, correct? 5 MR. KUCZEK: Yes, by Mr. Wojczynski's group. 6 MR. WILLIAMS: Now, Mr. Fleming, I guess it's 7 your turn for a couple minutes anyways. 8 In your DSM market potential study, there's 9 reference to something that's called the economic 10 potential forecast. Do you recall that? 11 MR. FLEMING: Yes, I do. 12 MR. WILLIAMS: And as I understand it, the 13 economic potential forecast is a level of electricity 14 consumption that would occur if all equipment and 15 building envelopes were upgraded to the level that is 16 cost effective from Manitoba Hydro's perspective; is 17 that right? 18 MR. FLEMING: That's correct. 19 MR. WILLIAMS: And you use a technology or you 20 use a test there which is known as the cost of 21 conserved energy or CCE; is that right? 22 MR. FLEMING: Yes, we do. 23 MR. WILLIAMS: And what that is is the 24 annualized incremental capital and O&M cost of an 25 upgrade measure divided by the annual savings 1109 1 achieved; is that right? 2 MR. FLEMING: Precisely actually. 3 MR. WILLIAMS: What a surprise. Now, those 4 are pretty big words so what I'd like to do is turn 5 you to the illustrative CAC/MSOS simplified 6 illustrative example of DSM program portfolio design. 7 And I guess the first question is if it's simplified, 8 why is the title so long? 9 MR. MAYER: Should that be CCE, not CEC? 10 MR. WILLIAMS: And I'm not sure it was a 11 Freudian slip but the title is wrong. It should say 12 TRC RIM and CCE, Mr. Grewar, rather than CEC. 13 MR. GREWAR: And perhaps at this time, Mr. 14 Chairman, we'll just quickly enter it as 15 CAC/MSOS-1004 with correction. 16 17 (EXHIBIT CAC/MSOS-1004: CAC/MSOS simplified 18 illustrative example of DSM program portfolio 19 design) 20 21 MR. WILLIAMS: And basically, Mr. Fleming, 22 what I'd like you to concentrate on is the cost of 23 the first kind of table which, in the top left-hand 24 corner, is the heading Cost of Conserved Energy CCE. 25 Do you see that? 1110 1 MR. FLEMING: Yes, do I. 2 MR. WILLIAMS: And you can see what we're 3 doing here is essentially a scenario looking at the 4 CCE for commercial Low E windows; do you see that, 5 sir? 6 MR. FLEMING: Yes, I do. 7 MR. WILLIAMS: And what we are assuming is -- 8 remember those big words that we used before such as 9 annualized incremental capital and O&M costs. And in 10 this case, we are assuming away the O&M costs and 11 we're only focusing on the capital costs; is that 12 right? 13 MR. FLEMING: Yes. 14 MR. WILLIAMS: And what that capital cost 15 under CCE in the extreme left being the total of 16 $5,000, what that represents is the cost of 17 installing these types of windows in one home, 18 correct? Or sorry, in one commercial business? 19 MR. FLEMING: Yeah, I'm not entirely sure of 20 the -- 21 MR. WILLIAMS: I wonder if -- 22 MR. FLEMING: These are someone's numbers. 23 MR. WILLIAMS: Yeah. 24 MR. FLEMING: But I am assuming that this is 25 the capital cost for a certain amount of window. 1111 1 MR. WILLIAMS: Yes, into one business. 2 MR. KUCZEK: And you're referring to 3 incremental costs I guess? 4 MR. WILLIAMS: That's correct as well, Mr. 5 Kuczek. And so that's what that figure is intended 6 to represent. And if you go over one column, you'll 7 see life year being 25 years. So that's the 8 estimated life of this technology. And again, we're 9 just using this as a hypothetical, we're not 10 suggesting that these are the actual data. Do you 11 understand that, Mr. Fleming? 12 MR. FLEMING: Absolutely. 13 MR. WILLIAMS: And the next column over is the 14 assumption in terms of savings per year. And for 15 this commercial business, it would be -- the energy 16 saved would be 4,000 kilowatt hours. Do you 17 understand that, sir? Do you see that, sir? 18 MR. FLEMING: In this context, sure. 19 MR. WILLIAMS: Now, the next heading is (D) 20 which is utility avoided cost rate. And that's 21 represented by 6 cents per kilowatt hour. Do you see 22 that, Mr. Fleming? 23 MR. FLEMING: Yes, I do. 24 MR. WILLIAMS: Now, if I understand the 25 utility avoided cost, the figure that you try and use 1112 1 it for is to represent the value of the kilowatt 2 saved to Manitoba Hydro. Would that be fair? 3 MR. FLEMING: In this case, 6 cents would 4 be -- we don't use avoided cost. We try to put a 5 value on electricity. And in the study, it was 6.15 6 cents per kilowatt hour. And we were to use that 7 value of electricity as a means to screen 8 technologies, whether technologies could bring 9 electricity to the system at that value for that 10 price. 11 MR. WILLIAMS: And the value of electricity, 12 and we can certainly change the heading, that would 13 be fine. 14 MR. FLEMING: Sure. 15 MR. WILLIAMS: The value of electricity is 16 basically the opportunity costs that Hydro could get 17 from exporting this power to the United States more 18 or less. 19 MR. KUCZEK: It's a combination of a number of 20 factors. And Mr. Wojczynski can actually talk to all 21 of them. But they are primarily the export value and 22 avoided cost of generation. 23 And, Mr. Wojczynski, I'm not sure if you want 24 to add anything to that. 25 MR. WOJCZYNSKI: I'm not sure that we need to 1113 1 at this time. The 6.15 cents before was our estimate 2 of the benefits from additional energy available. 3 And the primary impact is on the export market, 4 additional export benefits, but it also includes any 5 modifications and import costs and thermal costs. So 6 it's an overall evaluation, primarily driven by the 7 exports. 8 And we determine that in the same fashion as 9 when we look at Wuskwatim or wind, we use the same 10 kind of basic methodology and the same kind of 11 assumptions. 12 MR. WILLIAMS: Okay. So we'll change that 13 title to "Value" rather than "Avoided Costs." And 14 the next column over is titled "Annualized Costs." 15 And you can see that that's simply calculated by 16 taking the capital cost of $5,000 and dividing it by 17 the life year of 25 to yield the figure of $200. Is 18 that correct, Mr. Fleming? 19 MR. FLEMING: Yes. 20 MR. WILLIAMS: And of course, that's a very 21 simplified calculation. It doesn't take into account 22 the time value of money in this simplified example. 23 It's for illustrative purposes. Do you understand 24 that? 25 MR. FLEMING: Yes, I do. 1114 1 MR. WILLIAMS: So from the annualized costs, 2 we move over one column to what is called the Cost of 3 Conserved Energy. And that's calculated by taking 4 the savings to this business per year of 4,000 5 kilowatt hours. Oh, excuse me. That's taken by -- 6 that's done by taking the annualized cost which we 7 calculated to be $200 and dividing that by the 8 savings per year for this business of 4,000 kilowatt 9 hours; is that correct, sir? 10 MR. FLEMING: Yes, I'm following you. 11 MR. WILLIAMS: And that leaves you with a cost 12 of conserved energy of five cents per kilowatt hour, 13 correct? 14 MR. FLEMING: Yes, using this formula for cost 15 of conserved energy. 