1343 1 MANITOBA CLEAN ENVIRONMENT COMMISSION 2 3 VERBATIM TRANSCRIPT 4 Volume 6 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 Wednesday, March 10, 2004 22 Radisson Hotel 23 288 Portage Avenue 24 Winnipeg, Manitoba 25 1344 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 Valerie Matthews Lemieux 24 25 1345 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 Marvin Shaffer 19 20 Community Association of South Indian Lake: 21 Leslie Dysart 22 Merrell-Ann Phare 23 24 CAC/MSOS: 25 Byron Williams 1346 1 2 LIST OF PARTICIPANTS 3 4 Canadian Nature Federation/Manitoba Wildlands: 5 Eamon Murphy 6 Gaile Whelan Enns 7 Brian Hart 8 9 Time to Respect Earth's Ecosystems/Resource Conservation Man: 10 Peter Miller 11 Ralph Torrie 12 13 Trapline 18: 14 Greg McIvor 15 16 Presenters: 17 Billy Moore - Private 18 Bill Turner - MIPUG 19 Caroline Bruyere - Private 20 Grand Chief Margaret Swan - Southern Chiefs 21 22 23 24 25 1347 1 INDEX OF EXHIBITS 2 3 Number Page 4 5 MIPUG-1000: Statement of Bill 6 Turner, chair, MIPUG to Clean 7 Environment Commission regarding the 8 Wuskwatim Generation and Transmission 9 Projects application 1536 10 11 TREE/RCM 1000: Article from Winnipeg 12 Free Press 1357 13 14 TREE-RCM 1001: Table titled 15 "Wuskwatim Advancement With 16 Medium Low Forecast" 1425 17 18 MH-NCN 1006: Corrected version of 19 Exhibit 3.1 from Kraftur 20 Engineering 1424 21 22 CASIL-1002: Motion Re Compensation 1634 23 24 MH/NCN 1007: Wuskwatim Licenses, 25 Permits and Authorizations 1635 1348 1 2 3 INDEX OF UNDERTAKINGS 4 5 UNDERTAKING NO. PAGE 6 MH-34: Provide corrected version of 7 Exhibit 3.1 1428 8 MH-35: Provide revision to tables 9 and numbers based on 25-year economic life 1562 10 MH-36: Provide adjustment to show 11 impact in terms of IRR with 25-year economic 12 lifetime 1563 13 MH-37: Provide adjustment in report 14 reflecting 30 and 40 percent wind 15 capacity factor 1568 16 17 18 19 20 21 22 23 24 25 1349 1 WEDNESDAY, MARCH 10, 2004 2 Upon commencing at 1:06 p.m. 3 4 THE CHAIRMAN: Ladies and gentlemen, it's one 5 o'clock. Duty calls. Before we begin, I'll ask Mr. 6 Grewar to make an announcement. 7 MR. GREWAR: Just an announcement regarding 8 the hearing schedule. The Commission has determined 9 that it will be necessary and useful to add some 10 additional days onto the proceeding beyond that which 11 has been advertised. That will begin next Thursday 12 and Friday, the 18th and 19th of the month. The 13 Commission will convene on Thursday the 18th at 10:00 14 and run until approximately 6:00. And then on Friday 15 the 19th, the Commission will convene again at 10:00 16 a.m. and run until about 4:30. So there will be two 17 additional days next week, a full five day week. The 18 location is here exactly as you see it now. 19 Also, the Commission has determined to add one 20 additional day in April, the 8th of April which is 21 the third day of the reconvening, originally 22 advertised for closing statements, which may or may 23 not be the case, depending on the progress we make in 24 the proceedings till that time. And that will also 25 be here and it will also be beginning at 10:00 a.m. 1350 1 and going until likely 5:00 or 6:00. 2 That is the extent of the announcements with 3 respect to scheduling. 4 THE CHAIRMAN: All right. 5 MR. BEDFORD: Mr. Chair, Doug Bedford, counsel 6 for Manitoba Hydro. 7 THE CHAIRMAN: Yes, Mr. Bedford. 8 MR. BEDFORD: I have some grammatical 9 corrections to make to previous days transcripts. 10 Mr. Grewar has advised me that the Commission's 11 preference is that I read these in on the record so 12 that the public will all be aware of where the errors 13 have occurred. I anticipate this will only take me a 14 few minutes. 15 Page 74, line 6, the number 540 should be 16 5,400 megawatts. Page 349, line 11, the word 17 "update" should be "uptake". Page 506, reference to 18 "socks", S-O-C-K-S, should be capital letters S-O-X. 19 And the reference to "knocks", K-N-O-C-K-S, should be 20 capital letters N-O-X. Page 581, line 2, the word 21 "consumed" should be "assumed". Page 638, line 10, 22 201 should be 2001. Page 649, line 13, the two words 23 "inner guide" should be one word with a capital at 24 the beginning "Energuide". That's E-n-e-r-g-u-i-d-e. 25 Page 669, line 18, the word "edition" should be 1351 1 "addition", a-d-d-i-t-i-o-n. Page 671, lines 20 and 2 21, the names "limestone, kettle and long spruce" 3 should all be capitalized. Page 690, line 11, the 4 word "not" has been omitted. The sentence 5 accordingly should read, "It would not be our plan to 6 cancel a contract once committed." An obvious 7 correction for a lawyer to make. Page 692, line 9, 8 the words "shortly-time" should read "short lead 9 time". And page 770 at line 21, the words "who were 10 forced" should be "to in effect." 11 Thank you, Mr. Chair. Those are the 12 corrections we have noted to date. I'd also like to 13 take this opportunity to note that Mr. Marvin Shaffer 14 who Mr. Wojczynski indicated yesterday would be 15 attending today as a further witness to respond in 16 particular to questions that Ms. Whelan Enns was 17 posing has joined us and I leave it to Mr. Wojczynski 18 to introduce Mr. Shaffer somewhat more formally. And 19 I know Mr. Grewar will wish to swear Mr. Shaffer in. 20 Thank you. 21 MR. GREWAR: Sir, could you state your name 22 for the record. 23 MR. SHAFFER: Marvin Shaffer. 24 MR. GREWAR: Mr. Shaffer, are you aware that 25 it is an offence in Manitoba to knowingly mislead 1352 1 this Commission? 2 MR. SHAFFER: Yes. 3 MR. GREWAR: Do you promise to tell only the 4 truth in proceedings before this Commission? 5 MR. SHAFFER: Yes. 6 MR. GREWAR: Thank you. 7 8 (MARVIN SHAFFER: SWORN) 9 10 MR. WOJCZYNSKI: Mr. Chair, I'd just like to 11 explain that Mr. Shaffer is a consultant who prepared 12 two of the reports submitted to this process. 13 Earlier in the process, we had submitted a benefit 14 cost, social benefit cost evaluation of Wuskwatim. 15 It was part of the original filing, the supplemental 16 filing. And then more recently in the rebuttle, 17 there was a wind Wuskwatim social benefit cost 18 comparison. And we brought Mr. Shaffer forward at 19 the, in effect, the request from Canadian Nature 20 Federation yesterday that if they could do a full 21 cross-examination of that. And we said that if they 22 wanted, we could bring Mr. Shaffer in. So he is 23 here. 24 We thought that TREE might also want to take 25 that opportunity. We have him on the stand now. We 1353 1 are not proposing to bring forward any additional 2 evidence. It's merely to assist in the 3 cross-examination of what we already have put on the 4 record. 5 THE CHAIRMAN: Thank you. 6 MR. WOJCZYNSKI: We have one undertaking. Is 7 this a good time? 8 THE CHAIRMAN: Yes. 9 MR. WOJCZYNSKI: Ms. Wray has one. 10 MS. WRAY: Yes. This was in response to Mr. 11 Miller's question yesterday in regard to the status 12 of our study on inverted rates which was ordered by 13 the Public Utilities Board. Manitoba Hydro is 14 proceeding with that study. We don't have any 15 interim results or status report at present other 16 than the fact that adjustments are being made to load 17 research data to stratify between low use and high 18 use residential customers. That will be helpful to 19 us in determining what the impacts might be on their 20 particular load profiles. We do anticipate to have 21 the study completed and submitted by the December 22 31st, 2004 date. 23 THE CHAIRMAN: Thank you, Mrs. Wray. 24 MR. MAYER: Can I just ask a follow-up 25 question on that? 1354 1 Ms. Wray, the high loads and low loads, is 2 that to make the differentiation between those of you 3 who get to use natural gas and those of us who are 4 required to use electricity to heat our homes? 5 MS. WRAY: Well, I think it would pick up the 6 difference between heating customers and customers 7 who are fortunate to have gas in their areas. That's 8 true, sir. 9 MR. MAYER: Thank you. 10 MR. WOJCZYNSKI: Mr. Chair, we had a second 11 undertaking I had forgotten about. Mr. Adams has 12 one. 13 THE CHAIRMAN: Mr. Adams. 14 MR. ADAMS: Responding to questions posed by 15 CAC/MSOS yesterday. The undertaking numbers in the 16 transcript are numbers 27 and 28. When I was asked 17 what percentage of the total cost of the Wuskwatim 18 project are involved in the subcontracting and direct 19 restricted tenders process for the Aboriginal 20 communities. It's a little difficult to come up with 21 an absolute number for that because it does depend 22 very much on how successful the negotiation process 23 is. But as best as we can estimate it, it could be 24 as high as about 7 per cent of the total value of the 25 project would be this direct negotiation or a 1355 1 restricted tendering and it could be as low as about 2 4 per cent. So somewhere between 4 and 7 per cent is 3 what we're trying to direct negotiate. 4 MR. MAYER: Is that 4 or 7 per cent of both 5 the combined generation and transmission? 6 MR. ADAMS: It would be, yes. 7 MR. ABRA: Mr. Chairman, I wonder if I might 8 just raise. Before we proceed further, just 9 following up on the comment that Mr. Wojczynski made 10 related to is it Dr. Shaffer or Mr. Shaffer? 11 MR. SHAFFER: Dr. Shaffer. 12 MR. ABRA: With Dr. Shaffer's attendance. Is 13 it intended to have him sit on the EIS panel? And 14 the reason I ask is of course Ms. Whelan Enns and Mr. 15 Murphy finished their cross-examinations yesterday. 16 My understanding was that they stood a number of 17 questions down to ask in the EIS portion of the 18 cross-examination. And then I expect their 19 contemplation is that Dr. Shaffer will be in 20 attendance at that time so they can ask him the 21 questions they wanted to ask him yesterday. 22 MR. WOJCZYNSKI: Actually, Mr. Abra, perhaps 23 my recollection isn't accurate but I'm pretty sure it 24 is on this one at least, that they had asked if the 25 social benefit cost reports could be cross-examined 1356 1 in the environmental portion and we had said no. But 2 what we could do is make Mr. Shaffer available 3 tomorrow, meaning today, Wednesday. And so then they 4 said yes to that. 5 MR. ABRA: I don't think they are here. 6 MR. WOJCZYNSKI: I see there are some CNF 7 representatives but I don't know about for the 8 cross-examination. We can't speak to that. I 9 thought it was pretty clear actually on the record. 10 Okay, they are agreeing. 11 THE CHAIRMAN: That I believe is correct. 12 MR. ABRA: That's fine. Then I'm sorry, I 13 shouldn't have interfered. 14 THE CHAIRMAN: We'll have to see later on in 15 the day if that can be accommodated or not. We'll 16 see how things go with Mr. Miller and Mr. Torrie to 17 whom I will now pass the work. 18 MR. MILLER: First I would like to put on the 19 record, if there is no objection, the article that I 20 was referring to from memory about a home, 21 electrically heated home with $300 a year bills. And 22 I have given Mr. Grewar a number of copies. And I 23 should correct a couple of failures of my memory. 24 One is it did include a heat recovery 25 ventilator in the design. And the second is that the 1357 1 owner I don't think was a designer of the Red River 2 Campus but an instructor of an architect who 3 instructed in the Red River program. 4 MR. WOJCZYNSKI: We're glad you have a few 5 memory lapses so that when we do, we don't feel too 6 bad. 7 MR. MILLER: You're in good company. 8 MR. GREWAR: Is it the Commission's will to 9 have that put in as an exhibit? It's an article from 10 the Winnipeg Free Press and I have copies for 11 distribution. 12 THE CHAIRMAN: Yes, please. 13 MR. GREWAR: It would be Exhibit TREE/RCM 14 1000. 15 (EXHIBIT TREE/RCM 1000: Article from Winnipeg 16 Free Press) 17 18 MR. MILLER: And I think from this point, 19 we'll let Mr. Torrie take over. Possibly I'll have a 20 question or two at the end but we'll begin at least 21 with Mr. Torrie. 22 MR. TORRIE: Thank you very much. I know 23 everybody is wondering how long is this guy going to 24 be. And I've got six lines of questioning. They, 25 except for perhaps one, don't go down into the 1358 1 minutiae to quite the extent as some of the previous 2 cross-examiners. So I'm hoping that I can do them 3 with about two to three hours of time, just so people 4 in the room are wondering whether this is going to be 5 a marathon or very short. It's somewhere in between. 6 The first line of questioning is probably the 7 longest. So I'll have a better idea after I'm 8 finished that just how wrong I am with my forecast. 9 And that first line of questioning has to do with the 10 calculations that go on around this business of the 11 internal rate of return associated with the Wuskwatim 12 project. 13 And I was going to use my laptop computer to 14 project some of the pages from the evidence but I'm 15 going to try and minimize the use of it given that it 16 blasts its light right into the face of the 17 witnesses. And I went over and sat there and it's 18 not very comfortable when that happens so I will be 19 using it occasionally. But I have prepared handouts 20 for most of the material that I was going to use that 21 way. 22 And the first handout is taken from the Annex 23 6, I believe it is, in Volume 1 of the NFAAT evidence 24 that was tabled or completed last April. And in 25 particular, it consists of three pages, table A.13, 1359 1 table A.17 and figure A.12 from that Annex. This is 2 the one that goes into I believe the title is 3 "Background to Wuskwatim Economic Evaluation." And 4 it's not Annex 6, it's Attachment 6. There is an 5 important difference. I learned the hard way. 6 So I want to very briefly make sure, because 7 I'm not an economist either, that I understand the 8 nature of the argument and the calculations 9 underlying that argument that are contained in this 10 attachment. And to do that, I just picked these 11 three, each of which is an example of a particular 12 type of table or figure that appears in that annex. 13 And starting with Table A.13, we see, on the 14 left-hand side of the dark black line in the middle 15 of the page, a series of columns describing the 16 economics and the cash flows, if you like, of a 17 scenario in which Wuskwatim is brought into service 18 in 2020 which I understand is the so-called domestic 19 need date, at least the domestic need date that is 20 associated with the 2002 load forecast. And then on 21 the right-hand side of the dark black line, an 22 identical set of columns that present the same 23 information only this time for the cash flows 24 associated with bringing Wuskwatim in service in 25 2009, which we know is probably now 2010. That's not 1360 1 very important for the questions that I wanted to ask 2 about this table. 3 The first two or three questions are just 4 questions of clarification. And the first one would 5 be essentially when we're talking about the internal 6 rate of return calculation on the economics of 7 advancing Wuskwatim, we're talking about the internal 8 rate of return made up -- that results by looking at 9 the difference between building it for the domestic 10 need date, the cost and associated revenues of 11 building it for the domestic need date versus the 12 cost and associated revenues of building it for in 13 the case of this table 2009; is that right? 14 MR. WOJCZYNSKI: Yes. 15 MR. TORRIE: And by definition, the internal 16 rate of return of advancing Wuskwatim will always be, 17 in your evidence, the difference between building it 18 for an in-service date of 2009 versus building it for 19 whatever the domestic need date might be. 20 MR. WOJCZYNSKI: Yes. 21 MR. TORRIE: And that domestic need date in 22 Table A.13 is the year 2020, right? 23 MR. WOJCZYNSKI: Around there. In this case, 24 it was 2020. 25 MR. TORRIE: Give or take. 1361 1 MR. WOJCZYNSKI: As you said, the exact dates 2 aren't that critical, but yes. 3 MR. TORRIE: And what we see then when we look 4 at the details of this type of calculation is, first 5 of all, the capital costs of building it for 2020, of 6 course they occur later, and the capital costs of 7 building it for an in-service date of 2009 occurring 8 much sooner. And essentially, the net capital costs 9 of building the station for 2009 need date instead of 10 for the domestic need date is the present value of 11 the difference between those two numbers. 12 MR. WOJCZYNSKI: Essentially. 13 MR. TORRIE: Essentially. And it's more 14 expensive to build it now rather than later because 15 of the present valuing exercise, right? That's the 16 main reason why there's a real present value cost of 17 building it now instead of when it's needed for 18 Manitobans? 19 MR. WOJCZYNSKI: Yes. 20 MR. TORRIE: And presumably, the further out 21 in the future the domestic need date is, the greater 22 would be the difference between the capital cost of 23 building it for a 2009 inservice date versus the 24 capital cost of building it for the domestic need 25 date? 1362 1 MR. WOJCZYNSKI: You and I understand we're 2 talking on an NPV basis. And so on an NPV basis, the 3 answer is yeah. I just don't want anybody to think 4 that means the capital cost, what you and I might 5 call the base capital costs are reduced. The base 6 capital cost will be higher in the future than less. 7 MR. TORRIE: Don't assume too much -- 8 MR. WOJCZYNSKI: On an NPV basis, yes. 9 MR. TORRIE: Don't assume too much about what 10 I understand. So yeah, in other words, the greater 11 that difference between building it for 2009 and 12 building it for the domestic need date, the greater 13 that interval of time, the larger number of years 14 that the net present value discounting has to do its 15 thing; in other words, to reduce the present value of 16 building it in the future. 17 MR. WOJCZYNSKI: Yes. 18 MR. TORRIE: Okay. So that's the essentials 19 of why it costs more to build it sooner rather than 20 later. Balanced against that is the expectation that 21 there will be, because you're building it before it's 22 needed domestically, there will be export revenues 23 between now and the domestic need date? 24 MR. WOJCZYNSKI: Yes. 25 MR. TORRIE: And if we, as you do in this 1363 1 chart, take a stream of projected export revenues and 2 you do this for various prices, this one is the low 3 price, there's also a high price one and one in the 4 middle with the price about which we may not speak, 5 but over a range of scenarios, you project a series 6 of export revenues from the dam really and then 7 present value those to the present. And that becomes 8 the other side of this equation if you like. That's 9 the revenue that is there to offset the extra cost of 10 building it sooner than it's needed in Manitoba. 11 MR. WOJCZYNSKI: Yes, with the small 12 additional comment that it's not strictly just 13 exports. We do a full scale system simulation of the 14 full system operation imports, thermal, water 15 rentals, exports, imports, everything and so it's the 16 net of everything. But the export price is the 17 single largest element. 18 MR. TORRIE: Yes. 19 MR. WOJCZYNSKI: So to that degree, yes. 20 MR. TORRIE: I understand that. And keeping 21 to the spirit of focusing on essentials, though, you 22 would agree that if you look at the export revenue in 23 this table, it completely dominates the revenue side 24 of the equation. 25 MR. WOJCZYNSKI: Yes. 1364 1 MR. TORRIE: And that really is the essence, 2 the essential essence of your case for building this 3 dam sooner than it's needed is that you can make 4 enough money in export revenues to cover the extra 5 cost of building it now rather than later? 6 MR. WOJCZYNSKI: That's the primary driver. 7 Although as I said on day one, there are a number of 8 elements but that's the initial driver for it. 9 MR. TORRIE: Okay. I'm sorry if I'm going 10 over stuff that you guys all know like the back of 11 your hands by now but I wanted to make sure that I 12 was on solid ground in my understanding of how this 13 works. 14 Now I'm just seeing how far in my notes I've 15 already got which I haven't been referring to. All 16 right. 17 And then finally in this series of questions 18 about this aspect, the internal rate of return of 19 advancing Wuskwatim is that rate of return at which 20 the present value of those incremental costs is 21 exactly balanced by the present value of those 22 projected revenues? 23 MR. WOJCZYNSKI: Yes. 24 MR. TORRIE: And that's the number that in 25 this table that I have provided today is 8.5 per 1365 1 cent. I think it goes up over 12 per cent if you 2 assume a higher export price and you figure that it's 3 somewhere around 10 per cent at the price about which 4 we cannot speak? 5 MR. WOJCZYNSKI: Yes. 10.3 was the exact 6 number. 7 MR. TORRIE: 10.3. 8 MR. WOJCZYNSKI: Around 10, around 10. 9 MR. TORRIE: Yes. And if you look at the 10 second page of this three page handout, Table A.17 11 from Attachment 6, we actually see an illustration of 12 the present value costs that go along with the 13 scenario we've been describing, right? 14 MR. WOJCZYNSKI: Yes. 15 MR. TORRIE: Okay. And a picture of that is 16 represented on the third page, Figure A.12 where one 17 can see particularly in the bottom figure that the 18 whole exercise of the present value calculation 19 results in the net cost coming to zero at that point 20 where, I don't know what the word is, at that point 21 where you have defined the advancement window, which 22 in this case is by around 2020? 23 MR. WOJCZYNSKI: Yes. 24 MR. TORRIE: Okay. And I know, and this is 25 where my not being an economist probably really 1366 1 starts to show, but if you look at that picture on 2 page 3 and you see the way that the net costs 3 gradually approach zero at the end of the period, 4 and if you were to calculate the internal rate of 5 return for each year, one would obviously get a 6 negative number for the early years where the costs 7 were still greater than the revenue. And then you 8 would pass through a break-even point at some stage 9 and it would, by the end of the period by definition, 10 reach your calculated value of 10.3 per cent? 11 MR. WOJCZYNSKI: Yes. A small qualifier, in 12 case people are forgetting our discussion of IRR the 13 other day, built into the IRR, and let's just -- this 14 case it's 8.5 per cent, there's a profit factor 15 that's inherent in the 8.5 cents. It's the 16 difference between that and the 5.34 per cent which 17 is the real cost of borrowing. So that, call it 3 18 per cent, 3 per cent profit is already being realized 19 earlier than one might intuitively think from this. 20 So there's profit being accrued early on in the 21 process long before you get to the crossover point. 