16 MR. WILLIAMS: And if I were just to eyeball 17 this table at this time, and if I was to compare the 18 cost of conserved energy being five cents per 19 kilowatt hour versus the value of that electricity 20 being 6 cents per kilowatt hour, that would suggest 21 to me, just on a kind of eyeball basis, that this had 22 the potential to be an economic DSM opportunity. 23 Would that be fair? 24 MR. FLEMING: Using the numbers you've 25 presented here and the formula for CCE, yes. 1115 1 MR. WILLIAMS: Okay. And I don't think I need 2 to go into the CCE ratio. And that's fairly 3 self-evident from the table. I guess the other thing 4 that would be considered would be the number of 5 potential participants and here we've simply assumed 6 the number of 1,000. Do you see that, Mr. Fleming? 7 MR. FLEMING: Yes, I do. 8 MR. WILLIAMS: And if you wanted to find out 9 the economic potential kilowatt hours per year, you 10 would take the savings per year for that one 11 individual commercial premise and times it by the 12 estimated number of participants. And that would 13 yield 4 million kilowatt hours per year. Is that 14 right? 15 MR. FLEMING: Yes. 16 MR. WILLIAMS: Okay. And recognizing that 17 that's a simplified approach, but is that a 18 relatively fair representation of your calculation, 19 sir? 20 MR. FLEMING: Well, it's not a fair 21 representation of windows as a measure. It's not a 22 fair representation of the cost of conserved energy 23 because it's not discounted over a 25 year life. If 24 it were a compact fluorescent with a one year life, I 25 could live with your formula for cost of conserved 1116 1 energy, but this is a 25 year investment in energy 2 efficiency. 3 So under these values, I'd have to assume that 4 you -- under the proper discounting, for that 5 particular scenario, you wouldn't have a, under our 6 understanding of the market and pricing in Manitoba, 7 you would not have a window that would be cost 8 effective to replace. 9 MR. WILLIAMS: And thank you for that, Mr. 10 Fleming. And again, we're not trying to get into the 11 kind of relative merits of fluorescent or whatever 12 you just referred to. But what we're trying to do is 13 to get a sense of kind of, a simplified sense of how 14 the calculation is undertaken. And this is fairly 15 representative of that calculation. Leaving out the, 16 taking your caveat regarding the discounting and the 17 assumptions; is that fair? 18 MR. FLEMING: Okay. 19 MR. WILLIAMS: Did you say yes? 20 MR. FLEMING: Yes. 21 MR. WILLIAMS: And I'm not sure whether this 22 goes to Mr. Fleming or Mr. Kuczek. But once Hydro, 23 or excuse me, I'm again referring to the DSM market 24 potential study. Once you have the economic 25 potential forecast, an important thing to consider 1117 1 next is rather than the economic potential is 2 actually the achievable potential; is that correct? 3 MR. KUCZEK: Yes. 4 MR. WILLIAMS: And as I understand it, what 5 achievable potential recognizes is that in many 6 instances, it's difficult to persuade all customers 7 to purchase and install all the energy efficient 8 technologies that meet the criteria defined by the 9 economic potential forecast. Would that be fair? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And just to give you some 12 examples. Customer decisions to implement energy 13 efficient measures could be constrained by factors 14 such as the higher first cost of efficient products 15 or the need to recover investment costs in a short 16 period of time; is that right? 17 MR. KUCZEK: Yes. 18 MR. WILLIAMS: Some other factors might be in 19 a case of a landlord/tenant situation where the 20 incentives are split between the landlord and 21 tenants. So it doesn't make sense individually but 22 it might make sense globally. Would that be fair? 23 MR. KUCZEK: Yes, usually with landlords and 24 tenants it doesn't make sense because the landlord 25 pays the capital costs and the tenant pays the 1118 1 operating costs. 2 MR. WILLIAMS: And a couple of other reasons 3 that might constrain the customer decisions to 4 implement energy efficient measures could be a lack 5 of product performance information or lack of product 6 availability; is that right? 7 MR. KUCZEK: Yes. 8 MR. WILLIAMS: And I guess the final one of 9 importance to my clients might be just a lack of 10 access to capital in the sense that it might not be 11 affordable for low income people to make that 12 up-front investment. Would that be correct? 13 MR. KUCZEK: Yes. 14 MR. WILLIAMS: Thank you. Now, also in the 15 DSM market potential study, there's a reference to 16 upper achievable potential. And my understanding is 17 that under that scenario, there's an assumption that 18 Manitoba market conditions become more supportive of 19 energy efficient initiatives; is that right? 20 MR. KUCZEK: Yes. 21 MR. WILLIAMS: And some of the assumptions in 22 this scenario, one is that the ratification of the 23 Kyoto protocol leads to new Federal Government 24 initiatives that increase customer energy efficiency 25 awareness and motivation; is that right? 1119 1 MR. KUCZEK: Yes. 2 MR. WILLIAMS: And these conditions also 3 provide additional opportunities to leverage 4 PowerSmart programs through partnering with other 5 organizations such as the Federal Government. Would 6 that be fair? That's the assumption? 7 MR. KUCZEK: In general, yeah. 8 MR. WILLIAMS: Okay. Just so I understand 9 this. The results of the DSM market potential study 10 and the estimate of achievable potential, they are 11 supportive of the conflict of PowerSmart work but 12 achievable potential is not synonymous with either 13 the setting of specific PowerSmart targets or with 14 program design; is that right? 15 MR. KUCZEK: Say that again? I'm sorry. 16 MR. WILLIAMS: Yeah, that was tremendously 17 articulate. What I'm trying to say is just because 18 it's in the DSM market potential, there's certainly 19 that -- you suggest that there's an opportunity there 20 but that doesn't mean you have a program designed to 21 realize upon that potential or even that at the end 22 of the day that it will be realized upon; is that 23 correct? 24 MR. KUCZEK: That's correct. The next step is 25 actually do the detailed program designs and then 1120 1 following that, do the screening against other 2 options. 3 MR. WILLIAMS: And you guys are just being so 4 helpful with segues today. That's number 2. So I'd 5 just like to, going back to the exhibit, go to the 6 second heading which is Total Resource Cost. And I 7 guess this goes to you, Mr. Kuczek. 8 And again, you understand that we're not 9 trying to show the total resource cost of a 10 commercial Low E window, we're just trying to get a 11 sense of some of the inputs into the calculation. Do 12 you understand that, sir? 13 MR. KUCZEK: Yes, I do. 14 MR. WILLIAMS: And if I were to compare the 15 CCE calculation to the total resource cost 16 calculation, I would see that the capital costs, the 17 life year and the savings years are the same in both 18 tables; is that correct? 