22 But as long as that's understood, yes. 23 MR. TORRIE: Okay. And if we can just use the 24 projecter for a few minutes, I just want to warn Mr. 25 Adams especially that you're about to get it right in 1367 1 the face if you don't move and the folks behind you 2 as well. 3 This is Figure 5.5 from the same volume we've 4 been discussing, only this time it's from chapter -- 5 MR. WOJCZYNSKI: Chapter 5. 6 MR. TORRIE: Chapter 5, of course, Figure 5.5. 7 And what we see here is a pictorial representation of 8 the energy year by year that would be available for 9 export assuming the basic forecast with existing 10 resources. And that gradually declines. And we see 11 the additional energy from Wuskwatim coming in on the 12 advancement schedule for the in-service date of 2009. 13 14 And then later on, you also have Gull in this 15 particular picture. I'm not so much interested in 16 that right now. 17 And then across the top, this line which is 18 called the estimated on-peak export market. And my 19 understanding is that as long as you're producing 20 electricity that's below this line, then you 21 anticipate being able to sell it for a much higher 22 price than you would be if it's above this line. 23 Would that be a fair way of summarizing the 24 importance of that line to you? 25 MR. WOJCZYNSKI: Generally, although 1368 1 unfortunately, it's also more complicated because 2 this is a weighted average. And if you look at the 3 range of those, if you had a low flow period, you'd 4 have much more room on the tie line than this. And 5 if you have a high flow period, you would have much 6 less room. 7 Obviously we can't put all 86 or 100 flow 8 conditions on here so what we've put in here -- one 9 moment, let me just -- 10 MR. TORRIE: That's the median. 11 MR. WOJCZYNSKI: Yes, I was just trying to 12 remember if it was median or average, we use both. 13 This is the median flow condition meaning 50 14 percentile probability lower or 50 percentile higher. 15 And the other complication is that this is an annual 16 average. You get monthly flows which are different 17 than annual. So for instance, even if this annual 18 one showed the tie line being full and you had median 19 flows in the winter, you'd still have room on the tie 20 line, you can get some good export value. So these 21 graphs are meant to give understanding. 22 MR. TORRIE: Of the essentials? 23 MR. WOJCZYNSKI: Of the essentials but they 24 aren't sufficient to analyze or fully understand the 25 economics. That's why you need the full scale 1369 1 sequence evaluations. 2 MR. TORRIE: Right, great. But the essential 3 case here is that one of the great advantages of this 4 outlook is that you anticipate being able to sell the 5 output of Wuskwatim into the higher priced market? 6 MR. WOJCZYNSKI: Yes. 7 MR. TORRIE: Okay. And if we look at another 8 figure from that same chapter, this one is the 9 alternative that you looked at, at least briefly, of 10 advancing Conawapa instead of Wuskwatim. This is 11 Figure 5.7, correct? 12 MR. WOJCZYNSKI: Yes. 13 MR. TORRIE: In fact, you can see some of the 14 explanations starting. If one were to read the text 15 around this, it refers to the fact that you are 16 getting energy above this line as being one of the 17 major reasons why you would reject this option even 18 though it's cheaper per kilowatt hour, if I 19 understand your levelized cost numbers, because it 20 would put you in a position where you have power that 21 you could -- would have more difficulty let's say and 22 would less frequently be able to sell into the high 23 price market? 24 MR. WOJCZYNSKI: Yes, but with the little 25 qualifier that our analyses had indicated, and it's 1370 1 in the original -- it's in the filing material 2 already, that even this situation that we're looking 3 at here where a good bit of Conawapa would be above 4 the line, Conawapa is still an economic plant. So 5 our IRR analysis, and I don't remember the exact 6 number, but it was something just under 10, somewhere 7 between 9 and 10 in the upper portion of that range. 8 MR. TORRIE: The IRR? 9 MR. WOJCZYNSKI: Of Conawapa. 10 MR. TORRIE: Long term or advancing it to this 11 date? 12 MR. WOJCZYNSKI: That would have been a 13 long-term economics. 14 MR. TORRIE: Yes? 15 MR. WOJCZYNSKI: But that the IRR of putting 16 in Conawapa versus not putting it in was still 17 something approaching 10 per cent and still economic. 18 MR. TORRIE: By when? 19 MR. WOJCZYNSKI: Well, that was a long-term 20 economic. That was putting in Conawapa as per the 21 date in this chart. 22 MR. TORRIE: So when would you achieve that 23 rate of return that you just said would be quite 24 positive? 25 MR. WOJCZYNSKI: That was putting in Conawapa 1371 1 in 2015. 2 MR. TORRIE: And when would you achieve the 3 positive rate of return? 4 MR. WOJCZYNSKI: When you do the IRR, it's for 5 the whole period of time. It's not that we achieve 6 it by a particular date, it's for the having it 7 versus not having it. 8 MR. TORRIE: What's the endpoint of that 9 period of time? 10 MR. WOJCZYNSKI: As per the charts that we're 11 looking at here, it's the same study period more or 12 less. It might be a year or two different, 2037. 13 MR. TORRIE: 2037, okay. But I mean there's 14 also one more of these which is the one for Gull 15 which is a smaller plant than Conawapa but it 16 exhibits the same type of pattern in the sense that 17 if you were to advance Gull, it puts you in a 18 situation where you have quite a lot of power above 19 the estimated on-peak export market line, correct? 20 MR. WOJCZYNSKI: Yes. 21 MR. TORRIE: And you can actually see the 22 explanation starting up underneath that figure. And 23 it's the only -- it's the argument that's emphasized, 24 would you agree, in your evidence for why you would 25 reject this as well as Conawapa over Wuskwatim, is 1372 1 that it puts you over this line? 2 MR. WOJCZYNSKI: I have a little bit of 3 discomfort with the use of the word "reject". We 4 found, as per the presentation and as per our 5 discussion earlier, Conawapa and Gull are still 6 attractive projects. It's just that Wuskwatim is 7 more attractive at this time for a number of reasons. 8 So "reject" isn't quite the right word I would use. 9 If we didn't have a Wuskwatim, the Gull and Conawapa 10 would still be attractive to be pursuing. 11 MR. TORRIE: Everything is attractive 12 basically, right? 13 MR. WOJCZYNSKI: No. 14 MR. TORRIE: DSM is attractive, Gull is 15 attractive, Conawapa is attractive, Wuskwatim is 16 attractive? 17 MR. WOJCZYNSKI: Nuclear is not attractive, 18 coal is not attractive, photovoltaic is not 19 attractive, bad hydro is not attractive, bad wind is 20 not attractive. There are bad and good options. 21 MR. TORRIE: Okay. So the choices are not 22 about rejecting or accepting, it's about deciding 23 what to do first? 24 MR. WOJCZYNSKI: It's deciding what should be 25 in their portfolio at the front end and we modify the 1373 1 portfolios as we go along. So as we said, our 2 portfolio, we attempt to have an economically and 3 environmentally diverse portfolio so that's why we 4 have DSM supply-side measures, supply-side efficiency 5 measures, consumer measures, efficiency DSM, 6 PowerSmart and new Hydro. So we've got four legs to 7 our portfolio. 8 MR. TORRIE: Let me put it this way. Why not 9 build Conawapa first? 10 MR. WOJCZYNSKI: Because we have concluded 11 that Wuskwatim is more attractive at this time. 12 MR. TORRIE: Why? 13 MR. WOJCZYNSKI: Because (A) Wuskwatim is 14 something we can do earlier. (B), It has got, with 15 the current information, a somewhat higher rate of 16 return. It's a smaller project. So while we have 17 expertise in the company and expertise around, it's 18 always -- we haven't built a project for ten years so 19 it's easier to build up the bench strength and have a 20 large amount of expertise. And it's very 21 environmentally benign and doesn't preclude doing the 22 other options. 23 MR. TORRIE: Why is it the fact that it's 24 smaller an advantage? 25 MR. WOJCZYNSKI: Sorry? 1374 1 MR. TORRIE: Why is the fact that it's smaller 2 than the others an advantage? 3 MR. WOJCZYNSKI: There are a couple of 4 different features. One is that it is slightly -- it 5 is somewhat less risky than the others, say Gull or 6 Conawapa. 7 MR. TORRIE: What risk are you referring to? 8 MR. WOJCZYNSKI: We are referring to -- the 9 single biggest risk we are referring to is on the 10 export market. 11 MR. TORRIE: Can you elaborate? 12 MR. WOJCZYNSKI: And filling up the -- and 13 space on the tie lines. 14 MR. TORRIE: So it's related to those figures 15 we were just looking at, isn't it? 16 MR. WOJCZYNSKI: Yes, which was the purpose of 17 those figures, yes. 18 MR. TORRIE: Right. Okay. Now -- 19 MR. MAYER: Just while we're waiting, it seems 20 to me I recall you also mentioning one of the reasons 21 Wuskwatim could move ahead faster is you didn't have 22 to worry about the more complicated issue of 23 Bipole-III whereas you would with the other two? 24 MR. WOJCZYNSKI: Yes, that's right. I was 25 lumping that in with saying that we could do 1375 1 Wuskwatim earlier. And also we were saying from an 2 environmental point of view Wuskwatim was preferable 3 and from a risk point of view. But in all three of 4 those cases, the fact that Wuskwatim would have to 5 utilize the relatively small amount of AC 6 transmission and not require say a Bipole-III is a 7 factor in all three of those. That's absolutely 8 correct. 9 MR. TORRIE: Now, I do have, just in the 10 interest of not having to go back to the projecter, a 11 handout which is a representation of Figure 5.5 that 12 we had up a moment ago showing the energy available 13 for export under median flow conditions, the energy 14 from Wuskwatim when it's advanced to 2009, the 15 estimated on-peak export market line at that 10,500 16 GWh a year level and an arrow that points to the 17 domestic need date. 18 And we don't need to dwell on this figure. I 19 guess I'm just seeking -- I've left Gull out of the 20 representation here. Other than that, it was simply 21 an attempt to get something that wouldn't require the 22 projecter being up there that shows the basic 23 parameters that this figure illustrates. 24 And my question, just to get confirmation, is 25 that when we're talking about the economics of 1376 1 advancing Wuskwatim, we're talking about the 2 economics of the costs and revenues that occur up 3 until the domestic need date; is that right? I mean 4 we've already I think established it. 5 MR. WOJCZYNSKI: More or less. 6 MR. TORRIE: In what way is it not right? 7 MR. WOJCZYNSKI: We are trying to stay to the 8 fundamentals. 9 MR. TORRIE: Okay. That's fair. 10 MR. WOJCZYNSKI: You get residual values and 11 ongoing manifests. 12 MR. TORRIE: Does the residual value figure 13 into the internal rate of return of Wuskwatim 14 advancement? 15 MR. WOJCZYNSKI: Yes. It shows up in that 16 chart you had earlier. I didn't think you wanted to 17 go into that level of detail but I'm not sure that 18 it's critical to our discussion but we could 19 certainly explore it if you want. 20 MR. TORRIE: No. If you don't think it's 21 critical to our discussion. 22 MR. WOJCZYNSKI: No. 23 MR. TORRIE: Then who am I to disagree. What 24 I'd like to do then is show you another picture again 25 based on your evidence. I haven't introduced any new 1377 1 numbers. I've just drawn a picture of the medium low 2 forecast scenario version of Figure 5.5 if you like. 3 MR. WOJCZYNSKI: While that's being 4 distributed, the other element that is worth talking 5 about, and I briefly referred to it but for the sake 6 of simplicity didn't expand on it but I'm thinking 7 maybe I should have noted it a bit more strongly. We 8 had been undertaking extensive investigations and 9 studies into Wuskwatim including the environmental 10 studies we've got here including all the work that's 11 been done on the engineering and planning side and 12 the consultations and in this process itself. Those 13 are what we call sunk costs. And the sunk costs are 14 appreciable and the majority of those would have to 15 be repeated if we were to then restart with a later 16 Wuskwatim. So that is an important factor in those 17 cash flows that we talked about earlier. So that has 18 some significance as well. 19 MR. TORRIE: Thank you. And I should explain 20 and it's probably obvious to you. What I've done 21 here is I've moved the existing resources line from 22 Figure 5.5 up by changing the number from the basic 23 2002 forecast to the medium low forecast. And that 24 is the reason why the existing resources after 25 meeting the medium low load forecast are greater in 1378 1 this figure than in the previous one. 2 And I recognize you can't vouch for the 3 precise correctness of my representation but would 4 you agree that this -- I mean I know you've done this 5 type of calculation in your sensitivity analyses or 6 you must have, that that line represents 7 approximately what would happen to the existing 8 resources line under the medium low load forecast? 9 MR. WOJCZYNSKI: It looks roughly right and 10 subject to check, I'll accept that, yeah. 11 MR. TORRIE: And I've added Wuskwatim 12 unchanged from the previous graph, still coming on 13 line in 2009 on top of that. And the domestic need 14 date, and I think you're on the record at least in 15 the interrogatory responses on this, under the medium 16 low load forecast is the year 2035 roughly; is that 17 correct? 18 MR. WOJCZYNSKI: Roughly, yes. 19 MR. TORRIE: Okay. So when you say as you 20 have in response, or let me first of all confirm that 21 when you say that even with the medium low load 22 forecast, and that's all that's here by the way, I 23 haven't added any DSM, it's the medium low load 24 forecast and that's the only difference between this 25 and the previous chart. That when you assume that, 1379 1 that the internal rate of return of advancing 2 Wuskwatim really is hardly affected. It still comes 3 out close to 10 per cent, correct? 4 MR. WOJCZYNSKI: Just before we get into that, 5 I just want to double-check that, I believe you did 6 this but I will just double-check with you that in 7 this new figure, you still left in all the DSM that 8 we're already doing. 9 MR. TORRIE: All the DSM. 10 MR. WOJCZYNSKI: And supply side, that's all 11 still in there. 12 MR. TORRIE: That's all there. 13 MR. WOJCZYNSKI: And your question was there's 14 only a very small drop in the IRR in this scenario 15 for Wuskwatim, a drop of 0.3 per cent. 16 MR. TORRIE: And you're confirming that? 17 MR. WOJCZYNSKI: I am confirming that. 18 MR. TORRIE: But in this case, the domestic 19 need date and, therefore, the calculation of internal 20 rate of return of advancement goes out to the year 21 2035, correct? 22 MR. WOJCZYNSKI: The advancement period goes 23 out that far, yes. 24 MR. TORRIE: So when you say that the internal 25 rate of return, which under your basic forecast, the 1380 1 internal rate of return of advancement is 10 per cent 2 roughly and you achieve that by 2020, in the medium 3 low load forecast case, yeah, you still achieve 10 4 per cent but by 2035, right? 5 MR. WOJCZYNSKI: One might get the impression 6 that means that there are losses or that there aren't 7 profits long before that and that isn't the case. 8 The IRR is for the overall period of time. But as we 9 all know, when you are starting to use discount rates 10 around 10 per cent, what happens in the latter years 11 is not that important and it's more the earlier 12 years. So the present value technique, you know. So 13 what happens in those last few years is relatively 14 unimportant. 15 The main benefits and costs that count are 16 what happened in the earlier years. So it's not 17 particularly important whether it was 2035 or 2030 or 18 2025, it's the earlier years that are more important. 19 MR. TORRIE: Well, under this scenario, by the 20 year 2020, for example, would you have achieved a 21 positive rate of return? 22 MR. WOJCZYNSKI: I'm sorry, could you repeat 23 that? 24 MR. TORRIE: What you're basically saying then 25 is that, if I understand you, is that much sooner 1381 1 than 2035, you would already be approaching the 10 2 per cent rate of return? 3 MR. WOJCZYNSKI: What I'm saying is much 4 earlier than 2035 or 2033, we would be getting 5 profits out of Wuskwatim in a positive return. 6 MR. TORRIE: Do you know when that would 7 happen? 8 MR. WOJCZYNSKI: No. 9 MR. TORRIE: Would you agree with me it's 10 unlikely it would happen before the year 2020 given 11 that the output in this scenario of Wuskwatim until 12 the year 2020 is above that 10,500 GWh line? 13 MR. WOJCZYNSKI: I wouldn't necessarily agree 14 with you on that, no. 15 MR. TORRIE: Well, you did the sensitivity 16 study. You must have run these numbers? 17 MR. WOJCZYNSKI: Yes, but we don't do a 18 break-even analysis of when we start crossing over in 19 an IRR. That's not something that would be typically 20 done in this kind of a situation. 21 MR. TORRIE: But you're the one that just 22 introduced that as an argument. The point you are 23 making now is that in spite of the fact that the 24 internal rate of return gets calculated out to the 25 year 2035 instead of out to the year 2020, you would 1382 1 break even and make money much sooner than that. Now 2 is it important or not? 3 MR. WOJCZYNSKI: It is important but you're 4 the one who brought the issue up in the first place, 5 sir. You are the one who said it would take that 6 long and I was merely responding to your point. 7 MR. TORRIE: Right. And in responding to my 8 point, you said that you need to realize that you 9 would start making money much sooner than that and 10 I'm asking you how much sooner? 11 MR. WOJCZYNSKI: We would be making money 12 relatively soon after the inservice date but I can't 13 tell you exactly what that would be but we are 14 confident it would be much earlier than 2033. 15 MR. TORRIE: So you basically can't answer the 16 question? 17 MR. WOJCZYNSKI: If such a question had been 18 asked earlier, we could have tried to see if we could 19 answer that but not at this moment on the spot like 20 that, no. 21 MR. TORRIE: But would the answer not be 22 included right in the calculations you did in order 23 to come to the conclusion that the internal rate of 24 return of Wuskwatim advancement, even under a medium 25 low forecast scenario, would still be 10 per cent? 1383 1 MR. WOJCZYNSKI: Whenever you do a sequence 2 evaluation, you use an NPV. The NPV inherently is 3 the whole time period of the study. So it's a with 4 and without the whole time period. You don't do a 5 year by year evaluation where you calculate what's 6 happening in each year, taking some capital cost 7 contribution or something. You take an NPV of the 8 entire set of cash flow streams and you don't get a 9 year by year comparison of the kind that I think 10 you're thinking about. 11 MR. TORRIE: Okay. So the important thing is 12 where it ends up at the end of the period? 13 MR. WOJCZYNSKI: The overall economics from 14 the point of view of Manitoba is what's being looked 15 at here. 16 MR. TORRIE: And it ends up that's still 17 around 10 per cent? 18 MR. WOJCZYNSKI: It's around 10 per cent. 19 MR. TORRIE: And the end of the period is 20 2035? 21 MR. WOJCZYNSKI: Yes. 22 MR. TORRIE: So now you're saying it doesn't 23 really matter what happens sooner, it's what matters 24 over the whole period? 25 MR. WOJCZYNSKI: In the end, it's the whole 1384 1 period of time that matters. But what happens in 2 earlier years is important too, of course. 3 MR. TORRIE: But in doing this calculation, 4 you do have a year to year projection of export 5 revenues. We saw that in the earlier tables that we 6 were looking at, correct? 7 MR. WOJCZYNSKI: Yes. 8 MR. TORRIE: So let's just focus on the period 9 in this five times DSM you sometimes call it or 10 medium low forecast scenario and let's focus on the 11 period up until the year 2020. During which time at 12 least some, and in the early years, the majority of 13 the output of Wuskwatim is above the estimated 14 on-peak export market. 15 What did you assume with respect to the export 16 revenues for that power in doing your calculations of 17 the internal rate of return from this scenario? 18 MR. WOJCZYNSKI: The assumptions we used are 19 the ones we talked about earlier for export prices. 20 We would do a simulation with and without Wuskwatim 21 and applied those. And we had on-peak and off-peak 22 prices and long-term firm and it is the kind of 23 information we talked about earlier. 24 MR. TORRIE: Okay. So the prices that you 25 would have assumed for the power being sold above the 1385 1 line so to speak in this scenario would, in general, 2 with all of the caveats and the details that we're 3 trying to avoid, if we can, would in general be lower 4 than the prices that you get when you're selling into 5 the on-peak market, correct? 6 MR. WOJCZYNSKI: You have to remember that one 7 of the things we can do with having a dependable 8 supply like Wuskwatim is convert unfirm exports into 9 firm exports. So the thing you start looking at is 10 what happens under low flow conditions. So even 11 though a chart like this shows having -- and this is 12 at median conditions. You'll recall I started our 13 discussion by saying it's more complicated than just 14 looking at the median conditions. There's low flows, 15 there's median flows and there's high flows. 16 Under the low flows, meaning the drought, 17 you've got the additional dependable energy from 18 Wuskwatim is quite valuable to our system because it 19 allows us to make long-term firm exports earlier than 20 the simple chart would indicate. 21 MR. TORRIE: So are you telling me that when 22 you did the sensitivity analysis for the medium low 23 forecast case, you did a full simulation? 24 MR. WOJCZYNSKI: Yes, an absolute full 25 simulation. And that's what those tables represent. 1386 1 Those tables represent the results of those kind of 2 simulations. 3 MR. TORRIE: And would it be correct to say 4 though that one of the differences between that 5 simulation and the simulation under the basic 6 forecast, which was Figure 5.5 in your evidence, that 7 one of the differences between those simulations is 8 that the average price, especially in that period 9 between 2010 and 2020, would be lower in this 10 scenario than it was in the basic forecast scenario? 11 MR. WOJCZYNSKI: Overall, yes. 12 MR. TORRIE: And can you give me any sense of 13 how much lower? 