19 MR. KUCZEK: Yes. 20 MR. WILLIAMS: And as well, the next column 21 which was formally known as Utility Avoided Cost Rate 22 but which we're now calling Value of Electricity is 23 also the same in both examples, correct? 24 MR. KUCZEK: Yes. 25 MR. WILLIAMS: So what you can see we've done 1121 1 here is the next column titled Utility Program Costs 2 or (D), we have assumed a program cost of $1,000. Do 3 you see that, sir? 4 MR. KUCZEK: Yes. 5 MR. WILLIAMS: And what that refers to in 6 terms of programs costs at the total resource cost 7 level, it doesn't involve any incentives you might 8 offer to participants to participate in the program. 9 These are the costs of designing and administering 10 the program; is that right, sir? 11 MR. KUCZEK: Yes, and promotion and a few 12 other things, yes. 13 MR. WILLIAMS: And column (E) is the figure 14 that we have assumed for participant costs. Now 15 ordinarily, one would expect that if the capital cost 16 was 5,000, one would expect that to be $5,000. Is 17 that right, Mr. Kuczek? 18 MR. KUCZEK: Yes. 19 MR. WILLIAMS: But in this case, we have 20 assumed for reasons that escape me a net cost after 21 federal $1,500 incentives. Do you see that? 22 MR. KUCZEK: That's being optimistic. 23 MR. WILLIAMS: And again, just to perform the 24 calculation, the TRC looks at the benefits versus the 25 cost; is that right? 1122 1 MR. KUCZEK: Yes. 2 MR. WILLIAMS: So in terms of this kind of 3 calculation, at the top of the calculation, on the 4 benefits -- or excuse me. At the top of the 5 calculation, the first thing we will put in would be 6 the life year of 25 years; is that right? 7 MR. KUCZEK: Yes. 8 MR. WILLIAMS: And we will multiply that by 9 the savings per year of 4,000 kilowatt hours? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And then we'll multiply that by 12 the value of electricity being 6 cents per kilowatt 13 hour; is that correct, sir? 14 MR. KUCZEK: Yes. 15 MR. WILLIAMS: At the bottom, we will add the 16 utility program cost being 1,000 plus a participant 17 cost being $3,500; is that right, sir? 18 MR. KUCZEK: Yes. 19 MR. WILLIAMS: And would you accept, subject 20 to check, that that calculation would be 1.33? 21 MR. KUCZEK: Yes. 22 MR. WILLIAMS: And when you look at that, 23 again when you see a figure of that, that suggests 24 that certainly that this is a project that you might 25 want to consider -- a product that you might want to 1123 1 consider including in your DSM portfolio at that 2 level of analysis? 3 MR. KUCZEK: Yes. 4 MR. WILLIAMS: Now, the federal incentives 5 were included here. Just one second. Would you 6 accept, subject to check, that if we took the federal 7 incentives out, the ratio would be 1.0? 8 MR. KUCZEK: That would look correct, yes. 9 MR. WILLIAMS: And at that level, would that 10 still be a project that the corporation would 11 consider? It's not a trick. I'm just trying to find 12 out. 13 MR. KUCZEK: I was just making sure the 1.000, 14 how that would impact, whether we would look at it or 15 not. But we would still look at it and look at it in 16 a little more detailed and see if it made sense for 17 us in our overall PowerSmart package. 18 MR. WILLIAMS: And if I'm right, if we go 19 along, we see under "Participants per year," and 20 that's I guess assumed to be 250. And presumably, we 21 talked about kind of economic versus achievable. And 22 presumably the 250 would be based upon the 23 corporation's estimate of what the participation rate 24 in the program would be, giving consideration to some 25 of the limiting factors that we spoke of previously; 1124 1 is that right? 2 MR. KUCZEK: Yes. 3 MR. WILLIAMS: And so if you wanted to find 4 the total savings per year for the program, you would 5 multiply the savings per year by the number of 6 participants and that would again give you the 7 result? 8 MR. KUCZEK: Yes. 9 MR. WILLIAMS: Now, I'm going to try and set 10 you up for another one of those clever segues that 11 your team has been so helpful on today. 12 When we look at DSM resource options, we know 13 that they result in lower average customer bills when 14 Manitoba Hydro's revenue requirements are spread over 15 lower energy sales; is that right? 16 MR. KUCZEK: Say that again? I'm sorry. 17 MR. WILLIAMS: When we look at DSM, we know 18 that, you know, economically viable options result in 19 lower average customer bills when Hydro's revenue 20 requirements are spread over lower energy sales; is 21 that right? 22 MR. KUCZEK: Yes. 23 MR. WILLIAMS: Let me try this another way 24 just to make it a little less complicated. DSM does 25 that, it may make the lower average bill and it also, 1125 1 you will agree with me, it also benefits people who 2 participate in the program in the sense that they are 3 paying lower actual bills as well, correct? 4 MR. KUCZEK: Yes. 5 MR. WILLIAMS: But the other part of the 6 analysis that Hydro wishes to conduct is to be 7 confident that there's not a negative impact on other 8 consumers who don't, who aren't able to or choose not 9 to participate in DSM; is that right? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And that's why you do the RIM 12 calculation; is that correct? 13 MR. KUCZEK: Yeah. We do it on a total 14 program basis. And you are correct, it's an 15 indication of the impact to our rates both magnitude 16 and directions and our concern is to non-participants 17 or the impact to non-participants. 18 MR. WILLIAMS: Yes, thank you for that. And 19 that wasn't kind of as graceful as the last segue but 20 maybe we can turn to the rate impact measure now 21 which is the third table on this exhibit. And when 22 we compare the rate impact measure to the analysis to 23 the total resource costs analysis, we can see that 24 the first five columns being capital costs, life 25 year, savings years, value of electricity and utility 1126 1 program cost are the same between the two programs; 2 is that right? 3 MR. KUCZEK: Yes. 4 MR. WILLIAMS: It's when we get to the sixth 5 column being incentive that we see a difference 6 between the two calculations; is that right? Is that 7 right, Mr. Kuczek? 8 MR. KUCZEK: The sixth column is different, 9 yes. 10 MR. WILLIAMS: And the incentive in this 11 scenario is in order to induce customers to take up 12 its program? 13 MR. KUCZEK: It's one of your programming 14 tools that you can use to try to change the behaviour 15 of consumers. And it's to address the capital cost 16 barrier. 17 MR. WILLIAMS: Now, the next column is 18 something called Lost Revenue Rate. And rather than 19 me trying to explain that, I wonder if you can try 20 and explain that to me? 21 MR. KUCZEK: I'm not sure exactly how this is 22 calculated but it's the calculation of our lost 23 revenue to do with energy not being consumed with 24 consumers by the consumers. 25 MR. WILLIAMS: So because DSM lowers the 1127 1 overall consumption, there is a cost to the 2 corporation in the sense that they are not charging 3 for that electricity; is that correct? 4 MR. KUCZEK: They are not selling the energy 5 to that consumer so there's lost revenue there, yes. 6 MR. WILLIAMS: So that's why you wish to 7 include that in the calculation? 8 MR. KUCZEK: Correct. 9 MR. WILLIAMS: So again, and thank you for 10 that, Mr. Kuczek, in doing the calculation at the, 11 going to the seventh column being RIM Benefit Cost, 12 the top part of this calculation is the benefits. 13 And that would include the life year multiplied by 14 the savings per year multiplied by the value of 15 electricity being column C; is that right? 16 MR. KUCZEK: Yes. 17 MR. WILLIAMS: And the calculation at the 18 bottom being the costs would include the utility 19 program costs being column (D), the incentive being 20 column (E). Those are added together. And they are 21 added with the product of the life year times the 22 savings year times the lost revenue rate; is that 23 right? 24 MR. KUCZEK: That's right. 25 MR. WILLIAMS: I'm amazed. Thank you. And 1128 1 that leaves a RIM of 1.13 which is certainly 2 something that would be, again for illustrative 3 purposes, definitely worthy of consideration within 4 the Hydro portfolio? 5 MR. KUCZEK: Yes. 6 MR. WILLIAMS: Thank you, Mr. Kuczek. I want 7 to try and put this together in terms of DSM. My 8 understanding is that you try and create a portfolio 9 of DSM programs such that the overall total resource 10 cost is greater than one for the portfolio overall; 11 is that right, sir? 12 MR. KUCZEK: Each individual program has to 13 pass the TRC of one as well. 14 MR. WILLIAMS: Okay. And you also want the 15 overall RIM to be one; is that correct? 16 MR. KUCZEK: Our preference is to have it 17 around one for the reasons we talked about before, 18 the impacts to non-participating customers. 19 MR. WILLIAMS: And just to elaborate on that 20 slightly. That doesn't mean that every program 21 within the portfolio has to have a RIM of one; is 22 that right? 23 MR. KUCZEK: That's correct. 24 MR. WILLIAMS: Some can have more, some can 25 have less provided that generally you are around the 1129 1 one? 2 MR. KUCZEK: That's our objective, yes. 3 MR. WILLIAMS: Going back to the DSM market 4 potential study, my understanding is that when I look 5 at that document, that's not a calculation of TRC or 6 RIM for individual programs. It's not down to that 7 level, is that right, Mr. Fleming or Mr. Kuczek, 8 whoever? 9 MR. KUCZEK: You're right. 10 MR. WILLIAMS: And so the process that 11 Manitoba Hydro is in right now is to take the results 12 from the DSM market potential study and perform 13 analysis on it in terms of TRC and RIM; is that 14 correct? 15 MR. KUCZEK: Yes, the more detailed program 16 designs. 17 MR. WILLIAMS: And until you have completed 18 the more detailed program design, Hydro doesn't 19 commit to these additional programs; is that right? 20 MR. KUCZEK: Not quite I guess. If, in the 21 process, we had a program that we thought was 22 beneficial to pursue, we would pursue it in parallel 23 with this process. So in general, you are correct 24 but there are exceptions. 25 MR. WILLIAMS: Now, if I was looking for kind 1130 1 of the Bible of the Manitoba Hydro PowerSmart or DSM 2 program, would that be the PowerSmart Resource 3 Options document, Mr. Kuczek? 4 MR. KUCZEK: I struggle in my mind with it 5 being the Bible, but I guess you could think of it 6 that way. 7 MR. WILLIAMS: Rather than the Bible, it's 8 kind of the core document currently for Manitoba 9 Hydro? 10 MR. KUCZEK: Yes. In general that's true. In 11 this particular case, our current PowerSmart plan is 12 the 2001 plan so it's a little outdated. But it is 13 the plan that we're working with and subject to 14 pursuing some other programs that we think are 15 beneficial in the meantime or in parallel to 16 developing the modified plan. 17 MR. WILLIAMS: And so the modified plan or you 18 are in the process of reviewing the 2001 plan and 19 elaborate on it; is that right? 20 MR. KUCZEK: Yes. 21 MR. WILLIAMS: And that review is not complete 22 yet? 23 MR. KUCZEK: That's correct. 24 MR. WILLIAMS: And when do you expect that to 25 be completed? 1131 1 MR. KUCZEK: It depends when these hearings 2 are done. We normally would be attempting to 3 complete them by the spring, actually about now, this 4 time of the year. This year, it will likely be 5 closer to the end of the summer. 6 MR. MAYER: I take it you don't have to worry 7 about the GRA. 8 MR. KUCZEK: Well, we're not sure if I'm 9 involved in that yet. 10 MR. WOJCZYNSKI: But I would add that some of 11 the people who would be evaluating the DSM program 12 are involved in the GRA. I'm referring to inside of 13 Hydro. 14 MR. WILLIAMS: Just so I'm clear, Mr. Kuczek, 15 you said that you would normally review the plan in 16 the spring. Would that be the 2001 plan? Like is 17 that normally reviewed on an annual basis? 18 MR. KUCZEK: Normally that's reviewed on an 19 annual basis. 20 MR. WILLIAMS: What I don't understand then is 21 why the plan is only at 2001 rather than at 2003 or 22 2004? 23 MR. KUCZEK: In 2002, we made a decision not 24 to put our efforts to revising that plan but to do 25 two things. One was to pursue the market potential 1132 1 study which is a comprehensive study that took a fair 2 amount of resources on our part. The same resources 3 that would be used to design the programs or revise 4 the PowerSmart plan. And the other component was in 5 parallel with that, we instructed our program 6 designers to look at the programs and to see if there 7 was any modifications on new programs that we should 8 be pursuing regardless of us updating our plan. And 9 we didn't do that and we did have a few 10 modifications, a new program design as well as a 11 revision to an existing program. 12 MR. FLEMING: I just wanted to add as well in 13 the interim because we were involved in the study 14 that was undertaken initially in 2001 but there was 15 the sale of the former Winnipeg Hydro to Manitoba 16 Hydro and that had a profound effect on the 17 conservation potential because we were bringing in 18 essentially the core of Winnipeg's commercial 19 facility and floor space into our models. So we were 20 somewhat behind in getting the new sales data which 21 went into the new models so that we have essentially 22 the new testament of conservation potential based on 23 that new service territory. We didn't want to miss 24 that opportunity. 25 MR. WILLIAMS: You mentioned it referenced a 1133 1 few modifications. Is your expectation that the 2 outcome of the kind of the melding of the DSM market 3 potential study and the updating of the power 4 resource plan will be a substantial expansion of the 5 program, Mr. Kuczek? 