14 MR. WOJCZYNSKI: No. 15 MR. TORRIE: Is that because it's secret or 16 because you wouldn't be able to? 17 MR. WOJCZYNSKI: It's because it's a detail 18 that we would have to go back and look at the work we 19 had done. And it's not that that's secret. You're 20 talking about the low here and I don't have -- that's 21 not the kind of information I would have at my 22 fingertips or readily available. And no one had 23 asked for it in the interrogatory process either. 24 MR. TORRIE: What would you expect would 25 happen -- what would be the rate impacts of not just 1387 1 this scenario but also the ones in your evidence for 2 Gull and Conawapa if you are in a situation where you 3 are producing significant amounts of power that are 4 greater than your annual capability to sell into the 5 on-peak export market? Would there be rate impacts 6 from getting into that area for Manitobans? 7 MR. WOJCZYNSKI: First of all, there's two 8 comments. One is that what we're looking at here is 9 a risk scenario. So this isn't our primary analysis, 10 this is the risk. So the medium low load forecast is 11 a risk scenario, it's not the base case. So this is 12 an already into, from the Wuskwatim economics point 13 of view, the risk we are assessing. So I wouldn't 14 expect it to do as well as our best forecast. 15 The second thing is, in terms of your 16 question, the rate, the financial analysis would not 17 look as positive under a medium low than it would a 18 base case. That's almost a corollary of the fact 19 that the economics aren't quite as good. 20 MR. TORRIE: I don't understand your answer in 21 terms of whether or not there would be rate impacts 22 which was my question. 23 MR. WOJCZYNSKI: I'm saying that there are 24 rate impacts positive with having Wuskwatim advanced 25 in the base case and there would be -- in the long 1388 1 run, there would be positive rate impacts with 2 Wuskwatim. Likely they wouldn't be as early if 3 you're under a medium low as if you're in another 4 case. But in terms of a long-term picture -- well, 5 in terms of your answer, I don't have the specifics 6 for that. 7 MR. TORRIE: And what do you think would 8 happen to the hurdle rate or the threshold value for 9 DSM in a scenario where you had significant amounts 10 of power above the annual capability to sell into the 11 on-peak export market? 12 MR. WOJCZYNSKI: If we had surplus, much 13 larger amounts of surplus, our marginal value would 14 be somewhat lower and that would apply to anything 15 we're doing, new supply, SSE, DSM or wind. 16 MR. TORRIE: But if I'm correct, and I was 17 going to come to this later but now might be an 18 appropriate time, this 6.15 cent per kilowatt hour 19 number which the DSM consultants were given to use as 20 a threshold for determining whether or not a 21 particular option is economic, if I understand where 22 that comes from, you simulate your system with an 23 increment of flat demand. You offset it with a 5/16 24 export sale and you look at the difference as a way 25 of determining the value that it takes to let's say 1389 1 shape the DSM for that export sale? 2 MR. WOJCZYNSKI: So what we did was we took a 3 sequence evaluation with and without the 5 by 16 and 4 we determined the difference in the overall sequence 5 benefits similar to the tables that we showed 6 earlier. 7 MR. TORRIE: The starting point then is 8 evaluation of the 5/16 export sale that offsets the 9 sequence in which you have an increment of flat 10 demand? 11 MR. WOJCZYNSKI: Yes. 12 MR. TORRIE: And presumably in any of these 13 scenarios, the Gull and Conawapa ones that we looked 14 at earlier or the low forecast risk scenario, as you 15 describe it, if you get into a situation where the 16 amount of power that you have available for export is 17 greater than the estimated on-peak or the limited 18 constrained on-peak export market, the value that you 19 would be starting with would presumably go down 20 starting within that calculation where you are coming 21 up with the value of DSM? 22 MR. WOJCZYNSKI: The more surplus we have in 23 our system and the less room in the tie line, yes, 24 the less value any incremental resource would have. 25 I should point out that we're at what we would call, 1390 1 there's something called a price volume curve into 2 the market. The more you sell into the market, the 3 price generally will be lower. But at the volumes 4 we're talking about here, there's a very flat or 5 relatively, yeah, flat price volume curve. So the 6 more you sell into the market, there is very little 7 impact on the price. 8 MR. TORRIE: Am I correct that in the 9 calculation of this 6.15 cent value that the 10 consultants were given to work with, there is an 11 implicit assumption that DSM has got a flat capacity 12 factor or a flat load duration curve? 13 MR. WOJCZYNSKI: We assumed a flat marginal, a 14 flat amount of load reduction. But in our system, 15 unlike the thermal systems, whether it's flat or 16 peaky isn't as big a difference because we use the 17 shaping capability of our system to reshape the 18 energy to make it more valuable. So that's accounted 19 for already in our analysis. 20 MR. TORRIE: Yes, but some DSM, especially in 21 the commercial and institutional sector, has almost 22 exactly the same shape as the 5/16 export market; is 23 that not true? 24 MR. WOJCZYNSKI: I can't speak for what the 25 individual DSM programs do. 1391 1 MR. TORRIE: Well, why do you think there's a 2 5/16 export market in the first place? Where does it 3 come from? 4 MR. WOJCZYNSKI: As I said, I know where that 5 comes from but that isn't necessarily correlated to 6 the individual DSM programs as the industrial sector. 7 So we can ask someone else to talk about the shape of 8 the individual programs, sir. 9 MR. TORRIE: I'm not talking about the 10 industrial sector, I'm talking about the commercial 11 building sector. 12 MR. WOJCZYNSKI: Or commercial. 13 MR. TORRIE: And isn't it true, or perhaps you 14 don't know, that the demand for electricity that 15 corresponds to the five day a week, 16 hour a day 16 period is largely dominated by the demand for 17 commercial and institutional facilities? 18 MR. WOJCZYNSKI: Yeah. And if the program had 19 the same shape as that particular load shape, then it 20 wouldn't actually have that same shape in terms of 21 being able to provide a reduction. 22 MR. TORRIE: But your consultants were only 23 given one number. No matter what the load shape of 24 the DSM that they were considering was, they were 25 just given one number to determine the economic -- 1392 1 whether it was economic or not? 2 MR. WOJCZYNSKI: The analysis that we're 3 talking about, you're talking about the DSM Potential 4 Study? 5 MR. TORRIE: Yes. 6 MR. WOJCZYNSKI: That analysis used an all in 7 energy price and because it was being used for 8 screening purposes, it didn't differentiate between 9 different load shapes. 10 MR. TORRIE: Excuse me just a minute. Because 11 it was being used for screening purposes, it didn't 12 differentiate between load shapes? Isn't that 13 exactly when in a screening process where you would 14 want to make sure that you were differentiating 15 between a DSM action that delivers 5/16 savings 16 versus a DSM action that delivers flat savings? 17 MR. WOJCZYNSKI: I was just going to go on to 18 explain that. 19 MR. TORRIE: Go ahead. 20 MR. WOJCZYNSKI: Thank you. So our system is 21 energy constrained not capacity constrained. It's 22 different than most other systems. So what's 23 important in our system is how much dependable energy 24 we have that is under drought and how much energy we 25 have on the average. The capacity element is 1393 1 relatively minor in the overall picture. 2 So in some cases, if you had a capacity factor 3 which was better or worse than using a straight 4 energy value could be a little bit positive or 5 negative in terms of the screening. But as I was 6 also going to go on to explain, when we go and do the 7 final adoption of DSM programs into our long-term 8 resource plan, there will be much more detailed 9 evaluations undertaken. And in those detailed 10 evaluations, there will be a lot of program design 11 work and a lot of more information including load 12 shapes and including capacity factors and seasonal 13 factors. And those would be incorporated into the 14 overall analysis. 15 And one of the intents of our analysis is that 16 we would look at a range of DSM program levels so 17 that we can use the latest information and detailed 18 evaluations to determine an appropriate level. 19 MR. TORRIE: Yes. But by the time you get to 20 program design, long ago, measures that might have 21 been included in the assessment of economic potential 22 had been left out of the cut because you had a number 23 that was charging something like a 5/16 DSM measure 24 with shaping costs that it will not incur? 25 MR. WOJCZYNSKI: As I said, we're energy 1394 1 constrained, and by far, the vast majority of any 2 impact benefits are included by using that energy 3 value. 4 MR. TORRIE: So it's your expert testimony 5 that in screening DSM options, it's appropriate to 6 use a single cost of saved electricity threshold in 7 this system? 8 MR. WOJCZYNSKI: My expert testimony is that 9 the energy value captures the large majority of the 10 benefit. 11 MR. TORRIE: And you don't think that there's 12 a significant differential benefit between DSM that 13 delivers savings in the 5/16 period versus DSM that 14 doesn't have that load shape? 15 MR. WOJCZYNSKI: There would be some 16 difference. 17 MR. TORRIE: But not significant? 18 MR. WOJCZYNSKI: Because we're not capacity 19 constrained, it would not be a large factor, no. The 20 shaping already treats DSM. As a matter of fact 21 through our analysis, we're giving the flat DSM. DSM 22 measures are the flat load shape. We're giving them 23 the benefit, in effect, of being able to move into 24 the on-peak. 25 So in effect, what we're doing is taking those 1395 1 DSM programs which are on-peak intensive which is I 2 think what you're concerned about and we're giving 3 them full value. And then those DSM measures which 4 are flat and are not on-peak intensive, we're giving 5 them the extra value from our system of being able to 6 put it into the on-peak. 7 So contrary to your supposition that we are 8 undervaluing the on-peak DSM measures, what we're 9 doing is providing additional value to the off-peak 10 DSM measures. 11 MR. TORRIE: Why would you do that? 12 MR. WOJCZYNSKI: Because that's the nature of 13 our system, sir. 14 MR. TORRIE: Did you also do the simulation 15 under different export price assumptions? Let me put 16 it this way. Let me rephrase that. Is the 6.15 cent 17 per kilowatt hour figure based on the exercise that 18 you described earlier start from the assumption that 19 that 5/16 sale that drives the analysis is occurring 20 at the expected export price? 21 MR. WOJCZYNSKI: Yes. 22 MR. TORRIE: And did you also run this for the 23 low and high scenarios? 24 MR. WOJCZYNSKI: We ran it for four export 25 price scenarios which is what we have said earlier is 1396 1 what we do. We use a reference case and three 2 others. 