6 MR. KUCZEK: Well, until I see the results of 7 the program designs, it's difficult for me to 8 speculate on what the results are going to be. But I 9 do expect our targets to go up. 10 MR. WILLIAMS: Would your expectation been 11 that they will go up materially? 12 MR. KUCZEK: It's most likely they are going 13 to go up in the range of 1.5 to maybe 2 times. 14 MR. WILLIAMS: Mr. Kuczek, just a few more 15 questions. I thank you for your patience. I want to 16 get -- when we look at DSM, I did this with wind and 17 I just want to do it with DSM to a certain degree in 18 terms of when we look at it compared to other 19 options, can we agree that at least based upon 20 levelized cost analysis, DSM makes very good economic 21 sense for Manitoba Hydro? 22 MR. KUCZEK: The DSM options that make 23 economic sense do make economic sense, yes. I'm 24 sorry, I didn't mean anything by that. But I had to 25 qualify that because there are some DSM options that 1134 1 are not economic. 2 MR. WILLIAMS: You're getting pretty good at 3 this witness thing, Mr. Kuczek. 4 The programs that are within the plan as well 5 as the programs that are potentially within the plan 6 based upon your expectations of expansion, they make 7 very good economic sense compared to other 8 alternatives that Manitoba Hydro is considering; is 9 that correct? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: And another advantage of DSM is 12 that it can be brought in fairly quickly once you've 13 considered a program in the sense that you are 14 looking at a year or two rather than nine or ten 15 years; is that right? 16 MR. KUCZEK: Again, I have to qualify that. 17 You can achieve some savings fairly quick but it is a 18 long-term plan and it takes a long period of time to 19 actually achieve the total savings that we're 20 targeting for. For example, the market potential 21 study talks about a 15 year plan. So you can't 22 achieve everything overnight. 23 MR. WILLIAMS: That's a good point, thank you. 24 And obviously from my client's perspective, an 25 advantage of DSM is that if it's properly and 1135 1 rigorously implemented and applied, it results in 2 lower average bills and also lower bills for 3 customers who take advantage of the program; is that 4 right? 5 MR. KUCZEK: Yes. 6 MR. WILLIAMS: And I guess another advantage 7 or a strength of DSM is that it's scaleable in the 8 sense that you can bring it in in small increments; 9 is that right? 10 MR. KUCZEK: Yes. 11 MR. WILLIAMS: It's not lumpy? 12 MR. KUCZEK: Clearly not, no. 13 MR. WILLIAMS: And again, DSM, when we look at 14 "environmental friendliness" it certainly ranks right 15 up there, in Hydro's view, with other alternatives 16 such as wind or hydroelectricity; is that fair? 17 MR. KUCZEK: I don't compare them to the 18 alternatives, Mr. Wojczynski does, but I believe 19 that's correct. 20 MR. WOJCZYNSKI: Yes, that's correct, Mr. 21 Williams, that we would consider the DSM to be, from 22 an environmental point of view, as attractive or even 23 more attractive than wind or Hydro. 24 MR. WILLIAMS: And when we're trying to get a 25 sense of Hydro's priorities, and this is probably to 1136 1 you, Mr. Wojczynski or Mr. Adams, would it be fair to 2 say that based upon its economics, its environmental 3 friendliness and its flexibility, DSM should be right 4 near the top? 5 MR. ADAMS: I think it's fair to say that not 6 only should it be near the top, it is near the top. 7 MR. WILLIAMS: So in your view, it's at the 8 top in terms of Hydro's priorities? 9 MR. ADAMS: Subject to the qualifications that 10 Mr. Kuczek put on it that it has to be economic. 11 MR. WOJCZYNSKI: You will note that on day one 12 when we talked about our four main resource options 13 we are pursuing, DSM was the first one we always 14 talked about. And we said that was part of our 15 diverse and environmentally attractive portfolio. 16 MR. WILLIAMS: Thank you, Mr. Fleming, Kuczek 17 Wojczynski and Adams. We're onto a new topic which 18 is -- 19 THE CHAIRMAN: Well, before you do, Mr. 20 Williams, can I ask a question as a neophyte and 21 maybe for the record. You have gone through a highly 22 detailed scenario here and you've had sort of a 23 love-in tete-a-tete here both sides. Can I get a 24 feeling or a sense of what are the general 25 understandings, in layman's terms, or conclusions 1137 1 that you've drawn from this? And I think you were 2 touching on these at the end but now what are the 3 things that you think you have agreed or you've heard 4 in general terms? And I would like to see whether 5 you still are in a love-in scenario. 6 MR. WILLIAMS: Well, Mr. Lecuyer or Mr. 7 Chairman, excuse me, I tend not to testify during 8 these hearings, but I'll -- 9 THE CHAIRMAN: Just to clarify whether I 10 understood. 11 MR. WILLIAMS: I'll try and give you an answer 12 to both. I think when my clients are in agreement 13 with Hydro is that DSM makes good economic sense and 14 also good environmental sense. We are also in 15 agreement with them that there is tremendous 16 unrealized potential. 17 Where I think, and you'll find it in our 18 expert evidence and you know, I don't have 19 instructions from my clients on this so you will hear 20 me a little hesitant on this point, but I think my 21 client's position is likely to be though that this 22 should be more faster. And that recognizing some of 23 the delays, whether it's the City of Winnipeg issue 24 or others, there has not been enough done especially 25 when you can compare the effort put into Wuskwatim 1138 1 compared to the effort put into DSM. So that would 2 be I suspect at the end of the day my client's 3 position. Mr. Cruden may instruct me otherwise. 4 Where my clients don't have a position yet 5 relates to the next issue which is the issues 6 presented by TREE. So that's I think where my 7 clients are coming from, Mr. Lecuyer or Mr. Chairman. 8 THE CHAIRMAN: Thank you. Ms. Avery Kinew has 9 a question. 10 MS. AVERY KINEW: Mr. Williams, I appreciate 11 all the effort you put into this simplified 12 illustrative example and I just wondered, we were 13 talking all of us because we were confused why did 14 you change the number of participants for the CCE? 15 If you used the 250 consistently for all three, you 16 would have ended up with the same amount, a 17 $1,000,000 saving. 18 MR. WILLIAMS: Ms. Avery Kinew, if I 19 understand your question, you're asking why the 20 scenario was changed from 1,000 participants in the 21 CCE example to the TRC example of 250 and the RIM 22 example of 250 in terms of participants. And I guess 23 that was done for two reasons. One is the discussion 24 we went over with the Hydro panel in just market or 25 the realities are that for a variety of factors, 1139 1 people -- not everyone takes up these programs. And 2 I think that's Hydro's perspective. 