3 MR. TORRIE: Now, in the case of DSM -- 4 MR. WOJCZYNSKI: And that's how we evaluate 5 Wuskwatim and all our other resources. So we use 6 exactly the same techniques, exactly the same export 7 price forecasts, exactly the other same kind of 8 parameters and thus on an even-handed basis, compare 9 the DSM and the other kinds of supply SSE and 10 alternative energy like wind. 11 MR. TORRIE: And if you had used the high 12 export or when you used the high export price to do 13 the same calculation that led to the 6.15 cent per 14 kilowatt hour number, where did it come out? 15 MR. WOJCZYNSKI: We used the expected and got 16 the -- averaged it out into the 6.15 cent number. 17 MR. TORRIE: But did you also calculate what 18 the 6.15 number would be if you assumed the high 19 export price? 20 MR. WOJCZYNSKI: We did it using the four 21 scenarios and came up with an average for the sake of 22 the screening exercise. When we do the final program 23 evaluation, we would be looking just like we did in 24 our explanation for Wuskwatim, then we would look at 25 the individual levels. But in the end, having the 1397 1 four individual levels of export price doesn't give 2 you a different answer than having the problistic 3 weighted one because it's an average in the end. 4 And another way to put it is that if we'd have 5 used the high, we would have had something higher 6 than 6.15 and then we would also have had to have 7 used a low and it would be less than 6.15 and the 8 average would have been 6.15. 9 MR. TORRIE: Right. But you went to the 10 trouble in analysing Wuskwatim to show the numbers in 11 your evidence for both low and high export price ends 12 of the range. But in the DSM analysis, we just work 13 with averages; is that correct? 14 MR. WOJCZYNSKI: Looking at the alternatives, 15 this process is twofold. One is to look at the need 16 for Wuskwatim. In other words, is Wuskwatim economic 17 and profitable? That in itself is a major component. 18 The other major component is Wuskwatim compared to 19 the alternatives. 20 When comparing Wuskwatim to the alternatives, 21 as per the terms of reference for the CEC review of 22 this, that will be done at a screening level. 23 Naturally, when you're looking at the primary 24 alternative and looking at the need for part as 25 opposed to alternative part, then you have to go into 1398 1 more detail. That is what we did, sir. 2 MR. TORRIE: We're not quite connecting here. 3 Let me try a different approach to this same issue. 4 If it turns out that the export prices do follow the 5 high scenario, and some of the testimony I've heard 6 here in the last two days makes me think that that's 7 the general, at least informal sense in Manitoba 8 Hydro, would it not be true that if you had designed 9 your DSM programs based on looking for economic 10 measures according to that average price, that you 11 would have come up with a smaller number than if you 12 had designed them based on assuming the high export 13 price? 14 MR. WOJCZYNSKI: You're absolutely right. 15 MR. TORRIE: And this is one of the ways that 16 the high-priced scenario risk is different for DSM 17 than it is for supply. If the high export price 18 comes to pass for Wuskwatim, you'll make more money 19 than you would at the average. But if the high 20 export price comes to pass, you will have undershot 21 your DSM targets? 22 MR. WOJCZYNSKI: No, because what we're going 23 to be doing when we're at decision time, and we 24 review that decision periodically, is we do a 25 full-scale sequence evaluation. That's not what 1399 1 we're here for today. We are not, in this CEC 2 process, evaluating exactly how much DSM Manitoba 3 Hydro is going to undertake in the future. What 4 we're doing is a screening comparison. 5 The next stage in the process for looking at 6 DSM is, as we've explained earlier, is that we take 7 the screening results. Then Mr. Kuczek's area of the 8 company is going to develop various program packages 9 that are going to be high amounts and low amounts and 10 medium amounts of DSM and we're going to evaluate 11 those in an integrated resource planning kind of 12 approach where we look at various export rate levels 13 in more detail and we use all the latest information. 14 And then that's updated periodically. And if it 15 turns out over time that our export price forecast 16 increases, then we would update our amount of DSM 17 that we're looking at. 18 And anyways, you were mentioning that if we 19 went to the high forecast, then we'd have more DSM 20 screened in. At the same time, if you looked at the 21 low, you'd have less DSM. So at this time, using the 22 expected for the initial screening is appropriate, 23 and then as I said over time, we'll do more detailed 24 work on it. 25 You know the same can be said about supply 1400 1 measures. If we used only the high, we'd be looking 2 at a lot of other supply measures as well. 3 MR. TORRIE: Well, I think for those who are 4 keeping track, I have now completed two of my six 5 lines so I think we're not doing too badly. And the 6 remaining ones are probably shorter. 7 I'd like to ask you some questions about the 8 load forecasts. Is that you as well, Mr. Wojczynski? 9 MR. WOJCZYNSKI: No. The person responsible 10 for end-use, whether it's DSM or load forecast, 11 because they're interrelated, we do those together. 12 MR. TORRIE: I am sorry, so who should I be 13 directing these to? 14 MR. KUCZEK: That would be me. 15 MR. TORRIE: Mr. Kuczek, thank you. Correct 16 me if my impression is right but when I look at the 17 load forecast that Manitoba Hydro does, I see 18 basically three separate forecasts in that document. 19 One for the -- I mean I know there's some small 20 things like street lights and so on, but essentially, 21 most of the future projected demand is comprised of 22 the residential forecast and the general service 23 forecast, correct? 24 MR. KUCZEK: Yes. 25 MR. TORRIE: And the general service forecast 1401 1 in turn breaks down into a forecast of the top 2 customer demand and a forecast of what you call the 3 mass market demand? 4 MR. KUCZEK: Yes. 5 MR. TORRIE: Okay. So that's what I meant 6 when I said there's sort of three somewhat separate 7 exercises that are embodied in the load forecast; 8 would you agree? 9 MR. KUCZEK: Yes. 10 MR. TORRIE: Okay. Because I want to talk 11 about each of those three in turn. And I know that 12 there was a reference earlier in these proceedings. 13 Let's start with the residential forecast. There was 14 a reference earlier in these proceedings to end-use 15 modelling in the forecasting exercise. And am I 16 right that the end-use modelling that you do in your 17 forecasting exercise is actually restricted to the 18 residential forecast? 19 MR. KUCZEK: Yes. 20 MR. TORRIE: Now, why do you employ end-use 21 modelling in the residential forecast and not in 22 other parts of the forecast? Or maybe I could put it 23 more simply, why do you use end-use modelling in the 24 residential forecast? 25 MR. KUCZEK: We use it in the residential 1402 1 sector because we have the more detailed information. 2 Our database in that area is better right now. 3 MR. TORRIE: And why is your database better 4 in residential than it is in other sectors? 5 MR. KUCZEK: It's the result of the work we've 6 undertaken so far to acquire that database. 7 MR. TORRIE: Okay. And I feel like I'm in a 8 bit of a circle here. My question is why you use 9 end-use modelling in the residential sector and you 10 say, well, because we have the data and we have the 11 data because I guess we decided to have it and we're 12 back where we started. 13 Why did you decide to develop that kind of 14 capability there and not elsewhere? 15 MR. KUCZEK: We're considering developing in 16 the commercial side. At this point in time where 17 we're at with our load forecasting capability, it's 18 again an initiative that has continuously been 19 improved over the years, going back to 1970. And 20 today, we have a load forecast that uses end-use data 21 on the residential side and we haven't developed that 22 on the commercial side and we're looking at that. 23 MR. TORRIE: Okay. I have to ask this. I was 24 reading the Winnipeg Free Press and I'm not sure, 25 somebody was quoted as saying, 1403 1 "Well, for that to be true, every 2 forecaster in North America would have 3 to be wrong." 4 I'm not sure if it was someone on the panel that said 5 that. 6 MR. MAYER: Mr. Wojczynski said that. 7 MR. TORRIE: I have to ask this just as a bit 8 of a comic relief, Mr. Wojczynski. When did you 9 first get involved in the electric utility business? 10 I know you said you worked in the gas industry at one 11 time. 12 MR. WOJCZYNSKI: 1987. 13 MR. TORRIE: So maybe you don't remember this 14 or maybe you're too young to remember this, I never 15 thought I'd start saying that, but do you know that 16 there actually was a time, at least within my living 17 memory, when every forecaster in North America really 18 was wrong? 19 MR. WOJCZYNSKI: I'm very familiar with that. 20 MR. TORRIE: Okay. So you didn't mean to 21 imply when you said that every forecaster in North 22 America would have to be wrong for that to be true, 23 that that was something that could never happen? 24 MR. WOJCZYNSKI: Absolutely not. I was just 25 speaking of what was likely and unlikely. I also 1404 1 made a comment that was in the newspaper the day 2 earlier, I believe it was, that we can't not take 3 actions because of uncertainty. Life goes on and we 4 have to make decisions whether we're companies or 5 organizations. 6 MR. TORRIE: Yes, that's very nice. Why was 7 it that every forecaster was wrong in the 1970s? And 8 I'm asking that as sort of a technical question. I'm 9 not sure if Mr. Kuczek would like to address it or 10 both of you. But what was it in the mathematics of 11 forecasting that got so badly wrong at that time? 12 Let's provide a bit more of a framework if I may. 13 MR. WOJCZYNSKI: Can we ask you if you're 14 talking about energy price forecasting or are you 15 talking about load forecasting? 16 MR. TORRIE: I'm talking about electric load 17 forecasting. 18 MR. KUCZEK: What was the question? 19 MR. TORRIE: Let me back up and approach this 20 because this is actually getting away from comic 21 relief and into something a little bit more serious. 22 Setting aside the end-use modelling in the 23 residential sector, the forecast does employ the use 24 of econometrics, correct? 25 MR. KUCZEK: Correct. 1405 1 MR. TORRIE: And econometric forecasting 2 basically takes, as its inputs, things like forecasts 3 of GDP and forecasts of future population and 4 combines those with assumptions about the 5 relationship between those things, those two things 6 in particular, and the demand for electricity. 7 Is that sort of it, in a nutshell, the 8 essentials of it? 9 MR. KUCZEK: In general, yes. 10 MR. TORRIE: So for a forecast to go wrong in 11 the broadest terms, it has to be wrong in one or both 12 of those two ways. Either the inputs that the 13 forecasters are being given from the economic 14 forecasters on how much population growth there's 15 going to be or in how much GDP there's going to be, 16 either those have to be wrong or their assumptions 17 about the relationships between population and 18 economic growth and electricity have to be wrong. I 19 mean would you agree with that? That's sort of a 20 tautology. 21 MR. KUCZEK: You're asking a general question. 22 If you're basing your forecast on a formula and if 23 your formula is incorrect or the actual numbers that 24 you're using for coefficient, so are the independent 25 variables, clearly the result of that calculation is 1406 1 going to be wrong if the inputs are wrong. 2 MR. TORRIE: So which of those really was the 3 main reason why every forecaster in North America was 4 wrong in the 1970s? 5 MR. KUCZEK: I really can't speak for the 6 forecaster in the 1970s. 7 MR. TORRIE: I'm not asking you to speak for 8 them, I am asking you to talk about what they 9 produced. Looking back now with the advantage of 10 hindsight and the ability, which I presume you do all 11 the time, to analyze what makes good forecasts and 12 bad forecasts, why were the forecasts of the 1970s so 13 badly wrong? Were the economic growth projections 14 wrong or were the assumed relations between 15 electricity growth and economic growth wrong? Or do 16 you not know? It's fine if you don't know. I just 17 thought it would be interesting if you happen to 18 know? 19 MR. KUCZEK: You're asking me about something 20 that I really wasn't involved in back then. I do 21 believe that they used exponential relationships and 22 expected the load growth to continue to grow at that 23 rate. 24 MR. TORRIE: Let's go back to your forecasts. 25 MR. MAYER: That's right. We'd all like to 1407 1 know. 2 MR. TORRIE: I can give you my opinion but not 3 today. 4 MR. MAYER: This is opinion then, this isn't 5 fact. I thought the way you were asking the question 6 that this was a factual question that could be 7 answered either this or that. 8 MR. TORRIE: Oh, sure. 9 MR. MAYER: Can it? 10 MR. TORRIE: Yes. 11 MR. MAYER: Was his answer right? 12 MR. TORRIE: He didn't answer. He didn't 13 know. 14 MR. MAYER: Oh, okay. I thought I heard the 15 answer that it was the second of the two that you -- 16 MR. TORRIE: No, I don't think so. 17 MR. KUCZEK: I said I believe that -- well, 18 clearly I don't know for certain because I wasn't 19 involved and I don't know what the forecasts were and 20 I don't know what the equations were and I don't know 21 the methodologies used by all the forecasters back 22 then so I couldn't answer the question and be able to 23 give you an accurate answer. So the real answer is I 24 don't know. 25 I understand or I believe that they used 1408 1 exponential load forecasting formulas. But again, I 2 really don't know because I didn't see those 3 formulas. And we're talking about a lot of 4 forecasters so it's a rather difficult question to 5 answer. 6 MR. ADAMS: Unfortunately, I do remember and 7 fortunately I wasn't responsible for it. But I 8 think, from my recollection, and it is a little bit 9 clouded by hindsight, certainly in Manitoba and most 10 other Canadian utilities, load forecasting was a very 11 simplistic exercise. It basically took double log 12 paper, which is a mathematical term for those who 13 want to understand it, plotted the previous year's 14 history and continued up on previous year's history 15 and drew a straight line. And of course on a double 16 log paper, there's clearly going to be exponential. 17 It was not related in any way that I know of 18 to any sort of end-use analysis or any serious, what 19 do you call them, any scientific method, any sort of 20 analytical process. And you know what, it worked. 21 It worked for about ten years that I know of. And 22 then the world changed. The world changed in roughly 23 1973. And it was about that time Manitoba Hydro and 24 pretty well every other utility that I know of 25 started to introduce far more sophisticated 1409 1 econometric and other types of techniques which have 2 varying degrees of success since. And I am pretty 3 sure that what we do is fairly consistent with what 4 others in the business do today. 5 But going back and trying to analyze what 6 might have happened 35 years ago, I'm not too sure 7 it's particularly useful for going forward for the 8 next 20 years. 9 MR. TORRIE: I wish you hadn't said that last 10 sentence. I was really right with you up until that 11 point. I think it's always useful to try and learn 12 from history. 13 MR. ADAMS: Absolutely, and so do I. But I 14 think recent history is a lot more valuable than 15 ancient history. 16 MR. TORRIE: Well, I guess if you're thinking 17 that the world might change again, one would want to 18 look for the last time that it changed and see what 19 one might learn from that. 20 In any event, getting back to the Manitoba 21 Hydro forecast, Mr. Kuczek, and looking at the top 22 customer forecasts. Now, if I understand this, 23 there's sort of a short and a longer term period 24 involved in this one. And the short term period, you 25 have very intensive discussions with these customers 1410 1 in which you determine with them their plans for 2 expansion and contraction and so on. And for the 3 longer term period, as far as I can tell, you just 4 pull a number out of the air and add it onto the 5 forecast every year. I'm sure you're not going to 6 agree that that's a fair characterization but I 7 thought I'd give it a shot. 8 MR. KUCZEK: Do you mind repeating the 9 question? 10 MR. TORRIE: I was trying to summarize what I 11 gleaned from reading the top customer portion of the 12 forecast. And it looked to me like starting for the 13 2002 forecast, starting I believe in the year 2067 or 14 maybe it was 2078, the top customer forecast takes 15 whatever demand is already there from those customers 16 and adds 90 million kilowatt hours a year to it every 17 year, you know, until you hit the edge of the page 18 basically. 19 And for the period before that, on the other 20 hand, there is a much more customer communication 21 intensive exercise where you work with your existing 22 top customers to determine what you expect the demand 23 from that group will be over the next three or four 24 years or four or five years. 25 Is that a good description or an accurate 1411 1 description of the way the top customer forecast is 2 done? 3 MR. KUCZEK: Well, I'm not sure about the 4 longer term if I followed you there. 5 MR. TORRIE: Well, why don't you tell me how 6 do you come up with the longer term forecast for the 7 top customer category? 8 MR. KUCZEK: Well, I'll tell you how I see the 9 entire thing done, and it's similar to what you said, 10 but basically there's discussions that go on with 11 those customers to get an idea of what their future 12 plans are. And the future plans could include the 13 short term, longer term, whatever information we can 14 obtain from those customers. 15 To forecast into the forecasted period which 16 includes the 20 year period, we do extrapolate out 17 into that period what we believe is an appropriate 18 estimate of the forecast for that load growth given 19 all the information we have, the best information we 20 have on hand. And we don't use econometric models to 21 do that, no. 22 MR. TORRIE: Or any model? 23 MR. KUCZEK: We end up coming up with an 24 estimate of so many kilowatt hours a year and it's 25 less than the past. And again, that's based on the 1412 1 best information that we have available. 2 MR. TORRIE: But there's no particular models 3 employed in that exercise. It's expert judgment. 4 Would that be fair to say? 5 MR. KUCZEK: I would say that's a fair 6 statement. 7 MR. TORRIE: And in fact, in the 2002 load 8 forecast, it is 90 million kilowatt hours a year 9 starting in 2078; am I right? 10 MR. KUCZEK: I will assume your numbers are 11 correct. I am not familiar with the numbers of that 12 detail. 13 MR. TORRIE: Okay. So we had the end-use 14 model going on in the residential sector, we had the 15 expert judgment thing happening here with the top 16 customers. And then over in the final category, the 17 general service forecast, here we have an econometric 18 forecast, correct? 19 MR. KUCZEK: That's correct. 20 MR. TORRIE: And in the mass market forecasts, 21 the future demand for electricity is basically taking 22 population growth and Manitoba GDP growth as inputs, 23 correct? 24 MR. KUCZEK: It's taking what as input, I'm 25 sorry? 1413 1 MR. TORRIE: Manitoba GDP from the Manitoba 2 Hydro economic outlook. 3 MR. KUCZEK: Correct. 4 MR. TORRIE: And population also from the 5 Manitoba Hydro economic outlook. Are there any other 6 independent inputs to the geometric forecast? 7 MR. KUCZEK: I thought the general service 8 mass market, subject to being corrected here, it was 9 based on the GDP. And for the Manitoba service 10 territory, as we refer to it, in the '03/'04 11 forecast, we also used the real price of electricity. 12 And for the Winnipeg service territory, we use just 13 GDP. And that was a change from the '02/'03 14 forecast. 15 MR. TORRIE: Thank you. Now, I'm not sure if 16 there's much to be gained by going too much further 17 here. I wanted to make sure I understood. You've 18 already made it clear there's no end-use modelling 19 going on for the commercial and institutional 20 forecast exercise or for the non top customer portion 21 of the industrial market? 22 MR. KUCZEK: That's correct. 23 MR. TORRIE: And once you get the forecasts, 24 do you then try and see if you can represent it in an 25 end-use model as a way of seeing whether the whole 1414 1 thing makes any kind of sense in the real world or do 2 you just go with it? 3 MR. KUCZEK: There is judgment in that regard 4 used throughout the forecasting process including 5 looking at the independent variables and the 6 coefficients that you're using as well as some 7 statistical measures, the t-stance to give you some 8 indication of whether or not your variables that 9 you're using and coefficients are realistic. And of 10 course there's some judgment used as well. 11 MR. TORRIE: But no end-use modelling reality 12 check? 13 MR. KUCZEK: I am not sure I know what you 14 mean by that. 15 MR. TORRIE: Well, let's take commercial 16 buildings for example. Would you agree that the 17 electricity use in commercial buildings is typically 18 modelled on the basis of electricity use per square 19 metre of floor area? That's the sort of industry 20 modelling standard for that segment when it comes to 21 end-use modelling? 22 MR. KUCZEK: You were asking if there's an 23 industry standard to do that? 24 MR. TORRIE: No, not really an industry 25 standard. I was basically putting it to you that 1415 1 when end-use modelling is done, and perhaps Mr. 2 Fleming could contribute to this, when end-use 3 modelling is done of the commercial building sector, 4 the activity is usually tracked in terms of square 5 metres of floor area of different types of buildings. 6 And the electricity use is then modelled as 7 electricity use per square metre of floor area of 8 these different types of buildings for various 9 end-uses. That, in a nutshell, is the basic heart of 10 commercial building end-use modelling. 11 MR. KUCZEK: If you're using end-use 12 modelling, if you're using end-use forecasting 13 techniques in the commercial sector and if you have 14 that information, that would be an appropriate way to 15 do your forecasting. And as I mentioned earlier, 16 we're looking at moving towards using end-use 17 modelling for the commercial sector. 18 MR. TORRIE: So when you forecast electricity 19 demand in the mass market which includes those 20 commercial buildings, you are forecasting it on the 21 basis of inputs that include GDP and electricity 22 price, correct? 