3 And I think Mr. Harper may, and you may hear 4 evidence on that, but in his experience with Ontario 5 Hydro as well, that would be his sense as well that 6 the take rate, when you translate kind of from the 7 blue sky kind of CCE into the -- 8 MS. AVERY KINEW: I understand achievable 9 potential. I don't understand why you changed the 10 numbers of participants. 11 MR. WILLIAMS: Because there aren't going to 12 be as many participants because then people are just 13 not going to involve themselves in the program. 14 MS. AVERY KINEW: That's not an answer. We're 15 trying to understand these three different measures 16 that Hydro uses. And yesterday, you asked Hydro to 17 compare 450 to 250 using all. Why didn't you use the 18 same? 19 MR. WILLIAMS: Because I don't think that 20 would have -- you're asking why didn't we do an 21 apples to apples comparison and I guess -- 22 MS. AVERY KINEW: You would have ended up with 23 still a million dollars saving for each one. 24 MR. WILLIAMS: Yes, but I don't think that 25 would have been a fair comparison, Dr. Avery Kinew, 1140 1 because sometimes treating people the same is 2 treating them differently. We don't think -- 3 MS. AVERY KINEW: It doesn't help, sorry. I'm 4 just trying to understand. I don't understand. 5 MR. WILLIAMS: And my last crack at this is 6 under the CCE, that's a total number of commercial 7 buildings. Under the next two, it's just our 8 estimate of how many would participate. I'll 9 certainly accept that's the difference between them. 10 MR. KUCZEK: I'll try to explain and hopefully 11 not give anybody a headache this time. The first 12 calculation is just to calculate the economic 13 potential. So you include the number of 14 participants, the total number of participants and 15 that's what I referred to as the ideal case. 16 When you do your detailed program design and 17 you use the test, the TRCs and the RIM tests, you 18 actually estimate how many people will participate in 19 the program and you need to do that because you have 20 to estimate -- you need to know what the savings are 21 going to be. And so that's why you use a number like 22 250, or whatever the number is. But it's certainly 23 not the number that you use in the economic potential 24 calculations. 25 MS. AVERY KINEW: I appreciate that, Mr. 1141 1 Kuczek. Thank you very much. 2 MR. MAYER: If for the top line on the CCE, 3 instead of participant we put potential participant, 4 we'd understand what we're talking about? 5 MR. KUCZEK: Yes. 6 MR. MAYER: Thank you. 7 MR. KUCZEK: The other thing I would add is 8 the term "economic potential" is really somewhat 9 deceiving because its economic potential with the 10 caveat that you're not taking all costs into account. 11 It throws people off that term. It's generally used 12 in the industry but it does throw a lot of people off 13 that aren't familiar with the different calculations 14 involved. 15 THE CHAIRMAN: Thank you. Is there further 16 comments or questions on this? If not, maybe we will 17 take at this point -- Mr. Williams, you are moving 18 onto another subject? 19 MR. WILLIAMS: I leave it to you, Mr. 20 Chairman. I have two areas. I don't think they will 21 be -- it won't be done in ten minutes but it might be 22 done in half an hour. 23 THE CHAIRMAN: We shall take a break at this 24 time. We reconvene at quarter to. 25 1142 1 (PROCEEDINGS RECESSED AT 10:32 A.M. and 2 RECONVENED AT 10:50 A.M.) 3 4 THE CHAIRMAN: Ladies and gentlemen, all 5 right. We shall get back to work here. Thank you. 6 You may continue, Mr. Williams. 7 MR. WILLIAMS: Thank you, Mr. Chair. For the 8 reference of the Panel and Hydro and people 9 observing, I have a few questions of clarification or 10 hopefully clarification with regard to the 11 contracting opportunities during the construction 12 period for qualifying NCN businesses. And the page 13 number in -- what I'm going to be referring to is the 14 Summary of Understanding between Hydro and NCN dated 15 October 2003, and in particular page 12 which I 16 understand for the record appears in the appendix to 17 the first round information requests in response to 18 CEC 10A. So I'm just turning to page 12 of the 19 Statement of Understanding. 20 And I'm not sure exactly who I'm going to be 21 addressing this to on the Hydro panel but it looks to 22 be the right side of the table from my side. So, Mr. 23 Adams and Mr. Wojczynski, my understanding that in 24 terms that Hydro will be acting as general partner or 25 as contractor in terms of this project, but it will 1143 1 be -- it will subcontract work to other contractors 2 and that there will be contracting opportunities 3 during the construction period for qualifying NCN 4 businesses; is that right? 5 MR. ADAMS: Yes. 6 MR. WILLIAMS: And I note that referring to 7 the second paragraph under the heading "Business 8 Opportunities During Construction," and that 9 paragraph starts, 10 "The parties intended to identify 11 contract packages in the PDA for which 12 qualifying NCN businesses will have 13 the first option." 14 And I'm wondering if those packages have been 15 identified yet? 16 MR. ADAMS: Probably the majority of them 17 have. I'm not suggesting that all of them have and 18 as the project unfolds, there will probably be more 19 opportunities, yes. 20 MR. WILLIAMS: Could you give us a sense of 21 the elements of these packages, what they may 22 include, what kind of functions? 23 MR. ADAMS: A wide variety of functions. And 24 I don't want to get into a lot of detail because we 25 are negotiating. But certainly, construction of the 1144 1 access road, development of the camp sites, catering, 2 security, access control, snow clearing, snow 3 removal, possibly some of the direct construction 4 activities. 5 MR. WILLIAMS: Thank you, Mr. Adams. And 6 that's sufficient detail. Can you give us an order 7 of, and perhaps you had covered this with Mr. Abra, 8 but an order of magnitude in terms of the overall 9 cost of the project, what percentage do these and 10 I'm -- do the contracting opportunities represent? 11 MR. ADAMS: I am not in a position to give 12 you. It's not a big percentage. 13 MR. WILLIAMS: Less than five per cent? 14 MR. ADAMS: I would expect so but I can check 15 and get back. 16 MR. WILLIAMS: If you'd undertake to do that. 17 18 (UNDERTAKING MH-27: Provide an order of magnitude in 19 terms of the overall cost of the project, what 20 percentage do the contracting opportunities 21 represent) 22 23 MR. ADAMS: Now, I'd like to expand that. 24 These are opportunities. We still have to negotiate 25 an acceptable contract. And if we fail to negotiate 1145 1 an acceptable contract then they will go up for bid. 2 I don't count on failure but there is no guarantees. 