23 MR. KUCZEK: Yes. 24 MR. TORRIE: So the connection between that 25 way of looking at it in the end-use model would be 1416 1 how floor area is growing in relation to economic 2 output in the commercial and institutional segments 3 of the economy. Would you agree with that? 4 MR. KUCZEK: If you have the data, yes. 5 MR. TORRIE: Even if you don't have the data, 6 that's still going to be true, isn't it? 7 MR. KUCZEK: Can you repeat the question? I'm 8 sorry, I was being distracted back here. 9 MR. TORRIE: The connection between end-use 10 modelling and econometric modelling, at least the way 11 that you do it, would be understanding how floor area 12 grows in relation to economic output in the economy. 13 MR. KUCZEK: Yes, I believe there's a link. 14 MR. TORRIE: But right now, you don't have any 15 capability to do that at Manitoba Hydro, or am I 16 wrong? 17 MR. KUCZEK: To do the end-use modelling for 18 the commercial sector? 19 MR. TORRIE: To draw a connection between 20 economic growth in the commercial sector and growth 21 in actual physical activity as measured by floor 22 space of different building types. 23 MR. KUCZEK: Yeah. We do have problems with 24 data in terms of what the floor area growth is right 25 now in Manitoba. 1417 1 MR. TORRIE: Well, my understanding is that 2 never mind the floor area growth, you don't know what 3 the floor area is by building type either? 4 MR. KUCZEK: No, we don't have full data on 5 that. 6 MR. TORRIE: Okay. This I gather has just 7 never been a priority, understanding -- 8 MR. KUCZEK: As I mentioned earlier, we do 9 agree that that would be a good method for 10 forecasting the commercial sector, end-use 11 forecasting methods. And we're moving in that 12 direction and we have some data on it. We don't have 13 that much data that we would be confident in using 14 that method currently. 15 MR. TORRIE: I see. And I suppose similarly 16 in the industrial sector, outside of that top 17 customer category that we've discussed, one would be 18 interested in being able to track and understand 19 electricity use, at least at the two digit standard 20 industrial classification level, to be able to track 21 electricity use per dollar of output for different 22 industries over time and does Manitoba Hydro have the 23 ability to do that? 24 MR. KUCZEK: I'm sorry, you'll have to repeat 25 that question again. 1418 1 MR. TORRIE: Well again, just as we talked 2 about -- well, my question is whether or not you are 3 tracking economic output in Manitoba at the two digit 4 SIC level in the industrial sector and keeping track 5 of the relationship between output and electricity 6 demand at that level, are you doing that? 7 MR. KUCZEK: I believe we're not doing that. 8 We have the energy use in the two sectors. Just one 9 moment. I guess the one point that I should make is 10 we purchased Winnipeg Hydro in 2002 and so our 11 database with the City of Winnipeg load is, our 12 database is -- we don't have a good database on that 13 load. And so we're currently incorporating that into 14 our database right now. So it would be difficult for 15 us to do end-use forecasting on the commercial side 16 until we can achieve that. 17 MR. TORRIE: Weren't we talking about the 18 industrial sector or did I -- I might have phased 19 out. 20 MR. KUCZEK: Maybe I'm misunderstanding your 21 question. 22 MR. TORRIE: Okay. My question was whether or 23 not you had the capability at Manitoba Hydro to track 24 electricity use at the two digit standard industrial 25 classification level of the economy and compare that 1419 1 with output at the same level within the Manitoba 2 economy? 3 MR. KUCZEK: I believe the answer is no to 4 that. 5 MR. TORRIE: So we end up with a forecast then 6 which is based on assumed relationships between the 7 GDP of the province and electricity use but it's a 8 relationship that you have very little detailed 9 understanding of and very little detailed data with 10 respect to it. Would you agree with that? You don't 11 know the floor areas, you don't know the economic 12 output at the two digit level, you don't know the 13 relationship between electricity use per unit floor 14 area over time, you don't know the relationship of 15 electricity per industry and what's going on with 16 electricity productivity at the two digit level. And 17 yet still, you put out a forecast that has this high 18 level relationship between electricity and GDP and 19 expect everyone to, you know, bet a billion dollars 20 on it being right? 21 MR. KUCZEK: You are correct in the sense that 22 we don't know everything. What we do know is the 23 information that we have in hand. And as I mentioned 24 earlier, we have a load forecast methodology that's 25 been improved since the 1970s and it's continuously 1420 1 been improved on an annual basis. If you look at the 2 accuracy of our load forecast from the 1970s to the 3 current forecast, you'll see that it's been improved 4 considerably since then. 5 MR. TORRIE: Okay. 6 MR. ADAMS: Mr. Chairman, I take exception to 7 the comment that we're asking somebody to bet a 8 billion dollars on the assumption that we're right. 9 We do a tremendous amount of work to assess the 10 risks, the implications of being wrong, of being 11 better than we are estimating, of being worse than 12 we're estimating. 13 We asked the forecasters to do an evaluation 14 of the previous forecasts to the point where, at 15 least at the executive level in the company, we are 16 confident. We are not asking anybody to bet, we're 17 asking them to approve an investment that we are 18 confident will provide benefits to Manitobans. 19 MR. TORRIE: Now, I just have one on this load 20 forecast section, one question, I think it's just one 21 question left. And that has to do with the 22 generation of the medium low and the medium high and 23 particularly the medium low forecasts since we've 24 been discussing that one today. 25 I know that there are English descriptions in 1421 1 your forecasts and in your documents about how these 2 forecasts differ from the basic forecast. And you 3 talk about lower economic growth and lower population 4 growth and so on. But I'm wondering in terms of the 5 mathematics, especially of the mass market forecast, 6 what's the difference between the basic forecast and 7 the medium low forecast? Is it the inputs or is it 8 the assumed relationships between those inputs and 9 future electricity demand? 10 MR. KUCZEK: The inputs. 11 MR. TORRIE: So when you generate your medium 12 low forecast, it has embedded within it exactly the 13 same assumptions about the relationship between 14 economic growth and electricity demand that are 15 embedded within the basic forecast? 16 MR. KUCZEK: Yes. 17 MR. TORRIE: Okay. I think I've now done 18 three, maybe four of the six. And I don't know if 19 this is a time when you'd like to take your break or 20 if you'd like me to start in on another area? 21 THE CHAIRMAN: I think we can carry on for a 22 while. 23 MR. TORRIE: Okay. I want to ask some 24 questions about the demand-side management market 25 potential study. And I understand that, Mr. Fleming, 1422 1 this was a study that you played a central role in 2 it? 3 MR. FLEMING: We were the prime contractors on 4 the study. We had Marbac (ph) Resources from Ottawa 5 was directing us in a lot of the process. We've 6 worked with them in the past on similar projects. 7 And Kraftur Engineering for a specific industrial 8 experience as it was required in the industrial 9 forecast. 10 MR. TORRIE: And I had given you some advance 11 notice about one question I had in particular. 12 Turning to the industrial agricultural study first. 13 And I do have a handout that consists of an excerpt 14 from that study that I wanted to ask Mr. Fleming 15 about. 16 And what we have in this particular handout is 17 we have Exhibit 3.1 which is a table and Exhibit 3.4 18 which is a figure, both taken from the industrial 19 agricultural DSM market potential study. 20 And Mr. Fleming, the numbers in Exhibit 3.1, 21 as you know, are not correct. And perhaps I should 22 just allow you to enter into the record the corrected 23 numbers for this table. And I'm speaking 24 specifically about these columns that are labelled 25 GWh per million dollars of GDP for the various 1423 1 industries, but which clearly cannot be that. 2 MR. FLEMING: Certainly. And not only for the 3 advance warning, thanks, but also we did determine 4 just prior to the hearing session yesterday that 5 there was that problem. The graph is deemed correct 6 by Kraftur Engineering. The table itself apparently 7 was not the correct table and doesn't reflect the 8 same values as on the graph. So the values that are 9 depicted on the graph, Exhibit 3.4, are considered 10 correct. 11 MR. TORRIE: Would it be possible then to get 12 a corrected version of Exhibit 3.1? 13 MR. FLEMING: I did receive, from Kraftur 14 Engineering, a corrected version yesterday. I do 15 have that. 16 MR. TORRIE: May we have an undertaking for 17 that to be provided to the Commission, please? 18 THE CHAIRMAN: Mr. Fleming? 19 MR. FLEMING: I brought 20 copies. 20 MR. TORRIE: Oh, what a coincidence. 21 MR. FLEMING: I have copies of the 22 information. 23 MR. GREWAR: Are they available for 24 distribution now? 25 MR. FLEMING: Yes, they could be, would be. 1424 1 The exhibit includes the e-mail I received from 2 Kraftur Engineering at 2:24 yesterday morning, so 3 just prior to the start of these particular hearings. 4 In our review process of the industrial, came across 5 the error. 6 MR GREWAR: Mr. Chairman, if we could just 7 enter this as Hydro Exhibit MH-NCN 1006. 8 9 (EXHIBIT MH-NCN 1006: Corrected version of 10 Exhibit 3.1 from Kraftur Engineering) 11 12 MR. TORRIE: On the subject of exhibits, Mr. 13 Grewar, I'm not sure if it would be appropriate but 14 one of the tables I handed out today was not taken 15 directly from Hydro's evidence although it was based 16 solely on Hydro's evidence. And that was the one 17 titled "Wuskwatim Advancement With Medium Low 18 Forecast." And since it's been referred to in the 19 transcript, I wonder if it wouldn't be useful for it 20 to be entered as an exhibit as well. 21 MR. GREWAR: I think appropriate, Mr. 22 Chairman. We would enter it as TREE-RCM Exhibit 23 1001. 24 25 (EXHIBIT TREE-RCM 1001: Table titled 1425 1 "Wuskwatim Advancement With Medium Low 2 Forecast") 3 4 MR. TORRIE: Okay. So this is the first time 5 I've been able to look at these corrected numbers. 6 And I guess my question is if we look at Exhibit 3.4, 7 which is the figure that was on my handout, which you 8 say that they are now saying is correct, it was the 9 table that was wrong, right? 10 MR. FLEMING: Yes, that's my understanding, 11 yes. 12 MR. TORRIE: And what we have here is a graph 13 of electricity use per million dollars of GDP over 14 time for various industries. 15 MR. FLEMING: That's correct. 16 MR. TORRIE: Okay. And if I look at that 17 Exhibit 3.4, should I not be seeing the numbers that 18 are in the columns of the corrected table which you 19 just distributed for those same industries? 20 MR. FLEMING: I most certainly hope so. 21 MR. TORRIE: Well, I am afraid we're not quite 22 to the bottom of this yet then because when I look at 23 Exhibit 3.4, I see all the lines going up. And when 24 I look at the last three columns of your -- last four 25 columns of your corrected table, all the numbers are 1426 1 going down.