3 MR. WILLIAMS: Right. And I just wanted to 4 move into that. My understanding is that qualified 5 NCN businesses will have the first option of direct 6 negotiation with Hydro in terms of these packages. 7 And so for these packages specifically, there won't 8 be tenders. You'll enter into a negotiation process. 9 And if it's satisfactory from Hydro's perspective or 10 the contractor's perspective, then it will be 11 proceeded with. 12 MR. ADAMS: In the first instance, there would 13 not be public tenders. And assuming we can come to 14 an agreement that we're both satisfied, then there 15 wouldn't be. 16 MR. WILLIAMS: And now in terms of 17 determining, just going down to the third paragraph 18 here, it indicates that Hydro will enter into 19 contracts with businesses provided that Hydro's 20 determined costs are reasonable. Can you give us 21 some sense of how Hydro is going to determine whether 22 or not costs are reasonable? 23 MR. ADAMS: Every time we create a work 24 package and a project of this nature will have what 25 we call work packages or contracts, probably several 1146 1 thousand, we do what we call an engineer's estimate 2 and put it against it. So reasonable is somewhat 3 elastic but we expect when we negotiate these 4 contracts that the price will be within the more or 5 less the normal range of error that we experience in 6 those sorts of estimates. 7 MR. WILLIAMS: And is there -- 8 MR. ADAMS: It will tend to be on the higher 9 side or else you wouldn't need to have a special 10 program. 11 MR. WILLIAMS: And just so I'm clear. You 12 mentioned the normal range of error. Is that 13 specific to each package? 14 MR. ADAMS: Yes. 15 MR. WILLIAMS: Is there some kind of sense of 16 the magnitude of that normal range of error that you 17 can give me? 18 MR. ADAMS: I'd prefer not to for commercial 19 reasons. 20 MR. WILLIAMS: Okay. That's fine, Mr. Adams. 21 MR. ADAMS: I should point out as I think in 22 discussion with Mr. Abra, our original estimate and 23 all our continuing estimates are always based on the 24 expectation that a significant amount of the 25 subcontract work and all the employment activities 1147 1 will be in accordance with these preference programs. 2 So it's not an additional cost, it's part of the 3 cost. 4 MR. WILLIAMS: And I appreciate that, Mr. 5 Adams, and we did want to confirm that. 6 Now, going down in that paragraph, there is 7 also reference to the fact, and I'm referring to the 8 fourth and fifth line, that Hydro may consider 9 further work packages in order to increase the number 10 of contracts to be made available through direct 11 negotiation or restricted tendering process. And I'm 12 wondering if you can elaborate on that in terms of 13 the restricted tendering process? 14 MR. ADAMS: A restricted tendering process is 15 where we invite specific contractors or suppliers to 16 bid. In those cases, it wouldn't only be Aboriginal 17 businesses in the north or in some cases it may 18 expand to non-Aboriginal. But it would not be an 19 open tender, it would be an invitation. 20 MR. WILLIAMS: Now, the packages that these 21 organizations would bid for in terms of the 22 restricted tendering process, would those be packages 23 over and above the ones contemplated for the direct 24 negotiations? Would they be different I guess is 25 what I'm asking? 1148 1 MR. ADAMS: Again, in the first instance, yes. 2 But if the direct negotiations are not successful, 3 then we could go to restricted tendering as the next 4 round. 5 MR. WILLIAMS: Just moving on another 6 sentence, you note that or the Statement of 7 Understanding notes that in any direct negotiation, 8 Hydro will reserve the right to reject any proposal 9 or bids that do not fall within the guidelines 10 established by Hydro under its Northern Purchase 11 Policy. And I wonder if you can elaborate a little 12 bit on the Northern Purchase Policy? 13 MR. ADAMS: We have an internal northern 14 policy that creates preferences both in terms of 15 process and in price for northern suppliers. And so 16 as long as the price we finally negotiate fits within 17 that range, then we're comfortable with it. 18 MR. WILLIAMS: And are you aware whether the 19 northern purchasing policy is on the record in this 20 proceeding? 21 MR. ADAMS: I don't know. I can undertake to 22 find out. I don't think it is. And even if it is, 23 I'm not prepared to put the numbers on the record. 24 When I say the numbers, we have very specific 25 guidelines to our engineers that says if it's more 1149 1 than "X" per cent -- or rather, if it's less than "X" 2 per cent you can sign the deal. If it's more, you 3 can't. And I'd just as soon the world didn't know 4 what "X" per cent was. 5 MR. WILLIAMS: On behalf of my clients, I 6 think it's probably the same attitude, Mr. Adams. 7 Again, just referring to the restricted 8 tendering process. Would you also be able to 9 undertake to provide us with the percentage of the 10 overall cost that they may represent? 11 MR. ADAMS: Yes. 12 (UNDERTAKING MH-28: Referring to the restricted 13 tendering process, provide the percentage of the 14 overall cost that they may represent) 15 16 MR. WILLIAMS: Now, you've indicated that 17 these were included in your original estimates for 18 the project. The follow-up question naturally to 19 that is were these estimates reviewed by your 20 external consultants? 21 MR. ADAMS: They were part of the overall 22 project estimate that was reviewed by the external 23 consultants, yes. 24 MR. WILLIAMS: Okay. Thank you. Mr. Chair, 25 for the once in my life, I've actually overestimated 1150 1 the time I'm going to take. And so I think that, I 2 know that those conclude the questions of my clients 3 in respect of this Panel and I thank them for the 4 cooperation and the Board for their indulgence. 5 Thank you. 6 THE CHAIRMAN: Thank you, Mr. Williams. Next 7 to proceed with questions, if they have any, will be 8 the Manitoba Wildlands Canadian Nature Federation. 9 MR. MURPHY: Thank you, Mr. Chair. If I can 10 have a moment, Ms. Whelan Enns will be joining me at 11 the able and the two of us will be asking questions. 12 I will be asking some questions and she will also be 13 asking some questions of the Panel. 14 THE CHAIRMAN: Thank you. While we wait, you 15 are free to talk you know. Mr. Murphy, Ms. Whelan 16 Enns, you may proceed. 17 MR. MURPHY: Thank you, Mr. Chair. We have 18 several areas of questions that we intend to pursue 19 with the panel. And we will try in the hour we have 20 before lunch to get through at least one of those. 21 And that we can then try to advise, when we return 22 from lunch, approximately how long we'll be. 23 THE CHAIRMAN: Okay. I have stated the names 24 but maybe you want to state your names for the 25 record. 1151 1 MR. MURPHY: My name is Eamon, E-A-M-O-N, last 2 name Murphy, legal counsel for Manitoba Wildlands 3 Canadian Nature Federation. 4 MS. WHELAN ENNS: Good morning, I'm Gaile 5 Whelan Enns, the Director of Manitoba Wildlands and 6 the Canadian Nature Federation representative in 7 Manitoba. 8 THE CHAIRMAN: Thank you. 9 MR. MURPHY: We'd like to start off with the 10 subject of exports. The first question is in 11 relation to the Wuskwatim projects, it's our 12 understanding that Hydro stated that Hydro power 13 displaces natural gas in export markets. That's a 14 correct understanding that we've got? 15 MR. WOJCZYNSKI: We said natural gas and/or 16 coal, a combination of the two. That's the vast 17 majority of what we'd be displacing. That's what we 18 said, yes. 19 MR. MURPHY: Now, we understand that there are 20 two gas turbines that Manitoba Hydro operates, one in 21 Brandon and one in Selkirk. And we're wondering if 22 the Wuskwatim projects will displace the use of those 23 turbines or how that will relate to those two 24 turbines? 25 MR. WOJCZYNSKI: There will be a very small 1152 1 impact on the use of those turbines and it's plus or 2 minus the normal uncertainty in the range of how much 3 we'd operate them depending on the overall flows. 4 But Wuskwatim will not have a material impact on the 5 operation of those turbines. We will use those 6 turbines in the same manner with or without 7 Wuskwatim. 8 MR. MURPHY: So you intend on continuing to 9 use the two gas turbines? 10 MR. WOJCZYNSKI: In the same manner as we are 11 without it, yes. 12 MR. MURPHY: Okay. In relation to exports to 13 the U.S., could you tell us the geographic locations 14 that Hydro is currently exporting energy to? 15 MR. CORMIE: Most of the electricity is 16 exported into Minnesota with a lesser proportion 17 going into North Dakota, Wisconsin. Those are the 18 main areas. 19 MR. MURPHY: And we understand that Hydro has 20 plans to expand the market into new locations in the 21 U.S.; is that correct? 22 MR. CORMIE: As the transmission system 23 capability grows, we will be able to reach into new 24 markets and we expect with time, we will be able to 25 find additional customers in those markets. 1153 1 MR. MURPHY: When you say you hope to find 2 additional customers, do you have a sense of where 3 the market will be or where you're going to be 4 planning to expand in terms of the U.S. market? 5 MR. CORMIE: Well, it depends on which 6 transmission line constraints are relieved through 7 the construction of new transmission. We would 8 prefer to go to the place, to the markets that have 9 the highest potential, the highest values which are 10 generally to the east. 11 MR. MURPHY: And by to the east, do you mean 12 within Canada or within the U.S.? 13 MR. CORMIE: Yeah, correct, both in Canada and 14 in the U.S. For example, if we were to build a new 15 interconnection to Ontario, the Ontario market can be 16 as lucrative as the U.S. market. 17 MR. MURPHY: And I understand that the 18 east/west grid would assist in helping to get energy 19 through to Ontario; is that correct? 20 MR. ADAMS: If and when an east/west grid is 21 ever built, yes, it certainly would help get energy 22 into Southern Ontario. 23 MR. MURPHY: And I'm just trying to understand 24 where the energy from Wuskwatim would end up going. 25 If in fact it is going to go to Ontario, is it going 1154 1 to be sent to Ontario via the east/west grid? 2 MR. CORMIE: The existing interconnection to 3 Ontario is fully capable of handling the output from 4 Wuskwatim. So we don't need to increase our 5 interconnected capability with Ontario in order to 6 handle the Wuskwatim output. And neither do we have 7 to to the United States. The interconnection 8 capability is sufficient that we can get the energy 9 into either market. It's more of a question of where 10 the highest value will be. 11 MR. WOJCZYNSKI: As a matter of fact, none of 12 the analyses that we've presented assume or are 13 contingent on the east/west grid to Ontario being 14 expanded. That will be a sensitivity above and 15 beyond the analysis we have presented and would 16 increase the overall attractiveness of Wuskwatim 17 rather than decrease it. 18 MR. MURPHY: I understand that Hydro has spent 19 funding in pursuing new markets for Wuskwatim; is 20 that correct? 21 MR. WOJCZYNSKI: Wuskwatim. 22 MR. MURPHY: And you've spent money in 23 pursuing those markets for Wuskwatim? 24 MR. CORMIE: As part of our normal interaction 25 with our customers, we have discussed with many of 1155 1 them that if the Wuskwatim project is approved, we 2 will have additional energy and capacity for sale but 3 there hasn't been any incremental costs. This is 4 just part of our normal customer relationships. 5 MR. MURPHY: Now, the Hydro currently exports 6 energy to Saskatchewan and Ontario in terms of the 7 provinces within Canada; is that correct? 8 MR. CORMIE: Yes, we do. It's a very small 9 percentage. 10 MR. MURPHY: Are there any other provinces at 11 present? 12 MR. CORMIE: Well, in the context of this 13 year, Manitoba Hydro has not been an exporter, we've 14 been a purchaser. So in the recent context, we've 15 been a buyer. Historically, we have sold into 16 Alberta, British Columbia, Ontario as well as the 17 U.S. 18 MR. MURPHY: In terms of export to the 19 provinces, how much energy is typically exported? I 20 know you just said this year you've been a buyer but 21 what would a typical year look like? 22 MR. CORMIE: Our contract with Ontario expired 23 last October. So up to October of last year, our 24 exports to Canadian customers would have been less 25 than 10, about 10 per cent. I expect that now that 1156 1 the Ontario sale has been completed, that less than 2 2 or 3 per cent of our electricity will go into 3 Canadian markets. 4 MR. MURPHY: In terms of the future in 5 exporting to the provinces, where is Hydro looking at 6 going? 7 MR. CORMIE: We're looking both to the west to 8 Saskatchewan and east into Ontario. 9 MR. MURPHY: In terms of energy from 10 Wuskwatim, how will you be exporting this energy to 11 those provinces? 12 MR. CORMIE: With regard to transmission or -- 13 MR. MURPHY: Yes, with regards to 14 transmission? 15 MR. CORMIE: Well, depending upon should we 16 conclude a sale arrangement may or may not require 17 new transmission facilities. Our discussions with 18 Ontario to date have assumed that we would require 19 the construction of new transmission to meet their 20 needs. But that doesn't mean that we may not enter 21 into a much smaller sale over the existing 22 interconnection. 23 With Saskatchewan, again, the same thing. We 24 have an interconnected capability now that will be 25 utilized and if the sale was of such magnitude that 1157 1 new transmission would be required, it would have to 2 be constructed. 3 MR. MURPHY: So I take it that obviously Hydro 4 will be going for the most bang for its buck that it 5 could. In other words, you'd be seeking the best 6 possible contract with either Saskatchewan or 7 Ontario. I mean the best possible scenario is to try